<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION JANUARY 30, 1996.
File Nos. 33-11047
and 811-4950
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-1A
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
Pre-Effective Amendment No. ____ ____
Post-Effective Amendment No. 18 X
and
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940
Amendment No. 18 X
KEYSTONE FUND FOR TOTAL RETURN
(formerly named Keystone America Fund For Total Return)
(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) of Rule 485
- --- on (date) pursuant to paragraph (b) of Rule 485
X 60 days after filing pursuant to paragraph (a)(i) of Rule 485
- ---
- --- on (date) pursuant to paragraph (a)(i) of Rule 485
- --- 75 days after filing pursuant to paragraph (a)(ii) of Rule 485
- --- on (date) pursuant to paragraph (a)(ii) of Rule 485
The Registrant has filed a declaration pursuant to Rule 24f-2 under the
Investment Company Act of 1940. A Rule 24f-2 Notice for Registrant's last fiscal
year was filed January 5, 1996.
<PAGE>
KEYSTONE FUND FOR TOTAL RETURN
CONTENTS OF
POST-EFFECTIVE AMENDMENT NO. 18
to
REGISTRATION STATEMENT
This Post-Effective Amendment No. 18 to Registration
Statement No. 33-11047/811-4950 consists of
the following pages, items of information, and documents:
The Facing Sheet
The Contents Page
The Cross-Reference Sheet
PART A
Prospectus
PART B
Statement of Additional Information
PART C
PART C - OTHER INFORMATION - ITEMS 24(a) and 24(b)
Financial Statements
Independent Auditors' Report
Listing of Exhibits
PART C - OTHER INFORMATION - ITEMS 25-32 - AND SIGNATURE PAGES
Number of Holders of Securities
Indemnification
Business and Other Connections
Principal Underwriter
Location of Accounts and Records
Signatures
Exhibits (including Powers of Attorney)
<PAGE>
KEYSTONE FUND FOR TOTAL RETURN
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
Pricing Shares
7 How to Buy Shares
Distribution Plans
Shareholder Services
8 How to Redeem Shares
9 Not applicable
10 Cover Page
11 Table of Contents
12 Not applicable
13 The Fund
Investment Objective and Policies
Investment Restrictions
Brokerage
Appendix
<PAGE>
KEYSTONE FUND FOR TOTAL RETURN
Cross-Reference Sheet continued.
Items in
Part B of
Form N-1A Statement of Additional Information Caption
- --------- -------------------------------------------
14 Trustees and Officers
15 Additional Information
16 Investment Manager
Investment Adviser
Principal Underwriter
Distribution Plans
Sales Charges
Additional Information
17 Brokerage
18 Declaration of Trust
19 Valuation of Securities
Distribution Plans
20 Distributions and Taxes
21 Principal Underwriter
22 Standardized Total Return and Yield Quotations
23 Financial Statements
<PAGE>
KEYSTONE FUND FOR TOTAL RETURN
PART A
PROSPECTUS
KEYSTONE FUND FOR TOTAL RETURN
PROSPECTUS MARCH , 1996
Keystone Fund for Total Return (formerly named Keystone America Fund for Total
Return) (the "Fund") seeks total return from a combination of capital growth and
income.
The Fund currently 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 information about securities
ratings, is contained in a 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
provided on this page.
THE FUND MAY INVEST UP TO 35% OF ITS ASSETS IN (I) LOWER RATED BONDS, COMMONLY
KNOWN AS "JUNK BONDS" AND/OR (II) BONDS ISSUED BY FOREIGN ISSUERS RATED BELOW
INVESTMENT GRADE; BOTH OF WHICH ENTAIL GREATER RISKS, INCLUDING DEFAULT RISK,
UNTIMELY INTEREST AND PRINCIPAL PAYMENTS, AND PRICE VOLATILITY, THAN THOSE FOUND
IN HIGHER RATED SECURITIES, AND MAY PRESENT PROBLEMS OF LIQUIDITY AND VALUATION.
INVESTORS SHOULD CAREFULLY CONSIDER THESE RISKS BEFORE INVESTING. SEE
"INVESTMENT OBJECTIVE AND POLICIES," PAGE 6; "RISK FACTORS," PAGE 7.
KEYSTONE FUND FOR TOTAL RETURN
200 BERKELEY STREET
BOSTON, MASSACHUSETTS 02116-5034
CALL TOLL FREE 1-800-343-2898
SHARES OF THE FUND ARE NOT DEPOSITS OR OBLIGATIONS OF, OR GUARANTEED OR
ENDORSED BY, ANY BANK, AND SHARES ARE NOT FEDERALLY INSURED BY THE FEDERAL
DEPOSIT INSURANCE CORPORATION, THE FEDERAL RESERVE BOARD OR ANY OTHER AGENCY.
TABLE OF CONTENTS
Page
Fee Table 2
Financial Highlights 3
The Fund 6
Investment Objective and Policies 6
Investment Restrictions 7
Risk Factors 7
Pricing Shares 10
Dividends and Taxes 11
Fund Management and Expenses 12
How to Buy Shares 14
Alternative Sales Options 15
Contingent Deferred Sales Charge
and Waiver of Sales Charges 18
Distribution Plans 20
How to Redeem Shares 21
Shareholder Services 23
Performance Data 25
Fund Shares 25
Additional Information 26
Additional Investment Information (i)
Exhibit A A-1
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 REPRESENTTION TO THE
CONTRARY IS A CRIMINAL OFFENSE.
FEE TABLE
KEYSTONE FUND FOR TOTAL RETURN
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;" "Distribution Plans;" and "Shareholder Services."
<TABLE>
<CAPTION>
CLASS A SHARES CLASS B SHARES CLASS C SHARES
FRONT END BACK END LEVEL LOAD
LOAD OPTION LOAD OPTION(1) OPTION(2)
SHAREHOLDER TRANSACTION EXPENSES --------- --------- ---------
<S> <C> <C> <C>
Sales Charge ...................................... 5.75%(3) None None
(as a percentage of offering price)
Contingent Deferred Sales Charge .................. 0.00%(4) 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)(5) $10.00 $10.00 $10.00
ANNUAL FUND OPERATING EXPENSES(6)
(as a percentage of average net assets)
Management Fees ................................... 0.65% 0.65% 0.65%
12b-1 Fees ........................................ 0.25% 1.00%(7) 1.00%(7)
Other Expenses .................................... 0.79% 0.82%(6) 0.82%
---- ---- ----
Total Fund Operating Expenses ..................... 1.69% 2.47% 2.47%
==== ==== ====
EXAMPLES(8) 1 YEAR 3 YEARS 5 YEARS 10 YEARS
------ ------- ------- --------
You would pay the following expenses on a $1,000 investment, assuming (1) 5%
annual return and (2) redemption at the end of each period:
Class A .................................................................. $74 $108 $144 $246
Class B .................................................................. $25 $ 77 $132 N/A
Class C .................................................................. $25 $ 77 $132 $281
You would pay the following expenses on the same investment, assuming no
redemption at the end of each period:
Class A .................................................................. $74 $108 $144 $246
Class B .................................................................. $75 $107 $152 N/A
Class C .................................................................. $35 $ 77 $132 $281
AMOUNTS SHOWN IN THE EXAMPLE SHOULD NOT BE CONSIDERED A REPRESENTATION OF PAST OR FUTURE EXPENSES. ACTUAL EXPENSES MAY BE GREATER
OR LESS THAN THOSE SHOWN.
- ---------------
(1) 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.
(2) 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.
(3) The sales charge applied to purchases of Class A shares declines as the amount invested increases. See "Class A Shares."
(4) 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 "Class A
Shares" and "Contingent Deferred Sales Charge and Waiver of Sales Charges" for an explanation of the charge.
(5) There is no fee for exchange orders received by the Fund directly from a shareholder over the Keystone Automated Response
Line ("KARL"). (For a description of KARL, see "Shareholder Services.")
(6) Expense ratios are for the year ended November 30, 1995, except "Other Expenses" have been restated to reflect estimated
future costs. The expense ratio includes indirectly paid expenses for the year ended Nov. 30, 1995. Excluding indirectly
paid expenses, the expense ratio would have been 1.67%.
(7) Long term shareholders may pay more than the economic equivalent of the maximum front end sales charges permitted by the
National Association of Securities Dealers, Inc. ("NASD").
(8) 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>
FINANCIAL HIGHLIGHTS
KEYSTONE FUND FOR TOTAL RETURN
CLASS A SHARES
(FOR A SHARE OUTSTANDING THROUGHOUT THE YEAR)
The following table contains important financial information relating to the
Fund and has been audited by KPMG Peat Marwick LLP, the Fund's independent
auditors. The table appears in the Fund's 1995 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 that will be made available upon request and without charge.
<TABLE>
<CAPTION>
FEBRUARY 13, 1987
(COMMENCEMENT OF
YEAR ENDED NOVEMBER 30, OPERATIONS) TO
---------------------------------------------------------------------- NOVEMBER 30,
1995 1994 1993 1992 1991 1990 1989 1988 1987
---- ---- ---- ---- ---- ---- ---- ---- -----------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE
BEGINNING OF PERIOD ...... $ 11.75 $ 12.31 $ 12.06 $ 11.45 $ 10.29 10.89 $ 9.41 $ 8.59 $ 10.00
------ ------ ------ ------ ------ ------ ------ ------ ------
Income from investment operations:
Net investment income ...... 0.25 0.24 0.21 0.23 0.34 0.41 0.42 0.46 0.30
Net gains (losses) on
securities ................ 2.80 (0.56) 1.31 1.19 1.38 (0.61) 2.01 0.89 (1.47)
------ ------ ------ ------ ------ ------ ------ ------ ------
Total from investment
operations ................. 3.05 (0.32) 1.52 1.42 1.72 (0.20) 2.43 1.35 (1.17)
------ ------ ------ ------ ------ ------ ------ ------ ------
Less distributions:
Dividends from net
investment income ........ (0.25) (0.24) (0.21) (0.23) (0.35) (0.40) (0.42) (0.53) (0.24)
Distributions in excess
of net investment (0.07) 0.00 (0.03) (0.05) (0.05) 0.00 0.00 0.00 0.00)
Distributions from
capital gains .............. (0.65) 0.00 (1.03) (0.53) (0.16) 0.00 (0.53) 0.00 0.00
------ ------ ------ ------ ------ ------ ------ ------ ------
Total distributions ........ (0.97) (0.24) (1.27) (0.81) (0.56) (0.40) (0.95) (0.53) (0.24)
------ ------ ------ ------ ------ ------ ------ ------ ------
NET ASSET VALUE END OF
PERIOD ..................... $ 13.83 $ 11.75 $ 12.31 $ 12.06 $ 11.45 10.29 $ 10.89 $ 9.41 $ 8.59
======= ======= ======= ======= ======= ====== ======= ======= =======
TOTAL RETURN (a) ........... 26.57% (2.65)% 12.67% 12.56% 16.70% 1.85)% 26.17% 15.98% (11.94)%
RATIOS/SUPPLEMENTAL DATA
RATIOS TO AVERAGE NET ASSETS:
Total expenses ........... 1.69%(d) 1.59% 1.85% 1.85% 1.88% 2.00%(b)2.00%(b) 1.47%(b) 1.00%(b)(c)
Net investment incom ..... 1.94% 1.93% 1.63% 1.87% 2.98% 3.85% 3.94% 4.87% 4.94%(c)
Portfolio turnover rate .... 77% 57% 92% 66% 43% 51% 50% 64% 16%
NET ASSETS END OF
PERIOD (THOUSANDS) ....... $27,037 $23,162 $26,367 $23,607 $22,974 22,080 $22,764 $20,735 $ 7,672
(a) Exluding applicable sales charges.
(b) Figure is net of expense reimbursement by Keystone in connection with voluntary expense limitations. Before the expense
reimbursement, the "Ratio of total expenses to average net assets" would have been 2.41%, 2.48%, 2.92%, and 4.77% (on an
annualized basis), respectively, for the years ended 1990, 1989, 1988 and the period from February 13, 1987 (Commencement of
Operations) to November 30, 1987.
(c) Annualized for the period April 14, 1987 (Commencement of investment Operations) to November 30, 1987.
(d) The expense ratio includes indirectly paid expenses for the year ended November 30, 1995. Excluding indirectly paid expenses,
the expense ratio would have been 1.67%.
</TABLE>
FINANCIAL HIGHLIGHTS
KEYSTONE FUND FOR TOTAL RETURN
CLASS B SHARES
(FOR A SHARE OUTSTANDING THROUGHOUT THE YEAR)
The following table contains important financial information relating to the
Fund and has been audited by KPMG Peat Marwick LLP, the Fund's independent
auditors. The table appears in the Fund's 1995 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 that will be made available upon request and without charge.
FEBRUARY 1, 1993
YEAR ENDED NOVEMBER 30, (DATE OF INITIAL PUBLIC
------------------------ OFFERING) TO
1995 1994 NOVEMBER 30, 1993
------------ ---------- ------------------------
NET ASSET VALUE BEGINNING
OF PERIOD ................ $11.77 $12.32 $12.65
------ ------ ------
Income from investment
operations:
Net investment income .... 0.15 0.15 0.10
Net gains (losses) on
securities ............... 2.82 (0.56) 0.74
------ ------ ------
Total from investment
operations ............... 2.97 (0.41) 0.84
------ ------ ------
Less distributions:
Dividends from net
investment income ........ (0.15) (0.14) (0.10)
Distributions in excess of
net investment income .... (0.10) 0.00 (0.04)
Distributions from capital
gains .................... (0.65) 0.00 (1.03)
------ ------ ------
Total distributions ...... (0.90) (0.14) (1.17)
------ ------ ------
NET ASSET VALUE END OF
PERIOD ................... $13.84 $11.77 $12.32
====== ====== ======
TOTAL RETURN (a) ......... 25.59% (3.36)% 6.68%
RATIOS/SUPPLEMENTAL DATA
RATIOS TO AVERAGE NET ASSETS:
Total expenses ......... 2.47%(c) 2.31% 2.64%(b)
Net investment income .. 1.06% 1.27% 0.84%(b)
Portfolio turnover rate .. 77% 57% 92%
------ ------ ------
NET ASSETS END OF PERIOD
(THOUSANDS) .............. $20,605 $7,314 $4,283
======= ====== ======
(a) Excluding applicable sales charges.
(b) Annualized for the period February 1, 1993 (Date of Initial Public Offering)
to November 30, 1993.
(c) The expense ratio includes indirectly paid expenses for the year ended
November 30, 1995. Excluding indirectly paid expenses, the expense ratio
would have been 2.46%.
<PAGE>
FINANCIAL HIGHLIGHTS
KEYSTONE FUND FOR TOTAL RETURN
CLASS C SHARES
(FOR A SHARE OUTSTANDING THROUGHOUT THE YEAR)
The following table contains important financial information relating to the
Fund and has been audited by KPMG Peat Marwick LLP, the Fund's independent
auditors. The table appears in the Fund's 1995 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 that will be made available upon request and without charge.
FEBRUARY 1, 1993
YEAR ENDED NOVEMBER 30, (DATE OF INITIAL PUBLIC
------------------------ OFFERING) TO
1995 1994 NOVEMBER 30, 1993
---------- ---------- -----------------------
NET ASSET VALUE
BEGINNING OF PERIOD .... $11.78 $12.33 $12.65
----- ----- -----
Income from investment
operations:
Net investment income .. 0.16 0.15 0.10
Net gains (losses) on
securities ............. 2.81 (0.56) 0.75
----- ----- -----
Total from investment
operations ............. 2.97 (0.41) 0.85
----- ----- -----
Less distributions:
Dividends from net
investment income ...... (0.16) (0.14) (0.10)
Distributions in excess
of net investment income (0.09) 0.00 (0.04)
Distributions from
capital gains .......... (0.65) 0.00 (1.03)
----- ----- -----
Total distributions .... (0.90) (0.14) (1.17)
----- ----- -----
NET ASSET VALUE END OF
PERIOD ................. $13.85 $11.78 $12.33
====== ====== ======
TOTAL RETURN (a) ....... 25.57% (3.36)% 6.76%
RATIOS/SUPPLEMENTAL DATA
RATIOS TO AVERAGE NET ASSETS:
Total expenses ....... 2.47%(c) 2.34% 2.64%(b)
Net investment income 1.16% 1.21% 0.83%(b)
Portfolio turnover rate 77% 57% 92%
----- ----- -----
NET ASSETS END OF PERIOD
(THOUSANDS) ............ $9,503 $5,968 $5,030
====== ====== ======
(a) Excluding applicable sales charges.
(b) Annualized for the period February 1, 1993 (Date of Initial Public Offering)
to November 30, 1993.
(c) The expense ratio includes indirectly paid expenses for the year ended
November 30, 1995. Excluding indirectly paid expenses, the expense ratio
would have been 2.44%.
<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"), the Fund's 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
The Fund seeks total return from a combination of capital growth and income.
PRINCIPAL INVESTMENTS
Under ordinary circumstances, the Fund will invest principally in dividend
paying common stocks, preferred stocks and securities convertible into common
stocks. Non-dividend paying common stocks may also be owned by the Fund if, in
Keystone's judgment, that is consistent with or will enhance the Fund's ability
to achieve its objective. The Fund may invest up to 50% of its assets in foreign
securities issued by issuers located in developed countries as well as emerging
markets countries. For this purpose, countries with emerging markets are
generally those where the per capita income is in the low to middle ranges, as
determined, from time to time, by the International Bank for Reconstruction and
Development ("World Bank").
The Fund may invest up to 35% of its total assets in debt securities of U.S.
and foreign issuers, including secured and unsecured debt obligations, of any
assigned rating by Standard & Poor's Corporation ("S&P") or Moody's Investors
Service, Inc. ("Moody's") or unrated. The Fund may also invest in non-investment
grade rated zero coupon and payment-in-kind ("PIK") securities.
The Fund may enter into repurchase and reverse repurchase agreements, purchase
and sell securities and currencies on a when issued and delayed delivery basis
and purchase or sell securities on a forward commitment basis, write covered
call and put options and purchase call and put options to close out existing
positions and may employ new investment techniques with respect to such options.
The Fund may also enter into currency and other financial futures contracts and
related options transactions for hedging purposes and not for speculation, and
may employ new investment techniques with respect to such futures contracts and
related options.
OTHER ELIGIBLE SECURITIES
The Fund may invest up to 35% of its total assets under ordinary circumstances
and (when, in Keystone's opinion, market conditions warrant) up to 100% of its
assets for temporary defensive purposes in the following types of money market
instruments: (1) commercial paper, including master demand notes, which at the
date of investment is rated A-1, the highest grade, by S&P, PRIME-1, the highest
grade, by Moody's or, if not rated by such services, is issued by a company
which 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 United States ("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; and (4) obligations issued or guaranteed by
the U.S. government or by any agency or instrumentality of the U.S.
The Fund may also make temporary investments in debt securities and high grade
preferred stocks for defensive purposes when it believes market conditions
warrant.
The Fund intends to follow policies of the Securities and Exchange Commission
as they are adopted from time to time with respect to illiquid securities,
including, at this time, (1) treating as illiquid, securities which may not be
sold or disposed of in the ordinary course of business within seven days at
approximately the value at which the Fund has valued the investment on its books
and (2) limiting its holdings of such securities to 15% of net assets.
The Fund may invest in restricted securities, including securities eligible
for resale pursuant to Rule 144A under the Securities Act of 1933 (the "1933
Act"). Generally, Rule 144A establishes a safe harbor from the registration
requirements of the 1933 Act for resales by large institutional investors of
securities not publicly traded in the U.S. The Fund intends to purchase Rule
144A securities when such securities present an attractive investment
opportunity and otherwise meet the Fund's selection criteria. The Board of
Trustees has adopted guidelines and procedures pursuant to which the liquidity
of the Fund's Rule 144A securities is determined by Keystone and the Board of
Trustees monitors Keystone's implementation of such guidelines and procedures.
At the present time, the Fund cannot accurately predict exactly how the market
for Rule 144A securities will develop. A Rule 144A security that was readily
marketable upon purchase may subsequently become illiquid. In such an event, the
Board of Trustees will consider what action, if any, is appropriate.
For further information about the types of investments and investment
techniques available to the Fund, including the risks associated therewith, see
the sections of this prospectus entitled "Risk Factors" and "Additional
Investment Information" and the statement of additional information.
Of course, there can be no assurance that the Fund will achieve its investment
objective since there is uncertainty in every investment.
FUNDAMENTAL NATURE OF INVESTMENT OBJECTIVE
The Fund's investment objective is fundamental and may not be changed without
the vote of a majority (as defined in the Investment Company Act of 1940 ("1940
Act")) of the Fund's outstanding shares.
INVESTMENT RESTRICTIONS
The Fund has adopted the fundamental restrictions set forth below, which may
not be changed without the vote of a majority (as defined in the 1940 Act) of
the Fund's outstanding shares. These restrictions and certain other fundamental
restrictions are set forth in the statement of additional information.
The Fund may not: (1) invest more than 5% of its total assets in the
securities of any one issuer (other than U.S. government securities), except
that up to 25% of its total assets may be invested without regard to this limit;
(2) borrow, except from banks for temporary or emergency purposes in aggregate
amounts up to one-third of the value of the Fund's net assets and/or enter into
reverse repurchase agreements; and (3) concentrate its investments in any
particular industry.
RISK FACTORS
Like any investment, your investment in the Fund involves some degree of risk.
Before you buy shares of the Fund, you should carefully evaluate your ability to
assume the risks your investment in the Fund poses. You can lose money by
investing in the Fund. Your investment is not guaranteed. A decrease in the
value of the Fund's portfolio securities can result in a decrease in the value
of your investment.
The Fund seeks to provide growth of capital by investing principally in
dividend paying common stocks, preferred stocks and securities convertible into
common stocks. The Fund is best suited to patient investors who can afford to
maintain their investment over a relatively long period of time, and who are
seeking a fund which is growth oriented and has the potential for returns. The
Fund involves risk and is not an appropriate investment for conservative
investors who are seeking preservation of capital and/or income.
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".
FUND RISKS. Investing in common stocks, particularly those having growth
characteristics, frequently involves greater risks (and possibly greater
rewards) than investing in other types of securities. Common stock prices tend
to be more volatile and companies having growth characteristics may sometimes be
unproven.
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.
A need for cash due to large liquidations from the Fund when the prices of the
securities in which the Fund invests are declining could result in losses to the
Fund.
FOREIGN RISK. Investing in securities of foreign issuers generally involves
greater risk than investing in securities of domestic issuers for the following
reasons: (1) there may be less public information available about foreign
companies than is available about U.S. companies; (2) foreign companies are not
generally subject to the uniform accounting, auditing and financial reporting
standards and practices applicable to U.S. companies; (3) foreign stock markets
have less volume than the U.S. market, and the securities of some foreign
companies are much less liquid and much more volatile than the securities of
comparable U.S. companies; (4) foreign securities transactions may involve
higher brokerage commissions; (5) there may be less government regulation of
stock markets, brokers, listed companies and banks in foreign countries than in
the U.S.; (6) the Fund may incur fees on currency exchanges when it changes
investments from one country to another; (7) the Fund's foreign investments
could be affected by expropriation, confiscatory taxation, nationalization,
establishment of currency exchange controls, political or social instability or
diplomatic developments; (8) fluctuations in foreign exchange rates will affect
the value of the Fund's investments, the value of dividends and interest earned,
gains and losses realized on the sale of securities, net investment income and
unrealized appreciation or depreciation of investments; and (9) interest and
dividends on foreign securities may be subject to withholding taxes in a foreign
country that could result in a reduction of net investment income available for
distribution.
Investing in securities of issuers in emerging markets countries involves
exposure to economic systems that are generally less mature and political
systems that are generally less stable than those of developed countries. In
addition, investing in companies in emerging markets countries may also involve
exposure to national policies that may restrict investment by foreigners and
undeveloped legal systems governing private and foreign investments and private
property. The typically small size of the markets for securities issued by
companies in emerging markets countries and the possibility of a low or
nonexistent volume of trading in those securities may also result in a lack of
liquidity and in price volatility of those securities.
NON-INVESTMENT GRADE BONDS
The Fund currently has the authority to invest up to 35% of its assets in
foreign and domestic high yield, high risk bonds and similar securities. The
degree to which the Fund will hold such securities will, among other things,
depend upon Keystone's economic forecast and its judgment as to the comparative
values offered by high yield, high risk securities and higher quality issues.
The Fund intends to invest a portion of its assets aggressively and seeks to
maximize return on such assets over time from a combination of many factors,
including high current income and capital appreciation from high yield, high
risk securities. Such aggressive investing involves risks that are greater than
the risks of investing in higher quality debt securities. These risks are
discussed in greater detail below and include risks from (1) interest rate
fluctuation; (2) changes in credit status, including weaker overall credit
conditions of issuers and risks of default; (3) industry, market and economic
risk; (4) volatility of price resulting from broad and rapid changes in the
value of underlying securities; and (5) greater price variability and credit
risks of certain high yield, high risk securities, such as zero coupon bonds and
PIK securities.
While these risks provide the opportunity for the Fund to maximize return over
time on a portion of its assets, they may result in greater upward and downward
movement of the net asset value per share of the Fund. As a result, they should
be carefully considered by investors.
The high yield, high risk securities in which the Fund may invest generally
will be rated BB or lower by S&P or BA or lower by Moody's. If unrated, such
securities will be deemed by Keystone to be of comparable quality. The Fund may
invest in securities that are rated (or unrated but of comparable quality to
securities rated) as low as D by S&P and C- by Moody's. The descriptions at the
back of this prospectus describe the S&P and Moody's rating categories.
The Fund intends to invest in D rated debt (or unrated securities deemed to be
of comparable quality to 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.
Investment in higher yielding, higher risk securities involves certain risks,
including the following:
(1) securities rated BB or lower by S&P or BA or lower by Moody's (or comparable
unrated securities) are considered predominantly speculative with respect to
the ability of the issuer to meet principal and interest payments;
(2) the value of high yield, high risk securities may be more susceptible to
real or perceived adverse economic, company or industry conditions than is
the case for higher quality securities;
(3) adverse market, credit or economic conditions could make it difficult at
certain times to sell certain high yield, high risk securities held by the
Fund;
(4) the secondary market for high yield, high risk securities may be less liquid
than the secondary market for higher quality securities, which may affect
the value of certain high yield, high risk securities held by the Fund at
certain times; and
(5) zero coupon and PIK high yield, high risk securities may be subject to
greater changes in value due to market conditions, the absence of a cash
interest payment and the tendency of issuers of such securities to have
weaker overall credit conditions than issuers of other high yield, high risk
securities.
These characteristics of high yield, high risk securities make them generally
more appropriate for long term investment.
If and when the Fund invests in zero coupon bonds, the Fund does not expect to
have enough zero coupon bonds to have a material effect on dividends. The Fund
has undertaken to a state securities authority to disclose that zero coupon
securities pay no interest to holders prior to maturity, and the interest on
these securities is reported as income to the Fund and distributed to its
shareholders. These distributions must be made from the Fund's cash assets or,
if necessary, from the proceeds of sales of portfolio securities. The Fund will
not be able to purchase additional income producing securities with cash used to
make such distributions, and its current income ultimately may be reduced as a
result.
Since the Fund may take an aggressive approach to investing a portion of its
assets, Keystone will attempt to maximize the return by controlling risk through
diversification, credit analysis, review of sector and industry trends, interest
rate forecasts and economic analysis. Keystone's analysis of securities focuses
on factors such as interest or dividend coverage, asset values, earnings
prospects and the quality of management of the issuer. In making investment
recommendations, Keystone also considers current income, potential for capital
appreciation, maturity structure, quality guidelines, coupon structure, average
yield, percentage of zeros and PIKs, percentage of non-accruing items and yield
to maturity.
Keystone may consider the ratings of Moody's and S&P assigned to various
securities, but will not rely on ratings assigned by Moody's and S&P for the
following reasons: (1) Moody's and S&P assigned ratings are based largely on
historical financial data and may not accurately reflect the current financial
outlook of companies; (2) there can be large differences among the current
financial conditions of issuers within the same rating category; and (3) a large
portion of the high yield, high risk securities in which the Fund will invest
will be unrated.
Income and yields on high yield, high risk securities, as on all securities
will fluctuate over time.
OTHER CONSIDERATIONS. The Fund does not, by itself, constitute a balanced
investment plan. The Fund may be appropriate as part of an overall investment
program. Investors may wish to consult their financial advisers when considering
what portion of their total assets to invest in equity and debt securities.
Past performance should not be considered representative of results for any
future period of time.
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 purposes of pricing Fund shares)
except on days when changes in the value of the Fund's portfolio securities do
not affect the current net asset value of its shares. The Exchange is currently
closed on weekends, New Year's Day, Presidents' Day, Good Friday, Memorial Day,
Independence Day, Labor Day, Thanksgiving Day and Christmas Day. The net asset
value per share of the Fund is arrived at by determining the value of the Fund's
assets, subtracting its liabilities and dividing the result by the number of its
shares outstanding.
Current values for the Fund's portfolio securities are determined in the
following manner:
1. securities that are traded on a national securities exchange or on the
over-the-counter National Market System ("NMS") are valued on the basis of the
last sales price on the exchange where primarily traded or NMS prior to the
time of the valuation, provided that a sale has occurred and that this price
reflects current market value according to procedures established by the Board
of Trustees;
2. securities traded in the over-the-counter market, other than NMS, are
valued at the mean of the bid and asked prices at the time of valuation;
3. instruments having maturities of more than sixty days for which market
quotations are readily available are valued at current market value; where
market quotations are not available, such instruments are valued at fair value
as determined by the Board of Trustees;
4. instruments which are purchased with maturities of sixty days or less
(including all master demand notes) are valued at amortized cost (original
purchase cost as adjusted for amortization of premium or accretion of
discount) which, when combined with accrued interest, approximates market; and
in any case, reflects fair value as determined by the Fund's Board of
Trustees;
5. short-term instruments maturing in more than sixty days when purchased
which are held on the sixtieth day prior to maturity are valued at amortized
cost (market value on the sixtieth day adjusted for amortization of premium or
accretion of discount) which, when combined with accrued interest,
approximates market; and in any case, reflects fair value as determined by the
Fund's Board of Trustees; and
6. the following securities are valued at prices deemed in good faith to be
fair under procedures established by the Board of Trustees: (a) securities,
including restricted securities, for which complete quotations are not readily
available; (b) listed securities or those on NMS if, in the Fund's opinion,
the last sales price does not reflect a current market value or if no sale
occurred; and (c) other assets.
Foreign securities are valued 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 such securities, quotations from broker-dealers,
market transactions in comparable securities and various relationships between
securities and yield to maturity in determining value.
DIVIDENDS AND TAXES
The Fund has qualified and intends to qualify in the future as a regulated
investment company under the Internal Revenue Code (the "Code"). The Fund
qualifies if, among other things, it distributes to its shareholders at least
90% of its net investment income for its fiscal year. The Fund also intends to
make timely distributions, if necessary, sufficient in amount to avoid the
nondeductible 4% excise tax imposed on a regulated investment company to the
extent that it fails to distribute, with respect to each calendar year, at least
98% of its ordinary income for such calendar year and 98% of its net capital
gains for the one-year period ending on October 31 of such calendar year. Any
taxable dividend declared in October, November or December to shareholders of
record in such month and paid by the following January 31 will be includable in
the taxable income of the shareholder as if paid on December 31 of the year in
which the dividend was declared. If the Fund qualifies and if it distributes all
of its net investment income and net capital gains, if any, to shareholders, it
will be relieved of any federal income tax liability. The Fund will make
distributions from its net investment income quarterly and net capital gains, if
any, annually. 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 shares 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.
Shareholders receive Fund distributions in the form of additional shares of
that class of shares upon which the distribution is based or, at the
shareholder's option, in cash. Fund distributions in the form of additional
shares are made at net asset value without the imposition of a sales charge.
Dividends and distributions are taxable whether they are received in cash or in
shares. Income dividends and net short-term gains dividends are taxable as
ordinary income, and net long-term gains dividends are taxable as capital gains
regardless of how long the Fund's shares are held. If Fund shares held for less
than six months are sold at a loss, however, such loss will be treated for tax
purposes as a long-term capital loss to the extent of any long-term capital
gains dividends received. The Fund advises its shareholders annually as to the
federal tax status of all distributions made during the year.
FUND MANAGEMENT AND EXPENSES
BOARD OF TRUSTEES
Under Massachusetts law, the Fund's Board of Trustees has absolute and
exclusive control over the management and disposition of all assets of the Fund.
Subject to the authority of the Fund's Board of Trustees, Keystone Management,
located at 200 Berkeley Street, Boston, Massachusetts 02116-5034, serves as
investment manager to the Fund and is responsible for the overall management of
the Fund's business and affairs.
INVESTMENT MANAGER
Keystone Management, the Fund's investment manager, organized in 1989, is a
wholly-owned subsidiary of Keystone. Its directors and principal executive
officers have been affiliated with Keystone, a seasoned investment adviser, for
a number of years. Keystone Management also serves as investment manager to 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 be
performed by Keystone Management, 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. 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 of:
Aggregate Net Asset
Management Value of the Shares
Fee of the Fund
Income
- ------------------------------------------------------------------------------
1.5% of
Gross Dividend and
Interest Income
plus
0.60% of the first $ 100,000,000, plus
0.55% of the next $ 100,000,000, plus
0.50% of the next $ 100,000,000, plus
0.45% of the next $ 100,000,000, plus
0.40% of the next $ 100,000,000, plus
0.35% of the next $ 500,000,000, plus
0.30% of amounts over $1,000,000,000
computed as of the close of business each business day and paid daily.
During the year ended November 30, 1995, the Fund paid or accrued to Keystone
Management investment management and administrative services fees of $300,290,
which represented 0.65% of the Fund's average net assets. Of such amount paid to
Keystone Management, $255,247 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, a wholly-owned subsidiary of Keystone
Investments, Inc. ("Keystone Investments"), is located at 200 Berkeley Street,
Boston, Massachusetts 02116-5034.
Keystone Investments is a corporation privately owned by current and former
members of management and certain employees of Keystone and its affiliates. The
shares of Keystone Investments common stock beneficially owned by management are
held in a number of voting trusts, the Trustees of which are George S. Bissell,
Albert H. Elfner, III, Edward F. Godfrey and Ralph J. Spuehler, Jr. Keystone
Investments provides accounting, bookkeeping, legal, personnel and general
corporate services to Keystone 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 Fund's Board of Trustees or by vote of a majority of the
outstanding shares of the Fund. In either case, the terms of the Management
Agreement and the Advisory Agreement and continuance thereof must be approved by
the vote of a majority of Independent Trustees in person at a meeting called for
the purpose of voting on such approval. The Management Agreement and the
Advisory Agreement may be terminated, without penalty, on 60 days' written
notice by the Fund, Keystone Management or Keystone or may be terminated by a
vote of 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.
PORTFOLIO MANAGER
Walter McCormick has been the Fund's Portfolio Manager since 1987. Mr.
McCormick is also a Senior Vice President and Senior Portfolio Manager of
Keystone and has more than 25 years' investment experience.
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 of its Trustees; transfer, dividend disbursing and shareholder servicing
agent expenses; custodian expenses; fees of its independent auditors and legal
counsel to its independent 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 1.69%, 2.47% and 2.47%, respectively, of their respective
average class 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 to Keystone Investments, $150,009 for shareholder
services and $49,684 for certain accounting and printing services, respectively.
KIRC is a wholly-owned subsidiary of Keystone.
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 such
broker-dealer. In addition, broker-dealers executing portfolio transactions may,
from time to time, be affiliated with the Fund, Keystone Management, 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,
1994 and 1995 were 57% and 77%, respectively. High portfolio turnover may
involve correspondingly greater brokerage commissions and other transaction
costs, which would be borne directly by the Fund, as well as additional realized
gains and/or losses to shareholders. For further information about brokerage and
distributions, see the statement of additional information.
HOW TO BUY SHARES
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 any amount may be made by check, by wiring Federal funds or by an
electronic funds transfer ("EFT").
Orders for the purchase of shares of the Fund will be confirmed at an offering
price equal to the net asset value per share next determined after receipt of
the order in proper form by the Principal Underwriter (generally as of the close
of the Exchange on that day) plus, in the case of Class A shares, the 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. 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 of the Fund received by broker-dealers prior to that day's
close of trading on the Exchange and transmitted to the Fund prior to its close
of business that day will receive the offering price equal to the net asset
value per share computed at the close of trading on the Exchange on the same day
plus, in the case of Class A shares, the sales charge. Orders received by
broker-dealers after that day's close of trading on the Exchange and transmitted
to the Fund prior to the close of business on the next business day will receive
the next business day's offering price.
Orders for shares received directly by the Fund from shareholders 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
sales charge.
The initial purchase must be at least $1,000. There is no minimum amount for
subsequent purchases.
The Fund reserves the right to withdraw all or any part of the offering made
by this prospectus and to reject purchase orders.
Shareholder inquiries should be directed to KIRC by calling toll free 1-800-
343-2898 or writing to KIRC or to the firm from which you received this
prospectus.
ALTERNATIVE SALES OPTIONS
The Fund currently 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 the imposition of a front-end sales charge or exchange fee. Class B
shares purchased prior to June 1, 1995 will retain their existing conversion
rights.
CLASS C SHARES -- LEVEL LOAD OPTION
Class C shares are sold without a sales charge at the time of purchase, but
are subject to a deferred sales charge if they are redeemed within one year
after the date of purchase. Class C shares are available only through dealers
who have entered into special distribution agreements with the Principal
Underwriter.
Each class of shares, pursuant to its Distribution Plan or other 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 net assets attributable to their respective classes. As
a result, income distributions paid by the Fund with respect to Class B and
Class C shares will generally be less than those paid with respect to Class A
shares.
Investors who would rather pay the entire cost of distribution at the time of
investment, rather than spreading such cost over time, might consider Class A
shares. Other investors might consider Class B or Class C shares, in which case
100% of the purchase price is invested immediately, depending on the amount of
the purchase and the intended length of investment.
The Fund will not normally accept any purchase of Class B shares in the amount
of $250,000 or more and will not normally accept any purchase of Class C shares
in the amount of $1,000,000 or more.
CLASS A SHARES
Class A shares are offered at net asset value plus an initial sales charge as
follows:
AS A % OF CONCESSION TO
AS A % OF NET AMOUNT DEALERS AS A % OF
AMOUNT OF PURCHASE OFFERING PRICE INVESTED* OFFERING PRICE
- ------------------------------------------------------------------------------
Less than $50,000 .......... 5.75% 6.10% 5.25%
$50,000 but 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 education 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 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 Class A shares maintained by such recipient
outstanding 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 adviser 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.
CLASS A DISTRIBUTION PLAN
The Fund has adopted a Distribution Plan with respect to its Class A shares
(the "Class A Distribution Plan") that provides for expenditures by the Fund,
currently limited to 0.25% annually of the average daily net asset value of
Class A shares, in connection with the distribution of Class A shares. Payments
under the Class A Distribution Plan are currently made to the Principal
Underwriter (which may reallow all or part to others, such as dealers), as
service fees at an annual rate of up to 0.25% of the average daily net asset
value of Class A shares maintained by the recipients outstanding 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 sold 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 Charge 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.
(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 such Class B shareholders. The Class B shares so converted 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, 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.
