<PAGE>
As filed with the Securities and Exchange Commission on May 31, 1996.
File Nos. 33-37131
and 811-6181
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. 11 X
and
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940
Amendment No. 12 X
KEYSTONE STATE TAX FREE FUND
(formerly Keystone America State Tax Free Fund)
(Exact name of Registrant as specified in Charter)
200 Berkeley Street, Boston, Massachusetts 02116-5034
(Address of Principal Executive Offices) (Zip Code)
Registrant's Telephone Number, including Area Code: (617) 338-3200
Rosemary D. Van Antwerp, Esq., 200 Berkeley Street,
Boston, MA 02116-5034
(Name and Address of Agent for Service)
It is proposed that this filing will become effective:
____ immediately upon filing pursuant to paragraph (b)
____ on (date) pursuant to paragraph (b)
X 60 days after filing pursuant to paragraph (a)
____ on (date) pursuant to paragraph (a)
____ 75 days after filing pursuant to paragraph (a)(2)
____ on (date) pursuant to paragraph (a)(2) of Rule 485.
Pursuant to Rule 24f-2 under the Investment Company Act of 1940, Registrant has
registered an indefinite amount of its securities under the Securities Act of
1933. The Rule 24f-2 Notice for the issuer's fiscal year ended March 31, 1996
was filed on May 29, 1996
<PAGE>
CALCULATION OF REGISTRATION FEE UNDER THE SECURITIES ACT OF 1933
Proposed Proposed
Title of Share Maximum Maximum
Securities Amount Offering Aggregate Amount of
Being Being Price Offering Registration
Registered Registered Per Unit* Price** Fee
- -----------------------------------------------------------------------------
Shares of beneficial
interest, without
par value 699,269 $11.01 $289,992 $100
- -----------------------------------------------------------------------------
* Computed under Rule 457(d) on the basis of the offering price per share at
the close of business on May 23, 1996.
** The calculation of the maximum aggregate offering price is made pursuant to
Rule 24e-2 under the Investment Company Act of 1940. 2,036,332 shares of the
Fund were redeemed during its fiscal year ended March 31, 1996. Of such
shares, 1,363,402 were used for a reduction pursuant to Rule 24f-2 during the
current year. Of these shares, 672,930 of such shares are being used for a
reduction in this filing.
Pursuant to Rule 24f-2 under the Investment Company Act of 1940, the
Registrant has elected to register an indefinite number of shares under the
Securities Act of 1933. A Form 24f-2 for Registrant's most recent fiscal year
ended March 31, 1996 was filed on May 29, 1996.
<PAGE>
KEYSTONE STATE TAX FREE FUND
CONTENTS OF
POST-EFFECTIVE AMENDMENT NO. 11 to REGISTRATION STATEMENT
This Post-Effective Amendment No. 11 to
Registration Statement No. 33-37131/811-6181 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 (b)
Financial Statements
Independent Auditors' Report
Exhibit Listing
PART C - OTHER INFORMATION - ITEMS 25-32 - AND SIGNATURE PAGES
Number of Holders of Securities
Indemnification
Business and Other Connections
Principal Underwriter
Location of Accounts and Records
Signatures
Exhibits
<PAGE>
KEYSTONE STATE TAX FREE FUND
Cross-Reference Sheet pursuant to Rules 404 and 495 under the Securities Act of
1933.
Items in
Part A of
Form N-1A Prospectus Caption
1 Cover Page
2 Fee Table
3 Performance Data
Financial Highlights
4 Cover Page
The Trust and Its Funds
Investment Objective and Policies
Investment Restrictions
Risk Factors
5 Trust Management and Expenses
Additional Information
5A Not Applicable
6 The Trust and its Funds
Dividends and Taxes
Trust Shares
Shareholder Services
Pricing Shares
7 How to Buy Shares
Alternative Sales Options
Distribution Plans
Shareholder Services
8 How to Redeem Shares
Contingent Deferred Sales Charge and
Waiver of Sales Charges
9 Not Applicable
<PAGE>
Items in
Part B of
Form N-1A Statement of Additional Information Caption
10 Cover Page
11 Table of Contents
12 Not applicable
13 The Trust
Investment Policies
Investment Restrictions
Brokerage
Appendix
14 Trustees and Officers
15 Additional Information
16 Investment Adviser
Principal Underwriter
Distribution Plans
Sales Charges
Additional Information
17 Brokerage
18 The Trust
Declaration of Trust
19 Valuation of Securities
Distribution Plans
20 Dividends and Taxes
21 Principal Underwriter
22 Standardized Total Return and Yield Quotations
23 Financial Statements
<PAGE>
KEYSTONE STATE TAX FREE FUND
PART A
PROSPECTUS
<PAGE>
KEYSTONE STATE TAX FREE FUND
PROSPECTUS JULY , 1996
Keystone State Tax Free Fund (formerly named Keystone America State Tax Free
Fund) (the "Trust") is a mutual fund that currently consists of four separate
series of shares evidencing interests in different portfolios of securities
("Fund(s)"): the Keystone Florida Tax Free Fund ("Florida Fund"), the Keystone
Massachusetts Tax Free Fund ("Massachusetts Fund"), the Keystone New York
Insured Tax Free Fund ("New York Insured Fund") and the Keystone Pennsylvania
Tax Free Fund ("Pennsylvania Fund").
Each of the Funds seeks the highest possible current income exempt from
federal income taxes, while preserving capital. In addition, each Fund, other
than the Florida Fund, also seeks to provide a maximum level of income to its
shareholders that is exempt from the personal income taxes of the state for
which such Fund is named.
The Florida Fund also seeks to hold securities exempt from Florida
intangible taxes. At the present time, Florida does not impose a personal
income tax.
The New York Insured Fund also seeks to hold securities exempt from New York
City personal income tax.
The Pennsylvania Fund also seeks to hold securities exempt from Pennsylvania
property taxes.
Each Fund invests principally in municipal obligations exempt from federal
income tax and municipal obligations issued by the state for which it is named
and its political subdivisions, agencies and instrumentalities. At least 80% of
the municipal securities in the New York Insured Fund's portfolio will be
insured as to timely payment of both principal and interest. All securities not
insured by the issuer will be insured by a qualified municipal bond insurer.
Each Fund's net asset value per share will fluctuate in response to changes in
the market value of its portfolio securities.
Each Fund currently offers Class A, B and C shares. Information on share
classes and their fee and sales charge structures may be found in the "Fee
Table," "How to Buy Shares," "Alternative Sales Options," "Contingent Deferred
Sales Charge and Waiver of Sales Charges," "Distribution Plans," and "Trust
Shares" sections of this Prospectus.
This prospectus concisely states information about the Trust and its Funds
that you should know before investing. Please read it and retain it for
future reference.
Additional information about the Trust and its Funds is contained in a
statement of additional information dated July , 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 Trust and
its Funds, write to the address or call the telephone number listed on this
page.
SHARES OF THE TRUST 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.
KEYSTONE STATE TAX FREE FUND
200 BERKELEY STREET
BOSTON, MASSACHUSETTS 02116-5034
CALL TOLL FREE 1-800-343-2898
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
TABLE OF CONTENTS
Page
Fee Table ....................................................... 3
Financial Highlights ............................................ 7
The Trust and Its Funds ......................................... 19
Investment Objective and Policies ............................... 19
Investment Restrictions ......................................... 23
Risk Factors .................................................... 24
Pricing Shares .................................................. 26
Dividends and Taxes ............................................. 27
Trust Management and Expenses ................................... 29
How to Buy Shares ............................................... 31
Alternative Sales Options ....................................... 32
Contingent Deferred Sales Charge and Waiver of Sales Charges .... 36
Distribution Plans .............................................. 37
How to Redeem Shares ............................................ 38
Shareholder Services ............................................ 40
Performance Data ................................................ 42
Trust Shares .................................................... 42
Additional Information .......................................... 43
Additional Investment Information ............................... (i)
Exhibit A ....................................................... A-1
Exhibit B ....................................................... B-1
<PAGE>
FEE TABLE
KEYSTONE FLORIDA TAX FREE FUND
The purpose of this fee table is to assist investors in understanding the
costs and expenses that an investor in each class of the Florida Fund will
bear directly or indirectly. For more complete descriptions of the various
costs and expenses, see the following sections of this prospectus: "Trust
Management and Expenses;" "How to Buy Shares," "Alternative Sales Options;"
"Contingent Deferred Sales Charge and Waiver of Sales Charges;" "Distribution
Plans;" and "Shareholder Services."
<TABLE>
<CAPTION>
CLASS A SHARES CLASS B SHARES CLASS C SHARES
FRONT END BACK END LEVEL LOAD
LOAD OPTION LOAD OPTION(1) OPTION(2)
-------------- -------------- ---------------
<S> <C> <C> <C>
SHAREHOLDER TRANSACTION EXPENSES
Maximum Sales Load Imposed on Purchases ................ 4.75%(3) None None
(as a percentage of offering price)
Deferred Sales Load .................................... 0.00%(4) 5.00% in the first year 1.00% in the first
(as a percentage of the lesser of original purchase declining to 1.00% in year and 0.00%
price or redemption proceeds) the sixth year and thereafter
0.00% thereafter
Exchange Fee (per exchange)(5) ......................... $10.00 $10.00 $10.00
ANNUAL FUND OPERATING EXPENSES(6)
(After Expense Reimbursements)
(as a percentage of average net assets)
Management Fees ........................................ 0.52% 0.52% 0.52%
12b-1 Fees ............................................. 0.15% 0.90%(7) 0.90%(7)
Other Expenses ......................................... 0.09% 0.06% 0.06%
---- ---- ----
Total Fund Operating Expenses .......................... 0.76% 1.48% 1.48%
==== ==== ====
<CAPTION>
EXAMPLES(8) 1 YEAR 3 YEARS 5 YEARS 10 YEARS
------ ------- ------- --------
<S> <C> <C> <C> <C>
You would pay the following expenses on a $1,000 investment, assuming (1) 5%
annual return and (2) redemption at the end of each period:
Class A ................................................................... $55 $71 $ 88 $137
Class B ................................................................... $65 $77 $101 $157
Class C ................................................................... $25 $47 $ 81 $177
You would pay the following expenses on a $1,000 investment, assuming no
redemption at the end of each period:
Class A ................................................................... $55 $71 $ 88 $137
Class B ................................................................... $15 $47 $ 81 $157
Class C ................................................................... $15 $47 $ 81 $177
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 calendar 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 "Alternative Sales
Options."
(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 individual investors making exchanges over the Keystone Automated Response Line ("KARL"). (For a
description of KARL, see "Shareholder Services.")
(6) Expense ratios are for the fiscal year ended March 31, 1996 after giving effect to the reimbursement by Keystone
Investment Management Company ("Keystone") of expenses in accordance with certain voluntary expense limitations.
Currently, Keystone has voluntarily limited annual expenses of Class A, B and C shares to 0.75%, 1.50% and 1.50%,
respectively, of average daily net assets of each such class. Keystone intends to continue the foregoing expense
limitations on a calendar month-by-month basis. Keystone is under no obligation to maintain these limits. Absent
voluntary expense limitations, expense ratios for the fiscal year ended March 31, 1996 for the Florida Fund's Class A, B
and C shares would have been 0.92%, 1.68%, and 1.68%, respectively. Total Fund Operating Expenses for the fiscal year
ended March 31, 1996 include indirectly paid expenses.
(7) Long term shareholders may pay more than the economic equivalent of the maximum front end sales charges permitted by
rules adopted by the National Association of Securities Dealers, Inc. (the "NASD").
(8) The Securities and Exchange Commission requires use of a 5% annual return figure for purposes of this example. Actual
returns for the Fund may be greater or less than 5%.
</TABLE>
<PAGE>
FEE TABLE
KEYSTONE MASSACHUSETTS TAX FREE FUND
The purpose of this fee table is to assist investors in understanding the
costs and expenses that an investor in each class of the Massachusetts Fund
will bear directly or indirectly. For more complete descriptions of the
various costs and expenses, see the following sections of this prospectus:
"Trust Management and Expenses;" "How to Buy Shares;" "Alternative Sales
Options;" "Contingent Deferred Sales Charge and Waiver of Sales Charges;"
"Distribution Plans;" and "Shareholder Services."
<TABLE>
<CAPTION>
CLASS A SHARES CLASS B SHARES CLASS C SHARES
FRONT END BACK END LEVEL LOAD
LOAD OPTION LOAD OPTION(1) OPTION(2)
-------------- -------------- ---------------
<S> <C> <C> <C>
SHAREHOLDER TRANSACTION EXPENSES
Maximum Sales Load Imposed on Purchases ................ 4.75%(3) None None
(as a percentage of offering price)
Deferred Sales Load .................................... 0.00%(4) 5.00% in the first year 1.00% in the first
(as a percentage of the lesser of original purchase declining to 1.00% in year and 0.00%
price or redemption proceeds) the sixth year and thereafter
0.00% thereafter
Exchange Fee (per exchange)(5).......................... $10.00 $10.00 $10.00
ANNUAL FUND OPERATING EXPENSES(6)
(After Expense Reimbursements)
(as a percentage of average net assets)
Management Fees ........................................ 0.55% 0.55% 0.55%
12b-1 Fees ............................................. 0.10% 0.90%(7) 0.90%(7)
Other Expenses ......................................... 0.10% 0.04% 0.04%
---- ---- ----
Total Fund Operating Expenses .......................... 0.75% 1.49% 1.49%
==== ==== ====
<CAPTION>
EXAMPLES(8) 1 YEAR 3 YEARS 5 YEARS 10 YEARS
------ ------- ------- --------
<S> <C> <C> <C> <C>
You would pay the following expenses on a $1,000 investment, assuming (1) 5%
annual return and (2) redemption at the end of each period:
Class A ...................................................................... $55 $70 $ 87 $136
Class B ...................................................................... $65 $77 $101 $158
Class C ...................................................................... $25 $47 $ 81 $178
You would pay the following expenses on a $1,000 investment, assuming no
redemption at the end of each period:
Class A ...................................................................... $55 $70 $ 87 $136
Class B ...................................................................... $15 $47 $ 81 $158
Class C ...................................................................... $15 $47 $ 81 $178
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 calendar 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 "Alternative Sales
Options."
(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 exchange fee for individual investors making exchanges over the Keystone Automated Response Line ("KARL").
(For a description of KARL, see "Shareholder Services.")
(6) Expense ratios are for the fiscal year ending March 31, 1996 after giving effect to the reimbursement by Keystone of
expenses in accordance with certain voluntary expense limitations. Currently, Keystone has voluntarily limited annual
expenses of Class A, B and C shares to 0.75%, 1.50% and 1.50%, respectively, of average daily net assets of each such
class. Keystone intends to continue the foregoing expense limitations on a calendar month-by-month basis. Keystone is
under no obligation to maintain these limits. Absent voluntary expense limitations, expense ratios for the fiscal year
ending March 31, 1996 for the Massachusetts Fund's Class A, B and C shares would have been 1.59%, 2.38%, and 2.39%,
respectively. Total Fund Operating Expenses for the fiscal year ended March 31, 1996 include indirectly paid expenses.
(7) Long term shareholders may pay more than the economic equivalent of the maximum front end sales charges permitted by
rules adopted by the National Association of Securities Dealers, Inc. (the "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>
<PAGE>
FEE TABLE
KEYSTONE NEW YORK INSURED TAX FREE FUND
The purpose of this fee table is to assist investors in understanding the
costs and expenses that an investor in each class of the New York Insured Fund
will bear directly or indirectly. For more complete descriptions of the
various costs and expenses, see the following sections of this prospectus:
"Trust Management and Expenses;" "How to Buy Shares," "Alternative Sales
Options;" "Contingent Deferred Sales Charge and Waiver of Sales Charges,"
"Distribution Plans;" and "Shareholder Services."
<TABLE>
<CAPTION>
CLASS A SHARES CLASS B SHARES CLASS C SHARES
FRONT END BACK END LEVEL LOAD
LOAD OPTION LOAD OPTION(1) OPTION(2)
-------------- -------------- ---------------
<S> <C> <C> <C>
SHAREHOLDER TRANSACTION EXPENSES
Maximum Sales Load Imposed on Purchases ................ 4.75%(3) None None
(as a percentage of offering price)
Deferred Sales Load .................................... 0.00%(4) 5.00% in the first year 1.00% in the first
(as a percentage of the lesser of original purchase declining to 1.00% in year and 0.00%
price or redemption proceeds) the sixth year and thereafter
0.00% thereafter
Exchange Fee (per exchange)(5) ......................... $10.00 $10.00 $10.00
ANNUAL FUND OPERATING EXPENSES(6)
(After Expense Reimbursements)
(as a percentage of average net assets)
Management Fees ........................................ 0.55% 0.55% 0.55%
12b-1 Fees ............................................. 0.15% 0.90%(7) 0.90%(7)
Other Expenses ......................................... 0.05% 0.05% 0.05%
---- ---- ----
Total Fund Operating Expenses .......................... 0.75% 1.50% 1.50%
==== ==== ====
<CAPTION>
EXAMPLES(8) 1 YEAR 3 YEARS 5 YEARS 10 YEARS
------ ------- ------- --------
<S> <C> <C> <C> <C>
You would pay the following expenses on a $1,000 investment, assuming (1) 5%
annual return and (2) redemption at the end of each period:
Class A ...................................................................... $55 $70 $ 87 $136
Class B ...................................................................... $65 $77 $102 $159
Class C ...................................................................... $25 $47 $ 82 $179
You would pay the following expenses on a $1,000 investment, assuming no
redemption at the end of each period:
Class A ...................................................................... $55 $70 $ 87 $136
Class B ...................................................................... $15 $47 $ 82 $159
Class C ...................................................................... $15 $47 $ 82 $179
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 calendar 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 "Alternative Sales
Options."
(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 exchange fee for individual investors making exchanges over the Keystone Automated Response Line ("KARL").
(For a description of KARL, see "Shareholder Services.")
(6) Expense ratios are for the fiscal year ending March 31, 1996 after giving effect to the reimbursement by Keystone of
expenses in accordance with certain voluntary expense limitations. Currently, Keystone has voluntarily limited annual
expenses of Class A, B and C shares to 0.75%, 1.50% and 1.50%, respectively, of average daily net assets of each class.
Keystone intends to continue the foregoing expense limitations on a calendar month-by-month basis. Keystone is under no
obligation to maintain these limits. Absent voluntary expense limitations, expense ratios for the fiscal year ending
March 31, 1996 for the New York Insured Fund's Class A, B and C shares would have been 1.31%, 2.05%, and 2.07%,
respectively. Total Fund Operating Expenses for the fiscal year ended March 31, 1996 include indirectly paid expenses.
(7) Long term shareholders may pay more than the economic equivalent of the maximum front end sales charges permitted by
rules adopted by the National Association of Securities Dealers, Inc. (the "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>
<PAGE>
FEE TABLE
KEYSTONE PENNSYLVANIA TAX FREE FUND
The purpose of this fee table is to assist investors in understanding the
costs and expenses that an investor in each class of the Pennsylvania Fund
will bear directly or indirectly. For more complete descriptions of the
various costs and expenses, see the following sections of this prospectus:
"Trust Management and Expenses;" "How to Buy Shares;" "Alternative Sales
Options;" "Contingent Deferred Sales Charge and Waiver of Sales Charges;"
"Distribution Plans;" and "Shareholder Services."
<TABLE>
<CAPTION>
CLASS A SHARES CLASS B SHARES CLASS C SHARES
FRONT END BACK END LEVEL LOAD
LOAD OPTION LOAD OPTION(1) OPTION(2)
-------------- -------------- ---------------
<S> <C> <C> <C>
SHAREHOLDER TRANSACTION EXPENSES
Sales Charge ........................................... 4.75%(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 value declining to 1.00% in year and 0.00%
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)
(After Expense Reimbursements)
(as a percentage of average net assets)
Management Fees ........................................ 0.53% 0.53% 0.53%
12b-1 Fees ............................................. 0.15% 0.90%(7) 0.90%(7)
Other Expenses ......................................... 0.08% 0.05% 0.05%
---- ---- ----
Total Fund Operating Expenses .......................... 0.76% 1.48% 1.48%
==== ==== ====
<CAPTION>
EXAMPLES(8) 1 YEAR 3 YEARS 5 YEARS 10 YEARS
------ ------- ------- --------
<S> <C> <C> <C> <C>
You would pay the following expenses on a $1,000 investment, assuming (1) 5%
annual return and (2) redemption at the end of each period:
Class A ................................................................... $55 $71 $ 88 $137
Class B ................................................................... $65 $77 $101 $157
Class C ................................................................... $25 $47 $ 81 $177
You would pay the following expenses on a $1,000 investment, assuming no
redemption at the end of each period:
Class A ................................................................... $55 $71 $ 88 $137
Class B ................................................................... $15 $47 $ 81 $157
Class C ................................................................... $15 $47 $ 81 $177
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 calendar 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 "Alternative Sales
Options."
(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 individual investors making exchanges over the Keystone Automated Response Line ("KARL"). (For a
description of KARL, see "Shareholder Services.")
(6) Expense ratios are for the fiscal year ended March 31, 1996 after giving effect to the reimbursement by Keystone of
expenses in accordance with certain voluntary expense limitations. Currently, Keystone has voluntarily limited annual
expenses of Class A, B and C shares to 0.75%, 1.50% and 1.50%, respectively, of average daily net assets of each class.
Keystone intends to continue the foregoing expense limitations on a calendar month-by-month basis. Keystone is under no
obligation to maintain these limits. Absent voluntary expense limitations, expense ratios for the fiscal year ended March
31, 1996 for the Pennsylvania Fund's Class A, B and C shares would have been 0.99%, 1.74%, and 1.74%, respectively. Total
Fund Operating Expenses for the fiscal year ended March 31, 1996 include indirectly paid expenses.
(7) Long term shareholders may pay more than the economic equivalent of the maximum front end sales charges permitted by
rules adopted by the National Association of Securities Dealers, Inc. (the "NASD").
(8) The Securities and Exchange Commission requires use of a 5% annual return figure for purposes of this example. Actual
returns for the Fund may be greater or less than 5%.
</TABLE>
<PAGE>
FINANCIAL HIGHLIGHTS
KEYSTONE FLORIDA TAX FREE FUND
CLASS A SHARES
(FOR A SHARE OUTSTANDING THROUGHOUT EACH YEAR)
The following table contains important financial information relating to
the Florida Fund and has been audited by KPMG Peat Marwick LLP, the Trust's
independent auditors. The table appears in the Trust's Annual Report and
should be read in conjunction with the Trust's financial statements and
related notes, which also appear, together with the independent auditors'
report, in the Trust's Annual Report. The Trust'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 the Trust's Annual Report, which will be made available upon
request and without charge.
<TABLE>
<CAPTION>
DECEMBER 28,
1990
YEAR ENDED MARCH 31, (COMMENCEMENT OF
------------------------------------------------ OPERATIONS) TO
1996 1995 1994 1993 1992 MARCH 31, 1991
----- ----- ----- ----- ----- ----------------
<S> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE BEGINNING OF
YEAR ......................... $10.33 $10.29 $10.94 $10.43 $10.17 $10.00
------ ------ ------ ------ ------ ------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income .......... 0.56 0.56 0.58 0.61 0.72 0.18
Net realized and unrealized
gain (loss) on investments
and closed futures contracts . 0.27 0.07 (0.44) 0.64 0.30 0.17
------ ------ ------ ------ ------ ------
Total from investment operations 0.83 0.63 0.14 1.25 1.02 0.35
------ ------ ------ ------ ------ ------
LESS DISTRIBUTIONS FROM:
Net investment income .......... (0.54) (0.56) (0.58) (0.61) (0.72) (0.18)
In excess of net investment
income ....................... (0.02) (0.03) (0.05) (0.03) 0 0
Net realized gain on investments 0 0 (0.16) (0.10) (0.04) 0
------ ------ ------ ------ ------ ------
Total distributions ............ (0.56) (0.59) (0.79) (0.74) (0.76) (0.18)
------ ------ ------ ------ ------ ------
NET ASSET VALUE END OF YEAR .... $10.60 $10.33 $10.29 $10.94 $10.43 $10.17
====== ====== ====== ====== ====== ======
TOTAL RETURN (c) ............... 8.16% 6.42% 1.01% 12.32% 10.34% 3.52%
RATIOS/SUPPLEMENTAL DATA
RATIOS TO AVERAGE NET ASSETS:
Total expenses ............... 0.76%(b) 0.75% 0.75% 0.68% 0.65% 0.65%(a)
Total expenses excluding
reimbursement .............. 0.92% 0.95% 1.00% 1.13% 1.21% 2.06%(a)
Net investment income ........ 5.32% 5.60% 5.16% 5.60% 6.82% 6.33%(a)
Portfolio turnover rate ........ 89% 129% 113% 95% 63% 5%
NET ASSETS END OF YEAR
(THOUSANDS) .................. $37,286 $42,239 $45,150 $42,997 $29,258 $6,922
- ---------
(a) Annualized.
(b) "Ratio of total expenses to average net assets" for the year ended March 31, 1996 includes indirectly paid expenses.
Excluding indirectly paid expenses the expense ratio would have been 0.75%.
(c) Excluding applicable sales charges.
</TABLE>
<PAGE>
FINANCIAL HIGHLIGHTS
KEYSTONE FLORIDA TAX FREE FUND
CLASS B SHARES
(FOR A SHARE OUTSTANDING THROUGHOUT EACH YEAR)
The following table contains important financial information relating to
the Florida Fund and has been audited by KPMG Peat Marwick LLP, the Trust's
independent auditors. The table appears in the Trust's Annual Report and
should be read in conjunction with the Trust's financial statements and
related notes, which also appear, together with the independent auditors'
report, in the Trust's Annual Report. The Trust'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 the Trust's Annual Report, which will be made available upon
request and without charge.
FEBRUARY 1,
1993
(DATE OF
INITIAL
YEAR ENDED MARCH 31, PUBLIC
---------------------------------- OFFERING) TO
MARCH 31,
1996 1995 1994 1993
----- ----- ----- -------------
NET ASSET VALUE
BEGINNING OF YEAR ...... $10.24 $10.27 $10.94 $10.81
------ ------ ------ ------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income .... 0.48 0.53 0.52 0.08
Net realized and
unrealized gain (loss)
on investments and
closed futures contracts 0.28 0.02 (0.47) 0.14
------ ------ ------ ------
Total from investment
operations ............. 0.76 0.55 0.05 0.22
------ ------ ------ ------
LESS DISTRIBUTIONS FROM:
Net investment income..... (0.50) (0.49) (0.48) (0.08)
In excess of net
investment income ...... (0.02) (0.09) (0.08) (0.01)
Net realized gain on
investment ............. 0 0 (0.16) 0
------ ------ ------ ------
Total distributions ...... (0.52) (0.58) (0.72) (0.09)
------ ------ ------ ------
NET ASSET VALUE END OF
YEAR ................... $10.48 $10.24 $10.27 $10.94
====== ====== ====== ======
TOTAL RETURN (c) ......... 7.48% 5.61% 0.19% 2.06%
RATIOS/SUPPLEMENTAL DATA
RATIOS TO AVERAGE NET ASSETS:
Total expenses ......... 1.48%(b) 1.50% 1.50% 1.50%(a)
Total expenses excluding
reimbursement ........ 1.68% 1.68% 1.74% 1.73%(a)
Net investment income .. 4.58% 4.81% 4.21% 4.00%(a)
Portfolio turnover rate .. 89% 129% 113% 95%
NET ASSETS END OF
YEAR (THOUSANDS) ....... $54,433 $51,083 $19,984 $1,704
- ---------
(a) Annualized.
(b) "Ratio of total expenses to average net assets" for the year ended March 31,
1996 includes indirectly paid expenses. Excluding indirectly paid expenses,
the expense ratio would have been 1.47%.
(c) Excluding applicable sales charges.
<PAGE>
FINANCIAL HIGHLIGHTS
KEYSTONE FLORIDA TAX FREE FUND
CLASS C SHARES
(FOR A SHARE OUTSTANDING THROUGHOUT EACH YEAR)
The following table contains important financial information relating to
the Florida Fund and has been audited by KPMG Peat Marwick LLP, the Trust's
independent auditors. The table appears in the Trust's Annual Report and
should be read in conjunction with the Trust's financial statements and
related notes, which also appear, together with the independent auditors'
report, in the Trust's Annual Report. The Trust'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 the Trust's Annual Report, which will be made available upon
request and without charge.
FEBRUARY 1,
1993
(DATE OF
INITIAL
YEAR ENDED MARCH 31, PUBLIC
------------------------------------ OFFERING) TO
MARCH 31,
1996 1995 1994 1993
----- ----- ----- ------------
NET ASSET VALUE
BEGINNING OF YEAR ...... $10.26 $10.28 $10.93 $10.81
------ ------ ------ ------
INCOME FROM INVESTMENT OPERATIONS:
Net Investment income .... 0.48 0.47 0.51 0.07
Net realized and
unrealized gain (loss)
on investments and
closed futures contracts 0.28 0.08 (0.45) 0.14
------ ------ ------ ------
Total from investment
operations ............. 0.76 0.55 0.06 0.21
------ ------ ------ ------
LESS DISTRIBUTIONS FROM:
Net investment income .... (0.50) (0.49) (0.49) (0.07)
In excess of net investment
income ................. (0.02) (0.08) (0.06) (0.02)
Net realized gain on
investment ............. 0 0 (0.16) 0
------ ------ ------ ------
Total distributions ...... (0.52) (0.57) (0.71) (0.09)
------ ------ ------ ------
NET ASSET VALUE END OF
YEAR ................... $10.50 $10.26 $10.28 $10.93
====== ====== ====== ======
TOTAL RETURN (c) ......... 7.47% 5.61% 0.27% 1.95%
RATIOS/SUPPLEMENTAL DATA
RATIOS TO AVERAGE NET ASSETS:
Total expenses ......... 1.48%(b) 1.50% 1.50% 1.50%(a)
Total expenses excluding
reimbursement ........ 1.68% 1.70% 1.84% 1.63%(a)
Net investment income .. 4.60% 4.86% 4.26% 2.95%(a)
Portfolio turnover rate .. 89% 129% 113% 95%
NET ASSETS END OF
YEAR (THOUSANDS) ....... $11,795 $12,831 $13,096 $1,987
- --------
(a) Annualized.
(b) "Ratio of total expenses to average net assets" for the year ended March 31,
1996 includes indirectly paid expenses. Excluding indirectly paid expenses,
the expense ratio would have been 1.47%.
(c) Excluding applicable sales charges.
<PAGE>
FINANCIAL HIGHLIGHTS
KEYSTONE MASSACHUSETTS TAX FREE FUND
CLASS A SHARES
(FOR A SHARE OUTSTANDING THROUGHOUT EACH YEAR)
The following table contains important financial information relating to
the Massachusetts Fund and has been audited by KPMG Peat Marwick LLP, the
Trust's independent auditors. The table appears in the Trust's Annual Report
and should be read in conjunction with the Trust's financial statements and
related notes, which also appear, together with the independent auditors'
report, in the Trust's Annual Report. The Trust'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 the Trust's Annual Report, which will be made available upon
request and without charge.
FEBRUARY 4, 1994
YEAR ENDED MARCH 31, (COMMENCEMENT
-------------------- OF OPERATIONS) TO
1996 1995 MARCH 31, 1994
---- ---- -----------------
NET ASSET VALUE BEGINNING
OF YEAR .................... $9.19 $9.17 $10.00
----- ----- ------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income ........ 0.51 0.53 0.08
Net realized and unrealized gain
(loss) on investments and
closed futures contracts ... 0.09 0.02 (0.82)
----- ----- ------
Total from investment
operations ................. 0.60 0.55 (0.74)
----- ----- ------
LESS DISTRIBUTIONS FROM:
Net investment income ........ (0.48) (0.53) (0.08)
In excess of net investment
income ..................... (0.02) 0 (0.01)
----- ----- ------
Total distributions .......... (0.50) (0.53) (0.09)
----- ----- ------
NET ASSET VALUE END OF YEAR .. $9.29 $9.19 $ 9.17
===== ===== ======
TOTAL RETURN (c) ............. 6.64% 6.23% (7.40%)
RATIOS/SUPPLEMENTAL DATA
RATIOS TO AVERAGE NET ASSETS:
Total expenses ............. 0.75%(b) 0.46% 0.35%(a)
Total expenses excluding
reimbursement ............ 1.59% 1.93% 3.22%(a)
Net investment income ...... 5.36% 5.90% 5.07%(a)
Portfolio turnover rate ...... 165% 77% 7%
NET ASSETS END OF YEAR
(THOUSANDS) ................ $1,786 $1,974 $1,472
- -----------
(a) Annualized.
(b) "Ratio of total expenses to average net assets" for the year ended March 31,
1996 includes indirectly paid expenses. Excluding indirectly paid expenses,
the expense ratio would have been 0.74%.
(c) Excluding applicable sales charges.
<PAGE>
FINANCIAL HIGHLIGHTS
KEYSTONE MASSACHUSETTS TAX FREE FUND
CLASS B SHARES
(FOR A SHARE OUTSTANDING THROUGHOUT EACH YEAR)
The following table contains important financial information relating to
the Massachusetts Fund and has been audited by KPMG Peat Marwick LLP, the
Trust's independent auditors. The table appears in the Trust's Annual Report
and should be read in conjunction with the Trust's financial statements and
related notes, which also appear, together with the independent auditors'
report, in the Trust's Annual Report. The Trust'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 the Trust's Annual Report, which will be made available upon
request and without charge.
FEBRUARY 4, 1994
YEAR ENDED MARCH 31, (COMMENCEMENT
-------------------- OF OPERATIONS) TO
1996 1995 MARCH 31, 1994
---- ---- -----------------
NET ASSET VALUE BEGINNING OF
YEAR ........................ $9.15 $9.19 $10.00
----- ----- ------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income ......... 0.43 0.48 0.08
Net realized and unrealized
gain (loss) on investments and
closed futures contracts .... 0.09 (0.01) (0.80)
----- ----- ------
Total from investment
operations .................. 0.52 0.47 (0.72)
----- ----- ------
LESS DISTRIBUTIONS FROM:
Net investment income ......... (0.43) (0.47) (0.07)
In excess of net investment
income ...................... (0.02) (0.04) (0.02)
----- ----- ------
Total distributions ........... (0.45) (0.51) (0.09)
----- ----- ------
NET ASSET VALUE, END OF YEAR .. $9.22 $9.15 $ 9.19
===== ===== ======
TOTAL RETURN (c) .............. 5.77% 5.41% (7.20%)
RATIOS/SUPPLEMENTAL DATA
RATIOS TO AVERAGE NET ASSETS:
Total expenses .............. 1.49%(b) 1.24% 1.10%(a)
Total expenses excluding
reimbursement ............. 2.38% 2.68% 4.60%(a)
Net investment income ....... 4.60% 5.15% 3.23%(a)
Portfolio turnover rate ....... 165% 77% 7%
NET ASSETS END OF YEAR
(THOUSANDS) ................. $7,274 $6,169 $1,817
- -------
(a) Annualized.
(b) "Ratio of total expenses to average net assets" for the year ended March 31,
1996 includes indirectly paid expenses. Excluding indirectly paid expenses,
the expense ratio would have been 1.48%.
(c) Excluding applicable sales charges.
<PAGE>
FINANCIAL HIGHLIGHTS
KEYSTONE MASSACHUSETTS TAX FREE FUND
CLASS C SHARES
(FOR A SHARE OUTSTANDING THROUGHOUT EACH YEAR)
The following table contains important financial information relating to
the Massachusetts Fund and has been audited by KPMG Peat Marwick LLP, the
Trust's independent auditors. The table appears in the Trust's Annual Report
and should be read in conjunction with the Trust's financial statements and
related notes, which also appear, together with the independent auditors'
report, in the Trust's Annual Report. The Trust'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 the Trust's Annual Report, which will be made available upon
request and without charge.
FEBRUARY 4, 1994
YEAR ENDED MARCH 31, (COMMENCEMENT
-------------------- OF OPERATIONS) TO
1996 1995 MARCH 31, 1994
---- ---- -----------------
NET ASSET VALUE BEGINNING OF
YEAR ........................ $9.14 $9.19 $10.00
----- ----- ------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income ......... 0.43 0.48 0.08
Net realized and unrealized gain
(loss) on investments and
closed futures contracts .... 0.10 (0.02) (0.80)
----- ----- ------
Total from investment
operations .................. 0.53 0.46 (0.72)
----- ----- ------
LESS DISTRIBUTIONS FROM:
Net investment income ......... (0.43) (0.47) (0.07)
In excess of net investment
income ...................... (0.02) (0.04) (0.02)
----- ----- ------
Total distributions ........... (0.45) (0.51) (0.09)
----- ----- ------
NET ASSET VALUE END OF YEAR ... $9.22 $9.14 $ 9.19
===== ===== ======
TOTAL RETURN (c) .............. 5.89% 5.20% (7.21%)
RATIOS/SUPPLEMENTAL DATA
RATIOS TO AVERAGE NET ASSETS:
Total expenses .............. 1.49%(b) 1.23% 1.10%(a)
Total expenses excluding
reimbursement ............. 2.39% 2.68% 4.91%(a)
Net investment income ....... 4.60% 5.11% 4.28%(a)
Portfolio turnover rate ....... 165% 77% 7%
NET ASSETS END OF YEAR
(THOUSANDS) ................. $2,303 $1,971 $369
- ----------
(a) Annualized.
(b) "Ratio of total expenses to average net assets" for the year ended March 31,
1996 includes indirectly paid expenses. Excluding indirectly paid expenses,
the expense ratio would have been 1.48%.
(c) Excluding applicable sales charges.
<PAGE>
FINANCIAL HIGHLIGHTS
KEYSTONE NEW YORK INSURED TAX FREE FUND
CLASS A SHARES
(FOR A SHARE OUTSTANDING THROUGHOUT EACH YEAR)
The following table contains important financial information relating to
the New York Insured Fund and has been audited by KPMG Peat Marwick LLP, the
Trust's independent auditors. The table appears in the Trust's Annual Report
and should be read in conjunction with the Trust's financial statements and
related notes, which also appear, together with the independent auditors'
report, in the Trust's Annual Report. The Trust'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 the Trust's Annual Report, which will be made available upon
request and without charge.
FEBRUARY 4, 1994
YEAR ENDED MARCH 31, (COMMENCEMENT
-------------------- OF OPERATIONS) TO
1996 1995 MARCH 31, 1994
---- ---- -----------------
NET ASSET VALUE BEGINNING OF
YEAR ........................ $9.44 $9.32 $10.00
----- ----- ------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income ......... 0.48 0.52 0.09
Net realized and unrealized gain
(loss) on investments and
closed futures contracts .... 0.24 0.12 (0.68)
----- ----- ------
Total from investment
operations .................. 0.72 0.64 (0.59)
----- ----- ------
LESS DISTRIBUTIONS FROM:
Net investment income ......... (0.47) (0.52) (0.08)
In excess of net investment
income ...................... (0.02) 0 (0.01)
----- ----- ------
Total distributions ........... (0.49) (0.52) (0.09)
----- ----- ------
NET ASSET VALUE END OF YEAR ... $9.67 $9.44 $ 9.32
===== ===== ======
TOTAL RETURN (c) .............. 7.73% 7.08% (5.91%)
RATIOS/SUPPLEMENTAL DATA
RATIOS TO AVERAGE NET ASSETS:
Total expenses .............. 0.75%(b) 0.50% 0.35%(a)
Total expenses excluding
reimbursement ............. 1.31% 1.59% 4.44%(a)
Net investment income ....... 4.95% 5.48% 3.85%(a)
Portfolio turnover rate ....... 53% 77% 14%
NET ASSETS END OF YEAR
(THOUSANDS) ................. $3,947 $3,323 $680
- ----------
(a) Annualized.
(b) "Ratio of total expenses to average net assets" for the year ended March 31,
1996 includes indirectly paid expenses. Excluding indirectly paid expenses,
the expense ratio would have been 0.74%.
(c) Excluding applicable sales charges.
<PAGE>
FINANCIAL HIGHLIGHTS
KEYSTONE NEW YORK INSURED TAX FREE FUND
CLASS B SHARES
(FOR A SHARE OUTSTANDING THROUGHOUT EACH YEAR)
The following table contains important financial information relating to
the New York Insured Fund and has been audited by KPMG Peat Marwick LLP, the
Trust's independent auditors. The table appears in the Trust's Annual Report
and should be read in conjunction with the Trust's financial statements and
related notes, which also appear, together with the independent auditors'
report, in the Trust's Annual Report. The Trust'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 the Trust's Annual Report, which will be made available upon
request and without charge.
FEBRUARY 4, 1994
YEAR ENDED MARCH 31, (COMMENCEMENT
-------------------- OF OPERATIONS) TO
1996 1995 MARCH 31, 1994
---- ---- -----------------
NET ASSET VALUE BEGINNING OF
YEAR ........................ $9.38 $9.32 $10.00
----- ----- ------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income ......... 0.41 0.47 0.08
Net realized and unrealized gain
(loss) on investments and closed
futures contracts ............. 0.24 0.09 (0.67)
----- ----- ------
Total from investment
operations .................. 0.65 0.56 (0.59)
----- ----- ------
LESS DISTRIBUTIONS FROM:
Net investment income ......... (0.42) (0.45) (0.06)
In excess of net investment
income ...................... (0.02) (0.05) (0.03)
----- ----- ------
Total distributions ........... (0.44) (0.50) (0.09)
----- ----- ------
NET ASSET VALUE END OF YEAR ... $9.59 $9.38 $ 9.32
===== ===== ======
TOTAL RETURN (c) .............. 7.02% 6.28% (5.91%)
RATIOS/SUPPLEMENTAL DATA
RATIOS TO AVERAGE NET ASSETS:
Total expenses .............. 1.50%(b) 1.25% 1.10%(a)
Total expenses excluding
reimbursement ............. 2.05% 2.35% 5.60%(a)
Net investment income ....... 4.19% 4.78% 3.01%(a)
Portfolio turnover rate ....... 53% 77% 14%
NET ASSETS END OF YEAR
(THOUSANDS) ................... $17,151 $11,907 $2,276
- ----------
(a) Annualized.
(b) "Ratio of total expenses to average net assets" for the year ended March 31,
1996 includes indirectly paid expenses. Excluding indirectly paid expenses,
the expense ratio would have been 1.49%.
(c) Excluding applicable sales charges.
<PAGE>
FINANCIAL HIGHLIGHTS
KEYSTONE NEW YORK INSURED TAX FREE FUND
CLASS C SHARES
(FOR A SHARE OUTSTANDING THROUGHOUT EACH YEAR)
The following table contains important financial information relating to
the New York Insured Fund and has been audited by KPMG Peat Marwick LLP, the
Trust's independent auditors. The table appears in the Trust's Annual Report
and should be read in conjunction with the Trust's financial statements and
related notes, which also appear, together with the independent auditors'
report, in the Trust's Annual Report. The Trust'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 the Trust's Annual Report, which will be made available upon
request and without charge.
FEBRUARY 4, 1994
YEAR ENDED MARCH 31, (COMMENCEMENT
-------------------- OF OPERATIONS) TO
1996 1995 MARCH 31, 1994
---- ---- -----------------
NET ASSET VALUE BEGINNING OF
YEAR ........................ $9.37 $9.31 $10.00
----- ----- ------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income ......... 0.41 0.48 0.07
Net realized and unrealized
gain (loss) on investments
and closed futures contracts 0.24 0.07 (0.67)
----- ----- ------
Total from investment
operations .................. 0.65 0.55 (0.60)
----- ----- ------
LESS DISTRIBUTIONS FROM:
Net investment income ......... (0.42) (0.46) (0.07)
In excess of net investment
income ...................... (0.02) (0.03) (0.02)
----- ----- ------
Total distributions ........... (0.44) (0.49) (0.09)
----- ----- ------
NET ASSET VALUE END OF YEAR ... $9.58 $9.37 $ 9.31
===== ===== ======
TOTAL RETURN (c)............... 7.02% 6.18% (6.02%)
RATIOS/SUPPLEMENTAL DATA
RATIOS TO AVERAGE NET ASSETS:
Total expenses .............. 1.50%(b) 1.26% 1.10%(a)
Total expenses excluding
reimbursement ............. 2.07% 2.32% 5.13%(a)
Net investment income ....... 4.24% 4.88% 3.71%(a)
Portfolio turnover rate ....... 53% 77% 14%
NET ASSETS END OF YEAR
(THOUSANDS) ................. $2,296 $2,890 $255
- ------------
(a) Annualized.
(b) "Ratio of total expenses to average net assets" for the year ended March 31,
1996 includes indirectly paid expenses. Excluding indirectly paid expenses,
the expense ratio would have been 1.48%.
(c) Excluding applicable sales charges.
<PAGE>
FINANCIAL HIGHLIGHTS
KEYSTONE PENNSYLVANIA TAX FREE FUND
CLASS A SHARES
(FOR A SHARE OUTSTANDING THROUGHOUT EACH YEAR)
The following table contains important financial information relating to
the Pennsylvania Fund and has been audited by KPMG Peat Marwick LLP, the
Trust's independent auditors. The table appears in the Trust's Annual Report
and should be read in conjunction with the Trust's financial statements and
related notes, which also appear, together with the independent auditors'
report, in the Trust's Annual Report. The Trust'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 the Trust's Annual Report, which will be made available upon
request and without charge.
<TABLE>
<CAPTION>
DECEMBER 27,
1990
YEAR ENDED MARCH 31, (COMMENCEMENT OF
-------------------------------------------------- OPERATIONS) TO
1996 1995 1994 1993 1992 MARCH 31, 1991
----- ----- ----- ----- ----- ----------------
<S> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE BEGINNING
OF YEAR ...................... $10.91 $11.01 $11.42 $10.71 $10.25 $10.00
------ ------ ------ ------ ------ ------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income .......... 0.60 0.61 0.62 0.63 0.74 0.18
Net realized and unrealized
gain (loss) on investments
and closed futures contracts . 0.23 (0.09) (0.30) 0.75 0.46 0.25
------ ------ ------ ------ ------ ------
Total from investment operations 0.83 0.52 0.32 1.38 1.20 0.43
------ ------ ------ ------ ------ ------
LESS DISTRIBUTIONS FROM:
Net investment income .......... (0.57) (0.61) (0.62) (0.63) (0.74) (0.18)
In excess of net investment
income ....................... (0.02) (0.01) (0.04) (0.02) 0 0
Net realized gain on investments 0 0 (0.06) (0.02) 0 0
In excess of net realized gain
on investments ............... 0 0 (0.01) 0 0 0
------ ------ ------ ------ ------ ------
Total distributions ............ (0.59) (0.62) (0.73) (0.67) (0.74) (0.18)
------ ------ ------ ------ ------ ------
NET ASSET VALUE END OF YEAR .... $11.15 $10.91 $11.01 $11.42 $10.71 $10.25
====== ====== ====== ====== ====== ======
TOTAL RETURN(c) ................ 7.66% 4.91% 2.58% 13.30% 12.07% 4.37%
RATIOS/SUPPLEMENTAL DATA
RATIOS TO AVERAGE NET ASSETS:
Total expenses ............... 0.76%(b) 0.75% 0.75% 0.68% 0.65% 0.65%(a)
Total expenses excluding
reimbursement .............. 0.99% 1.05% 1.06% 1.16% 1.68% 3.19%(a)
Net investment income ........ 5.29% 5.65% 5.27% 5.66% 6.92% 6.84%(a)
Portfolio turnover rate ........ 55% 97% 37% 20% 13% 8%
NET ASSETS END OF YEAR
(THOUSANDS) .................. $28,710 $30,450 $30,560 $35,502 $12,914 $2,979
- ------------
(a) Annualized.
(b) "Ratio of total expenses to average net assets" for the year ended March 31, 1996 includes indirectly paid expenses.
Excluding indirectly paid expenses, the expense ratio would have been 0.75%.
(c) Excluding applicable sales charges.
</TABLE>
<PAGE>
FINANCIAL HIGHLIGHTS
KEYSTONE PENNSYLVANIA TAX FREE FUND
CLASS B SHARES
(FOR A SHARE OUTSTANDING THROUGHOUT EACH YEAR)
The following table contains important financial information relating to
the Pennsylvania Fund and has been audited by KPMG Peat Marwick LLP, the
Trust's independent auditors. The table appears in the Trust's Annual Report
and should be read in conjunction with the Trust's financial statements and
related notes, which also appear, together with the independent auditors'
report, in the Trust's Annual Report. The Trust'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 the Trust's Annual Report, which will be made available upon
request and without charge.
FEBRUARY 1,
1993
(DATE OF
INITIAL
YEAR ENDED MARCH 31, PUBLIC
--------------------------------- OFFERING) TO
1996 1995 1994 MARCH 31, 1993
---- ---- ---- --------------
NET ASSET VALUE BEGINNING
OF YEAR ................ $10.81 $10.98 $11.42 $11.20
------ ------ ------ ------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income .... 0.51 0.54 0.56 0.08
Net realized and
unrealized gain (loss)
on investments and
closed futures contracts 0.22 (0.10) (0.34) 0.24
------ ------ ------ ------
Total from investment
operations ............. 0.73 0.44 0.22 0.32
------ ------ ------ ------
LESS DISTRIBUTIONS FROM:
Net investment income ... (0.52) (0.53) (0.52) (0.08)
In excess of net
investment income ..... (0.02) (0.08) (0.07) (0.02)
Net realized gain on
investments ........... 0 0 (0.03) 0
In excess of net realized
gain on investments ... 0 0 (0.04) 0
------ ------ ------ ------
Total distributions ..... (0.54) (0.61) (0.66) (0.10)
------ ------ ------ ------
NET ASSET VALUE END OF
YEAR .................. $11.00 $10.81 $10.98 $11.42
====== ====== ====== ======
TOTAL RETURN (c) ........ 6.84% 4.15% 1.70% 2.82%
RATIOS/SUPPLEMENTAL DATA
RATIOS TO AVERAGE NET ASSETS:
Total expenses ........ 1.48%(b) 1.50% 1.50% 1.50%(a)
Total expenses
excluding
reimbursement ....... 1.74% 1.80% 1.81% 1.69%(a)
Net investment income . 4.55% 4.89% 4.32% 3.44%(a)
Portfolio turnover rate . 55% 97% 37% 20%
NET ASSETS END OF YEAR
(THOUSANDS) ........... $37,719 $30,657 $21,958 $2,543
- ---------
(a) Annualized.
(b) "Ratio of total expenses to average net assets" for the year ended March 31,
1996 includes indirectly paid expenses. Excluding indirectly paid expenses,
the expense ratio would have been 1.47%.
(c) Excluding applicable sales charges.
<PAGE>
FINANCIAL HIGHLIGHTS
KEYSTONE PENNSYLVANIA TAX FREE FUND
CLASS C SHARES
(FOR A SHARE OUTSTANDING THROUGHOUT EACH YEAR)
The following table contains important financial information relating to
the Pennsylvania Fund and has been audited by KPMG Peat Marwick LLP, the
Trust's independent auditors. The table appears in the Trust's Annual Report
and should be read in conjunction with the Trust's financial statements and
related notes, which also appear, together with the independent auditors'
report, in the Trust's Annual Report. The Trust'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 the Trust's Annual Report, which will be made available upon
request and without charge.
FEBRUARY 1,
1993
(DATE OF
INITIAL
YEAR ENDED MARCH 31, PUBLIC
-------------------------------- OFFERING) TO
1996 1995 1994 MARCH 31, 1993
---- ---- ---- --------------
NET ASSET VALUE BEGINNING
OF YEAR ................ $10.83 $11.00 $11.42 $11.20
------ ------ ------ ------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income .... 0.51 0.53 0.54 0.07
Net realized and
unrealized gain (loss)
on investments and
closed futures contracts 0.23 (0.10) (0.32) 0.24
------ ------ ------ ------
Total from investment
operations ............. 0.74 0.43 0.22 0.31
------ ------ ------ ------
LESS DISTRIBUTIONS FROM:
Net investment income .... (0.52) (0.53) (0.52) (0.07)
In excess of net
investment income ...... (0.02) (0.07) (0.05) (0.02)
Net realized gain on
investments ............ 0 0 (0.03) 0
In excess of net realized
gain on investments .... 0 0 (0.04) 0
------ ------ ------ ------
Total distributions ...... (0.54) (0.60) (0.64) (0.09)
------ ------ ------ ------
NET ASSET VALUE END OF
YEAR ................... $11.03 $10.83 $11.00 $11.42
====== ====== ====== ======
TOTAL RETURN (c).......... 6.92% 4.05% 1.78% 2.81%
RATIOS/SUPPLEMENTAL DATA
RATIOS TO AVERAGE NET ASSETS:
%
Total expenses ......... 1.48%(b) 1.50% 1.50% 1.50(a)
Total expenses excluding
reimbursement ........ 1.74% 1.80% 1.90% 1.60%(a)
Net investment income .. 4.57% 4.90% 4.33% 2.50%(a)
Portfolio turnover rate .. 55% 97% 37% 20%
NET ASSETS END OF YEAR
(THOUSANDS) ............ $9,675 $9,559 $9,385 $952
- ---------
(a) Annualized.
(b) "Ratio of total expenses to average net assets" for the year ended March 31,
1996 includes indirectly paid expenses. Excluding indirectly paid expenses,
the expense ratio would have been 1.47%.
(c) Excluding applicable sales charges.
<PAGE>
THE TRUST AND ITS FUNDS
The Trust is a non-diversified open-end management investment company commonly
known as a mutual fund. The Trust was formed as a Massachusetts business trust
on September 13, 1990. Each Fund is one of the more than thirty funds managed or
advised by Keystone Investment Management Company (formerly named Keystone
Custodian Funds, Inc.) ("Keystone"), the Trust's investment adviser. The Trust
currently consists of four separate series evidencing interests in different
portfolios of securities. The Florida Fund and the Pennsylvania Fund were
established on September 19, 1990. The Massachusetts Fund and the New York
Insured Fund were established on February 21, 1992. Shares of the Massachusetts
Fund and the New York Insured Fund were not offered prior to February 4, 1994.
The Trust may offer additional Funds in the future.
INVESTMENT OBJECTIVE AND POLICIES
INVESTMENT OBJECTIVE
Each of the Funds seeks the highest possible current income exempt from
federal income taxes, while preserving capital.
Since each Fund considers preservation of capital as well as the level of
tax-exempt income, each Fund may realize less income than a mutual fund willing
to expose shareholders' capital to greater risk.
The investment objective of each Fund and the requirement that each Fund
invest, under ordinary circumstances, at least 80% of its assets in federally
tax-exempt municipal obligations that are also exempt from certain taxes in the
state for which it is named, as set forth above, are fundamental and may not be
changed without the vote of a majority of the affected Fund's outstanding
shares, as defined in the Investment Company Act of 1940 ("1940 Act") (which
means the lesser of (1) 67% of the shares represented at a meeting at which more
than 50% of the outstanding shares are represented or (2) more than 50% of the
outstanding shares).
There can be no assurance that a Fund will achieve its investment objectives
since there is uncertainty in every investment.
FUNDS' PRINCIPAL INVESTMENTS
Under ordinary circumstances, each Fund invests substantially all and at least
80% of its assets in federally tax-exempt obligations, including municipal bonds
and notes and municipal tax-exempt commercial paper obligations that are
obligations issued by or on behalf of states, territories and possessions of the
United States ("U.S."), the District of Columbia and their political
subdivisions, agencies and instrumentalities, the interest from which is exempt
from federal income taxes, including the alternative minimum tax. Thus it is
possible that up to 20% of a Fund's assets could be in securities subject to the
alternative minimum tax and/or in taxable obligations.
Municipal bonds include fixed, variable or floating rate general obligation
and revenue bonds (including municipal lease obligations, resource recovery
bonds and zero coupon bonds). Municipal notes include tax anticipation notes,
bond anticipation notes, revenue anticipation notes and project notes. Municipal
commercial paper obligations are unsecured promissory notes issued by
municipalities to meet short-term credit needs.
The FLORIDA FUND seeks, in addition, to hold securities exempt from Florida
intangible taxes.
The PENNSYLVANIA FUND seeks, in addition, the highest possible current income
exempt from Pennsylvania state and local taxes while preserving capital. The
Pennsylvania Fund also seeks to hold securities exempt from Pennsylvania
personal property taxes.
FLORIDA FUND
Under ordinary circumstances, the Florida Fund invests substantially all and
at least 80% of its assets in municipal obligations the interest from which is
exempt from federal taxes and the Florida intangibles tax.
For a further discussion of Florida tax treatment and the factors affecting
investment in Florida municipal obligations, see Exhibit A.
MASSACHUSETTS FUND
Under ordinary circumstances, the Massachusetts Fund invests substantially all
at least 80% of its assets in securities the interest from which is exempt from
federal taxes and Massachusetts state income taxes. The Massachusetts Fund
invests in debt obligations of The Commonwealth of Massachusetts and its
political subdivisions, agencies, authorities and instrumentalities and debt
obligations of other qualifying issuers, such as U.S. territories.
The Massachusetts Fund invests at least 80% of its assets in investment grade
municipal obligations -- bonds rated at the date of investment within the four
highest grades by Standard & Poor's Corporation ("S&P") (AAA, AA, A and BBB), by
Moody's Investors Service ("Moody's") (Aaa, Aa, A and Baa), by Fitch Investors
Service, Inc. - Municipal Division ("Fitch") (AAA, AA, A and BBB), or, if not
rated or rated under a different system, are of comparable quality to
obligations so rated as determined by Keystone. Securities that are in the
lowest investment grade (BBB or Baa) may have speculative characteristics.
The Fund may seek to maximize return with respect to a portion (not to exceed
20%) of its assets. Such maximum return is ordinarily associated with high
yield, high risk municipal bonds in the lower rating categories of the
recognized rating agencies or that are unrated (high yield bonds). Such high
yield, high risk bonds generally involve greater volatility of price and risk of
principal and income than bonds in the higher rating categories and are, on
balance, considered predominantly speculative. High yield bonds are also
commonly known as "junk bonds."
For a further discussion of Massachusetts tax treatment and the factors
affecting investment in Massachusetts municipal obligations, see Exhibit A.
NEW YORK INSURED FUND
Under ordinary circumstances, the New York Insured Fund invests substantially
all at least 80% of its assets in securities the interest from which is exempt
from federal taxes and New York state income taxes. The New York Insured Fund
invests in debt obligations of the State of New York and its political
subdivisions, agencies, authorities and instrumentalities and debt obligations
of other qualifying issuers, such as U.S. territories.
As more fully discussed below in the section entitled "Insurance," at least
80% of the municipal securities in the investment portfolio of the New York
Insured Fund will be insured as to timely payment of both principal and
interest. The purpose of insuring these investments is to minimize credit risks
associated with defaults in municipal securities owned by the Fund. Such
insurance, however, does not insure against market risk and therefore will not
guarantee the market value of the securities in the Fund's portfolio upon which
the net asset value of the Fund's shares is based.
For a further discussion of New York tax treatment and the factors affecting
investment in New York municipal obligations, see Exhibit A.
PENNSYLVANIA FUND
Under ordinary circumstances, the Pennsylvania Fund invests substantially all
and at least 80% of its assets in municipal obligations the interest from which
is exempt from federal taxes and Pennsylvania state income taxes. The securities
include debt obligations of the Commonwealth of Pennsylvania and its political
subdivisions, agencies, authorities and instrumentalities and debt obligations
of other qualifying issuers, such as Puerto Rico and the Virgin Islands. In
addition, the Pennsylvania Fund attempts to invest in municipal obligations
exempt from Pennsylvania local income taxes and seeks to hold, on the annual
assessment date, municipal obligations exempt from Pennsylvania personal
property taxes.
For a further discussion of Pennsylvania tax treatment and the factors
affecting investment in Pennsylvania municipal obligations, see Exhibit A.
MUNICIPAL OBLIGATIONS
Municipal obligations include debt obligations issued by or on behalf of a
political subdivision of the U.S. or any agency or instrumentality thereof to
obtain funds for various public purposes. In addition, municipal obligations
include certain types of industrial development bonds that have been or may be
issued by or on behalf of public authorities to finance privately operated
facilities. General obligation bonds involve the credit of an issuer possessing
taxing power and are payable from the issuer's general unrestricted revenues.
Their payment may be dependent upon an appropriation by the issuer's legislative
body and may be subject to quantitative limitations on the issuer's taxing
power. Limited obligation or revenue bonds are payable only from the revenues of
a particular facility or class of facilities or, in some cases, from the
proceeds of a special excise or other specific revenue source, such as the user
of the facility.
Each Fund, except the Massachusetts Fund, invests entirely in municipal
obligations only if at the date of investment they are rated within the four
highest grades by S&P (AAA, AA, A and BBB), by Moody's (Aaa, Aa, A and Baa), by
Fitch (AAA, AA, A and BBB) or, if not rated or rated under a different system,
are of comparable quality to obligations so rated as determined by Keystone.
While a Fund may invest in securities of any maturity, it is currently
expected that a Fund will not invest in securities with maturities of more than
30 years or less than 5 years (other than certain money market securities).
OTHER ELIGIBLE INVESTMENTS
A Fund may invest up to 20% of its assets under ordinary circumstances and up
to 100% of its assets for temporary defensive purposes in the following types of
instruments: (1) commercial paper, including master demand notes, that at the
date of investment is rated A-1 (the highest grade by S&P), PRIME-1 (the
highest grade by Moody's) or, if not rated by such services, is issued by a
company that at the date of investment has an outstanding issue rated A or
better by S&P or Moody's; (2) obligations, including certificates of deposit and
bankers' acceptances, of banks or savings and loan associations that have at
least $1 billion in assets as of the date of their most recently published
financial statements and are members of the Federal Deposit Insurance
Corporation, including U.S. branches of foreign banks and foreign branches of
U.S. banks; (3) corporate obligations (maturing in 13 months or less) that at
the date of investment are rated A or better by S&P or Moody's; (4) obligations
issued or guaranteed by the U.S. government or by any agency or instrumentality
of the U.S.; (5) qualified "private activity" industrial development bonds, the
income from which, while exempt from federal income tax under Section 103 of the
Internal Revenue Code of 1986, as amended (the "Code"), is includable in the
calculation of the federal alternative minimum tax; and (6) municipal
obligations, the income from which is exempt from federal income tax, but not
exempt from income tax, personal property tax or intangibles tax in a state for
which a Fund is named and where such taxes apply. Each Fund may assume a
temporary defensive position upon Keystone's determination that market
conditions so warrant. If a Fund is investing defensively, it is not pursuing
its investment objectives.
Each Fund may enter into repurchase and reverse repurchase agreements,
purchase and sell securities on a when issued and delayed delivery basis, write
covered call and put options and purchase call and put options, including
purchasing call and put options to close out existing positions. Each Fund may
also engage in financial futures contracts and related options transactions for
hedging purposes and not for speculation. Each Fund may invest in municipal
obligations denominated in foreign currencies. Each Fund may use subsequently
developed investment techniques that are related to any of its investment
policies. None of the Funds are expected to enter into repurchase agreements in
the ordinary course of business.
In addition to the options and futures mentioned above, a Fund may, if
consistent with its investment objectives, also invest in certain other types of
"derivative investments," including structured securities.
For further information about the types of investments and investment
techniques available to the Funds, including the associated risks, see
"Additional Investment Information" located at the back of this prospectus and
the statement of additional information.
INSURANCE
At least 80% of the municipal securities in the portfolio of the New York
Insured Fund will consist of obligations that at all times are fully insured as
to the payment of all principal and interest when due ("Insured Securities").
Each Insured Security in the portfolio will be covered by either a "New Issue
Insurance Policy," "Portfolio Insurance Policy" issued by a qualified municipal
bond insurer, or a "Secondary Insurance Policy." The insurance does not insure
against market risk and therefore does not guarantee the market value of the
securities in the New York Insured Fund's portfolio. Similarly, because the net
asset value of the New York Insured Fund's shares is based upon the market value
of the securities in the portfolio, such insurance does not cover or guarantee
the net asset value of the New York Insured Fund's shares.
NEW ISSUE INSURANCE POLICIES
New Issue Insurance Policies are obtained by the respective issuers of
municipal securities, and all premiums respecting such securities have been paid
in advance by such issuers. Such policies are noncancellable and will continue
in force so long as the municipal securities are outstanding and the respective
insurers remain in business. Since New Issue Insurance Policies remain in effect
as long as the securities are outstanding, the insurance may have an effect on
the resale value of the Insured Securities. Therefore, New Issue Insurance
Policies may be considered to represent an element of market value with regard
to the Insured Securities, but the exact effect, if any, of this insurance on
such market value cannot be estimated. The New York Insured Fund will purchase
municipal securities subject to New Issue Insurance Policies only if the claims
paying ability of the insurer thereof is rated AAA by S&P or Aaa by Moody's.
PORTFOLIO INSURANCE POLICIES
Portfolio Insurance Policies are obtained by the New York Insured Fund from a
qualified municipal bond insurer and are effective only so long as the Fund is
in existence, the insurer is still in business and meeting its obligations, and
the Insured Securities described in the policy are held by the New York Insured
Fund. Premium rates for each issue of securities covered by the policy are fixed
for the life of the New York Insured Fund and are periodically adjusted to
reflect purchases and sales of covered securities. The premium on the Portfolio
Insurance Policy is an expense of the New York Insured Fund and will be
reflected in its average annual expenses. Premiums are paid from the New York
Insured Fund's assets and reduce the current yield on its portfolio by the
amount thereof. The insurer cannot cancel coverage already in force with respect
to Insured Securities owned by the New York Insured Fund and covered by the
policy, except for nonpayment of premiums.
SECONDARY INSURANCE POLICIES
The New York Insured Fund may, at any time, purchase Secondary Insurance on
any municipal security held by the Fund. Such insurance coverage will be
noncancellable and will ordinarily continue in force so long as the securities
so insured are outstanding. Secondary Insurance will likely be purchased by the
New York Insured Fund if, in the opinion of Keystone, the market value or net
proceeds of the sale of a security by the Fund would exceed the current value of
such security (without insurance) plus the cost of such insurance. When the New
York Insured Fund purchases Secondary Insurance, the single premium is added to
the cost basis of the security and is not considered an item of expense of the
Fund. One of the purposes of such insurance is to enable the securities covered
by such insurance to be sold as "AAA" or "Aaa" rated Insured Securities at a
market price higher than that which might otherwise be obtainable if the
securities were sold without the insurance coverage. Therefore, such insurance
may be considered to represent an element of market value of such Insured
Securities, although the exact effect, if any, on such market value cannot be
estimated. Any difference between the excess of such a security's market value
as an AAA or Aaa rated security over its market value without such rating,
including the single premium cost thereof, would inure to the New York Insured
Fund in determining the net capital gain or loss realized by the Fund upon the
sale of such Insured Security.
INVESTMENT RESTRICTIONS
Each Fund has adopted the following fundamental restrictions summarized below,
which may not be changed without the vote of a majority of such Fund's
outstanding shares (as defined in the 1940 Act). These restrictions and certain
other fundamental and nonfundamental restrictions are contained in the statement
of additional information. Unless otherwise stated, all references to a Fund's
assets are in terms of current market value.
Generally, each Fund may not:
(1) purchase any security of any issuer (other than issues of the U.S.
government, its agencies or instrumentalities) if as a result more than 25% of
its total assets would be invested in a single industry, including industrial
development bonds from the same facility or similar types of facilities;
governmental issuers of municipal bonds are not regarded as members of an
industry, and the Fund may invest more than 25% of its assets in industrial
development bonds;
(2) invest more than 10% of its assets in securities with legal or contractual
restrictions on resale or in securities for which market quotations are not
readily available, or in repurchase agreements maturing in more than seven days;
(3) borrow money or enter into reverse repurchase agreements, except that each
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; and
(4) make loans, except that each Fund may purchase or hold debt securities
consistent with its investment objectives, lend portfolio securities valued at
not more than 15% of its total assets to broker-dealers, and enter into
repurchase agreements.