CLASS B DISTRIBUTION PLANS
The Fund has adopted Distribution Plans with respect to the Fund's 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 and outstanding on the books of the Fund for
specified periods. See "Distribution Plans" below.
CLASS C SHARES
Class C shares are offered only through dealers who have special distribution
agreements with the Principal Underwriter. Class C shares are offered at net
asset value, without an initial sales charge. With certain exceptions, the Fund
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 the Fund's Class C
shares (the "Class C Distribution Plan") that provides for expenditures by the
Fund at an annual rate of up to 1.00% of the average daily net asset value of
Class C shares to pay expenses of the distribution of Class C shares. Payments
under the Class C Distribution Plan are currently made to the Principal
Underwriter (which may reallow all or part to others, such as dealers) (1) as
commissions for Class C 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, which are paid at the annual rate of
0.25% of the average daily net asset value of each Class C share maintained by
the recipients outstanding 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 such shares; (2)
certain shares with respect to which the Fund did not pay a commission on
issuance, including shares acquired through reinvestment of dividend income and
capital gains distributions; (3) certain Class A shares held for more than one
or two years, as the case may be, from the date of purchase; (4) Class B shares
held more than four consecutive calendar years or more than 72 months after 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 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.
The Fund may also sell Class A, Class B or Class C shares at net asset value
without any initial sales charge or a contingent deferred sales charge to
certain Directors, Trustees, officers and employees of the Fund and Keystone and
certain of their affiliates, to registered representatives of firms with dealer
agreements with the Principal Underwriter and to a bank or trust company acting
as a trustee for a single account.
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 Fund shares. In addition, dealers may, from time to time, receive
additional cash payments. The Principal Underwriter may also 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 1933 Act.
The Principal Underwriter may, at its own expense, pay concessions in addition
to those described above to dealers which satisfy certain criteria established
from time to time by the Principal Underwriter. These conditions relate to
increasing sales of shares of the Keystone funds over specified periods and
certain other factors. Such payments may, depending on the dealer's satisfaction
of the required conditions, be periodic and may be up to 0.25% of the value of
shares sold by such dealer.
The Principal Underwriter may also pay a transaction fee (up to the level of
payments allowed 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, is appropriate.
In addition, state securities laws on this issue may differ from the
interpretations of federal law expressed herein and banks and financial
institutions may be required to register as dealers pursuant to state law.
DISTRIBUTION PLANS
As discussed above, the Fund bears some of the costs of selling its shares
under Distribution Plans adopted with respect to its Class A, Class B and Class
C shares pursuant to Rule 12b-1 under the 1940 Act.
The NASD limits the amount that a fund may pay annually in distribution costs
for the sale of its shares and shareholder service fees. The NASD limits annual
expenditures to 1% of the aggregate average daily net asset value of its shares,
of which 0.75% may be used to pay such distribution costs and 0.25% may be used
to pay shareholder service fees. The NASD also limits the aggregate amount that
the Fund may pay for such distribution costs to 6.25% of gross share sales since
the inception of the 12b-1 Distribution Plan, plus interest at the prime rate
plus 1% on such amounts (less any 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
Plans that exceed current annual payments permitted to be received by the
Principal Underwriter from the Fund. The Principal Underwriter intends to seek
full payment of such charges from the Fund (together with annual interest
thereon at the prime rate plus one percent) at such time in the future as, and
to the extent that, payment thereof by the Fund would be within the permitted
limits.
If the Fund's Independent Trustees authorize such payments, the effect would
be to extend the period of time during which the Fund incurs the maximum amount
of costs allowed by a Distribution Plan. If a Distribution Plan is terminated,
the Principal Underwriter will ask the Independent Trustees to take whatever
action they deem appropriate under the circumstances with respect to payment of
such amounts.
In connection with financing its distribution costs, including commission
advances to dealers and others, the Principal Underwriter has sold to a
financial institution substantially all of its 12b-1 fee collection rights and
contingent deferred sales charge collection rights in respect of Class B shares
sold during the two-year period commencing approximately June 1, 1995. The Fund
has agreed not to reduce the rate of payment of 12b-1 fees in respect of such
Class B shares unless it terminates such shares' Distribution Plan completely.
If it terminates such Distribution Plan, the Fund may be subject to possible
adverse distribution consequences.
Each of the Distribution Plans may be terminated at any time by vote of the
Independent Trustees or by vote of a majority of the outstanding voting shares
of the respective class. Unpaid distribution costs at November 30, 1995 were:
$724,076 for Class B shares purchased prior to June 1, 1995 (5.29% of net class
assets); $319,397 for Class B shares purchased on or after June 1, 1995 (5.72%
of net class assets); and for $596,982 Class C shares (6.28% of net class
assets.)
During the fiscal year ended November 30, 1995, the Fund paid the Principal
Underwriter $60,006, pursuant to its Class A Distribution Plan; $119,006 for
Class B shares sold prior to June 1, 1995; $15,321 for Class B shares sold on or
after June 1, 1995; and $80,007 under its Class C Distribution Plan. The Fund
makes no payments in connection with the sale of its shares other than the fee
paid to its Principal Underwriter.
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 to the Fund c/o KIRC, and presentation to the Fund of a properly endorsed
share certificate (if certificates have been issued). Your signature (s) on the
written order and certificates must be guaranteed as described below. In order
to redeem by telephone or to engage in telephone transactions generally, you
must complete the authorization in your account application. Proceeds for shares
redeemed on telephonic order will be deposited by wire or EFT only to the bank
account designated in your account application.
The redemption value equals the net asset value per share then determined and
may be more or less than your cost depending upon changes in the value of the
Fund's portfolio securities between purchase and redemption.
If imposed, the deferred sales charge is deducted from the redemption proceeds
otherwise payable to you.
REDEMPTION OF SHARES IN GENERAL
At various times, the Fund may be requested to redeem shares for which it has
not yet received good payment. In such a case, the Fund will mail the redemption
proceeds upon clearance of the purchase check, which may take up to 15 days or
more. Any delay may be avoided by purchasing shares either with a certified
check or by Federal Reserve or bank wire of funds or by EFT. Although the
mailing of a redemption check or the 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 fee 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 or KIRC may waive this
requirement, but also may require additional documents in certain cases.
Currently, the requirement for a signature guarantee has been waived on
redemptions of $50,000 or less when the account address of record has been the
same for a minimum period of 30 days. The Fund and KIRC reserve the right to
withdraw this waiver at any time.
If the Fund receives a redemption order, but you have not clearly indicated
the amount of money or number of shares involved, the Fund cannot execute 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 Redemptions section of the application to enjoy telephone redemption
privileges.
In order to insure that instructions received by KIRC are genuine when you
initiate a telephone transaction, you will be asked to verify certain criteria
specific to your account. At the conclusion of the transaction, you will be
given a transaction number confirming your request, and written confirmation of
your transaction will be mailed the next business day. Your telephone
instructions will be recorded. Redemptions by telephone are allowed only if the
address and bank account of record have been the same for a minimum period of 30
days.
If the redemption proceeds are less than $2,500, they will be mailed by check.
If they are $2,500 or more, they will be mailed, wired or sent by EFT to your
previously designated bank account as you direct. If you do not specify how you
wish your redemption proceeds to be sent, they will be mailed by check.
If you cannot reach the Fund by telephone, you should follow the procedures
for redeeming by mail or through a broker as set forth herein.
SMALL ACCOUNTS
Due to 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 up to the lesser of $250,000 or 1% of the Fund's net assets in any
90-day 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, to the extent permitted by law, be readily marketable. Shareholders
receiving such securities would incur brokerage costs upon the securities' sale.
GENERAL
The Fund reserves the right at any time to terminate, suspend or change the
terms of any redemption method described in this prospectus, except redemption
by mail, and to impose fees.
Except as otherwise noted, neither the Fund, KIRC nor the Principal
Underwriter assumes responsibility for the authenticity of any instructions
received by any of them from a shareholder in writing, over the Keystone
Automated Response Line ("KARL") or by telephone. KIRC will employ reasonable
procedures to confirm that instructions received over KARL or by telephone are
genuine. Neither the Fund, KIRC nor the Principal Underwriter will be liable
when following instructions received over KARL or by telephone that KIRC
reasonably believes to be genuine.
The Fund may temporarily suspend the right to redeem its shares when (1) the
Exchange is closed, other than customary weekend and holiday closings; (2)
trading on the Exchange is restricted; (3) an emergency exists and the Fund
cannot dispose of its investments or fairly determine their value; or (4) the
Securities and Exchange Commission so orders.
SHAREHOLDER SERVICES
Details on all shareholder services may be obtained from KIRC by writing or by
calling toll free 1-800-343-2898.
KEYSTONE AUTOMATED RESPONSE LINE
KARL offers you specific fund account information and price and yield
quotations as well as the ability to do account transactions, including
investments, exchanges and redemptions. You may access KARL by dialing toll free
1-800-346-3858 on any touch-tone telephone, 24 hours a day, seven days a week.
EXCHANGES
A shareholder who has obtained the appropriate prospectus may exchange shares
of the Fund for shares of certain other Keystone America Funds and Keystone
Liquid Trust ("KLT") as follows:
Class A shares may be exchanged for Class A shares of other Keystone America
Funds and Class A shares of KLT;
Class B shares except as noted below, may be exchanged for the same type of
Class B shares of other Keystone America Funds and the same type of Class B
shares of KLT; and
Class C shares may be exchanged for Class C shares of other Keystone America
Funds and Class C shares of KLT.
Class B shares purchased on or after June 1, 1995 cannot be exchanged for
Class B shares of Keystone Capital Preservation and Income Fund during the 24
month period commencing with and including the month of original purchase.
The exchange of Class B shares and Class C shares will not be subject to a
contingent deferred sales charge. However, if the shares being tendered for
exchange are
(i) Class A shares acquired in an NAV Purchase or otherwise without a front
end sales charge,
(ii) Class B shares that have been held for less than 72 months or four years,
as the case may be, or
(iii) 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 calling or
writing to 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, after providing the
required notice to shareholders, to terminate this exchange offer or to change
its terms, including the right to change the fee for any exchange.
Orders to exchange a certain class of shares of the Fund for the corresponding
class of shares of KLT will be executed by redeeming the shares of the Fund and
purchasing the corresponding class of shares of KLT at the net asset value of
such 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. on any day
the Fund is open for business will be executed at the respective net asset
values determined as of the close of business that day. Orders for exchanges
received after 4:00 p.m. on any business day will be executed at the respective
net asset values determined at the close of the next business day.
An excessive number of exchanges may be disadvantageous to the Fund.
Therefore, the Fund, in addition to its right to reject any exchange, reserves
the right to terminate the exchange privilege of any shareholder who makes more
than five exchanges of shares of the funds in a year or three in a calendar
quarter.
An exchange order must comply with the requirements for a redemption or
repurchase order and must specify the dollar value or number of shares to be
exchanged. Exchanges are subject to the minimum initial purchase requirements of
the fund being acquired. An exchange constitutes a sale for federal income tax
purposes.
The exchange privilege is available only in states where shares of the fund
being acquired may legally be sold.
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 a Keystone America Money Line or to terminate the
service (which could take up to 30 days), you must write to KIRC and include
account numbers.
RETIREMENT PLANS
The Fund has various pension and profit-sharing plans available to you,
including Individual Retirement Accounts ("IRAs"); Rollover IRAs; Simplified
Employee Pension Plans ("SEPs"), Tax Sheltered Annuity Plans ("TSAs"), 401(k)
Plans; Keogh Plans; Corporate Profit-Sharing Plans, Pension and Target Benefit
Plans; Money Purchase Plans and Salary-Reduction Plans. For details, including
fees and application forms, call toll free 1-800-247-4075 or write to KIRC.
AUTOMATIC WITHDRAWAL PLAN
Under an Automatic Withdrawal Plan, if your account has a value of at least
$10,000, you may arrange for regular monthly or quarterly fixed withdrawal
payments. Each payment must be at least $100 and may be as much as 1.5% per
month or 4.5% per quarter of the total net asset value of the Fund shares in
your account when the Automatic Withdrawal Plan is opened. Fixed withdrawal
payments are not subject to a deferred sales charge. Excessive withdrawals may
decrease or deplete the value of your account. Moreover, 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 the 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 and
may result in a lower average cost per share than a less systematic investment
approach.
Prior to participating in dollar cost averaging, you must establish 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 your 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" and "current yield".
ALL DATA IS BASED ON HISTORICAL EARNINGS AND IS NOT INTENDED TO INDICATE FUTURE
PERFORMANCE. Total return and current yield are computed separately for each
class of shares of the Fund. Total return refers to average annual compounded
rates of return over specified periods determined by comparing the initial
amount invested in a particular class to the ending redeemable value of that
amount. The resulting equation assumes reinvestment of all dividends and
distributions and deduction of the maximum sales charge or applicable contingent
deferred sales charge and all recurring charges, if any, applicable to all
shareholder accounts. The exchange fee is not included in the calculation.
Current yield quotations represent the yield on an investment for a stated
30-day period computed by dividing net investment income earned per share during
the base period by the maximum offering price per share on the last day of the
base period.
The Fund may also include comparative performance data for each class of
shares in advertising or marketing the Fund's shares, such as data from Lipper
Analytical Services, Inc., Morningstar, Inc., Standard & Poor's Corporation,
Ibbotson Associates or other industry publications.
FUND SHARES
The Fund currently issues three classes of shares, which
participate proportionately based on their relative net asset values in
dividends and distributions and have equal voting, liquidation and other rights
except that (1) expenses related to the distribution of each series or class of
shares or other expenses that the Board of Trustees may designate as series or
class expenses from time to time, are borne solely by each series or class; (2)
each series or class of shares has exclusive voting rights with respect to its
Distribution Plan; (3) each series or class has different exchange privileges;
and (4) each series or 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
redeemable, transferable and freely assignable as collateral. The Fund is
authorized to issue additional series or classes of shares.
Shareholders are entitled to one vote for each full share owned and fractional
votes for fractional shares. Shares of the Fund vote together except when
required by law to vote separately by series or class. The Fund does not have
annual meetings. The Fund will have special meetings, from time to time, as
required under its Declaration of Trust and under the 1940 Act. As provided in
the Declaration of Trust of the Fund, shareholders have the right to remove
Trustees by an affirmative vote of two-thirds of the outstanding shares. A
special meeting of the shareholders will be held when holders of 10% of the
outstanding shares request a meeting for the purpose of removing a Trustee. The
Fund is prepared to assist shareholders in communications with one another for
the purpose of convening such a meeting as prescribed by Section 16(c) of the
1940 Act.
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 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.
ADDITIONAL INVESTMENT INFORMATION
The Fund may engage in the following investment practices to the extent
described in the prospectus and the statement of additional information.
CORPORATE BOND RATINGS
Higher yields are usually available on securities that are lower rated or that
are unrated. Bonds rated BAA by Moody's are considered as medium grade
obligations which are neither highly protected nor poorly secured. Debt rated
BBB by S&P is regarded as having an adequate capacity to pay interest and repay
principal, although adverse economic conditions are more likely to lead to a
weakened capacity to pay interest and repay principal for debt in this category
than in higher rated categories. Lower rated securities are usually defined as
BAA or lower by Moody's or BBB or lower by S&P. The Fund may purchase unrated
securities, which are not necessarily of lower quality than rated securities but
may not be attractive to as many buyers. Debt rated BB, B, CCC, CC and C by S&P
is regarded, on balance, as predominantly speculative with respect to capacity
to pay interest and repay principal in accordance with the terms of the
obligation. BB indicates the lowest degree of speculation and C the highest
degree of speculation. While such debt will likely have some quality and
protective characteristics, these are outweighed by large uncertainties or major
risk exposures to adverse conditions. Debt rated CI by S&P is debt (income
bonds) on which no interest is being paid. Debt rated D by S&P is in default and
payment of interest and/or repayment of principal is in arrears. The Fund
intends to invest in D-rated debt only in cases where in Keystone's judgment
there is a distinct prospect of improvement in the issuer's financial position
as a result of the completion of reorganization or otherwise. Bonds which are
rated CAA by Moody's are of poor standing. Such issues may be in default or
there may be present elements of danger with respect to principal or interest.
Bonds which are rated CA by Moody's represent obligations which are speculative
in a high degree. Such issues are often in default or have other market
shortcomings. Bonds which are rated C by Moody's are the lowest rated class of
bonds, and issues so rated can be regarded as having extremely poor prospects of
ever attaining any real investment standing.
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. 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. 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, and the
borrower may repay up to the full amount of the note without penalty. Notes
purchased by the Fund permit the Fund to demand payment of principal and accrued
interest at any time (on not more than seven days' notice). Notes acquired by
the Fund may have maturities of more than one year, provided that (1) the Fund
is entitled to payment of principal and accrued interest upon not more than
seven days' notice, and (2) the rate of interest on such notes is adjusted
automatically at periodic intervals which normally will not exceed 31 days but
may extend up to one year. The notes 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 the borrower, such instruments are not
normally traded and there is no secondary market for these notes, although they
are redeemable and thus repayable by the borrower at face value plus accrued
interest at any time. Accordingly, the Fund's right to redeem is dependent on
the ability of the borrower to pay principal and interest on demand. In
connection with master demand notes, 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 typically are not rated by
credit rating agencies. Unless rated, the Fund may invest in them only if the
issuer meets the criteria established for commercial paper discussed in the
statement of additional information, which limit such investments to commercial
paper rated A-1 by S&P, Prime-1 by Moody's or F-1 by Fitch Investors Service,
Inc.
REPURCHASE AGREEMENTS
The Fund may enter into repurchase agreements with member banks of the Federal
Reserve System which have 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 are required to be registered as U.S. government
securities dealers with an appropriate regulatory organization. Under such
agreements, the bank, primary dealer or other financial institution agrees upon
entering into the contract to repurchase the security at a mutually agreed upon
date and price, thereby determining the yield during the term of the agreement.
This results in a fixed rate of return insulated from market fluctuations during
such period. Under a repurchase agreement, the seller must maintain the value of
the securities subject to the agreement at not less than the repurchase price,
and such value will be determined on a daily basis by marking the underlying
securities to their market value. Although the securities subject to the
repurchase agreement might bear maturities exceeding a year, the Fund only
intends to enter into repurchase agreements which 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 of the Fund has established procedures to evaluate the
creditworthiness of each party with whom the Fund enters into repurchase
agreements by setting guidelines and standards of review for Keystone and
monitoring Keystone's actions with regard to repurchase agreements.
REVERSE REPURCHASE AGREEMENTS
Under a reverse repurchase agreement, the Fund would sell securities and agree
to repurchase them at a mutually agreed upon date and price. The Fund intends to
enter into reverse repurchase agreements to avoid otherwise having to sell
securities during unfavorable market conditions in order to meet redemptions. At
the time the Fund enters into a reverse repurchase agreement, it will establish
a segregated account with the Fund's custodian containing liquid assets having a
value not less than the repurchase price (including accrued interest) and will
subsequently monitor the account to maintain such value. Reverse repurchase
agreements involve the risk that the market value of the securities which 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. In the event the buyer
of securities under a reverse repurchase agreement files for bankruptcy or
becomes insolvent, such buyer or its trustee or receiver may receive an
extension of time to determine whether to enforce the Fund's obligation to
repurchase the securities, and the Fund's use of the proceeds of the reverse
repurchase agreement may effectively be restricted pending such determination.
The staff of the Securities and Exchange Commission has taken the position that,
unless fully secured or collateralized, reverse repurchase agreements are a form
of leverage and, therefore, subject to the percentage limit on borrowings
imposed on a fund under the 1940 Act. The Fund intends to only invest in fully
secured or collateralized reverse repurchase agreements.
FOREIGN SECURITIES
The Fund may invest up to 50% of its assets in securities principally traded
in securities markets outside the United States. While investment in foreign
securities is intended to reduce risk by providing further diversification, such
investments involve sovereign risk in addition to the credit and market risks
normally associated with domestic securities. Foreign investments may be
affected favorably or unfavorably by changes in currency rates and exchange
control regulations. There may be less publicly available information about a
foreign company, particularly emerging market country companies, than about a
U.S. company, and foreign companies may not be subject to accounting, auditing
and financial reporting standards and requirements comparable to those
applicable to U.S. companies. Securities of some foreign companies are less
liquid or more volatile than securities of U.S. companies, and foreign brokerage
commissions and custodian fees are generally higher than in the United States.
Investments in foreign securities may also be subject to other risks different
from those affecting U.S. investments, including local political or economic
developments, expropriation or nationalization of assets, imposition of
withholding taxes on dividend or interest payments and currency blockage (which
would prevent cash from being brought back to the United States).
"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 for the purpose
of acquiring portfolio securities consistent with its investment objectives and
policies and not for the purpose of investment leverage. The Fund currently does
not intend to invest more than 5% of its assets in when issued or delayed
delivery transactions.
DERIVATIVES
The Fund may use derivatives while seeking to achieve its investment
objective. Derivatives are financial contracts whose value depends on, or is
derived from, the value of an underlying asset, reference rate or index. These
assets, rates, and indices may include bonds, stocks, mortgages, commodities,
interest rates, currency exchange rates, bond indices and stock indices.
Derivatives can be used to earn income or protect against risk, or both. For
example, one party with unwanted risk may agree to pass that risk to another
party who is willing to accept the risk, the second party being motivated, for
example, by the desire either to earn income in the form of a fee or premium
from the first party, or to reduce its own unwanted risk by attempting to pass
all or part of that risk to the first party.
Derivatives can be used by investors, such as the Fund, to earn income and
enhance returns, to hedge or adjust the risk profile of the portfolio, and
either in place of more traditional direct investments or to obtain exposure to
otherwise inaccessible markets. The Fund is permitted to use derivatives for one
or more of these purposes, although the Fund generally uses derivatives
primarily as direct investments in order to enhance yields and broaden portfolio
diversification. Each of these uses entails greater risk than if derivatives
were used solely for hedging purposes. The Fund uses futures contracts and
related options as well as forwards for hedging purposes. Derivatives are a
valuable tool which, when used properly, can provide significant benefit to Fund
shareholders. Keystone is not an aggressive user of derivatives with respect to
the Fund. However, the Fund may take positions in those derivatives that are
within its investment policies if, in Keystone's judgement, this represents an
effective response to current or anticipated market conditions. Keystone's use
of derivatives is subject to continuous risk assessment and control from the
standpoint of the Fund's investment objectives and policies.
Derivatives may be (1) standardized, exchange-traded contracts or (2)
customized, privately negotiated contracts. Exchange-traded derivatives tend to
be more liquid and subject to less credit risk than those that are privately
negotiated.
There are four principal types of derivative instruments -- options, futures,
forwards and swaps -- from which virtually any type of derivative transaction
can be created. Further information regarding options, futures, forwards and
swaps, is provided later in this section and is provided in the Fund's statement
of additional information. The Fund does not presently engage in the use of
swaps.
While the judicious use of derivatives by experienced investment managers such
as Keystone can be beneficial, derivatives also involve risks different from,
and, in certain cases, greater than, the risks presented by more traditional
investments. Following is a general discussion of important risk factors and
issues concerning the use of derivatives that investors should understand before
investing in the Fund.
* Market Risk -- This is the general risk attendant to all investments that the
value of a particular investment will decline or otherwise change in a way
detrimental to the Fund's interest.
* Management Risk -- Derivative products are highly specialized instruments that
require investment techniques and risk analyses different from those
associated with stocks and bonds. The use of a derivative requires an
understanding not only of the underlying instrument, but also of the
derivative itself, without the benefit of observing the performance of the
derivative under all possible market conditions. In particular, the use and
complexity of derivatives require the maintenance of adequate controls to
monitor the transactions entered into, the ability to assess the risk that a
derivative adds to the Fund's portfolio and the ability to forecast price,
interest rate or currency exchange rate movements correctly.
* Credit Risk -- This is the risk that a loss may be sustained by the Fund as a
result of the failure of another party to a derivative (usually referred to as
a "counterparty") to comply with the terms of the derivative contract. The
credit risk for exchange-traded derivatives is generally less than for
privately negotiated derivatives, since the clearing house, which is the
issuer or counterparty to each exchange-traded derivative, provides a
guarantee of performance. This guarantee is supported by a daily payment
system (i.e., margin requirements) operated by the clearing house in order to
reduce overall credit risk. For privately negotiated derivatives, there is no
similar clearing agency guarantee. Therefore, the Fund considers the
creditworthiness of each counterparty to a privately negotiated derivative in
evaluating potential credit risk.
* Liquidity Risk -- Liquidity risk exists when a particular instrument is
difficult to purchase or sell. If a derivative transaction is particularly
large or if the relevant market is illiquid (as is the case with many
privately negotiated derivatives), it may not be possible to initiate a
transaction or liquidate a position at an advantageous price.
* Leverage Risk -- Since many derivatives have a leverage component, adverse
changes in the value or level of the underlying asset, rate or index can
result in a loss substantially greater than the amount invested in the
derivative itself. In the case of swaps, the risk of loss generally is related
to a notional principal amount, even if the parties have not made any initial
investment. Certain derivatives have the potential for unlimited loss,
regardless of the size of the initial investment.
* Other Risks -- Other risks in using derivatives include the risk of mispricing
or improper valuation and the inability of derivatives to correlate perfectly
with underlying assets, rates and indices. Many derivatives, in particular
privately negotiated derivatives, are complex and often valued subjectively.
Improper valuations can result in increased cash payment requirements to
counterparties or a loss of value to a Fund. Derivatives do not always
perfectly or even highly correlate or track the value of the assets, rates or
indices they are designed to closely track. Consequently, the Fund's use of
derivatives may not always be an effective means of, and sometimes could be
counterproductive to, furthering the Fund's investment objective.
OPTIONS TRANSACTIONS
WRITING COVERED OPTIONS The Fund may write (i.e., sell) covered call 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.
The Fund will be considered "covered" with respect to a put option it writes
if, so long as it is obligated as the writer of the put option, it deposits and
maintains with its custodian in a segregated account liquid assets having a
value equal to or greater than the exercise price of the option.
The principal reason for writing call or put options is to obtain, through a
receipt of premiums, a greater current return than would be realized on the
underlying securities alone. The Fund receives a premium from writing a call or
put option which it retains whether or not the option is exercised. By writing a
call option, the Fund might lose the potential for gain on the underlying
security while the option is open, and by writing a put option the Fund might
become obligated to purchase the underlying security for more than its current
market price upon exercise.
PURCHASING OPTIONS The Fund may purchase put and call options, including put or
call options for the purpose of offsetting previously written put and call
options of the same series. If the Fund is unable to effect a closing purchase
transaction with respect to covered options it has written, the Fund will not be
able to sell the underlying securities or dispose of assets held in a segregated
account until the options expire or are exercised.
An option position may be closed out only in a secondary market for an option
of the same series. Although the Fund generally will write only those options
for which there appears to be an active secondary market, there is no assurance
that a liquid secondary market will exist for any particular option at any
particular time, and for some options no secondary market may exist. In such
event it might not be possible to effect a closing transaction in a particular
option.
Options on some securities are relatively new and it is impossible to predict
the amount of trading interest that will exist in such options. There can be no
assurance that viable markets will develop or continue. The failure of such
markets to develop or continue could significantly impair the Fund's ability to
use such options to achieve its investment objectives.
OPTIONS TRADING MARKETS Options in which the Fund will trade are generally
listed on national securities exchanges. Exchanges on which such options
currently are traded include the Chicago Board Options Exchange and the New
York, American, Pacific and Philadelphia Stock Exchanges. Options on some
securities may not be listed on any Exchange but traded in the over-the-counter
market. Options traded in the over-the-counter market involve the additional
risk that securities dealers participating in such transactions would fail to
meet their obligations to the Fund. The use of options traded in the
over-the-counter market may be subject to limitations imposed by certain state
securities authorities. In addition to the limits on its use of options
discussed herein, the Fund is subject to the investment restrictions described
in this prospectus and the statement of additional information.
The staff of the Securities Exchange Commission is of the view that the
premiums which the Fund pays for the purchase of unlisted options, and the value
of securities used to cover unlisted options written by the Fund, are considered
to be invested in illiquid securities or assets for the purpose of calculating
whether the Fund is in compliance with its investment restrictions relating to
illiquid securities.
FUTURES TRANSACTIONS
The Fund may enter into currency and other financial futures contracts and
write options on such contracts. The Fund intends to enter into such contracts
and related options for hedging purposes. The Fund will enter into futures on
securities, 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 currency and other financial futures contracts.
When a futures contract is sold by the Fund, the value of the contract will tend
to rise when the value of the underlying securities or currencies declines and
to fall when the value of such securities or currencies increases. Thus, the
Fund sells futures contracts in order to offset a possible decline in the value
of its securities or currencies. If a futures contract is purchased by the Fund,
the value of the contract will tend to rise when the value of the underlying
securities or currencies increases and to fall when the value of such securities
or currencies declines. The Fund intends to purchase futures contracts in order
to fix what is believed by Keystone to be a favorable price and rate of return
for securities or favorable exchange rate for currencies the Fund intends to
purchase.
The Fund also intends to purchase put and call options on currency and other
financial futures contracts for hedging purposes. A put option purchased by the
Fund would give it the right to assume a position as the seller of a futures
contract. A call option purchased by the Fund would give it the right to assume
a position as the purchaser of a futures contract. The purchase of an option on
a futures contract requires the Fund to pay a premium. In exchange for the
premium, the Fund becomes entitled to exercise the benefits, if any, provided by
the futures contract, but is not required to take any action under the contract.
If the option cannot be exercised profitably before it expires, the Fund's loss
will be limited to the amount of the premium and any transaction costs.
The Fund may enter into closing purchase and sale transactions in order to
terminate a futures contract and may sell put and call options for the purpose
of closing out its options positions. The Fund's ability to enter into closing
transactions depends on the development and maintenance of a liquid secondary
market. There is no assurance that a liquid secondary market will exist for any
particular contract or at any particular time. As a result, there can be no
assurance that the Fund will be able to enter into an offsetting transaction
with respect to a particular contract at a particular time. If the Fund is not
able to enter into an offsetting transaction, the Fund will continue to be
required to maintain the margin deposits on the contract and to complete the
contract according to its terms, in which case it would continue to bear market
risk on the transaction.
Although futures and 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, the Fund may enter into forward
currency exchange contracts (agreements to purchase or sell currencies at a
specified price and date). The exchange rate for the transaction (the amount of
currency the Fund will deliver and receive when the contract is completed) is
fixed when the Fund enters into the contract. The Fund usually will enter into
these contracts to stabilize the U.S. dollar value of a security it has agreed
to buy or sell. The Fund intends to use these contracts to hedge the U.S. dollar
value of a security it already owns, particularly if the Fund expects a decrease
in the value of the currency in which the foreign security is denominated.
Although the Fund will attempt to benefit from using forward contracts, the
success of its hedging strategy will depend on Keystone's ability to predict
accurately the future exchange rates between foreign currencies and the U.S.
dollar. The value of the Fund's investments denominated in foreign currencies
will depend on the relative strength of those currencies and the U.S. dollar,
and the Fund may be affected favorably or unfavorably by changes in the exchange
rate or exchange control regulations between foreign currencies and the dollar.
Changes in foreign currency exchange rates also may affect the value of
dividends and interest earned, gains and losses realized on the sale of
securities and net investment income and gains, if any, to be distributed to
shareholders by the Fund. The Fund may also purchase and sell options related to
foreign currencies in connection with hedging strategies.
ZERO COUPON "STRIPPED" BONDS
A zero coupon (interest) "stripped" bond represents ownership in serially
maturing interest payments or principal payments on specific underlying notes
and bonds, including coupons relating to such notes and bonds. The interest and
principal payments are direct obligations of the issuer. These bonds mature on
the payment dates of the interest or principal which they represent. Each zero
coupon bond entitles the holder to receive a single payment at maturity. There
are no periodic interest payments on a zero coupon bond. Zero coupon bonds are
offered at discounts from their face amounts.
In general, owners of zero coupon bonds have substantially all the rights and
privileges of owners of the underlying coupon obligations or principal
obligations. Owners of zero coupon bonds have the right upon default on the
underlying coupon obligations or principal obligations to proceed directly and
individually against the issuer and are not required to act in concert with
other holders of zero coupon bonds.
For federal income tax purposes, a purchaser of principal zero coupon bonds or
coupon zero coupon bonds (either initially or in the secondary market) is
treated as if the buyer had purchased a corporate obligation issued on the
purchase date with an original issue discount equal to the excess of the amount
payable at maturity over the purchase price. The purchaser is required to take
into income each year as ordinary income an allocable portion of such discounts
determined on a "constant yield" method. Any such income increases the holder's
tax basis for the zero coupon bond, and any gain or loss on a sale of the zero
coupon bonds relative to the holder's basis, as so adjusted, is a capital gain
or loss. If the holder owns both principal zero coupon bonds and coupon zero
coupon bonds representing interest in the same underlying issue of securities, a
special basis allocation rule (requiring the aggregate basis to be allocated
among the items sold and retained based on their relative fair market value at
the time of sale) may apply to determine the gain or loss on a sale of any such
zero coupon bonds.
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, however, to borrowers deemed to be of good standing, under
standards approved by the Board of Trustees, when the income to be earned from
the loan justifies the attendant risks.
EXHIBIT A
REDUCED SALES CHARGES
Initial sales charges may be reduced or eliminated for persons or
organizations purchasing Class A shares of the Fund alone or in combination with
Class A shares of other Keystone America Funds. Only Class A shares subject to
an initial or deferred sales charge are eligible for inclusion in reduced sales
charge programs.
For purposes of qualifying for reduced sales charges on purchases made
pursuant to Rights of Accumulation or Letters of Intent, the term "Purchaser"
includes the following persons: an individual; an individual, his or her spouse
and children under the age of 21; a trustee or other fiduciary of a single trust
estate or single fiduciary account established for their benefit; an
organization exempt from federal income tax under Section 501 (c)(3) or (13) of
the Internal Revenue Code; a pension, profit-sharing or other employee benefit
plan whether or not qualified under Section 401 of the Internal Revenue Code; or
other organized groups of persons, whether incorporated or not, provided the
organization has been in existence for at least six months and has some purpose
other than the purchase of redeemable securities of a registered investment
company at a discount. In order to qualify for a lower sales charge, all orders
from an organized group will have to be placed through a single investment
dealer or other firm and identified as originating from a qualifying purchaser.
CONCURRENT PURCHASES
For purposes of qualifying for a reduced sales charge, a Purchaser may combine
concurrent direct purchases of Class A shares of two or more of the "Eligible
Funds," as defined below. For example, if a Purchaser concurrently invested
$75,000 in one of the other "Eligible Funds" and $75,000 in the Fund, the sales
charge would be that applicable to a $150,000 purchase, i.e., 3.75% of the
offering price, as indicated in the Sales Charge Schedule in the prospectus.
RIGHT OF ACCUMULATION
In calculating the sales charge applicable to current purchases of the Fund's
Class A shares, a Purchaser is entitled to accumulate current purchases with the
current value of previously purchased Class A shares of the Fund and Class A
shares of certain other eligible funds that are still held in (or exchanged for
shares of and are still held in) the same or another eligible fund ("Eligible
Fund(s)"). The Eligible Funds are the Keystone America Funds and Keystone Liquid
Trust.
For example, if a Purchaser held shares valued at $99,999 and purchased an
additional $5,000, the sales charge for the $5,000 purchase would be at the next
lower sales charge of 3.75% of the offering price as indicated in the Sales
Charge Schedule. KIRC must be notified at the time of purchase that the
Purchaser is entitled to a reduced sales charge, which reduction will be granted
subject to confirmation of the Purchaser's holdings. The Right of Accumulation
may be modified or discontinued at any time.
LETTER OF INTENT
A Purchaser may qualify for a reduced sales charge on a purchase of Class A
shares of the Fund alone or in combination with purchases of Class A shares of
any of the other Eligible Funds by completing the Letter of Intent section of
the application. By so doing, the Purchaser agrees to invest within a
thirteen-month period a specified amount which, if invested at one time, would
qualify for a reduced sales charge. Each purchase will be made at a public
offering price applicable to a single transaction of the dollar amount specified
on the application, as described in this prospectus. The Letter of Intent does
not obligate the Purchaser to purchase, nor the Fund to sell, the amount
indicated.
After the Letter of Intent is received by KIRC, each investment made will be
entitled to the sales charge applicable to the level of investment indicated on
the application. The Letter of Intent may be back-dated up to ninety days so
that any investments made in any of the Eligible Funds during the preceding
ninety-day period, valued at the Purchaser's cost, can be applied toward
fulfillment of the Letter of Intent. However, there will be no refund of sales
charges already paid during the ninety-day period. No retroactive adjustment
will be made if purchases exceed the amount specified in the Letter of Intent.
Income and capital gains distributions taken in additional shares will not apply
toward completion of the Letter of Intent.
If total purchases made pursuant to the Letter of Intent are less than the
amount specified, the Purchaser will be required to remit an amount equal to the
difference between the sales charge paid and the sales charge applicable to
purchases actually made. Out of the initial purchase (or subsequent purchases,
if necessary) 5% of the dollar amount specified on the application will be held
in escrow by KIRC in the form of shares registered in the Purchaser's name. The
escrowed shares will not be available for redemption, transfer or encumbrance by
the Purchaser until the Letter of Intent is completed or the higher sales charge
paid. All income and capital gains distributions on escrowed shares will be paid
to the Purchaser or his order.
When the minimum investment specified in the Letter of Intent is completed
(either prior to or by the end of the thirteen-month period), the Purchaser will
be notified and the escrowed shares will be released. If the intended investment
is not completed, the Purchaser will be asked to remit to the Principal
Underwriter any difference between the sales charge on the amount specified and
on the amount actually attained. If the Purchaser does not within 20 days after
written request by the Principal Underwriter or his dealer pay such difference
in sales charge, KIRC will redeem an appropriate number of the escrowed shares
in order to realize such difference. Shares remaining after any such redemption
will be released by KIRC. Any redemptions made by the Purchaser during the
thirteen-month period will be subtracted from the amount of the purchases for
purposes of determining whether the Letter of Intent has been completed. In the
event of a total redemption of the account prior to completion of the Letter of
Intent, the additional sales charge due will be deducted from the proceeds of
the redemption and the balance will be forwarded to the Purchaser.
By signing the application, the Purchaser irrevocably constitutes and appoints
KIRC his attorney to surrender for redemption any or all escrowed shares with
full power of substitution.
The Purchaser or his dealer must inform the Principal Underwriter or KIRC that
a Letter of Intent is in effect each time a purchase is made.
<PAGE>
- ------------------------------------
KEYSTONE AMERICA
FUND FAMILY
*
Capital Preservation and Income Fund
Government Securities Fund
Intermediate Term Bond Fund
Strategic Income Fund
World Bond Fund
Tax Free Income Fund
California Insured Tax Free Fund
Florida Tax Free Fund
Massachusetts Tax Free Fund
Missouri Tax Free Fund
New York Insured Tax Free Fund
Pennsylvania Tax Free Fund
Texas Tax Free Fund
Fund for Total Return
Global Opportunities Fund
Hartwell Emerging Growth Fund, Inc.
Hartwell Growth Fund
Omega Fund
Fund of the Americas
Strategic Development Fund
- ------------------------------------
[Logo] KEYSTONE
INVESTMENTS
Keystone Investment Distributors Company
200 Berkeley Street
Boston, Massachusetts 02116-5034
FFTR-P 3/96 [Recycle Logo]
--------------------------------------------
KEYSTONE
FUND FOR
TOTAL RETURN
--------------------------------------------
[Logo]
PROSPECTUS AND
APPLICATION
<PAGE>
KEYSTONE FUND FOR TOTAL RETURN
PART B
STATEMENT OF ADDITIONAL INFORMATION
<PAGE>
KEYSTONE FUND FOR TOTAL RETURN
STATEMENT OF ADDITIONAL INFORMATION
MARCH 31, 1996
This statement of additional information is not a prospectus, but
relates to, and should be read in conjunction with, the prospectus of Keystone
Fund for Total Return (formerly Keystone America Fund for Total Return) (the
"Fund") dated March 31, 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, located
at 200 Berkeley Street, Boston, Massachusetts 02116-5034 or your broker-dealer.
TABLE OF CONTENTS
Page
The Fund 2
Investment Policies 2
Investment Restrictions 2
Distributions and Taxes 5
Valuation of Securities 6
Brokerage 7
Sales Charges 9
Distribution Plans 13
Trustees and Officers 16
Investment Manager 20
Investment Adviser 22
Principal Underwriter 24
Declaration of Trust 25
Standardized Total Return and Yield Quotations 27
Additional Information 28
Appendix A-1
Financial Statements F-1
Independent Auditors' Report F-1
<PAGE>
- -------------------------------------------------------------------------------
THE FUND
- -------------------------------------------------------------------------------
The Fund is a diversified, open-end, management investment company
commonly known as a mutual fund. The Fund seeks total return from a combination
of capital growth and income.
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.
- -------------------------------------------------------------------------------
INVESTMENT OBJECTIVE AND POLICIES
- -------------------------------------------------------------------------------
Under ordinary circumstances, the Fund will invest principally in
dividend paying common stocks, preferred stocks,convertible bonds, other
fixed-income securities and foreign securities. Certain investments, investment
techniques, including the risks associated with such investments and investment
techniques, and ratings criteria applicable to the Fund are more fully explained
in the Appendix to this statement of additional information.
FUNDAMENTAL NATURE OF INVESTMENT OBJECTIVE
The investment objective of the Fund is fundamental and may not be
changed without approval of the holders of a majority 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").
- -------------------------------------------------------------------------------
INVESTMENT RESTRICTIONS
- -------------------------------------------------------------------------------
The following investment restrictions are fundamental and may not be
changed with respect to the Fund without the vote of a majority (as defined in
the Investment Company Act of 1940 (the "1940 Act")) of the affected 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 any of the following:
(1) purchase any security (other than United States ("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; except that (a) there is no restriction with respect to
obligations issued or guaranteed by the U.S. government, its agencies or
instrumentalities; (b) wholly-owned finance companies will be considered to be
in the industries of their parents if their activities are primarily related to
financing the activities of the parents; (c) the industry classification of
utilities will be determined according to their services (for example, gas, gas
transmission, electric and telephone will each be considered a separate
industry); and (d) the industry classification of medically related industries
will be determined according to their services (for example, management,
hospital supply, medical equipment and pharmaceuticals will each be considered a
separate industry);
(9) invest more than 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;
(10) purchase securities of other investment companies, except as part
of a merger, consolidation, purchase of assets or similar transaction;
(11) 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;
(12) 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 objectives;
(13) purchase any security (other than U.S. government securities) of
any issuer if as a result the Fund would hold more than 10% of the voting
securities of the issuer; and
(14) purchase any security for the purpose of control or management.
If a percentage limit is satisfied at the time of investment or
borrowing, a later increase or decrease resulting from a change in the value of
a security or a decrease in the Fund's assets is not a violation of the limit.
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, any officer, Trustee
or Director of the Fund, Keystone Management 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, Keystone Management 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
Management, 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 write puts and
calls on securities unless (a) the options are issued by the Options Clearing
Corporation, (b) the security underlying the put or call is within the
investment policies of the Fund, and (c) the aggregate value of the securities
underlying the calls or obligations underlying the puts, determined as of the
date of sale, does not exceed 25% of its net assets; (2) will not buy and sell
puts and calls written by others unless (a) the options are listed on a national
securities or commodities exchange or offered through certain approved national
securities associations, and (b) the aggregate premiums paid on such options
held at any time do not exceed 20% of the Fund's net assets; (3) limit its
purchase of warrants to 5% of the net assets, of which 2% may be warrants not
listed on the New York or American Stock Exchanges; (4) will not invest in
interests in oil, gas or other mineral leases, or exploration, or development
programs, except publicly traded securities of companies engaging in such
activities; (5) will not invest in real estate limited partnership interests;
(6) will not invest more than 5% of its assets in securities of issuers that the
Fund may not sell to the public without registration under the Securities Act of
1933; (7) 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; and (8) maintain 300% asset coverage
on 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.
- -------------------------------------------------------------------------------
DISTRIBUTIONS AND TAXES
- -------------------------------------------------------------------------------
The Fund distributes to its shareholders dividends from net investment
income and net realized capital gains annually in shares or, at the option of
the shareholder, in cash. (Distributions of ordinary income may be eligible in
whole or in part for the corporate 70% dividends received deduction.)
Shareholders who have not opted to receive cash will have the number of such
shares determined on the basis of the Fund's net asset value per share computed
at the end of the day on the record date after adjustment for the distribution.
Net asset value is used in computing the number of shares in both gains and
income distribution reinvestments. Account statements and/or checks as
appropriate will be mailed to shareholders within seven days after the Fund pays
the distribution. Unless the Fund receives instructions to the contrary from a
shareholder before the record date, it will assume that the shareholder wishes
to receive that distribution and future gains and income distributions in
shares. Instructions continue in effect until changed in writing.
Distributed long-term capital gains are taxable as such to the
shareholder regardless of the period of time Fund shares have been held by the
shareholder. However, if such shares are held less than six months and redeemed
at a loss, the shareholder will recognize a long-term capital loss on such
shares to the extent of the long-term capital gain distribution received in
connection with such shares. If the net asset value of the Fund's shares is
reduced below a shareholder's cost by a capital gains distribution, such
distribution, to the extent of the reduction, would be a return of investment
though taxable as stated above. Since distributions of capital gains depend upon
profits actually realized from the sale of securities by the Fund, they may or
may not occur. The foregoing comments relating to the taxation of dividends and
distributions paid on the Fund's shares relate solely to federal income
taxation. Such dividends and distributions may also be subject to state and
local taxes.
When the Fund makes a distribution, it intends to distribute only the
Fund's net capital gains and such income as has been predetermined, to the best
of the Fund's ability to be taxable as ordinary income. Shareholders of the Fund
will be advised annually of the federal income tax status of distributions.
- -------------------------------------------------------------------------------
VALUATION OF SECURITIES
- -------------------------------------------------------------------------------
Current values for the Fund's portfolio securities are determined in
the following manner:
(1) securities that are traded on a national securities exchange or the
over-the-counter National Market System ("NMS") are valued on the basis of the
last sales price on the exchange where primarily traded or NMS prior to the time
of the valuation, provided that a sale has occurred and that this price reflects
current market value according to procedures established by the Board of
Trustees;
(2) securities traded in the over-the-counter market, other than on
NMS, for which market quotations are readily available, are valued at the mean
of the bid and asked prices at the time of valuation;
(3) short-term instruments which are purchased with maturities of sixty
days or less (including all master demand notes) are valued at amortized cost
(original purchase cost as adjusted for amortization of premium or accretion of
discount) which, when combined with accrued interest, approximates market;
short-term instruments maturing in more than sixty days when purchased which are
held on the sixtieth day prior to maturity are valued at amortized cost (market
value on the sixtieth day adjusted for amortization of premium or accretion of
discount) which, when combined with accrued interest, approximates market; and
which in either case reflects fair value as determined by the Fund's Board of
Trustees; and
(4) short-term instruments having maturities of more than sixty days
for which market quotations are readily available, are valued at current market
value; where market quotations are not available, such instruments are valued at
fair value as determined by the Board of Trustees; and
(5) the following securities are valued at prices deemed in good faith
to be fair under procedures established by the Board of Trustees: (a)
securities, including restricted securities; for which complete quotations are
not readily available; (b) listed securities or those on NMS if, in the Fund's
opinion, the last sales price does not reflect a current market value or if no
sale occurred; and (c) other assets.
- -------------------------------------------------------------------------------
BROKERAGE
- -------------------------------------------------------------------------------
It is the policy of Keystone, 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 when 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 its Investment Management Agreement with
the Fund or Keystone under its Investment Advisory Agreement with Keystone
Management. 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 Investment Management Agreement and the Investment
Advisory Agreement, Keystone Management and Keystone are permitted to pay higher
brokerage commissions for brokerage and research services in accordance with
Section 28(e) of the Securities Exchange Act of 1934. In the event Keystone
Management and Keystone do follow such a practice, they will do so on a basis
that is fair and equitable to the Fund.
The Fund expects that purchases and sales of securities usually will be
effected through brokerage transactions for which commissions are payable.
Purchases from underwriters will include the underwriting commission or
concession, and purchases from dealers serving as market makers will include a
dealer's mark up or reflect a dealer's mark down. Where transactions are made in
the over-the-counter market, the Fund will deal with primary market makers
unless more favorable prices are otherwise obtainable.
The Fund may participate, if and when practicable, in group bidding for
the purchase directly from an issuer of certain securities for the Fund in order
to take advantage of the lower purchase price available to members of such a
group.
Neither Keystone Management, Keystone nor the Fund intends to place
securities transactions with any particular broker-dealer or group thereof. The
Fund's Board of Trustees has determined, however, 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.
For the fiscal years ended November 30, 1993, 1994 and 1995 the Fund
paid $59,217, $65,514 and $92,665, respectively, in brokerage commissions.
In no instance are portfolio securities purchased from or sold to
Keystone Management, Keystone, the Principal Underwriter or any of their
affiliated persons, as defined in the 1940 Act and rules and regulations issued
thereunder.
- -------------------------------------------------------------------------------
SALES CHARGES
- -------------------------------------------------------------------------------
GENERAL
The Fund currently offers three classes of shares. Class A shares are
offered with a maximum sales charge of 5.75% 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 following the month of purchase. Class B shares purchased prior
to June 1, 1995 are subject to a contingent deferred sales charge upon
redemption within four calendar years following the year of purchase ("Back End
Load Option"). Class B shares purchased on or after June 1, 1995 that have been
outstanding eight years following the month of purchase will automatically
convert to Class A shares without imposition of a front-end sales charge or
exchange fee. Class B shares purchased prior to June 1, 1995 that have been
outstanding during seven calendar years will similarly convert to Class A
shares. (Conversion of Class B shares represented by stock certificates will
require the return of the stock certificates to Keystone Investor Resource
Center, Inc., the Fund's transfer and dividend disbursing agent ("KIRC").) Class
C shares are sold subject to a contingent deferred sales charge payable upon
redemption within one year after purchase ("Level Load Option"). Class C shares
are available only through dealers who have entered into special distribution
agreements with the Principal Underwriter. The prospectus contains a general
description of how investors may buy shares of the Fund as well as a table of
applicable sales charges for Class A shares; a discussion of reduced sales
charges that may apply to subsequent purchases; and a description of applicable
contingent deferred sales charges.
CONTINGENT DEFERRED SALES CHARGES
In order to reimburse the Fund for certain expenses relating to the
sale of its shares (See "Distribution Plan"), 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)
purchased 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 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, may impose a deferred sales charge of 3% on
shares redeemed during the calendar year of purchase and the first calendar year
after the year of purchase; 2% on shares redeemed during the second calendar
year after the year of purchase; and 1% on shares redeemed during the third
calendar year after the year 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. 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 charges and
Waiver of Sales Charges" below.
CLASS C SHARES
With certain exceptions, the Fund will impose a deferred sales charge
of 1% on shares redeemed within one year after the date of purchase. No deferred
sales charge is imposed on amounts redeemed thereafter. If imposed, the deferred
sales charge is deducted from the redemption proceeds otherwise payable to you.
The deferred sales charge is retained by the Principal Underwriter. See
"Calculation of Contingent Deferred Sales Charge" below.
CALCULATION OF CONTINGENT DEFERRED SALES CHARGE
Any contingent deferred sales charge imposed upon the redemption of
Class A, Class B or Class C shares is a percentage of the lesser of (1) the net
asset value of the shares redeemed or (2) the net cost of such shares.
No contingent deferred sales charge is imposed when you redeem amounts
derived from (1) increases in the value of your account above the net cost of
such shares due to increases in the net asset value per share due to increases
in the net asset value per share of such shares; (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 when the shares of a class are exchanged for the shares of the same class
of another Keystone America Fund. Moreover, when shares of one such class of a
fund have been exchanged for shares of another such class of a fund, the
calendar year of the purchase of the shares of the Fund exchanged is assumed to
be the year shares tendered for exchange 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 Directors,
Trustees, officers, full-time employees and sales representatives of the Fund,
Keystone Management, Keystone, Keystone Investments, Inc. (formerly Keystone
Group, Inc.) ("Keystone Investments"), their subsidiaries and affiliates or the
Principal Underwriter, who have been such for not less than ninety days; (2) a
pension and profit-sharing plan established by such companies, their
subsidiaries and affiliates, for the benefit of their Trustees, Directors,
officers, full-time employees and sales representatives; or (3) a registered
representative of a firm with a dealer agreement with Principal Underwriter,
provided all such sales are made upon the written assurance 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, purchased 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.
REDEMPTION OF SHARES
The Fund has obligated itself under the 1940 Act to redeem for cash all
shares presented for redemption by any one shareholder up to the lesser of
$250,000 or 1% of the Fund's assets in any 90 day period.
- -------------------------------------------------------------------------------
DISTRIBUTION PLANS
- -------------------------------------------------------------------------------
Rule 12b-1 under the 1940 Act permits investment companies, such as the
Fund, to use their assets to bear expenses of distributing their shares if they
comply with various conditions, including adoption of a distribution plan
containing certain provisions set forth in Rule 12b-1.
DISTRIBUTION PLANS IN GENERAL
The NASD limits the amount that 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 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 which the Fund may pay for such distribution costs to 6.25% of gross
share sales since the inception of the 12b-1 Plan, plus interest at the prime
rate plus 1% on such amounts (less any contingent deferred sales charges paid by
shareholders to the Principal Underwriter).
CLASS A DISTRIBUTION PLAN. The Class A Distribution Plan provides that the Fund
may expend daily amounts at an annual rate, which is currently limited to up to
0.25% of the Fund's average daily net asset value attributable to Class A
shares, to finance any activity which is primarily intended to result in the
sale of Class A shares, including, without limitation, expenditures consisting
of payments to the principal underwriter of the Fund (currently the Principal
Underwriter) to enable the Principal Underwriter to pay or to have paid to
others who sell Class A shares a service or other fee, at such intervals as the
Principal Underwriter may determine, in respect of Class A shares maintained by
any 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
others outstanding on the books of the Fund for specific periods.
CLASS B DISTRIBUTION PLANS. The Fund has adopted Distribution Plans for its
Class B shares. Each Class B Distribution Plan provides that the Fund may expend
daily amounts at an annual rate of up to 1% 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 Plans; 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% 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 a 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% 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 outstanding 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
outstanding on the books of the Fund for specified periods.
DISTRIBUTION PLANS - GENERAL
Whether any expenditure under a Distribution Plan is subject to a state
expense limit will depend upon the nature of the expenditure and the terms of
the state law, regulation or order imposing the limit. A portion of the Fund's
Distribution Plan expenses may be included in the Fund's total operating
expenses for purposes of determining compliance with state expense limits.
Each of the Distribution Plans may be terminated at any time by a vote
of the Fund's Rule 12b-1 Trustees, or by vote of a majority of the outstanding
voting shares of the respective class of Fund shares.
Any change in the Distribution Plan that would materially increase the
distribution expenses of the Fund provided for in a Distribution Plan requires
shareholder approval. Otherwise, a Distribution Plan may be amended by the
Trustees, including the Rule 12b-1 Trustees. Unpaid distribution costs at
November 30, 1995 were $724,076 for Class B shares purchased prior to June 1,
1995 (5.29% of such Class B shares); $319,397 for Class B shares purchased on or
after June 1, 1995 (5.72% of such Class B shares); and $596,982 for Class C
shares (6.28% of Class C shares).
While a Distribution Plan is in effect, the Fund will be required to
commit the selection and nomination of candidates for Independent Trustees to
the discretion of the Independent Trustees.
The total amounts paid by the Fund under the foregoing arrangements may
not exceed the maximum Distribution Plan limits specified above. The amounts and
purposes of expenditures under a Distribution Plan must be reported to the Rule
12b-1 Trustees quarterly. The Rule 12b-1 Trustees may require or approve changes
in the implementation or operation of a Distribution Plan, and may also require
that total expenditures by the Fund under a Distribution Plan be kept within
limits lower than the maximum amount permitted by a Distribution Plan as stated
above.
The Independent Trustees of the Fund have determined that the sales of
the Fund's shares resulting from payments under the Distribution Plans have
benefited the Fund.
- -------------------------------------------------------------------------------
TRUSTEES AND OFFICERS
- -------------------------------------------------------------------------------
The 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 received any direct remuneration from the Fund.
During the same period, the unaffiliated Trustees, as a group, did not receive
retainers or fees from the Fund. Annual retainers and meeting fees paid by all
Funds in the Keystone Investments Family of Funds (which includes 30 mutual
funds) for the calendar year ended December 31, 1995, totalled approximately
$450,716. As of December 29, 1995, the Trustees and officers beneficially owned
less than 1% of the Fund's then outstanding Class A, Class B or Class C shares.
The address of all the Fund's Trustees and officers and the address of
the Fund is 200 Berkeley Street, Boston, Massachusetts 02116-5034.
- -------------------------------------------------------------------------------
INVESTMENT MANAGER
- -------------------------------------------------------------------------------
Subject to the general supervision of the Fund's Board of Trustees,
Keystone Management, located 200 Berkeley Street, Boston, Massachusetts
02116-5034, serves as investment manager to the Fund and is responsible for the
overall management of the Fund's business and affairs. Keystone Management,
organized in 1989, is a wholly-owned subsidiary of Keystone and its directors
and principal executive officers have been affiliated with Keystone, a seasoned
investment adviser, for a number of years. Keystone Management also serves as
investment manager to each of the other funds in the Keystone Fund Family and to
certain other funds in the Keystone Investments Family of Funds.
Except as otherwise noted below, pursuant to an Investment Management
Agreement with the Fund (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 under the Management
Agreement and pay or reimburse the Fund for the compensation of officers and
trustees of the Fund who are affiliated with the investment manager and will pay
all expenses of Keystone Management incurred in connection with the provisions
of its services. All charges and expenses other than those specifically referred
to as being borne by Keystone Management will be paid by the Fund, including,
but not limited to, custodian charges and expenses, bookkeeping and auditors'
charges and expenses; transfer agent charges and expenses; fees of Independent
Trustees, brokerage commissions, brokers' fees and expenses; issue and transfer
taxes; costs and expenses under the Distribution Plan; taxes and trust fees
payable to governmental agencies; the cost of share certificates, fees and
expenses of the registration and qualification of the Fund and its shares with
the Securities and Exchange Commission (sometimes referred to herein as the
"SEC" or the "Commission") or under state or other securities laws; expenses of
preparing, printing and mailing prospectuses, statements of additional
information, notices, reports and proxy materials to shareholders of the Fund;
expenses of shareholders' and Trustees' meetings; charges and expenses of legal
counsel for the Fund and for the Trustees of the Fund on matters relating to the
Fund, charges and expenses of filing annual and other reports with the SEC and
other authorities; and all extraordinary charges and expenses of the Fund.
The Management Agreement permits Keystone Management to enter into an
agreement with Keystone or another investment adviser under which Keystone or
another investment adviser, as investment adviser, will provide substantially
all the services to be provided by Keystone Management under the Management
Agreement. The Management Agreement also permits Keystone Management to delegate
to Keystone or another investment adviser substantially all of the investment
manager's rights, duties and obligations under the Management Agreement.
Keystone Management presently provides the Fund with certain administrative and
management services, such services include (1) performing research and planning
with respect to (a) the Fund's qualification as a regulated investment company
under Subchapter M of the Internal Revenue Code, (b) tax treatment of the Fund's
portfolio investments, (c) tax treatment of special corporate actions (such as
reorganizations), (d) state tax matters affecting the Fund, and (e) the Fund's
distributions of income and capital gains; (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 of:
Aggregate Net Asset
Management Value of the Shares
Fee Income of the Fund
1.5% of Gross Dividend and
Interest Income Plus
0.60% of the first $ 100,000,000, plus
0.55% of the next $ 100,000,000, plus
0.50% of the next $ 100,000,000, plus
0.45% of the next $ 100,000,000, plus
0.40% of the next $ 100,000,000, plus
0.35% of the next $ 500,000,000, plus
0.30% of amounts over $1,000,000,000;
computed as of the close of business each business day and paid daily.
the fund is subject to certain annual state expense limitations, the
most restrictive of which is as follows:
2.5% of the first $30 million of Fund average net assets;
2.0% of the next $70 million of Fund average net assets; and
1.5% of Fund average net assets over $100 million.
As a continuing condition of registration of shares in a state,
Keystone Management has agreed to reimburse the Fund annually for certain
operating expenses incurred by the Fund in excess of certain percentages of the
Fund's average daily net assets. Keystone Management is not required, however,
to make such reimbursements to the extent it would result in the Fund's
inability to qualify as a regulated investment company under provisions of the
Internal Revenue Code. This condition may be modified or eliminated in the
future.
The Management Agreement continues in effect only if approved at least
annually by the 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.
- -------------------------------------------------------------------------------
INVESTMENT ADVISER
- -------------------------------------------------------------------------------
Pursuant to the Management Agreement, Keystone Management has delegated
its investment management functions, except for certain administrative and
management services to be performed by Keystone Management, to Keystone and has
entered into an Investment Advisory Agreement (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 privately owned by current and
former members of management and certain employees of Keystone and its
affiliates. The shares of Keystone Investments common stock beneficially owned
by management are held in a number of voting trusts, the Trustees of which are
George S. Bissell, Albert H. Elfner, III, Edward F. Godfrey and Ralph J.
Spuehler, Jr. Keystone Investments provides accounting, bookkeeping, legal,
personnel and general corporate services to Keystone 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 Fund's
operation, and manages the investment and reinvestment of the Fund's assets in
conformity with the Fund's investment objectives and restrictions. The Advisory
Agreement stipulates that Keystone shall provide office space, all necessary
office facilities, equipment and personnel in connection with its services under
the Advisory Agreement and pay or reimburse the Fund for the compensation of
officers and Trustees of the Fund who are affiliated with the investment manager
as well as pay all expenses of Keystone incurred in connection with the
provisions of its services. All charges and expenses other than those
specifically referred to as being borne by Keystone will be paid by the Fund,
including, but not limited to, custodian charges and expenses, bookkeeping and
auditors' charges and expenses; transfer agent charges and expenses; fees of
Independent Trustees; brokerage commissions, brokers' fees and expenses; issue
and transfer taxes; costs and expenses under the Distribution 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 services
fees of $200,203, which represented 0.65% of the Fund's average daily net
assets. Of such amount paid to Keystone Management, $170,173 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 $242,315, which represented 0.65% of the Fund's average daily net
assets. Of such amount paid to Keystone Management, $205,968 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 administrative services
fees of $300,290, which represented 0.65% of the Fund's average daily net
assets. Of such amount paid to Keystone Management, $255,247 was paid to
Keystone for its services to the Fund.
- -------------------------------------------------------------------------------
PRINCIPAL UNDERWRITER
- -------------------------------------------------------------------------------
The Fund has entered into a Principal Underwriting Agreement (the
"Underwriting Agreement") with the Principal Underwriter, a wholly-owned
subsidiary of Keystone.
The Principal Underwriter, located at 200 Berkeley Street, Boston,
Massachusetts, 02116-5034, is a Delaware corporation. The Principal Underwriter,
as agent, currently has the right to obtain subscriptions for and to sell shares
of the Fund to the public. In so doing, the Principal Underwriter may retain and
employ representatives to promote distribution of the shares and may obtain
orders from brokers, dealers or others, acting as principals, for sales of
shares. No such representative, dealer or broker has any authority to act as
agent for the Fund. The Principal Underwriter has not undertaken to buy or to
find purchasers for any specific number of shares. The Principal Underwriter may
receive payments from the Fund pursuant to the Distribution Plans.
All subscriptions and sales of shares by the Principal Underwriter are
at the offering price of the shares, such price being in accordance with the
provisions of the Fund's Declaration of Trust, By-Laws, the 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 as
well as auditing and filing fees in connection with registration of its shares
under the various state "blue-sky" laws.
From time to time, if in the Principal Underwriter's judgment it could
benefit the sales of Fund shares, the Principal Underwriter may use its
discretion in providing to selected dealers promotional materials and selling
aids, including but not limited to personal computers, related software and Fund
data files.
The Principal Underwriter has agreed that it will, in all respects,
duly conform with all state and federal laws applicable to the sale of the
shares and will indemnify and hold harmless the Fund, and each person who has
been, is or may be a Trustee or officer of the Fund, against expenses reasonably
incurred by any of them in connection with any claim or in connection with any
action, suit or proceeding to which any of them may be a party, which 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 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.
- -------------------------------------------------------------------------------
DECLARATION OF TRUST
- -------------------------------------------------------------------------------
MASSACHUSETTS BUSINESS TRUST
The Fund is a Massachusetts business trust established under a
Declaration of Trust dated October 24, 1986. 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 (the "Declaration of Trust") is filed as an exhibit
to the Registration Statement of which this statement of additional information
is a part. This summary is qualified in its entirety by reference to the
Declaration of Trust.
DESCRIPTION OF SHARES
The Declaration of Trust authorizes the issuance of an unlimited number
of shares of beneficial interest of classes of shares. Each share of the Fund
represents an equal proportionate interest with each other share of that class.
Upon liquidation, shares are entitled 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 redeemable and transferable. The Fund is
authorized to issue additional classes or series of shares. Generally, the Fund
currently issues three classes of shares, but may issue additional classes or
series of shares.
SHAREHOLDER LIABILITY
Pursuant to certain decisions of the Supreme Judicial Court of
Massachusetts, shareholders of a Massachusetts business trust may, under certain
circumstances, be held personally liable as partners for the obligations of the
trust. If the Fund were held to be a partnership, the possibility of the
shareholders incurring financial loss for that reason appears remote because (1)
the Fund's Declaration of Trust contains an express disclaimer of shareholder
liability for obligations of the Fund and requires that notice of such
disclaimer be given in each agreement, obligation or instrument entered into or
executed by the Fund or the Trustees; and (2) the Declaration of Trust Agreement
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.
At meetings called for the initial election of Trustees or to consider other
matters, shares are entitled to one vote per share. Shares generally vote
together as one class on all matters. Classes of shares of the Fund have equal
voting rights except that each class of shares has exclusive voting rights with
respect to its respective Distribution Plan. No amendment may be made to the
Declaration of Trust which adversely affects any class of shares without the
approval of a majority of the shares of that class. Shares have non-cumulative
voting rights, which means that the holders of more than 50% of the shares
voting for the election of Trustees can elect 100% of the Trustees to be elected
at a meeting and, in such event, the holders of the remaining 50% or less of the
shares voting will not be able to elect any Trustees.
After an initial meeting as described above, no further meetings of
shareholders for the purpose of electing Trustees will be held, unless required
by law, 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 a
Trustee becomes mentally or physically incapacitated; or (3) at a special
meeting of shareholders by a two-thirds vote of the outstanding shares. Any
Trustee may voluntarily resign from office.
LIMITATION OF TRUSTEES' LIABILITY
The Declaration of Trust provides that a Trustee will not be liable for
errors of judgment or mistakes of fact or law, but nothing in the Declaration of
Trust protects a Trustee against any liability to which he would otherwise be
subject by reason of willful misfeasance, bad faith, gross negligence or
reckless disregard of his duties involved in the conduct of his office.
- -------------------------------------------------------------------------------
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 the maximum sales
charge 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 returns of Class A shares for the five year period
ended November 30, 1995 and the period from April 14, 1987 (commencement of
operations) to November 30, 1995 were 71.85% and 117.36%, respectively. The
compounded average annual rates of return for Class A shares for the one and
five year periods ended November 30, 1995 and the period from commencement of
operations to November 30, 1995 were 19.29%, 11.44% and 9.41%, respectively.
The cumulative total returns for Class B and Class C shares for the
period February 1, 1993 (commencement of operations) through fiscal year ended
November 30, 1995 were 26.48% (including applicable contingent deferred sales
charges), and 29.56%, respectively. The compounded average annual rates of
return for Class B and Class C shares for the one year period ended November 30,
1995 were 21.59% (including applicable contingent deferred sales charge) and
25.57%, respectively. The compounded average annual rates of return for Class B
and Class C shares for the period beginning February 1, 1993 (commencement of
operations) through November 30, 1995 were 8.64% (including applicable
contingent deferred sales charges) and 9.57%, respectively.
- -------------------------------------------------------------------------------
ADDITIONAL INFORMATION
- -------------------------------------------------------------------------------
State Street Bank and Trust Company, 225 Franklin Street, Boston,
Massachusetts 02110, is custodian of all securities and cash of the Fund (the
"Custodian"). The Custodian performs no investment management functions for the
Fund, but, in addition to its custodial services, is responsible for accounting
and related recordkeeping on behalf of the Fund.
KPMG Peat Marwick LLP, 99 High Street, Boston, Massachusetts 02110,
Certified Public Accountants, are the Fund's independent auditors.
KIRC, located at 101 Main Street, Cambridge, Massachusetts 02142-1519,
is a wholly-owned subsidiary of Keystone and acts as transfer agent and dividend
disbursing agent for the Fund.
As of December 29, 1995, Merrill Lynch Pierce Fenner & Smith, Attn:
Book Entry, 4800 Deer Lake Dr. E 3rd FL, Jacksonville, FL 32246-6468 owned 6.40%
of the outstanding Class A shares of the Fund.
As of December 29, 1995, Merrill Lynch Pierce Fenner & Smith, Attn:
Book Entry, 4800 Deer Lake Dr. E 3rd FL, Jacksonville, FL 32246-6468 owned 9.36%
of the outstanding Class B shares of the Fund.
As of December 29, 1995, the following shareholders owned 5% or more of
the outstanding Class C shares of the Fund: Lavedna Ellingson, Douglas Ellingson
TTEE, U/A DTD 05/01/86, Lavedna Ellingson Marital Trust, 8510 McClintock, Tempe,
AZ 85284-2527 owned 19.33%; Merrill Lynch Pierce Fenner & Smith, Attn: Book
Entry, 4800 Deer Lake Dr. E 3rd FL, Jacksonville, FL 32246-6468 owned 14.90%;
and Lavedna Ellingson, Douglas Ellingson TTEE, U/A DTD 09/03/84, Ellingson
Revocable Trust, 8510 McClintock, Tempe, AZ 85284-2527 owned 5.48%.
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, 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 statement of additional information omit
certain information contained in the registration statement filed with the
Securities and Exchange Commission, which may be obtained from the Securities
and Exchange Commission's principal office in Washington, D.C. upon payment of
the fee prescribed by the rules and regulations promulgated by the Securities
and Exchange Commission.
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.
The Keystone America Fund 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 common stocks, preferred stocks,
convertible bonds, other fixed-income securities and foreign securities (up to
50%).
KEYSTONE GLOBAL OPPORTUNITIES FUND - Seeks long-term capital growth from foreign
and domestic securities.
KEYSTONE GOVERNMENT SECURITIES FUND - Seeks income and capital preservation
from U.S. government securities.
KEYSTONE AMERICA HARTWELL EMERGING GROWTH FUND, INC. - Seeks capital
appreciation by investment primarily in small and medium-sized companies in a
relatively early stage of development that are principally traded in the
over-the-counter market.
KEYSTONE HARTWELL GROWTH FUND - Seeks capital appreciation by investment in
securities selected for their long-term growth prospects.
KEYSTONE INTERMEDIATE TERM BOND FUND - Seeks income, capital preservation and
price appreciation potential from investment grade corporate bonds.
KEYSTONE OMEGA FUND - Seeks maximum capital growth from common stocks and
securities convertible into common stocks.
KEYSTONE STATE TAX FREE FUND - A mutual fund consisting of five separate series
of shares investing in different portfolio securities which seeks the highest
possible current income, exempt from federal income taxes and applicable state
taxes.
KEYSTONE STATE TAX FREE FUND - SERIES II - A mutual fund consisting of two
separate series of shares investing in different portfolio securities which
seeks the highest possible current income, exempt from federal income taxes and
applicable state taxes.
KEYSTONE STRATEGIC INCOME FUND - Seeks high yield and capital appreciation
potential from corporate bonds, discount bonds, convertible bonds, preferred
stock and foreign bonds (up to 25%).
KEYSTONE TAX FREE INCOME FUND - Seeks income exempt from federal income taxes
and capital preservation from the four highest grades of municipal bonds.
KEYSTONE WORLD BOND FUND - Seeks total return from interest income, capital
gains and losses and currency exchange gains and losses from investment in debt
securities denominated in U.S. and foreign currencies.
KEYSTONE FUND OF THE AMERICAS - Seeks long-term growth of capital through
investments in equity and debt securities in North America (the United States
and Canada) and Latin America (Mexico and countries in South and Central
America).
KEYSTONE STRATEGIC DEVELOPMENT FUND - Seeks long-term capital growth by
investing primarily in equity securities.
<PAGE>
- ------------------------------------------------------------------------------
APPENDIX
- ------------------------------------------------------------------------------
COMMON AND PREFERRED STOCK RATINGS
A. S&P'S EARNINGS AND DIVIDEND RANKINGS FOR COMMON STOCKS
Because the investment process involves assessment of various factors,
such as product and industry position, corporate resources and financial policy,
with results that make some common stocks more highly esteemed than others, S&P
believes that earnings and dividend performance is the end result of the
interplay of these factors and that, over the long run, the record of this
performance has a considerable bearing on relative quality. S&P rankings,
however, do not reflect all of the factors, tangible or intangible, that bear on
stock quality.
Growth and stability of earnings and dividends are deemed key elements
in establishing S&P earnings and dividend rankings for common stocks, which
capsulize the nature of this record in a single symbol.
S&P has established a computerized scoring system based on per-share
earnings and dividend records of the most recent ten years, a period deemed long
enough to measure a company's performance under varying economic conditions. S&P
measures growth, stability within the trend line and cyclicality. The ranking
system also makes allowances for company size, since large companies have
certain inherent advantages over small ones. From these scores for earnings and
dividends are determined.
The final score for each stock is measured against a scoring matrix
determined by analysis of the scores of a large and representative sample which
is reviewed and sometimes modified with the following ladder of rankings:
A+ Highest B+ Average C Lowest
A High B Below Average D In Reorganization
A- Above Average B- Lower
S&P believes its rankings are not a forecast of future market price
performance, but are basically an appraisal of past performance of earnings and
dividends, and relative current standing.
B. MOODY'S COMMON STOCK RANKINGS
Moody's presents a concise statement of the important characteristics
of a company and an evaluation of the grade (quality) of its common stock. Data
presented includes: (a) capsule stock information which reveals short and long
term growth and yield afforded by the indicated dividend, based on a recent
price; (b) a long term price chart which shows patterns of monthly stock price
movements and monthly trading volumes; (c) a breakdown of a company's capital
account which aids in determining the degree of conservatism or financial
leverage in a company's balance sheet; (d) interim earnings for the current year
to date, plus three previous years; (e) dividend information; (f) company
background; (g) recent corporate developments; (h) prospects for a company in
the immediate future and the next few years; and (i) a ten-year comparative
statistical analysis.
This information provides investors with information on what a company
does, how it has performed in the past, how it is performing currently and what
its future performance prospects appear to be.
These characteristics are then evaluated and result in a grading, or
indication of quality. The grade is based on an analysis of each company's
financial strength, stability of earnings and record of dividend payments. Other
considerations include conservativeness of capitalization, depth and caliber of
management, accounting practices, technological capabilities and industry
position. Evaluation is represented by the following grades:
(1) High Grade
(2) Investment Grade
(3) Medium Grade
(4) Speculative Grade
C. MOODY'S PREFERRED STOCK RATINGS
Preferred stock ratings and their definitions are as follows:
1. aaa: An issue which is rated "aaa" is considered to be a top-quality
preferred stock. This rating indicates good asset protection and the least risk
of dividend impairment within the universe of preferred stocks.
2. aa: An issue which is rated "aa" is considered a high-grade
preferred stock. This rating indicates that there is a reasonable assurance that
earnings and asset protection will remain relatively well maintained in the
foreseeable future.
3. a: An issue which is rated "a" is considered to be an upper-medium
grade preferred stock. While risks are judged to be somewhat greater then in the
"AAA" and "AA" classification, earnings and asset protection are, nevertheless,
expected to be maintained at adequate levels.
4. baa: An issue which is rated "baa" is considered to be a
medium-grade preferred stock, neither highly protected nor poorly secured.
Earnings and asset protection appear adequate at present but may be questionable
over any great length of time.
5. ba: An issue which is rated "ba" is considered to have speculative
elements and its future cannot be considered well assured. Earnings and asset
protection may be very moderate and not well safeguarded during adverse periods.
Uncertainty of position characterizes preferred stocks in this class.
6. b: An issue which is rated "b" generally lacks the characteristics
of a desirable investment. Assurance of dividend payments and maintenance of
other terms of the issue over any long period of time may be small.
7. caa: An issue which is rated "caa" is likely to be in arrears on
dividend payments. This rating designation does not purport to indicate the
future status of payments.
8. ca: An issue which is rated "ca" is speculative in a high degree and
is likely to be in arrears on dividends with little likelihood of eventual
payments.
9. c: This is the lowest rated class of preferred or preference stock.
Issues so rated can be regarded as having extremely poor prospects of ever
attaining any real investment standing.
Moody's applies numerical modifiers 1, 2 and 3 in each rating
classification: the modifier 1 indicates that the security ranks in the higher
end of its generic rating category; the modifier 2 indicates a mid-range
ranking; and the modifier 3 indicates that the issue ranks in the lower end of
its generic rating category.
CORPORATE BOND RATINGS
S&P CORPORATE BOND RATINGS
An S&P corporate bond rating is a current assessment of the
creditworthiness of an obligor, including obligors outside the United States,
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 "A" may be modified by the addition of a plus or
minus sign to show relative standing within the major rating categories.
Bond ratings are as follows:
1. AAA - Debt rated AAA has the highest rating assigned by S&P.
Capacity to pay interest and repay principal is extremely strong.
2. AA - Debt rated AA has a very strong capacity to pay interest and
repay principal and differs from the higher rated issues only in small degree.
3. A - Debt rated A has a strong capacity to pay interest and repay
principal although it is somewhat more susceptible to the adverse effects of
changes in circumstances and economic conditions than debt in higher rated
categories.
4. BBB - Debt rated BBB is regarded as having an adequate capacity to
pay interest and repay principal. Whereas it normally exhibits adequate
protection parameters, adverse economic conditions or changing circumstances are
more likely to lead to a weakened capacity to pay interest and repay principal
for debt in this category than in higher rated categories.