The Funds are non-diversified under the 1940 Act. As non-diversified funds,
there is no restriction under the 1940 Act on the percentage of assets that may
be invested at any time in the securities of any one issuer. The Funds intend to
comply, however, with the Code's diversification requirements and other
requirements applicable to "regulated investment companies" to ensure they will
not be subject to U.S. federal income tax on income and capital gain
distributions to shareholders.
For this reason, each Fund has adopted the investment restriction set forth
below, which may not be changed without the approval of a majority of its
outstanding shares. Specifically, a Fund may not purchase a security if more
than 25% of the Fund's total assets would be invested in the securities of a
single issuer (other than the U.S. government, its agencies and
instrumentalities) or, with respect to 50% of the Fund's total assets, if more
than 5% of such assets would be invested in the securities of a single issuer
(other than the U.S. government, its agencies and instrumentalities).
The foregoing is only a summary of the Funds' investment restrictions and
policies. See the statement of additional information for details and the full
text of the Funds' investment restrictions and related policies.
RISK FACTORS
GENERAL
Like any investment, your investment in a Fund involves an element of risk.
Before you invest in a Fund, you should carefully evaluate your ability to
assume the risks your investment in the Fund poses.
Certain risks related to the Funds 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."
By itself, a Fund does not constitute a balanced investment program and is not
designed for investors seeking capital appreciation or maximum tax-exempt income
irrespective of fluctuations in principal or marketability. Shares of a Fund
would not be suitable for tax-exempt institutions and may not be suitable for
certain retirement plans that are unable to benefit from the Fund's federally
tax-exempt dividends. In addition, the Funds may not be appropriate investments
for entities that are "substantial users" of facilities financed by industrial
development bonds or related persons thereof.
To the extent the Funds are not fully diversified, they may be more
susceptible to adverse economic, political or regulatory developments affecting
a single issuer than would be the case if the Funds were more broadly
diversified.
Should a Fund need to raise cash to meet a large number of redemptions it
might have to sell portfolio securities at a time when it would be
disadvantageous to do so.
In addition, the market value of the fixed income securities in which a Fund
may invest may vary inversely to changes in prevailing interest rates.
MUNICIPAL OBLIGATIONS
A Fund's ability to achieve its objectives depends partially on the prompt
payment by issuers of the interest on and principal of the municipal obligations
held by the Fund. A moratorium, default or other nonpayment of interest or
principal when due on any municipal obligation, in addition to affecting the
market value and liquidity of that particular security, could affect the market
value and liquidity of other municipal obligations held by a Fund. In addition,
the market for municipal obligations is often thin and can be temporarily
affected by large purchases and sales, including those by a Fund.
From time to time, proposals have been introduced before the U.S. Congress for
the purpose of restricting or eliminating the federal income tax exemption for
interest on municipal obligations, and similar proposals may well be introduced
in the future. The enactment of such a proposal could materially affect the
availability of municipal obligations for investment by each Fund and the value
of the Fund's securities. In such an event, the Trust would reevaluate its
Funds' investment objectives and policies and consider changes in the structure
of the Funds or dissolution.
If and when a Fund invests in municipal lease obligations, the possibility
exists that a municipality may not appropriate the funds for lease payments. The
Trust's Board of Trustees will be responsible for determining, on an ongoing
basis, the credit quality of such leases, including an assessment of the
likelihood of cancellation of any such lease.
NONINVESTMENT GRADE BONDS
The Massachusetts Fund's investment policy allows the Fund to invest a portion
(not to exceed 20%) of its assets in high yield, high risk municipal bonds, also
commonly known as "junk bonds." 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
bonds and higher quality bonds. The Massachusetts Fund seeks to invest up to 20%
of its assets aggressively and to maximize return over time from a combination
of many factors, including high current income and capital appreciation from
high yield, high risk bonds. Although the total amount invested in high yield,
high risk securities will not exceed 20% of the assets of the Massachusetts
Fund, the Fund may (as a non-diversified fund) invest as much as the entire 20%
in the securities of a single issuer. To that extent, the Massachusetts Fund may
be more susceptible to adverse economic, political or regulatory developments
affecting a single issuer than would be the case if the Fund were more broadly
diversified.
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 condition 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 such high
yield, high risk securities as zero coupon bonds and pay-in-kind ("PIK")
securities.
Specifically, investors should be aware of the following:
(1) securities rated BB or lower by S&P or Ba or lower by Moody's 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) high yield, high risk zero coupon 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 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 a 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 Trust
has undertaken to a state securities authority to disclose that zero coupon
securities pay no interest to holders prior to maturity, and that the interest
on these securities is reported as income to a 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.
These risks provide the opportunity for maximizing return over time on a
portion of the Massachusetts Fund's assets, but 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 maximum return sought by the Massachusetts Fund with respect to up to 20%
of its assets is ordinarily associated with securities in the lower rating
categories of the recognized rating agencies or with securities that are
unrated. Such high yield, high risk securities are generally rated BB or lower
by S&P or Ba or lower by Moody's. The Fund may invest in securities that are
rated as low as D by S&P and C- by Moody's. These rating categories are
described in the section of this prospectus entitled "Additional Investment
Information." 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.
The Fund may also invest in unrated securities that, in Keystone's judgment,
offer comparable yields and risks to those of securities that are rated as well
as non-investment quality zero coupon and PIK securities.
Since the Fund takes an aggressive approach to investing a portion of its
assets, Keystone tries to maximize the return by controlling the risk associated
with those investments through diversification, credit analyses, review of
sector and industry trends, interest rate forecasts and economic analysis.
Keystone's analysis of securities focuses on on factors such as asset values,
earnings prospects and the quality of management of the company. 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 also considers the ratings of Moody's and S&P assigned to various
securities, but does not rely solely on ratings assigned by Moody's and S&P
because (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
municipalities; and (2) there can be large differences among the current
financial conditions of issuers within the same rating category.
TAX CONSIDERATIONS
For a discussion of the tax considerations for each state and special factors,
including the risks associated with investing in the municipal securities of a
single state, see Exhibit A to this prospectus and Appendix A to the statement
of additional information.
PRICING SHARES
The net asset value of a Fund share is computed each day on which the New York
Stock Exchange (the "Exchange") is open as of the close of trading on the
Exchange (currently 4:00 p.m. eastern time for the purpose of pricing Fund
shares) except on days when changes in the value of a Fund's portfolio
securities do not affect the current net asset value of its shares. The Exchange
currently is closed on weekends, New Year's Day, Presidents' Day, Good Friday,
Memorial Day, Independence Day, Labor Day, Thanksgiving Day and Christmas Day.
The net asset value per share of each Fund is arrived at by determining the
value of the Fund's assets, subtracting its liabilities, and dividing the result
by the number of its shares outstanding.
The Funds value municipal obligations on the basis of valuations provided by a
pricing service, approved by the Trust's Board of Trustees, which uses
information with respect to transactions in bonds, quotations from bond dealers,
market transactions in comparable securities and various relationships between
securities in determining value.
Each Fund values its short-term instruments as follows: short-term instruments
with maturities of sixty days or less are valued at amortized cost (original
purchase cost as adjusted for amortization of premium or accretion of discount),
which, when combined with accrued interest, approximates market; short-term
instruments having maturities of more than sixty days for which market
quotations are readily available are valued at current market value; and
short-term instruments maturing in more than sixty days when purchased that are
held on the sixtieth day prior to maturity are valued at amortized cost (market
value on the sixtieth day adjusted for amortization of premium or accretion of
discount), which, when combined with accrued interest, approximates market; and
which, in either case, reflects fair value as determined by the Board of
Trustees. All other investments are valued at market value or, where market
quotations are not readily available, at fair value as determined in good faith
according to procedures established by the Board of Trustees.
DIVIDENDS AND TAXES
Each Fund intends to declare dividends from net investment income daily and
distribute to its shareholders such dividends monthly and to declare and
distribute all net realized long-term capital gains annually. 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. Shareholders of a Fund who have not opted to receive cash prior to the
payable date for any dividend from net investment income or the record date for
any capital gains distribution will have the number of such shares determined on
the basis of the Fund's net asset value per share computed at the end of that
day after adjustment for the distribution. Net asset value is used in computing
the number of shares in both capital gains and income distribution
reinvestments. There is a possibility that shareholders may lose the tax-exempt
status on accrued income on municipal bonds if shares of the Funds are redeemed
before a dividend has been declared.
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 than
those of Class A and income distributions paid by a Fund with respect to Class A
shares will generally be greater than those paid with respect to Class B and
Class C shares.
Account statements and/or checks, as appropriate, will be mailed within seven
days after the Fund pays a distribution. Unless the Trust receives instructions
to the contrary before the record or payable date, as the case may be, it will
assume that a shareholder wishes to receive that distribution and future capital
gains and income distributions in shares. Instructions continue in effect until
changed in writing.
Each of the Funds has qualified and intends to continue to qualify as a
regulated investment company under the Code. Each Fund is a separate taxable
entity for purposes of Code provisions applicable to regulated investment
companies. Each of the Funds qualifies if, among other things, it distributes to
its shareholders at least 90% of its net investment income for its fiscal year.
Each 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. If a Fund qualifies and if it distributes substantially all
of its net investment income and net capital gains, if any, to shareholders, it
will be relieved of any federal income tax liability.
Any taxable dividend declared in October, November or December to shareholders
of record in such a month and paid by the following January 31 will be
includable in the taxable income of shareholders as if paid on December 31 of
the year in which the dividend was declared.
Each Fund expects that substantially all of its dividends will be "exempt
interest dividends," which should be treated as excludable from federal gross
income. In order to pay exempt interest dividends, at least 50% of the value of
the Fund's assets must consist of federally tax-exempt obligations at the close
of each quarter. An exempt interest dividend is any dividend or part thereof
(other than a capital gain dividend) paid by the Fund with respect to its net
federally excludable municipal obligation interest and designated as an exempt
interest dividend in a written notice mailed to each shareholder not later than
60 days after the close of its taxable year. The percentage of the total
dividends paid by a Fund with respect to any taxable year that qualifies as
exempt interest dividends will be the same for all shareholders of the Fund
receiving dividends with respect to such year. If a shareholder receives an
exempt interest dividend with respect to any share and such share has been held
for six months or less, any loss on the sale or exchange of such share will be
disallowed to the extent of the exempt interest dividend amount.
Any shareholder of a Fund who may be a "substantial user" of a facility
financed with an issue of tax-exempt obligations or a "related person" to such a
user should consult his tax adviser concerning his qualification to receive
exempt interest dividends should the Fund hold obligations financing such
facility.
Under regulations to be promulgated, to the extent attributable to interest
paid on certain private activity bonds, a Fund's exempt interest dividends,
while otherwise tax-exempt, will be treated as a tax preference item for
alternative minimum tax purposes. Corporate shareholders should also be aware
that the receipt of exempt interest dividends could subject them to alternative
minimum tax under the provisions of Section 56(g) of the Code (relating to
"adjusted current earnings").
Under particularly unusual circumstances, such as when a Fund is in a
prolonged defensive investment position, it is possible that no portion of a
Fund's distributions of income to its shareholders for a fiscal year would be
exempt from federal income tax. The Trust does not presently anticipate,
however, that such unusual circumstances will occur.
Since none of a Fund's income will consist of corporate dividends, no
distributions will qualify for the 70% corporate dividends received deduction.
Each Fund intends to distribute its net capital gains as capital gain
dividends. Shareholders should treat such dividends as long-term capital gains.
Each Fund will designate capital gains distributions as such by a written notice
mailed to each shareholder no later than 60 days after the close of the Fund's
taxable year. If a shareholder receives a capital gain dividend and holds his
shares for six months or less, then any allowable loss on disposition of such
shares will be treated as a long-term capital loss to the extent of such capital
gain dividend.
Interest on indebtedness incurred or continued by shareholders to purchase or
carry shares of a Fund will not be deductible for federal income tax purposes to
the extent of the portion of the interest expense relating to exempt interest
dividends. That portion is determined by multiplying the total amount of
interest paid or accrued on the indebtedness by a fraction, the numerator of
which is the exempt interest dividends received by a shareholder in his taxable
year and the denominator of which is the sum of the exempt interest dividends
and the taxable distributions out of the Fund's investment income and long-term
capital gains received by the shareholder.
The Funds may acquire options to "put" specified securities to municipal bond
dealers or issuers from whom the securities are purchased. It is expected that
each Fund will be treated for federal income tax purposes as the owner of the
municipal bonds acquired subject to the put. The interest on the municipal bonds
will be tax-exempt to the Funds, and the purchase price must be allocated
between such securities and the puts based upon their respective fair market
values. The IRS has not issued a published ruling on this matter and could reach
a different conclusion.
STATE INCOME TAXES
The exemption of interest on municipal bonds for federal income tax purposes
does not necessarily result in exemption under the income, corporate or personal
property tax laws of any state or city. Generally, individual shareholders of
the Funds receive tax-exempt treatment at the state level for distributions
derived from municipal securities of their state of residency. Florida does not
currently impose any individual income tax, although it does impose a tax on
corporate income. Each Fund will report to shareholders on a state by state
basis the sources of its exempt interest dividends. For a further discussion of
state tax treatment relating to each Fund, see Exhibit A to this prospectus.
The foregoing is only a summary of some of the important tax considerations
generally affecting the Trust, its Funds and their shareholders. No attempt is
made to present a detailed explanation of the federal or state income or other
tax treatment of the Trust, its Funds or their shareholders, and this discussion
is not intended as a substitute for careful tax planning. Accordingly,
shareholders are urged to consult their tax advisers with specific reference to
their tax situation.
TRUST MANAGEMENT AND EXPENSES
TRUST MANAGEMENT
Under Massachusetts law, the Trust's Board of Trustees has absolute and
exclusive control over the management and disposition of all assets of the Trust
and its Funds. Subject to the authority of the Board of Trustees, Keystone
serves as investment adviser to the Trust and its Funds and is responsible for
the overall management of the Trust's business and affairs.
INVESTMENT ADVISER
Keystone, the Trust's investment adviser, is located at 200 Berkeley Street,
Boston, Massachusetts 02116-5034. Keystone has provided investment advisory
and management services to investment companies and private accounts since it
was organized in 1932. Keystone is a wholly-owned subsidiary of Keystone
Investments, Inc. (formerly Keystone Group, Inc.) ("Keystone Investments"),
located at 200 Berkeley Street, Boston, Massachusetts 02116-5034.
Keystone Investments is a private corporation predominantly owned by current
and former members of management of Keystone and its affiliates. The shares of
Keystone Investments common stock beneficially owned by management are held in
a number of voting trusts, the trustees of which are George S. Bissell, Albert
H. Elfner, III, Edward F. Godfrey, Ralph J. Spuehler, Jr. and Rosemary D. Van
Antwerp. Keystone Investments provides accounting, bookkeeping, legal,
personnel and general corporate services to Keystone, its affiliates and the
Keystone Investments Family of Funds.
Pursuant to its Investment Advisory and Management Agreement with the Trust
(the "Advisory Agreement"), Keystone provides investment advisory and management
services to the Trust and each Fund.
Each Fund pays Keystone a fee for its services at the annual rate set forth
below:
Aggregate
Net Asset Value
Management of the Shares
Fee of the Fund
- ------------------------------------------------------------------------------
0.55% of the first $ 50,000,000, plus
0.50% of the next $ 50,000,000, plus
0.45% of the next $100,000,000, plus
0.40% of the next $100,000,000, plus
0.35% of the next $100,000,000, plus
0.30% of the next $100,000,000, plus
0.25% of amounts over $500,000,000
computed as of the close of business each business day and payable daily.
The Advisory Agreement continues in effect from year to year with respect to a
Fund only so long as such continuance is specifically approved at least annually
by the Board of Trustees or by vote of a majority of the outstanding shares of
such Fund. In either case, the terms of the Advisory Agreement and continuance
thereof must be approved by the vote of a majority of Independent Trustees in
person at a meeting called for the purpose of voting on such approval. The
Advisory Agreement may be terminated as to any Fund, without penalty, on 60
days' written notice by the Trust or Keystone, or may be terminated as to a Fund
by a vote of a majority of the shares of such Fund. The Advisory Agreement will
terminate automatically upon its assignment.
The Trust has adopted a Code of Ethics incorporating policies on personal
securities trading as recommended by the Investment Company Institute.
FUND EXPENSES
Each Fund pays all of its expenses. In addition to the investment advisory and
management fees discussed above, the principal expenses that each Fund is
expected to pay include, but are not limited to, transfer, dividend disbursing
and shareholder servicing agent costs and expenses; custodian costs and
expenses; its pro rata portion of certain Trustees' fees; fees of its
independent auditors; fees of the legal counsel to the Trust and its Independent
Trustees; fees payable to government agencies, including registration and
qualification fees of the Trust, the Funds and their shares under federal and
state securities laws; and certain extraordinary expenses. In addition, each
class of shares of a Fund will pay all of the expenses attributable to it. Such
expenses are currently limited to Distribution Plan expenses. Each Fund also
pays its brokerage commissions, interest charges and taxes and certain
extraordinary expenses.
During the fiscal year ended March 31, 1996, the Florida, Massachusetts, New
York Insured and Pennsylvania Funds paid or accrued to Keystone investment
management and administrative services fees of $557,537 (0.52% of the Fund's
average annual net assets), $62,760 (0.55% of the Fund's average annual net
assets), $118,589 (0.55% of the Fund's average annual net assets) and $402,467
(0.53% of the Fund's average annual net assets), respectively.
During the fiscal year ended March 31, 1996, the Florida, Massachusetts, New
York Insured and Pennsylvania Funds paid or accrued to Keystone Investor
Resource Center, Inc. ("KIRC"), the Trust's transfer and dividend disbursing
agent, $115,014, $15,192, $27,801 and $106,088, respectively, for shareholder
services. KIRC is a wholly-owned subsidiary of Keystone. During the year ended
March 31, 1996, the Florida, Massachusetts, New York Insured and Pennsylvania
Funds paid or accrued to Keystone Investments $24,275, $22,081, $23,082 and
$22,964, respectively, as reimbursement for certain accounting services.
Keystone has currently voluntarily agreed to limit the expenses of each Fund's
Class A, B, and C shares to 0.75%, 1.50%, and 1.50%, of each such class's
respective average daily net assets. Keystone currently intends to continue the
foregoing expense limitations on a calendar month-by-month basis. Keystone will
periodically evaluate the foregoing expense limitations and may modify or
terminate them in the future. Keystone will not be required to make such
reimbursements to the extent it would result in a Fund's inability to qualify as
a regulated investment company under the Code. In accordance with certain
voluntary expense limitations in place during the fiscal year ended March 31,
1996, Keystone reimbursed the Florida, Massachusetts, New York Insured and
Pennsylvania Funds $196,232, $100,792, $119,608 and $190,132, respectively.
Keystone does not intend to seek repayment for these amounts.
Each Fund may be subject to certain annual state expense limitations.
PORTFOLIO MANAGER
George J. Kimball, a Keystone Vice President and Portfolio Manager, is
responsible for the day-to-day management of the New York Insured and Florida
Funds. Mr. Kimball has more than 10 years of investment experience.
Daniel A. Rabasco, a Keystone Vice President and Portfolio Manager, is
responsible for the day-to-day management of the Pennsylvania and
Massachusetts Funds. Mr. Rabasco has more than 9 years of investment
experience.
SECURITIES TRANSACTIONS
Under policies established by the Board of
Trustees, Keystone selects broker-dealers to execute transactions subject to the
receipt of best execution. When selecting broker-dealers to execute portfolio
transactions for a Fund, Keystone may consider the number of shares of the Fund
sold by such broker-dealer. In addition, broker-dealers executing portfolio
transactions from time to time may be affiliated with the Trust, Keystone, the
Trust's principal underwriter or their affiliates.
A Fund may pay higher commissions to broker-dealers that provide research
services. Keystone may use these services in advising such Fund as well as in
advising its other clients.
PORTFOLIO TURNOVER
For the fiscal year ended March 31, 1995, the portfolio turnover rates for the
Florida, Massachusetts, New York Insured and Pennsylvania Funds were 129%, 77%,
77% and 97%, respectively.
For the fiscal year ended March 31, 1996, the portfolio turnover rates for the
Florida, Massachusetts, New York Insured and Pennsylvania Funds were 89%, 165%,
53% and 55%, respectively.
High portfolio turnover may involve correspondingly greater brokerage
commissions and other transaction costs, which would be borne directly by a
Fund, as well as additional gains and/or losses to shareholders. For additional
information about brokerage and distributions, see the statement of additional
information.
HOW TO BUY SHARES
Shares of each Fund may be purchased from any broker-dealer that has a selling
agreement with Keystone Investment Distributors Company (formerly named Keystone
Distributors, Inc.) (the "Principal Underwriter"), the Trust's principal
underwriter. The Principal Underwriter is a wholly-owned subsidiary of Keystone
and is located at 200 Berkeley Street, Boston, Massachusetts 02116-5034.
In addition, you may open an account for the purchase of shares of a Fund by
mailing to the Trust, 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 Trust. 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 sending in a completed account
application. Subsequent investments in a Fund's shares in any amount may be made
by check, by wiring federal funds or by an electronic funds transfer ("EFT").
Orders for the purchase of shares of a 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 applicable
sales charge. Orders received by dealers or other firms prior to the close of
the Exchange and received by the Principal Underwriter prior to the close of its
business day will be confirmed at the offering price effective as of the close
of the Exchange on that day.
Orders for shares of a Fund received other than as stated above will receive
the offering price equal to the net asset value per share next determined
(generally the next business day's offering price) plus, in the case of Class A
shares, the applicable sales charge.
The Trust reserves the right to determine the net asset value more frequently
than once a day if deemed desirable. Broker-dealers and other financial services
firms are obligated to transmit orders promptly.
Your initial purchase must be at least $1,000. There is no minimum amount for
subsequent purchases.
Shares become entitled to income distributions declared on the first business
day following receipt by KIRC of payment for the shares. It is the investor's
responsibility to see that his broker-dealer promptly forwards payment to the
Principal Underwriter for shares being purchased through the dealer.
The Trust 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
Each Fund offers Class A, B and C 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 sales charge when they are redeemed except as
follows: Class A shares purchased (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.
CLASS B SHARES -- BACK-END LOAD OPTION
Class B shares are sold without a sales charge at the time of purchase, but
are, with certain exceptions, subject to a deferred sales charge if they are
redeemed. Class B shares purchased on or after June 1, 1995 are subject to a
deferred sales charge upon redemption during the 72 month period from and
including the month of purchase. Class B shares purchased prior to June 1, 1995
are subject to a 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
broker-dealers who have entered into special distribution agreements with the
Principal Underwriter.
Class A and B shares, pursuant to their Distribution Plans, currently pay an
annual service fee of up to 0.15% of the Fund's average daily net assets
attributable to the respective classes. Class C shares pay an annual service fee
of up to 0.25% of the Fund's average daily net assets attributable to Class C.
In addition to the service fee, the Class B and Class C Distribution Plans
provide for the payment of an annual distribution fee of up to 0.75% of the
average daily net assets attributable to their respective classes.
Investors who would rather pay the entire cost of distribution at the time of
investment, rather than spreading the cost over time, might consider Class A
shares. Other investors might consider Class B or Class C shares, (in which case
100% of the purchase price is invested immediately), depending on the amount of
the purchase and the length of investment.
The Fund will not normally accept any purchase of Class B shares in the
amount of $250,000 or more and will not normally accept any purchase of Class C
shares in the amount of $1,000,000 or more.
----------------------------------------------
CLASS A SHARES
Class A shares are offered at net asset value plus an initial sales charge as
follows:
<TABLE>
<CAPTION>
AS A % OF CONCESSION TO
AS A % OF NET AMOUNT DEALERS AS A % OF
AMOUNT OF PURCHASE OFFERING PRICE INVESTED* OFFERING PRICE
- ---------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Less than $100,000 ................................. 4.75% 4.99% 4.25%
$100,000 but less than $250,000 .................... 3.75% 3.90% 3.25%
$250,000 but less than $500,000 .................... 2.50% 2.56% 2.25%
$500,000 but less than $1,000,000 .................. 1.50% 1.52% 1.50%
- ----------
*Rounded to the nearest one-hundredth percent.
</TABLE>
----------------------------------------------
Purchases of a Fund's Class A shares in the amount of $1 million or more
and/or purchases of Class A shares made by a Qualifying Plan or a tax-sheltered
annuity plan sponsored by a public educational entity having 5,000 or more
eligible employees (a "TSA Plan") will be at net asset value without the
imposition of a front-end sales charge (each such purchase, an "NAV Purchase").
With respect to NAV Purchases, the Principal Underwriter will pay
broker-dealers or others concessions based on (1) the investor's cumulative
purchases during the one-year period beginning with the date of the initial NAV
Purchase and (2) the investor's cumulative purchases during each subsequent
one-year period beginning with the first NAV Purchase following the end of the
prior period. For such purchases, concessions will be paid at the following
rate: 0.50% of the investment amount up to $4,999,999, plus 0.25% of the
investment amount over $4,999,999.
With the exception of Class A shares acquired by a TSA Plan, Class A shares
acquired in an NAV Purchase are subject to a contingent deferred sales charge of
0.50% upon redemption during the 24 month period commencing on the date the
shares were originally purchased. Class A shares acquired by a TSA Plan in an
NAV Purchase are not subject to a contingent deferred sales charge.
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 0.15% of
the average daily net asset value of Class A shares maintained by such recipient
on the books of the Trust for specified periods.
Upon written notice to broker-dealers with whom it has dealer agreements, the
Principal Underwriter may reallow up to the full applicable sales charge.
Initial sales charges may be eliminated for persons purchasing Class A shares
that are included in a broker-dealer or investment adviser managed fee based
program (a "wrap account") with broker-dealers or investment advisers who have
entered into special agreements with the Principal Underwriter. Initial sales
charges may be reduced or eliminated for persons purchasing Class A shares of
other Keystone America Funds. See Exhibit B 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 the redemption of shares of any registered open-end investment
company not distributed or managed by Keystone or its affiliates, where the
amount invested represents redemption proceeds from such unrelated registered
open-end investment company, and the shareholder either (1) paid a front-end
sales charge, or (2) was at some time subject to, but did not actually pay, a
contingent deferred sales charge with respect to the redemption proceeds. This
special net asset value purchase is currently being offered on a calendar
month-by-month basis and may be modified or terminated in the future.
In addition, 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
Each 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 0.15% annually of the average daily net asset value of
Class A shares, in connection with the distribution of Class A shares. Payments
under each Class A Distribution Plan are currently made to the Principal
Underwriter (which may reallow all or part to others, such as broker-dealers) as
service fees at an annual rate of up to 0.15% of the average daily net asset
value of Class A shares maintained by the recipients on the books of the Fund
for specified periods.
CLASS B SHARES
Class B shares are offered at net asset value, without an initial sales
charge.
With respect to Class B shares purchased on or after June 1, 1995, each 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, each 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 the shareholder. 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. Class B
shares purchased prior to June 1, 1995 will similarly convert to Class A shares
at the end of seven calendar years after the year of purchase. (Conversion of
Class B shares represented by stock certificates will require the return of the
stock certificates to KIRC.) The Class B shares so converted will no longer be
subject to the higher expenses borne by Class B shares. Because the net asset
value per share of the Class A shares may vary from that of the Class B shares
at the time of conversion, although the dollar value will be the same, a
shareholder may receive more or fewer Class A shares than the number of Class B
shares converted. Under current law, it is the Trust's opinion that such a
conversion will not constitute a taxable event under federal income tax law. In
the event that this ceases to be the case, the Board of Trustees will consider
what action, if any, is appropriate and in the best interests of the Class B
shareholders.
CLASS B DISTRIBUTION PLANS
Each Fund has adopted Distribution Plans with respect to its Class B shares
(the "Class B Distribution Plans") that provide for expenditures by the Fund at
an annual rate of up to 1.00% of the average daily net asset value of Class B
shares (currently limited to 0.90%) 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
broker-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 broker-dealers 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 0.15% of the price paid for
each Class B share sold. Beginning approximately 12 months after the purchase of
a Class B share, the broker-dealer or other party will receive service fees at
an annual rate of 0.15% of the average daily net asset value of such Class B
share maintained by the recipient on the books of the Fund for specified
periods. See "Distribution Plans" below.
CLASS C SHARES
Class C shares are offered only through broker-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, each Fund may impose a deferred sales charge of 1.00% on shares
redeemed within one year after the date of purchase. No deferred sales charge is
imposed on amounts redeemed thereafter. If imposed, the deferred sales charge is
deducted from the redemption proceeds otherwise payable to you. The deferred
sales charge is retained by the Principal Underwriter. See "Contingent Deferred
Sales Charge and Waiver of Sales Charges" below.
CLASS C DISTRIBUTION PLAN
Each Fund has adopted a Distribution Plan with respect to its Class C shares
(the "Class C Distribution Plan") that provides for expenditures at an annual
rate of up to 1.00% of the average daily net asset value of Class C shares
(currently limited to 0.90%) to pay expenses incurred in connection with 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 broker-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 broker-dealers 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 15 months after
purchase, the broker-dealers or other party will receive a commission at an
annual rate of 0.75% (subject to NASD rules -- see "Distribution Plans") plus
service fees at the annual rate of 0.25%, respectively, of the average daily net
asset value of each Class C share maintained by the recipients on the books of
the Fund for specified periods. See "Distribution Plans" below.
CONTINGENT DEFERRED SALES CHARGE AND WAIVER OF SALES CHARGES
Any contingent deferred sales charge imposed upon the redemption of Class A,
Class B or Class C shares is a percentage of the lesser of (1) the net asset
value of the shares redeemed or (2) the net asset value at time of purchase of
such shares.
No contingent deferred sales charge is imposed when amounts redeemed are
derived from (1) increases in the value of an account above the net cost of such
shares due to increases in the net asset value per share of a Fund; (2) certain
shares with respect to which a 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 two years;
(4) Class B shares held during more than four consecutive calendar years or more
than 72 months, as the case may be; or (5) Class C shares held for more than one
year. 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.
Each 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. See the statement of additional information
for more details.
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 a Fund in the event of (1) death or disability of the shareholder; (2)
a lump-sum distribution from a 401(k) plan or other benefit plan qualified under
the Employee Retirement Income Security Act of 1974 ("ERISA"); (3) automatic
withdrawals from ERISA plans if the shareholder is at least 59 1/2 years old;
(4) involuntary redemptions of accounts having an aggregate net asset value of
less than $1,000; (5) automatic withdrawals under an automatic withdrawal plan
of up to 1 1/2% per month of the shareholder's initial account balance; (6)
withdrawals consisting of loan proceeds to a retirement plan participant; (7)
financial hardship withdrawals made by a retirement plan participant; or (8)
withdrawals consisting of returns of excess contributions or excess deferral
amounts made to a retirement plan participant.
ARRANGEMENTS WITH BROKER-DEALERS AND OTHERS
From time to time, the Principal Underwriter may provide promotional
incentives, including reallowance of up to the entire sales charge, to certain
broker-dealers whose representatives have sold or are expected to sell
significant amounts of a Fund. In addition, broker-dealers may, from time to
time, receive additional cash payments. The Principal Underwriter may also
provide written information to broker-dealers with whom it has dealer agreements
that relates to sales incentive campaigns conducted by such broker-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. Broker-dealers
to whom substantially the entire sales charge on Class A shares is reallowed may
be deemed to be underwriters as that term is defined under the Securities Act of
1933.
The Principal Underwriter may, at its own expense, pay concessions in addition
to those described above to broker-dealers that satisfy certain criteria
established from time to time by the Principal Underwriter. These conditions
relate to increasing sales of shares of the Keystone funds over specified
periods and certain other factors. Such payments may, depending on the
broker-dealer's satisfaction of the required conditions, be periodic and may be
up to 0.25% of the value of shares sold by such broker-dealer.
The Principal Underwriter may also pay a transaction fee (up to the level of
payments allowed to broker-dealers for the sale of shares, as described above)
to banks and other financial services firms that facilitate transactions in
shares of a 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 broker-dealers pursuant to state
law.
DISTRIBUTION PLANS
As discussed above, each 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 currently limits the amount that a Fund may pay annually in
distribution costs for the sale of its shares and shareholder service fees. The
NASD limits annual expenditures to 1% of the aggregate average daily net asset
value of a Fund's shares, of which 0.75% may be used to pay such distribution
costs and 0.25% may be used to pay shareholder service fees. The NASD also
limits the aggregate amount that a Fund may pay for such distribution costs to
6.25% of gross share sales since the inception of a 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 a Fund. The Principal Underwriter intends to seek
full payment of such charges from a Fund (together with annual interest thereon
at the prime rate plus 1%) at such time in the future as, and to the extent
that, payment thereof by a Fund would be within the permitted limits.
If the Trust's Independent Trustees authorize such payments, the effect would
be to extend the period of time during which the Trust 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 Trust
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 Trust 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.
For the Florida, Massachusetts, New York Insured and Pennsylvania Funds
unreimbursed Class B Distribution Plan expenses at March 31, 1996 for Class B
shares sold prior to June 1, 1995 were $2,946,854 (5.41% of Class B net assets),
$366,916 (5.04% of Class B net assets), $741,567 (4.32% of Class B net assets)
and $1,849,989 (4.90% of Class B net assets), respectively. For Class B shares
sold after June 1, 1995, unreimbursed Class B Distribution expenses at March 31,
1996 for the Florida, Massachusetts, New York Insured and Pennsylvania Funds
were $510,361 (0.94% of Class B net assets), $55,979 (0.77% of Class B net
assets), $290,287 (1.69% of Class B net assets), and $491,259 (1.30% of Class B
net assets), respectively.
For the Florida, Massachusetts, New York Insured and Pennsylvania Funds,
unreimbursed Class C Distribution Plan expenses at March 31, 1996 were
$1,295,524 (10.98% of Class C net assets), $142,771 (6.20% of Class C net
assets), $213,519 (9.30% of Class C net assets), and $823,047 (8.51% of Class C
net assets) respectively.
For the year ended March 31, 1996, the Florida, Massachusetts, New York
Insured and Pennsylvania Funds paid the Principal Underwriter (1) $56,304,
$2,256, $5,591, and $44,529, respectively, pursuant to each Fund's Class A
Distribution Plan; (2) $456,390, $56,056, $116,859 and $282,940, respectively,
pursuant to each Fund's Class B Distribution Plan for Class B shares sold prior
to June 1, 1995 and $34,480, $7,645, $22,305 and $36,440, respectively, pursuant
to each Fund's Class B Distribution Plan for Class B shares sold on or after
June 1, 1995; and (3) $111,012, $19,215, $21,248, and $87,375, respectively,
pursuant to each Fund's Class C Distribution Plan.
Broker-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
Fund shares may be redeemed for cash at the redemption value upon written
order by the shareholder(s) to the Trust, c/o KIRC, and presentation to the
Trust of a properly endorsed share certificate if certificates have been issued.
The redemption value equals the net asset value adjusted for fractions of a
cent and may be more or less than the shareholder's cost depending upon changes
in the value of the Fund's portfolio securities between purchase and redemption.
A deferred sales charge may be imposed by the Fund at the time of redemption of
certain shares as explained in "How to Buy Shares." If imposed, the deferred
sales charge is deducted from the redemption proceeds otherwise payable to the
shareholder.
The Fund may impose a deferred sales charge at the time of redemption of
certain shares as explained in "How to Buy Shares." If imposed, the Fund deducts
the deferred sales charge from the redemption proceeds otherwise payable to the
shareholder.
You may also redeem shares through their broker-dealers. The Principal
Underwriter, acting as agent for the Trust, stands ready to repurchase a Fund's
shares upon orders from broker-dealers.
At various times, the Trust may be requested to redeem shares for which it has
not yet received good payment. In such a case, the Trust will mail the
redemption proceeds upon clearance of the purchase check, which may take up to
15 days or more. Any delay may be avoided by purchasing shares with a certified
check drawn on a U.S. bank or by bank wire of funds 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 redemption and prior to the release of the proceeds, no appreciation
or depreciation will occur in the value of the redeemed shares, and no interest
will be paid on the redemption proceeds. If the mailing of a redemption has been
delayed, the check will be mailed or the proceeds wired or sent EFT promptly
after good payment has been collected.
If the Trust receives a redemption or repurchase order, but the shareholder
has not clearly indicated the amount of money or number of shares involved, the
Trust cannot execute the order. In such cases, the Trust will request the
missing information from you and process the order the day it receives such
information.
For the protection of shareholders, SIGNATURES ON CERTIFICATES, STOCK POWERS
AND ALL WRITTEN ORDERS OR AUTHORIZATIONS MUST BE GUARANTEED BY A U.S. STOCK
EXCHANGE MEMBER, A BANK OR OTHER PERSONS ELIGIBLE TO GUARANTEE SIGNATURES UNDER
THE SECURITIES ACT OF 1934 AND KIRC'S POLICIES. The Trust and KIRC may not only
waive this requirement but may also require additional documents in certain
cases. Currently, the requirement for a signature guarantee has been waived on
redemptions of $50,000 or less where the account address of record has been the
same for a minimum period of 30 days. The Trust and KIRC reserve the right to
withdraw this waiver at any time.
TELEPHONE REDEMPTIONS
Under ordinary circumstances, you may redeem up to $50,000 from your account
by calling toll free 1-800-343-2898. To engage in telephone transactions
generally, you must complete the appropriate sections of the Fund's application.
In order to insure that instructions received by KIRC are genuine, when you
initiate a telephone transaction, you will be asked to verify certain criteria
specific to your account. At the conclusion of the transaction, you will be
given a transaction number confirming your request, and written confirmation of
your transaction will be mailed the next business day. Your telephone
instructions will be recorded. Redemptions by telephone are allowed only if the
address and bank account of record have been the same for a minimum period of 30
days.
If 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 Trust by telephone, you should follow the procedures
for redeeming by mail or through a broker-dealer as set forth above.
SMALL ACCOUNTS
Because of the high cost of maintaining small accounts, the Trust 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.
GENERAL
The Trust 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 or change fees.
Except as otherwise noted, neither the Trust, 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 Trust, 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 Trust 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 Trust
cannot dispose of its investments or fairly determine their value; or (4) the
Securities and Exchange Commission so orders.
SHAREHOLDER SERVICES
Details on all shareholder services may be obtained from KIRC by writing or by
calling toll free 1-800-343-2898.
KEYSTONE AUTOMATED RESPONSE LINE
KARL offers you specific fund account information and price, total return and
yield quotations as well as the ability to do account transactions, including
investments, exchanges and redemptions. You may access KARL by dialing toll free
1-800-346-3858 on any touch-tone telephone, 24 hours a day, seven days a week.
EXCHANGES
A shareholder who has obtained the appropriate prospectus may exchange shares
of a 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 one 24
month period commencing with and including the month of purchase.
The exchange of Class B shares and Class C shares will not be subject to a
contingent deferred sales charge. However, if the shares being tendered for
exchange are
(1) Class A shares acquired in an NAV Purchase or otherwise without a
front end sales charge,
(2) Class B shares that have been held for less than 72 months or four
years, as the case may be, or
(3) Class C shares that have been held for less than one year,
and are still subject to a deferred sales charge, such charge will carry over to
the shares being acquired in the exchange transaction.
You may exchange shares for another Keystone fund for a $10 fee by 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 Trust reserves the right, after providing
shareholders with the required notice, to change the terms of or terminate this
exchange offer, including the right to change the service charge for any
exchange.
Orders to exchange a certain class of shares of a 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 Trust prior to 4:00 p.m. eastern
time on any day the Trust 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. eastern time on any business day
will be executed at the respective net asset values determined at the close of
the next business day.
An excessive number of exchanges may be disadvantageous to the Trust.
Therefore, the Trust, 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 a Fund's shares in any amount and to redeem up to $50,000
worth of a Fund's shares. You can use Keystone America Money Line like an
"electronic check" to move money between your bank account and your account in
the Trust 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 specified in your account
application. You will receive confirmation from the Principal Underwriter for
every transaction.
To change the amount of or terminate a Keystone America Money Line service
(which could take up to 30 days), you must write to KIRC, P.O. Box 2121, Boston,
Massachusetts 02106-2121, and include your account number.
SYSTEMATIC INCOME PLAN
Under an Systematic Income Plan, if your account for a Fund's shares 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 Systematic Income Plan is opened. 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 a Fund's shares while participating in a Systematic
Income Plan.
DOLLAR COST AVERAGING
Through dollar cost averaging you can invest a fixed dollar amount each month
or each quarter in any Keystone America Fund. This results in more shares being
purchased when the selected fund's net asset value is relatively low and fewer
shares being purchased when the fund's net asset value is relatively high, which
may cause a lower average cost per share than a less systematic investment
approach.
Prior to participating in dollar cost averaging, you must 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.
TWO DIMENSIONAL INVESTING
You may elect to have income and capital gains distributions from any class of
Keystone America Fund shares you may own automatically invested to purchase the
same class of shares of any other Keystone America Fund. You may select this
service on the application and indicate the Keystone America Fund(s) into which
distributions are to be invested. The value of shares purchased will be
ineligible for Rights of Accumulation and Letters of Intent.
OTHER SERVICES
Under certain circumstances, you may, within 30 days after a redemption,
reinstate your account in the same class of shares that you redeemed at current
net asset value.
PERFORMANCE DATA
From time to time a Fund may advertise "total return," "current yield" and a
"tax equivalent yield." ALL DATA IS BASED ON HISTORICAL EARNINGS. PAST
PERFORMANCE SHOULD NOT BE CONSIDERED REPRESENTATIVE OF RESULTS FOR ANY FUTURE
PERIOD OF TIME. Total return and current yield are computed separately for each
class of shares of a Fund.
Total return refers to a Fund's 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. Such yield will include income from sources other than municipal
obligations, if any.
Tax equivalent yield is, in general, the current yield divided by a factor
equal to one minus a stated income tax rate and reflects the yield a taxable
investment would have to achieve in order to equal on an after-tax basis a
tax-exempt yield.
Any given yield or total return quotation should not be considered
representative of a Fund's yield or total return for any future period.
The Trust may also include comparative performance information for each class
of shares when advertising or marketing the Trust's shares, such as data from
Lipper Analytical Services, Inc., Morningstar, Inc., S&P, Ibbotson
Associates or other industry publications.
TRUST SHARES
The Trust currently issues shares of four separate series evidencing interests
in different portfolio securities. Each Fund currently issues Class A, B and C
shares. The Trust is authorized to issue additional series or classes of shares.
Shares of a Fund participate in dividends and distributions and have equal
voting, liquidation and other rights with other shares of the Fund 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 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 of each Fund will be fully paid and nonassessable by the Trust. Shares of
each Fund may be exchanged as explained under "Shareholder Services," but will
have no other preference, conversion, exchange or preemptive rights. Shares are
redeemable, transferable and freely assignable as collateral. There are no
sinking fund provisions.
Shareholders of a Fund are entitled to one vote for each full share owned and
fractional votes for fractional shares on all matters subject to Fund vote.
Shares of a Fund vote together except when required by law to vote separately by
class. The Trust does not have annual meetings. The Trust will have special
meetings, from time to time, as required under its Declaration of Trust and
under the 1940 Act. As provided in the Trust's Declaration of Trust,
shareholders have the right to remove Trustees by an affirmative vote of
two-thirds of the outstanding shares. A special meeting of the shareholders will
be held when holders of 10% of the outstanding shares request a meeting 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 Trust shareholder may be held
personally liable for the Trust's obligations. The Trust's Declaration of Trust
provides, however, that shareholders shall not be subject to any personal
liability for the Trust's obligations and provides indemnification from Trust
assets for any shareholder held personally liable for the Trust's obligations.
ADDITIONAL INFORMATION
KIRC, located at 101 Main Street, Cambridge, Massachusetts 02142-1519, is a
wholly-owned subsidiary of Keystone. As previously mentioned, KIRC serves as the
Trust's transfer agent and dividend disbursing agent.
When the Trust determines from its records that more than one account in the
Trust is registered in the name of a shareholder or shareholders having the same
address, upon notice to those shareholders, the Trust intends, when an annual
report or a semi-annual report of the Trust 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 Trust
reserves the right to change the terms of the offer stated in this prospectus
without shareholder approval, including the right to impose or change fees for
services provided.
<PAGE>
ADDITIONAL INVESTMENT INFORMATION
CORPORATE AND MUNICIPAL BOND RATINGS
S&P CORPORATE AND MUNICIPAL BOND RATINGS
A. MUNICIPAL NOTES
An S&P note rating reflects the liquidity concerns and market access risks
unique to notes. Notes due in three years or less will likely receive a note
rating. Notes maturing beyond three years will most likely receive a long-term
debt rating. The following criteria are used in making that assessment:
1. amortization schedule (the larger the final maturity relative to other
maturities the more likely it will be treated as a note); and
2. source of payment (the more dependent the issue is on the market for its
refinancing, the more likely it will be treated as a note).
Note ratings are as follows:
1. SP-1 -- Strong capacity to pay principal and interest. Those issues
determined to possess a very strong capacity to pay debt service are
given a plus (+) designation.
2. SP-2 -- Satisfactory capacity to pay principal and interest, with some
vulnerability to adverse financial and economic changes over the terms of
the notes.
3. SP-3 -- Speculative capacity to pay principal and interest.
B. TAX EXEMPT DEMAND BONDS
S&P assigns "dual" ratings to all long-term debt issues that have as part of
their provisions a demand or double feature.
The first rating addresses the likelihood of repayment of principal and
interest as due, and the second rating addresses only the demand feature. The
long-term debt rating symbols are used for bonds to denote the long-term
maturity and the commercial paper rating symbols are used to denote the put
option (for example, "AAA/A-1+"). For the newer "demand notes," S&P note
rating symbols, combined with the commercial paper symbols, are used (for
example, "SP -- 1+/A-1+").
C. CORPORATE AND MUNICIPAL BOND RATINGS
An S&P corporate or municipal bond rating is a current assessment of the
creditworthiness of an obligor, including obligors outside the U.S., with
respect to a specific obligation. This assessment may take into consideration
obligors such as guarantors, insurers or lessees. Ratings of foreign obligors do
not take into account currency exchange and related uncertainties. The ratings
are based on current information furnished by the issuer or obtained by S&P from
other sources it considers reliable.
The ratings are based, in varying degrees, on the following considerations:
1. likelihood of default capacity and willingness of the obligor as to the
timely payment of interest and repayment of principal in accordance with the
terms of the obligation;
2. nature of and provisions of the obligation; and
3. protection afforded by and relative position of the obligation in the
event of bankruptcy, reorganization or other arrangement under the laws of
bankruptcy and other laws affecting creditors' rights.
PLUS (+) OR MINUS (-): To provide more detailed indications of credit
quality, ratings from "AA" to "BBB" may be modified by the addition of a plus or
minus sign to show relative standing within the major rating categories.
A provisional rating is sometimes used by S&P. It assumes the successful
completion of the project being financed by the debt being rated and indicates
that payment of debt service requirements is largely or entirely dependent upon
the successful and timely completion of the project. This rating, however, while
addressing credit quality subsequent to completion of the project, makes no
comment on the likelihood of, or the risk of default upon failure of, such
completion.
D. BOND RATINGS
Bond ratings are as follows:
1. AAA -- Debt rated AAA has the highest rating assigned by S&P. Capacity to
pay interest and repay principal is extremely strong.
2. AA -- Debt rated AA has a very strong capacity to pay interest and repay
principal and differs from the higher rated issues only in small degree.
3. A -- Debt rated A has a strong capacity to pay interest and repay principal
although it is somewhat more susceptible to the adverse effects of changes in
circumstances and economic conditions than debt in higher rated categories.
4. BBB -- Debt rated BBB is regarded as having an adequate capacity to pay
interest and repay principal. Whereas it normally exhibits adequate protection
parameters, adverse economic conditions or changing circumstances are more
likely to lead to a weakened capacity to pay interest and repay principal for
debt in this category than in higher rated categories.
MOODY'S CORPORATE AND MUNICIPAL BOND RATINGS
A. MUNICIPAL NOTES
A Moody's rating for municipal short-term obligations will be designated
Moody's Investment Grade or ("MIG"). These ratings recognize the difference
between short-term credit risk and long-term risk. Factors affecting the
liquidity of the borrower and the short-term cyclical elements are critical in
short-term ratings.
A short-term rating may also be assigned on issues with a demand feature --
variable rate demand obligation ("VRDO"). Such ratings will be designated as
VMIG. Short-term ratings on issues with demand features are differentiated by
the use of the VMIG symbol to reflect such characteristics as payment upon
periodic demand rather than fixed maturity dates and payment relying on the
external liquidity.
The note ratings are as follows:
1. MIG1/VMIG1 This designation denotes the best quality. There is present
strong protection by established cash flows, superior liquidity support or
demonstrated broadbased access to the market for refinancing.
2. MIG2/VMIG2 This designation denotes high quality. Margins of protection
are ample although not so large as in the preceding group.
3. MIG3/VMIG3 This designation denotes favorable quality. All security
elements are accounted for but there is lacking the undeniable strength of the
preceding grades. Liquidity and cash flow protection may be narrow and market
access for refinancing is likely to be less well established.
4. MIG4/VMIG4 This designation denotes adequate quality. Protection commonly
regarded as required of an investment security is present and although not
distinctly or predominantly speculative, there is specific risk.
B. CORPORATE AND MUNICIPAL BOND RATINGS
1. Aaa -- Bonds rated Aaa are judged to be of the best quality. They carry the
smallest degree of investment risk and are generally referred to as "gilt-edge."
Interest payments are protected by a large or by an exceptionally stable margin
and principal is secure. While the various protective elements are likely to
change, such changes as can be visualized are most unlikely to impair the
fundamentally strong position of such issues.
2. Aa -- Bonds rated Aa are judged to be of high quality by all standards.
Together with the Aaa group, they comprise what are generally known as high
grade bonds. They are rated lower than the best bonds because margins of
protection may not be as large as in Aaa securities or fluctuation of protective
elements may be of greater amplitude or there may be other elements present that
make the long term risks appear somewhat larger than in Aaa securities.
3. A -- Bonds rated A possess many favorable investment attributes and are to
be considered as upper medium grade obligations. Factors giving security to
principal and interest are considered adequate, but elements may be present that
suggest a susceptibility to impairment sometime in the future.
4. Baa -- Bonds rated Baa are considered to be medium grade obligations, i.e.,
they are neither highly protected nor poorly secured. Interest payments and
principal security appear adequate for the present, but certain protective
elements may be lacking or may be characteristically unreliable over any great
length of time. Such bonds lack outstanding investment characteristics and in
fact have speculative characteristics as well.
Moody's applies numerical modifiers, 1, 2 and 3 in each generic rating
classification from Aa through Baa in its corporate bond rating system. The
modifier 1 indicates that the security ranks in the higher end of its generic
rating category; the modifier 2 indicates a mid-range ranking; and the modifier
3 indicates that the issue ranks in the lower end of its generic rating
category.
CON. (--) -- Municipal bonds for which the security depends upon the
completion of some act or the fulfillment of some condition are rated
conditionally. These are bonds secured by (1) earnings of projects under
construction, (2) earnings of projects unseasoned in operation experience, (3)
rentals that begin when facilities are completed, or (4) payments to which some
other limiting condition attaches. Parenthetical rating denotes probable credit
stature upon completion of construction or elimination of basis of condition.
Those municipal bonds in the Aa, A, and Baa groups that Moody's believes
possess the strongest investment attributes are designated by the symbols Aa 1,
A 1, and Baa 1.
FITCH CORPORATE AND MUNICIPAL RATINGS
A. MUNICIPAL NOTES
Fitch's short-term ratings apply to debt obligations that are payable on
demand or have original maturities of generally three years or less. These
include commercial paper, certificates of deposit, medium-term notes, and
municipal and investment notes. The short-term rating places greater emphasis on
the existence of liquidity necessary to meet the issuer's obligations in a
timely manner.
The note ratings are as follows:
1. F-1+ Exceptionally Strong Credit Quality. Issues assigned this rating are
regarded as having the strongest degree of assurance for timely payment.
2. F-1 Very Strong Credit Quality. Issues assigned this rating reflect an
assurance of timely payment only slightly less in degree than issues rated F-1+.
3. F-2 Good Credit Quality. Issues assigned this rating have a satisfactory
degree of assurance for timely payment, but the margin of safety is not as
great as for issues assigned the two higher ratings.
4. F-3 Fair Credit Quality. Issues assigned this rating have characteristics
suggesting that the degree of assurance for timely payment is adequate, however,
near-term adverse changes could cause these securities to be rated below
investment grade.
B. CORPORATE AND MUNICIPAL BOND RATINGS
AAA -- Bonds considered to be investment grade and of the highest credit
quality. The obligor has an exceptionally strong ability to pay interest and
repay principal, which is unlikely to be affected by reasonably foreseeable
events.
AA -- Bonds considered to be investment grade and of very high credit quality.
The obligor's ability to pay interest and repay principal is very strong,
although not quite as strong as bonds rated AAA.
A -- Bonds considered to be investment grade and of high credit quality. The
obligor's ability to pay interest and repay principal is considered to be
strong, but may be more vulnerable to adverse changes in economic conditions and
circumstances than bonds with higher ratings.
BBB -- Bonds considered to be investment grade and of satisfactory credit
quality. The obligor's ability to pay interest and repay principal is considered
to be adequate. Adverse changes in economic conditions and circumstances,
however, are more likely to have adverse impact on these bonds, and therefore
impair timely payment. The likelihood that the ratings of these bonds will fall
below investment grade is higher than for bonds with higher ratings.
PLUS (+) OR MINUS (-) signs are used with a rating symbol to indicate the
relative position of a credit within the rating category. Plus and minus signs,
however, are not used in the AAA category.
A CONDITIONAL rating is premised on the successful completion of a project or
the occurrence of a specific event.
Debt rated BB, B, CCC, CC and C by S&P is regarded, on balance, as
predominantly speculative with respect to capacity to pay interest and repay
principal in accordance with the terms of the obligation. BB indicates the
lowest degree of speculation and C the highest degree of speculation. While such
debt will likely have some quality and protective characteristics, these are
outweighed by large uncertainties or major risk exposures to adverse conditions.
Debt rated C1 by S&P is debt (income bonds) on which no interest is being paid.
Debt rated D by S&P is in default and payment of interest and/ or repayment of
principal is in arrears. Bonds that are rated CAA by Moody's are of poor
standing. Such issues may be in default or there may be present elements of
danger with respect to principal or interest. Bonds that are rated CA by Moody's
represent obligations that are speculative in a high degree. Such issues are
often in default or have other market shortcomings. Bonds that are rated C by
Moody's are the lowest rated bonds, and issues so rated can be regarded as
having extremely poor prospects of ever attaining any real investment standing.
Debt rated BB, B, CCC, CC, and C by Fitch is regarded as speculative with
respect to capacity to pay interest and repay principal in accordance with the
terms of the obligation. BB indicates the lowest degree of speculation and C
represents the highest degree of speculation. Debt rated DDD, DD, and D are in
default on interest and/or principal payments.
DESCRIPTIONS OF CERTAIN TYPES OF INVESTMENTS AND INVESTMENT TECHNIQUES
AVAILABLE TO THE FUNDS
A Fund may engage in the following investment practices to the extent
described in the prospectus and the statement of additional information.
OBLIGATIONS OF FOREIGN BRANCHES OF UNITED STATES BANKS
The obligations of foreign branches of U.S. banks may be general obligations
of the parent bank in addition to the issuing branch, or may be limited by the
terms of a specific obligation and by government regulation. Payment of interest
and principal upon these obligations may also be affected by governmental action
in the country of domicile of the branch (generally referred to as sovereign
risk). In addition, evidences of ownership of such securities may be held
outside the U.S. and a Fund may be subject to the risks associated with the
holding of such property overseas. Examples of governmental actions would be the
imposition of currency controls, interest limitations, withholding taxes,
seizure of assets or the declaration of a moratorium. Various provisions of
federal law governing domestic branches do not apply to foreign branches of
domestic banks.
OBLIGATIONS OF UNITED STATES BRANCHES OF
FOREIGN BANKS
Obligations of U.S. branches of foreign banks may be general obligations of
the parent bank in addition to the issuing branch, or may be limited by the
terms of a specific obligation and by federal and state regulation as well as by
governmental action in the country in which the foreign bank has its head
office. In addition, there may be less publicly available information about a
U.S. branch of a foreign bank than about a domestic bank.
MASTER DEMAND NOTES
Master demand notes are unsecured obligations that permit the investment of
fluctuating amounts by a Fund at varying rates of interest pursuant to direct
arrangements between the Fund, as lender, and the issuer as borrower. Master
demand notes may permit daily fluctuations in the interest rate and daily
changes in the amounts borrowed. A Fund has the right to increase the amount
under the note at any time up to the full amount provided by the note agreement,
or to decrease the amount. The borrower may repay up to the full amount of the
note without penalty. Notes acquired by a Fund permit a Fund to demand payment
of principal and accrued interest at any time (on not more than seven days'
notice). Notes acquired by a Fund may have maturities of more than one year,
provided that (1) the Fund is entitled to payment of principal and accrued
interest upon not more than seven days notice, and (2) the rate of interest on
such notes is adjusted automatically at periodic intervals which normally will
not exceed 31 days, but may extend up to one year. The notes will be deemed to
have a maturity equal to the longer of the period remaining to the next interest
rate adjustment or the demand notice period. Because these types of notes are
direct lending arrangements between the lender and borrower, such instruments
are not normally traded and there is no secondary market for these notes,
although they are redeemable and thus repayable by the borrower at face value
plus accrued interest at any time. Accordingly, a Fund's right to redeem is
dependent on the ability of the borrower to pay principal and interest on
demand. In connection with master demand note arrangements, Keystone considers,
under standards established by the Board of Trustees, earning power, cash flow
and other liquidity ratios of the borrower and will monitor the ability of the
borrower to pay principal and interest on demand. These notes are not typically
rated by credit rating agencies. Unless rated, a Fund may invest in them only if
at the time of an investment the issuer meets the criteria established for
commercial paper discussed in the statement of additional information.
REPURCHASE AGREEMENTS
The Fund may enter into repurchase agreements; i.e., the Fund purchases a
security subject to the Fund's obligation to resell and the seller's obligation
to repurchase that security at an agreed upon price and date, such date usually
being not more than seven days from the date of purchase. The resale price is
based on the purchase price plus an agreed upon market rate of interest that is
unrelated to the coupon rate or maturity of the purchased security. A repurchase
agreement imposes an obligation on the seller to pay the agreed upon price,
which obligation is in effect secured by the value of the underlying security.
The value of the underlying security is at least equal to the amount of the
agreed upon resale price and marked to market daily. The Fund may enter into
such agreements only with respect to U.S. government and foreign government
securities, which may be denominated in U.S. or foreign currencies. The Fund may
enter into such repurchase agreements with foreign banks and securities dealers
approved in advance by the Fund's Trustees. Whether a repurchase agreement is
the purchase and sale of a security or a collateralized loan has not been
definitively established. This might become an issue in the event of the
bankruptcy of the other party to the transaction. It does not presently appear
possible to eliminate all risks involved in repurchase agreements. These risks
include the possibility of a decline in the market value of the underlying
securities, as well as delay and costs to the Fund in connection with bankruptcy
proceedings. Therefore, it is the policy of the Fund to enter into repurchase
agreements only with large, well-capitalized banks that are members of the
Federal Reserve System and with primary dealers in U.S. government securities
(as designated by the Federal Reserve Board) whose creditworthiness has been
reviewed and found satisfactory by the Fund. The Securities and Exchange
Commission deems a repurchase agreement to be, in effect, a loan by the Fund.
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.
Reverse repurchase agreements involve the risk that the market value of the
securities that the Fund is obligated to repurchase may decline below the
repurchase price. If not fully secured or collateralized, reverse repurchase
agreements would magnify the potential for gain or loss on the portfolio
securities of the Fund and, therefore, increase the possibility of fluctuation
in the Fund's net asset value. Such practices may constitute leveraging. The
Fund intends to only invest in fully secured or collateralized reverse
repurchase agreements.
"WHEN ISSUED" SECURITIES
Each 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 a Fund with payment
and delivery taking place in the future in order to secure what is considered to
be an advantageous price and yield to the Fund at the time of entering into the
transaction. When a 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 a 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 a 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. A Fund does not accrue any income on such
securities or currencies prior to their delivery. To the extent each Fund
engages in when issued and delayed delivery transactions, it will do so
consistent with its investment objective and policies and not for the purpose of
investment leverage.
LOANS OF SECURITIES TO BROKER-DEALERS
Each 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 a 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. A 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 a Fund if, in the opinion of the Fund, a material event affecting the
investment is to occur. There may be risks of delay in receiving additional
collateral or in recovering the securities loaned or even loss of rights in the
collateral should the borrower of the securities fail financially. Loans may
only be made to borrowers deemed to be of good standing, under standards
approved by the Board of Trustees, when the income to be earned from the loan
justifies the attendant risks.
DERIVATIVES
Each Fund may use derivatives in furtherance of its investment objective.
Derivatives are financial contracts whose value depends on, or is derived from,
the value of an underlying asset, reference rate or index. These assets, rates,
and indices may include bonds, stocks, mortgages, commodities, interest rates,
currency exchange rates, bond indices and stock indices. Derivatives can be used
to earn income or protect against risk, or both. For example, one party with
unwanted risk may agree to pass that risk to another party who is willing to
accept the risk, the second party being motivated, for example, by the desire
either to earn income in the form of a fee or premium from the first party, or
to reduce its own unwanted risk by attempting to pass all or part of that risk
to the first party.
Derivatives can be used by investors such as the Funds 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. Each Fund is permitted to use derivatives for
one or more of these purposes. Each of these uses entails greater risk than if
derivatives were used solely for hedging purposes. The Funds use futures
contracts and related options for hedging purposes. Derivatives are a valuable
tool which, when used properly, can provide significant benefit to a Fund's
shareholders. Keystone is not an aggressive user of derivatives with respect to
the Funds. However, a 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 a Fund's investment objectives and policies.
Derivatives may be (1) standardized, exchange-traded contracts or (2)
customized, privately negotiated contracts. Exchange-traded derivatives tend to
be more liquid and subject to less credit risk than those that are privately
negotiated.
There are four principal types of derivative instruments -- options, futures,
forwards and swaps -- from which virtually any type of derivative transaction
can be created. Further information regarding options and futures, is provided
later in this section and is provided in the FUND's statement of additional
information.
Debt instruments that incorporate one or more of these building blocks for the
purpose of determining the principal amount of and/or rate of interest payable
on the debt instruments are often referred to as "structured securities." An
example of this type of structured security is indexed commercial paper. The
term is also used to describe certain securities issued in connection with the
restructuring of certain foreign obligations. See "Structured Securities" below.
The term "derivative" is also sometimes used to describe securities involving
rights to a portion of the cash flows from an underlying pool of mortgages or
other assets from which payments are passed through to the owner of, or that
collateralize, the securities.
While the judicious use of derivatives by experienced investment managers such
as Keystone can be beneficial, derivatives also involve risks different from,
and, in certain cases, greater than, the risks presented by more traditional
investments. Following is a general discussion of important risk factors and
issues concerning the use of derivatives that investors should understand before
investing in a 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 a 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 a 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 a 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, a 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, a 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, a 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).
Each Fund may only write "covered" options. This means that so long as a Fund
is obligated as the writer of a call option, it will own the underlying
securities subject to the option or, in the case of call options on U.S.
Treasury bills, the Fund might own substantially similar U.S. Treasury bills. If
a Fund has written options against all of its securities which are available for
writing options, the Fund may be unable to write additional options unless it
sells a portion of its portfolio holdings to obtain new securities against which
it can write options. If this were to occur, higher portfolio turnover and
correspondingly greater brokerage commissions and other transaction costs may
result. However, the Funds do not expect that this will occur.
Each 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. A 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, a 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 Each Fund may purchase put or call options, including
purchasing put or call options for the purpose of offsetting previously written
put or call options of the same series.
If a Fund is unable to effect a closing purchase transaction with respect to
covered options it has written, the Fund will not be able to sell the underlying
security or dispose of assets held in a segregated account until the options
expire or are exercised.
An option position may be closed out only in a secondary market for an option
of the same series. Although a 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 a Fund's ability to
use such options to achieve its investment objective.
OPTIONS TRADING MARKETS Options in which each Fund will trade generally are
listed on national securities exchanges. Exchanges on which such options
currently are traded include the Chicago Board Options Exchange and the New
York, American, Pacific and Philadelphia Stock Exchanges. Options on some
securities may not be listed on any Exchange, but traded in the over-the-counter
market. Options traded in the over-the-counter market involve the additional
risk that securities dealers participating in such transactions could fail to
meet their obligations to a 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, each Fund is subject to the investment restrictions described
in this prospectus and in the statement of additional information.
The staff of the SEC is of the view that the premiums that a Fund pays for the
purchase of unlisted options, and the value of securities used to cover unlisted
options written by a Fund, are considered to be invested in illiquid securities
or assets for the purpose of calculating whether the Fund is in compliance with
its investment restriction relating to illiquid investments.
FUTURES TRANSACTIONS
Each Fund may enter into currency and other financial futures contracts and
write options on such contracts. Each Fund intends to enter into such contracts
and related options for hedging purposes. Each Fund will enter into futures on
securities or currencies or index-based futures contracts in order to hedge
against changes in interest or exchange rates or securities prices. A futures
contract on securities or currencies is an agreement to buy or sell securities
or currencies at a specified price during a designated month. A futures contract
on a securities index does not involve the actual delivery of securities, but
merely requires the payment of a cash settlement based on changes in the
securities index. A 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.
Each Fund may sell or purchase futures contracts. When a futures contract is
sold by a 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, each 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 a 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. Each Fund intends to purchase futures contracts in order to establish
what is believed by Keystone to be a favorable price and rate of return for
securities or favorable exchange rate for currencies the Fund intends to
purchase.
Each Fund also intends to purchase put and call options on futures contracts
for hedging purposes. A put option purchased by a Fund would give it the right
to assume a position as the seller of a futures contract. A call option
purchased by a 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 a Fund to pay a premium. In exchange for the premium, a 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, a Fund's loss will be limited to the
amount of the premium and any transaction costs.
Each 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. A 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 a Fund will be able to enter into an offsetting transaction with
respect to a particular contract at a particular time. If a 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 a 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 a Fund's futures position did not
correspond to changes in the value of its investments. This lack of correlation
between a 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 a Fund's futures
position and the securities or currencies held by or to be purchased for a Fund.
Keystone will attempt to minimize these risks through careful selection and
monitoring of the Fund's futures and options positions.
The Funds do not intend to use futures transactions for speculation or
leverage. Each Fund has the ability to write options on futures, but currently
intends to write such options only to close out options purchased by a Fund. The
Funds will not change these policies without supplementing the information in
the FUND's prospectus and statement of additional information.
FOREIGN CURRENCY TRANSACTIONS
As discussed above, if permitted by its investment policies, each Fund may
invest in securities of foreign issuers. When a Fund invests in foreign
securities they usually will be denominated in foreign currencies, and the Fund
temporarily may hold funds in foreign currencies. Thus, the value of Fund shares
will be affected by changes in exchange rates.