5. BB, B, CCC, CC AND C - Debt rated BB, B, CCC, CC AND C is regarded,
on balance, as predominantly speculative with respect to capacity to pay
interest and repay principal in accordance with the terms of the obligation. BB
indicates the lowest degree of speculation and C the highest degree of
speculation. While such debt will likely have some quality and protective
characteristics, these are outweighed by large uncertainties or major risk
exposures to adverse conditions.
6. CI - The rating CI is reserved for income bonds on which no interest
is being paid.
7. D - Debt rated D is in default, and payment of interest and/or
repayment of principal is in arrears. MOODY'S CORPORATE BOND RATINGS
Moody's ratings are as follows:
1. Aaa - Bonds which are rated Aaa are judged to be of the best
quality. They carry the smallest degree of investment risk and are generally
referred to as "gilt-edge." Interest payments are protected by a large or by an
exceptionally stable margin and principal is secure. While the various
protective elements are likely to change, such changes as can be visualized are
most unlikely to impair the fundamentally strong position of such issues.
2. Aa - Bonds which are rated Aa are judged to be of high quality by
all standards. Together with the AAA group they comprise what are generally
known as high grade bonds. They are rated lower than the best bonds because
margins of protection may not be as large as in AAA securities or fluctuation of
protective elements may be of greater amplitude or there may be other elements
present which make the long term risks appear somewhat larger than in AAA
securities.
3. A - Bonds which are rated A possess many favorable investment
attributes and are to be considered as upper medium grade obligations. Factors
giving security to principal and interest are considered adequate but elements
may be present which suggest a susceptibility to impairment sometime in the
future.
4. Baa - Bonds which are rated Baa are considered as medium grade
obligations, i.e., they are neither highly protected nor poorly secured.
Interest payments and principal security appear adequate for the present but
certain protective elements may be lacking or may be characteristically
unreliable over any great length of time. Such bonds lack outstanding investment
characteristics and in fact have speculative characteristics as well.
5. Ba - Bonds which are rated Ba are judged to have speculative
elements. Their future cannot be considered as well assured. Often the
protection of interest and principal payments may be very moderate and thereby
not well safeguarded during both good and bad times over the future. Uncertainty
of position characterizes bonds in this class.
6. B - Bonds which are rated B generally lack characteristics of the
desirable investment. Assurance of interest and principal payments or of
maintenance of other terms of the contract over any long period of time may be
small.
7. Caa - Bonds which are rated Caa are of poor standing. Such issues
may be in default or there may be present elements of danger with respect to
principal or interest.
8. Ca - Bonds which are Ca represent obligations which are speculative
in a high degree. Such issues are often in default or have other market
shortcomings.
9. C - Bonds which are rated as C are the lowest rated class of bonds
and issues so rated can be regarded as having extremely poor prospects of ever
attaining any real investment standing.
Moody's applies numerical modifiers, 1, 2 and 3 in each generic rating
classification from AA through B in its corporate bond rating system. The
modifier 1 indicates that the security ranks in the higher end of its generic
rating category; the modifier 2 indicates a mid-range ranking; and the modifier
3 indicates that the issue ranks in the lower end of its generic rating
category.
ZERO COUPON BONDS
A zero coupon "stripped" bond represents ownership in serially maturing
interest payments or principal payments on specific underlying notes and bonds,
including coupons relating to such notes and bonds. The interest and principal
payments are direct obligations of the issuer. Coupon zero coupon bonds of any
series mature periodically from the date of issue of such series through the
maturity date of the securities related to such series. Principal zero coupon
bonds mature on the date specified therein, which is the final maturity date of
the related securities. Each zero coupon bond entitles the holder to receive a
single payment at maturity. There are no periodic interest payments on a zero
coupon bond. Zero coupon bonds are offered at discounts from their face amounts.
In general, owners of zero coupon bonds have substantially all the
rights and privileges of owners of the underlying coupon obligations or
principal obligations. Owners of zero coupon bonds have the right upon default
on the underlying coupon obligations or principal obligations to proceed
directly and individually against the issuer and are not required to act in
concert with other holders of zero coupon bonds.
For federal income tax purposes, a purchaser of principal zero coupon
bonds or coupon zero coupon bonds (either initially or in the secondary market)
is treated as if the buyer had purchased a corporate obligation issued on the
purchase date with an original issue discount equal to the excess of the amount
payable at maturity over the purchase price. The purchaser is required to take
into income each year as ordinary income an allocable portion of such discounts
determined on a "constant yield" method. Any such income increases the holder's
tax basis for the zero coupon bond, and any gain or loss on a sale of the zero
coupon bonds relative to the holder's basis, as so adjusted, is a capital gain
or loss. If the holder owns both principal zero coupon bonds and coupon zero
coupon bonds representing interest in the same underlying issue of securities, a
special basis allocation rule (requiring the aggregate basis to be allocated
among the items sold and retained based on their relative fair market values at
the time of sale) may apply to determine the gain or loss on a sale of any such
zero coupon bonds items.
PAYMENT-IN-KIND SECURITIES
Payment-in-kind ("PIK") securities pay interest in either cash or
additional securities, at the issuer's option, for a specified period. The
issuer's option to pay in additional securities typically ranges from one to six
years, compared to an average maturity for all PIK securities of eleven years.
Call protection and sinking fund features are comparable to those offered on
traditional debt issues.
PIKs, like zero coupon bonds, are designated to give an issuer
flexibility in managing cash flow. Several PIKs are senior debt. In other cases,
where PIKs are subordinated, most senior lenders view them as equity
equivalents.
An advantage of PIKs for the issuer - as with zero coupon securities -
is that interest payments are automatically compounded (reinvested) at the
stated coupon rate, which is not the case with cash-paying securities. However,
PIKs are gaining popularity over zeros since interest payments in additional
securities can be monetized and are more tangible than accretion of a discount.
As a group, PIK bonds trade flat (i.e., without accrued interest).
Their price is expected to reflect an amount representing accredited interest
since the last payment. PIKs generally trade at higher yields than comparable
cash-paying securities of the same issuer. Their premium yield is the result of
the lesser desirability of non-cash interest, the more limited audience for
non-cash paying securities, and the fact that many PIKs have been issued to
equity investors who do not normally own or hold such securities.
Calculating the true yield on a PIK security requires a discounted cash
flow analysis if the security (ex interest) is trading at a premium or a
discount, because the realizable value of additional payments is equal to the
current market value of the underlying security, not par.
Regardless of whether PIK securities are senior or deeply subordinated,
issuers are highly motivated to retire them because they are usually their most
costly form of capital. Sixty-eight percent of the PIK debentures issued prior
to 1987 have already been redeemed, and approximately 35% of the over $10
billion PIK debentures issued through year-end 1988 have been retired.
CONVERTIBLE SECURITIES
The Fund may invest in convertible securities. These securities, which
include bonds, debentures, corporate notes, preferred stocks and other
securities, are securities which the holder can convert into common stock.
Convertible securities rank senior to common stock in a corporation's capital
structure and, therefore, entail less risk than a corporation's common stock.
The value of a convertible security is a function of its investment value (its
market worth without a conversion privilege) and its conversion value (its
market worth if exchanged). If a convertible security's investment value is
greater than its conversion value, its price primarily will reflect is
investment value and will tend to vary inversely with interest rates (the
issuer's creditworthiness and other factors also may affect its value). If a
convertible security's conversion value is greater than its investment value,
its price will tend to be higher than its conversion value and it will tend to
fluctuate directly with the price of the underlying equity security.
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 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, A-2 or higher by S&P, PRIME-1 by Moody's, or F-1 by Fitch Investors
Service, Inc. (Fitch's); or, if not rated, will be issued by companies which
have an outstanding debt issue rated at the time of purchase Aaa, Aa or A by
Moody's, or AAA, AA or A by S&P, or will be determined by Keystone to be of
comparable quality.
A. S&P RATINGS
An S&P commercial paper rating is a current assessment of the
likelihood of timely payment of debt having an original maturity of no more than
365 days. Ratings are graded into four categories, ranging from "A" for the
highest quality obligations to "D" for the lowest. The top category is as
follows:
1. A: Issues assigned this highest rating are regarded as having the
greatest capacity for timely payment. Issues in this category are delineated
with the numbers 1, 2 and 3 to indicate the relative degree of safety.
2. A-1: This designation indicates that the degree of safety regarding timely
payment is either overwhelming or very strong. Those issues determined to
possess overwhelming safety characteristics are denoted with a plus (+) sign
designation.
B. MOODY'S RATINGS
The term "commercial paper" as used by Moody's means promissory
obligations not having an original maturity in excess of nine months. Moody's
commercial paper ratings are opinions of the ability of issuers to repay
punctually promissory obligations not having an original maturity in excess of
nine months. Moody's employs the following designation, judged to be investment
grade, to indicate the relative repayment capacity of rated issuers.
1. The rating PRIME-1 is the highest commercial paper rating assigned
by Moody's. Issuers rated PRIME-1 (or related supporting institutions) are
deemed to have a superior capacity for repayment of short term promissory
obligations. Repayment capacity of PRIME-1 issuers is normally evidenced by the
following characteristics:
1) leading market positions in well-established industries;
2) high rates of return on funds employed;
3) conservative capitalization structures with moderate reliance on
debt and ample asset protection;
4) broad margins in earnings coverage of fixed financial charges and
high internal cash generation; and
5) well established access to a range of financial markets and assured
sources of alternate liquidity.
In assigning ratings to issuers whose commercial paper obligations are
supported by the credit of another entity or entities, Moody's evaluates the
financial strength of the affiliated corporations, commercial banks, insurance
companies, foreign governments or other entities, but only as one factor in the
total rating assessment.
CERTIFICATES OF DEPOSIT
Certificates of deposit are receipts issued by a bank in exchange for
the deposit of funds. The issuer agrees to pay the amount deposited plus
interest to the bearer of the receipt on the date specified on the certificate.
The certificate usually can be traded in the secondary market prior to maturity.
Certificates of deposit will be limited to U.S. dollar-denominated
certificates of United States banks, including their branches abroad, and of
U.S. branches of foreign banks, which are members of the Federal Reserve System
or the Federal Deposit Insurance Corporation, and have at least $1 billion in
deposits as of the date of their most recently published financial statements,
or of savings and loan associations which 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 recently published financial statements.
The Fund will not acquire time deposits or obligations issued by the
International Bank for Reconstruction and Development, the Asian Development
Bank or the Inter-American Development Bank. Additionally, the Fund does not
currently intend to purchase such foreign securities (except to the extent that
certificates of deposit of foreign branches of U.S. banks may be deemed foreign
securities) or purchase certificates of deposit, bankers' acceptances or other
similar obligations issued by foreign banks.
BANKERS' ACCEPTANCES
Bankers' acceptances typically arise from short term credit
arrangements designed to enable businesses to obtain funds to finance commercial
transactions. Generally, an acceptance is a time draft drawn on a bank by an
exporter or an importer to obtain a stated amount of funds to pay for specific
merchandise. The draft is then "accepted" by the bank that, in effect,
unconditionally guarantees to pay the face value of the instrument on its
maturity date. The acceptance may then be held by the accepting bank as an
earning asset or it may be sold in the secondary market at the going rate of
discount for a specific maturity. Although maturities for acceptances can be as
long as 270 days, most acceptances have maturities of six months or less.
Bankers' acceptances acquired by the Fund must have been accepted by U.S.
commercial banks, including foreign branches of U.S. commercial banks, having
total deposits at the time of purchase in excess of $1 billion and must be
payable in U.S. dollars.
UNITED STATES GOVERNMENT SECURITIES
Securities issued or guaranteed by the U.S. government include a
variety of Treasury securities that differ only in their interest rates,
maturities and dates of issuance 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 United
States, Small Business Administration, General Services Administration, Central
Bank for Cooperatives, Federal Home Loan Banks, Federal Loan Mortgage
Corporation, Federal Intermediate Credit Banks, Federal Land Banks, Maritime
Administration, The Tennessee Valley Authority, District of Columbia Armory
Board and Federal National Mortgage Association.
Some obligations of U.S. government agencies and instrumentalities,
such as securities of Federal Home Loan Banks, are supported by the right of the
issuer to borrow from the Treasury. Others, such as bonds issued by the Federal
National Mortgage Association, a private corporation, are supported only by the
credit of the instrumentality. Because the U.S. government is not obligated by
law to provide support to an instrumentality it sponsors, the Fund will invest
in the securities issued by such an instrumentality only when Keystone
determines under standards established by the Board of Trustees that the credit
risk with respect to the instrumentality does not make its securities unsuitable
investments. U.S. government securities do not include international agencies or
instrumentalities in which the U.S. government, its agencies or
instrumentalities participate, such as the World Bank, Asian Development Bank or
the Inter-American Development Bank, or issues insured by the Federal Deposit
Insurance Corporation or Federal Savings and Loan Insurance Corporation.
LIMITED PARTNERSHIPS
The Fund may invest in limited and master limited partnerships. A
limited partnership is a partnership consisting of one or more general partners,
jointly and severally responsible as ordinary partners, and by whom the business
is conducted, and one or more limited partners who contribute cash as capital to
the partnership and who generally are not liable for the debts of the
partnership beyond the amounts contributed. Limited partners are not involved in
the day-to-day management of the partnership. They receive income, capital gains
and other tax benefits associated with the partnership project in accordance
with terms established in the partnership agreement. Typical limited
partnerships are in real estate, oil and gas and equipment leasing, but they
also finance movies, research and development and other projects.
Generally, for an organization classified as a partnership under the
Internal Revenue Code, each item of income, gain, loss, deduction and credit is
not taxed at the partnership level but flows through to the holder of the
partnership unit. This allows the partnership to avoid double taxation and to
pass through income to the holder of the partnership unit at lower individual
rates. However, under provisions of tax and budget legislation enacted into law
on December 22, 1987, and effective for taxable years after December 31, 1987,
with certain exceptions, partnerships with interests that are traded on
regularly established securities markets or are tradable on a secondary market
will be treated as corporations for federal income tax purposes, thus
eliminating the pass-through tax benefits.
A master limited partnership is a publicly traded limited partnership.
The partnership units are registered with the Securities and Exchange Commission
and are freely exchanged on a securities exchange or in the over-the-counter
market.
OPTIONS TRANSACTIONS
OPTION WRITING AND RELATED RISKS
The Fund may write covered call and put options. A call option gives
the purchaser of the option the right to buy, and the writer the obligation to
sell, the underlying security at the exercise price during the option period.
Conversely, a put option gives the purchaser the right to sell, and the writer
the obligation to buy, the underlying security at the exercise price during the
option period.
So long as the obligation of the writer continues, the writer may be
assigned an exercise notice by the broker/dealer through whom the option was
sold. The exercise notice would require the writer to deliver, in the case of a
call, or take delivery of, in the case of a put, the underlying security against
payment of the exercise price. This obligation terminates upon expiration of the
option, or at such earlier time that the writer effects a closing purchase
transaction by purchasing an option of the same series as the one previously
sold. Once an option has been exercised, the writer may not execute a closing
purchase transaction. For options traded on national securities exchanges to
secure the obligation to deliver the underlying security in the case of a call
option, the writer of the option is required to deposit in escrow the underlying
security or other assets in accordance with the rules of the OCC, an institution
created to interpose itself between buyers and sellers of options. Technically,
the OCC assumes the order side of every purchase and sale transaction on an
exchange and by doing so, gives its guarantee to the transaction.
The principal reason for writing options on a securities portfolio is
to attempt to realize, through the receipt of premiums, a greater return than
would be realized on the underlying securities alone. In return for the premium,
the covered call option writer has given up the opportunity for profit from a
price increase in price of the underlying security above the exercise price so
long as the option remains open, but retains the risk of loss should the price
of the security decline. Conversely, the put option writer gains a profit, in
the form of a premium, so long as the price of the underlying security remains
above the exercise price, but assumes an obligation to purchase the underlying
security from the buyer of the put option at the exercise price, even though the
security may fall below the exercise price, at any time during the option
period. If an option expires, the writer realizes a gain in the amount of the
premium. Such a gain may, in the case of a covered call option, be offset by a
decline in the market value of the underlying security during the option period.
If a call option is exercised, the writer realizes a gain or loss from the sale
of the underlying security. If a put option is exercised, the writer must
fulfill his obligation to purchase the underlying security at the exercise
price, which will usually exceed the then market value of the underlying
security. In addition, the premium paid for the put effectively increases the
cost of the underlying security, thus reducing the yield otherwise available
from such securities.
Because the Fund can write only covered options, it may at times be
unable to write additional options unless it sells a portion of its portfolio
holdings to obtain new debt securities against which it can write options. This
may result in higher portfolio turnover and correspondingly greater brokerage
commissions and other transaction costs.
To the extent that a secondary market is available, the covered option
writer may close out options it has written prior to the assignment of an
exercise notice by purchasing, in a closing purchase transaction, an option of
the same series as the option previously written. If the cost of such a closing
purchase, plus transaction costs, is greater than the premium received upon
writing the original option, the writer will incur a loss in the transaction.
WRITING COVERED OPTIONS
The Fund writes only covered options. Call and put options written by
the Fund will normally have expiration dates of not more than nine months from
the date written. The exercise price of the options may be below, equal to, or
above the current market values of the underlying securities at the times the
options are written.
Unless the option has been exercised, the Fund may close out an option
it has written by effecting a closing purchase trans action, whereby it
purchases an option covering the same underlying security and having the same
exercise price and expiration date (of the same series) as the one it has
written. If the Fund desires to sell a particular security on which it has
written a call option, it will effect a closing purchase transaction prior to or
concurrently with the sale of the security. If the Fund is able to enter into a
closing purchase transaction, the Fund will realize a profit (or loss) from such
transaction if the cost of such transaction is less (or more) than the premium
received from the writing of the option.
An option position may be closed out only in a secondary market for an
option of the same series. Although the Fund will generally write only those
options for which there appears to be an active secondary market, there is no
assurance that a liquid secondary market will exist for any particular option at
any particular time, and for some options no secondary market may exist. In such
event it might not be possible to effect a closing transaction in a particular
option. If the Fund as a covered call option writer is unable to effect a
closing purchase transaction, it will not be able to sell the underlying
securities until the option expires or it delivers the underlying securities
upon exercise.
Because the Fund intends to qualify as a regulated investment company
under the Internal Revenue Code, the extent to which the Fund may write covered
call options and enter into so-called "straddle" transactions involving put and
call options may be limited.
Many options are traded on registered securities exchanges. Options
traded on such exchanges are issued by the Options Clearing Corporation ("OCC"),
a clearing corporation which assumes responsibility for the completion of
options transactions.
PURCHASING PUT AND CALL OPTIONS
The Fund may purchase put and call options, including purchasing put
and call options, for the purpose of off-setting previously written put and call
options of the same series.
The Fund can close out a put option it has purchased by effecting a
closing sale transaction; for example, the Fund may close out a put option it
has purchased by selling a put option. If, however, a secondary market does not
exist at a time the Fund wishes to effect a closing sale transaction, the Fund
will have to exercise the option to realize any profit. In addition, in a
transaction in which the Fund does not own the security underlying a put option
it has purchased, the Fund would be required, in the absence of a secondary
market, to purchase the underlying security before it could exercise the option.
In each such instance, the Fund would incur additional transaction costs.
The Fund will not purchase a put option if, as a result of such
purchase, more than 10% of its total assets would be invested in premiums for
such options. The Fund's ability to purchase put and call options may be limited
by the Internal Revenue Code's requirements for qualification as a regulated
investment company.
OPTIONS TRADING MARKETS
Options which the Fund will trade are generally listed on 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. The use of options on some securities may not be listed on any
exchange but traded in the over-the-counter market. Options traded in the
over-the-counter market involve the additional risk that securities dealers
participating in such transactions would fail to meet their obligations to the
Fund. The use of options traded in the over-the-counter market may be subject to
limitations imposed by certain state securities authorities. In addition to the
limits on its use of options discussed herein, the Fund is subject to the
investment restrictions described in its prospectus and statement of additional
information.
The staff of the Commission is of the view that the premiums which the
Fund pays for the purchase of unlisted options, and the value of securities used
to cover unlisted options written by the Fund, are considered to be invested in
illiquid securities or assets for the purpose of calculating whether the Fund is
in compliance with its fundamental investment restriction relating to illiquid
securities.
SPECIAL CONSIDERATIONS APPLICABLE TO OPTIONS
ON TREASURY BONDS AND NOTES. Because trading interest in U.S. Treasury
bonds and notes tends to center on the most recently auctioned issues, new
series of options with expirations to replace expiring options on particular
issues will not be introduced indefinitely. Instead, the expirations introduced
at the commencement of options trading on a particular issue will be allowed to
run their course, with the possible addition of a limited number of new
expirations as the original ones expire. Options trading on each series of bonds
or notes will thus be phased out as new options are listed on the more recent
issues, and a full range of expiration dates will not ordinarily be available
for every series on which options are traded.
ON TREASURY BILLS. Because the deliverable U.S. Treasury bill changes
from week to week, writers of U.S. Treasury bill call options cannot provide in
advance for their potential exercise settlement obligations by acquiring and
holding the underlying security. However, if the Fund holds a long position in
U.S. Treasury bills with a principal amount corresponding to the option contract
size, the Fund may be hedged from a risk standpoint. In addition, the Fund will
maintain in a segregated account with its Custodian liquid assets maturing no
later than those which would be deliverable in the event of an assignment of an
exercise notice to ensure that it can meet its open option obligations.
ON GNMA CERTIFICATES. Options on GNMA certificates are not currently traded on
any Exchange. However, the Fund may purchase and write such options in the
over-the-counter market or, should they commence trading, on any Exchange.
Since the remaining principal balance of GNMA certificates declines
each month as a result of mortgage payments, the Fund, as a writer of a covered
GNMA call holding GNMA certificates as "cover" to satisfy its delivery
obligation in the event of assignment of an exercise notice, may find that its
GNMA certificates no longer have a sufficient remaining principal balance for
this purpose. Should this occur, the Fund will enter into a closing purchase
transaction or will purchase additional GNMA certificates from the same pool (if
obtainable) or replacement GNMA certificates in the cash market in order to
remain covered.
A GNMA certificate held by the Fund to cover an option position in any
but the nearest expiration month may cease to present cover for the option in
the event of a decline in the GNMA coupon rate at which new pools are originated
under the FHA/VA loan ceiling in effect at any given time. Should this occur,
the Fund will no longer be covered, and the Fund will either enter into a
closing purchase transaction or replace the GNMA certificate with a certificate
which represents cover. When the Fund closes its position or replaces the GNMA
certificate, it may realize an unanticipated loss and incur transaction costs.
RISKS PERTAINING TO THE SECONDARY MARKET. An option position may be
closed out only in a secondary market for an option of the same series. Although
the Fund will generally purchase or write only those options for which there
appears to be an active secondary market, there is no assurance that a liquid
secondary market will exist for any particular option at any particular time,
and for some options no secondary market may exist. In such event, it might not
be possible to effect closing transactions in particular options, with the
result that the Fund would have to exercise its options in order to realize any
profit and might incur transaction costs in connection therewith. If the Fund as
a covered call option writer is unable to effect a closing purchase transaction
in a secondary market, it will not be able to sell the underlying security until
the option expires or it delivers the underlying security upon exercise.
Reasons for the absence of a liquid secondary market include the
following: (i) insufficient trading interest in certain options; (ii)
restrictions imposed on transactions; (iii) trading halts, suspensions or other
restrictions imposed with respect to particular classes or series of options or
underlying securities; (iv) interruption of the normal operations on an Exchange
or by a broker; (v) inadequacy of the facilities of an Exchange, the OCC or a
broker to handle current trading volume; or (vi) a decision by one or more
Exchanges or brokers to discontinue the trading of options (or a particular
class or series of options), in which event the secondary market in that class
or series of options would cease to exist, although outstanding options issued
as a result of trades would generally continue to be exercisable in accordance
with their terms.
The hours of trading for options on U.S. government securities may not
conform to the hours during which the underlying securities are traded. To the
extent that the option markets close before the markets for the underlying
securities, significant price and rate movements can take place in the
underlying markets that cannot be reflected in the option markets.
FUTURES CONTRACTS AND RELATED OPTIONS TRANSACTIONS
The Fund intends to enter into currency and other financial futures
contracts as a hedge against changes in prevailing levels of interest or
currency exchange rates to seek relative stability of principal and to establish
more definitely the effective return on securities held or intended to be
acquired 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 which are related to
currency and other financial futures contracts for hedging purposes and in
connection with the hedging strategies described above.
Although techniques other than sales and purchases of futures contracts
and related options transactions could be used to reduce the Fund's exposure to
interest rate and/or market fluctuations, the Fund may be able to hedge its
exposure more effectively and perhaps at a lower cost through using futures
contracts and related options transactions. While the Fund does not intend to
take delivery of the instruments underlying futures contracts it holds, the Fund
does not intend to engage in such futures contracts for speculation.
FUTURES CONTRACTS
Futures contracts are transactions in the commodities markets rather
than in the securities markets. A futures contract creates an obligation by the
seller to deliver to the buyer the commodity specified in the contract at a
specified future time for a specified price. The futures contract creates an
obligation by the buyer to accept delivery from the seller of the commodity
specified at the specified future time for the specified price. In contrast, a
spot transaction creates an immediate obligation for the seller to deliver and
the buyer to accept delivery of and pay for an identified commodity. In general,
futures contracts involve transactions in fungible goods such as wheat, coffee
and soybeans. However, in the last decade an increasing number of futures
contracts have been developed which specify currencies, financial instruments or
financially based indexes as the underlying commodity.
U.S. futures contracts are traded only on national futures exchanges
and are standardized as to maturity date and underlying financial instrument.
The principal financial futures exchanges in the United States are The Board of
Trade of the City of Chicago, the Chicago Mercantile Exchange, the International
Monetary Market (a division of the Chicago Mercantile Exchange), the New York
Futures Exchange and the Kansas City Board of Trade. Each exchange guarantees
performance under contract provisions through a clearing corporation, a
nonprofit organization managed by the exchange membership, which is also
responsible for handling daily accounting of deposits or withdrawals of margin.
A futures commission merchant (Broker) effects each transaction in connection
with futures contracts for a commission. Futures exchanges and trading are
regulated under the Commodity Exchange Act by the Commodity Futures Trading
Commission ("CFTC") and National Futures Association (NFA).
INTEREST RATE FUTURES CONTRACTS
The sale of an interest rate futures contract creates an obligation by
the Fund, as seller, to deliver the type of financial instrument specified in
the contract at a specified future time for a specified price. The purchase of
an interest rate futures contract creates an obligation by the Fund, as
purchaser, to accept delivery of the type of financial instrument specified at a
specified future time for a specified price. The specific securities delivered
or accepted, respectively, at settlement date, are not determined until at or
near that date. The determination is in accordance with the rules of the
exchange on which the futures contract sale or purchase was made.
Currently interest rate futures contracts can be purchased or sold on
90-day U.S. Treasury bills, U.S. Treasury bonds, U.S. Treasury notes with
maturities between 6 1/2 and 10 years, Government National Mortgage Association
(GNMA) certificates, 90-day domestic bank certificates of deposit, 90-day
Commercial paper, and 90-day Eurodollar certificates of deposit. It is expected
that futures contracts trading in additional financial instruments will be
authorized. The standard contract size is $100,000 for futures contracts in U.S.
Treasury bonds, U.S. Treasury notes and GNMA certificates, and $1,000,000 for
the other designated contracts. While U.S. Treasury bonds, U.S. Treasury bills
and U.S. Treasury notes are backed by the full faith and credit of the U.S.
government and GNMA certificates are guaranteed by a U.S. government agency, the
futures contracts in U.S. government securities are not obligations of the U.S.
Treasury.
INDEX BASED FUTURES CONTRACTS
STOCK INDEX FUTURES CONTRACTS
A stock index assigns relative values to the common stocks included in
the index. The index fluctuates with changes in the market values of the common
stocks so included. A stock index futures contract is a bilateral agreement by
which two parties agree to take or make delivery of an amount of cash equal to a
specified dollar amount times the difference between the closing value of the
stock index on the expiration date of the contract and the price at which the
futures contract is originally made. No physical delivery of the underlying
stocks in the index is made.
Currently stock index futures contracts can be purchased or sold on the
Standard and Poor's Corporation (S&P) Index of 500 Stocks, the S&P Index of 100
Stocks, the New York Stock Exchange Composite Index, the Value Line Index and
the Major Market Index. It is expected that futures contracts trading in
additional stock indices will be authorized. The standard contract size is $500
times the value of the index.
The Fund does not believe that differences between existing stock
indices will create any differences in the price movements of the stock index
futures contracts in relation to the movements in such indices. However, such
differences in the indices may result in differences in correlation of the
futures with movements in the value of the securities being hedged.
OTHER INDEX BASED FUTURES CONTRACTS
It is expected that bond index and other financially based index
futures contracts will be developed in the future. It is anticipated that such
index based futures contracts will be structured in the same way as stock index
futures contracts but will be measured by changes in interest rates, related
indexes or other measures, such as the consumer price index. In the event that
such futures contracts are developed the Fund will sell interest rate index and
other index based futures contracts to hedge against changes which are expected
to affect the Fund's portfolio.
The purchase or sale of a futures contract differs from the purchase or
sale of a security, in that no price or premium is paid or received. Instead, to
initiate trading an amount of cash, cash equivalents, money market instruments,
or U.S. Treasury bills equal to approximately 1 1/2% (up to 5%) of the contract
amount must be deposited by the Fund with the Broker. This amount is known as
initial margin. The nature of initial margin in futures transactions is
different from that of margin in security transactions. Futures contract margin
does not involve the borrowing of funds by the customer to finance the
transactions. Rather, the initial margin is in the nature of a performance bond
or good faith deposit on the contract which is returned to the Fund upon
termination of the futures contract assuming all contractual obligations have
been satisfied. The margin required for a particular futures contract is set by
the exchange on which the contract is traded, and may be significantly modified
from time to time by the exchange during the term of the contract.
Subsequent payments, called variation margin, to the Broker and from
the Broker, are made on a daily basis as the value of the underlying instrument
or index fluctuates making the long and short positions in the futures contract
more or less valuable, a process known as mark-to-market. For example, when the
Fund has purchased a futures contract and the price of the underlying financial
instrument or index has risen, that position will have increased in value and
the Fund will receive from the Broker a variation margin payment equal to that
increase in value. Conversely, where the Fund has purchased a futures contract
and the price of the underlying financial instrument or index has declined, the
position would be less valuable and the Fund would be required to make a
variation margin payment to the Broker. At any time prior to expiration of the
futures contract, the Fund may elect to close the position. A final
determination of variation margin is then made, additional cash is required to
be paid to or released by the Broker, and the Fund realizes a loss or gain.
The Fund intends to enter into arrangements with its custodian and with
Brokers to enable its initial margin and any variation margin to be held in a
segregated account by its custodian on behalf of the Broker.
Although interest rate futures contracts by their terms call for actual
delivery or acceptance of financial instruments and index based futures
contracts call for the delivery of cash equal to the difference between the
closing value of the index on the expiration date of the contract and the price
at which the futures contract is originally made, in most cases such futures
contracts are closed out before the settlement date without the making or taking
of delivery. Closing out a futures contract sale is effected by an offsetting
transaction in which the Fund enters into a futures contract purchase for the
same aggregate amount of the specific type of financial instrument or index and
same delivery date. If the price in the sale exceeds the price in the offsetting
purchase, the Fund is paid the difference and thus realizes a gain. If the
offsetting purchase price exceeds the sale price, the Fund pays the difference
and realizes a loss. Similarly, the closing out of a futures contract purchase
is effected by an offsetting transaction in which the Fund enters into a futures
contract sale. If the offsetting sale price exceeds the purchase price, the Fund
realizes a gain. If the purchase price exceeds the offsetting sale price the
Fund realizes a loss. The amount of the Fund's gain or loss on any transaction
is reduced or increased, respectively, by the amount of any transaction costs
incurred by the Fund.
As an example of an offsetting transaction, the contractual obligations
arising from the sale of one contract of September U.S. Treasury bills on an
exchange may be fulfilled at any time before delivery of the contract is
required (i.e. on a specified date in September, the "delivery month") by the
purchase of one contract of September U.S. Treasury bills on the same exchange.
In such instance the difference between the price at which the futures contract
was sold and the price paid for the offsetting purchase after allowance for
transaction costs, represents the profit or loss to the Fund.
There can be no assurance, however, that the Fund will be able to enter
into an offsetting transaction with respect to a particular contract at a
particular time. If the Fund is not able to enter into an offsetting
transaction, the Fund will continue to be required to maintain the margin
deposits on the contract and to complete the contract according to its terms.
OPTIONS ON CURRENCY AND OTHER FINANCIAL FUTURES
The Fund intends to purchase call and put options on currency and other
financial futures contracts and sell such options to terminate an existing
position. Options on currency and other financial futures are similar to options
on stocks except that an option on a currency and other financial futures
contracts 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 creditworthiness of issuers, or identities of
securities comprising the index and those in the Fund's portfolio. In addition
futures contract transactions involve the remote risk that a party be unable to
fulfill its obligations and that the amount of the obligation will be beyond the
ability of the clearing broker to satisfy. A decision of whether, when and how
to hedge involves the exercise of skill and judgment, and even a well conceived
hedge may be unsuccessful to some degree because of market behavior or
unexpected interest rate trends.
Because of the low margin deposits required, futures trading involves
an extremely high degree of leverage. As a result, a relatively small price
movement in a futures contract may result in immediate and substantial loss, as
well as gain, to the investor. For example, if at the time of purchase, 10% of
the value of the futures contract is deposited as margin, a 10% decrease in the
value of the futures contract would result in a total loss of the margin
deposit, before any deduction for the transaction costs, if the account were
then closed out, and a 15% decrease would result in a loss equal to 150% of the
original margin deposit. Thus, a purchase or sale of a futures contract may
result in losses in excess of the amount invested in the futures contract.
However, the Fund would presumably have sustained comparable losses if, instead
of entering into the futures contract, it had invested in the underlying
financial instrument. Furthermore, in order to be certain that the Fund has
sufficient assets to satisfy its obligations under a futures contract, the Fund
will establish a segregated account in connection with its futures contracts
which will hold cash or cash equivalents equal in value to the current value of
the underlying instruments or indices less the margins on deposit.
Most U.S. futures exchanges limit the amount of fluctuation permitted
in futures contract prices during a single trading day. The daily limit
establishes the maximum amount that the price of a futures contract may vary
either up or down from the previous day's settlement price at the end of a
trading session. Once the daily limit has been reached in a particular type of
contract, no trades may be made on that day at a price beyond that limit. The
daily limit governs only price movement during a particular trading day and
therefore does not limit potential losses because the limit may prevent the
liquidation of unfavorable positions. Futures contract prices have occasionally
moved to the daily limit for several consecutive trading days with little or no
trading, thereby preventing prompt liquidation of futures positions and
subjecting some futures traders to substantial losses.
RISKS OF OPTIONS ON FUTURES CONTRACTS
In addition to the risks described above for currency and other
financial futures contracts, there are several special risks relating to options
on futures contracts. The ability to establish and close out positions on such
options will be subject to the development and maintenance of a liquid secondary
market. There is no assurance that a liquid secondary market will exist for any
particular contract or at any particular time. The Fund will not purchase
options on any futures contract unless and until it believes that the market for
such options has developed sufficiently that the risks in connection with such
options are not greater than the risks in connection with the futures contracts.
Compared to the use of futures contracts, the purchase of options on such
futures involves less potential risk to the Fund because the maximum amount at
risk is the premium paid for the options (plus transaction costs). However,
there may be circumstances when the use of an option on a futures contract would
result in a loss to the Fund, even though the use of a futures contract would
not, such as when there is no movement in the level of the futures contract.
FOREIGN 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 Commodity Futures Trading Commission (CFTC) and National Futures Association
(NFA). Currently the only national futures exchange on which currency futures
are traded is the International Monetary Market of the Chicago Mercantile
Exchange. Foreign currency futures trading is conducted in the same manner and
subject to the same regulations as trading in interest rate and index based
futures. The Fund intends to only engage in currency futures contracts for
hedging purposes, and not for speculation. The Fund may engage in currency
futures contracts for other purposes if authorized to do so by the Board. The
hedging strategies which will be used by the Fund in connection with foreign
currency futures contracts are similar to those described above for forward
foreign currency exchange contracts.
Currently, currency futures contracts for the British Pound Sterling,
Canadian Dollar, Dutch Guilder, Deutsche Mark, Japanese Yen, Mexican Peso, Swiss
Franc, and French Franc can be purchased or sold for U.S. dollars through the
International Monetary Market. It is expected that futures contracts trading in
additional currencies will be authorized. The standard contract sizes are
L125,000 for the Pound, 125,000 for the Guilder, Mark and Swiss Francs,
C$100,000 for the Canadian Dollar, Y12,500,000 for the Yen, and 1,000,000 for
the Peso. In contrast to Forward Currency Exchange Contracts which can be traded
at any time, only four value dates per year are available, the third Wednesday
of March, June, September and December.
FOREIGN CURRENCY OPTIONS TRANSACTIONS
Foreign currency options (as opposed to futures) are traded in a
variety of currencies in both the United States and Europe. On the Philadelphia
Stock Exchange, for example, contracts for half the size of the corresponding
futures contracts on the Chicago Board Options Exchange are traded with up to
nine months maturity in marks, sterling, yen, Swiss Francs, and Canadian
dollars. Options can be exercised at any time during the contract life, and
require a deposit subject to normal margin requirements. Since a futures
contract must be exercised, the Fund must continually make up the margin
balance. As a result, a wrong price move could result in the Fund losing more
than the original investment, as it cannot walk away from the futures contract
as it can an option contract.
The Fund will purchase call and put options and sell such options to
terminate an existing position. Options on foreign currency are similar to
options on stocks except that an option on an interest rate and/or index based
futures contract gives the purchaser the right, in return for the premium paid,
to purchase or sell foreign currency, rather than to purchase or sell stock, at
a specified exercise price at any time during the period of the option.
The Fund intends to use foreign currency option transactions in
connection with hedging strategies.
PURCHASE OF PUT OPTIONS ON FOREIGN CURRENCIES
The purchase of protective put options on a foreign currency is
analogous to the purchase of protective puts on individual stocks, where an
absolute level of protection is sought below which no additional economic loss
would be incurred by the Fund. Put options may be purchased to hedge a portfolio
of foreign stocks or foreign debt instruments or a position in the foreign
currency upon which the put option is based.
PURCHASE OF CALL OPTIONS ON FOREIGN CURRENCIES
The purchase of a call option on foreign currency represents a means of
obtaining temporary exposure to market appreciation at limited risk. It is
analogous to the purchase of a call option on an individual stock, which can be
used as a substitute for a position in the stock itself. Depending on the
pricing of the option compared to either the foreign currency upon which it is
based, or upon the price of the foreign stock or foreign debt instruments,
purchase of a call option may be less risky than the ownership of the foreign
currency or the foreign securities. The Fund would purchase a call option on a
foreign currency to hedge against an increase in the foreign currency or a
foreign market advance when the Fund is not fully invested.
The Fund may employ new investment techniques involving forward foreign
currency exchange contracts, foreign currency futures contracts and options on
foreign currencies in order to take advantage of new techniques in these areas
which may be developed from time to time and which are consistent with the
Fund's investment objective. The Fund believes that no additional techniques
have been identified for employment by the Fund in the foreseeable future other
than those described above.
CURRENCY TRADING RISKS
Currency exchange trading may involve significant risks. The four major
types of risk the Fund faces are exchange rate risk, interest rate risk, credit
risk and country risk.
EXCHANGE RATE RISK
Exchange rate risk results from the movement up and down of foreign
currency values in response to shifting market supply and demand. When the Fund
buys or sells a foreign currency, an exposure called an open position is
created. Until the time that position can be "covered" by selling or buying an
equivalent amount of the same currency, the Fund is exposed to the risk that the
exchange rate might move against it. Since exchange rate changes can readily
move in one direction, a position carried overnight or over a number of days
involves greater risk than one carried a few minutes or hours. Techniques such
as foreign currency forward and futures contracts and options on foreign
currency are intended to be used by the Fund to reduce exchange rate risk.
MATURITY GAPS AND INTEREST RATE RISK
Interest rate risk arises whenever there are mismatches or gaps in the
maturity structure of the Fund's foreign exchange currency holdings, which is
the total of its outstanding spot and forward or futures contracts.
Foreign currency transactions often involve borrowing short term and
lending longer term to benefit from the normal tendency of interest rates to be
higher for longer maturities. However in foreign exchange trading, while the
maturity pattern of interest rates for one currency is important, it is the
differential between interest rates for two currencies that is decisive.
CREDIT RISK
Whenever the Fund enters into a foreign exchange contract, it faces a
risk, however small, that the counterparty will not perform under the contract.
As a result there is a credit risk, although no extension of "credit" is
intended. To limit credit risk, the Fund intends to evaluate the
creditworthiness of each other party. The Fund does not intend to trade more
than 5% of its net assets under foreign exchange contracts with one party.
Credit risk exists because the Fund's counterparty may be unable or
unwilling to fulfill its contractual obligations as a result of bankruptcy or
insolvency or when foreign exchange controls prohibit payment. In any foreign
exchange transaction, each party agrees to deliver a certain amount of currency
to the other on a particular date. In establishing its hedges a Fund relies on
each contract being completed. If the contract is not performed, then the Fund's
hedge is eliminated, and the Fund is exposed to any changes in exchange rates
since the contract was originated. To put itself in the same position it would
have been in had the contract been performed, the Fund must arrange a new
transaction. However, the new transaction may have to be arranged at an adverse
exchange rate. The trustee for a bankrupt company may elect to perform those
contracts which are advantageous to the company but disclaim those contracts
which are disadvantageous, resulting in losses to the Fund.
Another form of credit risk stems from the time zone differences
between the U.S. and foreign nations. If the Fund sells sterling it generally
must pay pounds to a counterparty earlier in the day than it will be credited
with dollars in New York. In the intervening hours, the buyer can go into
bankruptcy or can be declared insolvent. Thus, the dollars may never be credited
to the Fund.
COUNTRY RISK
At one time or another, virtually every country has interfered with
international transactions in its currency. Interference has taken the form of
regulation of the local exchange Market, restrictions on foreign investment by
residents, or limits on inflows of investment funds from abroad. Governments
take such measures, for example, to improve control over the domestic banking
system, or to influence the pattern of receipts and payments between residents
and foreigners. In those cases, restrictions on the exchange market or on
international transactions are intended to affect the level or movement of the
exchange rate. Occasionally a serious foreign exchange shortage may lead to
payments interruptions or debt servicing delays, as well as interference in the
exchange market. It has become increasingly difficult to distinguish foreign
exchange or credit risk from country risk.
Changes in regulations or restrictions usually do have an important
exchange market impact. Most disruptive are changes in rules which interfere
with the normal payments mechanism. If government regulations change and a
counterparty is either forbidden to perform or is required to do something
extra, then the Fund might be left with an unintended open position or an
unintended maturity mismatch. Dealing with such unintended long or short
positions could result in unanticipated costs to the Fund.
Other changes in official regulations influence international
investment transactions. If one of the factors affecting the buying or selling
of a currency changes, the exchange rate is likely to respond. Changes in such
controls often are unpredictable and can create a significant exchange rate
response.
Many major countries have moved toward liberalization of exchange and
payments restrictions in recent years, or accepted the principle that
restrictions should be relaxed. A few industrial countries have moved in the
other direction. Important liberalizations were carried out by Switzerland, the
United Kingdom, and Japan. They dismantled mechanisms for restricting either
foreign exchange inflows (Switzerland), outflows (Britain), or elements of both
(Japan). By contrast, France and Mexico have recently tightened foreign exchange
controls.
Overall, many exchange markets are still heavily restricted. Several
countries limit access to the forward market to companies financing documented
export or import transactions in an effort to insulate the market from purely
speculative activities. Some of these countries permit local traders to enter
into forward contracts with residents but prohibit certain forward transactions
with nonresidents. By comparison, other countries have strict controls on
exchange transactions by residents, but permit free exchange transactions
between local traders and non-residents. A few countries have established tiered
markets, funneling commercial transactions through one market and financial
transactions through another. Outside the major industrial countries, relatively
free foreign exchange markets are rare and controls on foreign currency
transactions are extensive.
Another aspect of country risk has to do with the possibility that the
Fund may be dealing with a foreign trader whose home country is facing a
payments problem. Even though the foreign trader intends to perform on its
foreign exchange contracts, the contracts are tied to other external liabilities
the country has incurred. As a result performance may be delayed, and can result
in unanticipated cost to the Fund. This aspect of country risk is a major
element in the Fund's credit judgment as to with whom it will deal and in what
amounts.
<PAGE>
EXHIBIT A
GLOSSARY OF TERMS
CLASS OF OPTIONS. Options covering the same underlying security.
CLEARING CORPORATION. The Options Clearing Corporation, Trans Canada Options,
Inc., The European Options Clearing Corporation B.V., or the London Options
Clearing House.
CLOSING PURCHASE TRANSACTIONS. A transaction in which an investor who is
obligated as a writer of an option or seller of a futures contract terminates
his obligation by purchasing on an Exchange an option of the same series as the
option previously written or futures contract identical to the futures contract
previously sold, as the case may be. (Such a purchase does not result in the
ownership of an option or futures contract.)
CLOSING SALE TRANSACTION. A transaction in which an investor who is the holder
or buyer of an outstanding option or futures contract liquidates his position as
a holder or seller by selling an option of the same series as the option
previously purchased or futures contract identical to the futures contract
previously purchased. (Such sale does not result in the investor assuming the
obligations of a writer or seller).
COVERED CALL OPTION WRITER. A writer of a call option who, so long as he remains
obligated as a writer, owns the shares of the underlying security or if the
writer holds on a share for share basis a call on the same security where the
exercise price of the call held is equal to or less than the exercise price of
the call written, or, if greater than the exercise price of the call written,
the difference is maintained by the writer in cash, U.S. Treasury bills, or
other high grade, short term obligations in a segregated account with the
writer's broker or custodian.
COVERED PUT OPTION WRITER. A writer of a put option who, so long as he remains
obligated as a writer, has deposited Treasury bills with a value equal to or
greater than the exercise price with a securities depository and has pledged
them to the Options Clearing Corporation for the account of the broker/dealer
carrying the writer's position or if the writer holds on a share for share basis
a put on the same security as the put written where the exercise price of the
put held is equal to or greater than the exercise price of the put written, or,
if less than the exercise price of the put written, the difference is maintained
by the writer in cash, U.S. Treasury bills, or other high grade, short term
obligations in a segregated account with the writer's broker or custodian.
SECURITIES EXCHANGE. A securities exchange on which call and put options are
traded. The U.S. exchanges are as follows: The Chicago Board Options Exchange;
American Stock Exchange, New York Stock Exchange; Philadelphia Stock Exchange;
and Pacific Stock Exchange. The foreign securities exchanges in Canada are the
Toronto Stock Exchange and the Montreal Stock Exchange, in the Netherlands, the
European Options Exchange, and in the United Kingdom, the Stock Exchange
(London).
Those issuers whose common stocks have been approved by the
Exchanges as underlying securities for option transactions are published in
various financial publications.
COMMODITIES EXCHANGE. A commodities exchange on which futures contracts are
traded which is regulated by exchange rules that have been approved by the
Commodity Futures Trading Commission. The U.S. exchanges are as follows: The
Chicago Board of Trade of the City of Chicago; Chicago Mercantile Exchange;
International Monetary Market, (a division of the Chicago Mercantile Exchange);
the Kansas City Board of Trade; and the New York Futures Exchange.
EXERCISE PRICE. The price per unit at which the holder of a call option may
purchase the underlying security upon exercise or the holder of a put option may
sell the underlying security upon exercise.
EXPIRATION DATE. The latest date when an option may be exercised or a futures
contract must be completed according to its terms.
HEDGING. An action taken by an investor to neutralize an investment risk by
taking an investment position which will move in the opposite direction as the
risk being hedged so that a loss (or gain) on one will tend to be offset by a
gain (or loss) on the other.
OPTION. Unless the context otherwise requires, the term "option" means either a
call or put option issued by a Clearing Corporation, as defined above. A call
option gives a holder the right to buy from such Clearing Corporation the number
of shares of the underlying security covered by the option at the stated
exercise price by the filing of an exercise notice prior to the expiration time
of the option. A put option gives a holder the right to sell to a Clearing
Corporation the number of shares of the underlying security covered by the put
at the stated exercise price by the filing of an exercise notice prior to the
expiration time of the option. The Fund will sell ("write") and purchase puts
only on U.S. Exchanges.
OPTION PERIOD. The time during which an option may be exercised generally from
the date the option is written through its expiration date.
PREMIUM. The price of an option agreed upon between the buyer and writer or
their agents in a transaction on the floor of an Exchange.
SERIES OF OPTIONS. Options covering the same underlying security and having the
same exercise price and expiration date.
STOCK INDEX. A stock index assigns relative values to the common stocks included
in the index, and the index fluctuates with changes in the market values of the
common stocks so included.
INDEX BASED FUTURES CONTRACT. An index based futures contract is a bilateral
agreement pursuant to which a party, agrees to buy or deliver at settlement an
amount of cash equal to $500 times the difference between the closing value of
an index on the expiration date and the price at which the futures contract is
originally struck. Index based futures are traded on Commodities Exchanges.
Currently index based stock index futures contracts can be purchased or sold
with respect to the Standard & Poor's Corporation (S&P) 500 Stock Index and S&P
100 Stock Index on the Chicago Mercantile Exchange, the New York Stock Exchange
Composite Index on the New York Futures Exchange and the Value Line Stock Index
and Major Market Index on the Kansas City Board of Trade.
UNDERLYING SECURITY. The security subject to being purchased upon the exercise
of a call option or subject to eing sold upon the exercise of a put option.
<PAGE>
KEYSTONE STATE TAX FREE FUND - SERIES II - A mutual fund consisting of two
separate series of shares investing in different portfolio securities which
seeks the highest possible current income, exempt from federal income taxes and
applicable state taxes.
KEYSTONE STRATEGIC INCOME FUND - Seeks high yield and capital appreciation
potential from corporate bonds, discount bonds, convertible bonds, preferred
stock and foreign bonds (up to 25%).
KEYSTONE TAX FREE INCOME FUND - Seeks income exempt from federal income taxes
and capital preservation from the four highest grades of municipal bonds.
KEYSTONE WORLD BOND FUND - Seeks total return from interest income, capital
gains and losses and currency exchange gains and losses from investment in debt
securities denominated in U.S. and foreign currencies.
KEYSTONE FUND OF THE AMERICAS - Seeks long-term growth of capital through
investments in equity and debt securities in North America (the United States
and Canada) and Latin America (Mexico and countries in South and Central
America).
KEYSTONE STRATEGIC DEVELOPMENT FUND - Seeks long-term capital growth by
investing primarily in equity securities.
<PAGE>
Page 8
Keystone Fund for Total Return
SCHEDULE OF INVESTMENTS--November 30, 1995
<TABLE>
<CAPTION>
Number Market
of Shares Value
------------------------------------------ ---------- --------------
<S> <C> <C>
COMMON STOCKS (81.0%)
Advertising & Publishing (1.3%)
Viacom, Inc., Class B (a) 15,000 $ 723,750
------------------------------------------ -------- ------------
Aerospace (2.6%)
Boeing Co. (The) 20,000 1,457,500
------------------------------------------ -------- ------------
Automotive (4.1%)
Chrysler Corp. 15,000 778,125
General Motors Corp. 10,000 485,000
Lear Seating Corp. (a) 25,000 700,000
Volvo A.B., ADR, Class B* 18,200 381,063
------------------------------------------ -------- ------------
2,344,188
------------------------------------------ -------- ------------
Building Materials (1.4%)
Centex Corp. 25,000 821,875
------------------------------------------ -------- ------------
Business Services (1.3%)
Thermo Electron Corp. (a) 15,000 742,500
------------------------------------------ -------- ------------
Capital Goods (4.9%)
General Electric Co. 25,000 1,681,250
Regal Beloit Corp. 50,000 1,100,000
------------------------------------------ -------- ------------
2,781,250
------------------------------------------ -------- ------------
Chemicals (6.0%)
Arcadian Corp. 40,000 830,000
Dow Chemical Co. 15,000 1,063,125
Monsanto Co. 7,500 858,750
Potash Corp. of Saskatchewan, Inc. 10,000 691,250
------------------------------------------ -------- ------------
3,443,125
------------------------------------------ -------- ------------
Consumer Goods (4.8%)
Eastman Kodak Co. 10,000 680,000
Gillette Co. 20,000 1,037,500
International Flavors & Fragrances, Inc.,
Common Rts. 20,000 1,022,500
------------------------------------------ -------- ------------
2,740,000
------------------------------------------ -------- ------------
Drugs (4.5%)
Bristol Meyers Squibb Co. 10,000 802,500
Johnson & Johnson 10,000 866,250
Merck & Co., Inc. 14,700 909,562
------------------------------------------ -------- ------------
2,578,312
------------------------------------------ -------- ------------
Electronic Equipment (0.8%)
Texas Instruments, Inc. 7,500 $ 434,062
------------------------------------------ -------- ------------
Electronics Products (3.2%)
Microchip Technology, Inc. (a) 15,000 603,750
Motorola, Inc. 10,000 612,500
Solectron Corp. (a) 15,000 637,500
------------------------------------------ -------- ------------
1,853,750
------------------------------------------ -------- ------------
Engineering & Construction (1.0%)
Foster Wheeler Corp., Common Rts. 15,000 592,500
------------------------------------------ -------- ------------
Finance (13.8%)
Avalon Properties, Inc. (R.E.I.T.)* 27,500 536,250
BankAmerica Corp. 15,000 954,375
Bay Apartment Community, Inc. (R.E.I.T.)* 30,000 652,500
Beacon Properties Corp. (R.E.I.T.)* 30,000 615,000
Camden Property Trust (R.E.I.T.)* 25,000 515,625
Donaldson Lufkin & Jenrette, Inc. (a) 40,000 1,330,000
Liberty Property Trust (R.E.I.T.)* 25,000 487,500
Patriot American Hospitality, Inc.
(R.E.I.T.)* (a) 30,000 712,500
PMI Group, Inc. 25,000 1,187,500
Spieker Properties, Inc. (R.E.I.T.)* 25,000 612,500
Storage USA, Inc. (R.E.I.T.)* 10,000 303,750
------------------------------------------ -------- ------------
7,907,500
------------------------------------------ -------- ------------
Foods (2.7%)
Philip Morris Cos., Inc. 17,500 1,535,625
------------------------------------------ -------- ------------
Healthcare Services (1.4%)
Columbia/HCA Healthcare Corp. 15,000 774,375
------------------------------------------ -------- ------------
Insurance (1.6%)
General Reinsurance Corp. 2,000 299,250
Providian Corp. 15,000 601,875
------------------------------------------ -------- ------------
901,125
------------------------------------------ -------- ------------
Natural Gas (3.5%)
Burlington Resources, Inc., Rts. 15,000 577,500
Enron Corp. 20,000 750,000
Sonat, Inc. 20,000 645,000
------------------------------------------ -------- ------------
1,972,500
See Notes to Schedule of Investments.
<PAGE>
Page 9
Number Market
of Shares Value
- ------------------------------------------ -------- ------------
Office & Business Equipment (1.8%)
IBM Corp. 10,800 $ 1,043,550
------------------------------------------ -------- ------------
Oil (5.9%)
Amoco Corp. 6,000 406,500
Atlantic Richfield Co. 3,500 379,313
Chevron Corp., Common Rts. 15,000 740,625
Mobil Corp., Common Rts. 6,000 626,250
Occidental Petroleum Corp. 30,000 663,750
Unocal Corp. 20,000 537,500
------------------------------------------ -------- ------------
3,353,938
------------------------------------------ -------- ------------
Oil Services (2.6%)
Halliburton Co. 10,000 433,750
Schlumberger Ltd. 7,500 476,250
Tidewater, Inc., Common Rts. 20,000 572,500
------------------------------------------ -------- ------------
1,482,500
------------------------------------------ -------- ------------
Paper & Packaging (1.7%)
Bowater, Inc. 13,600 540,600
Weyerhaeuser Co. 10,000 452,500
------------------------------------------ -------- ------------
993,100
------------------------------------------ -------- ------------
Retail (1.0%)
Wal-Mart Stores, Inc. 25,000 600,000
------------------------------------------ -------- ------------
Software Services (5.3%)
BMC Software, Inc. (a) 20,000 847,500
Computer Associates International, Inc. 15,000 982,500
Computer Sciences Corp., Common Rts. (a) 15,000 1,091,250
DST Systems, Inc. Del (a) 3,000 86,625
------------------------------------------ -------- ------------
3,007,875
------------------------------------------ -------- ------------
Telecommunications (2.3%)
Bell South Corp. 14,000 544,250
GTE Corp. 18,000 767,250
------------------------------------------ -------- ------------
1,311,500
------------------------------------------ -------- ------------
Utilities (1.5%)
Central & South West Corp. 20,000 $ 537,500
Florida Progress Corp., Rts. 9,000 309,375
------------------------------------------ -------- ------------
846,875
------------------------------------------ -------- ------------
TOTAL COMMON STOCKS
(Cost--$36,444,859) $46,243,275
-------------------------------------------------------- ------------
PREFERRED STOCKS (10.4%)
Chemicals (1.1%)
Atlantic Richfield Co. 25,000 625,000
------------------------------------------ -------- ------------
Diversified Companies (2.1%)
Alco Standard Corp., Conv., Depository
Shares 12,500 1,209,375
------------------------------------------ -------- ------------
Insurance (2.6%)
Allstate Corp. 15,000 643,125
St. Paul Capital LLC. 15,000 856,875
------------------------------------------ -------- ------------
1,500,000
------------------------------------------ -------- ------------
Foreign (1.3%)
Canadian National RY Co. (a) 50,300 754,500
------------------------------------------ -------- ------------
Software Services (1.4%)
Houghton Mifflin Co., Conv. 11,000 825,000
------------------------------------------ -------- ------------
Transportation (1.9%)
Burlington Northern, Santa Fe, Inc.,
6.250%, Cumulative Conv., Pfd., Series A 12,500 1,073,437
------------------------------------------ -------- ------------
TOTAL PREFERRED STOCKS
(Cost--$4,522,163) $ 5,987,312
-------------------------------------------------------- ------------
</TABLE>
<TABLE>
<CAPTION>
Par
Value
- ------------------------------ ------- --------
<S> <C> <C>
FIXED INCOME/CONVERTIBLE BONDS (3.0%)
Capital Goods (1.7%)
AGCO Corp., Conv. Debentures,
6.500%, 2008 $125,000 422,500
U.S. Filter Corp., Conv.
Notes, 6.000%, 2005 (c) 500,000 517,500
- ------------------------------ ----- ------
940,000
- ------------------------------ ----- ------
</TABLE>
See Notes to Schedule of Investments.
<PAGE>
Page 10
Keystone Fund for Total Return
<TABLE>
<CAPTION>
Par Market
Value Value
- --------------------------------------------------------
<S> <C> <C>
OFFICE EQUIPMENT (1.3%)
Staples, Inc., Conv.
Debentures, 4.500%, 2000 (c) $750,000 $ 756,563
- --------------------------------------------------------
TOTAL FIXED INCOME
(Cost--$1,555,975) $1,696,563
- --------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
Maturity
Value
- --------------------------------------------------------------
<S> <C> <C>
SHORT-TERM INVESTMENTS (5.1%)
Repurchase Agreements (5.1%)
Investments in repurchase
agreements, in a joint trading
account purchased 11/30/95,
5.881%, maturing 12/01/95 (Cost
$2,943,000) (b) 2,943,481 2,943,000
- --------------------------------------------------------------
TOTAL INVESTMENTS
(Cost--$45,465,997) (d) 56,870,150
OTHER ASSETS AND LIABILITIES (0.5%) 274,470
- --------------------------------------------------------------
NET ASSETS (100.0%) $57,144,620
- --------------------------------------------------------------
</TABLE>
NOTES TO SCHEDULE OF INVESTMENTS:
(a) Non-income-producing security.
(b) The repurchase agreements are fully collateralized by U.S. government
and/or agency obligations based on market prices at November 30, 1995.
(c) Securities that may be resold to "qualified institutional buyers" under Rule
144A or securities offered pursuant to section 144A of the Federal
Securities Act of 1933, as amended. These securities have been determined to
be liquid under guidelines established by the Board of Trustees.
(d) The cost of investments for federal income tax purposes is identical. Gross
unrealized appreciation and depreciation of investments, based on identified
tax cost, at November 30, 1995 are as follows:
<TABLE>
<CAPTION>
<S> <C>
Gross unrealized
appreciation $12,032,441
Gross unrealized
depreciation (628,288)
----------
$11,404,153
==========
</TABLE>
*Legend of Portfolio abbreviations:
ADR--American Depository Receipts.
R.E.I.T.--Real Estate Investment Trust.
<PAGE>
[RESTUBED TABLE]
Page 11
Keystone Fund for Total Return
FINANCIAL HIGHLIGHTS--CLASS A SHARES
(For a share outstanding throughout the period)
See Notes to Schedule of Investments.
<TABLE>
<CAPTION>
Year Ended November 30,
----------------------------------------
1995 1994 1993 1992
=============================== ======== ====== ====== ========
<S> <C> <C> <C> <C>
Net asset value beginning of
period $ 11.75 $ 12.31 $ 12.06 $ 11.45
- ------------------------------- ------ ---- ---- ------
Income from investment
operations:
Net investment income 0.25 0.24 0.21 0.23
Net gains (losses) on
securities 2.80 (0.56) 1.31 1.19
- ------------------------------- ------ ---- ---- ------
Total from investment
operations 3.05 (0.32) 1.52 1.42
- ------------------------------- ------ ---- ---- ------
Less distributions:
Dividends from net investment
income (0.25) (0.24) (0.21) (0.23)
Distributions in excess of net
investment income (0.07) 0.00 (0.03) (0.05)
Distributions from capital
gains (0.65) 0.00 (1.03) (0.53)
- ------------------------------- ------ ---- ---- ------
Total distributions (0.97) (0.24) (1.27) (0.81)
- ------------------------------- ------ ---- ---- ------
Net asset value end of period $ 13.83 $ 11.75 $ 12.31 $ 12.06
=============================== ====== ==== ==== ======
Total return (a) 26.57% (2.65%) 12.67% 12.56%
Ratios/supplemental data
Ratios to average net assets:
Total expenses 1.69%
(d) 1.59% 1.85% 1.85%
Net investment income 1.94% 1.93% 1.63% 1.87%
Portfolio turnover rate 77% 57% 92% 66%
- ------------------------------- ------ ---- ---- ------
Net assets end of period
(thousands) $27,037 $23,162 $26,367 $23,607
=============================== ====== ==== ==== ======
</TABLE>
<PAGE>
Page 11
Keystone Fund for Total Return
FINANCIAL HIGHLIGHTS--CLASS A SHARES
(For a share outstanding throughout the period)
<TABLE>
<CAPTION>
February 13, 1987
(Commencement of
Operations) to
1991 1990 1989 1988 November 30, 1987
=============================== ========= =========== ======= ======= ================
<S> <C> <C> <C> <C> <C>
Net asset value beginning of
period $ 10.29 $ 10.89 $ 9.41 $ 8.59 $ 10.00
- ------------------------------- ------- --------- ----- ----- --------------
Income from investment
operations:
Net investment income 0.34 0.41 0.42 0.46 0.30
Net gains (losses) on
securities 1.38 (0.61) 2.01 0.89 (1.47)
- ------------------------------- ------- --------- ----- ----- --------------
Total from investment
operations 1.72 (0.20) 2.43 1.35 (1.17)
- ------------------------------- ------- --------- ----- ----- --------------
Less distributions:
Dividends from net investment
income (0.35) (0.40) (0.42) (0.53) (0.24)
Distributions in excess of net
investment income (0.05) 0.00 0.00 0.00 0.00
Distributions from capital
gains (0.16) 0.00 (0.53) 0.00 0.00
- ------------------------------- ------- --------- ----- ----- --------------
Total distributions (0.56) (0.40) (0.95) (0.53) (0.24)
- ------------------------------- ------- --------- ----- ----- --------------
Net asset value end of period $ 11.45 $ 10.29 $ 10.89 $ 9.41 $ 8.59
=============================== ======= ========= ===== ===== ==============
Total return (a) 16.70% (1.85%) 26.17% 15.98% (11.94%)
Ratios/supplemental data
Ratios to average net assets:
Total expenses 1.88% 2.00% (b) 2.00%(b) 1.47%(b) 1.00%(b)(c)
Net investment income 2.98% 3.85% 3.94% 4.87% 4.94%(c)
Portfolio turnover rate 43% 51% 50% 64% 16%
- ------------------------------- ------- --------- ----- ----- --------------
Net assets end of period
(thousands) $22,974 $22,080 $22,764 $20,735 $ 7,672
=============================== ======= ========= ===== ===== ==============
</TABLE>
(a) Excluding applicable sales charges.
(b) Figure is net of expense reimbursement by Keystone in connection with
voluntary expense limitations. Before the expense reimbursement, the "Ratio
of total expenses to average net assets" would have been 2.41%, 2.48%,
2.92%, and 4.77% (on an annualized basis), respectively, for the years ended
1990, 1989, 1988 and the period from February 13, 1987 (Commencement of
Operations) to November 30, 1987.
(c) Annualized for the period April 14, 1987 (Commencement of Investment
Operations) to November 30, 1987.
(d) The expense ratio includes indirectly paid expenses for the year ended
November 30, 1995. Excluding indirectly paid expenses, the expense ratio
would have been 1.67%.
See Notes to Financial Statements.
<PAGE>
Page 12
Keystone Fund for Total Return
FINANCIAL HIGHLIGHTS--CLASS B SHARES
(For a share outstanding throughout the period)
<TABLE>
<CAPTION>
February 1, 1993
Year Ended November 30, (Date of Initial
------------------------------ Public Offering) to
1995 1994 November 30, 1993
=============================================== ============= ============== ===================
<S> <C> <C> <C>
Net asset value beginning of period $ 11.77 $12.32 $12.65
- ----------------------------------------------- ----------- ------------ -----------------
Income from investment operations:
Net investment income 0.15 0.15 0.10
Net gains (losses) on securities 2.82 (0.56) 0.74
- ----------------------------------------------- ----------- ------------ -----------------
Total from investment operations 2.97 (0.41) 0.84
- ----------------------------------------------- ----------- ------------ -----------------
Less distributions:
Dividends from net investment income (0.15) (0.14) (0.10)
Distributions in excess of net investment
income (0.10) 0.00 (0.04)
Distributions from capital gains (0.65) 0.00 (1.03)
- ----------------------------------------------- ----------- ------------ -----------------
Total distributions (0.90) (0.14) (1.17)
- ----------------------------------------------- ----------- ------------ -----------------
Net asset value end of period $ 13.84 $11.77 $12.32
=============================================== =========== ============ =================
Total return(a) 25.59% (3.36%) 6.68%
Ratios/supplemental data
Ratios to average net assets:
Total expenses 2.47%(c) 2.31% 2.64%(b)
Net investment income 1.06% 1.27% 0.84%(b)
Portfolio turnover rate 77% 57% 92%
- ----------------------------------------------- ----------- ------------ -----------------
Net assets end of period (thousands) $20,605 $7,314 $4,283
=============================================== =========== ============ =================
</TABLE>
(a) Excluding applicable sales charges.
(b) Annualized for the period February 1, 1993 (Date of Initial Public Offering)
to November 30, 1993.
(c) The expense ratio includes indirectly paid expenses for the year ended
November 30, 1995. Excluding indirectly paid expenses, the expense ratio
would have been 2.46%.
See Notes to Financial Statements.
<PAGE>
Page 13
FINANCIAL HIGHLIGHTS--CLASS C SHARES
(For a share outstanding throughout the period)
<TABLE>
<CAPTION>
February 1, 1993
Year Ended November 30, (Date of Initial
------------------------- Public Offering) to
1995 1994 November 30, 1993
=================================================== =========== ========== ===================
<S> <C> <C> <C>
Net asset value beginning of period $11.78 $12.33 $12.65
- --------------------------------------------------- --------- -------- -----------------
Income from investment operations:
Net investment income 0.16 0.15 0.10
Net gains (losses) on securities 2.81 (0.56) 0.75
- --------------------------------------------------- --------- -------- -----------------
Total from investment operations 2.97 (0.41) 0.85
- --------------------------------------------------- --------- -------- -----------------
Less distributions:
Dividends from net investment income (0.16) (0.14) (0.10)
Distributions in excess of net investment income (0.09) 0.00 (0.04)
Distributions from capital gains (0.65) 0.00 (1.03)
- --------------------------------------------------- --------- -------- -----------------
Total distributions (0.90) (0.14) (1.17)
- --------------------------------------------------- --------- -------- -----------------
Net asset value end of period $13.85 $11.78 $12.33
=================================================== ========= ======== =================
Total return(a) 25.57% (3.36%) 6.76%
Ratios/supplemental data
Ratios to average net assets:
Total expenses 2.47%(c) 2.34% 2.64%(b)
Net investment income 1.16% 1.21% 0.83%(b)
Portfolio turnover rate 77% 57% 92%
- --------------------------------------------------- --------- -------- -----------------
Net assets, end of period (thousands) $9,503 $5,968 $5,030
=================================================== ========= ======== =================
</TABLE>
(a) Excluding applicable sales charges.
(b) Annualized for the period February 1, 1993 (Date of Initial Public Offering)
to November 30, 1993.
(c) The expense ratio includes indirectly paid expenses for the year ended
November 30, 1995. Excluding indirectly paid expenses, the expense ratio
would have been 2.44%.
See Notes to Financial Statements.
<PAGE>
Page 14
Keystone Fund for Total Return
STATEMENT OF ASSETS AND LIABILITIES--
November 30, 1995
<TABLE>
<S> <C>
Assets:
Investments at market value (identified
cost--$45,465,997) (Note 1) $56,870,150
Receivable for:
Fund shares sold 49,824
Investments sold 340,652
Dividends and interest 122,371
Prepaid expenses and other assets 2,537
- ---------------------------------------------------- ----------
Total assets 57,385,534
- ---------------------------------------------------- ----------
Liabilities:
Payable for:
Fund shares redeemed 13,239
Income distribution 35,682
Distribution to shareholders 83,702
Other liabilities 49,166
Other accrued expenses 59,125
- ---------------------------------------------------- ----------
Total liabilities 240,914
- ---------------------------------------------------- ----------
Net assets $57,144,620
==================================================== ==========
Net assets represented by (Notes 1 and 3):
Paid-in-capital $45,859,851
Accumulated distributions in excess of net
investment income (35,682)
Accumulated net realized gain (loss) on investment
transactions (83,702)
Net unrealized appreciation (depreciation) on
investments and other assets and liabilities 11,404,153
- ---------------------------------------------------- ----------
Total net assets $57,144,620
==================================================== ==========
Net asset value per share (Notes 1 and 2):
Class A Shares
Net assets of $27,036,606/1,954,342 shares
outstanding $ 13.83
Offering price per share ($13.83/0.9425) (based on
sales charge of 5.75% of the offering price at
November 30, 1995) $ 14.67
Class B Shares
Net assets of $20,605,384/1,488,364 shares
outstanding $ 13.84
Class C Shares
Net assets of $9,502,630/686,261 shares
outstanding $ 13.85
==================================================== ==========
</TABLE>
See Notes to Financial Statements.
<PAGE>
STATEMENT OF OPERATIONS--
Year Ended November 30, 1995
<TABLE>
<S> <C> <C>
Investment income (Note 1):
Dividends (net of foreign withholding
tax of $6,993) $ 1,266,227
Interest 377,307
- ----------------------------------------- -------- -----------
Total income 1,643,534
- ----------------------------------------- -------- -----------
Expenses (Notes 2, 4, 5 and 6):
Management fee $ 300,290
Shareholder services 150,009
Accounting 19,380
Auditing and legal 40,970
Custodian fees 59,263
Printing 30,304
Distribution Plan expenses 274,340
Registration fees 57,564
Miscellaneous expenses 9,382
- ----------------------------------------- -------- -----------
Total expenses 941,502
Less: Expenses paid indirectly
(Note 4) (6,867)
- ----------------------------------------- -------- -----------
Net expenses 934,635
- ----------------------------------------- -------- -----------
Net investment income 708,899
- ----------------------------------------- -------- -----------
NetRealized and unrealized gain (loss) on investments and foreign currency
related transactions (Notes 1 and 3):
Net realized gain (loss) on
investment transactions 2,758,581
Net realized gain (loss) on foreign
currency related transactions (21,407)
- ----------------------------------------- -------- -----------
Net realized gain on investments and
foreign currency related transactions 2,737,174
- ----------------------------------------- -------- -----------
Net change in unrealized
appreciation (depreciation) on
investments and foreign currency
holdings 7,477,718
- ----------------------------------------- -------- -----------
Net gain on investments 10,214,892
- ----------------------------------------- -------- -----------
Net increase in net assets resulting
from operations $10,923,791
========================================= ======== ===========
</TABLE>
<PAGE>
Page 15
STATEMENTS OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
Year Ended November 30,
1995 1994
============================================================================== ========== ============
<S> <C> <C>
Operations:
Net investment income $ 708,899 $ 637,824
Net realized gain on investments and foreign currency related transactions 2,737,174 (41,777)
Net change in unrealized appreciation (depreciation) on investments and
foreign currency holdings 7,477,718 (1,707,863)
- ------------------------------------------------------------------------------ -------- ----------
Net increase (decrease) in net assets resulting from operations 10,923,791 (1,111,816)
- ------------------------------------------------------------------------------ -------- ----------
Distributions to shareholders from (Notes 1 and 5): Net investment income:
Class A Shares (466,226) (490,921)
Class B Shares (149,198) (71,686)
Class C Shares (93,475) (68,622)
In excess of net investment income:
Class A Shares (138,497) 0
Class B Shares (110,954) 0
Class C Shares (54,085) 0
Net realized gain on investment transactions:
Class A Shares (1,220,537) 0
Class B Shares (868,298) 0
Class C Shares (423,790) 0
- ------------------------------------------------------------------------------ -------- ----------
Total distributions to shareholders (3,525,060) (631,229)
- ------------------------------------------------------------------------------ -------- ----------
Capital share transactions (Note 2):
Proceeds from shares sold
Class A Shares 3,618,417 2,393,728
Class B Shares 13,668,348 4,728,142
Class C Shares 3,797,262 2,716,402
Payments for shares redeemed
Class A Shares (5,386,215) (4,913,128)
Class B Shares (3,483,004) (1,410,354)
Class C Shares (2,107,107) (1,547,569)
Net asset value of shares issued in reinvestment of dividends and distributions:
Class A Shares 1,664,588 423,378
Class B Shares 1,002,721 56,510
Class C Shares 527,153 59,476
- ------------------------------------------------------------------------------ -------- ----------
Net increase in net assets resulting from capital share transactions 13,302,163 2,506,585
- ------------------------------------------------------------------------------ -------- ----------
Total increase (decrease) in net assets 20,700,894 763,540
- ------------------------------------------------------------------------------ -------- ----------
Net assets:
Beginning of year 36,443,726 35,680,186
- ------------------------------------------------------------------------------ -------- ----------
End of year [including accumulated distributions in excess of net investment
income as follows:
November 1995 ($35,682) and November 1994--($20,169)] $57,144,620 $36,443,726
============================================================================== ======== ==========
</TABLE>
See Notes to Financial Statements.
<PAGE>
Page 16
Keystone Fund for Total Return
NOTES TO FINANCIAL STATEMENTS
(1.) Significant Accounting Policies
Keystone Fund for Total Return (formerly Keystone America Fund for Total Return)
(the "Fund"), is a Massachusetts business trust for which Keystone Management,
Inc. ("KMI") is the Investment Manager and Keystone Investment Management
Company (formerly Keystone Custodian Funds, Inc.) ("Keystone") is the Investment
Adviser. The Fund was organized on October 24, 1986 and had no operations prior
to February 13, 1987. It is registered under the Investment Company Act of 1940
as a diversified open-end investment company.
The Fund currently issues three classes of shares. Class A shares are sold
subject to a maximum sales charge of 5.75% payable at the time of purchase.
Class B shares are sold subject to a contingent deferred sales charge which
varies depending on when the shares were purchased and how long the shares have
been held. Class C shares are sold subject to a contingent deferred sales charge
payable upon redemption within one year after purchase. Class C shares are
available only through dealers who have entered into special distribution
agreements with Keystone Investment Distributors Company (formerly Keystone
Distributors, Inc.) ("KIDC"), the Fund's principal underwriter.
Keystone is a wholly-owned subsidiary of Keystone Investments, Inc.
(formerly Keystone Group, Inc.) ("KII"), a Delaware corporation. KII is
privately owned by an investor group consisting of current and former members
of management of Keystone. Keystone Management, Inc. ("KMI") is a
wholly-owned subsidiary of Keystone. Keystone Investor Resource Center, Inc.
("KIRC"), a wholly-owned subsidiary of Keystone, is the Fund's transfer
agent.
The following is a summary of significant accounting policies consistently
followed by the Fund in the preparation of its financial statements. The
policies are in conformity with generally accepted accounting principles.
A. Investments, including American Depository Receipts ("ADRs"), are usually
valued at the closing sales price, or in the absence of sales and for
over-the-counter securities, the mean of bid and asked quotations. Management
values the following securities at prices it deems in good faith to be fair: (a)
securities (including restricted securities) for which complete quotations are
not readily available and (b) listed securities if, in the opinion of
management, the last sales price does not reflect a current value, or if no sale
occurred. ADRs, which are certificates representing shares of foreign securities
deposited in domestic and foreign banks, are traded and valued in United States
dollars.
Short-term investments, which are purchased with maturities of sixty days or
less, are valued at amortized cost (original purchase costs as adjusted for
amortization of premium or accretion of discount) which, when combined with
accrued interest, approximates market. Short-term investments maturing in more
than sixty days for which market quotations are readily available are valued at
current market value. Short-term investments maturing in more than sixty days
when purchased which are held on the sixtieth day prior to maturity are valued
at amortized cost (market value on the sixtieth day adjusted for amortization of
premium or accretion of discount) which, when combined with accrued interest,
approximates market.