As one way of managing exchange rate risk, in addition to entering into
currency futures contracts, a 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 a Fund will
deliver or receive when the contract is completed) is fixed when a Fund enters
into the contract. A Fund usually will enter into these contracts to stabilize
the U.S. dollar value of a security it has agreed to buy or sell. Each Fund
intends to use these contracts to hedge the U.S. dollar value of a security it
already owns, particularly if a Fund expects a decrease in the value of the
currency in which the foreign security is denominated. Although a 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 a
Fund's investments denominated in foreign currencies will depend on the relative
strength of those currencies and the U.S. dollar, and a Fund may be affected
favorably or unfavorably by changes in the exchange rates or exchange control
regulations between foreign currencies and the dollar. Changes in foreign
currency exchange rates also may affect the value of dividends and interest
earned, gains and losses realized on the sale of securities and net investment
income and gains, if any, to be distributed to shareholders by a Fund. Each Fund
may also purchase and sell options related to foreign currencies in connection
with hedging strategies.
VARIABLE AND FLOATING RATE INSTRUMENTS Fixed-income securities may have fixed,
variable or floating rates of interest. Variable and floating rate securities
pay interest at rates that are adjusted periodically, according to a specified
formula. A "variable" interest rate adjusts at predetermined intervals (e.g.,
daily, weekly or monthly), while a "floating" interest rate adjusts whenever a
specified benchmark rate (such as the bank prime lending rate) changes.
If permitted by its investment policies, a Fund may invest in fixed-income
securities that pay interest at a coupon rate equal to a base rate, plus
additional interest for a certain period of time if short-term interest rates
rise above a predetermined level or "cap." The amount of such an additional
interest payment typically is calculated under a formula based on a short-term
interest rate index multiplied by a designated factor.
INVERSE FLOATING RATE SECURITIES If permitted by its investment policies, a
Fund may also invest in securities with rates that move inversely to market
rates ("inverse floaters"). An inverse floater bears an interest rate that
resets in the opposite direction of the change in a specified interest rate
index. As market interest rates rise, the interest rate on the inverse floater
goes down, and vice versa. Inverse floaters tend to exhibit greater price
volatility than fixed-rate bonds of similar maturity and credit quality. The
interest rates on inverse floaters may be significantly reduced, even to zero,
if interest rates rise. Moreover, the secondary market for inverse floaters may
be limited in rising interest rate environments.
An inverse floater may be considered to be leveraged to the extent that its
interest rate varies by a magnitude that exceeds the magnitude of the change in
the index rate of interest. The higher degree of leverage inherent in inverse
floaters is associated with greater volatility in market value.
STRUCTURED SECURITIES Structured securities generally represent interests in
entities organized and operated solely for the purpose of restructuring the
investment characteristics of debt obligations. This type of restructuring
involves the deposit with or purchase by an entity, such as a corporation or
trust, of specified instruments (such as commercial bank loans) and the issuance
by that entity of one or more classes of structured securities backed by, or
representing interests in, the underlying instruments. The cash flow on the
underlying instruments may be apportioned among the newly issued structured
securities to create securities with different investment characteristics such
as varying maturities, payment priorities and interest rate provisions, and the
extent of the payments made with respect to structured securities is dependent
on the extent of the cash flow on the underlying instruments. Because structured
securities typically involve no credit enhancement, their credit risk generally
will be equivalent to that of the underlying instruments. Structured securities
of a given class may be either subordinated or unsubordinated to the right of
payment of another class. Subordinated structured securities typically have
higher yields and present greater risks than unsubordinated structured
securities.
<PAGE>
EXHIBIT A
KEYSTONE FLORIDA TAX FREE FUND
DESCRIPTION OF STATE AND LOCAL TAX TREATMENT
Florida does not presently impose an income tax on individuals and thus
individual shareholders of the Florida Fund will not be subject to any Florida
state income tax on distributions received from the Florida Fund. Shares of the
Florida Fund may, however, be subject to Florida intangible personal property
tax imposed on certain property held on January 1 of each year. Corporate
shareholders, depending on the domicile of the corporation, may be subject to
Florida corporate income taxes depending on the portion of the Florida Fund's
income that is allocable to Florida under applicable Florida law.
According to a technical assistance advisement from the State of Florida,
Department of Revenue, shares of the Florida Fund owned by a Florida resident
will be exempt from the intangible personal property tax so long as its
portfolio assets consist 100% of securities that are exempt from the intangible
personal property tax, including Florida municipal bonds and/or municipal bonds
issued by the U.S. Government or the governments of Puerto Rico or Guam. The
technical assistance advisement will not be binding on the Department of Revenue
for any shareholder of the Fund; however, such advisements are considered
helpful in understanding the Department's position on any particular tax issue.
SPECIAL FACTORS AFFECTING THE FLORIDA FUND
Under current law, the State of Florida is required to maintain a balanced
budget so that current expenses are met from current revenues. Florida does not
currently impose a tax on personal income. It does impose a tax on corporate
income derived from activities within the State. In addition, Florida imposes an
ad valorem tax on certain intangible property (see above) as well as sales and
use taxes. These taxes are the principal source of funds to meet State expenses,
including repayment of, and interest on, obligations backed solely by the full
faith and credit of the State.
Florida's Constitution permits the issuance of state or municipal obligations
pledging the full faith and credit of the State, with a concurring vote by the
respective electors, to finance or refinance capital projects authorized by the
Legislature. The State Constitution also provides that the Legislature shall
appropriate monies sufficient to pay debt service on state bonds pledging the
full faith and credit of the State as they become due. All State tax revenues,
other than trust funds dedicated by the State Constitution for other purposes,
are available for such an appropriation, if required.
On the other hand, municipalities and other political subdivisions of the
State principally rely on a combination of ad valorem taxes on real property,
user fees and occupational license fees to meet their day-to-day expenses
including the repayment of principal of, and interest on, their obligations
backed by their full faith and credit. (Revenue bonds, of course, are dependent
on the revenue generated by a specific facility or enterprise.)
Florida has experienced substantial population increases as a result of
migration to Florida from other areas of the U.S. and from foreign countries.
This population growth is expected to continue, and it is anticipated that
corresponding increases in State revenues will be necessary during the next
decade to meet increased burdens on the various public and social services
provided by the State.
Florida's ability to meet increasing expenses will be dependent in part upon
the State's continued ability to foster business and economic growth. Florida
has experienced significant increases in the technology-based and other light
industries and in the service sector. This growth has diversified the State's
overall economy, which at one time was dominated by the citrus and tourism
industries. The State's economic and business growth could be restricted,
however, by the natural limitations on Florida's water supplies.
<PAGE>
KEYSTONE MASSACHUSETTS TAX FREE FUND
DESCRIPTION OF STATE AND LOCAL TAX TREATMENT
Under Massachusetts law, individual shareholders of the Massachusetts Fund who
are subject to Massachusetts personal income tax will not be subject to
Massachusetts personal income tax on dividends paid by the Massachusetts Fund to
the extent such dividends are exempt from federal income tax and are derived
from interest payments on Massachusetts municipal securities. Long term capital
gains distributions are taxable as long term capital gains, except that such
distributions derived from the sale of certain Massachusetts obligations are
exempt from Massachusetts personal income tax. These obligations, which are few
in number, are those issued pursuant to legislation that specifically exempts
gain on their sale from Massachusetts income taxation. Dividends and other
distributions are not exempt from Massachusetts corporate excise tax.
SPECIAL FACTORS AFFECTING THE MASSACHUSETTS FUND
Because it invests primarily in Massachusetts municipal securities, the fund
may be effected by any political, economic, regulatory, legal or other
developments that constrain the taxing, spending, and revenue collection
authority of issuers of Massachusetts municipal securities or otherwise affect
the ability of such issuers to pay interest or repay principal or any premium.
Several statutes limit the taxing authority of certain Massachusetts
governmental entities and may impair the ability of some issuers of
Massachusetts municipal securities to maintain debt service on their
obligations. Any significant imbalance in revenues and expenditures is likely to
affect the bond ratings and credit standing of the public authorities and
municipalities within Massachusetts, as well as of the Commonwealth itself.
The Commonwealth of Massachusetts and certain of its cities and towns and
public bodies have experienced in the past, and may experience in the future,
financial difficulties that may adversely affect their credit standing. The
prolonged effects of such financial difficulties could adversely affect the
market value of the municipal securities held by the Massachusetts Fund. The
information summarized below describes some of the more significant factors that
could effect the Massachusetts Fund or the ability of the obligors to pay debt
service on certain of the securities. The sources of such information are the
official statements of issuers located in the Commonwealth of Massachusetts as
well as other publicly available documents, and statements of public officials.
The Massachusetts Fund has not independently verified any of the information
contained in such statements and documents but the Massachusetts Fund is not
aware of facts which would render such information inaccurate.
The Massachusetts economy has shifted from labor intensive manufacturing to
services, especially in the medical and biotechnology areas. Although The
Commonwealth experienced an economic slowdown during the recent recession,
especially in high technology, real estate, banking, and defense, there are
signs of improvement. While roughly 9.5% of the employment base was lost between
1989 and 1991, employment rose 0.4% between November 1992 and November 1993.
Although job losses continued in high tech manufacturing and finance during 1992
and 1993, strong gains were registered in services, construction and high tech
non-manufacturing. The December 1993 unemployment rate was 6.3% compared to 6.4%
for the nation. In addition, per capita personal income averaged 118% of the
national average in 1992.
Although The Commonwealth experienced quite a slowdown during the recession
with spending exceeding revenues, beginning in 1991 the Commonwealth has
experienced a turn-around in its finances with revenues exceeding spending.
Budgeted expenditures for fiscal 1989, 1990 and 1991 were approximately $12.643
billion, $13.260 billion and $13.659 billion, respectively while budgeted
revenues and other sources for those years were approximately $11.970 billion,
$12.008 billion and $13.634 billion, respectively. By comparison, budgeted
revenues and other sources increased by approximately 0.7% from fiscal 1991 to
fiscal 1992, while tax revenues increased by 5.4% for the same period. Budgeted
expenditures in fiscal 1992 were 1.7% lower than fiscal 1991 budgeted
expenditures. Furthermore, total revenues and other sources for fiscal 1993
increased approximately 6.9% from fiscal 1992, while tax revenues increased by
4.7% for the same period. Budgeted expenditures and other uses in fiscal 1993
were approximately 9.6% higher than fiscal 1992 expenditures and other uses.
Fiscal 1993 ended with positive fund balances of $562.5 million, including a
combined balance of $452.1 million in the stabilization and undesignated general
funds. By comparison, The Commonwealth ended the 1989 fiscal year with fund
balances in deficit by $319.3 million.
In June 1993, new comprehensive education reform legislation was enacted. It
is expected that this legislation will require annual increases in expenditures
for education purposes above fiscal 1993 base spending of $1.289 billion, of
approximately $175 million in fiscal 1994, $141 million in fiscal 1995 and $662
million in fiscal 1996. The fiscal 1994 budget includes $175 million in
appropriations to satisfy this legislation.
The fiscal 1994 budget provided for expenditures of approximately $15.52
billion, an increase of 5.6% over fiscal 1993 levels. Budgeted revenues and
other sources for fiscal 1994 were approximately $15.55 billion, which is 5.7%
higher than fiscal 1993 levels. This amount included estimated tax revenues of
approximately $10.61 billion, which is 6.8% higher than fiscal 1993 tax
revenues. 1994 tax revenues were approximately $87 million below the Department
of Revenue's estimate of $10.694 billion. Fiscal 1994 ended with a combined
balance of approximately $589 million in the budgeted operating funds.
Fiscal 1995 tax revenue collections were approximately $11.16 billion,
approximately $12 million above the Department of Revenue's revised fiscal year
1995 tax revenue estimate of $10.15 billion and $544 million, or 5.3%, above
fiscal 1994 tax revenues of $10.607 billion. Budgeted revenues and other
sources, including non-tax revenues, collected in fiscal 1995 were approximately
$16.39 billion, approximately $842 million or 5.4%, above the fiscal 1994
budgeted revenues of $15.55 billion. Budgeted expenditures and other uses of
funds in fiscal 1995 were approximately $16.26 billion, approximately $736
million or 4.7%, above fiscal 1994 budgeted expenditures and uses of $15.52
billion. As calculated by the controller in the preliminary financial report,
the amount of surplus funds (as so defined) for fiscal 1995 was approximately
$90.8 million, of which $55.9 million was available to be carried forward as a
beginning balance for fiscal 1996. Of the balance approximately $27.9 million
was deposited in the Stabilization Fund, and approximately $7 million was
deposited in the Cost Relief Fund.
The fiscal 1996 budget, as signed into law by the Governor on June 21, 1995,
provides for expenditures of approximately $16.998 billion, a $739 million, or
4.5%, increase over fiscal 1995 spending. The largest single spending increase
in the fiscal 1996 budget is approximately $232 million to continue funding the
comprehensive educational reform legislation enacted in 1993. Budgeted revenues
and other sources to be collected in fiscal 1996 are estimated to be
approximately $16.778 billion. This amount includes estimated fiscal 1996 tax
revenues of $11.653 billion, which was approximately $490 million, or 4.3%,
higher than fiscal 1995 tax revenues.
As of December 31, 1995, the Governor had signed into law fiscal 1996
supplemental appropriations totaling approximately $23.5 million, including
approximately $12.6 million to fund higher education collective bargaining
contracts and $5.6 million for the Department of Social Services. These
appropriations were offset by approximately $10.4 million in line item
reductions, including a reduction of $9.8 million for the State's debt service
contract assistance to the MBTA. Based on preliminary figures, through December
1995, fiscal 1996 tax revenue collections have totaled approximately $5.378
billion, approximately $239 million, or 4.7%, greater than tax revenue
collections for the same period in fiscal 1995. Tax revenue collections to date
are within the benchmark range set by the Department of Revenue and are $20.7
million, or 0.4%, below the mid-point of such benchmark range.
The Governor's plan to provide permanent passenger vehicle registration and
lifetime operating licenses, if it continues in effect, is estimated to reduce
state revenues by approximately $90 million annually, though the fiscal 1996
cost is expected to be minimal.
In connection with a proposal to reorganize state government, the Governor
also announced on November 1, 1995, that he would propose to reduce the personal
income tax rate on earned income from 5.95% to 5.45%. The cost to the
Commonwealth of the proposed tax reduction has been estimated to be
approximately $500 million per year.
On November 28, 1995 the Governor approved a modified version of the
legislation he had filed in September to establish a "single sales factor"
apportionment formula for the business corporation's tax. As finally enacted,
the legislation applies the new formula, effective January 1, 1996, to certain
federal defense contractors and phases the new formula in over five years to
manufacturing firms generally. The Department of Revenue estimates that the new
law will reduce revenues by $44 million in fiscal 1996 and by $90 million in
fiscal 1997. If the new formula were fully effective for all covered businesses,
the Department estimates that the annual revenue reduction would be $100 million
to $150 million.
In November 1980, voters in The Commonwealth approved a state-wide limitation
initiative petition, commonly known as Proposition 2 1/2, to constrain the
levels of property taxation and to limit the charges and fees imposed on cities
and towns by certain governmental entities. Many communities have responded to
the limitations of Proposition 2 1/2 through statutorily permitted overrides and
exclusions. Override activity peaked in fiscal 1991 when 100 of 182 communities
had successful votes, adding $58.5 million to their levy limits. During fiscal
years 1992 and 1993, 123 communities had successful votes totalling $47.4
million. Although Proposition 2 1/2 will continue to constrain local property
tax revenues, significant capacity exists for overrides in nearly all cities and
towns.
An expanded discussion is contained in the statement of additional
information.
<PAGE>
KEYSTONE NEW YORK INSURED TAX FREE FUND
DESCRIPTION OF STATE AND LOCAL TAX TREATMENT
Individual shareholders of the New York Insured Fund who are subject to New
York State and New York City personal income tax will not be subject to New York
State or City personal income tax on dividends paid by the New York Insured Fund
to the extent that they are derived from interest on obligations of the State of
New York and its political subdivisions that is exempt from federal income tax.
In addition, dividends derived from interest on debt obligations issued by
certain other governmental entities (for example, U.S.
territories) will be similarly exempt.
For New York State and City personal income tax purposes, long term capital
gain distributions are taxable as long term capital gains regardless of the
length of time shareholders have owned their shares. Short term capital gains
and any other taxable distribution of income are taxable as ordinary income.
To the extent that investors are obligated to pay state or local taxes outside
of the State of New York, dividends earned by an investment in the New York
Insured Fund may represent taxable income. Distributions from investment income
and capital gains, including exempt-interest dividends, may be subject to New
York State franchise taxes and to the New York City General Corporation Tax, if
received by a corporation subject to those taxes, to state taxes in states other
than New York and to local taxes in cities other than New York City.
SPECIAL FACTORS AFFECTING THE NEW YORK INSURED FUND
As described in the prospectus, the New York Insured Fund will generally
invest in New York municipal obligations. The New York Insured Fund is therefore
susceptible to political, economical, or regulatory factors affecting New York
State and governmental bodies within New York State. Some of the more
significant events and conditions relating to the financial situation in New
York are summarized below. The following information provides only a brief
summary of the complex factors affecting the financial situation in New York, is
derived from sources that are generally available to investors and is believed
to be accurate. It is based on information drawn from official statements and
prospectuses issued by, and other information reported by, the State of New York
by its various public bodies, and by other entities located within the State,
including the City of New York, in connection with the issuance of their
respective securities.
New York State historically has been one of the wealthiest states in the
nation. For decades, however, the State has grown more slowly than the nation as
a whole, gradually eroding its relative economic position. Statewide, urban
centers have experienced significant changes involving migration of the more
affluent to the suburbs and an influx of generally less affluent residents.
Regionally, the older Northeast cities have suffered because of the relative
success that the South and the West have had in attracting people and business.
The City has also had to face great competition as other major cities have
developed financial and business capabilities which make them less dependent on
the specialized services traditionally available almost exclusively in the City.
During the 1982-83 recession, overall economic activity in the State declined
less than that of the nation as a whole. However, in the calendar years 1984
through 1991, the State's rate of economic expansion was somewhat slower than
that of the nation. In the 1990-91 recession, the economy of the State, and that
of the rest of the Northeast, was more heavily damaged than that of the nation
as a whole and has been slower to recover. The total employment growth rate in
the State has been below the national average since 1984. The unemployment rate
in the State dipped below the national rate in the second half of 1981 and
remained lower until 1991; since then, it has been higher. According to data
published by the U.S. Bureau of Economic Analysis, during the past ten years,
total personal income in the State rose slightly faster than the national
average only from 1986 through 1988.
The State has the second highest combined state and local tax burden in the
United States. The burden of State and local taxation, in combination with the
many other causes of regional economic dislocation, may have contributed to the
decisions of some businesses and individuals to relocate outside, or not locate
within, the State.
In recent years, State actions affecting the level of receipts and
disbursements, as well as the relative strength of the State and regional
economy, actions of the Federal government and other factors, have created
structural budget gaps for the State. These gaps resulted from a significant
disparity between recurring revenues and the costs of maintaining or increasing
the level of support for State programs. The 1995-96 enacted budget combines
significant tax and program reductions which will, in the current and future
years, lower both the recurring receipts base (before the effect of any economic
stimulus from such tax reductions) and the historical annual growth in State
program spending. Notwithstanding these changes, the State can expect to
continue to confront structural deficits in future years.
The State's current fiscal year commenced on April 1, 1996, and ends on March
31, 1997, and is referred to herein as the State's 1996-97 Fiscal Year. As of
May 22, 1996, the State's budget for the 1996-97 Fiscal Year was not yet enacted
by the State Legislature.
The 1996-97 Financial Plan projects balance on a cash basis in the General
Fund. It reflects a continuing strategy of substantially reduced State spending,
including program restructurings, reductions in social welfare spending, and
efficiency and productivity initiatives. Total General Fund receipts and
transfers from other funds are projected to be $31.32 billion, a decrease of
$1.4 billion from total receipts projected in the current fiscal year. Total
General Fund disbursements and transfers to their funds are projected to be
$31.22 billion, a decrease of $1.5 billion from spending totals projected for
the current fiscal year. After adjustments and transfers for comparability
between the 1995-96 and 1996-97 State Financial Plans, the Executive Budget
proposes an absolute year-to-year decline in General Fund spending of 5.8
percent. Spending from all funding sources (including federal aid) is proposed
to increase by 0.4 percent from the prior fiscal year after adjustments and
transfers for comparability.
On May 15, 1996, it was announced that the State owed local governments
approximately $430 million for services provided to handicapped children in 1994
and earlier. Funds to cover such payments were not included in the 1996-97
Financial Plan.
The economic and financial condition of the State may be affected by various
financial, social, economic and political factors. Those factors can be very
complex, may vary from fiscal year to fiscal year, and are frequently the result
of actions taken not only by the State and its agencies and instrumentalities,
but also by entities, such as the Federal government, that are not under the
control of the State. For example, various proposals relating to Federal tax and
spending policies that are currently being publicly discussed and debated could,
if enacted, have a significant impact on the State's financial condition in the
current and future fiscal years. Because of the uncertainty and unpredictability
of the changes, their impact cannot, as a practical matter, be included in the
assumptions underlying the State's projections of this time.
The fiscal health of the State is closely related to the fiscal health of its
localities, particularly the City of New York, which has required and continues
to require significant financial assistance from the State.
The City depends on State Aid both to enable the City to balance its budget
and to meet its cash requirements. The City has achieved balanced operating
results for each of its fiscal years since 1981 as reported in accordance with
the then-applicable GAP Standards.
During the 1990 and 1991 fiscal years, the City experienced significant
shortfalls in almost all of its major tax sources and increases in social
service costs, and was required to take actions to close substantial budget gaps
in order to maintain balanced budgets n accordance with its financial plan.
New York State's authorities are generally responsible for financing,
constructing and operating revenue-producing public benefit facilities. The
fiscal stability of the State is related, in part, to the fiscal stability of
its public authorities. Public authorities are not subject to the constitutional
restrictions on the inccurrence of debt which applies to the State itself and
may issue bonds and notes within the amounts permitted by, and as otherwise
restricted by, their legislative authorization. The State's access to the public
credit markets could be impaired, and the market price of its outstanding debt
may be materially adversely affected, if any of its public authorities were to
default on their respective obligations, particularly those using the financing
techniques referred to as State-supported or State-related.
Certain localities in addition to New York City could have financial problems
leading to requests for additional State assistance during the State's 1995-1996
fiscal year and thereafter. The potential impact on the State of such requests
by localities is not included in the projections of the State receipts and
disbursements in the State's 1995-1996 fiscal year.
Certain litigation pending against the State of its officers or employees
could affect adversely the financial condition of the State in the 1995-1996
fiscal year or thereafter. Adverse developments in these proceedings or the
initiation of new proceedings could affect the ability of the State to maintain
a balanced 1995-1996 State Financial Plan. The State believes that the 1995-1996
State Financial Plan includes sufficient reserves for the payment of judgments
that may be required during the 1995-1996 fiscal year. There can be no
assurance, however, that an adverse decision in any of these proceedings would
not exceed the amount of the 1995-1996 State Financial Plan reserves for the
payment of judgments and, thereby, affect the ability of the State to maintain a
balanced 1995-1996 State Financial Plan.
An expanded discussion is contained in the statement of additional
information.
<PAGE>
KEYSTONE PENNSYLVANIA TAX FREE FUND
DESCRIPTION OF STATE AND LOCAL TAX TREATMENT
Individual shareholders of the Pennsylvania Fund who are subject to the
Pennsylvania personal income tax, as either residents or non-residents of the
Commonwealth of Pennsylvania, will not be subject to Pennsylvania personal
income tax on distributions of interest made by the Pennsylvania Fund that are
attributable to (1) obligations issued by the Commonwealth of Pennsylvania, any
public authority, commission, board or agency created by the Commonwealth of
Pennsylvania, any political subdivision of the Commonwealth of Pennsylvania or
any public authority created by any such political subdivision (collectively,
"Pennsylvania Obligations"); and (2) obligations of the United States and
certain qualifying agencies, instrumentalities, territories and possessions of
the United States, the interest from which are statutorily free from state
taxation in the Commonwealth of Pennsylvania under the laws of the Commonwealth
or the U.S. (collectively, "U.S. Obligations"). Distributions attributable to
most other sources will not be exempt from Pennsylvania personal income tax.
Distributions of gains attributable to Pennsylvania Obligations and U.S.
Obligations (collectively "Exempt Obligations") will be subject to the
Pennsylvania personal income tax.
Shares of the Pennsylvania Fund that are held by individual shareholders who
are Pennsylvania residents subject to the Pennsylvania county personal property
tax will be exempt from such tax to the extent that the Pennsylvania Fund's
portfolio consists of Exempt Obligations on the annual assessment date.
Nonresidents of the Commonwealth of Pennsylvania are not subject to the
Pennsylvania county personal property tax. Corporations are not subject to
Pennsylvania personal property taxes. For shareholders who are residents of the
City of Philadelphia, distributions of interest derived from Exempt Obligations
are not taxable for purposes of the Philadelphia School District investment
income tax provided that the Pennsylvania Fund reports to its investors the
percentage of Exempt Obligations held by it for the year. The Pennsylvania Fund
will report such percentage to its shareholders.
Distributions of interest, but not gains, realized on Exempt Obligations are
not subject to the Pennsylvania corporate net income tax. The Pennsylvania
Department of Revenue also takes the position that shares of funds similar to
the Pennsylvania Fund are not considered exempt assets of a corporation for the
purpose of determining its capital stock value subject to the Commonwealth's
capital stock and franchise taxes.
SPECIAL FACTORS AFFECTING THE PENNSYLVANIA FUND
Historically, Pennsylvania is among the leading states in manufacturing and
mining, and its steel and coal industries have been of national importance.
However, due in part to the decline in the steel and coal industries,
Pennsylvania's economy has become more diversified, with major new sources of
growth in the service and trade sectors. The Commonwealth's unemployment rate is
below the national average, and its per capita income is slightly above the
national average. The Commonwealth's General Fund, through which taxes are
received and debt service is made, had unappropriated balance surpluses for the
years ended June 30, 1994 and June 30, 1995.
The Pennsylvania Fund's yield and share price stability are tied in part to
conditions within the Commonwealth. Changes in economic conditions in or
governmental policies of the Commonwealth could have a significant impact on the
performance of Pennsylvania Obligations held by the Pennsylvania Fund. For
example, the Commonwealth's continued dependence on manufacturing, mining and
steel has made the Commonwealth vulnerable to cyclical industry fluctuations,
foreign imports and environmental concerns. Growth in the service and trade
sectors, however, has helped diversify the Commonwealth's economy and reduce its
unemployment rate below the national average. Changes in local economic
conditions or local governmental policies within the Commonwealth, which can
vary substantially by region, could also have a significant impact on the
performance of municipal obligations held by the Pennsylvania Fund. Also, the
Pennsylvania Fund will invest in obligations that are secured by obligors other
than the Commonwealth or its political subdivisions (such as hospitals,
universities, corporate obligors and corporate credit and liquidity providers)
and obligations limited to specific revenue pledges (such as sewer authority
bonds). The creditworthiness of these obligors may be wholly or partly
independent of the creditworthiness of the Commonwealth or its municipal
authorities. The Trustees of the Pennsylvania Fund have the power, however, to
eliminate unsafe investments.
An expanded discussion is contained in the statement of additional
information.
<PAGE>
EXHIBIT B
REDUCED SALES CHARGES
Initial sales charges may be reduced or eliminated for persons or
organizations purchasing Class A shares of a Fund alone or in combination with
Class A shares of other Keystone America Funds.
For purposes of qualifying for reduced sales charges on purchases made
pursuant to Rights of Accumulation or Letters of Intent, the term "Purchaser"
includes the following persons: an individual; an individual, his or her spouse
and children under the age of 21; a trustee or other fiduciary of a single trust
estate or single fiduciary account established for their benefit; an
organization exempt from federal income tax under Section 501 (c)(3) or (13) of
the 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 a Fund, the sales
charge would be that applicable to a $150,000 purchase, i.e., 3.75% of the
offering price, as indicated in the Sales Charge schedule in the prospectus.
RIGHT OF ACCUMULATION
In calculating the sales charge applicable to current purchases of a Fund's
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 presently consist of 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 doing so, 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 a Fund to sell, the amount
indicated.
After the Letter of Intent is received by KIRC, each investment made will be
entitled to the sales charge applicable to the level of investment indicated on
the application. The Letter of Intent may be back-dated up to ninety days so
that any investments made in any of the Eligible Funds during the preceding
ninety-day period, valued at the Purchaser's cost, can be applied toward
fulfillment of the Letter of Intent. However, there will be no refund of sales
charges already paid during the ninety-day period. No retroactive adjustment
will be made if purchases exceed the amount specified in the Letter of Intent.
Income and capital gains distributions taken in additional shares will not apply
toward completion of the Letter of Intent.
If total purchases made pursuant to the Letter of Intent are less than the
amount specified, the Purchaser will be required to remit an amount equal to the
difference between the sales charge paid and the sales charge applicable to
purchases actually made. Out of the initial purchase (or subsequent purchases,
if necessary), 5% of the dollar amount specified on the application will be held
in escrow by KIRC in the form of shares registered in the Purchaser's name. The
escrowed shares will not be available for redemption, transfer or encumbrance by
the Purchaser until the Letter of Intent is completed or the higher sales charge
paid. All income and capital gains distributions on escrowed shares will be paid
to the Purchaser or his order.
When the minimum investment specified in the Letter of Intent is completed
(either prior to or by the end of the thirteen-month period), the Purchaser will
be notified and the escrowed shares will be released. If the intended investment
is not completed, the Purchaser will be asked to remit to the Principal
Underwriter any difference between the sales charge on the amount specified and
on the amount actually attained. If the Purchaser does not within 20 days after
written request by the Principal Underwriter or his dealer pay such difference
in sales charge, KIRC will redeem an appropriate number of the escrowed shares
in order to realize such difference. Shares remaining after any such redemption
will be released by KIRC. Any redemptions made by the Purchaser during the
thirteen-month period will be subtracted from the amount of the purchases for
purposes of determining whether the Letter of Intent has been completed. In the
event of a total redemption of the account prior to completion of the Letter of
Intent, the additional sales charge due will be deducted from the proceeds of
the redemption and the balance will be forwarded to the Purchaser.
By signing the application, the Purchaser irre-
vocably 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
Fund for Total Return
Global Opportunities Fund
Hartwell Emerging Growth Fund, Inc.
Omega Fund
Fund of the Americas
Strategic Development Fund
Small Company Growth Fund II
- ------------------------------------
[Logo] KEYSTONE
INVESTMENTS
Keystone Investment Distributors Company
200 Berkeley Street
Boston, Massachusetts 02116-5034
FLATF-P 7/96 [Recycle Logo]
3.5M
--------------------------------------------
KEYSTONE
FLORIDA
TAX FREE FUND
--------------------------------------------
[Logo]
PROSPECTUS AND
APPLICATION
<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
Fund for Total Return
Global Opportunities Fund
Hartwell Emerging Growth Fund, Inc.
Omega Fund
Fund of the Americas
Strategic Development Fund
Small Company Growth Fund II
- ------------------------------------
[Logo] KEYSTONE
INVESTMENTS
Keystone Investment Distributors Company
200 Berkeley Street
Boston, Massachusetts 02116-5034
MATF-P 7/96 [Recycle Logo]
1.5M
--------------------------------------------
KEYSTONE
MASSACHUSETTS
TAX FREE FUND
--------------------------------------------
[Logo]
PROSPECTUS AND
APPLICATION
<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
Fund for Total Return
Global Opportunities Fund
Hartwell Emerging Growth Fund, Inc.
Omega Fund
Fund of the Americas
Strategic Development Fund
Small Company Growth Fund II
- ------------------------------------
[Logo] KEYSTONE
INVESTMENTS
Keystone Investment Distributors Company
200 Berkeley Street
Boston, Massachusetts 02116-5034
NYTF-P 7/96 [Recycle Logo]
2M
--------------------------------------------
KEYSTONE
NEW YORK INSURED
TAX FREE FUND
--------------------------------------------
[Logo]
PROSPECTUS AND
APPLICATION
<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
Fund for Total Return
Global Opportunities Fund
Hartwell Emerging Growth Fund, Inc.
Omega Fund
Fund of the Americas
Strategic Development Fund
Small Company Growth Fund II
- ------------------------------------
[Logo] KEYSTONE
INVESTMENTS
Keystone Investment Distributors Company
200 Berkeley Street
Boston, Massachusetts 02116-5034
PATF-P 7/96 [Recycle Logo]
3.5M
--------------------------------------------
KEYSTONE
PENNSYLVANIA
TAX FREE FUND
--------------------------------------------
[Logo]
PROSPECTUS AND
APPLICATION
<PAGE>
KEYSTONE STATE TAX FREE FUND
PART B
STATEMENT OF ADDITIONAL INFORMATION
<PAGE>
KEYSTONE STATE TAX FREE FUND
STATEMENT OF ADDITIONAL INFORMATION
JULY , 1996
This statement of additional information is not a prospectus, but
relates to, and should be read in conjunction with, the prospectus of Keystone
State Tax Free Fund (formerly Keystone America State Tax Free Fund) (the
"Trust") dated July , 1996. A copy of the prospectus may be obtained from
Keystone Investment Distributors Company (formerly Keystone Distributors, Inc.)
(the "Principal Underwriter"), the Trust's principal underwriter, 200 Berkeley
Street, Boston, Massachusetts 02116-5034, or your broker-dealer.
- --------------------------------------------------------------------------------
TABLE OF CONTENTS
- --------------------------------------------------------------------------------
Page
The Trust 2
Investment Policies 2
Investment Restrictions 7
Valuation and Redemption of Securities 11
Sales Charges 12
Distribution Plans 17
Investment Adviser 22
Trustees and Officers 25
Principal Underwriter 30
Brokerage 32
Declaration of Trust 35
Standardized Total Return and Yield Quotations 37
Additional Information 40
Appendix A A-1
Appendix B B-1
Financial Statements F-1
Independent Auditors' Report F-53
(Keystone Florida Tax Free Fund,
Keystone Pennsylvania Tax Free Fund,
Keystone Massachusetts Tax Free Fund, and
Keystone New York Insured Tax Free Fund)
<PAGE>
- --------------------------------------------------------------------------------
THE TRUST
- --------------------------------------------------------------------------------
The Trust is a non-diversified, open-end management investment company
commonly known as a mutual fund. The Trust was formed as a Massachusetts
business trust on September 13, 1990. The Trust is one of more than thirty funds
managed or advised by Keystone Investment Management Company (formerly named
Keystone Custodian Funds, Inc.) ("Keystone"), the Trust's investment adviser.
The Trust currently consists of the following four separate series evidencing
interests in different portfolios of securities: Keystone Florida Tax Free Fund,
Keystone Massachusetts Tax Free Fund, Keystone New York Insured Tax Free Fund
and Keystone Pennsylvania Tax Free Fund (each, a "Fund," and collectively, the
"Funds"). The Keystone Pennsylvania Tax Free Fund ("Pennsylvania Fund") and the
Keystone Florida Tax Free Fund ("Florida Fund") were established on September
19, 1990. The Keystone Massachusetts Tax Free Fund ("Massachusetts Fund") and
the Keystone New York Insured Tax Free Fund ("New York Insured Fund")were
established on February 21, 1992. The Massachusetts Fund and the New York
Insured Fund were not offered to the public prior to February 4, 1994.
The essential information about the Trust and its Funds is contained in
its prospectus. This statement of additional information provides additional
information about the Trust and its Funds that may be of interest to some
investors.
For special factors affecting each Fund, see Appendix A to this
statement of additional information.
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INVESTMENT POLICIES
- --------------------------------------------------------------------------------
Each Fund invests primarily in municipal obligations that are exempt
from federal income tax and are also exempt from certain specified taxes in the
state for which it is named. In addition, the Funds invest in certain other
securities as described below.
MUNICIPAL OBLIGATIONS
Municipal obligations include debt obligations issued by or on behalf
of a state, a territory or a possession of the United States ("U.S."), the
District of Columbia or any political subdivision, agency or instrumentality
thereof (for example, counties, cities, towns, villages, districts, authorities)
to obtain funds for various public purposes, including the construction of a
wide range of public facilities such as airports, bridges, highways, housing,
hospitals, mass transportation, schools, streets and water and sewer works.
Other public purposes for which municipal obligations may be issued include the
refunding of outstanding obligations, obtaining funds for general operating
expenses and obtaining funds to lend to public or private institutions for the
construction of facilities, such as educational, hospital and housing
facilities. In addition, certain types of industrial development bonds have been
or may be issued by or on behalf of public authorities to finance certain
privately-operated facilities, and certain local facilities for water supply,
gas, electricity or sewage or solid waste disposal. Such obligations are
included within the term municipal obligations if the interest paid thereon
qualifies as fully exempt from federal income tax. The income of certain types
of industrial development bonds used to finance certain privately-operated
facilities (qualified private activity bonds) issued after August 7, 1986, while
exempt from federal income tax, is includable for the purposes of the
calculation of the alternative minimum tax. Other types of industrial
development bonds, the proceeds from which are used for the construction,
equipment, repair or improvement of privately operated industrial or commercial
facilities, may constitute municipal obligations, although the current federal
tax laws place substantial limitations on the size of such issues.
The two principal classifications of municipal obligations are "general
obligation" and limited obligation or "revenue" bonds. General obligation bonds
are obligations involving the credit of an issuer possessing taxing power and
are payable from the issuer's general unrestricted revenues and not from any
particular fund or revenue source. Their payment may be dependent upon an
appropriation by the issuer's legislative body and may be subject to
quantitative limitations on the issuer's taxing power. The characteristics and
methods of enforcement of general obligation bonds vary according to the law
applicable to the particular issuer. Limited obligation or revenue bonds are
payable only from the revenues derived from a particular facility or class of
facilities or, in some cases, from the proceeds of a special excise or other
specific revenue source, such as the user of the facility. Industrial
development bonds that are municipal obligations are, in most cases, revenue
bonds and generally are not payable from the unrestricted revenues of the
issuer. The credit quality of industrial development revenue bonds is usually
directly related to the credit standing of the owner or user of the facilities.
There are, of course, variations in the security of municipal obligations, both
within a particular classification and between classifications, depending on
numerous factors.
The yields on municipal obligations are dependent on a variety of
factors, including general money market conditions, the financial condition of
the issuer, general conditions of the municipal obligations market, size of a
particular offering, and the maturity of the obligation and rating of the issue.
The ratings of Standard & Poor's Corporation ("S&P"), Moody's Investors Service
("Moody's") and Fitch Investor Services, Inc. - Municipal Division ("Fitch"), as
described herein and in the prospectus, represent their opinions as to the
quality of the municipal obligations that they undertake to rate. It should be
emphasized, however, that ratings are general and not absolute standards of
quality. Consequently, municipal obligations with the same maturity, interest
rate and rating may have different yields while municipal obligations of the
same maturity and interest rate with different ratings may have the same yield.
It should also be noted that the standards of disclosure applicable to and the
amount of information relating to the financial condition of issuers of
municipal obligations are not generally as extensive as those generally relating
to corporations.
Subsequent to its purchase by a Fund, an issue of municipal obligations
or other investments may cease to be rated or its rating may be reduced below
the minimum rating required for purchase by the Fund. Neither event requires the
elimination of such obligation from the Fund's portfolio, but Keystone will
consider such an event in its determination of whether the Fund should continue
to hold such obligation in its portfolio.
The ability of each Fund to achieve its investment objective is
dependent upon the continuing ability of issuers of municipal obligations to
meet their obligations to pay interest and principal when due. Obligations of
issuers of municipal obligations are subject to the provisions of bankruptcy,
insolvency and other laws affecting the rights and remedies of creditors, such
as the federal Bankruptcy Act, and laws, if any, that may be enacted by Congress
or state legislatures extending the time for payment of principal or interest,
or both, or imposing other constraints upon enforcement of such obligations.
There is also the possibility that as a result of litigation or other
conditions, the power or ability of any one or more issuers to pay, when due,
principal of and interest on its or their municipal obligations may be
materially affected. In addition, the market for municipal obligations is often
thin and can be temporarily affected by large purchases and sales, including
those by a Fund.
From time to time, proposals have been introduced before Congress for
the purpose of restricting or eliminating the federal income tax exemption for
interest on municipal obligations, and similar proposals may well be introduced
in the future. The enactment of such a proposal could materially affect the
availability of municipal obligations for investment by the Funds and the value
of the Funds' portfolios. In which event the Trust would reevaluate the
investment objectives and policies of its Funds and consider changes in the
structure of the Funds or dissolution.
The Tax Reform Act of 1986 made significant changes in the federal tax
status of certain obligations that were previously fully federally tax-exempt.
As a result, three categories of such obligations issued after August 7, 1986
now exist: (1) "public purpose" bonds, the income from which remains fully
exempt from federal income tax; (2) qualified "private activity" industrial
development bonds, the income from which, while exempt from federal income tax
under Section 103 of the Internal Revenue Code of 1986, as amended (the "Code")
is includable in the calculation of the federal alternative minimum tax; and (3)
"private activity" (private purpose) bonds, the income from which is not exempt
from federal income tax. A Fund will not invest in private purpose bonds and,
except as described under "Other Eligible Investments," will not invest in
qualified "private activity" industrial development bonds whose distributions
are subject to the alternative minimum tax.
OTHER ELIGIBLE INVESTMENTS
A Fund may invest up to 20% of its assets under ordinary circumstances,
and up to 100% of its assets for temporary defensive purposes in the following
types of instruments: (1) commercial paper, including master demand notes, that
at the date of investment is rated A-1 (the highest grade by S&P), Prime-1 (the
highest grade by Moody's) or, if not rated by such services, is issued by a
company that at the date of investment has an outstanding issue rated A or
better by S&P or Moody's; (2) obligations, including certificates of deposit and
bankers' acceptances, of banks, or savings and loan associations, that have at
least $1 billion in assets as of the date of their most recently published
financial statements that are members of the Federal Deposit Insurance
Corporation, including U.S. branches of foreign banks and foreign branches of
U.S. banks; (3) corporate obligations (maturing in 13 months or less) that at
the date of investment are rated A or better by S&P or Moody's; (4) obligations
issued or guaranteed by the U.S. government or by any agency or instrumentality
of the U.S.; (5) qualified "private activity" industrial development bonds the
income from which, while exempt from federal income tax under Section 103 of the
Code, is includable in the calculation of the federal alternative minimum tax;
and (6) municipal obligations, the income of which is exempt from federal income
tax, but not exempt from income tax in Pennsylvania, or which are not exempt
from personal property or intangibles tax in Florida or Pennsylvania, as the
case may be. Each Fund will assume a temporary defensive position when, for
example, Keystone determines that market conditions so warrant. If a Fund is
investing defensively, it is not pursuing its objective.
FUNDAMENTAL NATURE OF INVESTMENT OBJECTIVES
The investment objective of each Fund is fundamental and may not be
changed without approval of the holders of a majority of such 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).
- --------------------------------------------------------------------------------
INVESTMENT RESTRICTIONS
- --------------------------------------------------------------------------------
The investment restrictions as summarized below are fundamental for
each Fund and may not be changed without the vote of a majority of such Fund's
outstanding voting shares as defined in the Investment Company Act of 1940 (the
"1940 Act"). Unless otherwise stated, all references to the assets of a Fund are
in terms of current market value. Each Fund may not do the following:
(1) purchase any security of any issuer (other than issues of the U.S.
government, its agencies or instrumentalities) if as a result more than 25% of
its total assets would be invested in a single industry, including in industrial
development bonds from the same facility or similar types of facilities;
governmental issuers of municipal bonds are not regarded as members of an
industry and a Fund may invest more than 25% of its assets in industrial
development bonds;
(2) invest more than 10% of its assets in securities with legal or
contractual restrictions on resale or in securities for which market quotations
are not readily available, or in repurchase agreements maturing in more than
seven days;
(3) 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;
(4) borrow money or enter into reverse repurchase agreements, except
that a 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) 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;
(6) make loans, except that a Fund may purchase or hold debt securities
consistent with its investment objectives, lend portfolio securities valued at
not more than 15% of its total assets to broker-dealers and enter into
repurchase agreements;
(7) purchase securities of other investment companies, except as part
of a merger, consolidation, purchase of assets or similar transaction;
(8) 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; or
(9) underwrite securities of other issuers, except that the Fund may
purchase securities from the issuer or others and dispose of such securities in
a manner consistent with its investment objective.
The Funds are non-diversified under the federal securities laws. As
non-diversified Funds, there is no restriction under the 1940 Act on the
percentage of assets that may be invested at any time in the securities of any
one issuer. The Funds intend to comply, however, with the Code's diversification
requirements and other requirements applicable to "regulated investment
companies" so that they will not be subject to U.S. federal income tax on income
and capital gain distributions to shareholders. For this reason, each Fund has
adopted the additional investment restriction set forth below, which may not be
changed without the approval of shareholders. Specifically, a Fund may not
purchase a security if more than 25% of the Fund's total assets would be
invested in the securities of a single issuer (other than the U.S. government,
its agencies and instrumentalities); or, with respect to 50% of the Fund's total
assets, if more than 5% of such assets would be invested in the securities of a
single issuer (other than the U.S. government, its agencies and
instrumentalities).
To the extent the Funds are not fully diversified, they may be more
susceptible to adverse economic, political or regulatory developments affecting
a single issuer than would be the case if the Funds were more broadly
diversified.
As a matter of practice, each Fund treats reverse repurchase agreements
as borrowings for purposes of compliance with the limitations of the 1940 Act.
Reverse repurchase agreements will be taken into account along with borrowings
from banks for purposes of the 5% limit set forth in the fourth fundamental
investment restriction above.
Additional restrictions adopted for each Fund, which may be changed by
the Board of Trustees, provide that a Fund may not purchase or retain securities
of an issuer if, to the knowledge of the Trust, officers, Trustees or Directors
of the Trust 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 Trust or Keystone
have a substantial beneficial interest in the securities of such issuer.
Portfolio securities of a Fund may not be purchased from or sold or loaned to
Keystone or any affiliate thereof or any of their Directors, officers or
employees.
None of the Funds presently intend to invest more than 25% of its total
assets in municipal obligations the payment of which depends on revenues derived
from a single facility or similar types of facilities. Since certain municipal
obligations may be related in such a way that an economic, business or political
development or change affecting one such security could likewise affect the
other securities, a change in this policy could result in increased investment
risk, but no change is presently contemplated.
For the purposes of the first and ninth fundamental investment
restrictions set forth above, each Fund will treat (1) each state, territory and
possession of the U.S., the District of Columbia and, if its assets and revenues
are separate from those of the entity or entities creating it, each political
subdivision, agency and instrumentality of any one (or more, as in the case of a
multi state authority or agency) of the foregoing as an issuer of all securities
that are backed primarily by its assets or revenues; (2) each company as an
issuer of all securities that are backed primarily by its assets or revenues;
and (3) each of the foregoing entities as an issuer of all securities that it
guarantees; provided, however, that for the purpose of the first fundamental
investment restriction no entity shall be deemed to be an issuer of a security
that it guarantees so long as no more than 10% of a Fund's total assets (taken
at current value) are invested in securities guaranteed by the entity and
securities of which it is otherwise deemed to be an issuer.
The Trust has undertaken to a state securities authority that, so long
as the state authority requires that shares of a Fund are registered for sale in
that state, the Fund will (1) not invest in real estate limited partnerships;
and (2) not invest in oil, gas or other mineral leases.
Further, the Trust has undertaken to a state securities authority that,
so long as the state authority requires and shares of a Fund are registered for
sale in that state, all loans of portfolio securities will be made in accordance
with fair, just and equitable practice and the collateral values of portfolio
securities loaned will be maintained at no less than 100% by "marking to market"
daily.
In order to permit the sale of a Fund's shares in certain states, the
Trust may make commitments more restrictive than the investment restrictions
described above. Should the Trust determine that any such commitment is no
longer in the best interests of the affected Fund, it will revoke the commitment
by terminating sales of its shares in the state involved.
If a percentage limit is satisfied at the time of investment or
borrowing, a later increase or decrease resulting from a change in asset value
is not a violation of the limit.
- --------------------------------------------------------------------------------
VALUATION AND REDEMPTION OF SECURITIES
- --------------------------------------------------------------------------------
Current values for each Fund's portfolio securities may be determined
in the following manner:
1. securities for which market quotations are readily available are
valued at the mean of the bid and asked prices at the time of valuation;
2. (a) instruments having maturities of sixty days or less when
purchased 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;
(b) investments maturing in more than sixty days when purchased that
are held on the sixtieth day prior to maturity are valued at amortized cost
(market value on the sixtieth day adjusted for amortization of premium or
accretion of discount), which, when combined with accrued interest, approximates
market; and which reflects fair value as determined by the Trust's Board of
Trustees;
3. short-term instruments having maturities of more than sixty days for
which market quotations are readily available are valued at current market
value; and
4. 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 market quotations are not
readily available; and (b) other assets.
The Trust believes that reliable market quotations are generally not
readily available for purposes of valuing municipal obligations. As a result,
depending on the particular municipal obligations owned by a Fund, it is likely
that most of the valuations for such obligations will be based upon their fair
value determined under procedures approved by the Board of Trustees. The Board
of Trustees has authorized the use of a pricing service to determine the fair
value of each Fund's municipal obligations and certain other securities.
Taxable securities for which market quotations are readily available
are valued on a consistent basis at that price quoted that, in the opinion of
the Board of Trustees or the person designated by the Board of Trustees to make
the determination, most nearly represents the market value of the particular
security.
- --------------------------------------------------------------------------------
SALES CHARGES
- --------------------------------------------------------------------------------
GENERAL
Generally, each Fund offers three classes of shares. Class A shares are
offered with a maximum front end sales charge of 4.75% payable at the time of
purchase of Fund shares ("Front End Load Option"). Class B shares purchased on
or after June 1, 1995 are subject to a contingent deferred sales charge payable
upon redemption during the 72 month period from and including the month of
purchase. Class B shares purchased prior to June 1, 1995 are sold subject to a
contingent deferred sales charge payable upon redemption within three calendar
years after the first 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 Trust's transfer
and dividend dispersing 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 Trust's
Principal Underwriter. The Trust's prospectus contains a general description of
how investors may buy shares of the Trust as well as a table of applicable sales
charges for Class A shares, a discussion of reduced sales charges applicable to
subsequent purchases, and a description of applicable contingent deferred sales
charges.
CONTINGENT DEFERRED SALES CHARGES
In order to reimburse a Fund for certain expenses relating to the sale
of its shares (see "Distribution Plans"), a contingent deferred sales charge is
imposed at the time of redemption of certain Fund shares, as follows:
CLASS A SHARES
With certain exceptions, purchases of Class A shares made (1) in an
amount equal to or exceeding $1,000,000 and/or (2) by a corporate qualified
retirement plan or a non-qualified deferred compensation plan sponsored by a
corporation having 100 or more eligible employees (a "Qualifying Plan"), in
either case without a front-end sales charge, will be subject to a contingent
deferred sales charge of 0.50% during the 24 month period following the date of
purchase. 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, each
Fund, with certain exceptions, will impose a deferred sales charge as a
percentage of the lesser of net asset value or net cost of such Class B shares
redeemed during succeeding twelve-month periods following the month of purchase
as follows: 5% during the first twelve-month period; 4% during the second
twelve-month period; 3% during the third twelve-month period; 3% during the
fourth twelve-month period; 2% during the fifth twelve-month period, and 1%
during the sixth twelve-month period. No deferred sales charge is imposed on
amounts redeemed thereafter.
With respect to Class B shares purchased prior to June 1, 1995, each
Fund, with certain exceptions, will impose a deferred sales charge of 3.00% on
shares redeemed during the calendar year of purchase and during the first
calendar year after purchase; 2.00% on shares redeemed during the second
calendar year after 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.
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 Charge"
below.
CLASS C SHARES
With certain exceptions, a Fund may impose a deferred sales charge of
1% on Class C shares redeemed within one year after the date of purchase. No
deferred sales charge is imposed on amounts redeemed thereafter.
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 asset value at time of
purchase of such shares.
No contingent deferred sales charge is imposed when you redeem amounts
redeemed are derived from (1) increases in the value of an account above the net
cost of such shares due to increases in the net asset value per share of a Fund;
(2) certain shares with respect to which a 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 two
years; (4) Class B shares held during more than four consecutive calendar years
or more than 72 months, as the case may be; or (5) Class C shares held for more
than one year.
Upon request for redemption, a Fund will redeem shares not subject to
the contingent deferred sales charge first. Thereafter, a Fund will redeem
shares held the longest first. No contingent deferred sales charge is applicable
when the shares of a class are exchanged for the shares of the same class of
another Keystone America Fund. Moreover, when shares of one such class of a fund
have been exchanged for shares of another such class of a fund, for purposes of
any future contingent deferred sales charge, the date of purchase of the shares
being exchanged is deemed to be the date the shares being acquired by exchange
were originally purchased.
WAIVER OF SALES CHARGES
Shares may also 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 Trust, Keystone
Management, Keystone, Keystone Investments, Inc. (formerly Keystone Group,
Inc.), ("Keystone Investments"), and their 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 and their affiliates, for the
benefit of their Directors, Trustees, officers, full-time employees and sales
representatives; or (3) a registered representative of a firm with a dealer
agreement with the Principal Underwriter, provided, however, that all such sales
are made upon the written assurance of the purchaser that the purchase is made
for investment purposes and that the securities will not be resold except
through redemption by the Trust.
No initial sales charge is charged on a purchase of shares of a 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 one of the Funds or
any fund in the Keystone Investments Family of Funds is at least $500,000 and
any commission paid at the time of such purchase is not more than 1% of the
amount invested.
In addition, no contingent deferred sales charge is imposed on redemptions of
shares.
With respect to Class A shares purchased by a Qualifying Plan at net
asset value or Class C shares purchased by a Qualifiying Plan, no contingent
deferred sales charge will be imposed on any redemptions made specifically by an
individual participant in the Qualifiying 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 a Fund in the event of (1) death or disability of the
shareholder; (2) a lump-sum distribution from a benefit plan qualified under the
Employee Retirement Income Security Act of 1974 ("ERISA"); (3) automatic
withdrawals from ERISA plans if the shareholder is at least 59 1/2 years old;
(4) involuntary redemptions of an account having an aggregate net asset value of
less than $1,000; (5) automatic withdrawals under an automatic withdrawal plan
of up to 1 1/2% per month of the shareholder's initial account balance; (6)
withdrawals consisting of loan proceeds to a retirement plan participant; (7)
financial hardship withdrawals made by a retirement plan participant; or (8)
withdrawals consisting of returns of excess contributions or excess deferral
amounts made to a retirement plan participant.
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DISTRIBUTION PLANS
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Rule 12b-1 under the 1940 Act permits investment companies, such as the
Trust, 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.
Each Fund's Class A, B and C Distribution Plans have been approved by
the Trust's Board of Trustees, including a majority of the Trustees who are not
interested persons of the Trust, as defined in the 1940 Act, and the Trustees
who have no direct or indirect financial interest in the Distribution Plan or
any agreement related thereto (the "Independent Trustees").
DISTRIBUTION PLANS IN GENERAL
The National Association of Securities Dealers, Inc. (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 that a 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 a Fund may expend daily
amounts at an annual rate, currently limited to up to 0.15% of the Fund's
average daily net asset value attributable to Class A shares to finance any
activity that is primarily intended to result in the sale of Class A shares.
Such activities include, without limitation, expenditures consisting of payments
to a principal underwriter of a Fund (currently the Principal Underwriter) to
enable the Principal Underwriter to pay or to have paid to others who sell Class
A shares a service or other fee, at such intervals as the Principal Underwriter
may determine, in respect of Class A shares maintained by such recipients on the
books of the Trust for specified periods.
Amounts paid by a Fund under its Class A Distribution Plan are
currently used to pay others, such as dealers, service fees at an annual rate of
up to 0.15% of the average net asset value of Class A shares maintained by such
recipients on the books of the Trust for specified periods.
CLASS B DISTRIBUTION PLANS
Each Fund's Class B Distribution Plans provide that the Fund may expend
daily amounts at an annual rate of up to 1.00% (currently limited to 0.90%) 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. Such activities include, 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 on the books of the Fund for specified periods.
The Principal Underwriter generally reallows to brokers or others a
commission equal to 4.00% of the price paid for each Class B share sold plus the
first year's service fee in advance in the amount of 0.15% 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 0.15% of the average daily net asset value of such Class B share
maintained by the recipient on the books of the Fund for specified periods.
The Principal Underwriter intends, but is not obligated, to continue to
pay or accrue distribution charges incurred in connection with each Class B
Distribution Plan that exceed current annual payments that the Fund is permitted
to pay to the Principal Underwriter. The Principal Underwriter intends to seek
full payment of such charges from a Fund (together with annual interest thereon
at the prime rate plus 1%) at such time in the future as, and to the extent
that, payment thereof by the Fund would be within the permitted limits.
If the Trust's Independent Trustees authorize such payments, the effect
would be to extend the period of time during which a 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 Trust
has agreed not to reduce the rate of payment of 12b-1 fees in respect of such
Class B shares unless it terminated such shares' Distribution Plan completely.
If it terminated such Distribution Plan, the Trust may be subject to possible
adverse distribution consequences.
CLASS C DISTRIBUTION PLAN
The Class C Distribution Plan provides that a Fund may expend daily
amounts at an annual rate of up to 1.00% (currently limited to 0.90%) 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.
Such activities include, without limitation, expenditures consisting of payments
to the principal underwriter of the Fund (currently the Principal Underwriter)
(1) to enable the Principal Underwriter to pay to others (dealers) commissions
in respect of Class C shares sold since inception of the Distribution Plan; and
(2) to enable the Principal Underwriter to pay or to have paid to others a
service fee, at such intervals as the Principal Underwriter may determine, in
respect of Class C shares maintained by any such recipients on the books of the
Fund for specified periods.
The Principal Underwriter generally reallows to brokers or others a
commission in the amount of 0.75% of the price paid for each Class C share sold
plus the first year's service fee in advance in the amount of 0.25% of the price
paid for each Class C share sold. Beginning approximately fifteen months after
purchase, brokers or others receive a commission at an annual rate of 0.75%
(subject to NASD rules) plus service fees at the annual rate of 0.25% of the
average daily net asset value of each Class C share maintained by the recipients
on the books of the Fund for specified periods.
DISTRIBUTION PLANS - GENERAL
Each of the Distribution Plans may be terminated as to a Fund at any
time by vote of the Independent Trustees or by a vote of a majority of the
appropriate outstanding voting shares of the respective Fund.
Any change in a Distribution Plan that would materially increase the
distribution expenses of the affected Fund provided for in a Distribution Plan
requires the Fund's shareholders' approval. Otherwise, the Distribution Plans
may be amended by the Trustees, including the Independent Trustees.
While the Distribution Plans are in effect, the Trust will be required
to commit the selection and nomination of candidates for Independent Trustees to
the discretion of the Independent Trustees.
The total amounts paid by a Fund under the foregoing arrangements may
not exceed the maximum Distribution Plan limits specified above, and the amounts
and purposes of expenditures under a Distribution Plan must be reported to the
Independent Trustees quarterly. The Independent Trustees may require or approve
changes in the implementation or operation of a Distribution Plan and may also
require that total expenditures by a 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 Trust have determined that the sales of
each Fund's shares resulting from payments under its Distribution Plan are
expected to benefit such Fund.
During the fiscal year ended March 31, 1995, the Florida Fund,
Massachusetts Fund, the New York Insured Fund and the Pennsylvania Fund paid the
Principal Underwriter (1) $66,246, $1,829, $3,025 and $44,697 respectively,
pursuant to each Fund's Class A Distribution Plan; (2) $345,221, $40,387,
$70,227 and $244,404, respectively, pursuant to each Fund's Class B Distribution
Plan; and (3) $140,405, $15,014, $15,895 and $81,781 respectively, pursuant to
each Fund's Class C Distribution Plan.
During the fiscal year ended March 31, 1996, the Florida ,
Massachusetts, New York Insured and Pennsylvania Funds paid the Principal
Underwriter (1) $56,304, $2,256, $5,591 and $44,529, respectively, pursuant to
each Fund's Class A Distribution Plan; (2) $456,390, $56,056, $116,859 and
$282,940, respectively, pursuant to each Fund's Class B Distribution Plan for
Class B shares sold prior to June 1, 1995; $34,480, $7,645, $22,305 and $36,440,
respectively, pursuant to each Fund's Class B Distribution Plan for Class B
shares sold on or after June 1, 1995; and (3) $111,012, $19,215, $21,248, and
$87,375, respectively, pursuant to each Fund's Class C Distribution Plan.
For the Florida, Massachusetts, New York Insured and Pennsylvania
Funds, unreimbursed Class B Distribution Plan expenses at March 31, 1996 for
Class B shares sold prior to June 1, 1995 were $2,946,854 (5.41% of Class B net
assets), $366,916 (5.04% of Class B net assets), $741,567 (4.32% of Class B net
assets) and $1,849,989 (4.90% of Class B net assets), respectively. For Class B
shares sold after June 1, 1995, unreimbursed Class B Distribution expenses at
March 31, 1996 for the Florida, Massachusetts, New York Insured and Pennsylvania
Funds were $510,361 (0.94% of Class B net assets), $55,979 (0.77% of Class B net
assets), $290,287 (1.69% of Class B net assets), and $491,259 (1.30% of Class B
net assets), respectively.
For Class C shares, unreimbursed Class C Distribution expenses at March
31, 1996 for the Florida, Massachusetts, New York Insured and Pennsylvania Funds
were $1,295,524 (10.98% of Class C net assets), $142,771 (6.20% of Class C net
assets), $213,519 (9.30% of Class C net assets), and $823,047 (8.51% of Class C
net assets), respectively.
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INVESTMENT ADVISER
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Subject to the general supervision of the Trust's Board of Trustees,
Keystone serves as investment adviser to the Trust and is responsible for the
overall management of the Trust's business and affairs.
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 private corporation predominantly owned by
current and former members of management of Keystone's management and its
affiliates. The shares of Keystone Investments common stock beneficially owned
by current and former members of management are held in a number of voting
trusts, the trustees of which are George S. Bissell, Albert H. Elfner, III,
Edward F. Godfrey, Ralph J. Spuehler, Jr. and Rosemary D. Van Antwerp. 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 Investment Advisory and Management Agreement with the
Trust dated August 19, 1993 (the "Advisory Agreement") and subject to the
supervision of the Trust's Board of Trustees, Keystone manages and administers
the operation of the Trust and its Funds, and manages the investment and
reinvestment of each Fund's assets in conformity with such Fund's investment
objective and restrictions. The Advisory Agreement stipulates that Keystone
shall provide office space and all necessary office facilities, equipment and
personnel in connection with its services. The Advisory Agreement also
stipulates that Keystone shall pay or reimburse the Trust for the compensation
of Trust officers and Trustees who are affiliated with the investment adviser.
The Advisory Agreement requires Keystone to pay all of its expenses incurred in
connection with its services. All charges and expenses other than those
specifically referred to as being borne by Keystone will be paid by the Trust,
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 Trust 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 Trust; expenses of shareholders' and Trustees' meetings; charges and
expenses of legal counsel for the Trust and for the Independent Trustees of the
Trust on matters relating to the Trust; charges and expenses of filing annual
and other reports with the SEC and other authorities, and all extraordinary
charges and expenses of the Trust.
Each Fund pays Keystone a fee for its services to the Fund at the
annual rate set forth below:
Aggregate Net Asset
Management Value of the
Fee Shares of the Fund
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0.55% of the first $ 50,000,000, plus
0.50% of the next $ 50,000,000, plus
0.45% of the next $ 100,000,000, plus
0.40% of the next $ 100,000,000, plus
0.35% of the next $ 100,000,000, plus
0.30% of the next $ 100,000,000, plus
0.25% of amounts over $ 500,000,000
Computed as of the close of business each business day and payable
daily.
The Advisory Agreement continues in effect from year to year only if
approved at least annually by (1) the Trust's Board of Trustees or by a vote of
a majority of the outstanding shares of each Fund and (2) 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 Advisory Agreement may be terminated, without
penalty, on 60 days' written notice by the Trust's Board of Trustees or by a
vote of a majority of outstanding shares of each Fund. The Advisory Agreement
will terminate automatically upon its "assignment," as that term is defined in
the 1940 Act.
During the year ended March 31, 1994, the Florida Fund and the
Pennsylvania Fund paid or accrued to Keystone investment management and
administrative services fees of $363,939 and $291,982, respectively. During the
period ended March 31, 1994, the Massachusetts Fund and the New York Insured
Fund paid or accrued to Keystone investment management and service fees of
$2,167 and $1,473, respectively.
During the year ended March 31, 1995, the Florida Fund and the
Pennsylvania Fund paid or accrued to Keystone investment management and
administrative services fees of $515,205 and $357,852, respectively. During the
year ended March 31, 1995, the Massachusetts Fund and the New York Insured Fund
paid or accrued to Keystone investment management and administrative services
fees of $43,636 and $63,808, respectively.
During the year ended March 31, 1996, the Florida Fund and the
Pennsylvania Fund paid or accrued to Keystone investment management and
administrative services fees of $557,537 and $402,467, respectively. During the
year ended March 31, 1996, the Massachusetts Fund and the New York Insured Fund
paid or accrued to Keystone investment management and administrative services
fees of $62,760 and $118,589, respectively.
Keystone has voluntarily limited the expenses of each Fund's Class A, B
and C shares to 0.75%, 1.50%, and 1.50% of average daily net assets,
respectively. Keystone currently intends to continue the foregoing expense
limitations on a calendar month-by-month basis. Keystone will periodically
evaluate the expense limitations and may modify or terminate them in the future.
Keystone would not be required to make such reimbursement to any Fund to the
extent it would result in the Fund's inability to qualify as a regulated
investment company under the Code. In accordance with voluntary expense
limitations in effect during the fiscal year ended March 31, 1996, Keystone
reimbursed the Florida, Massachusetts, New York Insured and Pennsylvania Funds
$196,232, $100,729, $119,608 and $190,132 respectively.
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TRUSTEES AND OFFICERS
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Trustees and officers of the Trust, their principal occupations and
some of their affiliations over the last five years are as follows:
*ALBERT H. ELFNER, III: President, Chief Executive Officer and Trustee of the
Fund; Chairman of the Board, President, Director and Chief Executive
Officer of Keystone Investments, 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 of Robert Van Partners, Inc.; and former Trustee of Neworld
Bank.
FREDERICK AMLING: Trustee of the Fund; Trustee or Director of all other Keystone
Investments Funds; Professor, Finance Department, George Washington
University; President, Amling & Company (investment advice); Member, Board
of Advisers, Credito Emilano (banking); and former Economics and Financial
Consultant, Riggs National Bank.
CHARLES A. AUSTIN III: Trustee of the Fund; Trustee or Director of all other
Keystone Investments Funds; Investment Counselor to Appleton Partners,
Inc.; former Managing Director, Seaward Management Corporation (investment
advice) and former Director, Executive Vice President and Treasurer, State
Street Research & Management Company (investment advice).
*GEORGE S. BISSELL: Chairman of the Board and Trustee of the Fund; Director of
Keystone Investments; Chairman of the Board and Trustee or Director of all
other Keystone Investments Funds; Director and Chairman of the Board of
Hartwell Keystone; Chairman of the Board and Trustee of Anatolia College;
Trustee of University Hospital (and Chairman of its Investment Committee);
former Chairman of the Board and Chief Executive Officer of Keystone
Investments; and former Chief Executive Officer of the Trust.
EDWIN D. CAMPBELL: Trustee of the Fund; Trustee or Director of all other
Keystone Investments Funds; Director and former Executive Vice President,
National Alliance of Business; former Vice President, Educational Testing
Services; former Executive Director, Coalition of Essential Schools, Brown
University; and former Dean, School of Business, Adelphi University.