Short-term investments denominated in a foreign currency are adjusted daily
to reflect changes in exchange rates. Market quotations are not considered to be
readily available for long-term corporate bonds and notes; such investments are
stated at fair value on the basis of valuations furnished by a pricing service,
approved by the Trustees, which determines valuations for normal,
institutional-size trading units of such securities using methods based on
market transactions for comparable securities that are generally recognized by
institutional traders.
The Fund enters into currency and other financial futures contracts as a
hedge against changes in interest or currency 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 fluctuated, and are
recorded for book purposes as unrealized gains or losses by the Fund. For
federal tax purposes, any futures contracts which remain open at fiscal year-end
are marked-to-market and the resultant net gain or loss is included in federal
taxable income.
B. Securities transactions are accounted for on the day after the trade date.
Realized gains and losses are computed on the identified cost basis. Interest
income is recorded on the accrual basis and dividend income is recorded on the
ex-dividend date. Distributions to the shareholders are recorded by the Fund at
the close of business on the record date.
C. The Fund has qualified, and intends to qualify in the future, as a regulated
investment company under the Internal Revenue Code of 1986, as amended
("Internal Revenue Code"). Thus, the Fund expects to be relieved of any federal
income or excise tax liability by distributing all of its net taxable investment
income and net taxable capital gains, if any, to its shareholders. The Fund
intends to avoid any excise tax liability by making the required distributions
under the Internal Revenue Code.
D. When the Fund enters into a repurchase agreement (a purchase of securities
whereby the seller agrees to repurchase the securities at a mutually agreed upon
date and price) the repurchase price of the securities will generally equal the
amount paid by the Fund plus a negotiated interest amount. The seller under the
repurchase agreement will be required to provide securities ("collateral") to
the Fund whose value will be maintained at an amount not less than the
repurchase price, which generally will be maintained at 101% of the repurchase
price. The Fund monitors the value of collateral on a daily basis, and if the
value of the collateral falls below required levels, the Fund intends to seek
additional collateral from the seller or terminate the repurchase agreement. If
the seller defaults, the Fund would suffer a loss to the extent that the
proceeds from the sale of the underlying securities were less than the
repurchase price. Any such loss would be increased by any cost incurred on
disposing of such securities. If bankruptcy proceedings are commenced against
the seller under the repurchase agreement, the realization on the collateral may
be delayed or limited. Repurchase agreements entered into by the Fund will be
limited to transactions with dealers or domestic banks believed to present
minimal credit risks, and the Fund will take constructive receipt of all
securities underlying repurchase agreements until such agreements expire.
Pursuant to an exemptive order issued by the Securities and Exchange
Commission, the Fund, along with certain other Keystone funds, may transfer
uninvested cash balances into a joint trading account. These balances are
invested in one or more repurchase agreements that are fully collateralized by
U.S. Treasury and/or Federal Agency obligations.
E. The Fund distributes net investment income to shareholders quarterly, and net
capital gains, if any, annually. Distributions are determined in accordance with
income tax regulations. Distributions from taxable net investment income and net
capital gains can differ from book basis net investment income and net capital
gains.
The significant differences between financial statement amounts available for
distribution and distributions made in accordance with income tax regulations,
are due to the differing treatment of net operating losses, unrealized
appreciation on foreign currency exchange contracts and short-term capital gains
for financial statement and federal income tax purposes.
(2.) Capital Share Transactions
The Trust Agreement authorizes the issuance of an unlimited number of shares of
beneficial interest without par value. Transactions in shares of the Fund were
as follows:
Class A Shares
- ----------------- --------------------------
Year Ended November 30,
1995 1994
- ----------------- ---------- ------------
Shares sold 280,062 194,554
Shares redeemed (422,494) (400,894)
Shares issued in
reinvestment of
dividends and
distributions 126,167 34,783
Net realized
gains 0 0
- ----------------- -------- ----------
Net decrease (16,265) (171,557)
================= ======== ==========
Class B Shares
- ----------------- --------------------------
Year Ended November 30,
1995 1994
- ----------------- ---------- ------------
Shares sold 1,057,718 384,290
Shares redeemed (266,010) (115,399)
Shares issued in
reinvestment of
dividends and
distributions 75,397 4,656
Net realized
gains 0 0
- ----------------- -------- ----------
Net increase 867,105 273,547
================= ======== ==========
Class C Shares
- ----------------- --------------------------
Year Ended November 30,
1995 1994
- ----------------- ---------- ------------
Shares sold 303,795 220,445
Shares redeemed (164,102) (126,563)
Shares issued in
reinvestment of
dividends and
distributions 39,802 4,885
Net realized
gains 0 0
- ----------------- -------- ----------
Net increase 179,495 98,767
================= ======== ==========
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 Investment Company Act of 1940 ("1940 Act").
The Class A Distribution Plan provides for payments which are currently
limited to 0.25% annually of the average daily net asset value of Class A shares
to pay expenses of the distribution of Class A shares. Amounts paid by the Fund
to KIDC under the Class A Distribution Plan are currently used to pay others,
such as dealers, service fees at an annual rate of 0.25% of the average net
asset value of the shares sold 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
1.00% of the average daily net asset value of Class B shares to pay expenses of
the distribution of Class B shares. Amounts paid by the Fund under the Class B
Distribution Plan are currently used to pay others (dealers) a commission at the
time of purchase normally equal to 4.00% of the price paid for each share sold
plus the first year's service fee in advance in the amount of 0.25% of the price
paid for each Class B share sold. Beginning approximately 12 months after the
purchase of a Class B share, the dealer or other party will receive service fees
at an annual rate of 0.25% of the average daily net asset value of such Class B
shares maintained by such others and remaining outstanding on the Fund's books
for specified periods. A contingent deferred sales charge will be imposed, if
applicable, on Class B shares purchased on or after June 1, 1995 at rates
ranging from a maximum of 5.00% of amounts redeemed during the first twelve
months following the date of purchase to 1.00% 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
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 the Fund under the Class
C Distribution Plan are currently used to pay others (dealers) a commission at
the time of purchase in the amount of 0.75% of the price paid for each Class C
share sold, plus the first year's service fee in advance in the amount of 0.25%
of the price paid for each Class C share. Beginning approximately 15 months
after purchase, the dealer or other party will receive a commission at an annual
rate of 0.75% (subject to applicable limitations imposed by the rules of the
National Association of Securities Dealers, Inc.) ("NASD Rule") plus service
fees at the annual rate of 0.25%, respectively, of the average net asset value
of each Class C share maintained by such others and remaining outstanding on the
Fund's books for specified periods.
Each of the Distribution Plans may be terminated at any time by a vote of
Independent Trustees or by a vote of a majority of the outstanding voting shares
of the respective class. However, after the termination of any Distribution
Plan, at the discretion of the Board of Trustees, payments to KIDC may continue
as compensation for its services which had been earned while the Distribution
Plan was in effect.
During the year ended November 30, 1995, the Fund paid KIDC $60,006 under its
Class A Distribution Plan. The Fund paid KIDC $119,006 for Class B shares sold
prior to June 1, 1995, and $15,321 for Class B shares sold on or after June 1,
1995. The Fund paid KIDC $80,007 under its Class C Distribution Plan.
Under the NASD Rule, the maximum uncollected amounts for which KIDC may seek
payment from the Fund under its Class B Distribution Plans were $724,076 for
Class B shares purchased prior to June 1, 1995, and $319,397 for Class B shares
purchased on or after June 1, 1995. The maximum uncollected amount for which
KIDC may seek payment from the Fund under its Class C Distribution Plan was
$596,982 as of November 30, 1995.
(3.) Securities Transactions
Purchases and sales of investment securities (including proceeds received at
maturity) for the year ended November 30, 1995, were as follows:
Cost of Proceeds
Purchases From Sales
- ------------------------- ----------- ------------
Portfolio securities $ 48,976,453 $ 33,253,300
Short-term investments 871,162,359 875,350,359
- ------------------------- --------- ----------
$920,138,812 $908,603,659
========================= ========= ==========
(4.) Investment Management and Transactions with Affiliates
Under the terms of the Investment Management Agreement between KMI and the Fund,
KMI provided investment management and administrative services to the Fund. In
return, KMI is paid a management fee computed and paid daily calculated at a
rate of 1.5% of the Fund's gross investment income plus an amount determined by
applying percentage rates, which start at 0.60% and decline, as net assets
increase, to 0.30% per annum, to the net asset value of the Fund. KMI has
entered into an Investment Advisory Agreement with Keystone, under which
Keystone provides investment advisory and management services to the Fund and
receives for its services an annual fee representing 85% of the management fee
received by KMI. During the year ended November 30, 1995 the Fund paid or
accrued to KMI investment management and administrative service fees of
$300,290, which represent 0.65% of the Fund's average net assets. Of such
amounts paid to KMI, $255,247 was paid to Keystone for its services to the Fund.
During the year ended November 30, 1995, the Fund paid or accrued to KII
$49,684 as reimbursement for the cost of accounting and printing expenses
provided to the Fund. During the year ended November 30, 1995, $150,009 was paid
or accrued to KIRC for transfer agent fees.
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 the 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.
Keystone has agreed to reimburse the Fund annually for certain operating
expenses incurred by the Fund in excess of the applicable state expense limit.
However, Keystone is not required to make such reimbursement to an extent which
would result in the Fund's inability to qualify as a regulated investment
company under provisions of the Internal Revenue Code.
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 $52,396 and received a credit of $6,867 pursuant to the expense offset
arrangement, resulting in a total expense of $59,263. The assets deposited with
the custodian under the expense offset arrangement could have been invested in
income-producing assets.
Certain officers and/or Directors of Keystone are also officers and/or
Trustees of the Fund. Officers of Keystone and affiliated Trustees receive no
compensation directly from the Fund. Currently the Independent Trustees receive
no compensation for their services.
(5.) Distributions to Shareholders
The Fund intends to distribute to its shareholders dividends from net investment
income, if any, quarterly and all net taxable realized long-term capital gains,
if any, at least annually. Any distribution which is declared in December and
paid before February 1 of the following year will be taxable to shareholders in
the year declared.
(6.) Class Level Expenses
Presently, the Fund's class-specific expenses are limited to expenses
incurred by a class of shares pursuant to its respective Distribution Plan.
For the year ended November 30, 1995, the total amount of expenses incurred
by each class' Distribution Plan is set forth in Note (2.) "Capital Share
Transactions."
Federal Tax Status--Fiscal 1995 Distributions (Unaudited)
The per-share distributions paid to you for fiscal 1995, whether taken in shares
or cash, are as follows:
Income Short-term Long-term
Dividends Gains Gains Totals
- ----------------- ----------- ----------- ----------- -----------
Class A shares $0.32 $0.10 $0.55 $0.97
- ----------------- --------- --------- --------- ---------
Class B shares $0.25 $0.10 $0.55 $0.90
- ----------------- --------- --------- --------- ---------
Class C shares $0.25 $0.10 $0.55 $0.90
- ----------------- --------- --------- --------- ---------
In January 1996, we will send you information on the distributions paid during
the calendar year to help you in completing your federal income tax return.
<PAGE>
Page 22
INDEPENDENT AUDITORS' REPORT
The Trustees and Shareholders
Keystone Fund for Total Return
We have audited the accompanying statement of assets and liabilities of Keystone
Fund for Total Return (formerly Keystone America Fund for Total Return),
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 ended
November 30, 1995 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 and brokers. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of
Keystone Fund for Total Return 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
<PAGE>
KEYSTONE FUND FOR TOTAL RETURN
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 For fiscal years ended
November 30, 1986
through November 30, 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
All other schedules are omitted as the required information is inapplicable.
(24)(b) Exhibits
(1) A copy of Registrant's Declaration of Trust and First Supplemental
Declaration of Trust dated September 15, 1994 were filed with
Post-Effective Amendment No. 15 to this Registration Statement
and are incorporated by reference herein.
(2) A copy of Registrant's By-Laws together with the First, Second and Third
Amendments were filed with Post-Effective Amendment No. 15 to this
Registration Statement and are incorporated by reference herein.
(3) Not applicable.
(4) A copy of the form of Registrant's share certificate was filed with
Pre-Effective Amendment No. 1 to this Registration Statement as Exhibit
24(b)(4) and is incorporated by reference herein.
(5) (A) A copy of the form of Investment Management Agreement between Keystone
Management, Inc. and Registrant dated August 19, 1993 was filed with
Post-Effective Amendment No. 15 to this Registration Statement and is
incorporated by reference herein.
(B) A copy of the form of Investment Advisory Agreement between Keystone
Management, Inc. and Keystone Investment Management Company (formerly
Keystone Custodian Funds, Inc.) dated August 19, 1993 was filed with
Post-Effective Amendment No. 15 to this Registration Statement and is
incorporated by reference herein.
(6) (A) A copy of the form of Principal Underwriting Agreement dated August
19, 1993 between Registrant and Keystone Investment Distributors Company
(formerly Keystone Distributors, Inc.) was filed with Post-Effective
Amendment No. 15 to this Registration Statement and is incorporated by
reference herein. A copy of the First Amendment to the Fund's Class A
and Class C Principal Underwriting Agreement is filed herewith as Exhibit
24(b)(6)(A).
(B) Copies of the forms of Principal Underwriting Agreements dated May 31,
1995 between Registrant and Keystone Investment Distributors Company, with
respect to Class B shares are filed herewith as part of Exhibit
24(b)(6)(B).
(C) Copies of the forms of Dealer Agreements used by Keystone Investment
Distributors Company are filed herewith as part of Exhibit 24(b)(6)(C).
(7) Not applicable.
(8) A copy of the Custodian, Fund Accounting and Recordkeeping Agreement
between Registrant and State Street Bank & Trust Company together with the
First through Fifth Amendments thereto were filed with Post-Effective
Amendment No. 15 to this Registration Statement and are incorporated by
reference herein.
(9) Not applicable.
(10) An opinion and consent of counsel as to the legality of the securities
registered by the Fund was filed by 24f-2 on January 5, 1996 and is
incorporated by reference herein.
(11) A consent as to the use of opinion of Registrant's Independent Auditors'
is filed herewith as Exhibit 24(b)(11).
(12) Not applicable.
(13) Copies of Subscription Agreements were filed with this Registration
Statement 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 this
Registration Statement and are incorporated by reference herein.
(14) Copies of model plans used in the establishment of retirement plans in
connection with which Registrant offers its securities were filed with
Post-Effective Amendment No. 66 to Registration Statement for Keystone
Balanced Fund (K-1) (formerly named Keystone Custodian Funds, Series K-1)
(File No. 2-10527/811-96 as Exhibit 24(b)(14)) and are incorporated by
reference herein.
(15) Copies of the forms of Registrant's Class A, Class B and Class C
Distribution Plans are filed herewith as Exhibit 24(b)(15).
(16) Schedules for computation of total return and current yield are filed
herewith as Exhibit 24(b)(16).
(17) A financial data schedule is filed herewith as Exhibit 24(b)(17).
(18) A copy of the form of Registrant's Multiple Class Plan was filed with
Post-Effective Amendment No. 16 to this Registration Statement as Exhibit
24(b)(18) 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 Holder as of December 29, 1995
-------------- ------------------------------
Shares of Beneficial Class A - 1,658
Interest, without par Class B - 1,105
value Class C - 489
Item 27. Indemnification
Provisions for the indemnification of Registrant's Trustees and officers
are contained in Article VIII of Registrant's Declaration of Trust, a copy of
which was filed with Post-Effective Amendment No. 15 to this Registration
Statement as Exhibit 24(b)(1) and is incorporated by reference herein.
Provisions for the indemnification of Keystone Investment Distributors
Company, Registrant's principal underwriter, are contained in Section 9 of the
Principal Underwriting Agreement between Registrant and Keystone Investment
Distributors Company, a copy of the form of which was filed with Post-Effective
Amendment No. 15 to this Registration Statement and is incorporated by reference
herein.
Provisions for the indemnification of Keystone Management, Inc. and
Keystone Investment Management Company, Registrant's investment manager and
adviser, respectively, are contained in Section 6 of the Investment Management
Agreement between the Registrant and Keystone Management, Inc., a copy of the
form of which was filed with Post-Effective Amendment No. 15 to this
Registration Statement and is incorporated by reference herein.
ITEM 28. BUSINESS 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 years, (i) any
other organizations (for Keystone Investment Management Company,
excluding investment advisory clients) with which the officer and/or
director has had or has substantial involvement; and (ii) positions
held with such organizations.
<PAGE>
LIST OF OFFICERS AND DIRECTORS OF KEYSTONE 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.
<PAGE>
Position with
Keystone Other
Management, Business
Name Inc. Affiliations
- ---- ------------- ------------
Edward F. Godfrey Treasurer and Senior Vice President,
Director Chief Financial Officer,
Treasurer and Director:
Keystone Investments, Inc.
Keystone Investment
Management Company
Keystone Investment
Distributors Company
Treasurer:
Keystone Institutional
Company, Inc.
Keystone Software, Inc.
Fiduciary Investment
Company, Inc.
Former Treasurer and
Director:
Hartwell Keystone
Advisers, Inc.
Senior Vice President:
Keystone Investments
Family of Funds
Ralph J. Director President and Director:
Spuehler, Jr. Keystone Investment
Distributors Company
Chairman and Director:
Keystone Investor
Resource Center, Inc.
Keystone Investment
Management Company
Senior Vice President and
Director:
Keystone Investments, Inc.
Treasurer:
Hartwell Emerging Growth
Fund
Hartwell Growth Fund
Former President:
Keystone Management,
Inc.
Former Treasurer:
Keystone Investments,
Inc.
Keystone Investment
Management Company
<PAGE>
Position with
Keystone Other
Management, Business
Name Inc. Affiliations
- ---- ------------- ------------
Rosemary D. Van Senior Vice General Counsel, Senior
Antwerp President, Vice President and Secretary:
General Counsel Keystone Investments, Inc.
and Secretary Senior Vice President and
General Counsel:
Keystone Institutional
Company, Inc.
Senior Vice President,
General Counsel and Director:
Keystone Investor
Resource, Center, Inc.
Fiduciary Investment
Company, Inc.
Keystone Investment
Distributors Company
Senior Vice President,
General Counsel, Director
and Secretary:
Keystone Management, Inc.
Keystone Software, Inc.
Formerly Senior Vice
President and Secretary:
Hartwell Keystone
Advisers, Inc.
Vice President and
Secretary:
Keystone Fixed Income
Advisers, Inc.
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 Institutional
Company, Inc.
<PAGE>
Position with
Keystone Other
Management, Business
Name Inc. Affiliations
- ---- ------------- ------------
J. Kevin Kenely (con't) Keystone Software, Inc.
Fiduciary Investment
Company, Inc.
Formerly Controller:
Keystone Investments, Inc.
Keystone Investment
Management Company
Keystone Investment
Distributors Company
Keystone Institutional
Company, Inc.
Keystone Management, Inc.
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 Other
Investment Business
Name Management Company Affiliations
- ---- ------------------ ------------
Albert H. Chairman of Chairman of the Board,
Elfner, III the Board, Chief Executive Officer,
Chief Executive President and Director:
Officer,and KeystoneInvestments,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
<PAGE>
Position with
Keystone Other
Investment Business
Name Management Company Affiliations
- ---- ------------------ ------------
Gilman Gunn Senior Vice None
President
Edward F. Director, Director, Senior Vice
Godfrey Senior Vice President
President, Chief Financial Officer and
Treasurer and Treasurer:
Chief Financial Keystone Investments, Inc.
Officer Keystone Investment
Distributors Company
Treasurer:
Keystone Institutional
Company, Inc.
Keystone Management, Inc.
Keystone Software, Inc.
Fiduciary Investment
Company, Inc.
Former Treasurer and
Director:
Hartwell Keystone
Advisers, Inc.
James R. McCall Director and None
President
Ralph J. Director President and Director:
Spuehler, Jr. Keystone Investment
Distributors Company
Senior Vice President and
Director:
Keystone Investments, Inc.
Chairman and Director:
Keystone Investor
Resource Center, Inc.
Keystone Management, Inc.
Formerly President:
Keystone Management, Inc.
Formerly Treasurer:
The Kent Funds
Keystone Investments, Inc.
Keystone Investment
Management Company
<PAGE>
Position with
Keystone Other
Investment Business
Name Management Company Affiliations
- ---- ------------------ ------------
Rosemary D. Senior Vice General Counsel, Senior
Van Antwerp President, Vice President and
General Counsel Secretary:
and Secretary Keystone Investments, Inc.
Senior Vice President and
General Counsel:
Keystone Institutional
Company, Inc.
Senior Vice President,
General Counsel and
Director:
Keystone Investor
Resource Center, Inc.
Fiduciary Investment
Company, Inc.
Keystone Investment
Distributors Company
Senior Vice President,
General Counsel, Director
and Secretary:
Keystone Management, Inc.
Keystone Software, Inc.
Former Senior Vice
President and Secretary:
Hartwell Keystone
Advisers, Inc.
Vice President and Secretary:
Keystone Fixed Income
Advisers, Inc.
J. Kevin Kenely Vice President Keystone Investments, Inc.
Keystone Investment
Distributors Company
Keystone Institutional
Company, Inc.
Keystone Management, Inc.
Keystone Institutional
Company, Inc.
Keystone Software, Inc.
Fiduciary Investment Company,
Inc.
Formerly Controller:
Keystone Investments, Inc.
Keystone Investment
Management Company
Keystone Investment
Distributors Company
Keystone Institutional
Company, Inc.
Keystone Management, Inc.
Keystone Software, Inc.
Fiduciary Investment
Company, Inc.
John D. Rogol Vice President Vice President and
and Controller Controller:
Keystone Investments, Inc.
Keystone Invesmtent
Distributors Company
Keystone Institutional
Company, Inc.
Keystone Management, Inc.
<PAGE>
Position with
Keystone Other
Investment Business
Name Management Company Affiliations
- ---- ------------------ ------------
John D. Rogol (con't) Keystone Software, Inc.
Fiduciary Investment
Company, Inc.
Controller:
Keystone Asset Corporation
Keystone Capital Corporation
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
<PAGE>
Position with
Keystone Other
Investment Business
Name Management Company Affiliations
- ---- ------------------ ------------
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
Joseph J. Asst. Vice None
Decristofaro President
<PAGE>
Item 29. Principal Underwriter
(a) Keystone Investment Distributors Company, (formerly named Keystone
Distributors, Inc.) which acts as Registrant's principal underwriter,
also acts as principal underwriter for the following entities:
Keystone America Hartwell Emerging Growth Fund, Inc.
Keystone 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 Global Opportunities Fund
Keystone Government Securities Fund
Keystone Intermediate Term Bond Fund
Keystone America Omega Fund, Inc.
Keystone State Tax Free Fund
Keystone State Tax Free Fund - Series II
Keystone Strategic Income Fund
Keystone Tax Free Income Fund
Keystone World Bond Fund
Keystone Fund of the Americas
Keystone International Fund Inc.
Keystone Liquid Trust
Keystone Precious Metals Holdings, Inc.
Keystone Strategic Development Fund
Keystone Tax Exempt Trust
Keystone Tax Free Fund
Master Reserves Trust
(b) For information with respect to each director and officer of
Registrant's acting principal underwriter see the following pages.
<PAGE>
Item 29(c). - Not applicable
Name and Position and Offices with Position and
Principal Keystone Investment Offices with
Business Address Distributors Company the Fund
- ---------------- ------------------------- ------------
Ralph J. Spuehler* Director, President None
Edward F. Godfrey* Director, Senior Vice Senior Vice
President, Treasurer President
and Chief Financial
Officer
Rosemary D. Van Antwerp Director, Senior Vice Senior Vice
President, General Counsel
President and Secretary
Albert H. Elfner, III* Director President
Charles W. Carr* Senior Vice President None
Peter M. Delehanty* Senior Vice President None
J. Kevin Kenely Vice President Treasurer
John D. Rogol* Vice President and None
Controller
Frank O. Gebhardt Divisional Vice None
2626 Hopeton President
San Antonio, TX 78230
C. Kenneth Molander Divisional Vice None
8 King Edward Drive President
Londenderry, NH 03053
David S. Ashe Regional Manager and None
32415 Beaconsfield Vice President
Birmingham, MI 48025
David E. Achzet Regional Vice President None
60 Lawn Avenue -
Greenway 27
Stamford, CT 06902
William L. Carey, Jr. Regional Manager and None
4 Treble Lane Vice President
Malvern, PA 19355
John W. Crites Regional Manager and None
2769 Oakland Circle W. Vice President
Aurora, CO 80014
Richard J. Fish Regional Vice President None
309 West 90th Street
New York, NY 10024
<PAGE>
Name and Position and Offices with Position and
Principal Keystone Investment Offices with
Business Address Distributors Company the Fund
- ---------------- ------------------------- ------------
Michael E. Gathings Regional Manager and None
245 Wicklawn Way Vice President
Roswell, GA 30076
Robert G. Holz, Jr. Regional Manager and None
313 Meadowcrest Drive Vice President
Richardson, Texas 75080
Todd L. Kobrin Regional Manager and None
20 Iron Gate Vice President
Metuchen, NJ 08840
Ralph H. Johnson Regional Manager and None
345 Masters Court, #2 Vice President
Walnut Creek, CA 94598
Paul J. McIntyre Regional Manager and None
Vice President
Dale M. Pelletier Regional Manager and None
464 Winnetka Ave. Vice President
Winnetka, IL 60093
Juliana Perkins Regional Manager and None
2348 West Adrian Street Vice President
Newbury Park, CA 91320
Matthew D. Twomey Regional Manager and None
9627 Sparrow Court Vice President
Ellicott City, MD 21042
Mitchell I. Weiser Regional Manager and None
7031 Ventura Court Vice President
Parkland, FL 33067
Welden L. Evans Regional Banking Officer None
490 Huntcliff Green and Vice President
Atlanta, GA 30350
Russell A. Haskell* Vice President None
Robert J. Matson* Vice President None
John M. McAllister* Vice President None
<PAGE>
Name and Position and Offices with Position and
Principal Keystone Investment Offices with
Business Address Distributors Company the Fund
- ---------------- ------------------------- ------------
Gregg A. Mahalich Vice President None
14952 Richards Drive W.
Minnetonka, MN 55345
Burton Robbins Vice President None
1586 Folkstone Terrace
Westlake Village, CA
91361
Thomas E. Ryan, III* Vice President None
Peter Willis* Vice President None
Raymond P. Ajemian* Manager and Vice President None
Joan M. Balchunas* Assistant Vice President None
Thomas J. Gainey* Assistant Vice President None
Eric S. Jeppson* Assistant Vice President None
Julie A. Robinson* Assistant Vice President None
Peter M. Sullivan Assistant Vice President None
21445 Southeast 35th Way
Issaquah, WA 98027
Jean S. Loewenberg* Assistant Secretary Assistant
Secretary
Colleen L. Mette* Assistant Secretary Assistant
Secretary
Dorothy E. Bourassa* Assistant Secretary Assistant
Secretary
* Located at 200 Berkeley Street, Boston, Massachusetts 02116-5034
<PAGE>
Item 30. Location of Accounts and Records
200 Berkeley Street
Boston, Massachusetts 02116-5034
Keystone Investor Resource Center, Inc.
101 Main Street
Cambridge, MA 02142-1519
Data Vault, Inc.
3431 Sharp Slot Road
Swansea, MA 02277
State Street Bank and Trust Company
1776 Heritage Drive
Quincy, Massachusetts 02171
Item 31. Management Services
Not applicable.
Item 32. Undertakings
Upon request and without charge, Registrant hereby undertakes
to furnish a copy of its latest annual report to shareholders
to each person to whom a copy of the 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 certifies that it meets all of the
requirements for the effectiveness of this Amendment to its Registration
Statement pursuant to Rule 485(b) under the Securities Act of 1933 and has duly
caused this Amendment to its Registration Statement to be signed on its behalf
by the undersigned, thereunto duly authorized, in the City of Boston, in The
Commonwealth of Massachusetts, on the 30th day of January, 1996.
KEYSTONE FUND FOR TOTAL RETURN
By: /s/ 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 President, Chief Executive Officer
- ------------------------------------- and Trustee
Albert H. Elfner, III*
/s/ J. Kevin Kenely Treasurer (Principal Financial
- ------------------------------------- and Accounting Officer)
J. Kevin Kenely*
*By: /s/ Melina M. T. Murphy
-------------------------------
Melina M. T. Murphy**
Attorney-in-Fact
<PAGE>
SIGNATURES TITLE
/s/ Frederick Amling Trustee
- -------------------------------------
Frederick Amling*
/s/ Charles A. Austin, III Trustee
- -------------------------------------
Charles A. Austin, III*
/s/ Edwin D. Campbell Trustee
- -------------------------------------
Edwin D. Campbell*
/s/ Charles F. Chapin Trustee
- -------------------------------------
Charles F. Chapin*
/s/ K. Dun Gifford Trustee
- -------------------------------------
K. Dun Gifford*
/s/ Leroy Keith, Jr. Trustee
- -------------------------------------
Leroy Keith, Jr.*
/s/ F. Ray Keyser, Jr. Trustee
- -------------------------------------
F. Ray Keyser, Jr.*
/s/ David M. Richardson Trustee
- -------------------------------------
David M. Richardson*
/s/ Richard J. Shima Trustee
- -------------------------------------
Richard J. Shima*
/s/ Andrew J. Simons Trustee
- -------------------------------------
Andrew J. Simons*
*By: /s/ Melina M. T. Murphy
-------------------------------
Melina M. T. Murphy**
Attorney-in-Fact
** Melina M. T. Murphy, by signing her name hereto, does hereby sign this
document on behalf of each of the above-named individuals pursuant to powers of
attorney duly executed by such persons and attached hereto as Exhibit 24(b)(19).
<PAGE>
INDEX TO EXHIBITS
Page Number
in Sequential
Exhibit Number Exhibit Numbering System
- -------------- ------- ----------------
1 Declaration of Trust5
2 By-Laws5
First, Second and Third Amendments
to By-Laws5
4 Specimen Share Certificate2
5 Investment Management Agreement5
Investment Advisory Agreement5
6 (A) Principal Underwriting Agreement5
(B) Principal Underwriting Agreement
(C) Dealers Agreement
8 Custodian, Fund Accounting
and Recordkeeping Agreement5
Amendments to Custody Agreements5
10 Opinion and Consent of Counsel6
11 Independent Auditors Consent
13 Subscription Agreements1,2
14 Model Retirement Plans4
15 Class A, B and C Distribution Plans
16 Performance Data Schedules
17 Financial Data Schedule
18 18f-3 Plan3
19 Powers of Attorney
- -----------------
1 Incorporated herein by reference to Post-Effective Amendment No. 15 to this
Registration Statement.
2 Incorporated herein by reference to Pre-Effective Amendment No. 1 to this
Registration Statement.
3 Incorporated herein by reference to Post-Effective Amendment No. 16 to this
Registration Statement.
4 Incorporated herein by reference to Post-Effective Amendment No. 66 to
Registration Statement for Keystone Balanced Fund (K-1) (File No.
2-10527/811-96).
5 Incorporated herein by reference to Post-Effective Amendment No. 15 to this
Registration Statement.
6 Incorporated by reference to Rule 24f-2 Notice filed January 5, 1996.
<PAGE>
EXHIBIT 99.6(A)
FIRST AMENDMENT
TO
PRINCIPAL UNDERWRITING AGREEMENT
OF
KEYSTONE FUND FOR TOTAL RETURN
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 Fund For Total Return, 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 FUND FOR TOTAL RETURN
By: /s/ Albert H. Elfner, III
--------------------------------
Albert H. Elfner, III
Title: President
KEYSTONE INVESTMENT DISTRIBUTORS
COMPANY
By: /s/ Ralph J. Spuehler, Jr.
--------------------------------
Ralph J. Spuehler, Jr.
Title: President
#100C021A
<PAGE>
EXHIBIT 99.6(B)
PRINCIPAL UNDERWRITING AGREEMENT
FOR CLASS B-1 SHARES
OF
KEYSTONE FUND FOR TOTAL RETURN
AGREEMENT made this 31st day of May 1995 by and between Keystone Fund For
Total Return, 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 FUND FOR TOTAL RETURN
By: /s/ Rosemary 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 FUND FOR TOTAL RETURN
TRANSFER AGENT PROCEDURES FOR DIFFERENTIATING
AMONG DISTRIBUTOR SHARES AND POST-DISTRIBUTOR SHARES
Amounts (in respect of Asset Based Sales Charges (as hereinafter defined)
and CDSCs (as hereinafter defined) in respect of Shares (as hereinafter defined)
of each Fund (as hereinafter defined) shall be allocated between Distributor
Shares (as hereinafter defined) and Post-distributor Shares (as hereinafter
defined) of such Fund in accordance with the rules set forth in clauses (B) and
(C). Clause (B) sets forth the rules to be followed by the Transfer Agent for
each Fund and the record owner of each Omnibus Account (as hereinafter defined)
in maintaining records relating to Distributor Shares and Post-distributor
Shares. Clause (C) sets forth the rules to be followed by the Transfer Agent for
each Fund and the record owner of each Omnibus Account in determining what
portion of the Asset Based Sales Charge (as hereinafter defined) payable in
respect of each class of Shares of such Fund and what portion of the CDSC (as
hereinafter defined) payable by the holders of Shares of such Fund is
attributable to Distributor Shares and Post-distributor Shares, respectively.
(A) DEFINITIONS:
Generally, for purposes of this Schedule I, defined terms shall be used
with the meaning assigned to them in the Agreement, except that for purposes of
the following rules the following definitions are also applicable:
"Agreement" shall mean the Principal Underwriting Agreement for Class B-1
Shares of the Instant Fund dated as of June 1, 1995 between the Instant Fund and
the Distributor.
"Asset Based Sales Charge" shall have the meaning set forth in Section
26(b)(8)(C) of the Rules of Fair Practice it being understood that for purposes
of this Exhibit I such term does not include the Service Fee.
"Business Day" shall mean any day on which the banks and the New York Stock
Exchange are not authorized or required to close in New York City.
"Capital Gain Dividend" shall mean, in respect of any Share of any Fund, a
Dividend in respect of such Share which is designated by such Fund as being a
"capital gain dividend" as such term is defined in Section 852 of the Internal
Revenue Code of 1986, as amended.
"CDSC" shall mean with respect to any Fund, the contingent deferred sales
charge payable, either directly or by withholding from the proceeds of the
redemption of the Shares of such Fund, by the shareholders of such Fund on any
redemption of Shares of such Fund in accordance with the Prospectus relating to
such Fund.
"Commission Share" shall mean, in respect of any Fund, a Share of such Fund
issued under circumstances where a CDSC would be payable upon the redemption of
such Share if such CDSC is not waived or shall have not otherwise expired.
"Date of Original Purchase" shall mean, in respect of any Commission Share
of any Fund, the date on which such Commission Share was first issued by such
Fund; provided, that if such Share is a Commission Share and such Fund issued
the Commission Share (or portion thereof) in question in connection with a Free
Exchange for a Commission Share (or portion thereof) of another Fund, the Date
of Original Purchase for the Commission Share (or portion thereof) in question
shall be the date on which the Commission Share (or portion thereof) of the
other Fund was first issued by such other Fund (unless such Commission Share (or
portion thereof) was also issued by such other Fund in a Free Exchange, in which
case this proviso shall apply to that Free Exchange and this application shall
be repeated until one reaches a Commission Share (or portion thereof) which was
issued by a Fund other than in a Free Exchange).
"Distributor" shall mean Keystone Investment Distributors Company, its
successors and assigns.
"Distributor's Account" shall mean the account of the Distributor, account
no. 9903-584-2, ABA No. 011 0000 28, entitled "General Account" maintained with
State Street Bank & Trust Company or such other account as the Distributor may
designate in a notice to the Transfer Agent.
"Distributor Inception Date" shall mean, in respect of any Fund, the date
identified as the date Shares of such Fund are first sold by the Distributor.
"Distributor Last Sale Cut-off Date" shall mean, in respect of any Fund,
the date identified as the last sale of a Commission Share during the period the
Distributor served as principal underwriter under the Agreement.
"Distributor Shares" shall mean, in respect of any Fund, all Shares of such
Fund the Month of Original Purchase of which occurs on or after the Inception
Date for such Fund and on or prior to the Distributor Last Sale Cut-off Date in
respect of such Fund.
"Dividend" shall mean, in respect of any Share of any Fund, any dividend or
other distribution by such Fund in respect of such Share.
"Free Exchange" shall mean any exchange of a Commission Share (or portion
thereof) of one Fund (the "Redeeming Fund") for a Share (or portion thereof) of
another Fund (the "Issuing Fund"), under any arrangement which defers the
exchanging Shareholder's obligation to pay the CDSC in respect of the Commission
Share (or portion thereof) of the Redeeming Fund so exchanged until the later
redemption of the Share (or portion thereof) of the Issuing Fund received in
such exchange.
"Free Share" shall mean, in respect of any Fund, each Share of such Fund
other than a Commission Share, including, without limitation: (i) Shares issued
in connection with the automatic reinvestment of Capital Gain Dividends or Other
Dividends by such Fund, (ii) Special Free Shares issued by such Fund and (iii)
Shares (or portion thereof) issued by such Fund in connection with an exchange
whereby a Free Share (or portion thereof) of another Fund is redeemed and the
Net Asset Value of such redeemed Free Share (or portion thereof) is invested in
such Shares (or portion thereof) of such Fund.
"Fund" shall mean each of the regulated investment companies or series or
portfolios of regulated investment companies identified in Schedule II to the
Irrevocable Payment Instruction, as the same may be amended from time to time in
accordance with the terms thereof.
"Instant Fund" shall mean [Keystone Equity Fund].
"ML Omnibus Account" shall mean, in respect of any Fund, the Omnibus
Account maintained by Merrill Lynch, Pierce, Fenner & Smith as subtransfer
agent.
"Month of Original Purchase" shall mean, in respect of any Share of any
Fund, the calendar month in which such Share was first issued by such Fund;
provided, that if such Share is a Commission Share and such Fund issued the
Commission Share (or portion thereof) in question in connection with a Free
Exchange for a Commission Share (or portion thereof) of another Fund, the Month
of Original Purchase for the Commission Share (or portion thereof) in question
shall be the calendar month in which the Commission Share (or portion thereof)
of the other Fund was first issued by such other Fund (unless such Commission
Share (or portion thereof) was also issued by such other Fund in a Free
Exchange, in which case this proviso shall apply to that Free Exchange and this
application shall be repeated until one reaches a Commission Share (or portion
thereof) which was issued by a Fund other than in a Free Exchange); provided,
further, that if such Share is a Free Share and such Fund issued such Free Share
in connection with the automatic reinvestment of dividends in respect of other
Shares of such Fund, the Month of Original Purchase of such Free Share shall be
deemed to be the Month of Original Purchase of the Share in respect of which
such dividend was paid; provided, further, that if such Share is a Free Share
and such Fund issued such Free Share in connection with an exchange whereby a
Free Share (or portion thereof) of another Fund is redeemed and the Net Asset
Value of such redeemed Free Share (or portion thereof) is invested in a Free
Share (or portion thereof) of such Fund, the Month of Original Issue of such
Free Share shall be the Month of Original Issue of the Free Share of such other
Fund so redeemed (unless such Free Share of such other Fund was also issued by
such other Fund in such an exchange, in which case this proviso shall apply to
that exchange and this application shall be repeated until one reaches a Free
Share which was issued by a Fund other than in such an exchange); and provided,
finally, that for purposes of this Schedule I each of the following periods
shall be treated as one calendar month for purposes of applying the rules of
this Schedule I to any Fund: (i) the period of time from and including the
Distributor Inception Date for such Fund to and including the last day of the
calendar month in which such Distributor Inception Date occurs; (ii) the period
of time commencing with the first day of the calendar month in which the
Distributor Last Sale Cutoff Date in respect of such Fund occurs to and
including such Distributor Last Sale Cutoff Date; and (iii) the period of time
commencing on the day immediately following the Distributor Last Sale Cutoff
Date in respect of such Fund to and including the last day of the calendar month
in which such Distributor Last Sale Cut-off Date occurs.