CHARLES F. CHAPIN: Trustee of the Fund; Trustee or Director of all other
Keystone Investments Funds; former Group Vice President, Textron Corp.; and
former Director, Peoples Bank (Charlotte, N.C).
LEROY KEITH, JR.: Trustee of the Fund; Trustee or Director of all other Keystone
Investments Funds; Director of Phoenix Total Return Fund and Equifax, Inc.;
Trustee of Phoenix Series Fund, Phoenix Multi-Portfolio Fund and The
Phoenix Big Edge Series Fund; and former President, Morehouse College.
K. DUN GIFFORD: Trustee of the Fund; Trustee or Director of all other Keystone
Investments Funds; Chairman of the Board, Director and Executive Vice
President, The London Harness Company; Managing Partner, Roscommon Capital
Corp.; Trustee, Cambridge College; Chairman Emeritus and Director, American
Institute of Food and Wine; Chief Executive Officer, Gifford Gifts of Fine
Foods; Chairman, Gifford, Drescher & Associates (environmental consulting);
President, Oldways Preservation and Exchange Trust (education); and former
Director, Keystone Investments and Keystone.
F. RAY KEYSER, JR.: Trustee of the Fund; Trustee or Director of all other
Keystone Investments Funds; Of Counsel, Keyser, Crowley & Meub, P.C.;
Member, Governor's (VT) Council of Economic Advisers; Chairman of the Board
and Director, Central Vermont Public Service Corporation and Hitchcock
Clinic; Director, Vermont Yankee Nuclear Power Corporation, Vermont
Electric Power Company, Inc., Grand Trunk Corporation, Central Vermont
Railway, Inc., S.K.I. Ltd., Sherburne Corporation, Union Mutual Fire
Insurance Company, New England Guaranty Insurance Company, Inc. and the
Investment Company Institute; former Governor of Vermont; former Director
and President, Associated Industries of Vermont; former Chairman and
President, Vermont Marble Company; former Director of Keystone; and former
Director and Chairman of the Board, Green Mountain Bank.
DAVID M. RICHARDSON: Trustee of the Fund; Trustee or Director of all other
Keystone Investments Funds; Executive Vice President, DHR International,
Inc. (executive recruitment); former Senior Vice President, Boyden
International Inc. (executive recruitment); and Director, Commerce and
Industry Association of New Jersey, 411 International, Inc. and J & M
Cumming Paper Co.
RICHARD J. SHIMA: Trustee of the Fund; Trustee or Director of all other Keystone
Investments Funds; Chairman, Environmental Warranty, Inc., and Consultant,
Drake Beam Morin, Inc. (executive outplacement); Director of Connecticut
Natural Gas Corporation, Trust Company of Connecticut, Hartford Hospital,
Old State House Association and Enhance Financial Services, Inc.; 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; former Managing Director of
Russell Miller, Inc.; and former Member, Georgetown College Board of
Advisors;
ANDREW J. SIMONS: Trustee of the Fund; Trustee or Director of all other Keystone
Investments Funds; Partner, Farrell, Fritz, Caemmerer, Cleary, Barnosky &
Armentano, P.C.; President, Nassau County Bar Association; former Associate
Dean and Professor of Law, St. John's University School of Law.
EDWARD F. GODFREY: Senior Vice President of the Fund; Senior Vice President of
all other Keystone Investments Funds; Director, Senior Vice President,
Chief Financial Officer and Treasurer of Keystone Investments, the
Principal Underwriter, Keystone Asset Corporation, Keystone Capital
Corporation, Keystone Trust Company; Treasurer of Keystone Institutional
and FICO; Treasurer and Director of Keystone Management and Keystone
Software; Vice President and Treasurer of KFIA; and Director of KIRC;
former Treasurer of Hartwell Keystone and Robert Van Partners, Inc.
JAMES R. McCALL: Senior Vice President of the Fund; Senior Vice President of all
other Keystone Investments Funds; and President of Keystone.
J. KEVIN KENELY: Treasurer of the Trust; Treasurer of all other Keystone
Investments Funds; Vice President and former Controller of Keystone
Investments, Keystone, the Principal Underwriter, FICO and Keystone
Software; former Controller of Keystone Asset Corporation and Keystone
Capital Corporation.
CHRISTOPHER P. CONKEY: Vice President of the Trust; Vice President of certain
other Keystone Investments Funds and Senior Vice President of Keystone.
ROSEMARY D. VAN ANTWERP: Senior Vice President and Secretary of the Fund; Senior
Vice President and Secretary of all other Keystone Investments Funds;
Senior Vice President, General Counsel and Secretary of Keystone; Senior
Vice President, General Counsel, Secretary and Director of the Principal
Underwriter, Keystone Management and Keystone Software; Senior Vice
President and General Counsel of Keystone Institutional; Senior Vice
President, General Counsel and Director of FICO and KIRC; 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 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 March 31, 1996, no Trustee affiliated with
Keystone or any officer received any direct remuneration from the Trust. During
this same period, the unaffiliated Trustees received no retainers and fees.
Annual retainers and meeting fees paid by all funds in the Keystone Investments
Family of Funds (which includes more than 30 mutual funds) for the year ended
December 31, 1995, totaled $450,716. As of April 30, 1996, the Trust's Trustees
and officers did not own any shares of the Florida Fund, the Massachusetts Fund
Class B or C shares, the Pennsylvania Fund and the New York Insured Fund. As of
April 30, 1996, the Trust's Trustees and officers beneficially owned in the
aggregate less than 0.01% of the Class A shares then outstanding of the
Massachusetts Fund.
The address of all the Trust's Trustees and officers and the address of
the Trust is 200 Berkeley Street, Boston, Massachusetts 02116-5034.
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PRINCIPAL UNDERWRITER
- --------------------------------------------------------------------------------
The Trust has entered into a Principal Underwriting Agreement dated
August 19, 1993 with the Principal Underwriter, a wholly-owned subsidiary of
Keystone (the "Underwriting Agreement"). The Principal Underwriter, as agent,
currently has the right to obtain subscriptions and to sell shares of the Funds
to the public. In so doing, the Principal Underwriter may retain and employ
representatives to promote distribution of the Funds' shares and may obtain
orders from brokers, dealers and 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 each Fund pursuant to such Fund's Distribution
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 Trust's Declaration of Trust, By-Laws, the current prospectus
and statement of additional information. All orders are subject to acceptance by
the Trust and the Trust reserves the right, in its sole discretion, to reject
any order received. Under the Underwriting Agreement, the Trust is not liable to
anyone for failure to accept any order.
The Trust has agreed under the Underwriting Agreement to pay all
expenses in connection with registration of the shares of its Funds with the
Commission as well as auditing and filing fees in connection with registration
of such 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 a Fund's shares, the Principal Underwriter may provide 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.
The Principal Underwriter has also agreed that it will indemnify and hold
harmless the Trust, and each person who has been, is or may be a Trustee or
officer of the Trust, against expenses reasonably incurred by any of them in
connection with any claim, 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 Trust.
The Underwriting Agreement will remain in effect as long as its terms
and continuance are approved at least annually by vote of (1) a majority of the
Trust's Independent Trustees cast in person at a meeting called for that
purpose, and (2) by vote of a majority of Trustees as to any Fund or by vote of
a majority of the outstanding shares of the affected Funds.
The Underwriting Agreement may be terminated, without penalty, on 60
days' written notice by the Trust's Rule 12b-1 Trustees or the Principal
Underwriter or terminated as to any Fund by a vote of a majority of outstanding
shares of such Fund. The Underwriting Agreement will terminate automatically
upon its "assignment," as that term is defined in the 1940 Act.
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BROKERAGE
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It is the policy of the Trust, 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 a Fund,
involving both price paid or received and any commissions and other costs paid;
the efficiency with which the transaction is effected, the broker's ability to
effect the transaction at all where a large block is involved; the availability
of the broker to stand ready to execute potentially difficult transactions in
the future, and the financial strength and stability of the broker. Management
weighs such considerations in determining the overall reasonableness of
brokerage commissions paid.
Subject to the foregoing, a factor in the selection of brokers is the
receipt of research services, such as analyses and reports concerning issuers,
industries, securities, economic factors and trends and other statistical and
factual information. Any such research and other statistical and factual
information provided by brokers to a Fund or Keystone is considered to be in
addition to and not in lieu of, services required to be performed by Keystone
under the Advisory Agreement with the Trust. The cost, value and specific
application of such information are indeterminable and cannot be practicably
allocated among the Funds and other clients of Keystone who may indirectly
benefit from the availability of such information. Similarly, a Fund may
indirectly benefit from information made available as a result of transactions
effected for such other clients. Under the Advisory Agreement, Keystone is
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 does follow such a practice, it will do so on a
basis that is fair and equitable to the Funds.
The Trust expects that purchases and sales of municipal obligations and
temporary instruments usually will be principal transactions. Municipal
obligations and temporary instruments are normally purchased directly from the
issuer or from an underwriter or market maker for the securities. There usually
will be no brokerage commissions paid by a Fund for such purchases. Purchases
from underwriters will include the underwriting commission or concession, and
purchases from dealers serving as market makers will include a dealer's mark up
or reflect a dealer's mark down. Where transactions are made in the
over-the-counter market, each Fund will deal with primary market makers unless
more favorable prices are otherwise obtainable.
Each Fund may participate, if and when practicable, in group bidding
for the purchase directly from an issuer of certain securities for the Fund's
portfolio in order to take advantage of the lower purchase price available to
members of such a group.
Neither Keystone nor the Funds intend to place securities transactions
with any particular broker-dealer or group thereof. The Trust's Board of
Trustees has determined, however, that the Funds 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 Trust with respect to brokerage is and will be
reviewed by the Trust'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 Funds are made independently by Keystone
from those of the other funds and investment accounts managed by 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 Funds are concerned. In other cases, however, it is believed that the
ability of a Fund to participate in volume transactions will produce better
executions for the Fund.
In no instance are portfolio securities purchased from or sold to
Keystone, the Principal Underwriter or any of their affiliated persons, as
defined in the 1940 Act and rules and regulations issued thereunder.
For the fiscal years ended March 31, 1994, March 31, 1995 and March 31,
1996, the Funds did not pay any brokerage commissions.
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DECLARATION OF TRUST
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MASSACHUSETTS BUSINESS TRUST
The Trust is a Massachusetts business trust established under a
Declaration of Trust dated September 13, 1990 (the "Declaration of Trust"). The
Trust is similar in most respects to a business corporation. The principal
distinction between the Trust and a corporation relates to the shareholder
liability described below. A copy of the Declaration of Trust was filed as an
exhibit to the Trust's Registration Statement. This summary is qualified in its
entirety by reference to the Declaration of Trust.
DESCRIPTION OF SHARES
The Declaration of Trust authorizes the issuance of an unlimited number
of shares of beneficial interest of classes of shares. Each share of a Fund
represents an equal proportionate interest in such Fund with each other share of
the Fund. Upon liquidation, Fund shares are entitled to a pro rata share of the
Fund based on the relative net assets of each class.
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 Trust were held to be a partnership, the possibility of the
shareholders incurring financial loss for that reason appears remote because the
Trust's Declaration of Trust (1) contains an express disclaimer of shareholder
liability for obligations of the Trust; (2) requires that notice of such
disclaimer be given in each agreement, obligation or instrument entered into or
executed by the Trust or the Trustees; and (3) provides for indemnification out
of Trust property for any shareholder held personally liable for the obligations
of the Trust.
VOTING RIGHTS
No amendment may be made to the Declaration of Trust that adversely
affects any class of shares without the approval of a majority of the shares of
that class. At meetings called for the initial election of Trustees or to
consider other matter, shares of a Fund are entitled to one vote per share.
Shares generally vote together as one class on all matters, except that each
Fund has exclusive voting rights with respect to matters which affect only that
Fund. Classes of shares of a Fund have equal voting rights except that each
class of shares has exclusive voting rights with respect to its respective
Distribution Plan. No amendment may be made to the Declaration of Trust that
adversely affects any class of shares without the approval of a majority of the
shares of that class. Shares have non-cumulative voting rights, which means that
the holders of more than 50% of the shares voting for the election of Trustees
can elect 100% of the Trustees to be elected at a meeting and, in such event,
the holders of the remaining 50% or less of the shares voting will not be able
to elect any Trustees.
After the initial meeting to elect Trustees no further meetings of
shareholders for the purpose of electing Trustees will be held, unless required
by law, unless and until such time as less than a majority of the Trustees
holding office have been elected by shareholders, at which time the Trustees
then in office will call a shareholders' meeting for election of Trustees.
Except as set forth above, the Trustees shall continue to hold office
indefinitely, unless otherwise required by law, and may appoint successor
Trustees. A Trustee may be removed from or cease to hold office (as the case may
be) (1) at any time by two-thirds vote of the remaining Trustees; (2) when such
Trustee becomes mentally or physically incapacitated; or (3) at a special
meeting of shareholders by a two-thirds vote of the outstanding shares. Any
Trustee may voluntarily resign from office.
LIMITATION OF TRUSTEES' LIABILITY
The Declaration of Trust provides that a Trustee shall be liable only
for his own willful defaults and, if reasonable care has been exercised in the
selection of officers, agents, employees or investment advisers, shall not be
liable for any neglect or wrongdoing of any such person; provided, however, that
nothing in the Declaration of Trust shall protect a Trustee against any
liability for his willful misfeasance, bad faith, gross negligence or reckless
disregard of his duties.
The Trustees have absolute and exclusive control over the management
and disposition of all assets of the Funds and may perform such acts as in their
sole judgment and discretion are necessary and proper for conducting the
business and affairs of the Trust or promoting the interests of the Trust and
its Funds and the shareholders.
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STANDARDIZED TOTAL RETURN AND YIELD QUOTATIONS
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Total return quotations for a class of shares of a Fund as they may
appear from time to time in advertisements are calculated by finding the average
annual compounded rates of return over one, five and ten year periods, or the
time periods for which such class of shares has been effective, whichever is
relevant, on a hypothetical $1,000 investment that would equate the initial
amount invested in the class to the ending redeemable value. To the initial
investment all dividends and distributions are added, and all recurring fees
charged to all shareholder accounts are deducted. The ending redeemable value
assumes a complete redemption at the end of the relevant periods.
TOTAL RETURN
CLASS A SHARES
For the fiscal year ended March 31, 1996, the average annual total
return (including front-end sales charge) for Class A of the Florida Fund, the
Pennsylvania Fund, the Massachusetts Fund and the New York Insured Fund was
3.03%, 2.55%, 1.57% and 2.61% respectively.
The average annual total return (including front-end sales charge) for
Class A of the Florida Fund and the Pennsylvania Fund for the five year period
ended March 31, 1996 was 6.54% and 6.98%, respectively.
For the period February 4, 1994 (commencement of operations) to March
31, 1996, the average annual total return (including front-end sales charge) for
Class A of the Massachusetts and New York Insured Fund was (0.04%) and 1.55%,
respectively.
For the period December 28, 1990 (commencement of operations) to March
31, 1996, the average annual total return (including front-end sales charge) for
Class A of the Florida Fund was 6.91%.
For the period December 27, 1990 (commencement of operations) to March
31, 1996, the average annual total return (including front-end sales charge) for
Class A of the Pennsylvania Fund was 7.49%.
CLASS B SHARES
For the fiscal year ended March 31, 1996, the average annual total
return (including contingent deferred sales charge) for Class B of the Florida
Fund, the Pennsylvania Fund, the Massachusetts Fund and the New York Insured
Fund was 3.48%, 2.84%, 1.77%, and 3.02%, respectively.
For the period February 1, 1993 (commencement of operations) to March
31, 1996, the average annual total return (including contingent deferred sales
charge) for Class B of the Florida Fund and the Pennsylvania Fund was 3.98% and
4.05%, respectively.
For the period February 4, 1994 (commencement of operations) to March
31, 1996, the average annual total return (including contingent deferred sales
charge) for Class B of the Massachusetts Fund and New York Insured Fund was
0.32% and 1.90%, respectively.
CLASS C SHARES
For the fiscal year ended March 31, 1996, the total return (including
contingent deferred sales charge) for Class C of the Florida Fund, the
Pennsylvania Fund, the Massachusetts Fund, and the New York Insured Fund was
7.47%, 6.92%, 5.89% and 7.02% respectively.
For the period February 1, 1993 (commencement of operations) to March
31, 1996, the average annual total return (including contingent deferred sales
charge) for Class C of the Florida Fund and the Pennsylvania Fund was 4.81% and
4.92%, respectively.
For the period February 4, 1994 (commencement of operations) to March
31, 1996, the average annual total return (including contingent deferred sales
charge) for Class C of the Massachusetts Fund and New York Insured Fund was
1.54% and 3.09%, respectively.
CURRENT YIELD AND TAX EQUIVALENT YIELD
Current yield quotations as they may appear from time to time in
advertisements will consist of a quotation based on a 30-day period ended on the
date of the most recent balance sheet of a Fund, computed by dividing the net
investment income per share earned during the period by the maximum offering
price per share on the last day of the base period. Such yield will include
income from sources other than municipal obligations, if any.
For the 30-day period ended March 31, 1996, the current yield of Class
A of the Florida Fund, the Pennsylvania Fund, the Massachusetts Fund and the New
York Insured Fund was 4.90%, 5.14%, 5.15% and 4.69%, respectively.
For the 30-day period ended March 31, 1996, the current yield of Class
B of the Florida Fund, the Pennsylvania Fund, the Massachusetts Fund and the New
York Insured Fund was 4.39%, 4.64%, 4.65% and 4.18%, respectively.
For the 30-day period ended March 31, 1996, the current yield of Class
C of the Florida Fund, the Pennsylvania Fund, the Massachusetts Fund and the New
York Insured Fund was 4.38%, 4.65%, 4.65% and 4.17%, respectively.
Tax equivalent yield is, in general, the current yield divided by a
factor equal to one minus a stated income tax rate and reflects the yield a
taxable investment would have to achieve in order to equal on an after-tax basis
a tax-exempt yield.
The tax equivalent yield for an investor in the 31% federal tax bracket
for the 30-day period ended March 31, 1996 for Class A of the Florida Fund, the
Pennsylvania Fund, the Massachusetts Fund and the New York Insured Fund was
7.10%, 7.45%, 7.46%, and 6.80%, respectively.
The tax equivalent yield for an investor in the 31% federal tax bracket
for the 30-day period ended March 31, 1996 for Class B of the Florida Fund, the
Pennsylvania Fund, the Massachusetts Fund and the New York Insured Fund was
6.36%, 6.72%, 6.74% and 6.06%, respectively.
The tax equivalent yield for an investor in the 31% federal tax bracket
for the 30-day period ended March 31, 1996 for Class C of the Florida Fund, the
Pennsylvania Fund, the Massachusetts Fund and the New York Insured Fund was
6.36%, 6.74%, 6.74% and 6.04%, respectively.
Any given yield or total return quotation should not be considered
representative of the Fund's yield or total return for any future period.
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ADDITIONAL INFORMATION
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State Street Bank and Trust Company, 225 Franklin Street, Boston,
Massachusetts 02110, is the custodian of all securities and cash of the Trust
(the "Custodian"). The Custodian performs no investment management functions for
the Trust, but, in addition to its custodial services, is responsible for
accounting and related record keeping on behalf of the Trust.
KPMG Peat Marwick LLP, 99 High Street, Boston, Massachusetts 02110,
Certified Public Accountants, are the independent auditors for the Trust.
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 Trust.
Except as otherwise stated in its prospectus or required by law, the
Trust 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 Trust's
prospectus, statement of additional information or in supplemental sales
literature issued by the Trust or the Principal Underwriter, and no person is
entitled to rely on any information or representation not contained therein.
The Trust's prospectus and statement of additional information omit
certain information contained in the registration statement filed with the
Commission, a copy of which may be obtained from the Commission's principal
office in Washington, D.C. upon payment of the fee prescribed by the rules and
regulations promulgated by the Commission.
As of April 30, 1996, Merrill Lynch Pierce Fenner & Smith, Attn: Book
Entry, 4800 Deer Lake Dr E 3rd FL, Jacksonville, FL 32246-6484, owned 10.999% of
the outstanding Class A shares of the Florida Fund.
As of April 30, 1996, Merrill Lynch Pierce Fenner & Smith, Attn: Book
Entry, 4800 Deer Lake Dr E 3rd Floor, Jacksonville, FL 32246-6484, owned 18.910%
of the outstanding Class B shares of the Florida Fund.
As of April 30, 1996, Merrill Lynch Pierce, Fenner & Smith, Attn: Book
Entry, 4800 Deer Lake Dr E 3rd Flr, Jacksonville, FL, 32246-6484, owned 31.052%
of the outstanding Class C shares of the Florida Fund.
As of April 30, 1996, PaineWebber FBO, Betty J. Puskar, Trustee and
Betty J. Puskar, Revocable Trust, 708 Ocean Drive, Juno Beach, FL 33408, owned
5.709% of the outstanding Class C shares of the Florida Fund.
As of April 30, 1996, Merrill Lynch Pierce, Fenner & Smith, Attn: Book
Entry, 4800 Deer Lake Dr E 3rd Flr, Jacksonville, FL 32246-6484, owned 7.081% of
the outstanding Class A shares, and 9.213% of the outstanding Class B shares of
the Pennsylvania Fund.
As of April 30, 1996, Merrill Lynch Pierce Fenner & Smith, Attn: Book
Entry, 4800 Deer Lake Dr. E. 3rd Floor Jacksonville, FL 32246-6484, owned
28.072% of the outstanding Class C shares of the Pennsylvania Fund.
As of April 30, 1996, PaineWebber FBO, Robert Cougle, Debra K. Cougle
JT WROS, 10506 Old 22, Kutztown, PA 19530, owned 7.095% of the outstanding Class
C shares of the Pennsylvania Fund.
As of April 30, 1996, Richard Nakashian, P.O. Box 3150, Pocasset,
Massachusetts 02559-3150, owned 11.918% of the outstanding Class A shares of the
Massachusetts Fund.
As of April 30, 1996, Ida R. Rodriguez Trust #21528, Keystone Trust
Company TTEE, 58 Helen Rd, Needham, MA 02192-3934 owned 6.876% of the
outstanding Class A shares of the Massachusetts Fund.
As of April 30, 1996, Dolores S. Faber, 20 Buttonwood Street, New
Bedford, Massachusetts 02740-1550 owned 5.883% of the outstanding Class A shares
of the Massachusetts Fund.
As of April 30, 1996, Shirley W Tower TTEE, Shirley W Tower Trust, U/A
DTD 9/18/92, 119 Brookhaven Drive, E Longmeadow, Massachusetts 01028-1474, owned
5.620% of the outstanding Class A shares of the Massachusetts Fund.
As of April 30, 1996, Anthony H. Cincotta, 13 Shipway Place,
Charlestown, Massachusetts 02129-4301, owned 8.539% of the outstanding Class C
shares of the Massachusetts Fund.
As of April 30, 1996, Salvatore M. Moscariello & Irene A. Moscariello
JT TEN, 24 Van Norden Road, Reading, MA 01867-1244, owned 5.843% of the
outstanding Class C shares of the Massachusetts Fund.
As of April 30, 1996, Merrill Lynch Pierce Fenner & Smith, Attn: Book
Entry, 4800 Deer Lake Dr E 3rd Fl, Jacksonville, FL 32246-6484, owned 6.353% of
the outstanding Class A shares of the New York Insured Fund.
As of April 30, 1996, Prudential Securities FBO, Sandra N. Franck, 345
West 70th Street, Apt. 6F, New York, NY 10023, owned 5.606% of the outstanding
Class A shares of the Massachusetts Fund.
As of April 30, 1996, Merrill Lynch Pierce Fenner & Smith, Attn: Book
Entry 4800 Deer Lake Dr E 3rd Fl, Jacksonville, FL 32246-6484, owned 13.750% of
the outstanding Class B shares of the New York Insured Fund.
As of April 30, 1996, Fred Zucker, 20 Old Brook Road, Dix Hills, New
York 11746-4430 owned 15.967%of the outstanding Class C shares of the New York
Insured Fund
As of April 30, 1996, Bear Stearns Securities Corp FBO 626-60277-10, 1
Metrotech Center North, Brooklyn, NY 11201-3859, owned 11.837% of the
outstanding Class C shares of the New York Insured Fund.
As of April 30, 1996, Carol T. Whitman, PO Box 43 Whippleville, NY
12995, owned 6.959% of the outstanding Class C shares of the New York Insured
Fund.
As of April 30, 1996, NFSC FEBO #CM5-020052, Otto and Gertrand Steckel
Huber, 605 Harrison, Harrison, NY 10528-1406, owed 8.876% of the outstanding
Class C shares of the New York Insured Fund.
As of April 30, 1996, Prudential Securities FBO Laurie D Was TTEE,
Laurie D Was Irr Trust of 1995 U/A DTD 05/02/95, New York, New York 10012-3288
owned 6.266% of the outstanding Class C shares of the New York Insured Fund.
As of April 30, 1996, Carol l. Moore, Rt. 2 Box 1055, Chateaugay, New
York 12920-9522, owned 5.446% of the outstanding Class C shares of the New York
Insured Fund.
The Trust is one of 15 different investment companies in the Keystone
America Family, which offers a range of choices to serve shareholder needs. In
addition to the Trust, the Keystone America Family includes the following funds
with the various investment objectives described below:
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 CAPITAL PRESERVATION AND INCOME FUND - Seeks high current income,
consistent with low volatility of principal, by investing in adjustable rate
securities issued by the U.S. government, its agencies or instrumentalities.
KEYSTONE FUND FOR TOTAL RETURN - Seeks total return from a combination of
capital growth and income from dividend paying quality common stocks, preferred
stocks, convertible bonds, other fixed-income securities and foreign securities
(up to 25%).
KEYSTONE GLOBAL OPPORTUNITIES FUND - Seeks long-term capital growth from foreign
and domestic securities.
KEYSTONE GOVERNMENT SECURITIES FUND - Seeks income and capital preservation from
U.S. government securities.
KEYSTONE INTERMEDIATE TERM BOND FUND - Seeks income, capital preservation and
price appreciation potential from investment grade corporate bonds.
KEYSTONE AMERICA OMEGA FUND, INC. - Seeks maximum capital growth from common
stocks and securities convertible into common stocks.
KEYSTONE STATE TAX FREE FUND - 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 U.S. 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.
KEYSTONE SMALL COMPANY GROWTH FUND II - Seeks long-term capital growth through
investments primarily in equity securities of companies with small market
capitalizations.
<PAGE>
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APPENDIX A
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KEYSTONE FLORIDA TAX FREE FUND
REVENUES
The State accounts for its receipts using fund accounting. It has
established the General Revenue Fund, the Working Capital Fund and various other
trust funds, which are maintained for the receipt of monies which under law or
trust agreements must be maintained separately.
The General Revenue Fund consists of all monies received by the State
from every source whatsoever which are not allocable to the other funds. Major
sources of tax revenues for the General Revenue Fund are the sales and use tax,
the corporate income tax, and the intangible personal property tax, which are
projected for fiscal year 1996-97 to amount to 72%, 8% and 4%, respectively, of
the total receipts of that fund.
The Florida Constitution and its statutes mandate that the State budget
as a whole and each separate fund within the State budget be kept in balance
from currently available revenues for each fiscal year.
SALES AND USE TAX
The greatest single source of tax receipts in Florida is the sales and
use tax, which is projected to amount to $10.9 billion for fiscal year 1996-97.
The sales tax is 6% of the sales price of tangible personal property sold at
retail in the state. The use tax is 6% of the cash price or fair market value of
tangible personal property when it is not sold but is used, or stored for use,
in the State. In other words, the use tax applies to the use of tangible
personal property in Florida, which was purchased in another state but would
have been subject to the sales tax if purchased in Florida. Approximately 10% of
the sales tax is designated for local governments and is distributed to the
respective counties in which collected for use by such counties and
municipalities therein. In addition to this distribution, local governments may
(by referendum) assess a 1% sales surtax within their county. Proceeds from this
local option sales surtax can be earmarked for funding countywide bus and rapid
transit systems, local infrastructure construction and maintenance, medical care
for indigents and capital projects for county school districts as set forth in
Section 212.055(2), of the Florida Statutes.
The two taxes, sales and use, stand as complements to each other, and
taken together provide a uniform tax upon either the sale at retail or the use
of all tangible personal property irrespective of where it may have been
purchased. The sales tax also includes a levy on the following: (I) rentals on
tangible personal property and accommodations in hotels, motels, some
apartments, offices, real estate, parking and storage places in parking lots,
garages and marinas for motor vehicles or boats; (ii) admissions to places of
amusements, most sports and recreation events; (iii) utilities, except those
used in homes; and (iv) restaurant meals and expendables used in radio and
television broadcasting. Exemptions include: groceries; medicines; hospital
rooms and meals; seeds, feeds, fertilizers and farm crop protection materials;
purchases by religious, charitable and educational nonprofit institutions;
professional services, insurance and certain personal service transactions;
newspapers; apartments used as permanent dwellings; and kindergarten through
community college athletic contests or amateur plays.
OTHER STATE TAXES
Other taxes which Florida levies include the motor fuel tax, corporate
income tax, intangible property tax, documentary stamp tax, gross receipts
utilities tax and severance tax on the production of oil and gas and the mining
of solid minerals, such as phosphate and sulfur.
LOCAL GOVERNMENT DEBT
Numerous government units, counties, cities, school districts and
special taxing districts, issue general obligation bonds backed by their taxing
power. State and local government units may issue revenue obligations, which are
supported by the revenues generated from the particular projects or enterprises.
Examples include obligations issued to finance the construction of water and
sewer systems, health care facilities and educational facilities. In some cases,
sewer or water revenue obligations may be additionally secured by the full faith
and credit of the State.
OTHER FACTORS
The performance of the obligations issued by Florida, its
municipalities, subdivisions and instrumentalities are in part tied to
state-wide, regional and local conditions within Florida. Adverse changes to
state-wide, regional or local economies may adversely affect the
creditworthiness of Florida, its municipalities, etc. Also, some revenue
obligations may be issued to finance construction of capital projects which are
leased to nongovernmental entities. Adverse economic conditions might affect
those lessees' ability to meet their obligations to the respective governmental
authority which in turn might jeopardize the repayment of the principal of, or
the interest on, the revenue obligations.
KEYSTONE MASSACHUSETTS TAX FREE FUND
The Commonwealth of Massachusetts and certain of its cities and towns
and public bodies have experienced in the past, and may experience in the
future, financial difficulties that may adversely affect their credit standing.
The prolonged effects of such financial difficulties could adversely affect the
market value of the municipal securities held by the Massachusetts Fund. The
information summarized below describes some of the more significant factors that
could effect the Massachusetts Fund or the ability of the obligors to pay debt
service on certain of the securities. The sources of such information are the
official statements of issuers located in the Commonwealth of Massachusetts as
well as other publicly available documents, and statements of public officials.
The Massachusetts Fund has not independently verified any of the information
contained in such statements and documents but the Massachusetts Fund is not
aware of facts which would render such information inaccurate.
GENERAL
The Commonwealth's constitution requires, in effect, that its budget,
though not necessarily its operating expenditures and revenue, be balanced each
year. In addition, the Commonwealth has certain budgetary procedures and fiscal
controls in place that are designed to ensure that sufficient cash is available
to meet the Commonwealth's obligations, that state expenditures are consistent
with periodic allotments of annual appropriations and that funds are expended
consistent with statutory and public purposes. The condition of the General Fund
is generally regarded as the principal indicator of whether the Commonwealth's
operating revenues and expenses are in balance. The other principal operating
funds (the Local Aid Fund and the Highway Fund) are customarily funded to at
least a zero balance.
Although the Commonwealth experienced quite a slowdown during the
recession with spending exceeding revenues, beginning in 1991 the Commonwealth
experienced a turn-around in its finances with revenues exceeding spending.
Budgeted expenditures for fiscal 1989, 1990 and 1991 were approximately $12.64
billion, $13.26 billion and $13.66 billion, respectively while budgeted revenues
and other sources for those years were approximately $11.97, $12.01 billion and
$13.63 billion, respectively. By comparison, budgeted revenues and other sources
increased by approximately 0.7% from fiscal 1991 to fiscal 1992, while tax
revenues increased by 5.4% for the same period. Budgeted expenditures in fiscal
1992 were 1.7% lower than fiscal 1991 budgeted expenditures. Furthermore, total
revenues and other sources for fiscal 1993 increased approximately 6.9% from
fiscal 1992, while tax revenues increased by 4.7% for the same period. Budgeted
expenditures and other uses in fiscal 1993 were approximately 9.6% higher than
fiscal 1992 expenditures and other uses. As of 1993 fiscal year end, the
Commonwealth showed a year- end cash position of approximately $622.2 million,
as compared to a projected position of $485.1 million. By comparison, the
Commonwealth ended the 1989 fiscal year with fund balances in deficit by $319.3
million.
In June 1993, new comprehensive education reform legislation was
enacted. It is expected that this legislation will require annual increases in
expenditures for education purposes above fiscal 1993 base spending of $1.289
billion of approximately $175 million in fiscal 1994, $141 million in fiscal
1995 and $662 million in fiscal 1996. The fiscal 1994 budget includes $175
million in appropriations to satisfy this legislation. Municipalities and
agencies of the Commonwealth are experiencing the same economic effects.
Moreover, they are affected by the financial condition of the Commonwealth,
because they receive substantial funding from the Commonwealth.
The fiscal 1994 budget provided for expenditures of approximately
$15.52 billion, an increase of 5.6% over fiscal 1993 levels. Budgeted revenues
and other sources for fiscal 1994 were approximately $15.55 billion, which is
5.7% higher than fiscal 1993 levels. This amount included estimated tax revenues
of approximately $10.61 billion, which is 6.8% higher than fiscal 1993 tax
revenues. 1994 tax revenues were approximately $87 million below the Department
of Revenue's estimate of $10.694 billion. Fiscal 1994 ended with a combined
balance of approximately $589 million in the budgeted operating funds.
Fiscal 1995 tax revenue collections were approximately $11.16 billion,
approximately $12 million above the Department of Revenue's revised fiscal year
1995 tax revenue estimate of $10.15 billion and $544 million, or 5.3%, above
fiscal 1994 tax revenues of $10.607 billion. Budgeted revenues and other
sources, including non-tax revenues, collected in fiscal 1995 were approximately
$16.39 billion, approximately $842 million or 5.4%, above the fiscal 1994
budgeted revenues of $15.55 billion. Budgeted expenditures and other uses of
funds in fiscal 1995 were approximately $16.26 billion, approximately $736
million or 4.7%, above fiscal 1994 budgeted expenditures and uses of $15.52
billion. As calculated by the controller in the preliminary financial report,
the amount of surplus funds (as so defined) for fiscal 1995 was approximately
$90.8 million, of which $55.9 million was available to be carried forward as a
beginning balance for fiscal 1996. Of the balance approximately $27.9 million
was deposited in the Stabilization Fund, and approximately $7 million was
deposited in the Cost Relief Fund.
The fiscal 1996 budget, as signed into law by the Governor on June 21,
1995, provides for expenditures of approximately $16.998 billion, a $739
million, or 4.5%, increase over fiscal 1995 spending. The largest single
spending increase in the fiscal 1996 budget is approximately $232 million to
continue funding the comprehensive educational reform legislation enacted in
1993. Budgeted revenues and other sources to be collected in fiscal 1996 are
estimated to be approximately $16.778 billion. This amount includes estimated
fiscal 1996 tax revenues of $11.653 billion, which was approximately $490
million, or 4.3%, higher than fiscal 1995 tax revenues.
As of December 31, 1995, the Governor had signed into law fiscal 1996
supplemental appropriations totaling approximately $23.5 million, including
approximately $12.6 million to fund higher education collective bargaining
contracts and $5.6 million for the Department of Social Services. These
appropriations were offset by approximately $10.4 million in line item
reductions, including a reduction of $9.8 million for the State's debt service
contract assistance to the MBTA. Based on preliminary figures, through December
1995, fiscal 1996 tax revenue collections have totaled approximately $5.378
billion, approximately $239 million, or 4.7%, greater than tax revenue
collections for the same period in fiscal 1995. Tax revenue collections to date
are within the benchmark range set by the Department of Revenue and are $20.7
million, or 0.4%, below the mid-point of such benchmark range.
The Governor's plan to provide permanent passenger vehicle registration
and lifetime operating licenses, if it continues in effect, is estimated to
reduce state revenues by approximately $90 million annually, though the fiscal
1996 cost is expected to be minimal.
In connection with a proposal to reorganize state government, the
Governor also announced on November 1, 1995, that he would propose to reduce the
personal income tax rate on earned income from 5.95% to 5.45%. The cost to the
Commonwealth of the proposed tax reduction has been estimated to be
approximately $500 million per year.
On November 28, 1995 the Governor approved a modified version of the
legislation he had filed in September to establish a "single sales factor"
apportionment formula for the business corporation's tax. As finally enacted,
the legislation applies the new formula, effective January 1, 1996, to certain
federal defense contractors and phases the new formula in over five years to
manufacturing firms generally. The Department of Revenue estimates that the new
law will reduce revenues by $44 million in fiscal 1996 and by $90 million in
fiscal 1997. If the new formula were fully effective for all covered businesses,
the Department estimates that the annual revenue reduction would be $100 million
to $150 million.
LIMITATIONS ON TAX REVENUES
In Massachusetts, efforts to limit and reduce levels of taxation have
been underway for several years. Limits were established on state tax revenues
by legislation enacted on October 25, 1986 and by an initiative petition
approved by the voters on November 4, 1986. The two measures are inconsistent in
several respects.
Chapter 62F, which was added to the General Laws by initiative petition
in November 1986, establishes a state tax revenue growth limit for each fiscal
year equal to the average positive rate of growth in total wages and salaries in
the Commonwealth, as reported by the federal government, during the three
calendar years immediately preceding the end of such fiscal year. Chapter 62F
also requires that allowable state tax revenues be reduced by the aggregate
amount received by local governmental units from any newly authorized or
increased local option taxes or excises. Any excess in state tax revenue
collections for a given fiscal year over the prescribed limit, as determined by
the State Auditor, is to be applied as a credit against the then current
personal income tax liability of all taxpayers in the Commonwealth in proportion
to the personal income tax liability of all taxpayers in the Commonwealth for
the immediately preceding tax year.
Unlike Chapter 29B, as described below, the initiative petition did not
exclude principal and interest payments on Commonwealth debt obligations from
the scope of its tax limit. However, the preamble contained in Chapter 62F
provides that "although not specifically required by anything contained in this
chapter, it is assumed that from allowable state tax revenues, as defined
herein, the Commonwealth will give priority attention to the funding of state
financial assistance to local governmental units, obligations under the state
governmental pensions systems, and payment of principal and interst on debt and
other obligations of the Commonwealth."
The legislation enacted in October 1986, which added Chapter 29B to the
General Laws, also establishes an allowable state revenue growth factor by
reference to total wages and salaries in the Commonwealth. However, rather than
utilizing a three-year average wage and salary growth rate, as used by Chapter
62F, Chapter 29B utilizes an allowable state revenue growth factor equal to 1/3
of the positive percentage gain in Massachusetts wages and salaries, as reported
by the federal government during the three calendar years immediately preceding
the end of a given fiscal year. Additionally, unlike Chapter 62F, Chapter 29B
allows for an increase in maximum state tax revenues to fund the increase in
local aid and excludes from its definition of state tax revenues (i) income
derived from local option taxes and excises, and (ii) revenues needed to fund
debt service costs.
Tax revenues in fiscal 1989 through fiscal 1995 were lower than the
limit set by either Chapter 62F or Chapter 29B. The Executive Office for
Administration and Finance currently estimates that state tax revenues in fiscal
1996 will not reach the limit imposed by either of these statutes.
PROPOSITION 2 1/2
In November 1980, voters in the Commonwealth approved a statewide tax
limitation initiative petition, commonly known as Proposition 2 1/2, to
constrain levels of property taxation and to limit the charges and fees imposed
on cities and towns by certain governmental entities, including county
governments. Proposition 2 1/2 is not a provision of the state constitution and
accordingly is subject to amendment or repeal by the legislature. Proposition 2
1/2, as amended to date, limits the property taxes that may be levied by any
city or town in any fiscal year to the lesser of (i) 2.5% of the full and fair
cash valuation of the real estate and personal property therein, and (ii) 2.5%
over the previous year's levy limit plus any growth in the tax base from certain
new construction and parcel subdivisions. Proposition 2 1/2 also limits any
increase in the charges and fees assessed by certain governmental entities,
including county governments, on cities and towns to the sum of (i) 2.5% of the
total charges and fees imposed in the preceding fiscal year, and (ii) any
increase in charges for services customarily provided locally or services
obtained by the city or town at its option. The law contains certain override
provisions and, in addition, permits debt service on specific bonds and notes
and expenditures for capital projects to be excluded from the limits by a
majority vote at a general or special election.
Many communities have responded to the limitations imposed by
Proposition 2 1/2 through statutorily permitted overrides and exclusions.
Override activity peaked in fiscal 1991, when 182 communities attempted votes on
one of the three types of referenda questions (override of levy limit, exclusion
of debt service, or exclusion of capital expenditures) and 100 passed at least
one question, adding $58.5 million to their levy limits. In fiscal 1992, 67 of
143 communities had successful votes totalling $31.0 million.
In fiscal 1993, 59 communities added $16.3 million through override
votes and in fiscal 1994, only 48 communities had successful override referenda
which added $8.4 million to their levy limits. In fiscal 1995, 32 communities
added $8.8 million. Although Proposition 2 1/2 will continue to constrain local
property or tax revenues, significant capacity exists for overrides in nearly
all cities and towns.
In addition to overrides, Proposition 2 1/2 allows a community, through
voter approval, to assess taxes in excess of its levy limit for the payment of
certain capital projects (capital outlay expenditure exclusions) and for the
payment of specified debt service costs (debt exclusions). Capital exclusions
were passed by 24 communities in fiscal 1995 and total $3.7 million. In fiscal
1995, the impact of successful debt exclusion votes going back as far as fiscal
1983, was to raise the levy limits of 217 communities by $119 million.
LOCAL AID
During the 1980's, the Commonwealth increased payments to its cities,
towns, and regional school districts ("Local Aid") to mitigate the impact of
Proposition 2 1/2 on local programs and services. In fiscal 1996, approximately
19.1% of the Commonwealth's budget is estimated to be allocated to direct local
aid. Local Aid payments to cities, towns, and regional school districts take the
form of both direct and indirect assistance.
Direct local aid decreased from $2.608 billion in fiscal 1991 to $2.359
billion in fiscal 1992, increased to $2.547 billion in fiscal 1993 and increased
to 2.727 billion in fiscal 1994. Fiscal 1995 expenditures for direct local aid
were $2.976 billion, which is an increase of approximately 9.1% above the fiscal
1994 level. It is estimated that fiscal 1996 expenditures for direct local aid
will be $3.242 billion, which is an increase of approximately 8.9% above the
fiscal 1995 level.
A statute adopted by voter initiative petition at the November 1990
statewide election regulates the distribution of Local Aid to cities and towns,
by requiring, subject to appropriation, that no less than 40% of collections
from personal income taxes, sales and use taxes, corporate excise taxes, and
lottery fund proceeds be distributed to cities and towns. Under the law, the
Local Aid distribution to each city or town would equal no less than 100% of the
total Local Aid received for fiscal 1989. Distributions in excess of fiscal 1989
levels would be based on new formulas. By its terms, the new formula would have
called for a substantial increase in direct Local Aid in fiscal 1992, and would
call for such an increase in fiscal 1993 and subsequent years. However, Local
Aid payments expressly remain subject to annual appropriation, and fiscal 1992
and fiscal 1993 appropriations for Local Aid did not meet, and fiscal 1994
appropriations for Local Aid do not meet, the levels set forth in the initiative
law.
COMMONWEALTH EXPENDITURES
From fiscal 1989 to fiscal 1991, total program expenditures of the
Commonwealth (which excludes interfund transfers) in its budgeted operating
funds increased at an average annual rate of approximately 4.0%. Fiscal 1992
program expenditures were $13.420 billion, or 1.7% lower than 1991 fiscal
program expenditures.
For fiscal 1993, program expenditures were $14.696 billion,
representing a 9.6% increase from fiscal 1992. Fiscal 1994 budgeted expenditures
were $15.523 billion, an increase of 5.6% from fiscal 1993. Fiscal 1995 budgeted
expenditures were $16.259 billion, an increase of 4.7% from fiscal 1994. It is
estimated that fiscal 1996 budgeted expenditures will be $16.998 billion, an
increase of 4.5% over fiscal 1995 levels.
Commonwealth expenditures since fiscal 1989 largely reflect significant
growth in several programs and services provided by the Commonwealth,
principally Local Aid, Medicaid and group health insurance, public assistance
programs, debt service, pensions, higher education and assistance to the
Massachusetts Bay Transportation Authority and regional transit authorities.
The Commonwealth is responsible for the payment of pension benefits for
state employees and for school teachers throughout the state. The Commonwealth
is also responsible for cost of living increases payable to local government
retirees. State pension expenditures have risen dramatically as the Commonwealth
has appropriated moneys to partially address the unfunded liabilities that had
accumulated over several decades of "pay-as-you-go" administration of the
pension systems for which it is responsible. For several years during the 1980s,
the Commonwealth made substantial direct appropriations to pension reserves, in
addition to paying current benefits. In 1988, the Commonwealth adopted a funding
schedule under which it is required to fund future pension liabilities currently
and to amortize the accumulated unfunded liabilities over 40 years. Total
pension expenditures increased at an average annual rate of 7.1% from $659.7
million in fiscal 1989 to $868.2 million in fiscal 1993. Total pension
expenditures for fiscal 1994 and fiscal 1995 were $908.9 million and $969.2
million, respectively, and are estimated at $1.032 billion for fiscal 1996.
LITIGATION
There are pending in state and federal courts within the Commonwealth
various suits in which the Commonwealth is a party. In the opinion of the
Attorney General, no litigation is pending or, to his knowledge, threatened
which is likely to result, either individually or in the aggregate, in final
judgments against the Commonwealth that would affect materially its financial
condition.
OTHER FACTORS
Many factors affect the financial condition of the Commonwealth,
including many social, environmental, and economic conditions, which are beyond
the control of the Commonwealth. As with most urban states, the continuation of
many of the Commonwealth's programs, particularly its human service programs,
is, in significant part, dependent upon continuing federal reimbursements, which
have been declining.
KEYSTONE NEW YORK TAX FREE FUND
As described in the prospectus, the New York Insured Fund will
generally invest in New York municipal obligations. The New York Insured Fund is
therefore susceptible to political, economical, or regulatory factors affecting
New York State and governmental bodies within New York State. Some of the more
significant events and conditions relating to the financial situation in New
York are summarized below. The following information provides only a brief
summary of the complex factors affecting the financial situation in New York, is
derived from sources that are generally available to investors and is believed
to be accurate. It is based on information drawn from official statements and
prospectuses issued by, and other information reported by, the State of New York
by its various public bodies, and by other entities located within the State,
including the City of New York, in connection with the issuance of their
respective securities.
THE STATE
New York State (for purposes of this section of the Appendix, "the
State") historically has been one of the wealthiest states in the nation. For
decades, however, the State has grown more slowly than the nation as a whole,
gradually eroding its relative economic position. Statewide, urban centers have
experienced significant changes involving migration of the more affluent to the
suburbs and an influx of generally less affluent residents. Regionally, the
older Northeast cities have suffered because of the relative success that the
South and the West have had in attracting people and business. New York City
(for purposes of this section of the Appendix, "the City") has also had to face
great competition as other major cities have developed financial and business
capabilities which make them less dependent on the specialized services
traditionally available almost exclusively in the City.
During the 1982-83 recession, overall economic activity in the State
declined less than that of the nation as a whole. However, in calendar years
1984 through 1991, the State's rate of economic expansion was somewhat slower
than that of the nation. In the 1990-91 recession, the economy of the State, and
that of the rest of the Northeast, was more heavily damaged than that of the
nation as a whole and has been slower to recover. The total employment growth
rate in the State has been below the national average since 1984. The
unemployment rate in the State dipped below the national rate in the second half
of 1981 and remained lower until 1991; since then, it has been higher. According
to data published by the U.S. Bureau of Economic Analysis, during the past ten
years, total personal income in the State rose slightly faster than the national
average only from 1986 through 1988.
Between 1975 and 1990 total employment grew by 21.3 percent while the
labor force grew only by 15.7 percent, unemployment fell from 9.5 percent to 5.2
percent of the labor force. In 1991 and 1992, however, total employment in the
State fell by 457,000, or 5.5 percent. As a result, the unemployment rate rose
to 8.5 percent, reflecting a recession that has had a particularly strong impact
on the entire Northeast. Calendar years 1993 and 1994 saw only a partial
recovery.
Although the State ranks 22nd in the nation for its state tax burden,
the State has the second highest combined state and local tax burden in the
United States. The burden of State and local taxation, in combination with the
many other causes of regional economic dislocation, may have contributed to the
decisions of some businesses and individuals to relocate outside, or not locate
within, the State. To stimulate economic growth, the State has developed
programs, including the provision of direct financial assistance, designed to
assist businesses to expand existing operations located within the State and to
attract new businesses to the State. In addition, the State has provided various
tax incentives to encourage business relocation and expansion.
The 1995-96 budget reflected significant actions to reduce the burden
of State taxation, including adoption of a 3-year, 20 percent reduction in the
State's personal income tax and a variety of more modest changes in other
levies. In combination with business tax reductions enacted in 1994, these
actions will reduce State taxes by over $5.5 billion by the 1997-98 fiscal year,
when compared to the estimated yield in that year of the State tax structure as
it applied in 1993-94.
In recent years, State actions affecting the level of receipts and
disbursements, as well as the relative strength of the State and regional
economy, actions of the Federal government and other factors, have created
structural budget gaps for the State. These gaps resulted from a significant
disparity between recurring revenues and the costs of maintaining or increasing
the level of support for State programs. The 1995-96 enacted budget combined
significant tax and program reductions which will, in the current and future
years, lower both the recurring receipts base (before the effect of any economic
stimulus from such tax reductions) and the historical annual growth in State
program spending. Notwithstanding these changes, the State can expect to
continue to confront structural deficits in future years.
1996-97 Fiscal Year
The State's current fiscal year commenced on April 1, 1996, and ends on
March 31, 1997, and is referred to herein as the State's 1996-97 Fiscal Year. As
of May 22, 1996, the State's budget for the 1996-97 Fiscal Year was not yet
enacted by the State Legislature.
The Governor presented his 1996-97 Executive Budget to the Legislature
on December 15, 1995, one month before the legal deadline. The Executive Budget
also contains financial projections for the State's 1997-98 and 1998-99 fiscal
years and an updated Capital Plan. As provided by the State Constitution, the
Governor submitted amendments to his 1996-97 Executive Budget within 30 days
following submission. There can be no assurance that the Legislature will enact
the Executive Budget as proposed by the Governor into law, or that the State's
adopted budget projections will not differ materially and adversely from the
projections set forth herein.
The 1996-97 Financial Plan projects balance on a cash basis in the
General Fund. It reflects a continuing strategy of substantially reduced State
spending, including program restructurings, reductions in social welfare
spending, and efficiency and productivity initiatives. Total General Fund
receipts and transfers from other funds are projected to be $31.32 billion, a
decrease of $1.4 billion from total receipts projected in the current fiscal
year. Total General Fund disbursements and transfers to their funds are
projected to be $31.22 billion, a decrease of $1.5 billion from spending totals
projected for the current fiscal year. After adjustments and transfers for
comparability between the 1995-96 and 1996-97 State Financial Plans, the
Executive Budget proposes an absolute year-to-year decline in General Fund
spending of 5.8 percent. Spending from all funding sources (including federal
aid) is proposed to increase by 0.4 percent from the prior fiscal year after
adjustments and transfers for comparability.
The Executive Budget proposes $3.9 billion in actions to balance the
1996-97 Financial Plan. Before reflecting any actions proposed by the Governor
to restrain spending, General Fund disbursements for 1996-97 were projected at
$35 billion, an increase of $2.3 billion or 7 percent from 1995-96. This
increase would have resulted from growth in Medicaid, inflationary increases in
school aid, higher fixed costs such as pensions and debt service, collective
bargaining agreements, inflation, and the loss of non-recurring resources that
offset spending in 1995-96. Receipts would have been expected to fall by $1.6
billion. This reduction would have been attributable to modest growth in the
State's economy and underlying tax base, the loss of non-recurring revenues
available in 1995-96 and implementation of previously enacted tax reduction
programs.
The Executive Budget proposes to close this gap primarily through a
series of spending reductions and cost containment measures. The Executive
Budget projects (1) over $1.8 billion in savings from cost containment and other
actions in social welfare programs, including Medicaid, welfare and various
health and mental health programs; (ii) $1.3 billion in savings from a reduced
State General Fund share of Medicaid made available from anticipated changes in
the federal Medicaid program, including an increase in the federal share of
Medicaid; (iii) over $450 million in savings from reforms and cost avoidance in
educational services (including school aid and higher education), while
providing fiscal relief from certain State mandates that increase local
spending; and (iv) $350 million in savings from efficiencies and reductions in
other State programs. The assumption regarding an increased share of federal
Medicaid funding has received bipartisan Congressional support and would benefit
32 states, including New York.
The 1996-97 Financial Plan projects receipts of $31.32 billion and
spending of $31.22 billion, allowing for a deposit of $85 million to the
Contingency Reserve Fund and a required repayment of $15 million to the Tax
Stabilization Reserve Fund.
On May 15, 1996, it was announced that the State owed local governments
approximately $430 million for services provided to handicapped children in 1994
and earlier. Funds to cover such payments were not included in the 1996-97
Financial Plan.
1995-96 Fiscal Year
The State's budget for the 1995-96 fiscal year was enacted by the
Legislature on June 7, 1995, more than two months after the start of the fiscal
year. Prior to adoption of the budget, the Legislature enacted appropriations
for disbursements considered to be necessary for State operations and other
purposes, including all necessary appropriations for debt service. The State
Financial Plan for the 1995-96 fiscal year was formulated on June 20, 1995 and
was based on the State's budget as enacted by the Legislature and signed into
law by the Governor. The State Financial Plan is updated quarterly pursuant to
law in July, October and January.
The 1995-96 budget was the first to be enacted in the administration of
the Governor, who assumed office on January 1, 1995. It was the first budget in
over half a century which proposed and, as enacted, projected an absolute
year-over-year decline in General Fund disbursements. Spending for State
operations was projected to drop even more sharply, by 4.6 percent. Nominal
spending from all State funding sources (i.e., excluding Federal aid) was
proposed to increase by only 2.5 percent from the prior fiscal year, in contrast
to the prior decade when such spending growth averaged more than 6.0 percent
annually.
In his Executive Budget, the Governor indicated that in the 1995-96
fiscal year, the State Financial Plan, based on then-current law governing
spending and revenues, would be out of balance by almost $4.7 billion, as a
result of the projected structural deficit resulting from the ongoing disparity
between sluggish growth in receipts, the effect of prior-year tax changes, and
the rapid acceleration of spending growth; the impact of unfunded 1994-95
initiatives, primarily for local aid programs; and the use of one-time
solutions, primarily surplus funds from the prior year, to fund recurring
spending in the 1994-95 budget. The Governor proposed additional tax cuts, to
spur economic growth and provide relief for low and middle-income taxpayers,
which were larger than those ultimately adopted, and which added $240 million to
the then projected imbalance or budget gap, bringing the total to approximately
$5 billion.
This gap was projected to be closed in the 1995-96 State Financial Plan
based on the enacted budget, through a series of actions, mainly spending
reductions and cost containment measures and certain reestimates that are
expected to be recurring, but also through the use of one-time solutions. The
State Financial Plan projected (I) nearly $1.6 billion in savings from cost
containment, disbursement reestimates, and other savings in social welfare
programs, including Medicaid, income maintenance and various child and family
care programs; (ii) $2.2 billion in savings from State agency actions to reduce
spending on the State workforce, SUNY and CUNY, mental hygiene programs, capital
projects, the prison system and fringe benefits; (iii) $300 million in savings
from local assistance reforms, including actions affecting school aid and
revenue sharing while proposing program legislation to provide relief from
certain mandates that increase local spending; (iv) over $400 million in revenue
measures, primarily a new Quick Draw Lottery game, changes to tax payment
schedules, and the sale of assets; and (v) $300 million from reestimates in
receipts.
There are risks and uncertainties concerning the future-year impact of
tax reductions and other measures in the 1995-96 budget.
The 1995-96 State Financial Plan included actions that will have an
effect on the budget outlook for State fiscal year 1996-97 and beyond. The DOB
estimated that the 1995-96 State Financial Plan contains actions that provide
nonrecurring resources or savings totaling approximately $900 million. These
included the use of balances set aside originally for mass transportation aid
($220 million), the use of a reserve established to fund pension supplementation
cost ($110 million) and the use of lottery balances ($62 million) The
Comptroller believed that the amount of nonrecurring resources or savings
exceeds $1.0 billion. The DOB also estimates that the 1995-96 State Financial
Plan contained nonrecurring expenditures totaling nearly $250 million. These
include the payment of social services litigation ($65 million), the deposit to
the Contingency Reserve Fund ($40 million), the payment of 1993-94 pension
charges ($56 million) and aid for maintenance costs of local schools ($45
million). The net amount of nonrecurring resources used in the 1995-96 State
Financial Plan, accordingly, was estimated by the DOB at over $600 million.
In addition to this use of nonrecurring resources, the 1995-96 State
Financial Plan reflected actions that will directly affect the State' 1996-97
fiscal year baseline receipts and disbursements. The three-year plan to reduce
State personal income taxes will decrease State tax receipts by an estimated
$1.7 billion in State fiscal year 1996-97, in addition to the amount of
reduction in State fiscal year 1995-96. Further significant reductions in the
personal income tax are scheduled for the 1997-98 State fiscal year. Other tax
reductions enacted in 1994 and 1995 are estimated to cause an additional
reduction in receipts of over $500 million in 1996-97, as compared to the level
of receipts in 1995-96. Similarly, many actions taken to reduce disbursements in
the State's 1995-96 fiscal year are expected to provide greater reductions in
State fiscal year 1996-97. These include actions to reduce the State workforce,
reduce Medicaid and welfare expenditures and slow community mental hygiene
program development. The net impact of these factors is expected to produce a
potential imbalance in receipts and disbursements in State fiscal year 1996-97
As part of the early release of the 1996-97 Executive Budget, the State
updated its 1995-96 cash-basis State Financial Plan (the "Financial Plan
Update") on December 15, 1995, as a part of the Governor's Executive Budget
presentation.
The State updated its forecast of national and State economic activity
through the end of calendar year 1996. The national economic forecast remained
basically unchanged from the initial forecast on which the original 1995-96
State Financial Plan was based, while the State economic forecast was marginally
weaker.
Actual receipts through the first two quarters of the 1995-96 State
fiscal year fell short of expectations by $101 million. Much of this shortfall
was due to timing-related delays in sources other than taxes. Based on the
revised economic outlook and actual receipts for the first six months of
1995-96, projected General Fund receipts for the 1995-96 State fiscal year were
reduced by $73 million, offset by $2 million in increased revenues and transfers
associated with actions taken in the Management Review Plan. Actual
disbursements through the first six months of the fiscal year were $89 million
less than projected, primarily because of delays in processing payments
following delayed enactment of the State budget. No savings were included in the
Mid-Year Update from this slower-than-expected spending. Projected disbursements
for the 1995-96 State fiscal year were reduced by $30 million because spending
increases in local assistance and State operations was more than offset by debt
service savings and the reductions from the Management Review Plan.
The 1995-96 General Fund Financial Plan continued to be balanced, with
reductions in projected receipts offset by an equivalent reduction in projected
disbursements. Modest changes were made to the Mid-Year Update, reflecting two
more months of actual results, deficiency requests by State agencies (the
largest of which is for school aid resulting from revisions to data submitted by
school districts), and administrative efficiencies achieved by State agencies.
Total General Fund receipts are expected to be approximately $73 million lower
than estimated at the time of the Mid-Year Update. Tax receipts were projected
to be $29.57 billion, $8 million less than in the earlier plan. Miscellaneous
receipts and transfers from other funds were estimated at $3.15 billion, $65
million lower than in the Mid-Year Update. The largest single change in these
estimates is attributable to the lag in achieving $50 million in proceeds from
sales of State assets, which are unlikely to be completed prior to the end of
the fiscal year.
Projected General Fund disbursements were reduced by a total of $73
million, with changes made in most major categories of the 1995-96 State
Financial Plan. The reduction in overall spending masks the impact of deficiency
requests totaling more than $140 million, primarily for school aid and tuition
assistance to college students. Offsetting reductions in spending are
attributable to the continued maintenance of strict controls on spending through
the fiscal year by State agencies, yielding savings of $50 million. Reductions
of $49 million in support for capital projects reflect a stringent review of all
capital spending. Reductions of $30 million in debt service costs reflect
savings from refundings undertaken in the current fiscal year, as well as
savings from lower interest rates in the financial market. Finally, the 1995-96
Financial Plan reflected reestimates based on actual results through November,
the largest of which is a reduction of $70 million in projected costs for income
maintenance. This reduction is consistent with declining caseload projections.
The balance in the General Fund at the close of the 1995-96 fiscal year
was expected to be $172 million, entirely attributable to monies in the Tax
Stabilization Reserve Fund following the required $15 million payment into that
Fund. A $40 million deposit to the Contingency Reserve Fund included as part of
the enacted 1995-96 budget will not be made, and the minor balance of $1 million
currently in the Fund will be transferred to the General Fund. These Contingency
Reserve Fund monies are expected to support payments from the General Fund for
litigation related to the State's Medicaid program, and for federal
disallowances.
Changes in federal aid programs currently pending in Congress were not
expected to have a material impact on the State's 1995-96 Financial Plan,
although prolonged interruptions in the receipt of federal grants could create
adverse developments, the scope of which can not be estimated at this time. The
major remaining uncertainties in the 1995-96 State Financial Plan continue to be
those related to the economy and tax collections, which could produce either
favorable or unfavorable variances during the balance of the year.
Past Years
New York State's financial operations have improved during recent
fiscal years. During the period 1989-90 through 1991-92, the State incurred
General Fund operating deficits that were closed with receipts from the issuance
of tax and revenue anticipation notes ("TRANs"). First, the national recession,
and then the lingering economic slowdown in the New York and regional economy,
resulted in repeated shortfalls in receipts and three budget deficits. For its
1992-93, 1993-94 and 1994-95 fiscal years, the State recorded balanced budgets
on a cash basis, with substantial fund balances in 1992-93 and 1993-94, and a
smaller fund balance in 1994-95 as described below.
1994-95 Fiscal Year
New York State ended its 1994-95 fiscal year with the General Fund in
balance. The closing fund balance of $158 million reflects $157 million in the
Tax Stabilization Reserve Fund and $1 million in the Contingency Reserve Fund
("CRF"). The CRF was established in State fiscal year 1993-94, funded partly
with surplus moneys, to assist the State in financing the 1994-95 fiscal year
costs of extraordinary litigation known or anticipated at that time; the opening
fund balance in State fiscal year 1994-95 was $265 million. The $241 million
change in the fund balance reflects the use of $264 million in the CRF as
planned, as well as the required deposit of $23 million to the Tax Stabilization
Reserve Fund. In addition, $278 million was on deposit in the tax refund reserve
account, $250 million of which was deposited at the end of the State's 1994-95
fiscal year to continue the process of restructuring the State's cash flow as
part of the Local Governmental Assistance Corporation ("LGAC") program.
Compared to the State Financial Plan for 1994-95 as formulated on June
16, 1994, reported receipts fell short of original projections by $1.163
billion, primarily in the categories of personal income and business taxes. Of
this amount, the personal income tax accounts for $800 million, reflecting weak
estimated tax collections and lower withholding due to reduced wage and salary
growth, more severe reductions in brokerage industry bonuses than projected
earlier, and deferral of capital gains realizations in anticipation of potential
Federal tax changes. Business taxes fell short by $373 million, primarily
reflecting lower payments from banks as substantial overpayments of 1993
liability depressed net collections in 1994-95 fiscal year. These shortfalls
were offset by better performance in the remaining taxes, particularly the user
taxes and fees, which exceeded projections by $210 million. Of this amount, $227
million was attributable to certain restatements for accounting treatment
purposes pertaining to the CRF and LGAC; these restatements had no impact on
balance in the General Fund.
Disbursements were also reduced from original projections by $848
million. After adjusting for the net impact of restatements relating to the CRF
and LGAC which raised disbursements by $38 million, the variance is $886
million. Well over two-thirds of this variance is in the category of grants to
local governments, primarily reflecting the conservative nature of the original
estimates of projected costs for social services and other programs. Lower
education costs are attributable to the availability of $110 million in
additional lottery proceeds and the use of LGAC bond proceeds.
The spending reductions also reflect $188 million in actions initiated
in January 1995 by the Governor to reduce spending to avert a potential gap in
the 1994-95 State Financial Plan. These actions included savings from a hiring
freeze, halting the development of certain services, and the suspension of
non-essential capital projects. These actions, together with $71 million in
other measures comprised the Governor's $159 million gap-closing plan, submitted
to the Legislature in connection with the 1995-96 Executive Budget.
1993-94 Fiscal Year
The State ended its 1993-94 fiscal year with a balance of $1.140
billion in the tax refund reserve account, $265 million in the CRF and $134
million in its Tax Stabilization Reserve Fund. These fund balances were
primarily the result of an improving national economy, State employment growth,
tax collections that exceeded earlier projections and disbursements that were
below expectations. Deposits to the personal income tax refund reserve have the
effect of reducing reported personal income tax receipts in the fiscal year when
made and withdrawals from such reserve increase receipts in the fiscal year when
made. The balance in the tax refund reserve account was used to pay taxpayer
refunds.
Of the $1.140 billion deposited in the tax refund reserve account,
$1.026 billion was available for budgetary planning purposes in the 1994-95
fiscal year. The remaining $114 million was redeposited in the tax refund
reserve account at the end of the State's 1993-94 fiscal year to continue the
process of restructuring the State's cash flow as part of the LGAC program. The
balance in the CRF was reserved to meet the cost of litigation facing the State
in its 1994-95 fiscal year.
Before the deposit of $1.140 billion in the tax refund reserve account,
General Fund receipts in 1993-94 exceeded those originally projected when the
State Financial Plan for that year was formulated on April 16, 1993 by $1.002
billion. Greater-than-expected receipts in the personal income tax, the bank
tax, the corporation franchise tax and the estate tax accounted for most of this
variance, and more than offset weaker-than-projected collections from the sales
and use tax and miscellaneous receipts. Collections from individual taxes were
affected by various factors including changes in Federal business laws,
sustained profitability of banks, strong performance of securities firms, and
higher-than-expected consumption of tobacco products following price cuts.
The higher receipts resulted, in part, because the New York economy
performed better than forecasted. Employment growth started in the first quarter
of the State's 1993-94 fiscal year, and, although this lagged behind the
national economic recovery, the growth in New York began earlier than
forecasted. The New York economy exhibited signs of strength in the service
sector, in construction, and in trade. Long Island and the Mid-Hudson Valley
continued to lag behind the rest of the State in economic growth.
The DOB believes that approximately 100,000 jobs were added during the 1993-94
fiscal year.
Disbursements and transfers from the General Fund were $303 million
below the level projected in April 1993, an amount that would have been $423
million had the State not accelerated the payment of Medicaid billings, which in
the April 1993 State Financial Plan were planned to be deferred into the 1994-95
fiscal year. Compared to the estimates included in the State Financial Plan
formulated in April 1993, lower disbursements resulted form lower spending for
Medicaid, capital projects, and debt service (due to refundings) and $114
million used to restructure the State's cash flow as part of the LGAC program.