"Omnibus Account" shall mean any Shareholder Account the record owner of
which is a registered broker-dealer which has agreed with the Transfer Agent to
provide sub-transfer agent functions relating to each Sub-shareholder Account
within such Shareholder Account as contemplated by this Schedule I in respect of
each of the Funds.
"Omnibus Asset Based Sales Charge Settlement Date" shall mean, in respect
of each Omnibus Account, the Business Day next following the twentieth day of
each calendar month for the calendar month immediately preceding such date so
long as the record owner is able to allocate the Asset Based Sales Charge
accruing in respect of Shares of any Fund as contemplated by this Schedule I no
more frequently than monthly; provided, that at such time as the record owner of
such Omnibus Account is able to provide information sufficient to allocate the
Asset Based Sales Charge accruing in respect of such Shares of such Fund owned
of record by such Omnibus Account as contemplated by this Schedule I on a weekly
or daily basis, the Omnibus Asset Based Sales Charge Settlement Date shall be a
weekly date as in the case of the Omnibus CDSC Settlement Date or a daily date
as in the case of Asset Based Sales Charges accruing in respect of Shareholder
Accounts other than Omnibus Accounts, as the case may be.
"Omnibus CDSC Settlement Date" shall mean, in respect of each Omnibus
Account, the third Business Day of each calendar week for the calendar week
immediately preceding such date so long as the record owner of such Omnibus
Account is able to allocate the CDSCs accruing in respect of any Shares of any
Fund as contemplated by this Schedule I for no more frequently than weekly;
provided, that at such time as the record owner of such Shares of such Fund
owned of record by such Omnibus Account is able to provide information
sufficient to allocate the CDSCs accruing in respect of such Omnibus Account as
contemplated by this Schedule I on a daily basis, the Omnibus CDSC Settlement
Date for such Omnibus Account shall be a daily date as in the case of CDSCs
accruing in respect of Shareholder Accounts other than Omnibus Accounts.
"Original Purchase Amount" shall mean, in respect of any Commission Share
of any Fund, the amount paid (i.e., the Net Asset Value thereof on such date),
on the Date of Original Purchase in respect of such Commission Share, by such
Shareholder Account or Sub-shareholder Account for such Commission Share;
provided, that if such Fund issued the Commission Share (or portion thereof) in
question in connection with a Free Exchange for a Commission Share (or portion
thereof) of another Fund, the Original Purchase Amount for the Commission Share
(or portion thereof) in question shall be the Original Purchase Amount in
respect of such Commission Share (or portion thereof) of such other Fund (unless
such Commission Share (or portion thereof) was also issued by such other Fund in
a Free Exchange, in which case this proviso shall apply to that Free Exchange
and this application shall be repeated until one reaches a Commission Share (or
portion thereof) which was issued by a Fund other than in a Free Exchange).
"Other Dividend" shall mean in respect of any Share, any Dividend paid in
respect of such Share other than a Capital Gain Dividend.
"Post-distributor Shares" shall mean, in respect of any Fund, all Shares of
such Fund the Month of Original Purchase of which occurs after the Distributor
Last Sale Cut-off Date for such Fund.
"Program Agent" shall mean Citicorp North America, Inc., as Program Agent
under the Purchase Agreement, and its successors and assigns in such capacity.
"Purchase Agreement" shall mean that certain Purchase and Sale Agreement
dated as of May 31, 1995, among Keystone Investment Distributors Company, as
Seller, Citibank, N.A., as Purchaser, and Citicorp North America, Inc., as
Program Agent.
"Share" shall mean in respect of any Fund any share of the classes of
shares specified in Schedule II to the Irrevocable Payment Instruction opposite
the name of such Fund, as the same may be amended from time to time by notice
from the Distributor and the Program Agent to the Fund and the Transfer Agent;
provided, that such term shall include, after the Distributor Last Sale Cut-off
Date, a share of a new class of shares of such Fund: (i) with respect to each
record owner of Shares which is not treated in the records of each Transfer
Agent and Sub-transfer Agent for such Fund as an entirely separate and distinct
class of shares from the classes of shares specified Schedule II to the
Irrevocable Payment Instruction or (ii) the shares of which class may be
exchanged for shares of another Fund of the classes of shares specified on
Schedule II to the Irrevocable Payment Instruction of any class existing on or
prior to the Distributor Last Sale Cut-off Date; or (iii) dividends on which can
be reinvested in shares of the classes specified on Schedule II to the
Irrevocable Payment Instruction under the automatic dividend reinvestment
options; or (iv) which is otherwise treated as though it were of the same class
as the class of shares specified on Schedule II to the Irrevocable Payment
Instruction.
"Shareholder Account" shall have the meaning set forth in clause (B)(1)
hereof.
"Special Free Share" shall mean, in respect of any Fund, a Share (other
than a Commission Share) issued by such Fund other than in connection with the
automatic reinvestment of Dividends and other than in connection with an
exchange whereby a Free Share (or portion thereof) of another Fund is redeemed
and the Net Asset Value of such redeemed Share (or portion thereof) is invested
in a Share (or portion thereof) of such Fund.
"Sub-shareholder Account" shall have the meaning set forth in clause (B)(1)
hereof.
"Sub-transfer Agent" shall mean, in respect of each Omnibus Account, the
record owner thereof.
(B) RECORDS TO BE MAINTAINED BY THE TRANSFER AGENT FOR EACH FUND AND THE
RECORD OWNER OF EACH OMNIBUS ACCOUNT:
The Transfer Agent shall maintain Shareholder Accounts, and shall cause
each record owner of each Omnibus Account to maintain Sub-shareholder Accounts,
each in accordance with the following rules:
(1) SHAREHOLDER ACCOUNTS AND SUB-SHAREHOLDER ACCOUNTS. The Transfer Agent
shall maintain a separate account (a "Shareholder Account") for each record
owner of Shares of each Fund. Each Shareholder Account (other than Omnibus
Accounts) will represent a record owner of Shares of such Fund, the records of
which will be kept in accordance with this Schedule I. In the case of an Omnibus
Account, the Transfer Agent shall require that the record owner of the Omnibus
Account maintain a separate account (a "Sub-shareholder Account") for each
record owner of Shares which are reflected in the Omnibus Account, the records
of which will be kept in accordance with this Schedule I. Each such Shareholder
Account and Sub-shareholder Account shall relate solely to Shares of such Fund
and shall not relate to any other class of shares of such Fund.
(2) COMMISSION SHARES. For each Shareholder Account (other than an Omnibus
Account), the Transfer Agent shall maintain daily records of each Commission
Share of such Fund which records shall identify each Commission Share of such
Fund reflected in such Shareholder Account by the Month of Original Purchase of
such Commission Share.
For each Omnibus Account, the Transfer Agent shall require that the
Sub-transfer Agent in respect thereof maintain daily records of such
Sub-shareholder Account which records shall identify each Commission Share of
such Fund reflected in such Sub-shareholder Account by the Month of Original
Purchase; provided, that until the Sub-transfer Agent in respect of the ML
Omnibus Account develops the data processing capability to conform to the
foregoing requirements, such Sub-transfer Agent shall maintain daily records of
Sub-shareholder Accounts which identify each Commission Share of such Fund
reflected in such Sub-shareholder Account by the Date of Original Purchase. Each
such Commission Share shall be identified as either a Distributor Share or a
Post-distributor Share based upon the Month of Original Purchase of such
Commission Share (or in the case of a Sub-shareholder Account within the ML
Omnibus Account, based upon the Date of Original Purchase).
(3) FREE SHARES. The Transfer Agent shall maintain daily records of each
Shareholder Account (other than an Omnibus Account) in respect of any Fund so as
to identify each Free Share (including each Special Free Share) reflected in
such Shareholder Account by the Month of Original Purchase of such Free Share.
In addition, the Transfer Agent shall require that each Shareholder Account
(other than an Omnibus Account) have in effect separate elections relating to
reinvestment of Capital Gain Dividends and relating to reinvestment of Other
Dividends in respect of any Fund. Either such Shareholder Account shall have
elected to reinvest all Capital Gain Dividends or such Shareholder Account shall
have elected to have all Capital Gain Dividends distributed. Similarly, either
such Shareholder Account shall have elected to reinvest all Other Dividends or
such Shareholder Account shall have elected to have all Other Dividends
distributed.
The Transfer Agent shall require that the Sub-transfer Agent in respect of
each Omnibus Account maintain daily records for each Sub-shareholder Account in
the manner described in the immediately preceding paragraph for Shareholder
Accounts (other than Omnibus Accounts); provided, that until the Sub-transfer
Agent in respect of the ML Omnibus Account develops the data processing
capability to conform to the foregoing requirements, such Sub-transfer Agent
shall not be obligated to conform to the foregoing requirements. Each
Sub-shareholder Account shall also have in effect Dividend reinvestment
elections as described in the immediately preceding paragraph.
The Transfer Agent and each Sub-transfer Agent in respect of an Omnibus
Account shall identify each Free Share as either a Distributor Share or a
Post-distributor Share based upon the Month of Original Purchase of such Free
Share; provided, that until the Sub-transfer Agent in respect of the ML Omnibus
Account develops the data processing capability to conform to the foregoing
requirements, the Transfer Agent shall require such Sub-transfer Agent to
identify each Free Share of a given Fund in the ML Omnibus Account as a
Distributor Share, or Post-distributor Share, as follows:
(a) Free Shares of such Fund which are outstanding on the Distributor Last
Sale Cut-off Date for such Fund shall be identified as Distributor
Shares.
(b) Free Shares of such Fund which are issued (whether or not in
connection with an exchange for a Free Share of another Fund) to the
ML Omnibus Account during any calendar month (or portion thereof)
after the Distributor Last Sale Cut-off Date for such Fund shall be
identified as Distributor Shares in a number computed as follows:
A X (B/C)
where:
A = Free Shares of such Fund issued to the ML Omnibus Account during
such calendar month (or portion thereof)
B = Number of Commission Shares and Free Shares of such Fund in the
ML Omnibus Account identified as Distributor Shares and
outstanding as of the close of business in the last day of the
immediately preceding calendar month (or portion thereof)
C = Total number of Commission Shares and Free Shares of such Fund
in the ML Omnibus Account and outstanding as of the close of
business on the last day of the immediately preceding calendar
month (or portion thereof).
(c) Free Shares of such Fund which are issued (whether or not in
connection with an exchange for a free share of another Fund) to the
ML Omnibus Account during any calendar month (or portion thereof)
after the Distributor Last Sale Cut-off Date for such Fund shall be
identified as Post-distributor Shares in a number computed as follows:
(A X (B/C)
where:
A = Free Shares of such Fund issued to the ML Omnibus Account during
such calendar month (or portion thereof)
B = Number of Commission Shares and Free Shares of such Fund in the
ML Omnibus Account identified as Post-distributor Shares and
outstanding as of the close of business in the last day of the
immediately preceding calendar month (or portion thereof)
C = Total number of Commission Shares and Free Shares of such Fund
in the ML Omnibus Account and outstanding as of the close of
business on the last day of the immediately preceding calendar
month (or portion thereof).
(d) Free Shares of such Fund which are redeemed (whether or not in
connection with an exchange for Free Shares of another Fund or in
connection with the conversion of such Shares into a Class A Share of
such Fund) from the ML Omnibus Account in any calendar month (or
portion thereof) after the Distributor Last Sale Cut-off Date for such
Fund shall be identified as Distributor Shares in a number computed as
follows:
A X (B/C)
Where:
A = Free Shares of such Fund which are redeemed (whether or not in
connection with an exchange for Free Shares of another Fund or in
connection with the conversion of such Shares into a class A share
of such Fund) from the ML Omnibus Account during such calendar
month (or portion thereof)
B = Free Shares of such Fund in the ML Omnibus Account identified as
Distributor Shares and outstanding as of the close of business on
the last day of the immediately preceding calendar month.
C = Total number of Free Shares of such Fund in the ML Omnibus
Account and outstanding as of the close of business on the last
day of the immediately preceding calendar month.
(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 FUND FOR TOTAL RETURN
AGREEMENT made this 31st day of May 1995 by and between Keystone Fund For
Total Return, a Massachusetts business trust, ("Fund"), and Keystone Investment
Distributors Company, a Delaware corporation (the "Principal Underwriter").
The Fund, individually and/or on behalf of its series, if any, referred to
above in the title of this Agreement, to which series, if any, this Agreement
shall relate, as applicable (the Fund ), may act as the distributor of certain
securities of which it is the issuer pursuant to Rule 12b-1 under the Investment
Company Act of 1940 (the 1940 Act ). Accordingly, it is hereby mutually agreed
as follows:
1. The Fund hereby appoints the Principal Underwriter a principal
underwriter of the Class B-2 shares of beneficial interest of the Fund ("B-2
Shares") as an independent contractor upon the terms and conditions hereinafter
set forth. The general term "Shares" as used herein has the same meaning as is
provided therefor in Schedule I hereto. Except as the Fund may from time to time
agree, the Principal Underwriter will act as agent for the Fund and not as
principal.
2. The Principal Underwriter will use its best efforts to find purchasers
for the B-2 Shares and to promote distribution of the B-2 Shares and may obtain
orders from brokers, dealers or other persons for sales of B-2 Shares to them.
No such dealer, broker or other person shall have any authority to act as agent
for the Fund; such dealer, broker or other person shall act only as principal in
the sale of B-2 Shares.
3. Sales of B-2 Shares by Principal Underwriter shall be at the public
offering price determined in the manner set forth in the prospectus and/or
statement of additional information of the Fund current at the time of the
Fund's acceptance of the order for B-2 Shares. All orders shall be subject to
acceptance by the Fund and the Fund reserves the right in its sole discretion to
reject any order received. The Fund shall not be liable to anyone for failure to
accept any order.
4. On all sales of B-2 Shares the Fund shall receive the current net asset
value. The Fund shall pay the Principal Underwriter Distribution Fees (as
defined in Section 14 hereof), as commissions for the sale of B-2 Shares and
other Shares, which shall be paid in conjunction with distribution fees paid to
the Principal Underwriter by other classes of Shares of the Fund to the extent
required in order to comply with Section 14 hereof, and shall pay over to the
Principal Underwriter CDSCs (as defined in Section 14 hereof) as set forth in
the Fund's current prospectus and statement of additional information, and as
required by Section 14 hereof. The Principal Underwriter shall also receive
payments consisting of shareholder service fees ("Service Fees") at the rate of
.25% per annum of the average daily net asset value of the Class B-2 Shares. The
Principal Underwriter may allow all or a part of said Distribution Fees and
CDSCs received by it (not paid to others as hereinafter provided) to such
brokers, dealers or other persons as Principal Underwriter may determine.
5. Payment to the Fund for B-2 Shares shall be in New York or Boston
Clearing House funds received by the Principal Underwriter within three business
days after notice of acceptance of the purchase order and the amount of the
applicable public offering price has been given to the purchaser. If such
payment is not received within such period, the Fund reserves the right, without
further notice, forthwith to cancel its acceptance of any such order. The Fund
shall pay such issue taxes as may be required by law in connection with the
issue of the B-2 Shares.
6. The Principal Underwriter shall not make in connection with any sale or
solicitation of a sale of the B-2 Shares any representations concerning the B-2
Shares except those contained in the then current prospectus and/or statement of
additional information covering the Shares and in printed information approved
by the Fund as information supplemental to such prospectus and statement of
additional information. Copies of the then current prospectus and statement of
additional information and any such printed supplemental information will be
supplied by the Fund to the Principal Underwriter in reasonable quantities upon
request.
7. The Principal Underwriter agrees to comply with the Rules of Fair
Practice of the National Association of Securities Dealers, Inc. (as defined in
the Purchase and Sale Agreement, dated as of May 31, 1995 (the Purchase
Agreement ), between the Principal Underwriter, Citibank, N.A. and Citicorp
North America, Inc., as agent (the "Rules of Fair Practice")).
8. The Fund appoints the Principal Underwriter as its agent to accept
orders for redemptions and repurchases of B-2 Shares at values and in the manner
determined in accordance with the then current prospectus and/or statement of
additional information of the Fund.
9. The Fund agrees to indemnify and hold harmless the Principal
Underwriter, its officers and Directors and each person, if any, who controls
the Principal Underwriter within the meaning of Section 15 of the Securities Act
of 1933 ("1933 Act"), against any losses, claims, damages, liabilities and
expenses (including the cost of any legal fees incurred in connection therewith)
which the Principal Underwriter, its officers, Directors or any such controlling
person may incur under the 1933 Act, under any other statute, at common law or
otherwise, arising out of or based upon
a. any untrue statement or alleged untrue statement of a material fact
contained in the Fund's registration statement, prospectus or
statement of additional information (including amendments and
supplements thereto) or
b. any omission or alleged omission to state a material fact required to
be stated in the Fund's registration statement, prospectus or
statement of additional information necessary to make the statements
therein not misleading, provided, however, that insofar as losses,
claims, damages, liabilities or expenses arise out of or are based
upon any such untrue statement or omission or alleged untrue statement
or omission made in reliance and in conformity with information
furnished to the Fund by the Principal Underwriter for use in the
Fund's registration statement, prospectus or statement of additional
information, such indemnification is not applicable. In no case shall
the Fund indemnify the Principal Underwriter or its controlling person
as to any amounts incurred for any liability arising out of or based
upon any action for which the Principal Underwriter, its officers and
Directors or any controlling person would otherwise be subject to
liability by reason of willful misfeasance, bad faith, or gross
negligence in the performance of its duties or by reason of the
reckless disregard of its obligations and duties under this Agreement.
10. The Principal Underwriter agrees to indemnify and hold harmless the
Fund, its officers and Trustees and each person, if any, who controls the Fund
within the meaning of Section 15 of the 1933 Act against any loss, claims,
damages, liabilities and expenses (including the cost of any legal fees incurred
in connection therewith) which the Fund, its officers, Directors or any such
controlling person may incur under the 1933 Act, under any other statute, at
common law or otherwise arising out of the acquisition of any Shares by any
person which
(a) may be based upon any wrongful act by the Principal Underwriter or any
of its employees or representatives, or
(b) may be based upon any untrue statement or alleged untrue statement of
a material fact contained in the Fund's registration statement,
prospectus or statement of additional information (including
amendments and supplements thereto), or any omission or alleged
omission to state a material fact required to be stated therein or
necessary to make the statements therein not misleading, if such
statement or omission was made in reliance upon information furnished
or confirmed in writing to the Fund by the Principal Underwriter.
11. The Fund agrees to execute such papers and to do such acts and things
as shall from time to time be reasonably requested by the Principal Underwriter
for the purpose of qualifying the B-2 Shares for sale under the so-called "blue
sky" laws of any state or for registering B-2 Shares under the 1933 Act or the
Fund under the Investment Company Act of 1940 ("1940 Act"). The Principal
Underwriter shall bear the expenses of preparing, printing and distributing
advertising, sales literature, prospectuses, and statements of additional
information. The Fund shall bear the expense of registering B-2 Shares under the
1933 Act and the Fund under the 1940 Act, qualifying B-2 Shares for sale under
the so-called "blue sky" laws of any state, the preparation and printing of
prospectuses, statements of additional information and reports required to be
filed with the Securities and Exchange Commission and other authorities, the
preparation, printing and mailing of prospectuses and statements of additional
information to holders of B-2 Shares, and the direct expenses of the issue of
B-2 Shares.
12. The Principal Underwriter shall, at the request of the Fund, provide to
the Board of Trustees or Directors (together herein called the Directors ) of
the Fund in connection with sales of B-2 Shares not less than quarterly a
written report of the amounts received from the Fund therefor and the purpose
for which such expenditures by the Fund were made.
13. The term of this Agreement shall begin on the date hereof and, unless
sooner terminated or continued as provided below, shall expire after one year.
This Agreement shall continue in effect after such term if its continuance is
specifically approved by a majority of the outstanding voting securities of
Class B-2 of the Fund or by a majority of the Directors of the Fund and a
majority of the Directors who are not parties to this Agreement or "interested
persons", as defined in the Investment Company Act of 1940 (the 1940 Act ), of
any such party and who have no direct or indirect financial interest in the
operation of the Fund's Rule 12b-1 plan for Class B-2 Shares or in any
agreements related to the plan at least annually in accordance with the 1940 Act
and the rules and regulations thereunder.
This Agreement may be terminated at any time, without payment of any
penalty, by vote of a majority of the Directors of the Fund, or a majority of
such Directors who are not parties to this Agreement or "interested persons", as
defined in the 1940 Act, of any such party and who have no direct or indirect
financial interest in the operation of the Fund's Rule 12b-1 plan for Class B-2
Shares or in any agreement related to the plan or by a vote of a majority of the
outstanding voting securities of Class B-2 on not more than sixty days written
notice to any other party to the agreement; and shall terminate automatically in
the event of its assignment (as defined in the 1940 Act), which shall not
include assignment of the Principal Underwriter's (as hereinafter defined)
provided for hereunder and/or rights related to such Allocable Portions.
14. The provisions of this Section 14 shall be applicable to the extent
necessary to enable the Fund to comply with the obligation of the Fund to pay
the Principal Underwriter its Allocable Portion of Distribution Fees paid in
respect of Shares while the Fund is required to do so pursuant the Principal
Underwriting Agreement, of even date herewith, in respect of Class B-2 Shares,
and shall remain in effect so long as any payments are required to be made by
the Fund pursuant to the irrevocable payment instruction (as defined in the
Purchase Agreement (the Irrevocable Payment Instruction )).
14.1 The Fund shall pay to the Principal Underwriter the Principal
Underwriter's Allocable Portion (as hereinafter defined) of a fee (the
"Distribution Fee") at the rate of .75% per annum of the average daily net asset
value of the Shares, subject to the limitation on the maximum aggregate amount
of such fees under the Rules of Fair Practice as applicable to such Distribution
Fee on the date hereof.
14.2 The Principal Underwriter's Allocable Portion of Distribution Fees
paid by the Fund in respect of Shares shall be equal to the portion of the Asset
Based Sales Charge allocable to Distributor Shares (as defined in Schedule I
hereto to this Agreement) in accordance with Schedule I hereto. The Fund agrees
to cause its transfer agent to maintain the records and arrange for the payments
on behalf of the Fund at the times and in the amounts and to the accounts
required by Schedule I hereto, as the same may be amended from time to time. It
is acknowledged and agreed that by virtue of the operation of Schedule I hereto
the Principal Underwriter's Allocable Portion of Distribution Fees paid by the
Fund in respect of Shares, may, to the extent provided in Schedule I hereto,
take into account Distribution Fees payable by the Fund in respect of other
existing and future classes and/or sub-classes of shares of the Fund which would
be treated as "Shares" under Schedule I hereto. The Fund will limit amounts paid
to any subsequent principal underwriters of Shares to the portion of the Asset
Based Sales Charge paid in respect of Shares which is allocable to
Post-distributor Shares (as defined in Schedule I hereto) in accordance with
Schedule I hereto. The Fund's payments to the Principal Underwriter in
consideration of its services in connection with the sale of B-2 Shares shall be
the Distribution Fees attributable to B-2 Shares which are Distributor Shares
(as defined in Schedule I hereto) and all other amounts constituting the
Principal Underwriter's Allocable Portion of Distribution Fees shall be the
Distribution Fees related to the sale of other Shares which are Distributor
Shares (as defined in Schedule I hereto).
The Fund shall cause its transfer agent and sub-transfer agents to withhold
from redemption proceeds payable to holders of Shares on redemption thereof the
contingent deferred sales charges payable upon redemption thereof as set forth
in the then current prospectus and/or statement of additional information of the
Fund ("CDSCs") and to pay over to the Principal Underwriter The Principal
Underwriter's Allocable Portion of said CDSCs paid in respect of Shares which
shall be equal to the portion thereof allocable to Distributor Shares (as
defined in Schedule I hereto) in accordance with Schedule I hereto.
14.3 The Principal Underwriter shall be considered to have completely
earned the right to the payment of its Allocable Portion of the Distribution Fee
and the right to payment over to it of its' Allocable Portion of the CDSC in
respect of Shares as provided for hereby upon the completion of the sale of each
Commission Share (as defined in Schedule I hereto) taken into account as a
Distributor Share in computing the Principal Underwriter's Allocable Portion in
accordance with Schedule I hereto.
14.4 Except as provided in Section 14.5 hereof in respect of Distribution
Fees only, the Fund's obligation to pay the Principal Underwriter the
Distribution Fees and to pay over to the Principal Underwriter CDSCs provided
for hereby shall be absolute and unconditional and shall not be subject to
dispute, offset, counterclaim or any defense whatsoever (it being understood
that nothing in this sentence shall be deemed a waiver by the Fund of its right
separately to pursue any claims it may have against the Principal Underwriter
and enforce such claims against any assets (other than the Principal
Underwriter's right to its Allocable Portion of the Distribution Fees and CDSCs
(the "Collection Rights") of the Principal Underwriter).
14.5 Notwithstanding anything in this Agreement to the contrary, the Fund
shall pay to the Principal Underwriter its Allocable Portion of Distribution
Fees provided for hereby notwithstanding its termination as Principal
Underwriter for the Shares or any termination of this Agreement and such payment
of such Distribution Fees, and that obligation and the method of computing such
payment, shall not be changed or terminated except to the extent required by any
change in applicable law, including, without limitation, the 1940 Act, the Rules
promulgated thereunder by the Securities and Exchange Commission and the Rules
of Fair Practice, in each case enacted or promulgated after May 31, 1995, or in
connection with a Complete Termination (as hereinafter defined). For the
purposes of this Section 14.5, "Complete Termination" means a termination of the
Fund's Rule 12b-1 plan for B-2 Shares involving the cessation of payments of the
Distribution Fees, and the cessation of payments of distribution fees pursuant
to every other Rule 12b-1 plan of the Fund for every existing or future
B-Class-of-Shares (as hereinafter defined) and the Fund's discontinuance of the
offering of every existing or future B-Class-of-Shares, which conditions shall
be deemed satisfied when they are first complied with hereafter and so long
thereafter as they are complied with prior to the earlier of (i) the date upon
which all of the B-2 Shares which are Distributor Shares pursuant to Schedule I
hereto shall have been redeemed or converted or (ii) May 31, 2005. For purposes
of this Section 14.5, the term B-Class-of-Shares means each of the B-1 Class of
Shares of the Fund, the B-2 Class of Shares of the Fund and each other class of
shares of the Fund hereafter issued which would be treated as Shares under
Schedule I hereto or which has substantially similar economic characteristics to
the B-1 or B-2 Classes of Shares taking into account the total sales charge,
CDSC or other similar charges borne directly or indirectly by the holder of the
shares of such class. The parties agree that the existing C Class of Shares of
the Fund does not have substantially similar economic characteristics to the B-1
or B-2 Classes of Shares taking into account the total sales charge, CDSC or
other similar charges borne directly or indirectly by the holder of such shares.
For purposes of clarity the parties to this agreement hereby state that they
intend that a new installment load class of shares which may be authorized by
amendments to Rule 6(c)-10 under the 1940 Act will be considered to be a
B-Class-of-Shares if it has economic characteristics substantially similar to
the economic characteristics of the existing B-1 or B-2 Classes of Shares taking
into account the total sale charge, CDSC or other similar charges borne directly
or indirectly by the holder of such shares and will not be considered to be a
B-Class-of-Shares if it has economic characteristics substantially similar to
the economic characteristics of the existing C Class of shares of the Fund
taking into account the total sales charge, CDSC or other similar charges borne
directly or indirectly by the holder of such shares.
14.6 The Principal Underwriter may assign any part of its Allocable
Portions and obligations of the Fund related thereto (but not the Principal
Underwriter's obligations to the Fund provided for in this Agreement) to any
person (an "Assignee") and any such assignment shall be effective as to the Fund
upon written notice to the Fund by the Principal Underwriter. In connection
therewith the Fund shall pay all or any amounts in respect of its Allocable
Portions directly to the Assignee thereof as directed in a writing by the
Principal Underwriter in the Irrevocable Payment Instruction, as the same may be
amended from time to time with the consent of the Fund, and the Fund shall be
without liability to any person if it pays such amounts when and as so directed,
except for underpayments of amounts actually due, without any amount payable as
consequential or other damages due to such underpayment and without interest
except to the extent that delay in payment of Distribution Fees and CDSCs
results in an increase in the maximum Sales Charge allowable under the Rules of
Fair Practice, which increases daily at a rate of prime plus one percent per
annum.
14.7 The Fund will not, to the extent it may otherwise be empowered to do
so, change or waive any CDSC with respect to B-2 Shares, except as provided in
the Fund's prospectus or statement of additional information without the
Principal Underwriter's or Assignee's consent, as applicable. Notwithstanding
anything to the contrary in this Agreement or any termination of this Agreement
or the Principal Underwriter as principal underwriter for the Shares of the
Fund, the Principal Underwriter shall be entitled to be paid its Allocable
Portion of the CDSCs whether or not the Fund's Rule 12b-1 plan for B-2 Shares is
terminated and whether or not any such termination is a Complete Termination, as
defined above.
15. This Agreement shall be construed in accordance with the laws of The
Commonwealth of Massachusetts. All sales hereunder are to be made, and title to
the Shares shall pass, in Boston, Massachusetts.
16. The Fund is a Massachusetts business trust established under a
Declaration of Trust, as it may be amended from time to time. The obligations of
the Fund are not personally binding upon, nor shall recourse be had against the
private property of any of the Trustees, shareholders, officers, employees or
agents of the Fund, but only the property of the Fund shall be bound.
IN WITNESS WHEREOF, the parties hereto have caused this agreement to be
executed by their respective officers thereunto duly authorized at Boston,
Massachusetts, on the day and year first written above.
KEYSTONE FUND FOR TOTAL RETURN
By: /s/ Rosemary 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-2 SHARES
OF
KEYSTONE FUND FOR TOTAL RETURN
TRANSFER AGENT PROCEDURES FOR DIFFERENTIATING
AMONG DISTRIBUTOR SHARES AND POST-DISTRIBUTOR SHARES
Amounts (in respect of Asset Based Sales Charges (as hereinafter defined)
and CDSCs (as hereinafter defined) in respect of Shares (as hereinafter defined)
of each Fund (as hereinafter defined) shall be allocated between Distributor
Shares (as hereinafter defined) and Post-distributor Shares (as hereinafter
defined) of such Fund in accordance with the rules set forth in clauses (B) and
(C). Clause (B) sets forth the rules to be followed by the Transfer Agent for
each Fund and the record owner of each Omnibus Account (as hereinafter defined)
in maintaining records relating to Distributor Shares and Post-distributor
Shares. Clause (C) sets forth the rules to be followed by the Transfer Agent for
each Fund and the record owner of each Omnibus Account in determining what
portion of the Asset Based Sales Charge (as hereinafter defined) payable in
respect of each class of Shares of such Fund and what portion of the CDSC (as
hereinafter defined) payable by the holders of Shares of such Fund is
attributable to Distributor Shares and Post-distributor Shares, respectively.
(A) DEFINITIONS:
Generally, for purposes of this Schedule I, defined terms shall be used
with the meaning assigned to them in the Agreement, except that for purposes of
the following rules the following definitions are also applicable:
"Agreement" shall mean the Principal Underwriting Agreement for Class B-2
Shares of the Instant Fund dated as of June 1, 1995 between the Instant Fund and
the Distributor.
"Asset Based Sales Charge" shall have the meaning set forth in Section
26(b)(8)(C) of the Rules of Fair Practice it being understood that for purposes
of this Exhibit I such term does not include the Service Fee.
"Business Day" shall mean any day on which the banks and the New York Stock
Exchange are not authorized or required to close in New York City.
"Capital Gain Dividend" shall mean, in respect of any Share of any Fund, a
Dividend in respect of such Share which is designated by such Fund as being a
"capital gain dividend" as such term is defined in Section 852 of the Internal
Revenue Code of 1986, as amended.
"CDSC" shall mean with respect to any Fund, the contingent deferred sales
charge payable, either directly or by withholding from the proceeds of the
redemption of the Shares of such Fund, by the shareholders of such Fund on any
redemption of Shares of such Fund in accordance with the Prospectus relating to
such Fund.
"Commission Share" shall mean, in respect of any Fund, a Share of such Fund
issued under circumstances where a CDSC would be payable upon the redemption of
such Share if such CDSC is not waived or shall have not otherwise expired.
"Date of Original Purchase" shall mean, in respect of any Commission Share
of any Fund, the date on which such Commission Share was first issued by such
Fund; provided, that if such Share is a Commission Share and such Fund issued
the Commission Share (or portion thereof) in question in connection with a Free
Exchange for a Commission Share (or portion thereof) of another Fund, the Date
of Original Purchase for the Commission Share (or portion thereof) in question
shall be the date on which the Commission Share (or portion thereof) of the
other Fund was first issued by such other Fund (unless such Commission Share (or
portion thereof) was also issued by such other Fund in a Free Exchange, in which
case this proviso shall apply to that Free Exchange and this application shall
be repeated until one reaches a Commission Share (or portion thereof) which was
issued by a Fund other than in a Free Exchange).
"Distributor" shall mean Keystone Investment Distributors Company, its
successors and assigns.
"Distributor's Account" shall mean the account of the Distributor, account
no. 9903-584-2, ABA No. 011 0000 28, entitled "General Account" maintained with
State Street Bank & Trust Company or such other account as the Distributor may
designate in a notice to the Transfer Agent.
"Distributor Inception Date" shall mean, in respect of any Fund, the date
identified as the date Shares of such Fund are first sold by the Distributor.
"Distributor Last Sale Cut-off Date" shall mean, in respect of any Fund,
the date identified as the last sale of a Commission Share during the period the
Distributor served as principal underwriter under the Agreement.
"Distributor Shares" shall mean, in respect of any Fund, all Shares of such
Fund the Month of Original Purchase of which occurs on or after the Inception
Date for such Fund and on or prior to the Distributor Last Sale Cut-off Date in
respect of such Fund.
"Dividend" shall mean, in respect of any Share of any Fund, any dividend or
other distribution by such Fund in respect of such Share.
"Free Exchange" shall mean any exchange of a Commission Share (or portion
thereof) of one Fund (the "Redeeming Fund") for a Share (or portion thereof) of
another Fund (the "Issuing Fund"), under any arrangement which defers the
exchanging Shareholder's obligation to pay the CDSC in respect of the Commission
Share (or portion thereof) of the Redeeming Fund so exchanged until the later
redemption of the Share (or portion thereof) of the Issuing Fund received in
such exchange.
"Free Share" shall mean, in respect of any Fund, each Share of such Fund
other than a Commission Share, including, without limitation: (i) Shares issued
in connection with the automatic reinvestment of Capital Gain Dividends or Other
Dividends by such Fund, (ii) Special Free Shares issued by such Fund and (iii)
Shares (or portion thereof) issued by such Fund in connection with an exchange
whereby a Free Share (or portion thereof) of another Fund is redeemed and the
Net Asset Value of such redeemed Free Share (or portion thereof) is invested in
such Shares (or portion thereof) of such Fund.
"Fund" shall mean each of the regulated investment companies or series or
portfolios of regulated investment companies identified in Schedule II to the
Irrevocable Payment Instruction, as the same may be amended from time to time in
accordance with the terms thereof.
"Instant Fund" shall mean [Keystone Equity Fund].
"ML Omnibus Account" shall mean, in respect of any Fund, the Omnibus
Account maintained by Merrill Lynch, Pierce, Fenner & Smith as subtransfer
agent.
"Month of Original Purchase" shall mean, in respect of any Share of any
Fund, the calendar month in which such Share was first issued by such Fund;
provided, that if such Share is a Commission Share and such Fund issued the
Commission Share (or portion thereof) in question in connection with a Free
Exchange for a Commission Share (or portion thereof) of another Fund, the Month
of Original Purchase for the Commission Share (or portion thereof) in question
shall be the calendar month in which the Commission Share (or portion thereof)
of the other Fund was first issued by such other Fund (unless such Commission
Share (or portion thereof) was also issued by such other Fund in a Free
Exchange, in which case this proviso shall apply to that Free Exchange and this
application shall be repeated until one reaches a Commission Share (or portion
thereof) which was issued by a Fund other than in a Free Exchange); provided,
further, that if such Share is a Free Share and such Fund issued such Free Share
in connection with the automatic reinvestment of dividends in respect of other
Shares of such Fund, the Month of Original Purchase of such Free Share shall be
deemed to be the Month of Original Purchase of the Share in respect of which
such dividend was paid; provided, further, that if such Share is a Free Share
and such Fund issued such Free Share in connection with an exchange whereby a
Free Share (or portion thereof) of another Fund is redeemed and the Net Asset
Value of such redeemed Free Share (or portion thereof) is invested in a Free
Share (or portion thereof) of such Fund, the Month of Original Issue of such
Free Share shall be the Month of Original Issue of the Free Share of such other
Fund so redeemed (unless such Free Share of such other Fund was also issued by
such other Fund in such an exchange, in which case this proviso shall apply to
that exchange and this application shall be repeated until one reaches a Free
Share which was issued by a Fund other than in such an exchange); and provided,
finally, that for purposes of this Schedule I each of the following periods
shall be treated as one calendar month for purposes of applying the rules of
this Schedule I to any Fund: (i) the period of time from and including the
Distributor Inception Date for such Fund to and including the last day of the
calendar month in which such Distributor Inception Date occurs; (ii) the period
of time commencing with the first day of the calendar month in which the
Distributor Last Sale Cutoff Date in respect of such Fund occurs to and
including such Distributor Last Sale Cutoff Date; and (iii) the period of time
commencing on the day immediately following the Distributor Last Sale Cutoff
Date in respect of such Fund to and including the last day of the calendar month
in which such Distributor Last Sale Cut-off Date occurs.
"Omnibus Account" shall mean any Shareholder Account the record owner of
which is a registered broker-dealer which has agreed with the Transfer Agent to
provide sub-transfer agent functions relating to each Sub-shareholder Account
within such Shareholder Account as contemplated by this Schedule I in respect of
each of the Funds.
"Omnibus Asset Based Sales Charge Settlement Date" shall mean, in respect
of each Omnibus Account, the Business Day next following the twentieth day of
each calendar month for the calendar month immediately preceding such date so
long as the record owner is able to allocate the Asset Based Sales Charge
accruing in respect of Shares of any Fund as contemplated by this Schedule I no
more frequently than monthly; provided, that at such time as the record owner of
such Omnibus Account is able to provide information sufficient to allocate the
Asset Based Sales Charge accruing in respect of such Shares of such Fund owned
of record by such Omnibus Account as contemplated by this Schedule I on a weekly
or daily basis, the Omnibus Asset Based Sales Charge Settlement Date shall be a
weekly date as in the case of the Omnibus CDSC Settlement Date or a daily date
as in the case of Asset Based Sales Charges accruing in respect of Shareholder
Accounts other than Omnibus Accounts, as the case may be.