Disbursements were higher than expected for general support for public schools,
the State share of income maintenance, overtime for prison guards, and highway
snow and ice removal. The State also made the first of six required payments to
the State of Delaware related to the settlement of Delaware's litigation against
the State regarding the disposition of abandoned property receipts.
During the 1993-94 fiscal year, the State also established and funded
the CRF as a way to assist the State in financing the cost of litigation
affecting the State. The CRF was initially funded with a transfer of $100
million attributable to the positive margin recorded in the 1992-93 fiscal year.
In addition, the State augmented this initial deposit with $132 million in debt
service savings attributable to the refinancing of State and public authority
bonds during 1993-94. A year-end transfer of $36 million was also made to the
CRF, which, after a disbursement for authorized fund purposes, brought the CRF
balance a the end of 1993-94 to $265 million. This amount was $165 million
higher than the amount originally targeted for this reserve fund.
1992-93 Fiscal Year
The State ended its 1992-93 fiscal year with a balance of $671 million
in the tax refund reserve account and $67 million in the Tax Stabilization
Reserve Fund.
The State's 1992-93 fiscal year was characterized by performance that
was better than projected for the national and regional economies. National
gross domestic product, State personal income, and State employment and
unemployment performed better than originally projected in April 1992. This
favorable economic performance, particularly at year end, combined with a
tax-induced acceleration of income into 1992, was the primary cause of the
General Fund surplus. Personal income tax collections were more than $700
million higher than originally projected (before reflecting the tax refund
reserve account transaction), primarily in the withholding and estimated payment
components of the tax.
There were large, but mainly offsetting, variances in other categories
of receipts. Significantly higher-than-projected business tax collections and
the receipt of unbudgeted payments from the Medical Malpractice Insurance
Association ("MMIA") and the New York Racing Association approximately offset
the loss of an anticipated $200 million Federal reimbursement, the loss of
certain budgeted hospital differential revenue as a result of unfavorable court
decisions, and shortfalls in certain miscellaneous revenues.
Disbursements and transfers to other funds were $45 million above
projections in April 1992, although this includes a $150 million payment to
health insurers (financed with a receipt from the MMIA made pursuant to
legislation passed in January 1992). All other disbursements were $105 million
lower than projected. This reduction primarily reflected lower costs in
virtually all categories of spending, including Medicaid, local health programs,
agency operations, fringe benefits, capital projects and debt service as
partially offset by higher-than-anticipated costs for education programs.
Local Government Assistance Corporation
In 1990, as part of a State fiscal reform program, legislation was
enacted creating LGAC, a public benefit corporation empowered to issue long-term
obligations to fund certain payments to local governments traditionally funded
through the State's annual seasonal borrowing. The legislation authorized LGAC
to issue its bonds and notes in an amount not in excess of $4.7 billion
(exclusive of certain refunding bonds) plus certain other amounts. Over a period
of years, the issuance of these long-term obligations, which are to be amortized
over no more than 30 years, was expected to eliminate the need for continued
short-term seasonal borrowing. The legislation also dedicated revenues equal to
one-quarter of the four cent State sales and use tax to pay debt service on
these bonds. The legislation also imposed a cap on the annual seasonal borrowing
of the State at $4.7 billion, less net proceeds of bonds issued by LGAC and
bonds issued to provide for capitalized interest, except as cases where the
Governor and the legislative leaders have certified the need for additional
borrowing and provided a schedule for reducing it to the cap. If borrowing above
the cap is thus permitted in any fiscal year, it is required by law to be
reduced to the cap by the fourth fiscal year after the limit was first exceeded.
This provision capping the seasonal borrowing was included as a covenant with
LGAC's bondholders in the resolution authorizing such bonds.
As of June 1995, LGAC had issued bonds and notes to provide net
proceeds of $4.7 billion, completing the program. The impact of LGAC's borrowing
is that the State is able to meet its cash flow needs in the first quarter of
the fiscal year without relying on short-term seasonal borrowings. The 1995-96
State Financial Plan includes no spring borrowing nor did the 1994-95 State
Financial Plan, which was the first time in 35 years there was no short-term
seasonal borrowing. This reflects the success of the LGAC program in permitting
the State to accelerate local aid payments form the first quarter of the current
fiscal year to the fourth quarter of the previous fiscal year.
In June 1994, the Legislature passed a proposed constitutional
amendment that would significantly change the long-term financing practices of
the State and its public authorities. The proposed amendment would permit the
State, within a formula-based cap, to issue revenue bonds, which would be debt
of the State secured solely by a pledge of certain State tax receipts (including
those allocated to State funds dedicated for transportation purposes), and not
by the full faith and credit of the State. In addition, the proposed
constitutional amendment would (i) permit multiple purpose general obligation
bond proposals to be proposed on the same ballot, (ii) require that State debt
be incurred only for capital projects included in a multi-year capital financing
plan, and (iii) prohibit, after its effective date, lease-purchase and
contractual-obligation financings mechanisms for State facilities.
The State anticipates that its capital programs will be financed, in
part, through borrowings by the State and public authorities in the 1995-96
fiscal year. The State expects to issue $248 million in general obligation bonds
(including $70 million for purposes of redeeming outstanding BANs) and $186
million in general obligation commercial paper. The Legislature has also
authorized the issuance of up to $33 million in COPs during the State's 1995-96
fiscal year for equipment purchases and $14 million for capital purposes. The
projection of the State regarding its borrowings for the 1995-96 fiscal year may
change if circumstances require.
LGAC is authorized to provide net proceeds of up to $529 million during
the State's 1995-96 fiscal year, to redeem notes sold in June 1995, completing
its financing program as discussed above.
Ratings
On July 13, 1995, Standard & Poor's confirmed its rating on the State's
general obligation bonds of A-. On July 3, 1995 Moody's confirmed its rating on
the State's general obligation long-term indebtedness of A.
THE CITY OF NEW YORK
The fiscal health of the State is closely related to the fiscal health
of its localities, particularly the City of New York, which has required and
continues to require significant financial assistance from the State. The City
depends on State Aid both to enable the City to balance its budget and to meet
its cash requirements. The City has achieved balanced operating results for each
of its fiscal years since 1981 as reported in accordance with the
then-applicable GAAP Standards. During the 1990 and 1991 fiscal years, the City
experienced significant shortfalls in almost all of its major tax sources and
increases in social service costs, and was required to take actions to close
substantial budget gaps in order to maintain balanced budgets in accordance with
its financial plan. For fiscal 1993, the City achieved balanced operating
results.
In response to the City's financial crisis in 1975, the State took
action to assist the City in returning to fiscal stability. Among these actions,
the State created the Municipal Assistance Corporation for the City of New York
("MAC") to provide financing assistance to the City. The State also enacted the
New York State Financial Emergency Act for the City of New York ( the "Financial
Emergency Act") which, among other things, established the New York State
Financial Control Board (the "Control Board") to oversee the City's financial
affairs, the Office of the State Deputy Comptroller for New York ("OSDC") in the
Office of the State Comptroller to assist the Control Board in exercising its
powers and responsibilities, and a "Control Period" which existed from 1975 to
1986 during which the City was subject to certain statutorily-prescribed fiscal
controls. Although the Control Board terminated the Control Period in 1986 when
certain statutory conditions were met, thus suspending certain Control Board
powers, the Control Board, MAC and OSDC continue to exercise various fiscal
monitoring functions over the City, and upon the occurrence or "substantial
likelihood and imminence" of the occurrence of certain events, including, but
not limited to, a City operating budget deficit of more than $100 million, the
Control Board is required by law to reimpose a "Control Period." Currently, the
City and its "Covered Organizations" (i.e., those which receive or may receive
monies from the City directly, indirectly or contingently) operate under a
four-year financial plan which the City prepares annually and periodically
updates. The City's Financial Plan includes its capital, revenue and expense
projections and outlines proposed gap-closing programs for years with projected
budget gaps.
The City submits its financial plans as well as the periodic updates to
the Control Board for its review. In August 1993, the City submitted to the
Control Board its 1994-1997 Financial Plan. The Financial Plan projected a
balanced budget in fiscal 1994, based on revenues of approximately $31.250
billion. The Financial Plan also predicted budget gaps of approximately $1.3
billion in fiscal year 1995, $1.8 billion in fiscal year 1996 and $2.0 billion
in fiscal year 1997.
Estimates of the City's revenues and expenditures are based on numerous
assumptions and are subject to various uncertainties. If expected federal or
State aid are not forthcoming, if unforeseen developments in the economy
significantly reduce revenues derived from economically sensitive taxes or
necessitate increased expenditures for public assistance, if the City should
negotiate wage increases for its employees greater than the amounts provided for
in the City's Financial Plan or if other uncertainties materialize that reduce
expected revenues or increase projected expenditures, then, to avoid operating
deficits, the City may be required to implement additional actions, including
increases in taxes and reductions in essential City services. The City might
also seek additional assistance from the State.
On July 10, 1995, Standard & Poor's revised downward its rating on City
general obligation bonds from A- to BBB+ and removed City bonds from
CreditWatch. Standard & Poor's stated that "structural budgetary balance remains
elusive because of persistent softness in the City's economy, highlighted by
weak job growth and a growing dependence on the historically volatile financial
services sector." Other factors identified by Standard & Poor's in lowering its
rating on City bonds included a trend of using one-time measures, including debt
refinancings, to close projected budget gaps, dependence on unratified labor
savings to help balance the Financial Plan, optimistic projections of additional
federal and State aid or mandate relief, a history of cash flow difficulties
caused by State budget delays and continued high debt levels. Fitch Investors
Service, Inc. continues to rate City general obligation bonds A-. Moody's rating
for City general obligation bonds is Baa1.
AUTHORITIES
New York State's authorities are generally responsible for financing,
constructing and operating revenue-producing public benefit facilities. The
fiscal stability of the State is related, in part, to the fiscal stability of
its public authorities. Public authorities are not subject to the constitutional
restrictions on the inccurrence of debt which applies to the State itself and
may issue bonds and notes within the amounts permitted by, and as otherwise
restricted by, their legislative authorization. The State's access to the public
credit markets could be impaired, and the market price of its outstanding debt
may be materially adversely affected, if any of its public authorities were to
default on their respective obligations, particularly those using the financing
techniques referred to as State-supported or State-related.
As of September 30, 1994, the date of the latest data available, there
were 18 public authorities that had outstanding debt of $100 million or more,
and the aggregate outstanding debt including refunding bonds, of the these 18
public authorities was $70.3 billion.
As of March 31, 1995, aggregate public authority debt outstanding as
State-supported debt was $27.9 billion and as State-related debt was $36.1
billion.
Public authority operating expenses and debt service costs are
generally paid by revenues generated by the projects financed or operated, such
as tolls charged for the use of highways, bridges or tunnels, rentals charged
for housing units, and charges for occupancy at medical care facilities. In
addition, State legislation authorizes several financing techniques for public
authorities. Also, there are statutory arrangements providing for state local
assistance payments, otherwise payable to localities, to be made under certain
circumstances to public authorities. Although the state has no obligation to
provide additional assistance to localities whose local assistance payments have
been paid to public authorities under those arrangements if local assistance
payments are so diverted, the affected localities could seek additional state
assistance. Some authorities also received monies from state appropriations to
pay for the operating costs of certain programs.
The Metropolitan Transportation Authority (the "MTA") oversees the
operation of New York City's bus and subway systems and, through its affiliates
and subsidiaries, operates certain commuter rail and bus lines and a rapid
transit line. Through an affiliate, the MTA operates certain intrastate toll
bridges and tunnels. The MTA has depended and will continue to depend upon
Federal, State, local government and agency support to operate the mass transit
portion of these operations because fare revenues are insufficient. If current
revenue projections are not realized and/or operating expenses exceed current
projections, the MTA may be required to seek additional state assistance, raise
fares or take other actions.
Since 1980, the State has enacted several taxes that provide revenues
for mass transit purposes, including assistance to the MTA. In addition, since
1987, State law has required that the proceeds of 1/4 of 1% of mortgage
recording tax paid on certain mortgages in the Metropolitan Transportation
Region served by the MTA be deposited in a special MTA fund for operating or
capital expenses. Further, in 1993, the State dedicated a portion of certain
additional state petroleum business tax receipts to fund operating or capital
assistance to the MTA. For the 1995-1996 State Fiscal Year, total state
assistance to the MTA is estimated at approximately $1.1 billion.
In 1993, State legislation authorized the funding of a 5-year $9.56
billion MTA Capital Plan for the 5-year period, 1993 through 1996 (the
"1992-1996 Capital Program"). The MTA has received approval of the 1992-1996
Capital Program based on this legislation from the MTA Capital Program Review
Board, as state law requires. This is the third 5-year plan since the
legislature authorized procedures for the adoption, approval and amendment of a
5-year plan in 1981 for a capital program designed to upgrade the performance of
the MTA's transportation system and to supplement, replace and rehabilitate
facilities and equipment. The MTA and its affiliates are collectively authorized
to issue an aggregate of $3.1 billion of bonds (net of certain statutory
exclusion) to finance a portion of the 1992-1996 Capital Program.
There can be no assurance that all the necessary governmental actions
for the 1992-1996 Capital Program or future capital programs will be taken, that
funding sources currently identified will not be decreased or eliminated, or
that the 1992-1996 Capital Program, or parts thereof, will not be delayed or
reduced. If the Capital Program is delayed or reduced, ridership and fair
revenues may decline, which could, among other things, impair the MTA's ability
to meet its operating expenses without additional state assistance.
AGENCIES AND LOCALITIES
Certain localities in addition to New York City could have financial
problems leading to requests for additional State assistance during the State's
1995-1996 fiscal year and thereafter. The potential impact on the State of such
requests by localities is not included in the projections of the State receipts
and disbursements in the State's 1995-1996 fiscal year.
Fiscal difficulties experienced by the City of Yonkers ("Yonkers")
resulted in the creation of the Financial Control Board of the City of Yonkers
(the "Yonkers Board") by the State in 1984. The Yonkers Board is charged with
oversight of the fiscal affairs of Yonkers. Future actions taken by the State to
assist Yonkers could result in allocation of State resources in amounts that
cannot yet be determined.
Municipalities and school districts have engaged in substantial short
term and long term borrowing. In 1993, the total indebtedness of all localities
in the State other than New York City was approximately $17.7 billion. A small
portion of this indebtedness represented borrowing to finance budgetary deficits
and was issued pursuant to enabling State legislation. State law requires the
Comptroller to review and make recommendations concerning the budgets of these
local government units other than New York City authorized by State law to issue
debt to finance deficits during the period that such deficit financing is
outstanding. Fifteen localities had outstanding indebtedness for deficit
financing at the close of their fiscal year ending 1993.
From time to time, Federal expenditure reductions could reduce, or in
some cases eliminate, Federal funding of some local programs and accordingly
might impose substantial increased expenditure requirements on affected
localities. If the State, New York City or any of the Authorities were to suffer
serious financial difficulties jeopardizing their respective access to the
public credit markets, the marketability of notes and bonds issued by localities
within the State could be adversely affected. Localities face anticipated and
potential problems resulting from certain pending litigation, judicial
decisions, and long-range economic trends. Long range potential problems of
declining urban population, increasing expenditures and other economic trends
could adversely affect localities and require increasing State assistance in the
future.
LITIGATION
Certain litigation pending against the State or its officers or
employees could affect adversely the financial condition of the State in the
1995-1996 fiscal year or thereafter. Adverse developments in these proceedings
or the initiation of new proceedings could affect the ability of the State to
maintain a balanced 1995-1996 State Financial Plan. The State believes that the
1995-1996 State Financial Plan includes sufficient reserves for the payment of
judgments that may be required during the 1995-1996 fiscal year. There can be no
assurance, however, that an adverse decision in any of these proceedings would
not exceed the amount of the 1995-1996 State Financial Plan reserves for the
payment of judgments and, thereby, affect the ability of the State to maintain a
balanced 1995-1996 State Financial Plan. Among the more significant of these
cases are those that involve: (1) the validity of agreements and treaties by
which various Indian tribes transferred title to the state of certain land in
central and upstate New York; (2) certain aspects of the State's Medicaid rates
and regulations; (3) treatment provided at several state mental health
facilities; (4)alleged responsibility of State officials to assist in remedying
racial segregation in the City of Yonkers;(5) the validity of certain surchages
on hospital bills and (6) the assessment of petroleum business taxes on fuel
purchased out of state.
KEYSTONE PENNSYLVANIA TAX FREE FUND
GENERAL
The Commonwealth of Pennsylvania, the fifth most populous state,
historically has been identified as a heavy industry state, although that
reputation has changed with the decline of the coal, steel and railroad
industries and the resulting diversification of the Commonwealth's industrial
composition. The major new sources of growth are in the service sector,
including trade, medical and health services, educational and financial
institutions. Manufacturing has fallen behind in both the service sector and the
trade sector as a source of employment in Pennsylvania. The Commonwealth is the
headquarters for 58 major corporations. Pennsylvania's average annual
unemployment rate for the years 1990 through 1995 on average remained below the
nation's annual average unemployment rate. The seasonally adjusted unemployment
rate for both Pennsylvania and the United States for March, 1996 was 5.6%. The
population of Pennsylvania, 12,072 million people in 1995 according to the U.S.
Bureau of the Census, represents an increase from the 1986 estimate of 11,784
million. Per capita income in Pennsylvania for 1994 of $22,196 was higher than
the per capita income of the United States of $21,699. The Commonwealth's
General Fund, which receives all tax receipts and most other revenues and
through which debt service on all general obligations of the Commonwealth are
made, closed fiscal years ended June 30, 1993, June 30, 1994 and June 30, 1995
with fund balances of $698,945, $892,940 and positive $688,304, respectively.
DEBT
The Commonwealth may incur debt to rehabilitate areas affected by
disaster, debt approved by the electorate, debt for certain capital projects
(for projects such as highways, public improvements, transportation assistance,
flood control, redevelopment assistance, site development and industrial
development) and tax anticipation debt payable in the fiscal year of issuance.
The Commonwealth had outstanding general obligation debt of $5,045 million at
June 30, 1995. The Commonwealth is not permitted to fund deficits between fiscal
years with any form of debt. All year-end deficit balances must be funded within
the succeeding fiscal year's budget. At May 15, 1996, all outstanding general
obligation bonds of the Commonwealth were rated AA- by Standard & Poor's
Corporation and A-1 by Moody's Investors Service, Inc. (see Appendix B). There
can be no assurance that these ratings will remain in effect in the future. Over
the five-year period ending June 30, 2001, the Commonwealth has projected that
it will issue notes and bonds totaling $1,982 million and retire bonded debt in
the principal amount of $1,800 million.
Certain agencies created by the Commonwealth have statutory
authorization to incur debt for which Commonwealth appropriations to pay debt
service thereon are not required. As of December 31, 1995, total combined debt
outstanding for these agencies was $7,102 million. The debt of these agencies is
supported by assets of, or revenues derived from, the various projects financed
and is not an obligation of the Commonwealth. Some of these agencies, however,
are indirectly dependent on Commonwealth appropriations. The only obligations of
agencies in the Commonwealth that bear a moral obligation of the Commonwealth
are those issued by the Pennsylvania Housing Finance Agency ("PHFA"), a
state-created agency which provides housing for lower and moderate income
families, and The Hospitals and Higher Education Facilities Authority of
Philadelphia (the "Hospital Authority"), an agency created by the City of
Philadelphia to acquire and prepare various sites for use as intermediate care
facilities for the mentally retarded.
LOCAL GOVERNMENT DEBT
Numerous local government units in Pennsylvania issue general
obligation (i.e., backed by taxing power) debt, including counties, cities,
boroughs, townships and school districts. School district obligations are
supported indirectly by the Commonwealth. The issuance of non-electoral general
obligation debt is limited by constitutional and statutory provisions. Electoral
debt, i.e., that approved by the voters, is unlimited. In addition, local
government units and municipal and other authorities may issue revenue
obligations that are supported by the revenues generated from particular
projects or enterprises. Examples include municipal authorities (frequently
operating water and sewer systems), municipal authorities formed to issue
obligations benefitting hospitals and educational institutions, and industrial
development authorities, whose obligations benefit industrial or commercial
occupants. In some cases, sewer or water revenue obligations are guaranteed by
taxing bodies and have the credit characteristics of general obligations debt.
LITIGATION
Pennsylvania is currently involved in certain litigation where adverse
decisions could have an adverse impact on its ability to pay debt service. In
Baby Neal v. Commonwealth, the American Civil Liberties Union filed a lawsuit
against the Commonwealth seeking an order that would require the Commonwealth to
provide additional funding for child welfare services. County of Allegheny v.
Commonwealth of Pennsylvania involves litigation regarding the state
constitutionality of the statutory scheme for county funding of the judicial
system. In Pennsylvania Association of Rural and Small Schools v. Casey, the
constitutionality of Pennsylvania's system for funding local school districts
has been challenged. No estimates for the amount of these claims are available.
OTHER FACTORS
The performance of the obligations held by the Fund issued by the
Commonwealth, its agencies, subdivisions and instrumentalities are in part tied
to state-wide, regional and local conditions within the Commonwealth and to the
creditworthiness of certain non-Commonwealth related obligers, depending upon
the Pennsylvania Fund's portfolio mix at any given time. Adverse changes to the
state-wide, regional or local economies or changes in government may adversely
affect the creditworthiness of the Commonwealth, its agencies and
municipalities, and certain other non-government related obligers of
Pennsylvania tax-free obligations (e.g., a university, a hospital or a corporate
obligor). The City of Philadelphia, for example, experienced severe financial
problems which impaired its ability to borrow money and adversely affected the
ratings of its obligations and their marketability. Conversely, some obligations
held by the Fund will be almost exclusively dependent on the creditworthiness of
one underlying obligor, such as a project occupant or provider of credit or
liquidity support.
<PAGE>
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APPENDIX B
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CORPORATE AND MUNICIPAL BOND RATINGS
S&P CORPORATE AND MUNICIPAL BOND RATINGS
A. MUNICIPAL NOTES
An S&P note rating reflects the liquidity concerns and market access
risks unique to notes. Notes due in three years or less will likely receive a
note rating. Notes maturing beyond three years will most likely receive a
long-term debt rating. The following criteria are used in making that
assessment:
a. Amortization schedule (the larger the final maturity relative to
other maturities the more likely it will be treated as a note), and
b. Source of payment (the more dependent the issue is on the market for
its refinancing, the more likely it will be treated as a note).
Note ratings are as follows:
1. SP-1 - Very strong or strong capacity to pay principal and interest.
Those issues determined to possess overwhelming safety characteristics
will be given a plus (+) designation.
2. SP-2 - Satisfactory capacity to pay principal and interest.
3. SP-3 - Speculative capacity to pay principal and interest.
B. TAX EXEMPT DEMAND BONDS
S&P assigns "dual" ratings to all long-term debt issues that have as
part of their provisions a demand or double feature.
The first rating addresses the likelihood of repayment of principal and
interest as due, and the second rating addresses only the demand feature. The
long-term debt rating symbols are used for bonds to denote the long-term
maturity and the commercial paper rating symbols are used to denote the put
option (for example, "AAA/A-1+"). For the newer "demand notes," S&P note rating
symbols, combined with the commercial paper symbols, are used (for example,
"SP-1+/A-1+" ).
C. CORPORATE AND MUNICIPAL BOND RATINGS
An S&P corporate or municipal bond rating is a current assessment of
the creditworthiness of an obligor, including obligors outside the U.S., with
respect to a specific obligation. This assessment may take into consideration
obligors such as guarantors, insurers or lessees. Ratings of foreign obligors do
not take into account currency exchange and related uncertainties. The ratings
are based on current information furnished by the issuer or obtained by S&P from
other sources it considers reliable.
The ratings are based, in varying degrees, on the following
considerations:
a. Likelihood of default and capacity and willingness of the obligor as
to the timely payment of interest and repayment of principal in accordance with
the terms of the obligation;
b. Nature of and provisions of the obligation; and
c. Protection afforded by and relative position of the obligation in
the event of bankruptcy reorganization or other arrangement under the laws of
bankruptcy and other laws affecting creditors' rights.
PLUS (+) OR MINUS (-): To provide more detailed indications of credit
quality, ratings from "AA" to "BBB" may be modified by the addition of a plus or
minus sign to show relative standing within the major rating categories.
A provisional rating is sometimes used by S&P. It assumes the
successful completion of the project being financed by the debt being rated and
indicates that payment of debt service requirements is largely or entirely
dependent upon the successful and timely completion of the project. This rating,
however, while addressing credit quality subsequent to completion of the
project, makes no comment on the likelihood of, or the risk of default upon
failure of, such completion.
C. BOND RATINGS ARE AS FOLLOWS:
a. AAA - Debt rated AAA has the highest rating assigned by S&P.
Capacity to pay interest and repay principal is extremely strong.
b. 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 prncipal in accordance with the terms of teh 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.
D. MOODY'S CORPORATE AND MUNICIPAL BOND RATINGS
Moody's ratings are as follows:
1. Aaa - Bonds which are rated Aaa are judged to be of the best
quality. They carry the smallest degree of investment risk and are generally
referred to as "gilt-edge." Interest payments are protected by a large or by an
exceptionally stable margin and principal is secure. While the various
protective elements are likely to change, such changes as can be visualized are
most unlikely to impair the fundamentally strong position of such issues.
2. Aa - Bonds which are rated Aa are judged to be of high quality by
all standards. Together with the Aaa group they comprise what are generally
known as high grade bonds. They are rated lower than the best bonds because
margins of protection may not be as large as in Aaa securities or fluctuation of
protective elements may be of greater amplitude or there may be other elements
present which make the long term risks appear somewhat larger than in Aaa
securities.
3. A - Bonds which are rated A possess many favorable investment
attributes and are to be considered as upper medium grade obligations. Factors
giving security to principal and interest are considered adequate but elements
may be present which suggest a susceptibility to impairment sometime in the
future.
4. Baa - Bonds which are rated Baa are considered as medium grade
obligations, i.e., they are neither highly protected nor poorly secured.
Interest payments and principal security appear adequate for the present but
certain protective elements may be lacking or may be characteristically
unreliable over any great length of time. Such bonds lack outstanding investment
characteristics and in fact have speculative characteristics as well.
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 interst and principal payments or of
maintenance of other terms of the contract over any long period of time may be
small.
Moody's applies numerical modifiers, 1, 2 and 3 in each generic rating
classification from Aa through Baa in its corporate bond rating system. The
modifier 1 indicates that the security ranks in the higher end of its generic
rating category; the modifier 2 indicates a mid-range ranking; and the modifier
3 indicates that the issue ranks in the lower end of its generic rating
category.
CON. (---) - Municipal bonds for which the security depends upon the
completion of some act or the fulfillment of some condition are rated
conditionally. These are bonds secured by (a) earnings of projects under
construction, (b) earnings of projects unseasoned in operation experience, (c)
rentals which begin when facilities are completed, or (d) payments to which some
other limiting condition attaches. Parenthetical rating denotes probable credit
stature upon completion of construction or elimination of basis of condition.
Those municipal bonds in the Aa, A, and Baa groups which Moody's
believes possess the strongest investment attributes are designated by the
symbols Aa 1, A 1, and Baa 1.
MONEY MARKET INSTRUMENTS
Money market securities are instruments with remaining maturities of
one year or less such as bank certificates of deposit, bankers' acceptances,
commercial paper (including variable rate master demand notes), and obligations
issued or guaranteed by the U.S. government, its agencies or instrumentalities,
some of which may be subject to repurchase agreements.
COMMERCIAL PAPER
Commercial paper will consist of issues rated at the time of purchase
A-1, by Standard & Poor's Corporation (S&P), or Prime-1 by Moody's Investors
Service, Inc., (Moody's) or F-1 by Fitch Investors Services, Inc. (Fitch's); or,
if not rated, will be issued by companies which have an outstanding debt issue
rated at the time of purchase Aaa, Aa or A by Moody's, or AAA, AA or A by S&P,
or will be determined by Keystone to be of comparable quality.
A. S&P RATINGS
An S&P commercial paper rating is a current assessment of the
likelihood of timely payment of debt having an original maturity of no more than
365 days. Ratings are graded into four categories, ranging from "A" for the
highest quality obligations to "D" for the lowest. The top category is as
follows:
1. A: Issues assigned this highest rating are regarded as having the
greatest capacity for timely payment. Issues in this category are delineated
with the numbers 1, 2 and 3 to indicate the relative degree of safety.
2. A-1: This designation indicates that the degree of safety regarding
timely payment is either overwhelming or very strong. Those issues determined to
possess overwhelming safety characteristics are denoted with a plus (+) sign
designation.
B. MOODY'S RATINGS
The term "commercial paper" as used by Moody's means promissory
obligations not having an original maturity in excess of nine months. Moody's
commercial paper ratings are opinions of the ability of issuers to repay
punctually promissory obligations not having an original maturity in excess of
nine months. Moody's employs the following designation, judged to be investment
grade, to indicate the relative repayment capacity of rated issuers.
1. The rating PRIME-1 is the highest commercial paper rating assigned
by Moody's. Issuers rated PRIME-1 (or related supporting institutions) are
deemed to have a superior capacity for repayment of short term promissory
obligations. Repayment capacity of PRIME-1 issuers is normally evidenced by the
following characteristics:
1) leading market positions in well-established industries;
2) high rates of return on funds employed;
3) conservative capitalization structures with moderate reliance on
debt and ample asset protection;
4) broad margins in earnings coverage of fixed financial charges and
high internal cash generation; and
5) well established access to a range of financial markets and
assured sources of alternate liquidity.
In assigning ratings to issuers whose commercial paper obligations are
supported by the credit of another entity or entities, Moody's evaluates the
financial strength of the affiliated corporations, commercial banks, insurance
companies, foreign governments or other entities, but only as one factor in the
total rating assessment.
CERTIFICATES OF DEPOSIT
Certificates of deposit are receipts issued by a bank in exchange for
the deposit of funds. The issuer agrees to pay the amount deposited plus
interest to the bearer of the receipt on the date specified on the certificate.
The certificate usually can be traded in the secondary market prior to maturity.
Certificates of deposit will be limited to U.S. dollar-denominated
certificates of U.S. banks or of savings and loan associations, including their
branches abroad, and of U.S. branches of foreign banks, which are members of the
Federal Reserve System or the Federal Deposit Insurance Corporation, and have at
least $1 billion in deposits as of the date of their most recently published
financial statements.
The Funds 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 Funds do not
currently intend to purchase foreign securities (except to the extent that
certificates of deposit of foreign branches of U.S. banks may be deemed foreign
securities) or purchase certificates of deposit, bankers' acceptances or other
similar obligations issued by foreign banks.
BANKERS' ACCEPTANCES
Bankers' acceptances typically arise from short-term credit
arrangements designed to enable businesses to obtain funds to finance commercial
transactions. Generally, an acceptance is a time draft drawn on a bank by an
exporter or an importer to obtain a stated amount of funds to pay for specific
merchandise. The draft is then "accepted" by the bank that, in effect,
unconditionally guarantees to pay the face value of the instrument on its
maturity date. The acceptance may then be held by the accepting bank as an
earning asset or it may be sold in the secondary market at the going rate of
discount for a specific maturity. Although maturities for acceptances can be as
long as 270 days, most acceptances have maturities of six months or less.
Bankers' acceptances acquired by a Fund must have been accepted by U.S.
commercial banks, including foreign branches of U.S. commercial banks, having
total deposits at the time of purchase in excess of $1 billion and must be
payable in U.S. dollars.
U.S. GOVERNMENT SECURITIES
Securities issued or guaranteed by the U.S. government include a
variety of Treasury securities that differ only in their interest rates,
maturities and dates of issuance and securities issued by the Government
National Mortgage Association (GNMA). Treasury bills have maturities of one year
or less. Treasury notes have maturities of one to ten years and Treasury bonds
generally have maturities of greater than ten years at the date of issuance.
GNMA securities include GNMA mortgage pass-through certificates. Such securities
are supported by the full faith and credit of the U.S.
Securities issued or guaranteed by U.S. government agencies or
instrumentalities include securities issued or guaranteed by the Federal Housing
Administration, Farmers Home Administration, Export-Import Bank of the U.S.,
Small Business Administration, General Services Administration, Central Bank for
Cooperatives, Federal Home Loan Banks, Federal Loan Mortgage Corporation,
Federal Intermediate Credit Banks, Federal Land Banks, Maritime Administration,
The Tennessee Valley Authority, District of Columbia Armory Board and Federal
National Mortgage Association.
Some obligations of U.S. government agencies and instrumentalities,
such as securities of Federal Home Loan Banks, are supported by the right of the
issuer to borrow from the Treasury. Others, such as bonds issued by the Federal
National Mortgage Association, a private corporation, are supported only by the
credit of the instrumentality. Because the U.S. government is not obligated by
law to provide support to an instrumentality it sponsors, a 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.
MUNICIPAL LEASE OBLIGATIONS
Municipal lease obligations purchased primarily through Certificates of
Participation ("CPO's") are used by state and local governments to finance the
purchase of property, and function much like installment purchase obligations.
The payments made by the municipality under the lease are used to repay interest
and principal on the bonds issued to purchase the property. Once these lease
payments are completed, the municipality gains ownership of the property for a
nominal sum. The lessor is, in effect, a lender secured by the property being
leased. A feature which distinguishes CPOs from municipal debt is that the lease
which is the subject of the transaction must contain a "nonappropriation" or
"abatement" clause. A nonappropriation clause provides that provides that, while
the municipality will use its best efforts to make lease payments, the
municipality may terminate the lease without penalty if the municipality's
appropriating body does not allocate the necessary funds. Local administrations,
being faced with increasingly tight budgets, therefore have more discretion to
curtail payments under COPs than they do to curtail payments on traditionally
funded debt obligations. If the government lessee does not appropriate
sufficient monies to make lease payments, the lessor or its agent is typically
entitled to repossess the property. In most cases, however, the private sector
value of the property will be less than the amount the government lessee was
paying.
Criteria considered by the rating agencies and Keystone in assessing
the risk of appropriation include the issuing municipality's credit rating,
evaluation of how essential the leased property is to the municipality and term
of the lease compared to the useful life of the leased property. The Board of
Trustees reviews the COPs held in each Fund's portfolio to assure that they
constitute liquid investments based on various factors reviewed by Keystone and
monitored by the Board. Such factors include (a) the credit quality of such
securities and the extent to which they are rated or, if unrated, comply with
existing criteria and procedures followed to ensure that they are of quality
comparable to the ratings required for each Fund's investment, including an
assessment of the likelihood that the leases will not be cancelled; (b) the size
of the municipal securities market, both in general and with respect to COPs;
and (c) the extent to which the type of COPs held by each Fund trade on the same
basis and with the same degree of dealer participation as other municipal bonds
of comparable credit rating or quality.
FUTURES CONTRACTS AND RELATED OPTIONS TRANSACTIONS
The Funds intend to enter into financial futures contracts as a hedge
against changes in prevailing levels of interest rates to seek relative
stability of principal and to establish more definitely the effective return on
securities held or intended to be acquired by a Fund or as a hedge against
changes in the prices of securities held by a Fund or to be acquired by a Fund.
A Fund's hedging may include sales of futures as an offset against the effect of
expected increases in interest rates or securities prices and purchases of
futures as an offset against the effect of expected declines in interest rates.
For example, when a 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 a 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, a 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 Funds intend to engage in options transactions which are related to
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 Funds' exposure to
interest rate and/or market fluctuations, the Funds may be able to hedge their
exposure more effectively and perhaps at a lower cost through using futures
contracts and related options transactions. While the Funds do not intend to
take delivery of the instruments underlying futures contracts they hold, the
Funds do 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 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
a 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 a 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, OTHER THAN STOCK INDEX BASED
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 Funds will sell interest rate index
and other index based futures contracts to hedge against changes which are
expected to affect the Funds' portfolios.
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 a 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 a 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 a
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 a 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, a 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 Trust intends to enter into arrangements with its custodian and
with Brokers to enable the initial margin of a Fund 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 a 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 a 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 a Fund.
There can be no assurance, however, that a Fund will be able to enter
into an offsetting transaction with respect to a particular contract at a
particular time. If a 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 FINANCIAL FUTURES
The Funds intend to purchase call and put options on financial futures
contracts and sell such options to terminate an existing position. Options on
futures are similar to options on stocks except that an option on a futures
contract gives the purchaser the right, in return for the premium paid, to
assume a position in a futures contract (a long position if the option is a call
and a short position if the option is a put) rather than to purchase or sell
stock at a specified exercise price at any time during the period of the option.
Upon exercise of the option, the delivery of the futures position by the writer
of the option to the holder of the option will be accompanied by delivery of the
accumulated balance in the writer's futures margin account. This amount
represents the amount by which the market price of the futures contract at
exercise exceeds, in the case of a call, or is less than, in the case of a put,
the exercise price of the option on the futures contract. If an option is
exercised the last trading day prior to the expiration date of the option, the
settlement will be made entirely in cash equal to the difference between the
exercise price of the option and value of the futures contract.
The Funds intend to use options on financial futures contracts in
connection with hedging strategies. In the future the Funds may use such options
for other purposes.
PURCHASE OF PUT OPTIONS ON FUTURES CONTRACTS
The purchase of protective put options on 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 a 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 call options on financial futures contracts 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 a Fund is not fully invested.
USE OF NEW INVESTMENT TECHNIQUES INVOLVING FINANCIAL FUTURES CONTRACTS OR
RELATED OPTIONS
The Funds may employ new investment techniques involving financial
futures contracts and related options. The Funds intend 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 Trust believes that no
additional techniques have been identified for employment by the Funds in the
foreseeable future other than those described above.
LIMITATIONS ON PURCHASE AND SALE OF FUTURES CONTRACTS AND RELATED OPTIONS ON
SUCH FUTURES CONTRACTS
A 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 Funds intend 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 a Fund owns, or futures contracts will be purchased to protect a
Fund against an increase in the price of securities it intends to purchase. The
Funds do not intend to enter into futures contracts for speculation.
In instances involving the purchase of futures contracts by a 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 Trust'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, a 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 a 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 a 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, a 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
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 a 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, a 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 a 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 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. A 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 a 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 a 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.
<PAGE>
Page 16
- ----------------------------------
Keystone Florida Tax Free Fund
SCHEDULE OF INVESTMENTS--March 31, 1996
<TABLE>
<CAPTION>
Coupon Maturity Principal Market
Rate Date Amount Value
- ----------------------------------------------------------- -------- -------- -------- ----------
<S> <C> <C> <C> <C>
MUNICIPAL BONDS (97.8%)
Bay County, Florida, Hospital Systems Revenue Refunding,
Bay Medical Center Project 8.000% 10/01/2019 $2,500,000 $ 2,778,525
Brevard County, Florida, Health Facilities Authority
Revenue Refunding, Devereux Foundation (MBIA) 5.125 11/01/2019 2,320,000 2,097,628
Brevard County, Florida, Health Facilities Authority
Revenue Refunding, Wuesthoff Memorial Hospital (MBIA) 7.200 04/01/2013 3,000,000 3,353,760
Broward County, Florida, Collateralized Home Mortgage 7.125 03/01/2017 195,000 203,621
Broward County, Florida, Resource Recovery, South Project 7.950 12/01/2008 2,500,000 2,767,975
Charlotte County, Florida, Utility Revenue (FGIC) 6.750 10/01/2013 1,000,000 1,104,320
City of Tarpon Springs Health Facilities Authority,
Florida, Hospital Refunding, Helen Ellis Hospital 7.625 05/01/2021 1,000,000 1,036,910
City of Tarpon Springs Health Facilities Authority,
Florida, Hospital Refunding, Tarpon Springs Hospital
Foundation, Inc. 8.750 05/01/2012 500,000 526,955
Commonwealth of Puerto Rico, Aqueduct and Sewer Authority
Revenue 5.000 07/01/2015 4,000,000 3,592,240
Commonwealth of Puerto Rico, Aqueduct and Sewer Authority
Revenue 5.000 07/01/2019 1,640,000 1,446,710
Commonwealth of Puerto Rico, Aqueduct and Sewer Authority
Revenue 6.250 07/01/2012 2,000,000 2,110,620
Commonwealth of Puerto Rico, Highway Authority, Series Q 7.750 07/01/2010 125,000 143,380
Dade County, Florida, Aviation Revenue, Series C (MBIA) 5.750 10/01/2025 2,200,000 2,172,896
Dade County, Florida, Educational Facilities Authority
Revenue (St. Thomas University) 6.000 01/01/2010 2,000,000 2,022,740
Dade County, Florida, Housing Finance Agency, Single Family
Mortgage 7.000 03/01/2024 185,000 191,166
Dade County, Florida, School District, General Obligation 7.375 07/01/2008 40,000 44,445
Dade County, Florida, Seaport Refunding (MBIA) 5.125 10/01/2016 2,000,000 1,843,360
Dade County, Florida, Seaport Refunding (MBIA) 5.125 10/01/2021 2,500,000 2,264,350
Duval County, Florida, Single Family Mortgage Refunding
(FGIC) 7.300 07/01/2011 80,000 84,032
Escambia County, Florida, Pollution Control, Champion
International Corp. Project 6.900 08/01/2022 2,400,000 2,499,960
Florida Housing Finance Agency, Home Ownership Mortgage 7.500 09/01/2014 180,000 191,196
Florida State Board of Education Capital Outlay Refunding,
Public Education, Series D 4.750 06/01/2016 2,000,000 1,751,420
Florida State Board of Education Capital Outlay Refunding,
Public Education, Series E 5.000 06/01/2020 2,000,000 1,781,120
Florida State Department of Transportation, Turnpike
Revenue Bonds, Series 1991A (AMBAC) 7.125 07/01/2018 125,000 141,830
Florida State Transportation, Jacksonville Transportation
Authority 9.000 01/01/2000 1,000,000 1,101,100
Gainesville, Florida, Utilities System Revenue, Series B 7.500 10/01/2008 3,435,000 4,131,584
Gainesville, Florida, Utilities System Revenue, Series B 7.500 10/01/2009 3,695,000 4,446,378
Hillsborough County, Florida, Capital Improvement Program
Revenue, County Center Project, Series B (MBIA) 5.000 07/01/2017 2,000,000 1,823,620
<PAGE>
Page 17
- ----------------------------------
Keystone Florida Tax Free Fund
Hollywood, Florida, Water and Sewer System Revenue (FGIC) 6.875% 10/01/2021 $ 535,000 $ 603,223
Huron Valley, Michigan, School District Capital
Appreciation (effective yield 6.651%) (MBIA)(b) 0.000 05/01/2019 2,925,000 724,025
Indian River County, Florida, Water and Sewer Systems
Revenue (FGIC) 6.500 05/01/2016 400,000 441,356
Jacksonville, Florida, Health Facilities Authority, St.
Luke's Hospital Association 7.125 11/15/2020 3,000,000 3,209,040
Jacksonville, Florida, Hospital Authority, Baptist Medical
Center Project, Series A (MBIA) 7.300 06/01/2019 350,000 378,367
Lee County, Florida, School Board, Certificates of
Participation, Series A (FSA) 7.750 08/01/2004 1,000,000 1,168,120
Lee County, Florida, School Board, Certificates of
Participation, Series A (FSA) 7.750 08/01/2005 1,500,000 1,752,180
Miami, Florida, Health Facilities Authority, Health
Facilities Revenue, Mercy Hospital, Series A (AMBAC) 6.750 08/01/2020 350,000 391,545
Miami, Florida, Special Obligation Revenue (FGIC) 6.000 02/01/2016 1,000,000 1,020,510
Miramar, Florida, Wastewater Improvement Assessment Revenue
(FGIC) 6.750 10/01/2016 1,000,000 1,087,720
New York, New York, General Obligation, Series F 5.750 02/01/2015 3,000,000 2,796,720
New York State Urban Development Corp. Revenue, State
Facilities 5.700 04/01/2020 5,000,000 4,737,150
North Springs Improvement District, Florida, Water and
Sewer Revenue, Series B (MBIA) 6.500 12/01/2016 1,335,000 1,453,361
Okaloosa County, Florida, Gas District, Refunding and
Improvement (MBIA) 6.850 10/01/2014 2,550,000 2,866,302
Orange County, Florida, Health Facilities Authority,
Hospital Revenue, Adventist Health (AMBAC) 5.250 11/15/2020 2,000,000 1,834,460
Orange County, Florida, Housing Finance Authority, GNMA
Collateralized Mortgage, Series B (AMT) 8.100 11/01/2021 2,260,000 2,352,841
Orlando, Florida, Utilities Commission, Water and Electric 6.000 10/01/2010 4,000,000 4,212,600
Orlando-Orange County, Florida, Expressway Authority (FGIC) 8.250 07/01/2015 40,000 52,058
Palm Beach County, Florida, General Obligation 6.500 07/01/2010 1,880,000 2,074,824
Palm Beach County, Florida, Solid Waste Industrial
Development, Okeelanta Power Project (AMT) 6.700 02/15/2015 2,000,000 2,007,680
Palm Beach County, Florida, Solid Waste Industrial
Development, Okeelanta Power Project (AMT) 6.850 02/15/2021 3,000,000 3,011,370
Palm Beach County, Florida, Solid Waste Industrial
Development, Osceola Power Project (AMT) 6.850 01/01/2014 3,500,000 3,554,635
Palm Beach County, Florida, Solid Waste Industrial
Development, Osceola Power Project (AMT) 6.950 01/01/2022 2,000,000 2,023,400
Puerto Rico Electric Power Authority 7.000 07/01/2011 200,000 226,778
San Antonio, Texas, Electric & Gas Revenue, Capital
Appreciation, Series B (FGIC) (effective yield 7.098%)
(b) 0.000 02/01/2009 2,500,000 1,220,175
(Continued on next page)
<PAGE>
Page 18
- ----------------------------------
Keystone Florida Tax Free Fund
MUNICIPAL BONDS (continued)
Tallahassee, Florida, Health Facilities, Tallahassee
Memorial Regional Medical Project (MBIA) 6.625% 12/01/2013 $2,000,000 $ 2,192,120
Tampa, Florida, Capital Improvement Program Revenue, Series B 8.375 10/01/2018 1,250,000 1,325,238
Tampa, Florida, Subordinate Guaranteed Entitlement Revenue,
Series B (ETM) 8.500 10/01/2018 45,000 49,481
Tampa, Florida, Sports Authority Revenue, Tampa Bay Arena
(MBIA) 5.750 10/01/2020 1,000,000 1,008,010
Texas Municipal Power Agency Revenue, Capital Appreciation
(MBIA) (effective yield 6.149%) (b) 0.000 09/01/2017 3,000,000 835,290
University of Puerto Rico, University Revenues, Series M
(MBIA) 5.250 06/01/2025 2,000,000 1,848,740
West Melbourne, Florida, Water and Sewer Revenue (FGIC) 6.750 10/01/2014 1,000,000 1,115,150
- ----------------------------------------------------------- ------- ------- ------- --------
TOTAL MUNICIPAL BONDS (Cost--$98,723,553) 101,228,310
=========================================================== ======= ======= ======= ========
TEMPORARY TAX-EXEMPT INVESTMENTS (0.5%)
Dade County, Florida, Water and Sewer System Revenue Bond,
Series 1994 (Cost--$490,000) (a) 3.300 10/05/2022 490,000 490,000
- ----------------------------------------------------------- ------- ------- ------- --------
TOTAL INVESTMENTS (Cost--$99,213,553) (c) 101,718,310
OTHER ASSETS AND LIABILITIES--NET (1.7%) 1,795,674
- ----------------------------------------------------------- ------- ------- ------- --------
NET ASSETS (100.0%) $103,513,984
=========================================================== ======= ======= ======= ========
</TABLE>
(a) Variable or floating rate instruments with periodic demand features. The
Fund is entitled to full payment of principal and accrued interest upon
surrendering the security to the issuing agent according to the terms of
the demand features.
(b) Effective yield (calculated at the date of purchase) is the yield at
which the bond accretes on an annual basis until maturity.
(c) The cost of investments for federal income tax purposes amounted to
$99,588,715. Gross unrealized appreciation and unrealized depreciation of
investments, based on identified tax cost, at March 31, 1996 are as
follows:
<TABLE>
<CAPTION>
<S> <C>
Gross unrealized appreciation $ 3,654,683
Gross unrealized depreciation (1,525,088)
------------------------------- ------------
Net unrealized appreciation $ 2,129,595
================================ ============
</TABLE>
LEGEND OF PORTFOLIO ABBREVIATIONS:
AMBAC--AMBAC Indemnity Corporation
AMT--Subject to Alternative Minimum Tax
ETM -- Escrowed to Maturity
FGIC--Federal Guaranty Insurance Company
FSA--Financial Security Assistance
MBIA--Municipal Bond Investors Assurance
See Notes to Financial Statements.
<PAGE>
Page 19
- ----------------------------------
Keystone Massachusetts Tax Free Fund
SCHEDULE OF INVESTMENTS--March 31, 1996
<TABLE>
<CAPTION>
Coupon Maturity Principal Market
Rate Date Amount Value
----------------------------------------------------------- -------- -------- -------- ----------
<S> <C> <C> <C> <C>
MUNICIPAL BONDS (97.1%)
Franklin, Massachusetts, School Improvements (MBIA) 5.250% 11/15/2013 $ 500,000 $ 481,445
Lawrence, Massachusetts, School Improvements (AMBAC) 6.250 02/15/2009 450,000 477,090
Massachusetts Bay Transportation Authority, General
Transportation, Series A 7.000 03/01/2011 750,000 857,393
Massachusetts Bay Transportation Authority, General
Transportation, Series A 6.250 03/01/2012 400,000 425,248
Massachusetts Educational Financing Loan Authority (AMBAC) 6.000 01/01/2012 300,000 296,805
Massachusetts Municipal Wholesale Electric, Power Supply
Systems, Series B 6.750 07/01/2008 460,000 493,189
Massachusetts State Health and Educational Facilities
Authority, Capital Asset Project, Series F (MBIA) 7.300 10/01/2018 475,000 519,740
Massachusetts State Health and Educational Facilities
Authority, Cape Islands Rehabilitation Hospital, Series A 7.875 08/15/2024 500,000 506,630
Massachusetts State Health and Educational Facilities
Authority, Children's Hospital, Series E 6.200 10/01/2016 240,000 243,194
Massachusetts State Health and Educational Facilities
Authority, Dana Farber Cancer Project, Series G-1 6.250 12/01/2022 500,000 500,335
Massachusetts State Health and Educational Facilities
Authority, McLean Hospital, Series C (FGIC) 6.500 07/01/2010 550,000 594,259
Massachusetts State Health and Educational Facilities
Authority, New England Deaconess Hospital 6.875 04/01/2022 500,000 515,005
Massachusetts State Housing Finance Agency, Series A
(AMBAC) 6.600 07/01/2014 300,000 310,977
Massachusetts State Industrial Finance Agency, Harvard
Community Health Plan, Inc., Series B 8.125 10/01/2017 525,000 562,832
Massachusetts State Industrial Finance Agency, Solid Waste
Disposal, Molten Metal Technology Project 8.250 08/01/2014 250,000 260,815
Massachusetts State Industrial Finance Agency, Solid Waste
Disposal, Senior Lien, Massachusetts Recycling Associates 9.000 08/01/2016 1,000,000 983,530
Massachusetts State Water Pollution, Series 2 6.125 02/01/2008 525,000 568,076
Massachusetts State Water Pollution, Massachusetts Water
Resources Authority Loan, Series A 5.300 08/01/2010 1,000,000 971,000
Massachusetts State Water Resources Authority, Series B
(MBIA) 6.250 12/01/2013 600,000 635,568
North Adams, Massachusetts, School Improvement (AMBAC) 5.700 03/01/2013 600,000 593,328
University of Massachusetts, Building Authority, Series A
(MBIA) 5.500 05/01/2015 250,000 239,104
- ----------------------------------------------------------- ------- ------- ------- --------
TOTAL MUNICIPAL BONDS (Cost--$10,988,639) 11,035,563
============================================================ ======= ======= ======= ========
TEMPORARY TAX-EXEMPT INVESTMENTS (1.6%)
Massachusetts State Health and Educational Facilities
Authority, (Capital Assets Program), Series D (MBIA)
(Cost--$180,000) (a) 3.750 01/01/2035 180,000 180,000
- ----------------------------------------------------------- ------- ------- ------- --------
</TABLE>
(continued on next page)
<PAGE>
Page 20
- ----------------------------------
Keystone Massachusetts Tax Free Fund
<TABLE>
<CAPTION>
SCHEDULE OF INVESTMENTS--March 31, 1996
Market
Value
- --------------------------------------- ---------- ---------- ---------- ------------
<S> <C> <C> <C> <C>
TOTAL INVESTMENTS (Cost--$11,168,639) b) $11,215,563
OTHER ASSETS AND LIABILITIES--NET (1.3%) 147,758
- --------------------------------------- -------- -------- -------- ----------
NET ASSETS (100.0%) $11,363,321
======================================= ======== ======== ======== ============
</TABLE>
(a) Variable or floating rate instruments with periodic demand features. The
Fund is entitled to full payment of principal and accrued interest upon
surrendering the security to the issuing agent according to the terms of
the demand features.
(b) The cost of investments for federal income tax purposes amounted to
$11,168,639. Gross unrealized appreciation and unrealized depreciation of
investments, based on identified tax cost, at March 31, 1996 are as
follows:
<TABLE>
<CAPTION>
<S> <C>
Gross unrealized appreciation $ 165,408
Gross unrealized depreciation (118,484)
- ------------------------------- ---------
Net unrealized appreciation $ 46,924
=============================== =========
</TABLE>
LEGEND OF PORTFOLIO ABBREVIATIONS:
AMBAC--AMBAC Indemnity Corporation
FGIC--Federal Guaranty Insurance Company
MBIA--Municipal Bond Investors Assurance
See Notes to Financial Statements.
<PAGE>
Page 21
- ----------------------------------
Keystone New York Insured Tax Free Fund
SCHEDULE OF INVESTMENTS--March 31, 1996
<TABLE>
<CAPTION>
Coupon Maturity Principal Market
Rate Date Amount Value
- ----------------------------------------------------------- -------- -------- -------- ----------
<S> <C> <C> <C> <C>
MUNICIPAL BONDS (96.7%)
Buffalo, New York, Series E (AMBAC) 6.500% 12/01/2022 $ 465,000 $ 502,879
Erie County, New York, Water Authority, Fourth Resolution
(AMBAC) (effective yield 6.824%) (b) 0.000 12/01/2017 770,000 162,901
Hempstead Town, New York, General Obligation, Series B
(FGIC) 5.625 02/01/2015 550,000 540,727
Metropolitan Transportation Authority, New York, Commuter
Facilities, Series A (MBIA) 6.125 07/01/2014 1,400,000 1,439,410
Nassau County, New York, Combined Sewer District, Series B
(FGIC) 6.000 05/01/2014 695,000 711,805
New Rochelle, New York, General Obligation, Series B (MBIA) 6.150 08/15/2017 600,000 625,098
New York City, New York, General Obligation, Series D
(MBIA) 6.000 08/01/2006 285,000 292,034
New York City, New York, Municipal Water Finance Authority,
Water and Sewer System, Series A (FGIC) 7.000 06/15/2015 705,000 767,683
New York City, New York, Municipal Water Finance Authority,
Water and Sewer System, Series A (FGIC) 7.000 06/15/2015 695,000 757,724
New York Resources Recovery Agency, Electric Light and
Power Improvements, Series B (AMBAC) 7.250 07/01/2011 100,000 117,985
New York State Dormitory Authority, City University Systems
(FGIC) 7.000 07/01/2009 1,200,000 1,398,012
New York State Dormitory Authority, City University, 3rd
General Resources, Series 2 (MBIA) 6.250 07/01/2019 450,000 460,733
New York State Dormitory Authority, Fordham University
(FGIC) 5.750 07/01/2015 500,000 497,020
New York State Dormitory Authority, Mount Sinai Medical
School, Series A (MBIA) 5.000 07/01/2021 125,000 112,425
New York State Dormitory Authority, State University
Educational Facilities (AMBAC) 5.875 05/15/2011 250,000 259,418
New York State Dormitory Authority, State University
Educational Facilities, Series A (FSA) 5.250 05/15/2015 600,000 567,348
New York State Dormitory Authority, University of Rochester
Strong Memorial (MBIA) 5.500 07/01/2021 200,000 190,554
New York State Energy Research and Development, Brooklyn
Union Gas Co Project, Series A (MBIA) 5.500 01/01/2021 500,000 478,480
New York State Energy Research and Development,
Consolidated Edison (AMBAC) 6.100 08/15/2020 500,000 505,830
New York State Housing Finance Agency, Multi-family
Mortgage, Series B (AMBAC) 6.250 08/15/2014 875,000 882,035
New York State Medical Care Facilities Finance Agency,
Mental Health Services Facilities 6.375 11/15/2019 250,000 251,085
New York State Medical Care Facilities Finance Agency,
Mental Health Services Facilities (FGIC) 6.375 08/15/2014 1,000,000 1,035,890
New York State Medical Care Facilities Finance Agency,
Mental Health Services Facilities, Series C (MBIA) 6.000 08/15/2015 500,000 507,310
New York State Urban Development Corp., Correctional
Capital Facilities, Series A 6.500 01/01/2009 600,000 621,090
New York State Urban Development Corp., Correctional
Capital Facilities, Series A (FSA) 6.500 01/01/2010 1,000,000 1,098,040
(Continued on next page)
<PAGE>
Page 22
- ----------------------------------
Keystone New York Insured Tax Free Fund
SCHEDULE OF INVESTMENTS--March 31, 1996
Municipal Bonds (continued)
New York State Urban Development Corp., Correctional
Capital Facilities, Series 5 (MBIA) 5.500% 01/01/2025 $1,000,000 $ 947,560
New York State Urban Development, Series A (MBIA) 5.500 04/01/2016 500,000 482,325
Niagara Falls, New York, Public Improvement (MBIA) 7.500 03/01/2014 700,000 855,512
Niagara Falls, New York, Public Improvement (MBIA) 7.500 03/01/2016 750,000 916,770
Niagara Falls, New York, Public Improvement (MBIA) 7.500 03/01/2017 750,000 915,990
Niagara, New York, Frontier Transportation Authority,
Greater Buffalo International Airport (AMBAC) 6.125 04/01/2014 100,000 101,782
Port Authority of New York and New Jersey 6.125 06/01/2014 500,000 513,290
Puerto Rico, Electric Power Authority 6.500 07/01/2006 900,000 1,014,111
Rochester, New York, General Obligation, Series A (AMBAC) 5.000 08/15/2018 140,000 129,002
Suffolk County, New York, Industrial Development Agency,
Southwest Sewer Systems (FGIC) 6.000 02/01/2008 1,000,000 1,069,260
Triborough Bridge and Tunnel Authority, New York, General
Purpose, Series X 6.625 01/01/2012 805,000 891,270
- ----------------------------------------------------------- ------- ------- ------- --------
TOTAL MUNICIPAL BONDS (Cost--$21,907,721) 22,620,388
=========================================================== ======= ======= ======= ========
TEMPORARY TAX-EXEMPT INVESTMENTS (2.3%)
New York City, New York, Municipal Water Finance Authority,
Series C (FGIC) (a) 3.800 06/15/2022 200,000 200,000
New York City, New York, Sub Series A-5 (a) 3.800 08/01/2015 335,000 335,000
- ----------------------------------------------------------- ------- ------- ------- --------
TOTAL TEMPORARY TAX-EXEMPT INVESTMENTS
(Cost--$535,000) 535,000
=========================================================== ======= ======= ======= ========
TOTAL INVESTMENTS (Cost--$22,442,721) (c) 23,155,388
OTHER ASSETS AND LIABILITIES--NET (1.0%) 239,132
- ----------------------------------------------------------- ------- ------- ------- --------
NET ASSETS (100.0%) $23,394,520
=========================================================== ======= ======= ======= ========
</TABLE>
(a) Variable or floating rate instruments with periodic demand features. The
Fund is entitled to full payment of principal and accrued interest upon
surrendering the security to the issuing agent according to the terms of
the demand features.
(b) Effective yield (calculated at the date of purchase) is the yield at
which the bond accretes on an accrual basis until maturity.
(c) The cost of investments for federal income tax purposes amounted to
$22,462,470. Gross unrealized appreciation and unrealized depreciation of
investments, based on identified tax cost, at March 31, 1996 are as
follows:
<TABLE>
<CAPTION>
<S> <C>
Gross unrealized
appreciation $ 824,037
Gross unrealized
depreciation (131,119)
- ---------------------------- --------
Net unrealized appreciation $ 692,918
============================ ========
</TABLE>
LEGEND OF PORTFOLIO ABBREVIATIONS:
AMBAC--AMBAC Indemnity Corporation
FGIC--Federal Guaranty Insurance Company
FSA--Financial Security Assistance
MBIA--Municipal Bond Investors Assurance
See Notes to Financial Statements.
<PAGE>
Page 23
- ----------------------------------
Keystone Pennsylvania Tax Free Fund
SCHEDULE OF INVESTMENTS--March 31, 1996
<TABLE>
<CAPTION>
Coupon Maturity Principal Market
Rate Date Amount Value
- ----------------------------------------------------------- -------- -------- -------- ----------
<S> <C> <C> <C> <C>
MUNICIPAL BONDS (97.7%)
Allegheny County, Pennsylvania, Airport Revenue, Greater
Pittsburgh International Airport 6.625% 01/01/2022 $ 750,000 $ 778,133
Allegheny County, Pennsylvania, Finance Authority, Single
Family Mortgage 6.600 11/01/2014 1,000,000 1,031,260
Allegheny County, Pennsylvania, Higher Education Building
Authority, Duquesne University Project (AMBAC) 5.000 03/01/2016 2,000,000 1,820,900
Allegheny County, Pennsylvania, Hospital Development,
University of Pittsburgh Medical Center (MBIA) 5.350 12/01/2015 2,000,000 1,879,180
Allegheny County, Pennsylvania, Industrial Development
Authority, USX Corp. 6.700 12/01/2020 2,000,000 2,040,580
Allentown, Pennsylvania Area Hospital Authority, Sacred
Heart Hospital of Allentown, Series A 6.750 11/15/2014 1,750,000 1,727,180
Beaver County, Pennsylvania, Industrial Development
Authority, Pollution Control, Ohio Edison Co. Project,
Series A 7.750 09/01/2024 1,170,000 1,238,702
Berks County, Pennsylvania, Capital Appreciation Second
Series (FGIC) (effective yield 5.550%) (b) 0.000 05/15/2015 3,400,000 1,104,150
Berks County, Pennsylvania, Capital Appreciation Second
Series (FGIC) (effective yield 5.600%) (b) 0.000 05/15/2016 3,460,000 1,049,037
Berks County, Pennsylvania, Capital Appreciation Second
Series (FGIC) (effective yield 5.600%) (b) 0.000 05/15/2018 2,800,000 745,808
Cambria County, Pennsylvania, General Obligation, Series A
(FGIC) 6.625 08/15/2012 4,485,000 4,802,000
Central Bucks, Pennsylvania School District, Series A 6.900 11/15/2013 1,000,000 1,127,890
Delaware County, Pennsylvania, Industrial Development
Authority, Pollution Control, Philadelphia Electric Co.,
Series A 7.375 04/01/2021 850,000 906,899
Erie County, Pennsylvania, Industrial Development
Authority, Environmental Improvement, International Paper
Co. Project, Series A 7.625 11/01/2018 500,000 556,810
Greencastle Antrim, Pennsylvania, School District, Capital
Appreciation, Series B (MBIA) (effective yield 5.848%)
(b) 0.000 01/01/2014 1,025,000 354,681
Greencastle Antrim, Pennsylvania, School District, Capital
Appreciation, Series B (MBIA) (effective yield 5.898%)
(b) 0.000 01/01/2015 1,000,000 325,930
Greencastle Antrim, Pennsylvania, School District, Capital
Appreciation, Series B (MBIA) (effective yield 5.898%)
(b) 0.000 01/01/2016 1,955,000 600,185
Hazleton, Pennsylvania, Area School District, Compound
Interest, Series B (effective yield 6.300%) (b) 0.000 03/01/2018 5,265,000 1,410,651
Lehigh County, Pennsylvania, General Purpose Authority,
Good Shepherd Rehabilitation Hospital 7.500 11/15/2021 1,000,000 1,041,480
Lehigh County, Pennsylvania, General Purpose Authority,
Lehigh Valley Hospital, Series A (MBIA) 7.000 07/01/2016 1,250,000 1,422,375
Mon Valley, Pennsylvania, Sewage Revenue (MBIA) 6.550 11/01/2019 1,305,000 1,390,478
Monroeville, Pennsylvania, Hospital Authority, Forbes
Health System 6.250 10/01/2015 1,000,000 966,860
(Continued on next page)
<PAGE>
Page 24
- ----------------------------------
Keystone Pennsylvania Tax Free Fund
SCHEDULE OF INVESTMENTS--March 31, 1996
MUNICIPAL BONDS (CONTINUED)
Montgomery County, Pennsylvania, Higher Education and
Health Authority, Northwestern Corp. 7.000% 06/01/2012 $ 700,000 $ 694,806
Montgomery County, Pennsylvania, Higher Education and
Health Authority, Waverly Heights Project 6.250 01/01/2018 1,000,000 946,230
Montgomery County, Pennsylvania, Industrial Development,
Pollution Control, Philadelphia Electric Co. 7.600 04/01/2021 950,000 1,013,774
Northumberland County, Pennsylvania, Commonwealth Lease
(effective yield 6.820%) (b) 0.000 10/15/2012 4,200,000 1,647,828
Pennsylvania Economic Development Financing Authority,
Northhampton Generator Project, Series A (c) 6.600 01/01/2019 2,450,000 2,348,913
Pennsylvania Economic Development Financing Authority,
Resources Recovery, Colver Project, Series D (c) 7.125 12/01/2015 1,200,000 1,256,712
Pennsylvania Economic Development Financing Authority,
Resources Recovery, Colver Project, Series D (c) 7.150 12/01/2018 3,000,000 3,135,720
Pennsylvania Economic Development Financing Authority,
Resources Recovery, Northhampton University Project (c) 6.500 01/01/2013 2,200,000 2,120,294
Pennsylvania Housing Finance Agency, Single Family
Mortgage, Series 33 6.900 04/01/2017 1,000,000 1,033,460
Pennsylvania Housing Finance Agency, Single Family
Mortgage, Series 34 A (FHA/FNMA) 6.850 04/01/2016 1,500,000 1,545,525
Pennsylvania Housing Finance Agency, Single Family
Mortgage, Series 40 6.800 10/01/2015 750,000 773,933
Pennsylvania Housing Finance Agency, Single Family
Mortgage, Series 47 5.700 10/01/2016 1,500,000 1,445,280
Pennsylvania State Industrial Development Authority,
Economic Development (AMBAC) 7.000 01/01/2006 1,500,000 1,699,875
Pennsylvania Intragovernmental Cooperation Authority,
Special Tax, City of Philadelphia Funding Program 6.800 06/15/2022 2,500,000 2,772,200
Pennsylvania Intragovernmental Cooperation Authority,
Special Tax, Philadelphia Funding Program (FGIC) 6.750 06/15/2021 1,000,000 1,091,720
Pennsylvania State Industrial Development Authority,
Economic Revenue Bonds 7.000 07/01/2006 1,000,000 1,138,490
Pennsylvania State Higher Educational Facilities Authority,
Thomas Jefferson University, Series A 6.625 08/15/2009 1,450,000 1,587,054
Philadelphia, Pennsylvania, Hospital & Higher Education
Facilities, Albert Einstein Medical Center 7.625 04/01/2011 1,150,000 1,223,370
Philadelphia, Pennsylvania, Hospital and Higher Education
Facilities, Albert Einstein Medical Center 7.000 10/01/2021 945,000 985,106
Philadelphia, Pennsylvania, Hospital and Higher Education
Facilities, Graduate Health Systems Education Facilities,
Series A 7.250 07/01/2018 1,225,000 1,256,875
Philadelphia, Pennsylvania, Hospital and Higher Education
Facilities, Temple University, Series A 6.625 11/15/2023 2,300,000 2,354,004
(Continued on next page)
<PAGE>
Page 25
- ----------------------------------
Keystone Pennsylvania Tax Free Fund
MUNICIPAL BONDS (CONTINUED)
Philadelphia, Pennsylvania, Water & Waste Water (MBIA) 6.250% 08/01/2012 $1,000,000 $ 1,065,400
Philadelphia, Pennsylvania, Water & Waste Water (MBIA) 5.500 08/01/2014 1,500,000 1,436,175
Puerto Rico Highway Authority, Series Q 7.750 07/01/2010 325,000 372,788
Puerto Rico Commonwealth, Linked Bond Payment Obligation
(MBIA) 7.000 07/01/2010 5,500,000 6,301,130
Robinson, Pennsylvania, Municipal Water & Sewer, Capital
Appreciation, Series A (FGIC) (effective yield 5.800%) (b) 0.000 05/15/2012 1,880,000 738,765
Robinson, Pennsylvania, Municipal Water & Sewer, Capital
Appreciation, Series A (FGIC) (effective yield 5.850%) (b) 0.000 05/15/2013 1,880,000 691,370
Robinson, Pennsylvania, Municipal Water & Sewer, Capital
Appreciation, Series A (FGIC) (effective yield 5.930%) (b) 0.000 05/15/2016 1,710,000 522,542
Scranton-Lackawanna, Pennsylvania, Health and Welfare
Authority, Allied Services Rehabilitation Facility 7.600 07/15/2020 1,000,000 1,008,760
Westmoreland County, Pennsylvania, Municipal Authority
Capital Appreciation, Series A (FGIC) (effective yield
6.150%) (b) 0.000 08/15/2019 2,000,000 494,280
Westmoreland County, Pennsylvania, Series G (FGIC)
(effective yield 5.599%) (b) 0.000 06/01/2013 3,715,000 1,360,393
- ----------------------------------------------------------- ------- ------- ------- --------
TOTAL MUNICIPAL BONDS (Cost--$72,157,229) 74,383,941
=========================================================== ======= ======= ======= ========
TEMPORARY TAX-EXEMPT INVESTMENTS (1.1%)
Sayre County, Pennsylvania Health Care Facilities
Authority, Variable Rate (VHA Pennsylvania Capital
Financing Project) Series F (a) 3.250 12/01/2020 10,000 10,000
Sayre County, Pennsylvania Health Care Facilities
Authority, Variable Rate (VHA Pennsylvania Capital
Financing Project) Series I (a) 3.250 12/01/2020 700,000 700,000
Sayre County, Pennsylvania Health Care Facilities
Authority, Variable Rate (VHA Pennsylvania Capital
Financing Project) Series K (a) 3.250 12/01/2020 110,000 110,000
- ----------------------------------------------------------- ------- ------- ------- --------
TOTAL TEMPORARY TAX-EXEMPT INVESTMENTS (Cost--$820,000) 820,000
=========================================================== ======= ======= ======= ========
TOTAL INVESTMENTS (Cost--$72,977,229) (d) 75,203,941
OTHER ASSETS AND LIABILITIES--NET (1.2%) 900,129
- ----------------------------------------------------------- ------- ------- ------- --------
NET ASSETS (100.0%) $76,104,070
=========================================================== ======= ======= ======= ========
</TABLE>
(Continued on next page)
<PAGE>
Page 26
- ----------------------------------
Keystone Pennsylvania Tax Free Fund
SCHEDULE OF INVESTMENTS--March 31, 1996
(a) Variable or floating rate instruments with periodic demand features. The
fund is entitled to full payment of principal and accrued interest upon
surrendering the security to the issuing agent according to the terms of
the demand features.
(b) Effective yield (calculated at date of purchase) is the yield at which the
bond accretes on an annual basis until maturity date.
(c) Securities that may be resold to "qualified institutional buyers" under
Rule 144A or securities offered pursuant to Section 4(2) of the Securities
Act of 1933, as amended. These securities have been determined to be liquid
under guidelines established by the Board of Trustees.
(d) The cost of investments for federal income tax purposes amount to
$72,977,229. Gross unrealized appreciation and unrealized depreciation of
investments, based on identified tax cost, at March 31, 1996 are as
follows:
<TABLE>
<CAPTION>
<S> <C>
Gross unrealized appreciation $2,800,897
Gross unrealized depreciation (574,185)
- ------------------------------- ----------
Net unrealized appreciation $2,226,712
=============================== ==========
</TABLE>
LEGEND OF PORTFOLIO ABBREVIATIONS:
AMBAC--AMBAC Idemnity Corporation
FGIC--Federal Guaranty Insurance Company
FHA--Federal Housing Authority
FNMA--Federal National Mortgage Association
MBIA-- Municipal Bond Investors Assurance
See Notes to Financial Statements.
<PAGE>
Page 27
- ----------------------------------
Keystone Florida Tax Free Fund
FINANCIAL HIGHLIGHTS--CLASS A SHARES
(For a share outstanding throughout each year)
<TABLE>
<CAPTION>
December 28, 1990
(Commencement of
Year Ended March 31, Operations) to
March 31,
1996 1995 1994 1993 1992 1991
- ----------------------------------- -------- -------- -------- -------- -------- ----------
<S> <C> <C> <C> <C> <C> <C>
Net asset value beginning of year $ 10.33 $ 10.29 $ 10.94 $ 10.43 $ 10.17 $10.00
- ----------------------------------- ------- ------- ------- ------- ------- --------
Income from investment operations:
Net investment income 0.56 0.56 0.58 0.61 0.72 0.18
Net realized and unrealized gain
(loss) on investments and closed
futures contracts 0.27 0.07 (0.44) 0.64 0.30 0.17
- ----------------------------------- ------- ------- ------- ------- ------- --------
Total from investment operations 0.83 0.63 0.14 1.25 1.02 0.35
- ----------------------------------- ------- ------- ------- ------- ------- --------
Less distributions from:
Net investment income (0.54) (0.56) (0.58) (0.61) (0.72) (0.18)
In excess of net investment income (0.02) (0.03) (0.05) (0.03) 0 0
Net realized gain on investments 0 0 (0.16) (0.10) (0.04) 0
- ----------------------------------- ------- ------- ------- ------- ------- --------
Total distributions (0.56) (0.59) (0.79) (0.74) (0.76) (0.18)
- ----------------------------------- ------- ------- ------- ------- ------- --------
Net asset value end of year $ 10.60 $ 10.33 $ 10.29 $ 10.94 $ 10.43 $10.17
================================== ====== ======= ======= ======= ======= ========
Total return (c) 8.16% 6.42% 1.01% 12.32% 10.34% 3.52%
Ratios/supplemental data
Ratios to average net assets:
Total expenses 0.76%(b) 0.75% 0.75% 0.68% 0.65% 0.65%(a)
Total expenses excluding
reimbursement 0.92% 0.95% 1.00% 1.13% 1.21% 2.06%(a)
Net investment income 5.32% 5.60% 5.16% 5.60% 6.82% 6.33%(a)
Portfolio turnover rate 89% 129% 113% 95% 63% 5%
- ----------------------------------- ------- ------- ------- ------- ------- --------
Net assets end of year (thousands) $37,286 $42,239 $45,150 $42,997 $29,258 $6,922
================================== ====== ======= ======= ======= ======= ========
</TABLE>
(a) Annualized.
(b) "Ratio of total expenses to average net assets" for the year ended March
31, 1996 includes indirectly paid expenses. Excluding indirectly paid
expenses, the expense ratio would have been 0.75%.
(c) Excluding applicable sales charges.
See Notes to Financial Statements.
<PAGE>
Page 28
- ----------------------------------
Keystone Florida Tax Free Fund
FINANCIAL HIGHLIGHTS--CLASS B SHARES
(For a share outstanding throughout each year)
<TABLE>
<CAPTION>
February 1,
1993
(Date of
Year Ended March 31, Initial
Public
Offering) to
March 31,
1996 1995 1994 1993
- -------------------------------------------- ----------- ----------- ----------- -------------
<S> <C> <C> <C> <C>
Net asset value beginning of year $ 10.24 $ 10.27 $ 10.94 $10.81
- -------------------------------------------- --------- --------- --------- -----------
Income from investment operations:
Net investment income 0.48 0.53 0.52 0.08
Net realized and unrealized gain (loss) on
investments and closed futures contracts 0.28 0.02 (0.47) 0.14
- -------------------------------------------- --------- --------- --------- -----------
Total from investment operations 0.76 0.55 0.05 0.22
- -------------------------------------------- --------- --------- --------- -----------
Less distributions from:
Net investment income (0.50) (0.49) (0.48) (0.08)
In excess of net investment income (0.02) (0.09) (0.08) (0.01)
Net realized gain on investments 0 0 (0.16) 0
- -------------------------------------------- --------- --------- --------- -----------
Total distributions (0.52) (0.58) (0.72) (0.09)
- -------------------------------------------- --------- --------- --------- -----------
Net asset value end of year $ 10.48 $ 10.24 $ 10.27 $10.94
============================================ ========= ========= ========= ===========
Total return (c) 7.48% 5.61% 0.19% 2.06%
Ratios/supplemental data
Ratios to average net assets:
Total expenses 1.48%(b) 1.50% 1.50% 1.50%(a)
Total expenses excluding reimbursement 1.68% 1.68% 1.74% 1.73%(a)
Net investment income 4.58% 4.81% 4.21% 4.00%(a)
Portfolio turnover rate 89% 129% 113% 95%
- -------------------------------------------- --------- --------- --------- -----------
Net assets end of year (thousands) $54,433 $51,083 $19,984 $1,704
============================================ ========= ========= ========= ===========
</TABLE>
(a) Annualized.
(b) "Ratio of total expenses to average net assets" for the year ended March
31, 1996 includes indirectly paid expenses. Excluding indirectly paid
expenses, the expense ratio would have been 1.47%.
(c) Excluding applicable sales charges.
See Notes to Financial Statements.
<PAGE>
Page 29
- ----------------------------------
Keystone Florida Tax Free Fund
FINANCIAL HIGHLIGHTS--CLASS C SHARES
(For a share outstanding throughout each year)
<TABLE>
<CAPTION>
February 1, 1993
(Date of Initial
Year Ended March 31, Public Offering)
to
1996 1995 1994 March 31, 1993
- -------------------------------------------------------- ------- ------ ------ ----------------
<S> <C> <C> <C> <C>
Net asset value beginning of year $ 10.26 $ 10.28 $ 10.93 $10.81
- -------------------------------------------------------- ----- ---- ---- --------------
Income from investment operations:
Net investment income 0.48 0.47 0.51 0.07
Net realized and unrealized gain (loss) on investments
and closed futures contracts 0.28 0.08 (0.45) 0.14
- -------------------------------------------------------- ----- ---- ---- --------------
Total from investment operations 0.76 0.55 0.06 0.21
- -------------------------------------------------------- ----- ---- ---- --------------
Less distributions from:
Net investment income (0.50) (0.49) (0.49) (0.07)
In excess of net investment income (0.02) (0.08) (0.06) (0.02)
Net realized gain on investments 0 0 (0.16) 0
- -------------------------------------------------------- ----- ---- ---- --------------
Total distributions (0.52) (0.57) (0.71) (0.09)
- -------------------------------------------------------- ----- ---- ---- --------------
Net asset value end of year $ 10.50 $ 10.26 $ 10.28 $10.93
======================================================== ===== ===== ===== ==============
Total return (c) 7.47% 5.61% 0.27% 1.95%
Ratios/supplemental data
Ratios to average net assets:
Total expenses 1.48%(b) 1.50% 1.50% 1.50%(a)
Total expenses excluding reimbursement 1.68% 1.70% 1.84% 1.63%(a)
Net investment income 4.60% 4.86% 4.26% 2.95%(a)
Portfolio turnover rate 89% 129% 113% 95%
- -------------------------------------------------------- ----- ---- ---- --------------
Net assets end of year (thousands) $11,795 $12,831 $13,096 $1,987
======================================================== ===== ===== ===== ==============
</TABLE>
(a) Annualized.
(b) "Ratio of total expenses to average net assets" for the year ended March
31, 1996 includes indirectly paid expenses. Excluding indirectly paid
expenses, the expense ratio would have been 1.47%.
(c) Excluding applicable sales charges.
See Notes to Financial Statements.
<PAGE>
Page 30
- ----------------------------------
Keystone Massachusetts Tax Free Fund
FINANCIAL HIGHLIGHTS--CLASS A SHARES
(For a share outstanding throughout each year)
<TABLE>
<CAPTION>
February 4,
1994
(Commencement
Year Ended March 31, of
Operations)
to
March 31,
1996 1995 1994
- -------------------------------------------------------- ----------- ----------- -------------
<S> <C> <C> <C>
Net asset value beginning of year $ 9.19 $ 9.17 $10.00
- -------------------------------------------------------- --------- --------- -----------
Income from investment operations:
Net investment income 0.51 0.53 0.08
Net realized and unrealized gain (loss) on investments
and closed futures contracts 0.09 0.02 (0.82)
- -------------------------------------------------------- --------- --------- -----------
Total from investment operations 0.60 0.55 (0.74)
- -------------------------------------------------------- --------- --------- -----------
Less distributions from:
Net investment income (0.48) (0.53) (0.08)
In excess of net investment income (0.02) 0 (0.01)
- -------------------------------------------------------- --------- --------- -----------
Total distributions (0.50) (0.53) (0.09)
- -------------------------------------------------------- --------- --------- -----------
Net asset value end of year $ 9.29 $ 9.19 $ 9.17
======================================================== ========= ========= ===========
Total return (c) 6.64% 6.23% (7.40%)
Ratios/supplemental data
Ratios to average net assets:
Total expenses 0.75%(b) 0.46% 0.35%(a)
Total expenses excluding reimbursement 1.59% 1.93% 3.22%(a)
Net investment income 5.36% 5.90% 5.07%(a)
Portfolio turnover rate 165% 77% 7%
- -------------------------------------------------------- --------- --------- -----------
Net assets end of year (thousands) $1,786 $1,974 $1,472
======================================================== ========= ========= ===========
</TABLE>
(a) Annualized.
(b) "Ratio of total expenses to average net assets" for the year ended March
31, 1996 includes indirectly paid expenses. Excluding indirectly paid
expenses, the expense ratio would have been 0.74%.
(c) Excluding applicable sales charges.
See Notes to Financial Statements.
<PAGE>
Page 31
- ----------------------------------
Keystone Massachusetts Tax Free Fund
FINANCIAL HIGHLIGHTS--CLASS B SHARES
(For a share outstanding throughout each year)
<TABLE>
<CAPTION>
February 4, 1994
(Commencement of
Year Ended March 31, Operations)
to
March 31,
1996 1995 1994
- -------------------------------------------------------- ---------- ---------- ------------
<S> <C> <C> <C>
Net asset value beginning of year $ 9.15 $ 9.19 $10.00
- -------------------------------------------------------- -------- -------- ----------
Income from investment operations:
Net investment income 0.43 0.48 0.08
Net realized and unrealized gain (loss) on investments
and closed futures contracts 0.09 (0.01) (0.80)
- -------------------------------------------------------- -------- -------- ----------
Total from investment operations 0.52 0.47 (0.72)
- -------------------------------------------------------- -------- -------- ----------
Less distributions from:
Net investment income (0.43) (0.47) (0.07)
In excess of net investment income (0.02) (0.04) (0.02)
- -------------------------------------------------------- -------- -------- ----------
Total distributions (0.45) (0.51) (0.09)
- -------------------------------------------------------- -------- -------- ----------
Net asset value end of year $ 9.22 $ 9.15 $ 9.19
======================================================== ======== ======== ==========
Total return (c) 5.77% 5.41% (7.20%)
Ratios/supplemental data
Ratios to average net assets:
Total expenses 1.49%(b) 1.24% 1.10%(a)
Total expenses excluding reimbursement 2.38% 2.68% 4.60%(a)
Net investment income 4.60% 5.15% 3.23%(a)
Portfolio turnover rate 165% 77% 7%
- -------------------------------------------------------- -------- -------- ----------
Net assets end of year (thousands) $7,274 $6,169 $1,817
======================================================== ======== ======== ==========
</TABLE>
(a) Annualized.
(b) "Ratio of total expenses to average net assets" for the year ended March
31, 1996 includes indirectly paid expenses. Excluding indirectly paid
expenses, the expense ratio would have been 1.48%.
(c) Excluding applicable sales charges.
See Notes to Financial Statements.
<PAGE>
Page 32
- ----------------------------------
Keystone Massachusetts Tax Free Fund
FINANCIAL HIGHLIGHTS--CLASS C SHARES
(For a share outstanding throughout each year)
<TABLE>
<CAPTION>
February 4, 1994
(Commencement of
Year Ended March 31, Operations)
to
March 31,
1996 1995 1994
- -------------------------------------------------------- ----------- ----------- -------------
<S> <C> <C> <C>
Net asset value beginning of year $ 9.14 $ 9.19 $10.00
- -------------------------------------------------------- --------- --------- -----------
Income from investment operations:
Net investment income 0.43 0.48 0.08
Net realized and unrealized gain (loss) on investments
and closed futures contracts 0.10 (0.02) (0.80)
- -------------------------------------------------------- --------- --------- -----------
Total from investment operations 0.53 0.46 (0.72)
- -------------------------------------------------------- --------- --------- -----------
Less distributions from:
Net investment income (0.43) (0.47) (0.07)
In excess of net investment income (0.02) (0.04) (0.02)
- -------------------------------------------------------- --------- --------- -----------
Total distributions (0.45) (0.51) (0.09)
- -------------------------------------------------------- --------- --------- -----------
Net asset value end of year $ 9.22 $ 9.14 $ 9.19
======================================================== ========= ========= ===========
Total return (c) 5.89% 5.20% (7.21%)
Ratios/supplemental data
Ratios to average net assets:
Total expenses 1.49%(b) 1.23% 1.10% (a)
Total expenses excluding reimbursement 2.39% 2.68% 4.91% (a)
Net investment income 4.60% 5.11% 4.28% (a)
Portfolio turnover rate 165% 77% 7%
- -------------------------------------------------------- --------- --------- -----------
Net assets end of year (thousands) $2,303 $1,971 $ 369
======================================================== ========= ========= ===========
</TABLE>
(a) Annualized.
(b) "Ratio of total expenses to average net assets" for the year ended March
31, 1996 includes indirectly paid expenses. Excluding indirectly paid
expenses, the expense ratio would have been 1.48%.
(c) Excluding applicable sales charges.
See Notes to Financial Statements.
<PAGE>
Page 33
- ----------------------------------
Keystone New York Insured Tax Free Fund
FINANCIAL HIGHLIGHTS--CLASS A SHARES
(For a share outstanding throughout each year)
<TABLE>
<CAPTION>
February 4, 1994
(Commencement of
Year Ended March 31, Operations) to
March 31,
1996 1995 1994
- -------------------------------------------------------- ---------- ---------- ------------
<S> <C> <C> <C>
Net asset value beginning of year $ 9.44 $ 9.32 $10.00
- -------------------------------------------------------- -------- -------- ----------
Income from investment operations:
Net investment income 0.48 0.52 0.09
Net realized and unrealized gain (loss) on investments
and closed futures contracts 0.24 0.12 (0.68)
- -------------------------------------------------------- -------- -------- ----------
Total from investment operations 0.72 0.64 (0.59)
- -------------------------------------------------------- -------- -------- ----------
Less distributions from:
Net investment income (0.47) (0.52) (0.08)
In excess of net investment income (0.02) 0 (0.01)
- -------------------------------------------------------- -------- -------- ----------
Total distributions (0.49) (0.52) (0.09)
- -------------------------------------------------------- -------- -------- ----------
Net asset value end of year $ 9.67 $ 9.44 $ 9.32
======================================================== ======== ======== ==========
Total return (c) 7.73% 7.08% (5.91%)
Ratios/supplemental data
Ratios to average net assets:
Total expenses 0.75%(b) 0.50% 0.35%(a)
Total expenses excluding reimbursement 1.31% 1.59% 4.44%(a)
Net investment income 4.95% 5.48% 3.85%(a)
Portfolio turnover rate 53% 77% 14%
- -------------------------------------------------------- -------- -------- ----------
Net assets end of year (thousands) $3,947 $3,323 $ 680
======================================================== ======== ======== ==========
</TABLE>
(a) Annualized.
(b) "Ratio of total expenses to average net assets" for the year ended March
31, 1996 includes indirectly paid expenses. Excluding indirectly paid
expenses, the expense ratio would have been 0.74%.
(c) Excluding applicable sales charges.
See Notes to Financial Statements.
<PAGE>
Page 34
- ----------------------------------
Keystone New York Insured Tax Free Fund
FINANCIAL HIGHLIGHTS--CLASS B SHARES
(For a share outstanding throughout each year)
<TABLE>
<CAPTION>
February 4, 1994
(Commencement of
Operations)
Year Ended March 31, to
March 31,
1996 1995 1994
- -------------------------------------------------------- ---------- ---------- ------------
<S> <C> <C> <C>
Net asset value beginning of year $ 9.38 $ 9.32 $10.00
- -------------------------------------------------------- -------- -------- ----------
Income from investment operations:
Net investment income 0.41 0.47 0.08
Net realized and unrealized gain (loss) on investments
and closed futures contracts 0.24 0.09 (0.67)
- -------------------------------------------------------- -------- -------- ----------
Total from investment operations 0.65 0.56 (0.59)
- -------------------------------------------------------- -------- -------- ----------
Less distributions from:
Net investment income (0.42) (0.45) (0.06)
In excess of net investment income (0.02) (0.05) (0.03)
- -------------------------------------------------------- -------- -------- ----------
Total distributions (0.44) (0.50) (0.09)
- -------------------------------------------------------- -------- -------- ----------
Net asset value end of year $ 9.59 $ 9.38 $ 9.32
======================================================== ======== ======== ==========
Total return (c) 7.02% 6.28% (5.91%)
Ratios/supplemental data
Ratios to average net assets:
Total expenses 1.50%(b) 1.25% 1.10%(a)
Total expenses excluding reimbursement 2.05% 2.35% 5.60%(a)
Net investment income 4.19% 4.78% 3.01%(a)
Portfolio turnover rate 53% 77% 14%
- -------------------------------------------------------- -------- -------- ----------
Net assets end of year (thousands) $17,151 $11,907 $2,276
======================================================== ======== ======== ==========
</TABLE>
(a) Annualized.
(b) "Ratio of total expenses to average net assets" for the year ended March
31, 1996 includes indirectly paid expenses. Excluding indirectly paid
expenses, the expense ratio would have been 1.49%.
(c) Excluding applicable sales charges.
See Notes to Financial Statements.
<PAGE>
Page 35
- ----------------------------------
Keystone New York Insured Tax Free Fund
FINANCIAL HIGHLIGHTS--CLASS C SHARES
(For a share outstanding throughout each year)
<TABLE>
<CAPTION>
February 4, 1994
(Commencement of
Year Ended March 31, Operations) to
March 31,
1996 1995 1994
- -------------------------------------------------------- ---------- ---------- ------------
<S> <C> <C> <C>
Net asset value beginning of year $ 9.37 $ 9.31 $10.00
- -------------------------------------------------------- -------- -------- ----------
Income from investment operations:
Net investment income 0.41 0.48 0.07
Net realized and unrealized gain (loss) on investments
and closed futures contracts 0.24 0.07 (0.67)
- -------------------------------------------------------- -------- -------- ----------
Total from investment operations 0.65 0.55 (0.60)
- -------------------------------------------------------- -------- -------- ----------
Less distributions from:
Net investment income (0.42) (0.46) (0.07)
In excess of net investment income (0.02) (0.03) (0.02)
- -------------------------------------------------------- -------- -------- ----------
Total distributions (0.44) (0.49) (0.09)
- -------------------------------------------------------- -------- -------- ----------
Net asset value end of year $ 9.58 $ 9.37 $ 9.31
======================================================== ======== ======== ==========
Total return (c) 7.02% 6.18% (6.02%)
Ratios/supplemental data
Ratios to average net assets:
Total expenses 1.50%(b) 1.26% 1.10%(a)
Total expenses excluding reimbursement 2.07% 2.32% 5.13%(a)
Net investment income 4.24% 4.88% 3.71%(a)
Portfolio turnover rate 53% 77% 14%
- -------------------------------------------------------- -------- -------- ----------
Net assets end of year (thousands) $2,296 $2,890 $ 255
======================================================== ======== ======== ==========
</TABLE>
(a) Annualized.
(b) "Ratio of total expenses to average net assets" for the year ended March
31, 1996 includes indirectly paid expenses. Excluding indirectly paid
expenses, the expense ratio would have been 1.48%.
(c) Excluding applicable sales charges.
See Notes to Financial Statements.
<PAGE>
Page 36
- ----------------------------------
Keystone Pennsylvania Tax Free Fund
FINANCIAL HIGHLIGHTS--CLASS A SHARES
(For a share outstanding throughout each year)
<TABLE>
<CAPTION>
December
27, 1990
(Commencement
Year Ended March 31, of Operations)
to
March 31,
1996 1995 1994 1993 1992 1991
- ------------------------------------- ------- ------- ------- ------- ------- ---------
<S> <C> <C> <C> <C> <C> <C>
Net asset value beginning of year $ 10.91 $ 11.01 $ 11.42 $ 10.71 $ 10.25 $10.00
- ------------------------------------- ------ ------ ------ ------ ------ -------
Income from investment operations:
Net investment income 0.60 0.61 0.62 0.63 0.74 0.18
Net realized and unrealized gain
(loss) on investments and closed
futures contracts 0.23 (0.09) (0.30) 0.75 0.46 0.25
- ------------------------------------- ------ ------ ------ ------ ------ -------
Total from investment operations 0.83 0.52 0.32 1.38 1.20 0.43
- ------------------------------------- ------ ------ ------ ------ ------ -------
Less distributions from:
Net investment income (0.57) (0.61) (0.62) (0.63) (0.74) (0.18)
In excess of net investment income (0.02) (0.01) (0.04) (0.02) 0 0
Net realized gain on investments 0 0 (0.06) (0.02) 0 0
In excess of net realized gain on
investments 0 0 (0.01) 0 0 0
- ------------------------------------- ------ ------ ------ ------ ------ -------
Total distributions (0.59) (0.62) (0.73) (0.67) (0.74) (0.18)
- ------------------------------------- ------ ------ ------ ------ ------ -------
Net asset value end of year $ 11.15 $ 10.91 $ 11.01 $ 11.42 $ 10.71 $10.25
===================================== ====== ====== ====== ====== ====== =======
Total return (c) 7.66% 4.91% 2.58% 13.30% 12.07% 4.37%
Ratios/supplemental data
Ratios to average net assets:
Total expenses 0.76%(b) 0.75% 0.75% 0.68% 0.65% 0.65%(a)
Total expenses excluding
reimbursement 0.99% 1.05% 1.06% 1.16% 1.68% 3.19%(a)
Net investment income 5.29% 5.65% 5.27% 5.66% 6.92% 6.84%(a)
Portfolio turnover rate 55% 97% 37% 20% 13% 8%
- ------------------------------------- ------ ------ ------ ------ ------ -------
Net assets end of year (thousands) $28,710 $30,450 $30,560 $35,502 $12,914 $2,979
===================================== ====== ====== ====== ====== ====== =======
</TABLE>
(a) Annualized.
(b) "Ratio of total expenses to average net assets" for the year ended March
31, 1996 includes indirectly paid expenses. Excluding indirectly paid
expenses, the expense ratio would have been 0.75%.
(c) Excluding applicable sales charges.
See Notes to Financial Statements.
<PAGE>
Page 37
- ----------------------------------
Keystone Pennsylvania Tax Free Fund
FINANCIAL HIGHLIGHTS--CLASS B SHARES
(For a share outstanding throughout each year)
<TABLE>
<CAPTION>
February 1,
1993
(Date of
Year Ended March 31, Initial
Public
Offering) to
March 31,
1996 1995 1994 1993
- -------------------------------------------- ----------- ----------- ----------- -------------
<S> <C> <C> <C> <C>
Net asset value beginning of year $ 10.81 $ 10.98 $ 11.42 $11.20
- -------------------------------------------- --------- --------- --------- -----------
Income from investment operations:
Net investment income 0.51 0.54 0.56 0.08
Net realized and unrealized gain (loss) on
investments and closed futures contracts 0.22 (0.10) (0.34) 0.24
- -------------------------------------------- --------- --------- --------- -----------
Total from investment operations 0.73 0.44 0.22 0.32
- -------------------------------------------- --------- --------- --------- -----------
Less distributions from:
Net investment income (0.52) (0.53) (0.52) (0.08)
In excess of net investment income (0.02) (0.08) (0.07) (0.02)
Net realized gain on investments 0 0 (0.03) 0
In excess of net realized gain on
investments 0 0 (0.04) 0
- -------------------------------------------- --------- --------- --------- -----------
Total distributions (0.54) (0.61) (0.66) (0.10)
- -------------------------------------------- --------- --------- --------- -----------
Net asset value end of year $ 11.00 $ 10.81 $ 10.98 $11.42
============================================= ========= ========= ========= ===========
Total return (c) 6.84% 4.15% 1.70% 2.82%
Ratios/supplemental data
Ratios to average net assets:
Total expenses 1.48%(b) 1.50% 1.50% 1.50%(a)
Total expenses excluding reimbursement 1.74% 1.80% 1.81% 1.69%(a)
Net investment income 4.55% 4.89% 4.32% 3.44%(a)
Portfolio turnover rate 55% 97% 37% 20%
- -------------------------------------------- --------- --------- --------- -----------
Net assets end of year (thousands) $37,719 $30,657 $21,958 $2,543
============================================= ========= ========= ========= ===========
</TABLE>
(a) Annualized.
(b) "Ratio of total expenses to average net assets" for the year ended March
31, 1996 includes indirectly paid expenses. Excluding indirectly paid
expenses, the expense ratio would have been 1.47%.
(c) Excluding applicable sales charges.
See Notes to Financial Statements.
<PAGE>
Page 38
- ----------------------------------
Keystone Pennsylvania Tax Free Fund
FINANCIAL HIGHLIGHTS--CLASS C SHARES
(For a share outstanding throughout each year)
<TABLE>
<CAPTION>
February 1,
1993
(Date of
Year Ended March 31, Initial
Public
Offering) to
March 31,
1996 1995 1994 1993
-------------------------------------------- ---------- ---------- ---------- ------------
<S> <C> <C> <C> <C>
Net asset value beginning of year $10.83 $11.00 $11.42 $11.20
-------------------------------------------- -------- -------- -------- ----------
Income from investment operations:
Net investment income 0.51 0.53 0.54 0.07
Net realized and unrealized gain (loss) on
investments and closed futures contracts 0.23 (0.10) (0.32) 0.24
-------------------------------------------- -------- -------- -------- ----------
Total from investment operations 0.74 0.43 0.22 0.31
-------------------------------------------- -------- -------- -------- ----------
Less distributions from:
Net investment income (0.52) (0.53) (0.52) (0.07)
In excess of net investment income (0.02) (0.07) (0.05) (0.02)
Net realized gain on investments 0 0 (0.03) 0
In excess of net realized gain on
investments 0 0 (0.04) 0
-------------------------------------------- -------- -------- -------- ----------
Total distributions (0.54) (0.60) (0.64) (0.09)
-------------------------------------------- -------- -------- -------- ----------
Net asset value end of year $11.03 $10.83 $11.00 $11.42
============================================= ======== ======== ======== ==========
Total return (c) 6.92% 4.05% 1.78% 2.81%
Ratios/supplemental data
Ratios to average net assets:
Total expenses 1.48%(b) 1.50% 1.50% 1.50%(a)
Total expenses excluding reimbursement 1.74% 1.80% 1.90% 1.60%(a)
Net investment income 4.57% 4.90% 4.33% 2.50%(a)
Portfolio turnover rate 55% 97% 37% 20%
-------------------------------------------- -------- -------- -------- ----------
Net assets end of year (thousands) $9,675 $9,559 $9,385 $ 952
============================================= ======== ======== ======== ==========
</TABLE>
(a) Annualized.
(b) "Ratio of total expenses to average net assets" for the year ended March
31, 1996 includes indirectly paid expenses. Excluding indirectly paid
expenses, the expense ratio would have been 1.47%.
(c) Excluding applicable sales charges.
See Notes to Financial Statements.
<PAGE>
Page 39
- ----------------------------------
Keystone State Tax Free Fund
<TABLE>
<CAPTION>
STATEMENTS OF ASSETS AND LIABILITIES New York
March 31, 1996 Florida Massachusetts Insured
Tax Free Tax Free Tax Free Pennsylvania
Fund Fund Fund Tax Free Fund
-------------------------------------------- ----------- ----------- ----------- -------------
<S> <C> <C> <C> <C>
Assets (Notes 1 and 4)
Investments at market value (identified
cost--$99,213,553, $11,168,639,
$22,442,721 and $72,977,229, respectively) $101,718,310 $11,215,563 $23,155,388 $75,203,941
Cash 827 3,361 4,743 3,633
Receivable for:
Fund shares sold 79,237 15,000 38,300 101,032
Interest 2,194,071 179,073 293,085 1,218,902
Due from Investment Adviser 21,206 10,711 14,729 17,286
Unamortized organization expenses 0 6,749 1,779 0
Prepaid expenses and other assets 3,790 330 635 2,740
-------------------------------------------- --------- --------- --------- -----------
Total assets 104,017,441 11,430,787 23,508,659 76,547,534
-------------------------------------------- --------- --------- --------- -----------
Liabilities (Notes 2 and 4)
Payable for:
Fund shares redeemed 29,500 0 0 94,216
Distributions to shareholders 436,130 44,308 86,023 316,693
Distribution fee payable 6,476 133 1,713 2,057
Accrued reimbursable expenses 1,963 1,962 3,163 3,108
Other accrued expenses 29,388 21,063 23,240 27,390
-------------------------------------------- --------- --------- --------- -----------
Total liabilities 503,457 67,466 114,139 443,464
-------------------------------------------- --------- --------- --------- -----------
Net assets $103,513,984 $11,363,321 $23,394,520 $76,104,070
============================================ ========= ========= ========= ===========
Net assets represented by (Note 1)
Paid-in capital $103,665,607 $11,436,317 $22,811,201 $76,398,658
Accumulated distributions in excess of net
investment income (436,130) (2,872) (37,903) (227,211)
Accumulated net realized loss on
investments (2,220,250) (117,048) (91,445) (2,294,089)
Net unrealized appreciation on investments 2,504,757 46,924 712,667 2,226,712
-------------------------------------------- --------- --------- --------- -----------
Total net assets $103,513,984 $11,363,321 $23,394,520 $76,104,070
============================================ ========= ========= ========= ===========
Net assets consists of
Class A $ 37,285,975 $ 1,785,923 $ 3,947,213 $28,710,303
Class B 54,433,294 7,274,378 17,151,468 37,718,609
Class C 11,794,715 2,303,020 2,295,839 9,675,158
-------------------------------------------- --------- --------- --------- -----------
$103,513,984 $11,363,321 $23,394,520 $76,104,070
============================================ ========= ========= ========= ===========
Shares outstanding (Note 2)
Class A 3,518,094 192,338 408,090 2,575,175
Class B 5,195,041 788,724 1,789,124 3,428,337
Class C 1,123,702 249,905 239,549 877,001
-------------------------------------------- --------- --------- --------- -----------
Net asset value per share
Class A $10.60 $9.29 $9.67 $11.15
============================================ ========= ========= ========= ===========
Class A--Offering price (based on sales
charge of 4.75%) $11.13 $9.75 $10.15 $11.71
============================================ ========= ========= ========= ===========
Class B $10.48 $9.22 $9.59 $11.00
============================================ ========= ========= ========= ===========
Class C $10.50 $9.22 $9.58 $11.03
============================================ ========= ========= ========= ===========
</TABLE>
See Notes to Financial Statements.
<PAGE>
Page 40
- ----------------------------------
Keystone State Tax Free Fund
STATEMENTS OF OPERATIONS
Year ended March 31, 1996
<TABLE>
<CAPTION>
New York
Florida Massachusetts Insured
Tax Free Tax Free Tax Free Pennsylvania
Fund Fund Fund Tax Free Fund
- ---------------------------------------- ----------- ----------- ----------- -------------
<S> <C> <C> <C> <C>
Investment income (Note 1)
Interest $6,522,711 $ 696,692 $1,230,032 $4,569,649
Expenses (Notes 1, 2 and 4)
Management fee 557,537 62,760 118,589 402,467
Transfer agent fees 115,014 15,192 27,801 106,088
Custodian fees 77,642 25,312 33,260 57,898
Accounting 24,275 22,081 23,082 22,964
Auditing 9,884 10,133 10,198 12,609
Legal 13,039 10,039 10,104 11,416
Printing 8,502 9,886 14,364 8,544
Registration fees 20,613 9,522 9,311 7,341
Amortization of organization expenses 3,695 2,296 611 4,713
Distribution Plan expenses 658,186 85,172 166,003 451,284
Other expenses 10,395 2,910 3,524 7,065
Reimbursement from Investment Adviser (196,232) (100,729) (119,608) (190,132)
- ---------------------------------------- --------- --------- --------- -----------
Total expenses 1,302,550 154,574 297,239 902,257
Less: Indirectly paid expenses (Note 4) (15,121) (1,100) (4,075) (8,886)
- ---------------------------------------- --------- --------- --------- -----------
Net expenses 1,287,429 153,474 293,164 893,371
- ---------------------------------------- --------- --------- --------- -----------
Net investment income 5,235,282 543,218 936,868 3,676,278
- ---------------------------------------- --------- --------- --------- -----------
Net realized and unrealized gain (loss)
on investments
and closed futures contracts (Note 3)
Realized gain (loss) on:
Investments 3,430,076 293,370 346,747 1,496,403
Closed futures contracts (95,129) (37,945) (21,260) (205,349)
- ---------------------------------------- --------- --------- --------- -----------
Net realized gain on investments and
closed futures contracts 3,334,947 255,425 325,487 1,291,054
Net change in unrealized appreciation
(depreciation) on investments (479,647) (134,154) 155,265 216,658
- ---------------------------------------- --------- --------- --------- -----------
Net realized and unrealized gain on
investments and closed futures
contracts 2,855,300 121,271 480,752 1,507,712
- ---------------------------------------- --------- --------- --------- -----------
Net increase in net assets resulting
from operations $8,090,582 $ 664,489 $1,417,620 $5,183,990
======================================== ========= ========= ========= ===========
</TABLE>
See Notes to Financial Statements.
<PAGE>
Page 41
- ----------------------------------
Keystone State Tax Free Fund
STATEMENTS OF CHANGES IN NET ASSETS
Year ended March 31, 1996
<TABLE>
<CAPTION>
New York
Florida Massachusetts Insured
Tax Free Tax Free Tax Free Pennsylvania
Fund Fund Fund Tax Free Fund
-------------------------------------------- ----------- ----------- ----------- -------------
<S> <C> <C> <C> <C>
Operations:
Net investment income $ 5,235,282 $ 543,218 $ 936,868 $ 3,676,278
Net realized gain on investments and closed
futures contracts 3,334,947 255,425 325,487 1,291,054
Net change in unrealized appreciation
(depreciation) on investments (479,647) (134,154) 155,265 216,658
-------------------------------------------- --------- --------- --------- -----------
Net increase in net assets resulting from
operations 8,090,582 664,489 1,417,620 5,183,990
-------------------------------------------- --------- --------- --------- -----------
Distributions to shareholders from (Note 1)
Net investment income:
Class A (2,068,359) (117,886) (181,786) (1,540,624)
Class B (2,582,018) (342,321) (676,349) (1,676,905)
Class C (584,905) (103,305) (104,583) (458,750)
In excess of net investment income:
Class A (81,365) (435) (7,630) (51,793)
Class B (101,572) (1,262) (28,387) (56,375)
Class C (23,009) (380) (4,389) (15,423)
-------------------------------------------- --------- --------- --------- -----------
Total distributions to shareholders (5,441,228) (565,589) (1,003,124) (3,799,870)
-------------------------------------------- --------- --------- --------- -----------
Capital share transactions (Note 2)
Proceeds from shares sold:
Class A 2,637,449 728,640 1,043,090 1,823,609
Class B 10,874,867 1,573,350 6,303,488 9,365,368
Class C 980,649 458,371 749,393 1,526,571
Payment for shares redeemed:
Class A (9,315,509) (1,015,238) (613,550) (5,114,776)
Class B (9,762,560) (727,777) (1,757,331) (3,838,463)
Class C (2,573,632) (198,311) (1,480,195) (1,930,722)
Net asset value of shares issued in
reinvestment of distributions:
Class A 564,333 65,247 111,251 862,452
Class B 1,035,196 206,616 423,530 1,004,041
Class C 271,631 59,663 80,146 355,643
-------------------------------------------- --------- --------- --------- -----------
Net increase (decrease) in net assets
resulting from capital share transactions (5,287,576) 1,150,561 4,859,822 4,053,723
-------------------------------------------- --------- --------- --------- -----------
Total increase (decrease) in net assets (2,638,222) 1,249,461 5,274,318 5,437,843
Net assets
Beginning of year 106,152,206 10,113,860 18,120,202 70,666,227
-------------------------------------------- --------- --------- --------- -----------
End of year $103,513,984 $11,363,321 $23,394,520 $76,104,070
============================================ ========= ========= ========= ===========
Accumulated distributions in excess of net
investment income ($436,130) ($2,872) ($37,903) ($227,211)
============================================ ========= ========= ========= ===========
</TABLE>
See Notes to Financial Statements.
<PAGE>
Page 42
- ----------------------------------
Keystone State Tax Free Fund
<TABLE>
<CAPTION>
STATEMENTS OF CHANGES IN NET ASSETS
Year ended March 31, 1995
New York
Florida Massachusetts Insured
Tax Free Tax Free Tax Free Pennsylvania
Fund Fund Fund Tax Free Fund
- ------------------------------------------------- ----------- ----------- ----------- -------------
<S> <C> <C> <C> <C>
Operations:
Net investment income $ 5,108,143 $ 421,104 $ 570,628 $ 3,489,024
Net realized loss on investments and closed
futures contracts (4,751,748) (350,345) (393,232) (3,542,502)
Net change in unrealized appreciation on
investments 5,556,382 415,075 698,999 2,918,746
- ------------------------------------------------- --------- --------- --------- -----------
Net increase in net assets resulting from
operations 5,912,777 485,834 876,395 2,865,268
- ------------------------------------------------- --------- --------- --------- -----------
Distributions to shareholders from (Note 1)
Net investment income:
Class A (2,468,849) (103,346) (110,893) (1,714,136)
Class B (1,881,744) (230,929) (372,207) (1,329,520)
Class C (757,551) (85,245) (86,125) (445,368)
In excess of net investment income:
Class A (119,609) 0 0 (23,117)
Class B (331,735) (20,118) (39,019) (196,143)
Class C (127,027) (6,857) (6,749) (58,900)
Total distributions to shareholders (5,686,515) (446,495) (614,993) (3,767,184)
- ------------------------------------------------- --------- --------- --------- -----------
Capital share transactions (Note 2)
Proceeds from shares sold:
Class A 6,022,911 1,279,775 2,912,705 4,586,195
Class B 35,365,150 4,802,858 10,641,995 11,181,757
Class C 6,570,695 1,731,526 2,663,844 3,274,301
Payment for shares redeemed:
Class A (9,676,164) (846,310) (389,013) (5,294,580)
Class B (5,409,666) (609,227) (1,379,298) (2,964,040)
Class C (7,105,015) (182,930) (128,154) (3,313,655)
Net asset value of shares issued in reinvestment
of distributions:
Class A 712,811 60,782 46,401 942,252
Class B 829,201 125,304 220,338 877,275
Class C 385,988 55,445 58,568 375,859
- ------------------------------------------------- --------- --------- --------- -----------
Net increase in net assets resulting from
capital share transactions 27,695,911 6,417,223 14,647,386 9,665,364
- ------------------------------------------------- --------- --------- --------- -----------
Total increase in net assets 27,922,173 6,456,562 14,908,788 8,763,448
Net assets
Beginning of year 78,230,033 3,657,298 3,211,414 61,902,779
- ------------------------------------------------- --------- --------- --------- -----------
End of year $106,152,206 $10,113,860 $18,120,202 $70,666,227
- ------------------------------------------------- --------- --------- --------- -----------
Undistributed net investment income (Accumulated
distributions in excess of net investment
income) --
End of year ($445,095) $20,294 $25,850 ($106,519)
================================================ ========= ========= ========= ===========
</TABLE>
See Notes to Financial Statements.
<PAGE>
Page 43
- ----------------------------------
NOTES TO FINANCIAL STATEMENTS
(1.) Significant Accounting Policies
Keystone State Tax Free Fund ("FUND") was formed as a Massachusetts business
trust on September 13, 1990 and is registered under the Investment Company
Act of 1940, as amended (the "1940 Act"), as an open-end management
investment company. Keystone Investment Management Company ("Keystone") is
the Investment Adviser and Manager. The FUND currently offers shares of five
separate non-diversified series evidencing interests in different portfolios
of securities (individually a "Fund", collectively the "Funds"). These
financial statements include four series of the FUND: the Keystone Florida
Tax Free Fund ("Florida Fund"), the Keystone Massachusetts Tax Free Fund
("Massachusetts Fund"), the Keystone New York Insured Tax Free Fund ("New
York Fund") and the Keystone Pennsylvania Tax Free Fund ("Pennsylvania
Fund"). The Funds seek the highest possible current income exempt from
federal income taxes, while preserving capital.
Each Fund currently offers three classes of shares. Class A shares are sold
subject to a maximum sales charge of 4.75% payable at the time of purchase.
Class B shares are sold subject to a contingent deferred sales charge which
varies depending on when shares were purchased and how long they have been
held. Class C shares are sold subject to a contingent deferred sales charge
payable upon redemption within one year of purchase, and are available only
through dealers who have entered into special distribution agreements with
Keystone Investment Distributors Company ("KIDC"), the FUND's principal
underwriter.
Keystone is a wholly-owned subsidiary of Keystone Investments, Inc. ("KII"),
a Delaware corporation. KII is privately owned by an investor group
consisting predominantly of members of current and former management of
Keystone and its affiliates.
The following is a summary of significant accounting policies consistently
followed by the Funds in preparation of their financial statements. The
policies are in conformity with generally accepted accounting principles,
which requires management to make estimates and assumptions that affect
amounts reported herein. Although actual results could differ from these
estimates, any such differences are expected to be immaterial to the net
assets of the Funds.
A. Tax-exempt bonds are valued on the basis of valuations provided by a
pricing service, approved by the Board of Trustees, that uses information
with respect to transactions in bonds, quotations from bond dealers, market
transactions in comparable securities and various relationships between
securities in determining value. Non-tax-exempt securities for which market
quotations are readily available are valued at the price quoted which, in the
opinion of the Board of Trustees or their representative, most nearly
represents their market value. Short-term investments which are purchased
with maturities of sixty days or less are valued at amortized cost (original
purchase cost as adjusted for amortization of premium or accretion of
discount), which, when combined with accrued interest, approximates market.
Short-term investments maturing in more than sixty days for which market
quotations are readily available are valued at current market value.
Short-term investments maturing in more than sixty days when purchased which
are held on the sixtieth day prior to maturity are valued at amortized cost
(market value on the sixtieth day adjusted for amortization of premium or
accretion of discount), which, when combined with accrued interest,
approximates market. All other securities and other assets are valued at fair
value as determined in good faith using methods prescribed by the Board of
Trustees.
B. Each Fund may enter into financial futures contracts as a hedge against
changes in interest 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
<PAGE>
Page 44
- ----------------------------------
Keystone State Tax Free Fund
index, cash at a set price on a future date. Upon entering into a futures
contract the Fund is required to deposit with a broker an amount ("initial
margin") equal to a certain percentage of the purchase price indicated in the
futures contract. Subsequent payments ("variation margin") are made or
received by the Fund each day, as the value of the underlying instrument or
index fluctuates, and are recorded for book purposes as unrealized gains or
losses by the Fund. For federal tax purposes, any futures contracts which
remain open at fiscal year end are marked-to-market and the resultant net
gain or loss is included in the Fund's taxable income. In addition to market
risk, the Fund is subject to the credit risk that the other party will not
complete the obligations of the contract.
C. When-issued or delayed delivery transactions arise when securities or
currencies are purchased or sold by a Fund with payment and delivery taking
place in the future in order to secure what is considered to be an
advantageous price and yield to the Fund at the time of entering into the
transaction. A separate account of liquid assets equal to the value of such
purchase commitments will be maintained until payment is made. When-issued
and delayed agreements are subject to risks from changes in value based upon
changes in the level of interest rates and other market factors, both before
and after delivery.
D. Securities transactions are accounted for no later than one business day
after the trade date. Realized gains and losses are recorded on the
identified cost basis. Interest income is recorded on the accrual basis. All
premiums and original issue discounts are amortized/accreted for both
financial reporting and federal income tax purposes.
E. Each Fund has qualified, and intends to qualify in the future, as a
regulated investment company under the Internal Revenue Code of 1986, as
amended (the "Internal Revenue Code"). Thus, each Fund is relieved of any
federal income tax liability by distributing all of its net taxable
investment income and net taxable capital gains, if any, to its shareholders.
Each Fund intends to avoid excise tax liability by making the required
distributions under the Internal Revenue Code.
F. Organization expenses are being amortized to operations over a five-year
period on a straight-line basis. In the event any of the initial shares are
redeemed by any holder thereof during the five-year amortization period,
redemption proceeds will be reduced by any unamortized organization expenses
in the same proportion as the number of initial shares being redeemed bears
to the number of initial shares outstanding at the time of redemption. As of
March 31, 1996 all such costs have been fully amortized for the Florida Fund
and the Pennsylvania Fund.
G. Each Fund intends to declare dividends from net investment income daily
and distribute to its shareholders such dividends monthly and to declare and
distribute all net realized long-term capital gains, if any, at least
annually. Distributions are determined in accordance with income tax
regulations. The significant differences between financial statement amounts
available for distribution and distributions made in accordance with income
tax regulation are primarily due to the deferral of losses for income tax
purposes that have been recognized for financial statement purposes.
(2.) Capital Share Transactions
The FUND's Declaration of Trust authorizes the issuance of an unlimited
number of shares of beneficial interest, without par value. Transactions in
shares of the Funds were as follows:
<PAGE>
Page 45
- ----------------------------------
<TABLE>
<CAPTION>
Florida Fund
----------------
Year Ended March 31,
----------------------
Class A 1996 1995
- ---------------- -------- ----------
<S> <C> <C>
Shares sold 247,533 594,097
Shares redeemed (873,200) (961,330)
Shares issued in
reinvestment of
dividends and
distributions 53,198 70,513
---------------- ------- --------
Net decrease (572,469) (296,720)
================ ======= ========
</TABLE>
<TABLE>
<CAPTION>
<S> <C> <C>
Class B
Shares sold 1,027,017 3,504,376
Shares redeemed (918,380) (544,344)
Shares issued in
reinvestment of
dividends and
distributions 98,392 82,908
---------------- ------- --------
Net increase 207,029 3,042,940
================ ======= ========
</TABLE>
<TABLE>
<CAPTION>
<S> <C> <C>
Class C
Shares sold 92,047 643,062
Shares redeemed (244,752) (704,324)
Shares issued in
reinvestment of
dividends and
distributions 25,773 38,331
---------------- ------- --------
Net decrease (126,932) (22,931)
================ ======= ========
</TABLE>
<TABLE>
<CAPTION>
Massachusetts Fund
- ----------------------
Year Ended March 31,
----------------------
Class A 1996 1995
- ---------------------- -------- ----------
<S> <C> <C>
Shares sold 77,233 141,360
Shares redeemed (106,698) (93,803)
Shares issued in
reinvestment of
dividends and
distributions 6,900 6,770
- ---------------------- ------- --------
Net increase
(decrease) (22,565) 54,327
====================== ======= ========
</TABLE>
<TABLE>
<CAPTION>
<S> <C> <C>
Class B
Shares sold 170,546 532,363
Shares redeemed (78,313) (69,932)
Shares issued in
reinvestment of
dividends and
distributions 22,195 14,043
---------------- ------- --------
Net increase 114,428 476,474
================ ======= ========
</TABLE>
<TABLE>
<CAPTION>
<S> <C> <C>
Class C
Shares sold 48,902 189,623
Shares redeemed (21,034) (20,305)
Shares issued in
reinvestment of
dividends and
distributions 6,401 6,195
---------------- ------- --------
Net increase 34,269 175,513
================ ======= ========
</TABLE>
<PAGE>
Page 46
- ----------------------------------
Keystone State Tax Free Fund
<TABLE>
<CAPTION>
New York Fund
----------------
Year Ended March 31,
----------------------
Class A 1996 1995
---------------- -------- ----------
<S> <C> <C>
Shares sold 107,459 315,837
Shares redeemed (63,070) (41,667)
Shares issued in
reinvestment of
dividends and
distributions 11,515 5,049
---------------- ------- --------
Net increase 55,904 279,219
================ ======= ========
</TABLE>
<TABLE>
<CAPTION>
<S> <C> <C>
Class B
Shares sold 658,066 1,155,373
Shares redeemed (182,936) (153,738)
Shares issued in
reinvestment of
dividends and
distributions 44,023 24,119
---------------- ------- --------
Net increase 519,153 1,025,754
================ ======= ========
</TABLE>
<TABLE>
<CAPTION>
<S> <C> <C>
Class C
Shares sold 77,987 288,523
Shares redeemed (155,157) (14,006)
Shares issued in
reinvestment of
dividends and
distributions 8,359 6,435
---------------- ------- --------
Net increase
(decrease) (68,811) 280,952
================ ======= ========
</TABLE>
<TABLE>
<CAPTION>
Pennsylvania Fund
- ----------------------
Year Ended March 31,
----------------------
Class A 1996 1995
- ---------------------- -------- ----------
<S> <C> <C>
Shares sold 162,995 422,375
Shares redeemed (455,676) (494,154)
Shares issued in
reinvestment of
dividends and
distributions 76,584 87,463
- ---------------------- ------- --------
Net increase
(decrease) (216,097) 15,684
====================== ======= ========
</TABLE>
<TABLE>
<CAPTION>
<S> <C> <C>
Class B
Shares sold 844,393 1,037,572
Shares redeemed (343,491) (282,691)
Shares issued in
reinvestment of
dividends and
distributions 90,532 82,087
---------------- ------- --------
Net increase 591,434 836,968
================ ======= ========
</TABLE>
<TABLE>
<CAPTION>
<S> <C> <C>
Class C
Shares sold 136,525 306,060
Shares redeemed (173,811) (312,198)
Shares issued in
reinvestment of
dividends and
distributions 31,980 34,993
---------------- ------- --------
Net increase
(decrease) (5,306) 28,855
================ ======= ========
</TABLE>
<PAGE>
Page 47
- ----------------------------------
Each 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.
Each Class A Distribution Plan provides for expenditures, which are limited
to an annual rate of up to 0.25% (currently limited to 0.15%) of the average
daily net asset value of Class A shares, to pay expenses related to the
distribution of Class A shares. Amounts paid by each 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 0.15% of the average daily net asset value
of Class A shares maintained by such others on the books of the Fund for
specified periods.
Each Class B Distribution Plan provides for expenditures, which are limited
to an annual rate of up to 1.00% (currently limited to 0.90%) of the average
daily net asset value of Class B shares to pay expenses related to the
distribution of Class B shares. For Class B shares sold on or after June 1,
1995, amounts paid by each Fund under such shares' Class B Distribution Plan
are currently used to pay others (such as dealers) a commission at the time
of purchase normally equal to 4.00% of the price paid for each Class B share
sold plus the first year's service fee in advance in the amount of 0.15% of
the price paid for each Class B share sold. Beginning approximately 12 months
after the purchase of such Class B shares, the dealer or other party will
receive service fees at an annual rate of 0.15% of the average daily net
asset value of each such Class B shares maintained by such others and
remaining 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 month period from and including the date of
purchase to 1.00% of amounts redeemed during the sixth twelve month period
from and including the date of 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 a
front-end sales charge or exchange fee. Class B shares purchased prior to
June 1, 1995 retain their existing conversion rights.
Each Class C Distribution Plan provides for expenditures, which are limited
to an annual rate of up to 1.00% (currently limited to 0.90%) of the average
daily net asset value of Class C shares, to pay expenses related to the
distribution of Class C shares. Amounts paid by each Fund under the Class C
Distribution Plan are currently used to pay others (such as dealers) a
commission at the time of purchase equal to 0.75% of the price paid for each
share sold plus the first year's service fee in advance in the amount of
0.25% of the price paid for each Class C share. Beginning approximately 15
months after purchase, the dealer or other party will receive a commission at
an annual rate of 0.75% (subject to applicable limitations imposed by the
National Association of Securities Dealers, Inc. ("NASD")) plus service fees
at an annual rate of 0.25%, respectively, of the average net asset value of
each Class C share sold by such others and maintained on the Fund's books for
specified periods.
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. However, after the termination of any
Distribution Plans, at the discretion of the Board of Trustees, payments to
KIDC may continue as compensation for its services which had been earned
while the Distribution Plan was in effect.
For the year ended March 31, 1996, amounts paid to KIDC pursuant to each
Fund's Class A, Class B, and Class C Distribution Plans were as follows:
<PAGE>
Page 48
- ----------------------------------
Keystone State Tax Free Fund
<TABLE>
<CAPTION>
Florida Fund
-------------
<S> <C>
Class A $ 56,304
Class B prior to June 1, 1995 456,390
Class B on or after June 1, 1995 34,480
Class C 111,012
</TABLE>
<TABLE>
<CAPTION>
Massachusetts
Fund
-----------------
<S> <C>
Class A $ 2,256
Class B prior to June 1, 1995 56,056
Class B on or after June 1, 1995 7,645
Class C 19,215
</TABLE>
<TABLE>
<CAPTION>
New York Fund
--------------
<S> <C>
Class A $ 5,591
Class B prior to June 1, 1995 116,859
Class B on or after June 1, 1995 22,305
Class C 21,248
</TABLE>
<TABLE>
<CAPTION>
Pennsylvania
Fund
----------------
<S> <C>
Class A $ 44,529
Class B prior to June 1, 1995 282,940
Class B on or after June 1, 1995 36,440
Class C 87,375
</TABLE>
Under applicable NASD rules, the maximum uncollected amounts for which KIDC
may seek payment from the Funds under its Class B Distribution Plans as of
March 31, 1996 are as follows:
<TABLE>
<CAPTION>
Florida Fund
-------------
<S> <C>
Shares purchased prior to June 1, 1995 $2,946,854
Shares purchased on or after June 1, 1995 510,361
</TABLE>
<TABLE>
<CAPTION>
Massachusetts
Fund
--------------
<S> <C>
Shares purchased prior to June 1, 1995 $366,916
Shares purchased on or after June 1, 1995 55,979
</TABLE>
<TABLE>
<CAPTION>
New York Fund
--------------
<S> <C>
Shares purchased prior to June 1, 1995 $741,567
Shares purchased on or after June 1, 1995 290,287
</TABLE>
<TABLE>
<CAPTION>
Pennsylvania
Fund
--------------
<S> <C>
Shares purchased prior to June 1, 1995 $1,849,989
Shares purchased on or after June 1, 1995 491,259
</TABLE>
As of March 31, 1996 the maximum uncollected amounts for which KIDC may seek
payment from the Funds under its Class C Distribution Plans are $1,295,524,
$142,771, $213,519 and $823,047, for the Florida Fund, the Massachusetts
Fund, the New York Fund and the Pennsylvania Fund, respectively.
Presently, each Fund's class-specific expenses are limited to Distribution
Plan expenses incurred by a class of shares pursuant to its Distribution
Plan.
(3.) Securities Transactions
As of March 31, 1996, the Funds had approximate capital loss carryovers for
federal income tax purposes as follows:
<TABLE>
<CAPTION>
Florida Fund
-------------
<S> <C>
Capital Loss Carryover $1,845,000
Expires 2002 1,845,000
</TABLE>
<TABLE>
<CAPTION>
Massachusetts
Fund
--------------
<S> <C>
Capital Loss Carryover $117,000
Expires 2002 117,000
</TABLE>
<TABLE>
<CAPTION>
New York Fund
--------------
<S> <C>
Capital Loss Carryover $72,000
Expires 2002 1,000
Expires 2003 71,000
</TABLE>
<TABLE>
<CAPTION>
Pennsylvania
Fund
--------------
<S> <C>
Capital Loss Carryover $2,294,000
Expires 2002 1,503,000
Expires 2003 791,000
</TABLE>
Purchases and sales of investment securities, excluding short-term
securities, for the year ended March 31, 1996 were as follows:
<TABLE>
<CAPTION>
Cost of Proceeds
Purchases from Sales
---------- ------------
<S> <C> <C>
FLORIDA FUND $93,445,604 $101,076,090
MASSACHUSETTS FUND 19,566,916 18,349,095
NEW YORK FUND 15,459,323 11,114,467
PENNSYLVANIA FUND 45,460,964 40,281,694
</TABLE>
<PAGE>
Page 49
- ----------------------------------
(4.) Investment Management Agreement and other Transactions
Under the terms of the Investment Advisory and Management Agreement between
Keystone and the FUND, Keystone provides investment management and
administrative services to each Fund. In return, Keystone is paid a
management fee computed and paid daily. The management fee is calculated by
applying percentage rates, which start at 0.55% and decline to 0.25% per
annum as net assets increase, to the net asset value of each Fund.
Keystone Investor Resource Center, Inc. ("KIRC"), a wholly-owned subsidiary
of Keystone, serves as each Fund's transfer and dividend disbursing agent.
During the year ended March 31, 1996, the Florida Fund, the Massachusetts
Fund, the New York Fund and the Pennsylvania Fund paid or accrued to KIRC
$115,014, $15,192, $27,801 and $106,088, respectively, for transfer agent
fees.
During the year ended March 31, 1996, the Florida Fund, the Massachusetts
Fund, the New York Fund and the Pennsylvania Fund paid or accrued to KII
$24,275, $22,081, $23,082 and $22,964, respectively, for certain accounting
services.
Keystone has voluntarily agreed to limit all expenses incurred for Class A
shares of the Florida Fund and the Pennsylvania Fund to 0.75% of average
daily net assets and has limited annual expenses of the Class B shares and
Class C shares to 1.50% of average daily net assets.
Keystone voluntarily limited the expenses of the Class A shares of the
Massachusetts Fund and the New York Fund to 0.65% until May 15, 1995 when
expenses were limited to 0.75%; expenses for Class B and Class C shares were
limited to 1.40% until May 15, 1995 when expenses were limited to 1.50%.
Keystone will not be required to reimburse a Fund to an extent that would
result in a Fund's inability to qualify as a regulated investment company
under the provisions of the Internal Revenue Code. In accordance with expense
limitations then in effect, Keystone reimbursed the Florida Fund, the
Massachusetts Fund, the New York Fund, and the Pennsylvania Fund $196,232,
$100,729, $119,608 and $190,132, respectively, for the year ended March 31,
1996. Keystone does not intend to seek repayment of these amounts.
The Funds have entered into an expense offset arrangement with their
custodian. For the year ended March 31, 1996, the Florida Fund, the
Massachusetts Fund, the New York Fund and the Pennsylvania Fund paid custody
fees in the amount of $62,521, $24,212, $29,185 and $49,012, respectively,
and received a credit of $15,121, $1,100, $4,075 and $8,886, respectively,
pursuant to the expense offset arrangement, resulting in a total expense of
$77,642, $25,312, $33,260 and $57,898, respectively. The assets deposited
with the custodian under this 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 of
the Funds receive no compensation for their services.
<PAGE>
Page 50
- ----------------------------------
Keystone State Tax Free Fund
Independent Auditors' Report
The Trustees and Shareholders of
Keystone State Tax Free Fund
We have audited the accompanying statements of assets and liabilities of
Keystone Florida Tax Free Fund, Keystone Massachusetts Tax Free Fund,
Keystone New York Insured Tax Free Fund and Keystone Pennsylvania Tax Free
Fund, portfolios of Keystone State Tax Free Fund, including the schedules of
investments as of March 31, 1996, and the related statements 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 five-year period ended March 31, 1996 and for the
period from December 28, 1990 (commencement of operations) to March 31, 1991
for Keystone Florida Tax Free Fund, for each of the years in the two-year
period ended March 31, 1996 and for the period from February 4, 1994
(commencement of operations) to March 31, 1994 for Keystone Massachusetts Tax
Free Fund and Keystone New York Insured Tax Free Fund, and for each of the
years in the five-year period ended March 31, 1996 and for the period from
December 27, 1990 (commencement of operations) to March 31, 1991 for Keystone
Pennsylvania Tax Free Fund. 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 audits 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 March 31, 1996 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 Florida Tax Free Fund, Keystone Massachusetts Tax Free Fund,
Keystone New York Insured Tax Free Fund and Keystone Pennsylvania Tax Free
Fund, portfolios of Keystone State Tax Free Fund as of March 31, 1996, the
results of their operations for the year then ended, the changes in their 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
April 26, 1996
<PAGE>
Page 51
- ----------------------------------
FEDERAL TAX STATUS--1996 Fiscal year distributions
(Unaudited)
The per share distributions paid to you for fiscal 1996, whether taken in
shares or cash, are as follows:
<TABLE>
<CAPTION>
Tax-Exempt Income Dividends
-------------------------------
Class A Class B Class C
------- ------- ---------
<S> <C> <C> <C>
Florida Tax Free Fund $0.56 $0.52 $0.52
Massachusetts Tax Free Fund 0.50 0.45 0.45
New York Insured Tax Free Fund 0.49 0.44 0.44
Pennsylvania Tax Free Fund 0.59 0.54 0.54
</TABLE>
In January 1997, complete information on calendar year 1996 distributions
will be forwarded to you to assist you in completing your 1996 federal income
tax return.
<PAGE>
KEYSTONE STATE TAX FREE FUND
PART C
OTHER INFORMATION
Item 24. Financial Statements and Exhibits
Item 24(a). FINANCIAL STATEMENTS
All financial statements listed below are included in the Registrant's Statement
of Additional Information.
KEYSTONE FLORIDA TAX FREE FUND (ALL CLASSES)
Schedule of Investments March 31, 1996
Financial Highlights Year ended
March 31, 1996
Statement of Assets and Liabilities March 31, 1996
Statement of Operations Year ended
March 31, 1996
Statements of Changes In Net Assets Two years ended
March 31, 1996
KEYSTONE PENNSYLVANIA TAX FREE FUND (ALL CLASSES)
Schedule of Investments March 31, 1996
Financial Highlights Year ended
March 31, 1996
Statement of Assets and Liabilities March 31, 1996
Statement of Operations Year ended
March 31, 1996
Statements of Changes In Net Assets Two years ended
March 31, 1996
KEYSTONE MASSACHUSETTS TAX FREE FUND (ALL CLASSES)
Schedule of Investments March 31, 1996
Financial Highlights Year ended
March 31, 1996
Statement of Assets and Liabilities March 31, 1996
Statement of Operations Year ended
March 31, 1996
Statements of Changes In Net Assets Two years ended
March 31, 1996
KEYSTONE NEW YORK INSURED TAX FREE FUND (ALL CLASSES)
Schedule of Investments March 31, 1996
Financial Highlights Year ended
March 31, 1996
Statement of Assets and Liabilities March 31, 1996
Statement of Operations Year ended
March 31, 1996
Statements of Changes In Net Assets Two years ended
March 31, 1996
ALL FUNDS
Notes to Financial Statements Year ended
March 31, 1996
Independent Auditors' Report
dated April 26, 1996
Item 24(b) Exhibits
(1) A copy of the Registrant's Declaration of Trust, as amended, was filed
with Post-Effective Amendment No. 10 to Registration Statement No.