"Omnibus CDSC Settlement Date" shall mean, in respect of each Omnibus
Account, the third Business Day of each calendar week for the calendar week
immediately preceding such date so long as the record owner of such Omnibus
Account is able to allocate the CDSCs accruing in respect of any Shares of any
Fund as contemplated by this Schedule I for no more frequently than weekly;
provided, that at such time as the record owner of such Shares of such Fund
owned of record by such Omnibus Account is able to provide information
sufficient to allocate the CDSCs accruing in respect of such Omnibus Account as
contemplated by this Schedule I on a daily basis, the Omnibus CDSC Settlement
Date for such Omnibus Account shall be a daily date as in the case of CDSCs
accruing in respect of Shareholder Accounts other than Omnibus Accounts.
"Original Purchase Amount" shall mean, in respect of any Commission Share
of any Fund, the amount paid (i.e., the Net Asset Value thereof on such date),
on the Date of Original Purchase in respect of such Commission Share, by such
Shareholder Account or Sub-shareholder Account for such Commission Share;
provided, that if such Fund issued the Commission Share (or portion thereof) in
question in connection with a Free Exchange for a Commission Share (or portion
thereof) of another Fund, the Original Purchase Amount for the Commission Share
(or portion thereof) in question shall be the Original Purchase Amount in
respect of such Commission Share (or portion thereof) of such other Fund (unless
such Commission Share (or portion thereof) was also issued by such other Fund in
a Free Exchange, in which case this proviso shall apply to that Free Exchange
and this application shall be repeated until one reaches a Commission Share (or
portion thereof) which was issued by a Fund other than in a Free Exchange).
"Other Dividend" shall mean in respect of any Share, any Dividend paid in
respect of such Share other than a Capital Gain Dividend.
"Post-distributor Shares" shall mean, in respect of any Fund, all Shares of
such Fund the Month of Original Purchase of which occurs after the Distributor
Last Sale Cut-off Date for such Fund.
"Program Agent" shall mean Citicorp North America, Inc., as Program Agent
under the Purchase Agreement, and its successors and assigns in such capacity.
"Purchase Agreement" shall mean that certain Purchase and Sale Agreement
dated as of May 31, 1995, among Keystone Investment Distributors Company, as
Seller, Citibank, N.A., as Purchaser, and Citicorp North America, Inc., as
Program Agent.
"Share" shall mean in respect of any Fund any share of the classes of
shares specified in Schedule II to the Irrevocable Payment Instruction opposite
the name of such Fund, as the same may be amended from time to time by notice
from the Distributor and the Program Agent to the Fund and the Transfer Agent;
provided, that such term shall include, after the Distributor Last Sale Cut-off
Date, a share of a new class of shares of such Fund: (i) with respect to each
record owner of Shares which is not treated in the records of each Transfer
Agent and Sub-transfer Agent for such Fund as an entirely separate and distinct
class of shares from the classes of shares specified Schedule II to the
Irrevocable Payment Instruction or (ii) the shares of which class may be
exchanged for shares of another Fund of the classes of shares specified on
Schedule II to the Irrevocable Payment Instruction of any class existing on or
prior to the Distributor Last Sale Cut-off Date; or (iii) dividends on which can
be reinvested in shares of the classes specified on Schedule II to the
Irrevocable Payment Instruction under the automatic dividend reinvestment
options; or (iv) which is otherwise treated as though it were of the same class
as the class of shares specified on Schedule II to the Irrevocable Payment
Instruction.
"Shareholder Account" shall have the meaning set forth in clause (B)(1)
hereof.
"Special Free Share" shall mean, in respect of any Fund, a Share (other
than a Commission Share) issued by such Fund other than in connection with the
automatic reinvestment of Dividends and other than in connection with an
exchange whereby a Free Share (or portion thereof) of another Fund is redeemed
and the Net Asset Value of such redeemed Share (or portion thereof) is invested
in a Share (or portion thereof) of such Fund.
"Sub-shareholder Account" shall have the meaning set forth in clause (B)(1)
hereof.
"Sub-transfer Agent" shall mean, in respect of each Omnibus Account, the
record owner thereof.
(B) RECORDS TO BE MAINTAINED BY THE TRANSFER AGENT FOR EACH FUND AND THE
RECORD OWNER OF EACH OMNIBUS ACCOUNT:
The Transfer Agent shall maintain Shareholder Accounts, and shall cause
each record owner of each Omnibus Account to maintain Sub-shareholder Accounts,
each in accordance with the following rules:
(1) SHAREHOLDER ACCOUNTS AND SUB-SHAREHOLDER ACCOUNTS. The Transfer Agent
shall maintain a separate account (a "Shareholder Account") for each record
owner of Shares of each Fund. Each Shareholder Account (other than Omnibus
Accounts) will represent a record owner of Shares of such Fund, the records of
which will be kept in accordance with this Schedule I. In the case of an Omnibus
Account, the Transfer Agent shall require that the record owner of the Omnibus
Account maintain a separate account (a "Sub-shareholder Account") for each
record owner of Shares which are reflected in the Omnibus Account, the records
of which will be kept in accordance with this Schedule I. Each such Shareholder
Account and Sub-shareholder Account shall relate solely to Shares of such Fund
and shall not relate to any other class of shares of such Fund.
(2) COMMISSION SHARES. For each Shareholder Account (other than an Omnibus
Account), the Transfer Agent shall maintain daily records of each Commission
Share of such Fund which records shall identify each Commission Share of such
Fund reflected in such Shareholder Account by the Month of Original Purchase of
such Commission Share.
For each Omnibus Account, the Transfer Agent shall require that the
Sub-transfer Agent in respect thereof maintain daily records of such
Sub-shareholder Account which records shall identify each Commission Share of
such Fund reflected in such Sub-shareholder Account by the Month of Original
Purchase; provided, that until the Sub-transfer Agent in respect of the ML
Omnibus Account develops the data processing capability to conform to the
foregoing requirements, such Sub-transfer Agent shall maintain daily records of
Sub-shareholder Accounts which identify each Commission Share of such Fund
reflected in such Sub-shareholder Account by the Date of Original Purchase. Each
such Commission Share shall be identified as either a Distributor Share or a
Post-distributor Share based upon the Month of Original Purchase of such
Commission Share (or in the case of a Sub-shareholder Account within the ML
Omnibus Account, based upon the Date of Original Purchase).
(3) FREE SHARES. The Transfer Agent shall maintain daily records of each
Shareholder Account (other than an Omnibus Account) in respect of any Fund so as
to identify each Free Share (including each Special Free Share) reflected in
such Shareholder Account by the Month of Original Purchase of such Free Share.
In addition, the Transfer Agent shall require that each Shareholder Account
(other than an Omnibus Account) have in effect separate elections relating to
reinvestment of Capital Gain Dividends and relating to reinvestment of Other
Dividends in respect of any Fund. Either such Shareholder Account shall have
elected to reinvest all Capital Gain Dividends or such Shareholder Account shall
have elected to have all Capital Gain Dividends distributed. Similarly, either
such Shareholder Account shall have elected to reinvest all Other Dividends or
such Shareholder Account shall have elected to have all Other Dividends
distributed.
The Transfer Agent shall require that the Sub-transfer Agent in respect of
each Omnibus Account maintain daily records for each Sub-shareholder Account in
the manner described in the immediately preceding paragraph for Shareholder
Accounts (other than Omnibus Accounts); provided, that until the Sub-transfer
Agent in respect of the ML Omnibus Account develops the data processing
capability to conform to the foregoing requirements, such Sub-transfer Agent
shall not be obligated to conform to the foregoing requirements. Each
Sub-shareholder Account shall also have in effect Dividend reinvestment
elections as described in the immediately preceding paragraph.
The Transfer Agent and each Sub-transfer Agent in respect of an Omnibus
Account shall identify each Free Share as either a Distributor Share or a
Post-distributor Share based upon the Month of Original Purchase of such Free
Share; provided, that until the Sub-transfer Agent in respect of the ML Omnibus
Account develops the data processing capability to conform to the foregoing
requirements, the Transfer Agent shall require such Sub-transfer Agent to
identify each Free Share of a given Fund in the ML Omnibus Account as a
Distributor Share, or Post-distributor Share, as follows:
(a) Free Shares of such Fund which are outstanding on the Distributor Last
Sale Cut-off Date for such Fund shall be identified as Distributor
Shares.
(b) Free Shares of such Fund which are issued (whether or not in
connection with an exchange for a Free Share of another Fund) to the
ML Omnibus Account during any calendar month (or portion thereof)
after the Distributor Last Sale Cut-off Date for such Fund shall be
identified as Distributor Shares in a number computed as follows:
A X (B/C)
where:
A = Free Shares of such Fund issued to the ML Omnibus Account
during such calendar month (or portion thereof)
B = Number of Commission Shares and Free Shares of such Fund in the
ML Omnibus Account identified as Distributor Shares and
outstanding as of the close of business in the last day of the
immediately preceding calendar month (or portion thereof)
C = Total number of Commission Shares and Free Shares of such Fund
in the ML Omnibus Account and outstanding as of the close of
business on the last day of the immediately preceding calendar
month (or portion thereof).
(c) Free Shares of such Fund which are issued (whether or not in
connection with an exchange for a free share of another Fund) to the
ML Omnibus Account during any calendar month (or portion thereof)
after the Distributor Last Sale Cut-off Date for such Fund shall be
identified as Post-distributor Shares in a number computed as follows:
(A X (B/C)
where:
A = Free Shares of such Fund issued to the ML Omnibus Account
during such calendar month (or portion thereof)
B = Number of Commission Shares and Free Shares of such Fund in the
ML Omnibus Account identified as Post-distributor Shares and
outstanding as of the close of business in the last day of the
immediately preceding calendar month (or portion thereof)
C = Total number of Commission Shares and Free Shares of such Fund
in the ML Omnibus Account and outstanding as of the close of
business on the last day of the immediately preceding calendar
month (or portion thereof).
(d) Free Shares of such Fund which are redeemed (whether or not in
connection with an exchange for Free Shares of another Fund or in
connection with the conversion of such Shares into a Class A Share of
such Fund) from the ML Omnibus Account in any calendar month (or
portion thereof) after the Distributor Last Sale Cut-off Date for such
Fund shall be identified as Distributor Shares in a number computed as
follows:
A X (B/C)
Where:
A = Free Shares of such Fund which are redeemed (whether or not in
connection with an exchange for Free Shares of another Fund or in
connection with the conversion of such Shares into a class A
share of such Fund) from the ML Omnibus Account during such
calendar month (or portion thereof)
B = Free Shares of such Fund in the ML Omnibus Account identified
as Distributor Shares and outstanding as of the close of business
on the last day of the immediately preceding calendar month.
C = Total number of Free Shares of such Fund in the ML Omnibus
Account and outstanding as of the close of business on the last
day of the immediately preceding calendar month.
(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 99.6(C)
[LOGO] KEYSTONE
INVESTMENTS
200 Berkeley Street
Boston, Massachusetts 02116-5034
Dealer No._________________________________________________________
(Please indicate Exchange Membership(s), if any.)__________________
-------------------------------------------------------------------
Effective Date_____________________________________________________
CLASS A AND B SHARES
To Whom It May Concern:
Keystone Investment Distributors Company ("the Company"), principal
underwriter, invites you to participate in the distribution of shares of the
Keystone Fund Family, Classes A and B shares of the Keystone America Fund Family
and other Funds ("Funds") designated by us which are currently or hereafter
underwritten by the Company, subject to the following terms:
1. In the distribution and sale of shares, you shall not have authority to act
as agent for the issuer, the Company or any other dealer in any respect in such
transactions. All orders are subject to acceptance by us and become effective
only upon confirmation by us. The Company reserves the unqualified right not to
accept any specific order for the purchase or exchange of shares.
2. You will offer and sell shares of the Funds other than Class A shares of the
Keystone America Funds only at their respective net asset values in accordance
with the terms and conditions of a current prospectus of the Fund whose shares
you offer. With respect to Class A shares of the Keystone America Funds and
other Funds designated by us, you will offer and sell such shares at the public
offering price described in a current prospectus of the Fund whose shares you
offer. You will offer shares only on a forward pricing basis, i.e. orders for
the purchase or repurchase of shares accepted by you prior to the close of the
New York Stock Exchange and placed with us the same day prior to the close of
our business day, 5:00 p.m. Eastern Time, and orders to exchange shares of one
Fund for shares of another Fund eligible for exchange placed with us prior to
3:00 p.m. Eastern Time, shall be confirmed at the closing price for that
business day. You agree to place orders for shares only with us and at such
closing price. You further agree to confirm the transaction with your customer
at the price confirmed in writing by us. In the event of a difference between
verbal and written price confirmations, the written confirmations shall be
considered final. Prices of the Funds' shares are computed by and are subject to
withdrawal by the Funds in accordance with their current respective
prospectuses. You agree to place orders with us only through your central order
department unless we accept your written Power of Attorney authorizing others to
place orders on your behalf.
3. So long as this agreement remains in effect, we will pay you commissions on
sales of shares of the Funds and service fees, all in accordance with the
Schedule of Commissions and Service Fees ("Schedule") attached hereto and made a
part hereof, effective June 1, 1995, which Schedule may be modified from time to
time or rescinded by us, in either case without prior notice. You shall have no
vested right to receive any continuing service fees, other fees, or other
commissions which we may elect to pay to you from time to time on shares
previously sold by you. You agree not to share or rebate any portion of such
commissions or to otherwise grant any concessions, discounts or other allowances
to any person who is not a broker or dealer actually engaged in the investment
banking or securities business. You will receive commissions in accordance with
the attached Schedule on all purchase transactions in shareholder accounts
(excluding reinvestment of income dividends and capital gains distributions) for
which you are designated as Dealer of Record except where we determine that any
such purchase was made with the proceeds of a redemption or repurchase of shares
of the same Fund or another Fund whether or not the transaction constitutes the
exercise of the exchange privilege. Commissions will be paid to you twice a
month.
You hereby authorize us to act as your agent in connection with all
transactions in shareholder accounts in which you are designated as Dealer of
Record. All designations of Dealer of Record and all authorizations of the
Company to act as your Agent shall cease upon the termination of this Agreement,
or upon the shareholder's instruction to transfer his or her account to another
Dealer of Record.
4. Payment for all shares purchased from us shall be made to the Company and
shall be received by the Company within ten business days after the acceptance
of your order or such shorter time as may be required by law. If such payment is
not received by us, we reserve the right, without prior notice, forthwith to
cancel the sale, or, at our option, to sell the shares ordered by you back to
the Fund concerned in which latter case we may hold you responsible for any
loss, including loss of profit, suffered by us or by the Fund resulting from
your failure to make payment as aforesaid.
5. You agree to purchase shares of the Funds only from us or from your
customers. If you purchase shares from us, you agree that all such purchases
shall be made only to cover orders already received by you from your customers,
or for your own bonafide investment without a view to resale. If you purchase
shares from your customers, you agree to pay such customers the applicable net
asset value per share less any contingent deferred sales charge that would be
applicable if such shares were then tendered for redemption in accordance with
the then current applicable prospectus ("repurchase price").
6. You will sell shares only --
(a) to your clients at the prices described in paragraph 2 above; or
(b) to us as agent for the Funds at the repurchase price. In such a
sale to us, you may act either as principal for your own account or as
agent for your customer. If you act as principal for your own account
in purchasing shares for resale to us, you agree to pay your customer
not less than nor more than the repurchase price which you receive
from us. If you act as agent for your customer in selling shares to
us, you agree not to charge your customer more than a fair commission
for handling the transaction.
7. You shall not withhold placing with us orders received from your customers so
as to profit yourself as a result of such withholding.
8. We will not accept from you any conditional orders for shares.
9. If any shares sold to you under the terms of this agreement are repurchased
by a Fund, or are tendered for redemption, within seven business days after the
date of our confirmation of the original purchase by you, it is agreed that you
shall forfeit your right to any commissions on such sales even though the
shareholder may be charged a contingent deferred sales charge by the Fund.
We will notify you of any such repurchase or redemption within the next ten
business days after the date on which the certificate or written request for
redemption is delivered to us or to the Fund, and you shall forthwith refund to
us the full amount of any commission you received on such sale. We agree, in the
event of any such repurchase or redemption, to refund to the Fund any commission
we retained on such sale and, upon receipt from you of the commissions paid to
you, to pay such commissions forthwith to the Fund.
10. Shares sold to you hereunder shall not be issued in certificate form or
otherwise until payment has been received by the Fund concerned. If transfer
instructions are not received from you within 15 days after our acceptance of
your order, the Company reserves the right to instruct the transfer agent for
the Fund concerned to register a certificate for the shares sold to you in your
name and forward such certificate to you. You agree to hold harmless and
indemnify the Company, the Fund and its transfer agent for any loss or expense
resulting from such registration.
11. No person is authorized to make any representations concerning shares of the
Funds except those contained in the current applicable prospectuses and in sales
literature issued by us supplemental to such prospectuses. In purchasing shares
from us you shall rely solely on the representations contained in the
appropriate prospectus and in such sales literature. We will furnish additional
copies of the current prospectuses and such sales literature and other releases
and information issued by us in reasonable quantities upon request. You agree
that you will in all respects duly conform with all laws and regulations
applicable to the sale of shares of the Funds and will indemnify and hold
harmless the Funds, their directors and trustees and the Company from any damage
or expenses on account of any wrongful act by you, your representatives, agents
or sub-agents in connection with any orders or solicitation of orders of shares
of the Funds by you, your representatives, agents or sub-agents.
12. Each party hereto represents that it is a member of the National Association
of Securities Dealers, Inc., and agrees to notify the other should it cease to
be a member of such Association and agrees to the automatic termination of this
agreement at that time. It is further agreed that all rules or regulations of
said Association now in effect or hereafter adopted, which are binding upon
underwriters and dealers in the distribution of the securities of open-end
investment companies, shall be deemed to be a part of this agreement to the same
extent as if set forth in full herein.
13. You will not offer the Funds for sale in any State where they are not
qualified for sale under the Blue Sky Laws and regulations of such State or
where you are not qualified to act as a dealer, except for States in which they
are exempt from qualification.
14. This agreement supersedes and cancels any prior agreement with respect to
the sales of shares of any of the Funds underwritten by the Company and the
Company reserves the right to amend this agreement at any time and from time to
time.
15. This agreement shall be effective upon acceptance by us in Boston,
Massachusetts and all sales hereunder are to be made, and title to shares of the
Funds shall pass, in Boston. This agreement is made in the Commonwealth of
Massachusetts and shall be interpreted in accordance with the laws of
Massachusetts.
16. All communications to the Company should be sent to the above address. Any
notice to you shall be duly given if mailed or telegraphed to you at the address
specified by you below.
17. Either party may terminate this agreement at any time by written notice to
the other party.
Signed: Accepted:
- ---------------------------------- Boston, MA (USA) as of June 1, 1995
Dealer or Broker Name
- ---------------------------------- KEYSTONE INVESTMENT DISTRIBUTORS COMPANY
Address 200 Berkeley Street, Boston, MA 02116-5034
- ---------------------------------- -----------------------------------------
Authorized Signature Authorized Signature
<PAGE>
[LOGO] KEYSTONE
INVESTMENTS
200 Berkeley Street
Boston, Massachusetts 02116-5034
Dealer No._________________________________________________________
(Please indicate Exchange Membership(s), if any.)__________________
-------------------------------------------------------------------
Effective Date_____________________________________________________
CLASS C SHARES
To Whom It May Concern:
Keystone Investment Distributors Company ("the Company"), principal
underwriter, invites you to participate in the distribution of Class C shares of
the Keystone America Fund Family, Keystone Liquid Trust and other Funds
("Funds") designated by us which are currently or hereafter underwritten by the
Company, subject to the following terms:
1. In the distribution and sale of shares, you shall not have authority to act
as agent for the issuer, the Company or any other dealer in any respect in such
transactions. All orders are subject to acceptance by us and become effective
only upon confirmation by us. The Company reserves the unqualified right not to
accept any specific order for the purchase or exchange of shares.
2. You will offer and sell Class C shares of the Funds only at their respective
net asset values in accordance with the terms and conditions of a current
prospectus of the Fund whose shares you offer. You will offer shares only on a
forward pricing basis i.e. orders for the purchase or repurchase of shares
accepted by you prior to the close of the New York Stock Exchange and placed
with us the same day prior to the close of our business day, 5:00 p.m. Eastern
Time, and orders to exchange shares of one Fund for shares of another Fund
eligible for exchange placed with us prior to 3:00 p.m. Eastern Time, shall be
confirmed at the closing price for that business day. You agree to place orders
for shares only with us and at such closing price. You further agree to confirm
the transaction with your customer at the price confirmed in writing by us. In
the event of a difference between verbal and written price confirmations shall
be considered final. Prices of the Funds' shares are computed by and are subject
to withdrawal by the Funds in accordance with their current respective
prospectuses. You agree to place orders with us only through your central order
department unless we accept your written Power of Attorney authorizing others to
place orders on your behalf.
3. So long as this agreement remains in effect, we will pay you commissions on
sales of shares of the Funds and service fees, all in accordance with the
Schedule of Commissions and Service Fees ("Schedule") attached hereto and made a
part hereof, effective June 1, 1995, which Schedule may be modified from time to
time or rescinded by us, in either case without prior notice. You shall have no
vested right to receive any continuing service fees, other fees, or other
commissions which we may elect to pay to you from time to time on shares
previously sold by you. You agree not to share or rebate any portion of such
commissions or to otherwise grant any concessions, discounts or other allowances
to any person who is not a broker or dealer actually engaged in the investment
banking or securities business. You will receive commissions in accordance with
the attached Schedule on all purchase transactions in shareholder accounts
(excluding reinvestment of income dividends and capital gains distributions) for
which you are designated as Dealer of Record except where we determine that any
such purchase was made with the proceeds of a redemption or repurchase of shares
of the same Fund or another Fund whether or not the transaction constitutes the
exercise of the exchange privilege. Commissions will be paid to you twice a
month.
You hereby authorize us to act as your agent in connection with all
transaction in shareholder accounts in which you are designated as Dealer of
Record. All designations of Dealer of Record and all authorizations of the
Company to act as your Agent shall cease upon the termination of this Agreement,
or upon the shareholder's instruction to transfer his or her account to another
Dealer of Record.
4. Payment for all shares purchased from us shall be made to the Company and
shall be received by the Company within ten business days after the acceptance
of your order or such shorter time as may be required by law. If such payment is
not received by us, we reserve the right, without prior notice, forthwith to
cancel the sale, or, at our option, to sell the shares ordered by you back to
the Fund concerned in which latter case we may hold you responsible for any
loss, including loss of profit, suffered by us or by the Fund resulting from
your failure to make payment as aforesaid.
5. You agree to purchase shares of the Funds only from us or from your
customers. If you purchase shares from us, you agree that all such purchases
shall be made only to cover orders already received by you from your customers,
or for your own bonafide investment without a view to resale. If you purchase
shares from your customers, you agree to pay such customers the applicable net
asset value per share less any contingent deferred sales charge that would be
applicable if such shares were then tendered for redemption in accordance with
the then current applicable prospectus ("repurchase price").
6. You will sell share only --
(a) to your clients at the prices described in paragraph 2 above; or
(b) to us as agent for the Funds at the repurchase price. In such a
sale to us, you may act either as principal for your own account or as
agent for your customer. If you act as principal for your own account
in purchasing shares for resale to us, you agree to pay your customer
not less than nor more than the repurchase price which you receive
from us. If you act as agent for your customer in selling shares to
us, you agree not to charge your customer more than a fair commission
for handling the transaction.
7. You shall not withhold placing with us orders received from your customers so
as to profit yourself as a result of such withholding.
8. We will not accept from you any conditional orders for shares.
9. If any shares sold to you under the terms of this agreement are repurchased
by a Fund, or are tendered for redemption, within seven business days after the
date of our confirmation of the original purchase by you, it is agreed that you
shall forfeit your right to any commissions on such sales even though the
shareholder may be charged a contingent deferred sales charge by the Fund.
We will notify you of any such repurchase or redemption within the next ten
business days after the date on which the certificate or written request for
redemption is delivered to us or to the Fund, and you shall forthwith refund to
us the full amount of any commission you received on such sale. We agree, in the
event of any such repurchase or redemption, to refund to the Fund any commission
we retained on such sale and, upon receipt from you of the commissions paid to
you, to pay such commissions forthwith to the Fund.
10. Shares sold to you hereunder shall not be issued in certificate form or
otherwise until payment has been received by the Fund concerned. If transfer
instructions are not received from you within 15 days after our acceptance of
your order, the Company reserves the right to instruct the transfer agent for
the Fund concerned to register a certificate for the shares sold to you in your
name and forward such certificate to you. You agree to hold harmless and
indemnify the Company, the Fund and its transfer agent for any loss or expense
resulting from such registration.
11. No person is authorized to make any representations concerning shares of the
Funds except those contained in the current applicable prospectuses and in sales
literature issued by us supplemental to such prospectuses. In purchasing shares
from us you shall rely solely on the representations contained in the
appropriate prospectus and in such sales literature. We will furnish additional
copies of the current prospectuses and such sales literature and other releases
and information issued by us in reasonable quantities upon request. You agree
that you will in all respects duly conform with all laws and regulations
applicable to the sale of shares of the Funds and will indemnify and hold
harmless the Funds, their directors and trustees and the Company from any damage
or expenses on account of any wrongful act by you, your representatives, agents
or sub-agents in connection with any orders or solicitation of orders of shares
of the Funds by you, your representatives, agents or sub-agents.
12. Each party hereto represents that it is a member of the National Association
of Securities Dealers, Inc., and agrees to notify the other should it cease to
be a member of such Association and agrees to the automatic termination of this
agreement at that time. It is further agreed that all rules or regulations of
said Association now in effect or hereafter adopted, which are binding upon
underwriters and dealers in the distribution of the securities of open-end
investment companies, shall be deemed to be a part of this agreement to the same
extent as if set forth in full herein.
13. You will not offer the Funds for sale in any State where they are not
qualified for sale under the Blue Sky Laws and regulations of such State or
where you are not qualified to act as a dealer, except for States in which they
are exempt from qualification.
14. This agreement supersedes and cancels any prior agreement with respect to
the sales of shares of any of the Funds underwritten by the Company and the
Company reserves the right to amend this agreement at any time and from time to
time.
15. This agreement shall be effective upon acceptance by us in Boston,
Massachusetts and all sales hereunder are to be made, and title to shares of the
Funds shall pass, in Boston. This agreement is made in the Commonwealth of
Massachusetts and shall be interpreted in accordance with the laws of
Massachusetts.
16. All communications to the Company should be sent to the above address. Any
notice to you shall be duly given if mailed or telegraphed to you at the address
specified by you below.
17. Either party may terminate this agreement at any time by written notice to
the other party.
Signed: Accepted:
- ---------------------------------- Boston, MA (USA) as of June 1, 1995
Dealer or Broker Name
- ---------------------------------- KEYSTONE INVESTMENT DISTRIBUTORS COMPANY
Address 200 Berkeley Street, Boston, MA 02116-5034
- ---------------------------------- -----------------------------------------
Authorized Signature Authorized Signature
<PAGE>
EXHIBIT 99.11
CONSENT OF INDEPENDENT AUDITORS
The Trustees
Keystone Fund For Total Return
(Formerly named Keystone America Fund For Total Return)
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.
/s/ KPMG Peat Marwick LLP
KPMG Peat Marwick LLP
Boston, Massachusetts
January 30, 1996
<PAGE>
EXHIBIT 99.15
DISTRIBUTION PLAN
FOR
CLASS B-1 SHARES
OF
KEYSTONE FUND FOR TOTAL RETURN
Section 1. Keystone Fund For Total Return, 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 FUND FOR TOTAL RETURN
Section 1. Keystone Fund For Total Return, 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>
EXHIBIT 99.16
<TABLE>
<CAPTION>
KAFFTR CLASS A MTD YTD ONE YEAR THREE YEAR THREE YEAR
30-Nov-95 TOTAL RETURN COMPOUNDED
<S> <C> <C> <C> <C> <C>
4.75% LOAD 19.39% 19.29% 30.83% 9.37%
no load 4.74% 26.67% 26.57% 38.81% 11.55%
Beg dates 31-Oct-95 30-Dec-94 30-Nov-94 30-Nov-92 30-Nov-92
Beg Value (LOAD) 23,361 19,316 19,333 17,627 17,627
Beg Value (no load) 22,018 18,206 18,221 16,613 16,613
End Value 23,062 23,062 23,062 23,062 23,062
TIME 3
INCEPTION DATE 14-Apr-87
Compound Total Return Time Period: beginning 12/30/94
</TABLE>
<TABLE>
<CAPTION>
KAFFTR CLASS A FIVE YEAR FIVE YEAR TEN YEAR TEN YEAR
30-Nov-95 TOTAL RETURN COMPOUNDED TOTAL RETURN COMPOUNDED
<S> <C> <C> <C> <C>
4.75% LOAD 71.85% 11.44% 117.36% 9.41%
no load 82.34% 12.77% 130.62% 10.17%
Beg dates 30-Nov-90 30-Nov-90 14-Apr-87 14-Apr-87
Beg Value (LOAD) 13,420 13,420 10,610 10,610
Beg Value (no load) 12,648 12,648 10,000 10,000
End Value 23,062 23,062 23,062 23,062
TIME 5 8.6305555556
INCEPTION DATE 14-Apr-87
Compound Total Return Time Period: beginning 12/30/94
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
KAFFTR-B MTD YTD ONE YEAR THREE YEAR THREE YEAR
30-Nov-95 TOTAL RETURN COMPOUNDED
<S> <C> <C> <C> <C> <C>
with cdsc N/A 20.80% 21.59% 26.48% 8.64%
W/O CDSC 4.65% 25.80% 25.59% 29.48% 9.55%
Beg dates 31-Oct-95 30-Dec-94 30-Nov-94 01-Feb-93 01-Feb-93
Beg Value (no load) 12,373 10,292 10,310 10,000 10,000
End Value (W/O CDSC) 12,948 12,948 12,948 12,948 12,948
End Value (with cdsc) 12,433 12,536 12,648 12,648
beg nav 13.54 11.75 11.77 12.65 12.65
end nav 13.84 13.84 13.84 13.84 13.84
shares originally purhased 913.79 875.94 875.94 790.51 790.51
5% cdsc thru date=> 31-Jan-94
TIME 4% cdsc thru date=> 31-Jan-95 2.8333333333
</TABLE>
<TABLE>
<CAPTION>
KAFFTR-B FIVE YEAR FIVE YEAR TEN YEAR TEN YEAR
30-Nov-95 TOTAL RETURN COMPOUNDED TOTAL RETURN COMPOUNDED
<S> <C> <C> <C> <C>
with cdsc NA NA NA NA
W/O CDSC NA NA NA NA
Beg dates 01-Feb-93 01-Feb-93 01-Feb-93 01-Feb-93
Beg Value (no load) 10,000 10,000 10,000 10,000
End Value (W/O CDSC) 12,948 12,948 12,948 12,948
End Value (with cdsc) 12,848 12848.0779242 12,948 12948.0779242
beg nav 12.65 12.65 12.65 12.65
end nav 13.84 13.84 13.84 13.84
shares originally purhased 790.51 790.51 790.51 790.51
5% cdsc thru date=> 31-Jan-94
TIME 4% cdsc thru date=> 31-Jan-95 2.8333333333 2.8333333333
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
KAFFTR-C MTD YTD ONE YEAR THREE YEAR THREE YEAR
30-Nov-95 TOTAL RETURN COMPOUNDED
<S> <C> <C> <C> <C> <C>
with cdsc N/A 24.89% 25.57% 29.56% 9.57%
W/O CDSC 4.73% 25.89% 25.57% 29.56% 9.57%
Beg dates 31-Oct-95 30-Dec-94 30-Nov-94 01-Feb-93 01-Feb-93
Beg Value (no load) 12,371 10,292 10,318 10,000 10,000
End Value (W/O CDSC) 12,956 12,956 12,956 12,956 12,956
End Value (with cdsc) 12,853 12,956 12,956 12,956
beg nav 13.54 11.75 11.78 12.65 12.65
end nav 13.85 13.85 13.85 13.85 13.85
shares originally purhased 913.70 875.88 875.88 790.51 790.51
TIME 2.8333333333
</TABLE>
<TABLE>
<CAPTION>
KAFFTR-C FIVE YEAR FIVE YEAR TEN YEAR TEN YEAR
30-Nov-95 TOTAL RETURN COMPOUNDED TOTAL RETURN COMPOUNDED
<S> <C> <C> <C> <C>
with cdsc NA NA NA NA
W/O CDSC NA NA NA NA
Beg dates 01-Feb-93 01-Feb-93 01-Feb-93 01-Feb-93
Beg Value (no load) 10,000 10,000 10,000 10,000
End Value (W/O CDSC) 12,956 12,956 12,956 12,956
End Value (with cdsc) 12,956 12956.1421726 12,956 12956.1421726
beg nav 12.65 12.65 12.65 12.65
end nav 13.85 13.85 13.85 13.85
shares originally purhased 790.51 790.51 790.51 790.51
TIME 2.8333333333 2.8333333333
</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 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 Investment
Management Company 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 FUND FOR TOTAL RETURN 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> 45,465,997
<INVESTMENTS-AT-VALUE> 56,870,150
<RECEIVABLES> 512,847
<ASSETS-OTHER> 2,537
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 57,385,534
<PAYABLE-FOR-SECURITIES> 132,623
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 108,291
<TOTAL-LIABILITIES> 240,914
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 18,123,072
<SHARES-COMMON-STOCK> 1,954,342
<SHARES-COMMON-PRIOR> 1,970,607
<ACCUMULATED-NII-CURRENT> 4,218
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 535,884
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 8,373,431
<NET-ASSETS> 27,036,605
<DIVIDEND-INCOME> 670,614
<INTEREST-INCOME> 212,435
<OTHER-INCOME> 0
<EXPENSES-NET> (409,348)
<NET-INVESTMENT-INCOME> 473,702
<REALIZED-GAINS-CURRENT> 1,397,871
<APPREC-INCREASE-CURRENT> 3,931,009
<NET-CHANGE-FROM-OPS> 5,802,582
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (604,723)
<DISTRIBUTIONS-OF-GAINS> (1,220,537)
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 280,063
<NUMBER-OF-SHARES-REDEEMED> (422,494)
<SHARES-REINVESTED> 126,167
<NET-CHANGE-IN-ASSETS> 3,874,112
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 500,536
<OVERDISTRIB-NII-PRIOR> (18,229)
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> (159,936)
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> (412,915)
<AVERAGE-NET-ASSETS> 24,454,429
<PER-SHARE-NAV-BEGIN> 11.75
<PER-SHARE-NII> 0.25
<PER-SHARE-GAIN-APPREC> 2.80
<PER-SHARE-DIVIDEND> (0.25)
<PER-SHARE-DISTRIBUTIONS> (0.07)
<RETURNS-OF-CAPITAL> (0.65)
<PER-SHARE-NAV-END> 13.83
<EXPENSE-RATIO> 1.69
<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 FUND FOR TOTAL RETURN 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> 45,465,997
<INVESTMENTS-AT-VALUE> 56,870,150
<RECEIVABLES> 512,847
<ASSETS-OTHER> 2,537
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 57,385,534
<PAYABLE-FOR-SECURITIES> 132,623
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 108,291
<TOTAL-LIABILITIES> 240,914
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 19,045,547
<SHARES-COMMON-STOCK> 1,488,364
<SHARES-COMMON-PRIOR> 621,259
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> (32,523)
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> (338,267)
<ACCUM-APPREC-OR-DEPREC> 1,930,628
<NET-ASSETS> 20,605,385
<DIVIDEND-INCOME> 374,222
<INTEREST-INCOME> 98,570
<OTHER-INCOME> 0
<EXPENSES-NET> (330,350)
<NET-INVESTMENT-INCOME> 142,442
<REALIZED-GAINS-CURRENT> 855,889
<APPREC-INCREASE-CURRENT> 2,233,891
<NET-CHANGE-FROM-OPS> 3,232,222
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (260,152)
<DISTRIBUTIONS-OF-GAINS> (868,298)
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 1,057,719
<NUMBER-OF-SHARES-REDEEMED> (266,010)
<SHARES-REINVESTED> 75,397
<NET-CHANGE-IN-ASSETS> 13,291,837
<ACCUMULATED-NII-PRIOR> 843
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> (247,824)
<GROSS-ADVISORY-FEES> (87,987)
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> (331,362)
<AVERAGE-NET-ASSETS> 13,439,792
<PER-SHARE-NAV-BEGIN> 11.77
<PER-SHARE-NII> 0.15
<PER-SHARE-GAIN-APPREC> 2.82
<PER-SHARE-DIVIDEND> (0.15)
<PER-SHARE-DISTRIBUTIONS> (0.10)
<RETURNS-OF-CAPITAL> (0.65)
<PER-SHARE-NAV-END> 13.84
<EXPENSE-RATIO> 2.47
<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 FUND FOR TOTAL RETURN 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> 45,465,997
<INVESTMENTS-AT-VALUE> 56,870,150
<RECEIVABLES> 512,847
<ASSETS-OTHER> 2,537
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 57,385,534
<PAYABLE-FOR-SECURITIES> 132,623
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 108,291
<TOTAL-LIABILITIES> 240,914
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 8,691,232
<SHARES-COMMON-STOCK> 686,261
<SHARES-COMMON-PRIOR> 506,766
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> (7,377)
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> (281,319)
<ACCUM-APPREC-OR-DEPREC> 1,100,094
<NET-ASSETS> 9,502,630
<DIVIDEND-INCOME> 221,391
<INTEREST-INCOME> 66,301
<OTHER-INCOME> 0
<EXPENSES-NET> (194,937)
<NET-INVESTMENT-INCOME> 92,755
<REALIZED-GAINS-CURRENT> 483,414
<APPREC-INCREASE-CURRENT> 1,312,818
<NET-CHANGE-FROM-OPS> 1,888,987
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (147,560)
<DISTRIBUTIONS-OF-GAINS> (423,790)
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 303,795
<NUMBER-OF-SHARES-REDEEMED> (164,102)
<SHARES-REINVESTED> 39,802
<NET-CHANGE-IN-ASSETS> 3,534,945
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> (2,783)
<OVERDIST-NET-GAINS-PRIOR> (294,489)
<GROSS-ADVISORY-FEES> (52,367)
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> (197,225)
<AVERAGE-NET-ASSETS> 8,000,693
<PER-SHARE-NAV-BEGIN> 11.78
<PER-SHARE-NII> 0.16
<PER-SHARE-GAIN-APPREC> 2.81
<PER-SHARE-DIVIDEND> (0.16)
<PER-SHARE-DISTRIBUTIONS> (0.09)
<RETURNS-OF-CAPITAL> (0.65)
<PER-SHARE-NAV-END> 13.85
<EXPENSE-RATIO> 2.47
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