33-37131/811-6181 ("Post-Effective Amendment No. 10") as Exhibit
24(b)(1) and is incorporated by reference herein.
(2) A copy of the Registrant's By-Laws is filed herewith.
(3) Not applicable.
(4)(a) Registrant's Declaration of Trust, as amended, Articles II, V, VI and
VIII were filed with Post-Effective Amendment No. 10 as Exhibit
24(b)(1) and is incorporated by reference herein.
(b) Registrant's By-Laws, Article 2, Section 2.5 is filed herewith.
(5) A copy of the Investment Advisory and Management Agreement between
Registrant and Keystone Investment Management Company (formerly
Keystone Custodian Funds, Inc.) dated August 19, 1993 is filed
herewith.
(6)(a) A copy of the Principal Underwriting Agreement between Registrant and
Keystone Investment Distributors Company (formerly Keystone
Distributors, Inc.) dated August 19, 1993 is filed herewith.
(6)(b) A specimen of the form of Dealer Agreement used by Keystone Investment
Distributors Company (formerly Keystone Distributors, Inc.) is filed
herewith.
(7) Not applicable.
(8) A copy of the Custodian, Fund Accounting and Recordkeeping Agreement
between Registrant and State Street Bank and Trust Company and dated
November 27, 1990 is filed herewith.
(9) Not applicable.
(10) An opinion and consent of counsel with respect to the registration of
699,269 additional shares of the Fund pursuant to Section 24(e)(1) of
the 1940 Act is filed herewith.
(11) Consent as to use of opinion of Registrant's independent auditors is
filed herewith.
(12) Not applicable.
(13) A copy of Registrant's Subscription Agreement was filed with
Registration Statement No. 33-37131/811-6181 as Exhibit 24(b)(13) and
is incorporated by reference herein.
(14) Not applicable.
(15) Copies of each of Registrant's Class A, B and C Distribution Plans are
filed herewith.
(16) Schedules for computation of total return and current yield are filed
herewith.
(17) Financial Data Schedules are filed herewith as Exhibit 24(b)(17).
(18) Multiple Class Plan adopted pursuant to Rule 18f-3 under the Investment
Company Act of 1940 was filed with Post-Effective Amendment No. 10 and
is incorporated by reference herein.
(19) Powers of Attorney are filed herewith.
Item 25. Persons Controlled by or Under Common Control With Registrant
Not Applicable.
Item 26. Number of Holders of Securities
Number of Record
Title of Class Holders as of April 30, 1996
- -------------- ----------------------------
Shares of Beneficial Class A - 864
Interest, without par Class B - 1,244
value - Florida Fund Class C - 110
Shares of Beneficial Class A - 807
Interest, without par Class B - 1,352
value - Pennsylvania Fund Class C - 224
Shares of Beneficial Class A - 46
Interest, without par Class B - 223
value - Massachusetts Fund Class C - 56
Shares of Beneficial Class A - 45
Interest, without par Class B - 110
value - New York Insured Class C - 496
Item 27. Indemnification
Provisions for the indemnification of the Registrant's Trustees and
officers are contained in Article VIII of the Registrant's Declaration of Trust,
as amended, a copy of which was filed with Post-Effective Amendment No. 10 as
Exhibit 24(b)(1) and is incorporated by reference herein.
Provisions for the indemnification of Keystone Investment Distributors
Company, the Registrant's Principal Underwriter, are contained in Section 9 of
the Principal Underwriting Agreement between the Registrant and Keystone
Investment Distributors Company, a copy of which is filed herewith.
Provisions for the indemnification of Keystone Investment Management
Company, the Registrant's investment adviser, are contained in Section 6 of the
Investment Advisory and Management Agreement between the Registrant and Keystone
Investment Management Company, a copy of which is filed herewith.
Item 28. Businesses and Other Connections of Investment Adviser
The following table lists the names of the various officers and
directors of Keystone Investment Management Company, Registrant's investment
adviser, and their respective positions. For each named individual, the table
lists, for at least the past two fiscal years, (i) any other organizations
(excluding investment advisory clients) with which the officer and/or director
has had or has substantial involvement; and (ii) positions held with such
organizations.
<PAGE>
LIST OF OFFICERS AND DIRECTORS OF
KEYSTONE INVESTMENT MANAGEMENT COMPANY
Position with
Keystone 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 Keystone Investments,Inc.
Director Keystone Management,Inc.
Keystone Software, Inc.
Keystone Asset Corporation
Keystone Capital Corporation
Chairman of the Board and
Director:
Keystone Fixed Income
Advisers, Inc.
Keystone Institutional
Company, Inc.
President and Director:
Keystone Trust Company
Director or Trustee:
Fiduciary Investment
Company, Inc.
Keystone Investment
Distributors Company
Keystone Investor
Resource Center, Inc.
Boston Children's
Services Associates
Middlesex School
Middlebury College
Former Trustee or Director:
Neworld Bank
Robert Van Partners, Inc.
Philip M. Byrne Director President and Director:
Keystone Institutional
Company, Inc.
Senior Vice President:
Keystone Investments, Inc.
Herbert L. Senior Vice None
Bishop, Jr. President
Donald C. Dates Senior Vice None
President
Position with
Keystone Other
Investment Business
Gilman Gunn Senior Vice None
President
Edward F. Director, Director, Senior Vice
Godfrey Senior Vice President
President, Chief Financial Officer and
Treasurer and Treasurer:
Chief Financial Keystone Investments, Inc.
Officer Keystone Investment
Distributors Company
Treasurer:
Keystone Institutional
Company, Inc.
Keystone Management, Inc.
Keystone Software, Inc.
Fiduciary Investment
Company, Inc.
Former Treasurer and
Director:
Hartwell Keystone Advisers, Inc.
James R. McCall Director and None
President
Ralph J. Director President and Director:
Spuehler, Jr. Keystone Investment
Distributors Company
Senior Vice President and
Director:
Keystone Investments, Inc.
Chairman and Director:
Keystone Investor
Resource Center, Inc.
Keystone Management, Inc.
Formerly President:
Keystone Management, Inc.
Formerly Treasurer:
The Kent Funds
Keystone Investments, Inc.
Keystone Investment
Management Company
Rosemary D. Senior Vice General Counsel, Senior
Van Antwerp President, Vice President and
General Counsel Secretary:
and Secretary Keystone Investments, Inc.
Senior Vice President and
General Counsel:
Keystone Institutional
Company, Inc.
Senior Vice President,
General Counsel and
Director:
Keystone Investor
Resource Center, Inc.
Fiduciary Investment
Company, Inc.
Keystone Investment
Distributors Company
Senior Vice President,
General Counsel, Director
and Secretary:
Keystone Management, Inc.
Keystone Software, Inc.
Former Senior Vice
President and Secretary:
Hartwell Keystone
Advisers, Inc.
Vice President and Secretary:
Keystone Fixed Income
Advisers, Inc.
J. Kevin Kenely Vice President Vice President:
Keystone Investments, Inc.
Keystone Investment
Distributors Company
Keystone Institutional
Company, Inc.
Keystone Management, Inc.
Keystone Software, Inc.
Fiduciary Investment
Company, Inc.
Formerly Controller:
Keystone Investments, Inc.
Keystone Management, Inc.
Keystone Investment
Distributors Company
Keystone Institutional
Company, Inc.
Keystone Software, Inc.
Fiduciary Investment
Company, Inc.
John D. Rogol Vice President Vice President and
and Controller Controller:
Keystone Investments, Inc.
Keystone Investment
Distributors Company
Keystone Institutional
Company, Inc.
Keystone Management, Inc.
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
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
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 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 America Hartwell Emerging Growth Fund, Inc.
Keystone Capital Preservation and Income Fund
Keystone Global Opportunities Fund
Keystone Government Securities Fund
Keystone Intermediate Term Bond Fund
Keystone Omega Fund
Keystone State Tax Free Fund
Keystone State Tax Free Fund - Series II
Keystone Strategic Income Fund
Keystone Tax Free Income Fund
Keystone 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 Free Fund
Master Reserves Trust
Keystone Small Company Growth Fund II
Keystone Emerging Markets Fund
(b) For information with respect to each director and officer
of Registrant's acting principal underwriter see the
following pages.
<PAGE>
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
Gregg A. Mahalich Divisional Vice President None
14952 Richards Drive W.
Minnetonka, MN 55345
C. Kenneth Molander Divisional Vice None
8 King Edward Drive President
Londenderry, NH 03053
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 Manager and None
309 West 90th Street Vice President
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
Paul D. Graffy Regional Manager and None
15509 Janas Drive Vice President
Lockport, IL 60441
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
Robert P. Matson Regional Manager and None
4557 N. O'Connor Blvd Vice President
No. 1286
Irving, TX 75062
Paul J. McIntyre Regional Manager and None
118 Main Centre, #203 Vice President
Northville, MI 48167
Thomas O. Meloy Regional Manager and None
2808 McKinney Ave. Vice President
No. 141
Dallas, TX 75204
Alan V. Niemi Regional Manager and None
3511 Grant Street Vice President
Lee's Summit, MO 64064
Ronald L. Noble Regional Manager and None
428 N. Adventure Trail Vice President
Virginia Beach, VA 23454
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
L. Welden Evans Regional Banking Officer None
490 Huntcliff Green and Vice President
Atlanta, GA 30350
Raymond P. Ajemian* Manager and Vice President None
Jonathan I. Cohen* Vice President None
Michael S. Festa* Vice President None
<PAGE>
Name and Position and Offices with Position and
Principal Keystone Investment Offices with
Business Address Distributors Company the Fund
- ---------------- ------------------------- ------------
Russell A. Haskell* Vice President None
Robert J. Matson* Vice President None
John M. McAllister* Vice President None
Jeffrey M. Lanals Vice President None
Burton Robbins Vice President None
1586 Folkstone Terrace
Westlake Village, CA
91361
Julie A. Robinson* Vice President None
Thomas E. Ryan, III* Vice President None
Joan M. Balchunas* Assistant Vice President None
Thomas J. Gainey* Assistant Vice President None
Lyman Jackson* Assistant Vice President None
Eric S. Jeppson* Assistant Vice President None
Mark Minnucci* Assistant Vice President None
Ashley M. Norwood* 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 29(c). - Not applicable
Item 30. Location of Accounts and Records
200 Berkeley Street
Boston, Massachusetts 02116-5034
Keystone Investor Resource Center, Inc.
101 Main Street
Cambridge, Massachusetts 02142
State Street Bank and Trust Company
1776 Heritage Drive
Quincy, Massachusetts 02171
Iron Mountain
3431 Sharp Slot Road
Swansea, Massachusetts 02777
Item 31. Management Services
Not applicable.
Item 32. Undertakings
Upon request and without charge Registrant hereby undertakes
to furnish each person to whom a copy of Registrant's
prospectus is delivered with a copy of Registrant's latest
annual report to shareholders upon request and without charge.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933 and the Investment
Company Act of 1940, the Registrant has duly caused this Amendment to its
Registration Statement to be signed on its behalf by the undersigned, thereunto
duly authorized, in the City of Boston and the Commonwealth of Massachusetts, on
the 31st day of May, 1996.
KEYSTONE STATE TAX FREE FUND
By:/s/Rosemary D. Van Antwerp
-----------------------------------
Rosemary D. Van Antwerp
Senior Vice President
and Secretary
Pursuant to the requirements of the Securities Act of 1933, this Amendment to
Registrant's Registration Statement has been signed below by the following
persons in the capacities indicated on the 31st day of May, 1996.
SIGNATURES TITLE
/s/George S. Bissell Chairman of the Board and Trustee
- -------------------------
George S. Bissell*
/s/Albert H. Elfner,III Chief Executive Officer, President
- ------------------------- and Trustee
Albert H. Elfner, III*
/s/J. Kevin Kenely Treasurer (Principal Financial
- ------------------------- and Accounting Officer)
J. Kevin Kenely*
*By:/s/ James M. Wall
-----------------------------
James M. Wall**
Attorney-in-Fact
/s/Frederick Amling Trustee
- -------------------------
Frederick Amling*
/s/Charles A. Austin, III Trustee
- -------------------------
Charles A. Austin, III*
/s/Edwin D. Campbell Trustee
- -------------------------
Edwin D. Campbell*
/s/Charles F. Chapin Trustee
- -------------------------
Charles F. Chapin*
/s/K. Dun Gifford Trustee
- -------------------------
K. Dun Gifford*
/s/Leroy Keith, Jr. Trustee
- -------------------------
Leroy Keith, Jr.*
/s/F. Ray Keyser, Jr. Trustee
- -------------------------
F. Ray Keyser, Jr.*
/s/David M. Richardson Trustee
- -------------------------
David M. Richardson*
/s/Richard J. Shima Trustee
- -------------------------
Richard J. Shima*
/s/Andrew J. Simons Trustee
- -------------------------
Andrew J. Simons*
*By:/s/James M. Wall
--------------------------------
James M. Wall**
Attorney-in-Fact
**James M. Wall, by signing his name hereto, does hereby sign this document on
behalf of each of the above-named individuals pursuant to powers of attorney
duly executed by such persons and attached hereto as Exhibit 24(b)(19).
<PAGE>
INDEX TO EXHIBITS
Page Number
in Sequential
Exhibit Number Exhibit Numbering
- -------------- ------- -------------
System
- ------
1 Declaration of Trust, as Amended(1)
2 By-Laws
5 Investment Advisory and
Management Agreement
6 (A) Principal Underwriting Agreement
(B) Dealer Agreement
8 Custodian, Fund Accounting
and Recordkeeping Agreement
10 Consent and Opinion of Counsel(2)
11 Consent of Independent Auditors
13 Subscription Agreement(3)
15 Distribution Plans
16 Schedules for Computation of Performance
17 Financial Data Schedules (Exhibit 27)
18 Multiple Class Plan(1)
19 Powers of Attorney
(1)Incorporated herein by reference to Post-Effective Amendment No. 10.
(2)Incorporated herein by reference to Registrant's Rule 24f-2 Notice filed on
May 29, 1996.
(3)Incorporated herein by reference to Registrant's Registration
Statement No. 33-37131/811-6181.
<PAGE>
EXHIBIT 99.2
BY-LAWS
KEYSTONE AMERICA STATE TAX FREE FUND
ARTICLE 1.
Restatement of Trust Agreement and Principal Office
1.1 Restatement of Trust Agreement. These By-laws are adopted pursuant to and
are subject to the terms of the Restatement of Trust Agreement ("Trust
Agreement") of Keystone America State Tax Free Fund ("Fund").
1.2 Principal Office of the Fund. The principal office of the Fund shall be
located in Boston, Massachusetts, or such other place as the Trustees may
designate from time to time.
ARTICLE 2.
Meetings of Shareholders
2.1 Meetings. Meetings may be called by the Trustees or by the President or by
any other officers designated for the purpose by the Trustees.
2.2 Business to be Transacted. At any meeting of shareholders, such business may
be transacted as is referred to in the notice of the meeting, and any other
business considered appropriate by or under authority of the Trustees.
2.3 Notice. A written notice of each meeting of the shareholders, specifying the
time, place and purposes thereof, shall be given as hereinafter provided by the
Secretary of the Fund or any Assistant Secretary or by a person or persons
designated by either of them, to each shareholder who is entitled to vote
thereat at least seven (7) days (including Sundays and holidays) before such
meeting. Notice of a meeting need not be given to any shareholder if a written
waiver of notice, executed by the shareholder or his attorney thereunto duly
authorized before or after the meeting, is filed with the records of the
meeting, or to any shareholder who attends the meeting either in person or by
proxy without protesting, prior thereto or at its commencement, the lack of
notice to such shareholder. Every notice to any shareholder required or provided
for herein may be given to him personally or by mailing it to him postage
prepaid, addressed to him at his address specified in the records of the Trust.
Notice shall be deemed to have been given at the time when it is so mailed. In
respect of any share held jointly by several persons notice so given to any one
of them shall be sufficient notice to all of them. Any notice so sent to the
address of any shareholder shall be deemed to have been duly sent in respect of
any such share whether held by him solely or jointly with others,
notwithstanding he be then deceased or be bankrupt or insolvent or legally
incompetent, and whether or not the Trustees or any person sending such notice
have knowledge of his death, bankruptcy or insolvency or legal incompetence,
until some other person or persons shall be registered as holders. The
certificate of the person or persons giving such notice shall be sufficient
evidence thereof, and shall protect all persons acting in good faith in reliance
on such certificate.
2.5 Voting. Shares may be voted in person by the shareholder or by proxy in form
reasonably acceptable to the Trust. If the holder of any share is a minor or a
person of unsound mind, or subject to guardianship or to the legal control of
any other person as regards the charge or management of such share, he may vote
by his guardian or such other person appointed or having such control, and such
vote may be given in person or by proxy.
2.6 Record Dates. For the purpose of determining the shareholders who are
entitled to vote or act at any meeting or any adjournment thereof, or who are
entitled to receive payment of any dividend or of any other distribution, the
Trustees may from time to time fix or authorize the fixing by others of a time
as the record date for determining the shareholders having the right to notice
of and to vote at such meeting and any adjournment thereof or the right to
receive such dividend or distribution, and in such case only shareholders of
record on such record date shall have such right, notwithstanding any transfer
of shares on the books of the Fund after the record date; or without fixing such
record date the Trustees may for any of such purposes close the register or
transfer books for all or any part of such period.
ARTICLE 3.
Meetings of Trustees
3.1 Regular Meetings. Regular meetings of the Trustees may be held without call
or notice at such places and at such times as the Trustees may from time to time
determine.
3.2 Special Meetings. Special meetings of the Trustees may be held at any time
and at any place designated in the call of the meeting when called by the
Chairman, the President or the Treasurer, or by any other officer authorized by
the Trustees to do so, or by two or more Trustees, sufficient notice thereof
being given to each Trustee by the Secretary or an Assistant Secretary or by the
officer or one of the Trustees calling the meeting.
3.3 Notice. It shall be sufficient notice to a Trustee of a special meeting to
send notice by mail at least forty-eight hours or by telegram at least
twenty-four hours before the meeting addressed to him at his usual or last known
business or residence address or to give notice to him in person or by telephone
at least twenty-four hours before the meeting. Notice of a meeting need not be
given to any Trustee if a written waiver of notice, executed by him before or
after the meeting, is filed with the records of the meeting, or to any Trustee
who attends the meeting without protesting prior thereto or at its commencement
the lack of notice to him. Neither notice of a meeting nor a waiver of a notice
need specify the purposes of the meeting.
3.4 Quorum. At any meeting of the Trustees a majority of the Trustees then in
office shall constitute a quorum. Any meeting may be adjourned from time to time
by a majority of the votes cast upon the question, whether or not a quorum is
present and the meeting may be held as adjourned without further notice.
3.5 Action by Vote. When a quorum is present at any meeting, a majority of the
Trustees present may take any action, except when a larger vote is required by
the Trust Agreement or any applicable law.
3.6 Participation by Conference Telephone. The Trustees may participate in a
meeting of the Trustees by means of conference telephone or similar
communications equipment. Participation by such means shall constitute presence
in person at a meeting.
3.7 Action by Writing. The Trustees may act without a meeting and the action of
a majority of the Trustees then in office evidenced by a writing signed by such
a majority shall be valid and binding as the action of the Trustees.
ARTICLE 4.
Trustees
4.1 Term. A Trustee shall serve until his death, retirement, resignation or
removal from office or until his successor is elected and qualifies.
ARTICLE 5.
Officers
5.1 Election. The President, the Treasurer and the Secretary shall be elected
annually by the Trustees and shall serve until their successors are elected and
qualified or until their earlier death, resignation or removal. Other officers,
if any, including if desired a Controller, may be elected or appointed by the
Trustees at the meeting or at any other time. A Chairman of the Board may be
elected or appointed by the Trustees at the meeting or at any other time.
Vacancies in any office may be filled at any time by the Trustees.
5.2 Tenure. Each officer and each agent shall hold office at the pleasure of the
Trustees.
5.3 Powers. Subject to law and to the other provisions of these By-laws, each
officer shall have, in addition to any duties and powers set forth herein and in
the Trust Agreement, such duties and powers as are commonly incident to the
office occupied by him as if the Fund were organized as a Pennsylvania business
corporation and such other duties and powers as the Trustees may from time to
time designate.
5.4 President. Unless the Trustees otherwise provide, the President shall
preside at all meetings of shareholders and of the Trustees and the President
shall be the chief executive officer.
5.5 Treasurer. The Treasurer shall be the chief financial officer of the Fund.
In the absence of the Treasurer, or if there is then no person serving in such
office, the Controller of the Fund shall be the chief financial officer of the
Fund. He shall, subject to the provisions of the Trust Agreement and subject to
any arrangement made by the Trustees with a bank or other trust company or
organization as custodian, be in charge of valuable papers, books of account and
accounting records, and shall have such other duties and powers as may be
designated from time to time by the Trustees or by the President.
5.6 Secretary. The Secretary shall record all proceedings of the shareholders
and Trustees in books to be kept therefor, which books shall be kept at the
principal office of the Fund. In the absence of the Secretary, an Assistant
Secretary, or if there be none or if he is absent, a temporary Secretary chosen
by the shareholders or the Trustees, as the case may be, shall record the
proceedings in the aforesaid books.
5.7 Resignation and Removals. Any Trustee or officer may resign at any time by
written instrument signed by him and deposited with the Trustees by delivering
such resignation to the President or the Secretary or to a meeting of the
Trustees. Such resignation shall be effective upon receipt unless specified to
be effective at some other time. The Trustees may remove any officer elected by
them with or without cause by vote of a majority of the Trustees then in office.
Except to the extent expressly provided in a written agreement with the Fund, no
Trustee or officer resigning and no officer removed shall have any right to
compensation for any period following his resignation or removal, or any right
to damages on account of such removal.
ARTICLE 6.
Committees
6.1 General. The Trustees may appoint from their number an executive committee
to serve during their pleasure. The executive committee may, when the Trustees
are not in session at a meeting, exercise such of the powers and authority of
the Trustees as may be conferred from time to time by the Trustees. Rules
governing the actions of the executive committee may be adopted by the Trustees
from time to time as they deem appropriate. The Trustees may appoint from their
number such other committees from time to time as they deem appropriate. The
number composing such committees, the powers and authority conferred upon such
committees and the rules governing the actions of such committees shall be
determined by the Trustees at their discretion.
6.2 Quorum; Voting. A majority of the members of any committee of the Trustees
shall constitute a quorum for the transaction of business, and any action of
such a committee may be taken at a meeting by a vote of a majority of the
members present (a quorum being present) or evidenced by one or more writings
signed by such a majority. Members of a committee may participate in a meeting
of such committee by means of conference telephone or similar communications
equipment. Participation by such means shall constitute presence in person at a
meeting.
ARTICLE 7.
Fiscal Year and Seal
7.1 Fiscal Year. The fiscal year of the Fund shall end on the last day of
March in each year.
7.2 Seal. The seal of the Fund shall consist of a flat-faced die with the name
of the Fund and 1990 cut or engraved thereon.
ARTICLE 8.
Amendments
8.1 Amendment by Trustees. These By-laws may also be altered, amended or
repealed by the Trustees, except with respect to any provision which by law, the
Trust Agreement or these By-laws requires action by the shareholders.
<PAGE>
EXHIBIT 99.5
INVESTMENT ADVISORY AND MANAGEMENT AGREEMENT
Agreement made the 19th day of August 1993 by and between KEYSTONE
AMERICA STATE TAX FREE FUND, a Massachusetts business trust (the "Fund"), and
KEYSTONE CUSTODIAN FUNDS, INC., a Delaware corporation (the "Adviser").
Whereas, the Fund and the Adviser wish to enter into an Agreement
setting forth the terms on which the Adviser will perform certain services for
the Fund's Florida Fund and its Pennsylvania Fund and each portfolio of
securities subsequently established (each singly "Portfolio" or collectively
"Portfolios").
THEREFORE, in consideration of the promises and the mutual agreements
hereinafter contained, the Fund and the Adviser agree as follows:
1. (a) The Fund hereby employs the Adviser to manage and administer the
operation of the Fund, to supervise the provision of services to the Fund and
each of its Portfolios by others, and to manage the investment and reinvestment
of the assets of each Portfolio of the Fund in conformity with such Portfolio's
investment objectives and restrictions as may be set forth from time to time in
the Fund's then current prospectus and statement of additional information, if
any, and other governing documents, all subject to the supervision of the Board
of Trustees of the Fund, for the period and on the terms set forth in this
Agreement. The Adviser hereby accepts such employment and agrees during such
period, at its own expense, to render the services and to assume the obligations
set forth herein, for the compensation provided herein. The Adviser shall for
all purposes herein be deemed to be an independent contractor and shall, unless
otherwise expressly provided or authorized, have no authority to act for or
represent the Fund in any way or otherwise be deemed and agent of the Fund.
(b) In the event that the Fund establishes one or more Portfolios for
which it wishes the Adviser to perform services hereunder, it shall notify the
Adviser in writing. If the Adviser is willing to render such services, it shall
notify the Fund in writing and such Portfolio shall become a Portfolio hereunder
and the compensation payable to the Adviser by the new Portfolio will be as
agreed in writing at the time.
2. The Adviser shall place all orders for the purchase and sale of
portfolio securities for the account of each Portfolio of the Fund with
broker-dealers selected by the Adviser. In executing portfolio transactions and
selecting broker-dealers, the Adviser will use its best efforts to seek best
execution on behalf of each Portfolio. In assessing the best execution available
for any transaction, the Adviser shall consider all factors it deems relevant,
including the breadth of the market in the security, the price of the security,
the financial condition and execution capability of the broker-dealer, and the
reasonableness of the commission, if any (all for the specific transaction and
on a continuing basis). In evaluating the best execution available, and in
selecting the broker-dealer to execute a particular transaction, the Adviser may
also consider the brokerage and research services (as those terms are used in
Section 28(e) of the Securities Exchange Act of 1934 (the "1934 Act")) provided
to each Portfolio and/or other accounts over which the Adviser or an affiliate
of the Adviser exercises investment discretion. The Adviser is authorized to pay
a broker-dealer who provides such brokerage and research services a commission
for executing a portfolio transaction for a Portfolio which is in excess of the
amount of commission another broker-dealer would have charged for effecting that
transaction if, but only if, the Adviser determines in good faith that such
commission was reasonable in relation to the value of the brokerage and research
services provided by such broker-dealer viewed in terms of that particular
transaction or in terms of all of the accounts over which investment discretion
is so exercised.
3. The Adviser, at its own expense, shall furnish to the Fund office
space in the offices of the Adviser or in such other place as may be agreed upon
by the parties from time to time, all necessary office facilities, equipment and
personnel in connection with its services hereunder, and shall arrange, if
desired by the Fund, for members of the Adviser's organization to serve without
salaries from the Fund as officers or, as may be agreed from time to time, as
agents of the Fund. The Adviser assumes and shall pay or reimburse the Fund for:
(1) the compensation (if any) of the Trustees of the Fund who are affiliated
with the Adviser or with its affiliates, or with any adviser retained by the
Adviser, and of all officers of the Fund as such, and (2) all expenses of the
Adviser incurred in connection with its services hereunder. The Fund assumes and
shall pay all other expenses of the Fund and its Portfolios, including, without
limitation: (1) all charges and expenses of any custodian or depository
appointed by the Fund for the safekeeping of its cash, securities and other
property; (2) all charges and expenses for bookkeeping and auditors; (3) all
charges and expenses of any transfer agents and registrars appointed by the
Fund; (4) all fees of all Trustees of the Fund who are not affiliated with the
Adviser or any of its affiliates, or with any adviser retained by the Adviser;
(5) all broker's fees, expenses and commissions and issue and transfer taxes
chargeable to the Fund in connection with transactions involving securities and
other property to which the Fund is a party; (6) all costs and expenses of
distribution of its shares incurred pursuant to a Plan of Distribution adopted
under Rule 12b-1 under the Investment Company Act of 1940 ("1940 Act"); (7) all
taxes and business trust fees payable by the Fund to Federal, state or other
governmental agencies; (8) all costs of certificates representing shares of the
Fund; (9) all fees and expenses involved in registering and maintaining
registrations of the Fund and of its shares with the Securities and Exchange
Commission (the "Commission") and registering or qualifying its shares under
state or other securities laws, including, without limitation, the preparation
and printing of registration statements, prospectuses and statements of
additional information for filing with the Commission and other authorities;
(10) expenses of preparing, printing and mailing prospectuses and statements of
additional information to shareholders of the fund; (11) all expenses of
shareholders' and Trustees' meetings and of preparing, printing and mailing
notices, reports and proxy materials to shareholders of the Fund; (12) all
charges and expenses of legal counsel for the Fund and for Trustees of the Fund
in connection with legal matters relating to the Fund, including, without
limitation, legal services rendered in connection with the Fund's existence,
business trust and financial structure and relations with its shareholders,
registrations and qualifications of securities under federal, state and other
laws, issues of securities, expenses which the Fund has herein assumed, whether
customary or not, and extraordinary matters, including, without limitation, any
litigation involving the Fund, its Trustees, officers, employees or agents; (13)
all charges and expenses of filing annual and other reports with the Commission
and other authorities; and (14) all extraordinary expenses and charges of the
Fund. In the event that the Adviser provides any of these services or pays any
of these expenses, the Fund will promptly reimburse the Adviser therefor.
The services of the Adviser to the Fund hereunder are not to be deemed
exclusive, and the Adviser shall be free to render similar services to others.
4. As compensation for the Adviser's services to the Fund during the
period of this Agreement, the Fund will pay to the Adviser a fee for each
Portfolio at the annual rate of:
Aggregate Net Asset
Management Value of the Shares
Fee of the Portfolio
- -------------------------------------------------------------------
0.55% of the first $ 50,000,000, plus
0.50% of the next $ 50,000,000, plus
0.45% of the next $ 100,000,000, plus
0.40% of the next $ 100,000,000, plus
0.35% of the next $ 100,000,000, plus
0.30% of the next $ 100,000,000, plus
0.25% of amounts over $ 500,000,000.
A pro rata portion of the fee shall be payable in arrears at the end of
each day or calendar month as the Adviser may from time to time specify to the
Fund. If and when this Agreement terminates with respect to a Portfolio, any
compensation payable hereunder for the period ending with the date of such
termination shall be payable upon such termination. Amounts payable hereunder
shall be promptly paid when due.
5. The Adviser may enter into an agreement to retain, at its own
expense, any other firm or firms ("Sub Adviser") to provide the Fund all of the
services to be provided by the Adviser hereunder, if such agreement is approved
as required by law. Such agreement may delegate to such Sub Adviser all of the
Adviser's rights, obligations and duties hereunder.
6. The Adviser shall not be liable for any error of judgment or mistake
of law or for any loss suffered by the Fund in connection with the performance
of this Agreement, except a loss resulting from the Adviser's willful
misfeasance, bad faith, gross negligence or from reckless disregard by it of its
obligations and duties under this Agreement. Any person, even though also an
officer, Director, partner, employee, or agent of the Adviser who may be or
become an officer, Trustee, employee or agent of the Fund, shall be deemed, when
rendering services to the Fund or acting on any business of the Fund (other than
services or business in connection with the Adviser's duties hereunder), to be
rendering such services to or acting solely for the Fund and not as an officer,
Director, partner, employee, or agent or one under the control or direction of
the Adviser even though paid by it. The Fund agrees to indemnify and hold the
Adviser harmless from all taxes, charges, expenses, assessments, claims and
liabilities (including, without limitation, liabilities arising under the
Securities Act of 1933, the 1934 Act, the 1940 Act, and any state and foreign
securities and blue sky laws, as amended from time to time) and expenses,
including (without limitation) attorneys' fees and disbursements, arising
directly or indirectly from any action or thing which the Adviser takes or does
or omits to take or do hereunder provided that the Manager shall not be
indemnified against any liability to the Fund or to its shareholders (or any
expenses incident to such liability) arising out of a breach of fiduciary duty
with respect to the receipt of compensation for services, willful misfeasance,
bad faith, or gross negligence on the part of the Adviser in the performance of
its duties, or from reckless disregard by it of its obligations and duties under
the Agreement.
7. The Fund shall cause its books and accounts to be audited at least
once each year by a reputable independent public accountant or organization of
public accountants who shall render a report to the Fund.
8. Subject to and in accordance with the Declaration of Trust of the
Fund, the Articles of Incorporation of the Adviser and the governing documents
of any Adviser, it is understood that Trustees, Directors, officers, agents and
shareholders of the Fund or any Adviser are or may be interested in the Adviser
(or any successor thereof) as Directors and officers of the Adviser or its
affiliates, as stockholders of Keystone Group, Inc. or otherwise; that
Directors, officers and agents of the Adviser and its affiliates or stockholders
of Keystone Group, Inc. are or may be interested in the Fund or any Adviser as
Trustees, Directors, officers, shareholders or otherwise; that the Adviser (or
any such successor) is or may be interested in the Fund or any such Adviser as
shareholder, or otherwise; and that the effect of any such adverse interests
shall be governed by said Declaration of Trust of the Fund, Articles of
Incorporation of the Adviser and governing documents of any such Adviser.
9. This Agreement shall continue in effect after July 1, 1994 only so
long as (1) such continuance is specifically approved at least annually by the
Board of Trustees of the Fund or by a vote of a majority of the outstanding
voting securities of the Fund, and (2) such renewal has been approved by the
vote of a majority of Trustees of the Fund who are not interested persons, as
that term is defined in the 1940 Act, of the Adviser or of the Fund, cast in
person at a meeting called for the purpose of voting on such approval.
10. On sixty days' written notice to the Adviser, this Agreement may be
terminated at any time without the payment of any penalty by the Board of
Trustees of the Fund or by vote of the holders of a majority of the outstanding
voting securities of the affected Portfolio(s); and on sixty days' written
notice to the Fund, this Agreement may be terminated at any time without the
payment of any penalty by the Adviser. This Agreement shall automatically
terminate upon its assignment (as that term is defined in the 1940 Act). Any
notice under this Agreement shall be given in writing, addressed and delivered,
or mailed postage prepaid, to the other party at the main office of such party.
11. This Agreement may be amended at any time by an instrument in
writing executed by both parties hereto or their respective successors, provided
that with regard to amendments of substance such execution by the Fund shall
have been first approved by the vote of the holders of a majority of the
outstanding voting securities of the affected Portfolio(s) and by the vote of a
majority of Trustees of the Fund who are not interested persons (as that term is
defined in the 1940 Act) of the Adviser, any predecessor of the Adviser, or of
the Fund, cast in person at a meeting called for the purpose of voting on such
approval. A "majority of the outstanding voting securities of the Fund" shall
have, for all purposes of this Agreement, the meaning provided therefor in the
1940 Act.
12. Any compensation payable to the adviser hereunder for any period
other than a full year shall be proportionately adjusted.
13. The provisions of the Agreement shall be governed, construed and
enforced in accordance with the laws of The Commonwealth of Massachusetts.
14. A copy of the Declaration of Trust of the Fund is on file with the
Secretary of the Commonwealth of Massachusetts. This instrument is executed on
behalf of the Trustees of the Fund as trustees and not individually and the
obligations of this instrument are not binding upon the Trustees or holders of
shares of the Fund individually but are binding only upon the assets and
property of the Fund.
IN WITNESS WHEREOF, the parties hereto have duly executed this
Agreement on the day and year first above written.
KEYSTONE AMERICA STATE TAX FREE FUND
By: /s/ Ralph J. Spuehler, Jr.
--------------------------------
Title: Treasurer
KEYSTONE CUSTODIAN FUNDS, INC.
By: /s/ Roger Wickers
--------------------------------
Title: Sr. Vice President
<PAGE>
EXHIBIT 99.6(A)
PRINCIPAL UNDERWRITING AGREEMENT
KEYSTONE AMERICA STATE TAX FREE FUND
AGREEMENT made this 19th day of August 1993 by and between Keystone
America State Tax Free Fund, a Massachusetts business trust, ("Fund"), and
Keystone Distributors, Inc., a Delaware corporation ("Principal Underwriter").
It is hereby mutually agreed as follows:
1. The Fund hereby appoints Principal Underwriter a principal
underwriter of the shares of beneficial interest of the Fund ("Shares") as an
independent contractor upon the terms and conditions hereinafter set forth.
Except as the Fund may from time to time agree, Principal Underwriter will act
as agent for the Fund and not as principal.
2. Principal Underwriter will use its best efforts to find purchasers
for the Shares, to promote distribution of the Shares and may obtain orders from
brokers, dealers or other persons for sales of Shares to them. No such dealer,
broker or other person shall have any authority to act as agent for the Fund;
such dealer, broker or other person shall act only as principal in the sale of
Shares.
3. Sales of Shares by Principal Underwriter shall be at the applicable
public offering price determined in the manner set forth in the prospectus
and/or statement of additional information of the Fund current at the time of
the Fund's acceptance of the order for Shares; provided that Principal
Underwriter also shall have the right to sell Shares at net asset value, if such
sale is permissible under and consistent with applicable statutes, rules,
regulations and orders. All orders shall be subject to acceptance by the Fund
and the Fund reserves the right in its sole discretion to reject any order
received. The Fund shall not be liable to anyone for failure to accept any
order.
4. On all sales of Shares, the Fund shall receive the current net asset
value and Principal Underwriter shall be entitled to receive payments in
accordance with the 12b-1 Plan and as set forth in the then current prospectus
and/or statement of additional information of the Fund and to the contingent
deferred sales charges, as set forth in the then current prospectus and/or
statement of additional information of the Fund. Principal Underwriter may
reallow all or a part of the 12b-1 payments to such brokers, dealers or other
persons as Principal Underwriter may determine.
5. Payment to the Fund for Shares shall be in New York or Boston
Clearing House funds received by Principal Underwriter within ten (10) business
days after notice of acceptance of the purchase order and the amount of the
applicable public offering price has been given to the purchaser. If such
payment is not received within such ten-day period, the Fund reserves the right,
without further notice, forthwith to cancel its acceptance of any such order.
The Fund shall pay such issue taxes as may be required by law in connection with
the issue of the Shares.
6. Principal Underwriter shall not make in connection with any sale or
solicitation of a sale of the Shares any representations concerning the Shares
except those contained in the then current prospectus and/or statement of
additional information covering the Shares and in printed information approved
by the Fund as information supplemental to such prospectus and statement of
additional information. Copies of the then current prospectus and statement of
additional information and any such printed supplemental information will be
supplied by the Fund to Principal Underwriter in reasonable quantities upon
request.
7. Principal Underwriter agrees to comply with the Rules of Fair
Practice of the National Association of Securities Dealers, Inc.
8. The Fund appoints Principal Underwriter as its agent to accept
orders for redemptions and repurchases of Shares at values and in the manner
determined in accordance with the then current prospectus and/or statement of
additional information of the Fund.
9. The Fund agrees to indemnify and hold harmless the Principal
Underwriter, its officers and Directors and each person, if any, who controls
the Principal Underwriter within the meaning of Section 15 of the Securities Act
of 1933 ("1933 Act"), against any losses, claims, damages, liabilities and
expenses (including the cost of any legal fees incurred in connection therewith)
which the Principal Underwriter, its officers, Directors or any such controlling
person may incur under the 1933 Act, under any other statute, at common law or
otherwise, arising out of or based upon
a) any untrue statement or alleged untrue statement of a
material fact contained in the Fund's registration statement,
prospectus or statement of additional information (including amendments
and supplements thereto), or
b) any omission or alleged omission to state a material fact
required to be stated in the Fund's registration statement, prospectus
or statement of additional information necessary to make the statements
therein not misleading, provided, however, that insofar as losses,
claims, damages, liabilities or expenses arise out of or are based upon
any such untrue statement or omission or alleged untrue statement or
omission made in reliance and in conformity with information furnished
to the Fund by the Principal Underwriter for use in the Fund's
registration statement, prospectus or statement of additional
information, such indemnification is not applicable. In no case shall
the Fund indemnify the Principal Underwriter or its controlling person
as to any amounts incurred for any liability arising out of or based
upon any action for which the Principal Underwriter, its officers and
Directors or any controlling person would otherwise be subject to
liability by reason of willful misfeasance, bad faith, or gross
negligence in the performance of its duties or by reason of the
reckless disregard of its obligations and duties under this Agreement.
10. The Principal Underwriter agrees to indemnify and hold harmless the
Fund, its officers, Trustees and each person, if any, who controls the Fund
within the meaning of Section 15 of the 1933 Act against any loss, claims,
damages, liabilities and expenses (including the cost of any legal fees incurred
in connection therewith) which the Fund, its officers, Trustees or any such
controlling person may incur under the 1933 Act, under any other statute, at
common law or otherwise arising out of the acquisition of any Shares by any
person which
a) may be based upon any wrongful act by the Principal
Underwriter or any of its employees or representatives, or
b) may be based upon any untrue statement or alleged untrue
statement of a material fact contained in the Fund's registration
statement, prospectus or statement of additional information (including
amendments and supplements thereto), or any omission or alleged
omission to state a material fact required to be stated therein or
necessary to make the statements therein not misleading, if such
statement or omission was made in reliance upon information furnished
or confirmed in writing to the Fund by the Principal Underwriter.
11. The Fund agrees to execute such papers and to do such acts and
things as shall from time to time be reasonably requested by Principal
Underwriter for the purpose of qualifying the Shares for sale under the
so-called "blue sky" laws of any state or for registering Shares under the 1933
Act or the Fund under the Investment Company Act of 1940 ("1940 Act"). Principal
Underwriter shall bear the expense of preparing, printing and distributing
advertising, sales literature, prospectuses, and statements of additional
information. The Fund shall bear the expense of registering Shares under the
1933 Act and the Fund under the 1940 Act, qualifying Shares for sale under the
so-called "blue sky" laws of any state, the preparation and printing of
prospectuses, statements of additional information and reports required to be
filed with the Securities and Exchange Commission and other authorities, the
preparation, printing and mailing of prospectuses and statements of additional
information to shareholders of the Fund, and the direct expenses of the issue of
Shares.
12. To the extent required by any 12b-1 Plan of the Fund, Principal
Underwriter shall provide to the Board of Trustees of the Fund in connection
with the 12b-1 Plan, not less than quarterly, a written report of the amounts
expended pursuant to such 12b-1 Plan and the purpose for which such expenditures
were made.
13. The term of this agreement shall begin on the date hereof and,
unless sooner terminated or continued as provided below, shall expire after two
years. This agreement shall continue in effect after such term if its
continuance is specifically approved by a majority of the Trustees of the Fund
and a majority of the 12b-1 Trustees referred to in any 12b-1 Plan of a
Portfolio of the Fund ("Rule 12b-1 Trustees) at least annually in accordance
with the 1940 Act and the rules and regulations thereunder.
This agreement may be terminated at any time, without payment of any
penalty, by vote of a majority of the Rule 12b-1 Trustees or by a vote of a
majority of the Fund's outstanding Shares on not more than sixty days written
notice to any other party to the agreement; and shall terminate automatically in
the event of its assignment (as defined in the 1940 Act).
14. This agreement shall be construed in accordance with the laws of
The Commonwealth of Massachusetts. All sales hereunder are to be made, and title
to the Shares shall pass, in Boston, Massachusetts.
15. The Fund is a Massachusetts business trust established under a
Declaration of Trust, as it may be amended from time to time. The obligations of
the Fund are not personally binding upon, nor shall recourse be had against the
private property of any of the Trustees, shareholders, officers, employees or
agents of the Fund, but only the property of the Fund shall be bound.
IN WITNESS WHEREOF, the parties hereto have caused this agreement to be
executed by their respective officers thereunto duly authorized at Boston,
Massachusetts, on the day and year first written above.
KEYSTONE AMERICA STATE TAX FREE
FUND
By: /s/ Roger Wickers
---------------------------------
Title: Vice President
KEYSTONE DISTRIBUTORS, INC.
By: /s/ E. Godfrey
---------------------------------
Title: Sr. Vice President
<PAGE>
FIRST AMENDMENT
TO
PRINCIPAL UNDERWRITING AGREEMENT
OF
KEYSTONE STATE TAX FREE FUND
ON BEHALF OF
KEYSTONE FLORIDA TAX FREE FUND
KEYSTONE MASSACHUSETTS TAX FREE FUND
KEYSTONE NEW YORK INSURED TAX FREE FUND
KEYSTONE PENNSYLVANIA TAX FREE FUND
KEYSTONE TEXAS TAX FREE FUND
FIRST AMENDMENT (the "Amendment") made as of the 31st day of May 1995
to AGREEMENT (the "Agreement") made the 19th day of August 1993 by and between
Keystone State Tax Free Fund, a Massachusetts business trust, on behalf of its
series, 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 STATE TAX FREE FUND
on behalf of
Keystone Florida Tax Free Fund
Keystone Massachusetts Tax Free Fund
Keystone New York Insured Tax Free Fund
Keystone Pennsylvania Tax Free Fund
Keystone Texas Tax Free Fund
By: /s/ Albert H. Elfner, III
---------------------------------
Title: President
KEYSTONE INVESTMENT DISTRIBUTORS
COMPANY
By: /s/ Ralph J. Spuehler, Jr.
---------------------------------
Title: President
<PAGE>
PRINCIPAL UNDERWRITING AGREEMENT
FOR CLASS B-1 SHARES
OF
KEYSTONE FLORIDA TAX FREE FUND,
A SERIES OF KEYSTONE STATE TAX FREE FUND
AGREEMENT made this 31st day of May 1995 by and between Keystone State
Tax Free Fund, a Massachusetts business trust, on behalf of Keystone Florida Tax
Free Fund ("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 STATE TAX FREE FUND
on behalf of
KEYSTONE FLORIDA TAX FREE FUND
By: /s/ R.D. Van Antwerp
----------------------------
Title: Sr. Vice President
KEYSTONE INVESTMENT DISTRIBUTORS COMPANY
By: /s/ Ralph J. Spuehler Jr.
----------------------------
Title: President
<PAGE>
SCHEDULE I
TO
PRINCIPAL UNDERWRITING AGREEMENT
FOR CLASS B-1 SHARES
OF
KEYSTONE STATE TAX FREE FUND
on behalf of
KEYSTONE FLORIDA TAX FREE FUND
TRANSFER AGENT PROCEDURES FOR DIFFERENTIATING
AMONG DISTRIBUTOR SHARES AND POST-DISTRIBUTOR SHARES
Amounts (in respect of Asset Based Sales Charges (as hereinafter defined)
and CDSCs (as hereinafter defined) in respect of Shares (as hereinafter defined)
of each Fund (as hereinafter defined) shall be allocated between Distributor
Shares (as hereinafter defined) and Post-distributor Shares (as hereinafter
defined) of such Fund in accordance with the rules set forth in clauses (B) and
(C). Clause (B) sets forth the rules to be followed by the Transfer Agent for
each Fund and the record owner of each Omnibus Account (as hereinafter defined)
in maintaining records relating to Distributor Shares and Post-distributor
Shares. Clause (C) sets forth the rules to be followed by the Transfer Agent for
each Fund and the record owner of each Omnibus Account in determining what
portion of the Asset Based Sales Charge (as hereinafter defined) payable in
respect of each class of Shares of such Fund and what portion of the CDSC (as
hereinafter defined) payable by the holders of Shares of such Fund is
attributable to Distributor Shares and Post-distributor Shares, respectively.
(A) DEFINITIONS:
Generally, for purposes of this Schedule I, defined terms shall be used
with the meaning assigned to them in the Agreement, except that for purposes of
the following rules the following definitions are also applicable:
"Agreement" shall mean the Principal Underwriting Agreement for Class B-1
Shares of the Instant Fund dated as of May 31, 1995 between the Instant Fund and
the Distributor.
"Asset Based Sales Charge" shall have the meaning set forth in Section
26(b)(8)(C) of the Rules of Fair Practice it being understood that for purposes
of this Exhibit I such term does not include the Service Fee.
"Business Day" shall mean any day on which the banks and the New York Stock
Exchange are not authorized or required to close in New York City.
"Capital Gain Dividend" shall mean, in respect of any Share of any Fund, a
Dividend in respect of such Share which is designated by such Fund as being a
"capital gain dividend" as such term is defined in Section 852 of the Internal
Revenue Code of 1986, as amended.
"CDSC" shall mean with respect to any Fund, the contingent deferred sales
charge payable, either directly or by withholding from the proceeds of the
redemption of the Shares of such Fund, by the shareholders of such Fund on any
redemption of Shares of such Fund in accordance with the Prospectus relating to
such Fund.
"Commission Share" shall mean, in respect of any Fund, a Share of such Fund
issued under circumstances where a CDSC would be payable upon the redemption of
such Share if such CDSC is not waived or shall have not otherwise expired.
"Date of Original Purchase" shall mean, in respect of any Commission Share
of any Fund, the date on which such Commission Share was first issued by such
Fund; provided, that if such Share is a Commission Share and such Fund issued
the Commission Share (or portion thereof) in question in connection with a Free
Exchange for a Commission Share (or portion thereof) of another Fund, the Date
of Original Purchase for the Commission Share (or portion thereof) in question
shall be the date on which the Commission Share (or portion thereof) of the
other Fund was first issued by such other Fund (unless such Commission Share (or
portion thereof) was also issued by such other Fund in a Free Exchange, in which
case this proviso shall apply to that Free Exchange and this application shall
be repeated until one reaches a Commission Share (or portion thereof) which was
issued by a Fund other than in a Free Exchange).
"Distributor" shall mean Keystone Investment Distributors Company, its
successors and assigns.
"Distributor's Account" shall mean the account of the Distributor, account
no. 9903-584-2, ABA No. 011 0000 28, entitled "General Account" maintained with
State Street Bank & Trust Company or such other account as the Distributor may
designate in a notice to the Transfer Agent.
"Distributor Inception Date" shall mean, in respect of any Fund, the date
identified as the date Shares of such Fund are first sold by the Distributor.
"Distributor Last Sale Cut-off Date" shall mean, in respect of any Fund,
the date identified as the last sale of a Commission Share during the period the
Distributor served as principal underwriter under the Agreement.
"Distributor Shares" shall mean, in respect of any Fund, all Shares of such
Fund the Month of Original Purchase of which occurs on or after the Inception
Date for such Fund and on or prior to the Distributor Last Sale Cut-off Date in
respect of such Fund.
"Dividend" shall mean, in respect of any Share of any Fund, any dividend or
other distribution by such Fund in respect of such Share.
"Free Exchange" shall mean any exchange of a Commission Share (or portion
thereof) of one Fund (the "Redeeming Fund") for a Share (or portion thereof) of
another Fund (the "Issuing Fund"), under any arrangement which defers the
exchanging Shareholder's obligation to pay the CDSC in respect of the Commission
Share (or portion thereof) of the Redeeming Fund so exchanged until the later
redemption of the Share (or portion thereof) of the Issuing Fund received in
such exchange.
"Free Share" shall mean, in respect of any Fund, each Share of such Fund
other than a Commission Share, including, without limitation: (i) Shares issued
in connection with the automatic reinvestment of Capital Gain Dividends or Other
Dividends by such Fund, (ii) Special Free Shares issued by such Fund and (iii)
Shares (or portion thereof) issued by such Fund in connection with an exchange
whereby a Free Share (or portion thereof) of another Fund is redeemed and the
Net Asset Value of such redeemed Free Share (or portion thereof) is invested in
such Shares (or portion thereof) of such Fund.
"Fund" shall mean each of the regulated investment companies or series or
portfolios of regulated investment companies identified in Schedule II to the
Irrevocable Payment Instruction, as the same may be amended from time to time in
accordance with the terms thereof.
"Instant Fund" shall mean Keystone State Tax Free Fund, on behalf of
Keystone Florida Tax Free 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-1 SHARES
OF
KEYSTONE MASSACHUSETTS TAX FREE FUND,
A SERIES OF KEYSTONE STATE TAX FREE FUND
AGREEMENT made this 31st day of May 1995 by and between Keystone State Tax
Free Fund, a Massachusetts business trust, on behalf of Keystone Massachusetts
Tax Free Fund ("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 STATE TAX FREE FUND
on behalf of
KEYSTONE MASSACHUSETTS TAX FREE FUND
By: /s/ R.D. Van Antwerp
----------------------------
Title: Sr. Vice President
KEYSTONE INVESTMENT DISTRIBUTORS COMPANY
By: /s/ Ralph J. Spuehler Jr.
----------------------------
Title: President
<PAGE>
SCHEDULE I
TO
PRINCIPAL UNDERWRITING AGREEMENT
FOR CLASS B-1 SHARES
OF
KEYSTONE STATE TAX FREE FUND
on behalf of
KEYSTONE MASSACHUSETTS TAX FREE FUND
TRANSFER AGENT PROCEDURES FOR DIFFERENTIATING
AMONG DISTRIBUTOR SHARES AND POST-DISTRIBUTOR SHARES
Amounts (in respect of Asset Based Sales Charges (as hereinafter defined)
and CDSCs (as hereinafter defined) in respect of Shares (as hereinafter defined)
of each Fund (as hereinafter defined) shall be allocated between Distributor
Shares (as hereinafter defined) and Post-distributor Shares (as hereinafter
defined) of such Fund in accordance with the rules set forth in clauses (B) and
(C). Clause (B) sets forth the rules to be followed by the Transfer Agent for
each Fund and the record owner of each Omnibus Account (as hereinafter defined)
in maintaining records relating to Distributor Shares and Post-distributor
Shares. Clause (C) sets forth the rules to be followed by the Transfer Agent for
each Fund and the record owner of each Omnibus Account in determining what
portion of the Asset Based Sales Charge (as hereinafter defined) payable in
respect of each class of Shares of such Fund and what portion of the CDSC (as
hereinafter defined) payable by the holders of Shares of such Fund is
attributable to Distributor Shares and Post-distributor Shares, respectively.
(A) DEFINITIONS:
Generally, for purposes of this Schedule I, defined terms shall be used
with the meaning assigned to them in the Agreement, except that for purposes of
the following rules the following definitions are also applicable:
"Agreement" shall mean the Principal Underwriting Agreement for Class B-1
Shares of the Instant Fund dated as of May 31, 1995 between the Instant Fund and
the Distributor.
"Asset Based Sales Charge" shall have the meaning set forth in Section
26(b)(8)(C) of the Rules of Fair Practice it being understood that for purposes
of this Exhibit I such term does not include the Service Fee.
"Business Day" shall mean any day on which the banks and the New York Stock
Exchange are not authorized or required to close in New York City.
"Capital Gain Dividend" shall mean, in respect of any Share of any Fund, a
Dividend in respect of such Share which is designated by such Fund as being a
"capital gain dividend" as such term is defined in Section 852 of the Internal
Revenue Code of 1986, as amended.
"CDSC" shall mean with respect to any Fund, the contingent deferred sales
charge payable, either directly or by withholding from the proceeds of the
redemption of the Shares of such Fund, by the shareholders of such Fund on any
redemption of Shares of such Fund in accordance with the Prospectus relating to
such Fund.
"Commission Share" shall mean, in respect of any Fund, a Share of such Fund
issued under circumstances where a CDSC would be payable upon the redemption of
such Share if such CDSC is not waived or shall have not otherwise expired.
"Date of Original Purchase" shall mean, in respect of any Commission Share
of any Fund, the date on which such Commission Share was first issued by such
Fund; provided, that if such Share is a Commission Share and such Fund issued
the Commission Share (or portion thereof) in question in connection with a Free
Exchange for a Commission Share (or portion thereof) of another Fund, the Date
of Original Purchase for the Commission Share (or portion thereof) in question
shall be the date on which the Commission Share (or portion thereof) of the
other Fund was first issued by such other Fund (unless such Commission Share (or
portion thereof) was also issued by such other Fund in a Free Exchange, in which
case this proviso shall apply to that Free Exchange and this application shall
be repeated until one reaches a Commission Share (or portion thereof) which was
issued by a Fund other than in a Free Exchange).
"Distributor" shall mean Keystone Investment Distributors Company, its
successors and assigns.
"Distributor's Account" shall mean the account of the Distributor, account
no. 9903-584-2, ABA No. 011 0000 28, entitled "General Account" maintained with
State Street Bank & Trust Company or such other account as the Distributor may
designate in a notice to the Transfer Agent.
"Distributor Inception Date" shall mean, in respect of any Fund, the date
identified as the date Shares of such Fund are first sold by the Distributor.
"Distributor Last Sale Cut-off Date" shall mean, in respect of any Fund,
the date identified as the last sale of a Commission Share during the period the
Distributor served as principal underwriter under the Agreement.
"Distributor Shares" shall mean, in respect of any Fund, all Shares of such
Fund the Month of Original Purchase of which occurs on or after the Inception
Date for such Fund and on or prior to the Distributor Last Sale Cut-off Date in
respect of such Fund.
"Dividend" shall mean, in respect of any Share of any Fund, any dividend or
other distribution by such Fund in respect of such Share.
"Free Exchange" shall mean any exchange of a Commission Share (or portion
thereof) of one Fund (the "Redeeming Fund") for a Share (or portion thereof) of
another Fund (the "Issuing Fund"), under any arrangement which defers the
exchanging Shareholder's obligation to pay the CDSC in respect of the Commission
Share (or portion thereof) of the Redeeming Fund so exchanged until the later
redemption of the Share (or portion thereof) of the Issuing Fund received in
such exchange.
"Free Share" shall mean, in respect of any Fund, each Share of such Fund
other than a Commission Share, including, without limitation: (i) Shares issued
in connection with the automatic reinvestment of Capital Gain Dividends or Other
Dividends by such Fund, (ii) Special Free Shares issued by such Fund and (iii)
Shares (or portion thereof) issued by such Fund in connection with an exchange
whereby a Free Share (or portion thereof) of another Fund is redeemed and the
Net Asset Value of such redeemed Free Share (or portion thereof) is invested in
such Shares (or portion thereof) of such Fund.
"Fund" shall mean each of the regulated investment companies or series or
portfolios of regulated investment companies identified in Schedule II to the
Irrevocable Payment Instruction, as the same may be amended from time to time in
accordance with the terms thereof.
"Instant Fund" shall mean Keystone State Tax Free Fund, on behalf of
Keystone Massachusetts Tax Free 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-1 SHARES
OF
KEYSTONE NEW YORK INSURED TAX FREE FUND,
A SERIES OF KEYSTONE STATE TAX FREE FUND
AGREEMENT made this 31st day of May 1995 by and between Keystone State
Tax Free Fund, a Massachusetts business trust, on behalf of Keystone New York
Insured Tax Free Fund ("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 STATE TAX FREE FUND
on behalf of
KEYSTONE NEW YORK INSURED TAX FREE FUND
By: /s/ R. D. Van Antwerp.
----------------------------
Title: Sr. Vice President
KEYSTONE INVESTMENT DISTRIBUTORS COMPANY
By: /s/ Ralph J. Spuehler
----------------------------
Title: President
<PAGE>
SCHEDULE I
TO
PRINCIPAL UNDERWRITING AGREEMENT
FOR CLASS B-1 SHARES
OF
KEYSTONE STATE TAX FREE FUND
on behalf of
KEYSTONE NEW YORK INSURED TAX FREE FUND
TRANSFER AGENT PROCEDURES FOR DIFFERENTIATING
AMONG DISTRIBUTOR SHARES AND POST-DISTRIBUTOR SHARES
Amounts (in respect of Asset Based Sales Charges (as hereinafter defined)
and CDSCs (as hereinafter defined) in respect of Shares (as hereinafter defined)
of each Fund (as hereinafter defined) shall be allocated between Distributor
Shares (as hereinafter defined) and Post-distributor Shares (as hereinafter
defined) of such Fund in accordance with the rules set forth in clauses (B) and
(C). Clause (B) sets forth the rules to be followed by the Transfer Agent for
each Fund and the record owner of each Omnibus Account (as hereinafter defined)
in maintaining records relating to Distributor Shares and Post-distributor
Shares. Clause (C) sets forth the rules to be followed by the Transfer Agent for
each Fund and the record owner of each Omnibus Account in determining what
portion of the Asset Based Sales Charge (as hereinafter defined) payable in
respect of each class of Shares of such Fund and what portion of the CDSC (as
hereinafter defined) payable by the holders of Shares of such Fund is
attributable to Distributor Shares and Post-distributor Shares, respectively.
(A) DEFINITIONS:
Generally, for purposes of this Schedule I, defined terms shall be used
with the meaning assigned to them in the Agreement, except that for purposes of
the following rules the following definitions are also applicable:
"Agreement" shall mean the Principal Underwriting Agreement for Class B-1
Shares of the Instant Fund dated as of May 31, 1995 between the Instant Fund and
the Distributor.
"Asset Based Sales Charge" shall have the meaning set forth in Section
26(b)(8)(C) of the Rules of Fair Practice it being understood that for purposes
of this Exhibit I such term does not include the Service Fee.
"Business Day" shall mean any day on which the banks and the New York Stock
Exchange are not authorized or required to close in New York City.
"Capital Gain Dividend" shall mean, in respect of any Share of any Fund, a
Dividend in respect of such Share which is designated by such Fund as being a
"capital gain dividend" as such term is defined in Section 852 of the Internal
Revenue Code of 1986, as amended.
"CDSC" shall mean with respect to any Fund, the contingent deferred sales
charge payable, either directly or by withholding from the proceeds of the
redemption of the Shares of such Fund, by the shareholders of such Fund on any
redemption of Shares of such Fund in accordance with the Prospectus relating to
such Fund.
"Commission Share" shall mean, in respect of any Fund, a Share of such Fund
issued under circumstances where a CDSC would be payable upon the redemption of
such Share if such CDSC is not waived or shall have not otherwise expired.
"Date of Original Purchase" shall mean, in respect of any Commission Share
of any Fund, the date on which such Commission Share was first issued by such
Fund; provided, that if such Share is a Commission Share and such Fund issued
the Commission Share (or portion thereof) in question in connection with a Free
Exchange for a Commission Share (or portion thereof) of another Fund, the Date
of Original Purchase for the Commission Share (or portion thereof) in question
shall be the date on which the Commission Share (or portion thereof) of the
other Fund was first issued by such other Fund (unless such Commission Share (or
portion thereof) was also issued by such other Fund in a Free Exchange, in which
case this proviso shall apply to that Free Exchange and this application shall
be repeated until one reaches a Commission Share (or portion thereof) which was
issued by a Fund other than in a Free Exchange).
"Distributor" shall mean Keystone Investment Distributors Company, its
successors and assigns.
"Distributor's Account" shall mean the account of the Distributor, account
no. 9903-584-2, ABA No. 011 0000 28, entitled "General Account" maintained with
State Street Bank & Trust Company or such other account as the Distributor may
designate in a notice to the Transfer Agent.
"Distributor Inception Date" shall mean, in respect of any Fund, the date
identified as the date Shares of such Fund are first sold by the Distributor.
"Distributor Last Sale Cut-off Date" shall mean, in respect of any Fund,
the date identified as the last sale of a Commission Share during the period the
Distributor served as principal underwriter under the Agreement.
"Distributor Shares" shall mean, in respect of any Fund, all Shares of such
Fund the Month of Original Purchase of which occurs on or after the Inception
Date for such Fund and on or prior to the Distributor Last Sale Cut-off Date in
respect of such Fund.
"Dividend" shall mean, in respect of any Share of any Fund, any dividend or
other distribution by such Fund in respect of such Share.
"Free Exchange" shall mean any exchange of a Commission Share (or portion
thereof) of one Fund (the "Redeeming Fund") for a Share (or portion thereof) of
another Fund (the "Issuing Fund"), under any arrangement which defers the
exchanging Shareholder's obligation to pay the CDSC in respect of the Commission
Share (or portion thereof) of the Redeeming Fund so exchanged until the later
redemption of the Share (or portion thereof) of the Issuing Fund received in
such exchange.
"Free Share" shall mean, in respect of any Fund, each Share of such Fund
other than a Commission Share, including, without limitation: (i) Shares issued
in connection with the automatic reinvestment of Capital Gain Dividends or Other
Dividends by such Fund, (ii) Special Free Shares issued by such Fund and (iii)
Shares (or portion thereof) issued by such Fund in connection with an exchange
whereby a Free Share (or portion thereof) of another Fund is redeemed and the
Net Asset Value of such redeemed Free Share (or portion thereof) is invested in
such Shares (or portion thereof) of such Fund.
"Fund" shall mean each of the regulated investment companies or series or
portfolios of regulated investment companies identified in Schedule II to the
Irrevocable Payment Instruction, as the same may be amended from time to time in
accordance with the terms thereof.
"Instant Fund" shall mean Keystone State Tax Free Fund, on behalf of
Keystone New York Insured Tax Free 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-1 SHARES
OF
KEYSTONE PENNSYLVANIA TAX FREE FUND,
A SERIES OF KEYSTONE STATE TAX FREE FUND
AGREEMENT made this 31st day of May 1995 by and between Keystone State Tax
Free Fund, a Massachusetts business trust, on behalf of Keystone Pennsylvania
Tax Free Fund ("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 STATE TAX FREE FUND
on behalf of
KEYSTONE PENNSYLVANIA TAX FREE FUND
By: /s/ R.D. Van Antwerp
----------------------------
Title: Sr. Vice President
KEYSTONE INVESTMENT DISTRIBUTORS COMPANY
By: /s/ Ralph J. Spuehler
----------------------------
Title: President
<PAGE>
SCHEDULE I
TO
PRINCIPAL UNDERWRITING AGREEMENT
FOR CLASS B-1 SHARES
OF
KEYSTONE STATE TAX FREE FUND
on behalf of
KEYSTONE PENNSYLVANIA TAX FREE FUND
TRANSFER AGENT PROCEDURES FOR DIFFERENTIATING
AMONG DISTRIBUTOR SHARES AND POST-DISTRIBUTOR SHARES
Amounts (in respect of Asset Based Sales Charges (as hereinafter defined)
and CDSCs (as hereinafter defined) in respect of Shares (as hereinafter defined)
of each Fund (as hereinafter defined) shall be allocated between Distributor
Shares (as hereinafter defined) and Post-distributor Shares (as hereinafter
defined) of such Fund in accordance with the rules set forth in clauses (B) and
(C). Clause (B) sets forth the rules to be followed by the Transfer Agent for
each Fund and the record owner of each Omnibus Account (as hereinafter defined)
in maintaining records relating to Distributor Shares and Post-distributor
Shares. Clause (C) sets forth the rules to be followed by the Transfer Agent for
each Fund and the record owner of each Omnibus Account in determining what
portion of the Asset Based Sales Charge (as hereinafter defined) payable in
respect of each class of Shares of such Fund and what portion of the CDSC (as
hereinafter defined) payable by the holders of Shares of such Fund is
attributable to Distributor Shares and Post-distributor Shares, respectively.
(A) DEFINITIONS:
Generally, for purposes of this Schedule I, defined terms shall be used
with the meaning assigned to them in the Agreement, except that for purposes of
the following rules the following definitions are also applicable:
"Agreement" shall mean the Principal Underwriting Agreement for Class B-1
Shares of the Instant Fund dated as of May 31, 1995 between the Instant Fund and
the Distributor.
"Asset Based Sales Charge" shall have the meaning set forth in Section
26(b)(8)(C) of the Rules of Fair Practice it being understood that for purposes
of this Exhibit I such term does not include the Service Fee.
"Business Day" shall mean any day on which the banks and the New York Stock
Exchange are not authorized or required to close in New York City.
"Capital Gain Dividend" shall mean, in respect of any Share of any Fund, a
Dividend in respect of such Share which is designated by such Fund as being a
"capital gain dividend" as such term is defined in Section 852 of the Internal
Revenue Code of 1986, as amended.
"CDSC" shall mean with respect to any Fund, the contingent deferred sales
charge payable, either directly or by withholding from the proceeds of the
redemption of the Shares of such Fund, by the shareholders of such Fund on any
redemption of Shares of such Fund in accordance with the Prospectus relating to
such Fund.
"Commission Share" shall mean, in respect of any Fund, a Share of such Fund
issued under circumstances where a CDSC would be payable upon the redemption of
such Share if such CDSC is not waived or shall have not otherwise expired.
"Date of Original Purchase" shall mean, in respect of any Commission Share
of any Fund, the date on which such Commission Share was first issued by such
Fund; provided, that if such Share is a Commission Share and such Fund issued
the Commission Share (or portion thereof) in question in connection with a Free
Exchange for a Commission Share (or portion thereof) of another Fund, the Date
of Original Purchase for the Commission Share (or portion thereof) in question
shall be the date on which the Commission Share (or portion thereof) of the
other Fund was first issued by such other Fund (unless such Commission Share (or
portion thereof) was also issued by such other Fund in a Free Exchange, in which
case this proviso shall apply to that Free Exchange and this application shall
be repeated until one reaches a Commission Share (or portion thereof) which was
issued by a Fund other than in a Free Exchange).
"Distributor" shall mean Keystone Investment Distributors Company, its
successors and assigns.
"Distributor's Account" shall mean the account of the Distributor, account
no. 9903-584-2, ABA No. 011 0000 28, entitled "General Account" maintained with
State Street Bank & Trust Company or such other account as the Distributor may
designate in a notice to the Transfer Agent.
"Distributor Inception Date" shall mean, in respect of any Fund, the date
identified as the date Shares of such Fund are first sold by the Distributor.
"Distributor Last Sale Cut-off Date" shall mean, in respect of any Fund,
the date identified as the last sale of a Commission Share during the period the
Distributor served as principal underwriter under the Agreement.
"Distributor Shares" shall mean, in respect of any Fund, all Shares of such
Fund the Month of Original Purchase of which occurs on or after the Inception
Date for such Fund and on or prior to the Distributor Last Sale Cut-off Date in
respect of such Fund.
"Dividend" shall mean, in respect of any Share of any Fund, any dividend or
other distribution by such Fund in respect of such Share.
"Free Exchange" shall mean any exchange of a Commission Share (or portion
thereof) of one Fund (the "Redeeming Fund") for a Share (or portion thereof) of
another Fund (the "Issuing Fund"), under any arrangement which defers the
exchanging Shareholder's obligation to pay the CDSC in respect of the Commission
Share (or portion thereof) of the Redeeming Fund so exchanged until the later
redemption of the Share (or portion thereof) of the Issuing Fund received in
such exchange.
"Free Share" shall mean, in respect of any Fund, each Share of such Fund
other than a Commission Share, including, without limitation: (i) Shares issued
in connection with the automatic reinvestment of Capital Gain Dividends or Other
Dividends by such Fund, (ii) Special Free Shares issued by such Fund and (iii)
Shares (or portion thereof) issued by such Fund in connection with an exchange
whereby a Free Share (or portion thereof) of another Fund is redeemed and the
Net Asset Value of such redeemed Free Share (or portion thereof) is invested in
such Shares (or portion thereof) of such Fund.
"Fund" shall mean each of the regulated investment companies or series or
portfolios of regulated investment companies identified in Schedule II to the
Irrevocable Payment Instruction, as the same may be amended from time to time in
accordance with the terms thereof.
"Instant Fund" shall mean Keystone State Tax Free Fund, on behalf of
Keystone Pennsylvania Tax Free 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 FLORIDA TAX FREE FUND,
A SERIES OF KEYSTONE STATE TAX FREE FUND
AGREEMENT made this 31st day of May 1995 by and between Keystone State Tax
Free Fund, a Massachusetts business trust, on behalf of Keystone Florida Tax
Free Fund ("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 STATE TAX FREE FUND
on behalf of
KEYSTONE FLORIDA TAX FREE FUND
By: /s/ R. D. Antwerp
-------------------------------
Title: Sr. Vice President
KEYSTONE INVESTMENT DISTRIBUTORS COMPANY
By: /s/ Ralph J. Spuehler, Jr.
-------------------------------
Title: President
<PAGE>
SCHEDULE I
TO
PRINCIPAL UNDERWRITING AGREEMENT
FOR CLASS B-2 SHARES
OF
KEYSTONE STATE TAX FREE FUND
on behalf of
KEYSTONE FLORIDA TAX FREE FUND
TRANSFER AGENT PROCEDURES FOR DIFFERENTIATING
AMONG DISTRIBUTOR SHARES AND POST-DISTRIBUTOR SHARES
Amounts (in respect of Asset Based Sales Charges (as hereinafter defined)
and CDSCs (as hereinafter defined) in respect of Shares (as hereinafter defined)
of each Fund (as hereinafter defined) shall be allocated between Distributor
Shares (as hereinafter defined) and Post-distributor Shares (as hereinafter
defined) of such Fund in accordance with the rules set forth in clauses (B) and
(C). Clause (B) sets forth the rules to be followed by the Transfer Agent for
each Fund and the record owner of each Omnibus Account (as hereinafter defined)
in maintaining records relating to Distributor Shares and Post-distributor
Shares. Clause (C) sets forth the rules to be followed by the Transfer Agent for
each Fund and the record owner of each Omnibus Account in determining what
portion of the Asset Based Sales Charge (as hereinafter defined) payable in
respect of each class of Shares of such Fund and what portion of the CDSC (as
hereinafter defined) payable by the holders of Shares of such Fund is
attributable to Distributor Shares and Post-distributor Shares, respectively.
(A) DEFINITIONS:
Generally, for purposes of this Schedule I, defined terms shall be used
with the meaning assigned to them in the Agreement, except that for purposes of
the following rules the following definitions are also applicable:
"Agreement" shall mean the Principal Underwriting Agreement for Class B-2
Shares of the Instant Fund dated as of May 31, 1995 between the Instant Fund and
the Distributor.
"Asset Based Sales Charge" shall have the meaning set forth in Section
26(b)(8)(C) of the Rules of Fair Practice it being understood that for purposes
of this Exhibit I such term does not include the Service Fee.
"Business Day" shall mean any day on which the banks and the New York Stock
Exchange are not authorized or required to close in New York City.
"Capital Gain Dividend" shall mean, in respect of any Share of any Fund, a
Dividend in respect of such Share which is designated by such Fund as being a
"capital gain dividend" as such term is defined in Section 852 of the Internal
Revenue Code of 1986, as amended.
"CDSC" shall mean with respect to any Fund, the contingent deferred sales
charge payable, either directly or by withholding from the proceeds of the
redemption of the Shares of such Fund, by the shareholders of such Fund on any
redemption of Shares of such Fund in accordance with the Prospectus relating to
such Fund.
"Commission Share" shall mean, in respect of any Fund, a Share of such Fund
issued under circumstances where a CDSC would be payable upon the redemption of
such Share if such CDSC is not waived or shall have not otherwise expired.
"Date of Original Purchase" shall mean, in respect of any Commission Share
of any Fund, the date on which such Commission Share was first issued by such
Fund; provided, that if such Share is a Commission Share and such Fund issued
the Commission Share (or portion thereof) in question in connection with a Free
Exchange for a Commission Share (or portion thereof) of another Fund, the Date
of Original Purchase for the Commission Share (or portion thereof) in question
shall be the date on which the Commission Share (or portion thereof) of the
other Fund was first issued by such other Fund (unless such Commission Share (or
portion thereof) was also issued by such other Fund in a Free Exchange, in which
case this proviso shall apply to that Free Exchange and this application shall
be repeated until one reaches a Commission Share (or portion thereof) which was
issued by a Fund other than in a Free Exchange).
"Distributor" shall mean Keystone Investment Distributors Company, its
successors and assigns.
"Distributor's Account" shall mean the account of the Distributor, account
no. 9903-584-2, ABA No. 011 0000 28, entitled "General Account" maintained with
State Street Bank & Trust Company or such other account as the Distributor may
designate in a notice to the Transfer Agent.
"Distributor Inception Date" shall mean, in respect of any Fund, the date
identified as the date Shares of such Fund are first sold by the Distributor.
"Distributor Last Sale Cut-off Date" shall mean, in respect of any Fund,
the date identified as the last sale of a Commission Share during the period the
Distributor served as principal underwriter under the Agreement.
"Distributor Shares" shall mean, in respect of any Fund, all Shares of such
Fund the Month of Original Purchase of which occurs on or after the Inception
Date for such Fund and on or prior to the Distributor Last Sale Cut-off Date in
respect of such Fund.
"Dividend" shall mean, in respect of any Share of any Fund, any dividend or
other distribution by such Fund in respect of such Share.
"Free Exchange" shall mean any exchange of a Commission Share (or portion
thereof) of one Fund (the "Redeeming Fund") for a Share (or portion thereof) of
another Fund (the "Issuing Fund"), under any arrangement which defers the
exchanging Shareholder's obligation to pay the CDSC in respect of the Commission
Share (or portion thereof) of the Redeeming Fund so exchanged until the later
redemption of the Share (or portion thereof) of the Issuing Fund received in
such exchange.
"Free Share" shall mean, in respect of any Fund, each Share of such Fund
other than a Commission Share, including, without limitation: (i) Shares issued
in connection with the automatic reinvestment of Capital Gain Dividends or Other
Dividends by such Fund, (ii) Special Free Shares issued by such Fund and (iii)
Shares (or portion thereof) issued by such Fund in connection with an exchange
whereby a Free Share (or portion thereof) of another Fund is redeemed and the
Net Asset Value of such redeemed Free Share (or portion thereof) is invested in
such Shares (or portion thereof) of such Fund.
"Fund" shall mean each of the regulated investment companies or series or
portfolios of regulated investment companies identified in Schedule II to the
Irrevocable Payment Instruction, as the same may be amended from time to time in
accordance with the terms thereof.
"Instant Fund" shall mean Keystone State Tax Free Fund, on behalf of
Keystone Florida Tax Free 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 MASSACHUSETTS TAX FREE FUND,
A SERIES OF KEYSTONE STATE TAX FREE FUND
AGREEMENT made this 31st day of May 1995 by and between Keystone State Tax
Free Fund, a Massachusetts business trust, on behalf of Keystone Massachusetts
Tax Free Fund ("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 STATE TAX FREE FUND
on behalf of
KEYSTONE MASSACHUSETTS TAX FREE FUND
By: /s/ R. D. Van Antwerp
-------------------------------
Title: Sr. Vice President
KEYSTONE INVESTMENT DISTRIBUTORS COMPANY
By: /s/ Ralph J. Spuehler Jr.
-------------------------------
Title: President
<PAGE>
SCHEDULE I
TO
PRINCIPAL UNDERWRITING AGREEMENT
FOR CLASS B-2 SHARES
OF
KEYSTONE STATE TAX FREE FUND
on behalf of
KEYSTONE MASSACHUSETTS TAX FREE FUND
TRANSFER AGENT PROCEDURES FOR DIFFERENTIATING
AMONG DISTRIBUTOR SHARES AND POST-DISTRIBUTOR SHARES
Amounts (in respect of Asset Based Sales Charges (as hereinafter defined)
and CDSCs (as hereinafter defined) in respect of Shares (as hereinafter defined)
of each Fund (as hereinafter defined) shall be allocated between Distributor
Shares (as hereinafter defined) and Post-distributor Shares (as hereinafter
defined) of such Fund in accordance with the rules set forth in clauses (B) and
(C). Clause (B) sets forth the rules to be followed by the Transfer Agent for
each Fund and the record owner of each Omnibus Account (as hereinafter defined)
in maintaining records relating to Distributor Shares and Post-distributor
Shares. Clause (C) sets forth the rules to be followed by the Transfer Agent for
each Fund and the record owner of each Omnibus Account in determining what
portion of the Asset Based Sales Charge (as hereinafter defined) payable in
respect of each class of Shares of such Fund and what portion of the CDSC (as
hereinafter defined) payable by the holders of Shares of such Fund is
attributable to Distributor Shares and Post-distributor Shares, respectively.
(A) DEFINITIONS:
Generally, for purposes of this Schedule I, defined terms shall be used
with the meaning assigned to them in the Agreement, except that for purposes of
the following rules the following definitions are also applicable:
"Agreement" shall mean the Principal Underwriting Agreement for Class B-2
Shares of the Instant Fund dated as of May 31, 1995 between the Instant Fund and
the Distributor.
"Asset Based Sales Charge" shall have the meaning set forth in Section
26(b)(8)(C) of the Rules of Fair Practice it being understood that for purposes
of this Exhibit I such term does not include the Service Fee.
"Business Day" shall mean any day on which the banks and the New York Stock
Exchange are not authorized or required to close in New York City.
"Capital Gain Dividend" shall mean, in respect of any Share of any Fund, a
Dividend in respect of such Share which is designated by such Fund as being a
"capital gain dividend" as such term is defined in Section 852 of the Internal
Revenue Code of 1986, as amended.
"CDSC" shall mean with respect to any Fund, the contingent deferred sales
charge payable, either directly or by withholding from the proceeds of the
redemption of the Shares of such Fund, by the shareholders of such Fund on any
redemption of Shares of such Fund in accordance with the Prospectus relating to
such Fund.
"Commission Share" shall mean, in respect of any Fund, a Share of such Fund
issued under circumstances where a CDSC would be payable upon the redemption of
such Share if such CDSC is not waived or shall have not otherwise expired.
"Date of Original Purchase" shall mean, in respect of any Commission Share
of any Fund, the date on which such Commission Share was first issued by such
Fund; provided, that if such Share is a Commission Share and such Fund issued
the Commission Share (or portion thereof) in question in connection with a Free
Exchange for a Commission Share (or portion thereof) of another Fund, the Date
of Original Purchase for the Commission Share (or portion thereof) in question
shall be the date on which the Commission Share (or portion thereof) of the
other Fund was first issued by such other Fund (unless such Commission Share (or
portion thereof) was also issued by such other Fund in a Free Exchange, in which
case this proviso shall apply to that Free Exchange and this application shall
be repeated until one reaches a Commission Share (or portion thereof) which was
issued by a Fund other than in a Free Exchange).
"Distributor" shall mean Keystone Investment Distributors Company, its
successors and assigns.
"Distributor's Account" shall mean the account of the Distributor, account
no. 9903-584-2, ABA No. 011 0000 28, entitled "General Account" maintained with
State Street Bank & Trust Company or such other account as the Distributor may
designate in a notice to the Transfer Agent.
"Distributor Inception Date" shall mean, in respect of any Fund, the date
identified as the date Shares of such Fund are first sold by the Distributor.
"Distributor Last Sale Cut-off Date" shall mean, in respect of any Fund,
the date identified as the last sale of a Commission Share during the period the
Distributor served as principal underwriter under the Agreement.
"Distributor Shares" shall mean, in respect of any Fund, all Shares of such
Fund the Month of Original Purchase of which occurs on or after the Inception
Date for such Fund and on or prior to the Distributor Last Sale Cut-off Date in
respect of such Fund.
"Dividend" shall mean, in respect of any Share of any Fund, any dividend or
other distribution by such Fund in respect of such Share.
"Free Exchange" shall mean any exchange of a Commission Share (or portion
thereof) of one Fund (the "Redeeming Fund") for a Share (or portion thereof) of
another Fund (the "Issuing Fund"), under any arrangement which defers the
exchanging Shareholder's obligation to pay the CDSC in respect of the Commission
Share (or portion thereof) of the Redeeming Fund so exchanged until the later
redemption of the Share (or portion thereof) of the Issuing Fund received in
such exchange.
"Free Share" shall mean, in respect of any Fund, each Share of such Fund
other than a Commission Share, including, without limitation: (i) Shares issued
in connection with the automatic reinvestment of Capital Gain Dividends or Other
Dividends by such Fund, (ii) Special Free Shares issued by such Fund and (iii)
Shares (or portion thereof) issued by such Fund in connection with an exchange
whereby a Free Share (or portion thereof) of another Fund is redeemed and the
Net Asset Value of such redeemed Free Share (or portion thereof) is invested in
such Shares (or portion thereof) of such Fund.
"Fund" shall mean each of the regulated investment companies or series or
portfolios of regulated investment companies identified in Schedule II to the
Irrevocable Payment Instruction, as the same may be amended from time to time in
accordance with the terms thereof.
"Instant Fund" shall mean Keystone State Tax Free Fund, on behalf of
Keystone Massachusetts Tax Free 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 NEW YORK INSURED TAX FREE FUND,
A SERIES OF KEYSTONE STATE TAX FREE FUND
AGREEMENT made this 31st day of May 1995 by and between Keystone State Tax
Free Fund, a Massachusetts business trust, on behalf of Keystone New York
Insured Tax Free Fund ("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 STATE TAX FREE FUND - SERIES II,
on behalf of
KEYSTONE NEW YORK INSURED TAX FREE FUND
By: /s/ R. D. Van Antwerp
-------------------------------
Title: Sr. Vice President
KEYSTONE INVESTMENT DISTRIBUTORS COMPANY
By: /s/ Ralph J. Spuehler, Jr.
-------------------------------
Title: President
<PAGE>
SCHEDULE I
TO
PRINCIPAL UNDERWRITING AGREEMENT
FOR CLASS B-2 SHARES
OF
KEYSTONE STATE TAX FREE FUND
on behalf of
KEYSTONE NEW YORK INSURED TAX FREE FUND
TRANSFER AGENT PROCEDURES FOR DIFFERENTIATING
AMONG DISTRIBUTOR SHARES AND POST-DISTRIBUTOR SHARES
Amounts (in respect of Asset Based Sales Charges (as hereinafter defined)
and CDSCs (as hereinafter defined) in respect of Shares (as hereinafter defined)
of each Fund (as hereinafter defined) shall be allocated between Distributor
Shares (as hereinafter defined) and Post-distributor Shares (as hereinafter
defined) of such Fund in accordance with the rules set forth in clauses (B) and
(C). Clause (B) sets forth the rules to be followed by the Transfer Agent for
each Fund and the record owner of each Omnibus Account (as hereinafter defined)
in maintaining records relating to Distributor Shares and Post-distributor
Shares. Clause (C) sets forth the rules to be followed by the Transfer Agent for
each Fund and the record owner of each Omnibus Account in determining what
portion of the Asset Based Sales Charge (as hereinafter defined) payable in
respect of each class of Shares of such Fund and what portion of the CDSC (as
hereinafter defined) payable by the holders of Shares of such Fund is
attributable to Distributor Shares and Post-distributor Shares, respectively.
(A) DEFINITIONS:
Generally, for purposes of this Schedule I, defined terms shall be used
with the meaning assigned to them in the Agreement, except that for purposes of
the following rules the following definitions are also applicable:
"Agreement" shall mean the Principal Underwriting Agreement for Class B-2
Shares of the Instant Fund dated as of May 31, 1995 between the Instant Fund and
the Distributor.
"Asset Based Sales Charge" shall have the meaning set forth in Section
26(b)(8)(C) of the Rules of Fair Practice it being understood that for purposes
of this Exhibit I such term does not include the Service Fee.
"Business Day" shall mean any day on which the banks and the New York Stock
Exchange are not authorized or required to close in New York City.
"Capital Gain Dividend" shall mean, in respect of any Share of any Fund, a
Dividend in respect of such Share which is designated by such Fund as being a
"capital gain dividend" as such term is defined in Section 852 of the Internal
Revenue Code of 1986, as amended.
"CDSC" shall mean with respect to any Fund, the contingent deferred sales
charge payable, either directly or by withholding from the proceeds of the
redemption of the Shares of such Fund, by the shareholders of such Fund on any
redemption of Shares of such Fund in accordance with the Prospectus relating to
such Fund.
"Commission Share" shall mean, in respect of any Fund, a Share of such Fund
issued under circumstances where a CDSC would be payable upon the redemption of
such Share if such CDSC is not waived or shall have not otherwise expired.
"Date of Original Purchase" shall mean, in respect of any Commission Share
of any Fund, the date on which such Commission Share was first issued by such
Fund; provided, that if such Share is a Commission Share and such Fund issued
the Commission Share (or portion thereof) in question in connection with a Free
Exchange for a Commission Share (or portion thereof) of another Fund, the Date
of Original Purchase for the Commission Share (or portion thereof) in question
shall be the date on which the Commission Share (or portion thereof) of the
other Fund was first issued by such other Fund (unless such Commission Share (or
portion thereof) was also issued by such other Fund in a Free Exchange, in which
case this proviso shall apply to that Free Exchange and this application shall
be repeated until one reaches a Commission Share (or portion thereof) which was
issued by a Fund other than in a Free Exchange).
"Distributor" shall mean Keystone Investment Distributors Company, its
successors and assigns.
"Distributor's Account" shall mean the account of the Distributor, account
no. 9903-584-2, ABA No. 011 0000 28, entitled "General Account" maintained with
State Street Bank & Trust Company or such other account as the Distributor may
designate in a notice to the Transfer Agent.
"Distributor Inception Date" shall mean, in respect of any Fund, the date
identified as the date Shares of such Fund are first sold by the Distributor.
"Distributor Last Sale Cut-off Date" shall mean, in respect of any Fund,
the date identified as the last sale of a Commission Share during the period the
Distributor served as principal underwriter under the Agreement.
"Distributor Shares" shall mean, in respect of any Fund, all Shares of such
Fund the Month of Original Purchase of which occurs on or after the Inception
Date for such Fund and on or prior to the Distributor Last Sale Cut-off Date in
respect of such Fund.
"Dividend" shall mean, in respect of any Share of any Fund, any dividend or
other distribution by such Fund in respect of such Share.
"Free Exchange" shall mean any exchange of a Commission Share (or portion
thereof) of one Fund (the "Redeeming Fund") for a Share (or portion thereof) of
another Fund (the "Issuing Fund"), under any arrangement which defers the
exchanging Shareholder's obligation to pay the CDSC in respect of the Commission
Share (or portion thereof) of the Redeeming Fund so exchanged until the later
redemption of the Share (or portion thereof) of the Issuing Fund received in
such exchange.
"Free Share" shall mean, in respect of any Fund, each Share of such Fund
other than a Commission Share, including, without limitation: (i) Shares issued
in connection with the automatic reinvestment of Capital Gain Dividends or Other
Dividends by such Fund, (ii) Special Free Shares issued by such Fund and (iii)
Shares (or portion thereof) issued by such Fund in connection with an exchange
whereby a Free Share (or portion thereof) of another Fund is redeemed and the
Net Asset Value of such redeemed Free Share (or portion thereof) is invested in
such Shares (or portion thereof) of such Fund.
"Fund" shall mean each of the regulated investment companies or series or
portfolios of regulated investment companies identified in Schedule II to the
Irrevocable Payment Instruction, as the same may be amended from time to time in
accordance with the terms thereof.
"Instant Fund" shall mean Keystone State Tax Free Fund, on behalf of
Keystone New York Insured Tax Free 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 PENNSYLVANIA INSURED TAX FREE FUND,
A SERIES OF KEYSTONE STATE TAX FREE FUND
AGREEMENT made this 31st day of May 1995 by and between Keystone State Tax
Free Fund, a Massachusetts business trust, on behalf of Keystone Pennsylvania
Tax Free Fund ("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 STATE TAX FREE FUND
on behalf of
KEYSTONE PENNSYLVANIA TAX FREE FUND
By: /s/ R. D. Van Antwerp
-------------------------------
Title: Sr. Vice President
KEYSTONE INVESTMENT DISTRIBUTORS COMPANY
By: /s/ Ralph J. Spuehler
-------------------------------
Title: President
<PAGE>
SCHEDULE I
TO
PRINCIPAL UNDERWRITING AGREEMENT
FOR CLASS B-2 SHARES
OF
KEYSTONE STATE TAX FREE FUND
on behalf of
KEYSTONE PENNSYLVANIA TAX FREE FUND
TRANSFER AGENT PROCEDURES FOR DIFFERENTIATING
AMONG DISTRIBUTOR SHARES AND POST-DISTRIBUTOR SHARES
Amounts (in respect of Asset Based Sales Charges (as hereinafter defined)
and CDSCs (as hereinafter defined) in respect of Shares (as hereinafter defined)
of each Fund (as hereinafter defined) shall be allocated between Distributor
Shares (as hereinafter defined) and Post-distributor Shares (as hereinafter
defined) of such Fund in accordance with the rules set forth in clauses (B) and
(C). Clause (B) sets forth the rules to be followed by the Transfer Agent for
each Fund and the record owner of each Omnibus Account (as hereinafter defined)
in maintaining records relating to Distributor Shares and Post-distributor
Shares. Clause (C) sets forth the rules to be followed by the Transfer Agent for
each Fund and the record owner of each Omnibus Account in determining what
portion of the Asset Based Sales Charge (as hereinafter defined) payable in
respect of each class of Shares of such Fund and what portion of the CDSC (as
hereinafter defined) payable by the holders of Shares of such Fund is
attributable to Distributor Shares and Post-distributor Shares, respectively.
(A) DEFINITIONS:
Generally, for purposes of this Schedule I, defined terms shall be used
with the meaning assigned to them in the Agreement, except that for purposes of
the following rules the following definitions are also applicable:
"Agreement" shall mean the Principal Underwriting Agreement for Class B-2
Shares of the Instant Fund dated as of May 31, 1995 between the Instant Fund and
the Distributor.
"Asset Based Sales Charge" shall have the meaning set forth in Section
26(b)(8)(C) of the Rules of Fair Practice it being understood that for purposes
of this Exhibit I such term does not include the Service Fee.
"Business Day" shall mean any day on which the banks and the New York Stock
Exchange are not authorized or required to close in New York City.
"Capital Gain Dividend" shall mean, in respect of any Share of any Fund, a
Dividend in respect of such Share which is designated by such Fund as being a
"capital gain dividend" as such term is defined in Section 852 of the Internal
Revenue Code of 1986, as amended.
"CDSC" shall mean with respect to any Fund, the contingent deferred sales
charge payable, either directly or by withholding from the proceeds of the
redemption of the Shares of such Fund, by the shareholders of such Fund on any
redemption of Shares of such Fund in accordance with the Prospectus relating to
such Fund.
"Commission Share" shall mean, in respect of any Fund, a Share of such Fund
issued under circumstances where a CDSC would be payable upon the redemption of
such Share if such CDSC is not waived or shall have not otherwise expired.
"Date of Original Purchase" shall mean, in respect of any Commission Share
of any Fund, the date on which such Commission Share was first issued by such
Fund; provided, that if such Share is a Commission Share and such Fund issued
the Commission Share (or portion thereof) in question in connection with a Free
Exchange for a Commission Share (or portion thereof) of another Fund, the Date
of Original Purchase for the Commission Share (or portion thereof) in question
shall be the date on which the Commission Share (or portion thereof) of the
other Fund was first issued by such other Fund (unless such Commission Share (or
portion thereof) was also issued by such other Fund in a Free Exchange, in which
case this proviso shall apply to that Free Exchange and this application shall
be repeated until one reaches a Commission Share (or portion thereof) which was
issued by a Fund other than in a Free Exchange).
"Distributor" shall mean Keystone Investment Distributors Company, its
successors and assigns.
"Distributor's Account" shall mean the account of the Distributor, account
no. 9903-584-2, ABA No. 011 0000 28, entitled "General Account" maintained with
State Street Bank & Trust Company or such other account as the Distributor may
designate in a notice to the Transfer Agent.
"Distributor Inception Date" shall mean, in respect of any Fund, the date
identified as the date Shares of such Fund are first sold by the Distributor.
"Distributor Last Sale Cut-off Date" shall mean, in respect of any Fund,
the date identified as the last sale of a Commission Share during the period the
Distributor served as principal underwriter under the Agreement.
"Distributor Shares" shall mean, in respect of any Fund, all Shares of such
Fund the Month of Original Purchase of which occurs on or after the Inception
Date for such Fund and on or prior to the Distributor Last Sale Cut-off Date in
respect of such Fund.
"Dividend" shall mean, in respect of any Share of any Fund, any dividend or
other distribution by such Fund in respect of such Share.
"Free Exchange" shall mean any exchange of a Commission Share (or portion
thereof) of one Fund (the "Redeeming Fund") for a Share (or portion thereof) of
another Fund (the "Issuing Fund"), under any arrangement which defers the
exchanging Shareholder's obligation to pay the CDSC in respect of the Commission
Share (or portion thereof) of the Redeeming Fund so exchanged until the later
redemption of the Share (or portion thereof) of the Issuing Fund received in
such exchange.
"Free Share" shall mean, in respect of any Fund, each Share of such Fund
other than a Commission Share, including, without limitation: (i) Shares issued
in connection with the automatic reinvestment of Capital Gain Dividends or Other
Dividends by such Fund, (ii) Special Free Shares issued by such Fund and (iii)
Shares (or portion thereof) issued by such Fund in connection with an exchange
whereby a Free Share (or portion thereof) of another Fund is redeemed and the
Net Asset Value of such redeemed Free Share (or portion thereof) is invested in
such Shares (or portion thereof) of such Fund.
"Fund" shall mean each of the regulated investment companies or series or
portfolios of regulated investment companies identified in Schedule II to the
Irrevocable Payment Instruction, as the same may be amended from time to time in
accordance with the terms thereof.
"Instant Fund" shall mean Keystone State Tax Free Fund, on behalf of
Keystone Pennsylvania Tax Free 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 99.6B
[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 99.8
CUSTODIAN, FUND ACCOUNTING AND RECORDKEEPING AGREEMENT
BY AND BETWEEN
KEYSTONE AMERICA STATE TAX FREE FUND
AND
STATE STREET BANK AND TRUST COMPANY
Agreement made as of this 27th day of November 1990 by and between KEYSTONE
AMERICA STATE TAX FREE FUND, a Massachusetts business trust ("Fund"), having its
principal place of business at 99 High Street, Boston, Massachusetts, 02110, and
STATE STREET BANK AND TRUST COMPANY, a Massachusetts banking corporation ("State
Street"), having its principal place of business at 225 Franklin Street, Boston,
Massachusetts 02110.
WITNESSETH:
WHEREAS, the Fund is authorized to issue shares in separate series, with
each such series representing interests in a separate portfolio of securities
and other assets; and
WHEREAS, the Fund intends to initially offer shares in two series, Keystone
America Pennsylvania Tax Free Fund and Keystone America Florida Tax Free Fund,
(such series together with all other series subsequently established by the Fund
and made subject to this Agreement in accordance with paragraph 11, being herein
referred to as the "Portfolio(s));
NOW THEREFOR, in consideration of the mutual agreements herein contained,
the Fund and State Street agree as follows:
I. Depository.
The Fund hereby appoints State Street as the Depository of its Portfolios
subject to the provisions hereof. The Fund shall deliver to State Street
certified or authenticated copies of its Declaration of Trust and By-Laws, all
amendments thereto, a certified copy of the resolution of the Fund's Board of
Trustees appointing State Street to act in the capacities covered by this
Agreement and authorizing the signing of this Agreement and copies of such
resolutions of its Board of Trustees, contracts and other documents as may be
reasonably required by State Street in the performance of its duties hereunder.
II. Custodian.
1. The Fund appoints State Street as the Custodian of its Portfolios,
subject to the provisions hereof. State Street hereby accepts such appointment
as Custodian. As such Custodian, State Street shall retain all securities, cash
and other assets now owned or hereafter acquired by each Portfolio of the Fund,
and each Portfolio of the Fund shall deliver and pay or cause to be delivered
and paid to State Street, as Custodian, all securities, cash and other assets
now owned or hereafter acquired by such Portfolio during the period of this
Agreement.
2. All securities delivered to State Street (other than in bearer form)
shall be properly endorsed and in proper form for transfer into or in the name
of the appropriate Portfolio of the Fund, of a nominee of State Street for the
exclusive use of such Portfolio of the Fund or of such other nominee as may be
mutually agreed upon by State Street and the Fund.
3. As Custodian, State Street shall promptly:
A. Safekeeping. Keep safely in a separate account the securities and other
assets of each Portfolio of the Fund, including without limitation all
securities in bearer form, other than (a) securities which are maintained
pursuant to Section 3(B) in a Securities System (as defined in Section 3(B)) and
(b) commercial paper of an issuer for which State Street Bank and Trust Company
acts as issuing and paying agent ("Direct Paper") which is deposited and/or
maintained in the Direct Paper System of State Street pursuant to Section 3(BB),
and, on behalf of each Portfolio of the Fund, receive delivery of certificates,
including without limitation all securities in bearer form, for safekeeping and
keep such certificates physically segregated at all times from those of any
other person. State Street shall maintain records of all receipts, deliveries
and locations of such securities, together with a current inventory thereof and
shall conduct periodic physical inspections of certificates representing bonds
and other securities held by it under this Agreement at least annually in such
manner as State Street shall determine from time to time to be advisable in
order to verify the accuracy of such inventory. State Street shall provide the
Fund with copies of any reports of its internal count or other verification of
the securities of each Portfolio of the Fund held in its custody, including
reports on its own system of internal accounting control. In addition, if and
when independent certified public accountants retained by State Street shall
count or otherwise verify the securities of each Portfolio of the Fund held in
State Street's custody, State Street shall provide the Fund with a copy of the
report of such accountants. With respect to securities held by any agent or
Subcustodian appointed pursuant to paragraph 6(C) or 3(P) of Section II hereof,
State Street may rely upon certificates from such agent or Subcustodian as to
the holdings of such agent or Subcustodian, it being understood that such
reliance in no way releases State Street of its responsibilities or liabilities
under this Agreement. State Street shall promptly report to the Fund the results
of such inspections, indicating any shortages or discrepancies uncovered
thereby, and take appropriate action to remedy any such shortages or
discrepancies.
B. Deposit of Portfolio Assets in Securities Systems. Notwithstanding any
other provision of this Agreement, State Street may deposit and/or maintain
securities owned by each Portfolio of the Fund in Depository Trust Company, a
clearing agency registered with the Securities and Exchange Commission
("Commission") under Section 17A of the Securities Exchange Act of 1934
("Exchange Act"), which acts as a securities depository, in any other clearing
agency registered under Section 17A of the Exchange Act and which has been
authorized by the Fund's Board of Trustees, in the book-entry system authorized
by the U.S. Department of the Treasury and certain federal agencies or in any
other book entry system which the Commission has authorized for use by
investment companies as a securities depository by order, or interpretive or
no-action letter, and which has been authorized by the Fund's Board of Trustees,
collectively referred to herein as "Securities System(s)" in accordance with
applicable Federal Reserve Board and Commission rules and regulations, if any,
and subject to the following provisions:
1) State Street may keep securities of each Portfolio of the Fund
in a Securities System provided that such securities are deposited in
an account ("Account") of State Street in the Securities System which
shall not include any assets of State Street other than assets held as
a fiduciary, custodian or otherwise for customers;
2) The records of State Street with respect to securities of each
Portfolio of the Fund which are maintained in a Securities System
shall identify by book entry those securities belonging to such
Portfolio of the Fund;
3) State Street shall pay for securities purchased for the
account of each Portfolio of the Fund upon (i) receipt of advice from
the Securities System that such securities have been transferred to
the Account, and (ii) the making of an entry on the records of State
Street to reflect such payment and transfer for the account of each
Portfolio of the Fund. State Street shall transfer securities sold for
the account of each Portfolio of the Fund upon (i) receipt of advice
from the Securities System that payment for such securities has been
transferred to the Account, and (ii) the making of an entry on the
records of State Street to reflect such transfer and payment for the
account of such Portfolio of the Fund. Copies of all advices from the
Securities System of transfers of securities for the account of each
Portfolio of the Fund shall identify the Portfolio, be maintained for
the Portfolio by State Street and be provided to the Fund at its
request. State Street shall furnish the Fund confirmation of each
transfer to or from the account of each Portfolio of the Fund in the
form of a written advice or notice and shall furnish to the Fund
copies of daily transaction sheets reflecting each day's transactions
in the Securities System for the account of each Portfolio of the Fund
on the next business day;
4) State Street shall promptly provide the Fund with any report
obtained by State Street on the Securities System's accounting system,
internal accounting control and procedures for safeguarding securities
deposited in the Securities System. State Street shall promptly
provide the Fund any report on State Street's accounting system,
internal accounting control and procedures for safeguarding securities
deposited with State Street which is reasonably requested by the Fund;
5) Anything to the contrary in this Agreement notwithstanding,
State Street shall be liable to the Fund for any claim, loss,
liability, damage or expense to the Fund or its Portfolios, including
attorney's fees, resulting from use of a Securities System by reason
of any negligence, misfeasance or misconduct of State Street, its
agents or any of its or their employees or from failure of State
Street or any such agent to enforce effectively such rights as it may
have against a Securities System. At the election of the Fund, it
shall be entitled to be subrogated to the rights of State Street or
its agents with respect to any claim against the Securities System or
any other person which State Street or its agents may have as a
consequence of any such claim, loss, liability, damage or expense if
and to the extent that the Fund has not been made whole for any such
loss or damage.
BB. Portfolio Assets Held in State Street's Direct Paper System. State
Street may deposit and/or maintain securities owned by each Portfolio of the
Fund in the Direct Paper System of State Street subject to the following
provisions:
1) No transaction relating to securities in the Direct Paper
System will be effected in the absence of Proper Instructions;
2) State Street may keep securities of each Portfolio of the Fund
in the Direct Paper System only if such securities are represented in
an account ("Account") of State Street in the Direct Paper System
which shall not include any assets of State Street other than assets
held as a fiduciary, custodian or otherwise for customers;
3) The records of State Street with respect to securities of each
Portfolio of the Fund which are maintained in the Direct Paper System
shall identify by book-entry those securities belonging to the
Portfolio;
4) State Street shall pay for securities purchased for the
account of each Portfolio of the Fund upon the making of an entry on
the records of State Street to reflect such payment and transfer of
securities to the account of such Portfolio. State Street shall
transfer securities sold for the account of the Portfolio upon the
making of an entry on the records of State Street to reflect such
transfer and receipt of payment for the account of such Portfolio of
the Fund;
5) State Street shall furnish the Fund confirmation of each
transfer to or from the account of each Portfolio of the Fund, in the
form of a written advice or notice, of Direct Paper on the next
business day following such transfer and shall furnish to the Fund
copies of daily transaction sheets reflecting each day's transaction
in the Securities System for the account of each Portfolio of the
Fund;
6) State Street shall provide the Fund with any report on its
system of internal accounting control as the Fund may reasonably
request from time to time.
C. State Street's Records. The records of State Street (and its agents
and Subcustodians) with respect to its services for the Fund shall at all times
during the regular business hours of State Street (or its agents or
Subcustodians) be open for inspection by duly authorized officers, employees or
agents of the Fund and employees and agents of the Commission.
CC. Delivery of Securities. State Street shall release and deliver
securities owned by each Portfolio of the Fund held by State Street or in a
Securities System account of State Street or in State Street's Direct Paper book
entry system account ("Direct Paper System Account") only upon receipt of Proper
Instructions, which may be continuing instructions when deemed appropriate by
the parties, and only in the cases specified in paragraphs 3(D), 3(E), 3(F),
3(G), 3(H), 3(I), 3(J), 3(K), 3(L) and 3(M) of Section II hereof.
D. Registered Name, Nominee. Register securities of each Portfolio of
the Fund held by State Street in the name of the Fund, of a nominee of State
Street for the exclusive use of such Portfolio of the Fund, or of such other
nominee as may be mutually agreed upon, or of any mutually acceptable nominee of
any agent or Subcustodian appointed pursuant to paragraph 6(C) of Section II
hereof.
E. Purchases. Upon receipt of proper instructions (as defined in
paragraph 5(A) of Section II hereof; hereafter "Proper Instructions") and
insofar as cash is available for the purpose, pay for and receive all securities
purchased for the account of each Portfolio of the Fund, payment being made only
upon receipt of the securities by State Street (or any bank, banking firm,
responsible commercial agent or trust company doing business in the United
States and appointed pursuant to paragraph 6(C) of Section II hereof as State
Street's agent or Subcustodian for this purpose) registered as provided in
paragraph 3(D) of Section II hereof or in form for transfer satisfactory to
State Street, or, in the case of repurchase agreements entered into between a
Portfolio of the Fund and a bank or a dealer, delivery of the securities either
in certificate form or through an entry crediting State Street's account at the
Federal Reserve Bank with such securities, or, upon receipt by State Street of a
facsimile copy of a letter of understanding with respect to a time deposit
account of a Portfolio of the Fund signed by any bank, whether domestic or
foreign, and pursuant to Proper Instructions from the Fund as defined in Section
5-A, for transfer to the time deposit account of the Portfolio in such bank;
such transfer may be effected prior to receipt of a confirmation from a broker
and/or the applicable bank or in the case of a purchase involving the Direct
Paper System, in accordance with the conditions set forth in Section 2(BB). All
securities accepted by State Street shall be accompanied by payment of, or a
"due bill" for, any dividends, interest or other distributions of the issuer,
due the purchaser. In any and every case of a purchase of securities for the
account of a Portfolio of the Fund where payment is made by State Street in
advance of receipt of the securities purchased, State Street shall be absolutely
liable to the Fund and its Portfolios for such securities to the same extent as
if the securities had been received by State Street except that in the case of
repurchase agreements entered into by a Portfolio of the Fund with a bank which
is a member of the Federal Reserve System, State Street may transfer funds to
the account of such bank prior to the receipt of written evidence that the
securities subject to such repurchase agreement have been transferred by
book-entry into a segregated nonproprietary account of State Street maintained
with the Federal Reserve Bank of Boston, provided, that such securities have in
fact been so transferred by book-entry; provided, further, however, that State
Street and the Fund agree to use their best efforts to insure receipt by State
Street of copies of documentation for each such transaction as promptly as
possible.
F. Exchanges. Upon receipt of Proper Instruction, exchange securities,
interim receipts or temporary securities held by it or by any agent or
Subcustodian appointed by it pursuant to paragraph 6(C) or 3(P) of Section II
hereof for the account of each Portfolio of the Fund for other securities alone
or for other securities and cash, and expend cash insofar as cash is available
in connection with any merger, consolidation, reorganization, recapitalization,
split-up of shares, changes of par value, conversion or in connection with the
exercise of warrants, subscription or purchase rights, or otherwise, and deliver
securities to the designated depository or other receiving agent or Subcustodian
in response to tender offers or similar offers to purchase received in writing;
provided that in any such case the securities and/or cash to be received as a
result of any such exchange, expenditure or delivery are to be delivered to
State Street (or its agents or Subcustodians). State Street shall give notice as
provided under paragraph 12 of Section II hereof to the Fund in connection with
any transaction specified in this paragraph and at the same time shall specify
to the Fund whether such notice relates to securities held by an agent or
Subcustodian appointed pursuant to paragraph 6(C) or 3(P) of Section II hereof,
so that the Fund may issue to State Street Proper Instructions for State Street
to act thereon prior to any expiration date (which shall be presumed to be two
business days prior to such date unless State Street has previously advised the
Fund of a different period). The Fund shall give to State Street full details of
the time and method of submitting securities in response to any tender or
similar offer, exercising any subscription or purchase right or making any
exchange pursuant to this paragraph. When such securities are in the possession
of an agent or Subcustodian appointed by State Street pursuant to paragraph 6(C)
or 3(P) of Section II hereof, the Proper Instructions referred to in the
preceding sentence must be received by State Street in timely enough fashion
(which shall be presumed to be three business days unless State Street has
advised the Fund in writing of a different period) for State Street to notify
the agent or Subcustodian in sufficient time to permit such agent to act prior
to any expiration date.
G. Sales. Upon receipt of Proper Instructions and upon receipt of full
payment therefor, release and deliver securities which have been sold for the
account of a Portfolio of the Fund. At the time of delivery all such payments
are to be made in cash, by a certified check upon or a treasurer's or cashier's
check of a bank, by effective bank wire transfer through the Federal Reserve
Wire System or, if appropriate, outside of the Federal Reserve Wire System and
subsequent credit to such Portfolio's custodian account, or, in case of delivery
through a stock clearing company, by book-entry credit by the stock clearing
company in accordance with the then current "street" custom.
H. Purchases by Issuer. Upon receipt of Proper Instructions, release
and deliver securities owned by a Portfolio of the Fund to the issuer thereof or
its agent when such securities are called, redeemed, retired or otherwise become
payable; provided that in any such case, the cash or other consideration is to
be delivered to State Street.
I. Changes of Name and Denomination. Upon receipt of Proper
Instructions, release and deliver securities owned by a Portfolio of the Fund to
the issuer thereof or its agent for transfer into the name of the Fund or of a
nominee of State Street or of the Fund for the exclusive use of the Portfolio or
for exchange for a different number of bonds, certificates, or other evidence
representing the same aggregate face amount or number of units bearing the same
interest rate, maturity date and call provisions if any; provided that in any
such case, the new securities are to be delivered to State Street.
J. Street Delivery. In connection with delivery in New York City and
upon receipt of Proper Instructions, which in the case of registered securities
may be standing instructions, release securities owned by a Portfolio of the
Fund upon receipt of a written receipt for such securities to the broker selling
the same for examination in accordance with the existing "street delivery"
custom. In every instance, either payment in full for such securities shall be
made or such securities shall be returned to State Street that same day. In the
event existing "street delivery" custom is modified, State Street shall obtain
authorization from the Board of Trustees of the Fund prior to any use of such
modified "street delivery" custom.
K. Release of Securities for Use as Collateral. Upon receipt of Proper
Instructions and subject to the Declaration of Trust, release securities
belonging to a Portfolio of the Fund to any bank or trust company for the
purpose of pledge, mortgage or hypothecation to secure any loan incurred by the
Portfolio; provided, however, that securities shall be released only upon
payment to State Street of the monies borrowed, except that in cases where
additional collateral is required to secure a borrowing already made, subject to
proper prior authorization from the Fund, further securities may be released for
that purpose. Upon receipt of Proper Instructions, pay such loan upon redelivery
to it of the securities pledged or hypothecated therefore and upon surrender of
the note or notes evidencing the loan.
L. Compliance with Applicable Rules and Regulations of The Options
Clearing Corporation and National Securities or Commodities Exchanges or
Commissions. Upon receipt of Proper Instructions, deliver securities of a
Portfolio of the Fund in accordance with the provisions of any agreement among
the Fund, State Street and a broker-dealer registered under the Exchange Act and
a member of the National Association of Securities Dealers, Inc. ("NASD"),
relating to compliance with the rules of The Options Clearing Corporation and of
any registered national securities exchange, or of any similar organization or
organizations, regarding escrow or other arrangements in connection with
transactions by a Portfolio of the Fund; or, upon receipt of Proper
Instructions, deliver securities in accordance with the provisions of any
agreement among the Fund, State Street, and a Futures Commission Merchant
registered under the Commodity Exchange Act, relating to compliance with the
rules of the Commodity Futures Trading Commission and/or any contract market, or
any similar organization or organizations, regarding account deposits in
connection with transactions by a Portfolio of the Fund.
M. Release or Delivery of Securities for Other Purposes. Upon receipt
of Proper Instructions, release or deliver any securities held by it for the
account of a Portfolio of the Fund for any other purpose (in addition to those
specified in paragraphs 3(C), 3(D), 3(E), 3(F), 3(G), 3(H), 3(I), 3(J), 3(K) and
3(L) of Section II hereof) which the Fund declares is a proper corporate purpose
pursuant to Proper Instructions.
N. Proxies, Notices, Etc. State Street shall promptly forward upon
receipt to the Fund all forms of proxies and all notices of meetings and any
other notices or announcements affecting or relating to the securities,
including without limitation, notices relating to class action claims and
bankruptcy claims, and upon receipt of Proper Instructions execute and deliver
or cause its nominee to execute and deliver such proxies or other authorizations
as may be required. State Street, its nominee or its agents or Subcustodian
shall not vote upon any of the securities or execute any proxy to vote thereon
or give any consent or take any other action with respect thereto (except as
otherwise herein provided) unless ordered to do so by Proper Instructions. State
Street shall require its agents and Subcustodians appointed pursuant to
paragraph 6(C) and 3(P) of Section II hereof to forward any such announcements
and notices to State Street upon receipt.
O. Segregated Account. State Street shall upon receipt of Proper
Instructions, establish and maintain a segregated account or accounts for and on
behalf of each Portfolio of the Fund, into which account or accounts may be
transferred cash and/or securities, including securities maintained in an
account by State Street pursuant to Paragraph 3(B) hereof, (i) in accordance
with the provisions of any agreement among the Fund, State Street and a
broker-dealer registered under the Exchange Act and a member of the NASD (or any
futures commission merchant registered under the Commodity Exchange Act),
relating to compliance with the rules of The Options Clearing Corporation and of
any registered national securities exchange (or the Commodity Futures Trading
Commission or any registered contract market), or of any similar organization or
organizations, regarding escrow or other arrangements in connection with
transactions by each Portfolio of the Fund, (ii) for purposes of segregating
cash or government securities in connection with options purchased, sold or
written by each Portfolio of the Fund or commodity futures contracts or options
thereon purchased or sold by such Portfolios of the Fund, (iii) for the purposes
of compliance by the Fund with the procedures required by Investment Company Act
Release No. 10666, or any subsequent release or releases of the Commission
relating to the maintenance of segregated accounts by registered investment
companies and (iv), for other proper corporate purposes, but only, in the case
of clause (iv), upon receipt of, in addition to Proper Instructions, a certified
copy of a resolution of the Board of Trustees signed by an officer of the Fund
and certified by the Secretary or an Assistant Secretary, setting forth the
purpose or purposes of such segregated account and declaring such purposes to be
proper corporate purposes.
P. Miscellaneous. In general, attend to all nondiscretionary details in
connection with the sale, exchange, substitution, purchase, transfer or other
dealing with such securities or property of each Portfolio of the Fund, except
as otherwise directed by the Fund pursuant to Proper Instructions. State Street
shall render to the Fund daily a report of all monies received or paid on behalf
of each Portfolio of the Fund, an itemized statement of the securities and cash
for which it is accountable to the Fund under this Agreement and itemized
statement of security transactions which settled the day before and shall render
to the Fund weekly an itemized statement of security transactions which failed
to settle as scheduled. At the end of each week State Street shall provide a
list of all security transactions that remain unsettled at such time.
4. Additionally, as Custodian, State Street shall promptly:
A. Bank Account. Retain safely all cash of each Portfolio of the Fund,
other than cash maintained by a Portfolio in a bank account established and used
in accordance with Rule 17f-3 under the 1940 Act, in the banking department of
State Street in a separate account or accounts in the name of each Portfolio,
subject only to draft or order by State Street acting pursuant to the terms of
this Agreement. If and when authorized by Proper Instructions in accordance with
a vote of the Board of Trustees of the Fund, State Street may open and maintain
an additional account or accounts in such other bank or trust companies as may
be designated by such instructions, such account or accounts, however, to be
solely in the name of State Street in its capacity as Custodian and subject only
to its draft or order in accordance with the terms of this Agreement. State
Street shall furnish the Fund, not later than thirty (30) calendar days after
the last business day of each month, a statement reflecting the current status
of its internal reconciliation of the closing balance as of that day in all
accounts described in this paragraph to the balance shown on the daily cash
report for that day rendered to the Fund.
B. Collections. Unless otherwise instructed by receipt of Proper
Instructions, collect, receive and deposit in the bank account or accounts
maintained pursuant to paragraph 4(A) of Section II hereof all income and other
payments with respect to the securities held hereunder, execute ownership and
other certificates and affidavits for all federal and state tax purposes in
connection with the collection of bond and note coupons, do all other things
necessary or proper in connection with the collection of such income, and
without waiving the generality of the foregoing:
1) present for payment on the date of payment all coupons and
other income items requiring presentation;
2) present for payment all securities which may mature or be
called, redeemed, retired or otherwise become payable on the date such
securities become payable;
3) endorse and deposit for collection, in the name of the
respective Portfolio, checks, drafts or other negotiable instruments
on the same day as received.
In any case in which State Street does not receive any such due and unpaid
income within a reasonable time after it has made proper demands for the same
(which shall be presumed to consist of at least three demand letters and at
least one telephonic demand), it shall so notify the Fund in writing, including
copies of all demand letters, any written responses thereto, and memoranda of
all oral responses thereto and to telephonic demands, and await proper
instruction; State Street shall not be obliged to take legal action for
collection unless and until reasonably indemnified to its satisfaction for the
reasonable costs of such legal action for collection. It shall also notify the
Fund as soon as reasonably practicable whenever income due on securities is not
collected in due course.
C. Sale of Shares of each Portfolio of the Fund. Make such arrangements
with the Transfer Agent of the Fund as will enable State Street to make certain
it receives the cash consideration due to each Portfolio of the Fund for shares
of beneficial interest ("shares") of such Portfolio of the Fund as may be issued
or sold from time to time by the Fund, all in accordance with the Fund's
Declaration of Trust and By-Laws, as amended.
D. Dividends and Distributions. Upon receipt of Proper Instructions,
release or otherwise apply cash insofar as cash is available for the purpose of
the payment of dividends or other distributions to shareholders of each
Portfolio of the Fund.
E. Redemption of Shares of each Portfolio of the Fund. From such funds
as may be available for the purpose, but subject to the limitation of the Fund's
Declaration of Trust and By-Laws, as amended, and applicable resolutions of the
Board of Trustees of the Fund pursuant thereto, make funds available for payment
to shareholders who have delivered to the Transfer Agent a request for
redemption of their shares by the Fund pursuant to such Declaration of Trust, as
amended.
In connection with the redemption of shares of each Portfolio of the Fund
pursuant to the Fund's Declaration of Trust and By-Laws, as amended, State
Street is authorized and directed upon receipt of Proper Instructions from the
Transfer Agent for the Fund to make funds available for transfer through the
Federal Reserve Wire System or by other bank wire to a commercial bank account
designated by the redeeming stockholder.
F. Stock Dividends, Rights, Etc. Receive and collect all stock
dividends, rights and other items of like nature; and deal with the same
pursuant to Proper Instructions relative thereto.
G. Disbursements. Upon receipt of Proper Instructions, make or cause to
be made, insofar as cash is available for the purpose, disbursements for the
payment on behalf of the Fund or its Portfolios of its expenses, including
without limitation, interest, taxes and fees or reimbursement to State Street or
to the Fund's investment advisers for their payment of any such expenses.
H. Other Proper Corporate Purposes. Upon receipt of Proper
Instructions, make or cause to be made, insofar as cash is available for the
purpose, disbursements for any other purpose (in addition to the purposes
specified in paragraphs 3(E), 3(F), 4(D), 4(E), and 4(G) of this Agreement)
which the Fund declares is a proper corporate purpose.
I. Records. Create, maintain and retain all records a) relating to its
activities and obligations under this Agreement in such manner as shall meet the
obligations of the Fund under the 1940 Act, particularly Section 31 thereof and
Rules 31a-1 and 31a-2 thereunder, under applicable federal and state tax laws
and under any other law or administrative rules or procedures which may be
applicable to the Fund and its Portfolios, b) necessary to comply with the
representations of Part I - Fund Custodian Services and Part II - Portfolio
Pricing and Accounting of State Street's Response, dated May 1, 1979, as
amended, to Keystone Custodian Funds, Inc.'s and The Massachusetts Company,
Inc.'s Request for Proposal, dated March 19, 1979, as amended, (amendments after
June 22, 1979 are set forth in Exhibit B) ("Parts I and II"), insofar as such
representations relate to the creation, maintenance and retention of records for
the Fund or c) as reasonably requested from time to time by the Fund. All
records maintained by State Street in connection with the performance of its
duties under this Agreement shall remain the property of the Fund and in the
event of termination of this Agreement shall be delivered in accordance with the
terms of paragraph 8 below.
J. Miscellaneous. Assist generally in the preparation of routine
reports to holders of shares of the Fund, to the Commission, including form
N-SAR, to state "Blue Sky" authorities, to others in the auditing of accounts
and in other matters of like nature, as required to comply with the
representations of Parts I and II insofar as such representations relate to the
preparation of reports for the Fund and as otherwise reasonably requested by the
Fund.
K. Fund Accounting and Net Asset Value Computation. State Street shall
maintain the general ledger and all other books of account of the Fund,
including the accounting of each Portfolio of the Fund. In addition, upon
receipt of Proper Instructions, which may be deemed to be continuing
instructions, State Street shall daily compute the net asset value of the shares
of each Portfolio of the Fund and the total net asset value of each Portfolio of
the Fund. State Street shall, in addition, perform such other services
incidental to its duties hereunder as may be reasonably requested from time to
time by the Fund.
L. Services under Part I and Part II. In addition to the services
specified herein, State Street shall perform those services set forth in Parts I
and II, including without limitation general ledger accounting, daily portfolio
pricing of each Portfolio of the Fund and custodian services to the extent such
services relate to each Portfolio of the Fund; provided, however, that in the
event that Parts I and II as they relate to each Portfolio of the Fund are in
conflict with the terms of this Agreement, the terms of this Agreement shall
govern.
5. State Street and the Fund further agree as follows:
A. Proper Instructions. State Street shall be deemed to have received
Proper Instructions upon receipt of written instructions signed by the Fund's
Trustees or by one or more person or persons as the Fund's Board of Trustees
shall have from time to time authorized to give the particular class of
instructions for different purposes. Different persons may be authorized to give
instructions for different purposes. A copy of a resolution or action of the
Trustees certified by the secretary or an assistant secretary of the Fund may be
received and accepted by State Street as conclusive evidence of the instruction
of the Fund's Board of Trustees and/or the authority of any person or persons to
act on behalf of the Fund and may be considered as in full force and effect
until receipt of written notice to the contrary. Such instruction may be general
or specific in terms. Oral instructions will be considered Proper Instructions
if State Street reasonably believes them to have been given by a person
authorized by the Board of Trustees to give such oral instructions with respect
to the class of instruction involved. The Fund shall cause all oral instructions
to be confirmed in writing. Proper instructions may include communications
effected directly between electro-mechanical or electronic devices provided that
the Fund and State Street are satisfied that such procedures afford adequate
safeguards for the assets of each Portfolio. Use by the Fund of such
communication systems shall constitute approval by the Fund of the safeguards
available therewith.
B. Investments, Limitations. In performing its duties generally, and
more particularly in connection with the purchase, sale and exchange of
securities made by or for each Portfolio of the Fund, State Street may take
cognizance of the provisions of the Declaration of Trust of the Fund, as
amended; provided, however, that except as otherwise expressly provided herein,
State Street may assume unless and until notified in writing to the contrary
that instructions purporting to be Proper Instructions received by it are not in
conflict with or in any way contrary to any provision of the Declaration of
Trust of the Fund, as amended, or resolutions or proceedings of the Board of
Trustees of the Fund.
6. State Street and the Fund further agree as follows:
A. Indemnification. State Street, as Depository and Custodian, shall be
entitled to receive and act upon advice of counsel (who may be counsel for the
Fund) and shall be without liability for any action reasonably taken or thing
reasonably done pursuant to such advice; provided that such action is not in
violation of applicable federal or state laws or regulations or contrary to
written instructions received from the Fund, and shall be indemnified by the
Fund and without liability for any action taken or thing done by it in carrying
out the terms and provisions of this Agreement in good faith and without
negligence, misfeasance or misconduct. In order that the indemnification
provision contained in this paragraph shall apply, however, if the Fund is asked
to indemnify or save State Street harmless, the Fund shall be fully and promptly
advised of all pertinent facts concerning the situation in question, and State
Street shall use all reasonable care to identify and notify the Fund fully and
promptly concerning any situation which presents or appears likely to present
the probability of such a claim for indemnification against the Fund. The Fund
shall have the option to defend State Street against any claim which may be the
subject of this indemnification and in the event that the Fund so elects it will
so notify State Street, and thereupon the Fund shall take over complete defense
of the claim, and State Street shall initiate no further legal or other expenses
for which it shall seek indemnification under this paragraph. State Street shall
in no case confess any claim or make any compromise in any case in which the
Fund will be asked to indemnify State Street except with the Fund's prior
written consent.
B. Expenses Reimbursement. State Street shall be entitled to receive
from each Portfolio of the Fund on demand reimbursement for its cash
disbursements, expenses and charges, excluding salaries and usual overhead
expenses with respect to such Portfolio, as set forth in Schedule A.
C. Appointment of Agents and Subcustodians. State Street, as Custodian,
may appoint (and may remove), only in compliance with the terms and conditions
of the Fund's Declaration of Trust and By-Laws, as amended, any other bank,
trust company or responsible commercial agent as its agent or Sub-Custodian to
carry out such of the provisions of this Agreement as State Street may from time
to time direct; provided, however, that the appointment of any such agent or
Sub-Custodian shall not relieve State Street of any of its responsibilities
under this Agreement.
D. Reliance on Documents. So long as and to the extent that it is in
good faith and in the exercise of reasonable care, State Street, as Depository
and Custodian, shall not be responsible for the title, validity or genuineness
of any property or evidence of title thereto received by it or delivered by it
pursuant to this Agreement, shall be protected in acting upon any instructions,
notice, request, consent, certificate or other instrument or paper reasonably
believed by it to be genuine and to constitute Proper Instructions under this
Agreement and shall, except as otherwise specifically provided in this
Agreement, be entitled to receive as conclusive proof of any fact or matter
required to be ascertained by it hereunder a certificate signed by the Fund's
Trustees, the secretary or an assistant secretary of the Fund or any other
person expressly authorized by the Board of Trustees of the Fund.
E. Access to Records. Subject to security requirements of State Street
applicable to its own employees having access to similar records within State
Street and such regulations as to the conduct of such monitors as may be
reasonably imposed by State Street after prior consultation with an authorized
officer of the Fund, books and records of State Street pertaining to its actions
under this Agreement shall be open to inspection and audit at reasonable times
by the Trustees of, attorneys for, auditors employed by the Fund or any other
person as the Fund's Board of Trustees shall direct.
F. Record-Keeping. State Street shall maintain such records as shall
enable the Fund to comply with the requirements of all federal and state laws
and regulations applicable to the Fund and its Portfolios with respect to the
matters covered by this Agreement and shall comply with the representations of
Parts I and II as such representations relate to maintaining records of the
Fund.
6. Lien on Assets. If a Portfolio requires State Street to advance cash
or securities for any purpose or in the event that State Street or its nominee
shall incur or be assessed any taxes, charges, expenses, assessments, claims or
liabilities in connection with the performance of this Agreement, except such as
may arise from its or its nominee's own negligent action, negligent failure to
act or willful misconduct, any property at any time held for the account of such
Portfolio shall be security therefor and should such Portfolio fail to repay
State Street promptly, State Street shall be entitled to utilize available cash
and to dispose of such Portfolios assets to the extent necessary to obtain
reimbursement; provided, however, that the total value of any property of such
Portfolio which at any time is security for any payment by State Street
hereunder shall not exceed 15% of such Portfolio's total net asset value.
7. The Fund shall pay State Street for its services as Custodian such
compensation as shall be specified in the attached Exhibit A. Such compensation
shall remain fixed until December 31, 1992, unless this Agreement is terminated
as provided in Section 8A.
8. State Street and the Fund further agree as follows:
A. Effective Period, Termination, Amendment and Interpretive and
Additional Provisions. This Agreement shall become effective as of the date of
its execution, shall continue in full force and effect until terminated as
hereinafter provided, may be amended at any time by mutual agreement of the
parties hereto and may be terminated by either party by an instrument in writing
delivered or mailed, postage prepaid, to the other party, such termination to
take effect sixty (60) days after the date of such delivery or mailing; and
further provided, that the Fund may by action of the Fund's Board of Trustees
substitute another bank or trust company for State Street by giving notice as
provided above to State Street, provided, however that State Street shall not
act under Sections 3(B) or 3(BB) hereof in the absence of receipt of an initial
certificate of the secretary or an assistant secretary that the Board of
Trustees of the Fund has approved the initial use of a particular Securities
System and the receipt of an annual certificate of the secretary or an assistant
secretary that the Board of Trustees has reviewed the use by the Fund of such
Securities System, as required in each case by Rule 17f-4 under the 1940 Act and
that State Street shall not act under Section B.1 hereof in the absence of
receipt of an initial certificate of the secretary or an assistant secretary
that the Board of Trustees has approved the initial use of the Direct Paper
System and the receipt of an annual certificate of the secretary or an assistant
secretary that the Board of Trustees has reviewed the use by the Fund of the
Direct Paper System. The Fund or State Street shall not amend or terminate this
Agreement in contravention of any applicable federal or state laws or
regulations, or any provision of the Declaration of Trust of the Fund, as
amended; provided, however, that in the event of such termination State Street
shall remain as Custodian hereunder for a reasonable period thereafter if the
Fund after using its best efforts is unable to find a Successor Custodian.
In connection with the operation of this Agreement, State Street and
the Fund may agree from time to time on such provisions interpretive of or in
addition to the provisions of this Agreement as may in their joint opinion be
consistent with the general tenor of this Agreement, any such interpretive or
additional provision to be signed by both parties and annexed hereto, provided
that no such interpretive or additional provisions shall contravene any
applicable federal or state laws or regulations, or any provision of the Fund's
Declaration of Trust and By-Laws, as amended. No interpretive provisions made as
provided in the preceding sentence shall be deemed to be an amendment of this
Agreement.
B. Successor Custodian. Upon termination hereof or the inability of
State Street to continue to serve hereunder, the Fund shall pay to State Street
such compensation as may be due for services through the date of such
termination and shall likewise reimburse State Street for its costs, expenses
and disbursements incurred prior to such termination in accordance with
paragraph 6(B) of Section II hereof and such reasonable costs, expenses and
disbursements as may be incurred by State Street in connection with such
termination.
If a Successor Custodian is appointed by the Board of Trustees of the Fund
in accordance with the Fund's Declaration of Trust, as amended, State Street
shall, upon termination, deliver to such Successor Custodian at the office of
State Street, properly endorsed and in proper form for transfer, all securities
then held hereunder, all cash and other assets of the Fund deposited with or
held by it hereunder.
If no such Successor Custodian is appointed, State Street shall, in like
manner at its office, upon receipt of a certified copy of a resolution of the
shareholders pursuant to the Fund's Declaration of Trust and By-Laws, as
amended, deliver such securities, cash and other properties in accordance with
such resolutions.
In the event that no written order designating a Successor Custodian or
certified copy of a resolution of the stockholders shall have been delivered to
State Street on or before the date when such termination shall become effective,
then State Street shall have the right to deliver to a bank or trust company
doing business in Boston, Massachusetts of its own selection, having an
aggregate capital, surplus and undivided profits, as shown by its last published
report, of not less than $5,000,000, all securities, cash and other properties
held by State Street and all instruments held by it relative thereto and all
other property held by it under this Agreement. Thereafter, such bank or trust
company shall be the Successor of State Street under this Agreement and subject
to the restrictions, limitations and other requirements of the Fund's
Declaration of Trust and By-Laws, both as amended.
In the event that securities, funds, and other properties remain in the
possession of State Street after the date of termination hereof owing to failure
of the Fund to procure the certified copy above referred to, or of the Fund's
Board of Trustees to appoint a Successor Custodian, State Street shall be
entitled to fair compensation for its services during such period and the
provisions of this Agreement relating to the duties and obligations of State
Street shall remain in full force and effect.
C. Duplicate Records and Backup Facilities. State Street shall not be
liable for loss of data, occurring by reason of circumstances beyond its
control, including but not limited to acts of civil or military authority,
national emergencies, fire, flood or catastrophe, acts of God, insurrection,
war, riots, or failure of transportation, communication or power supply.
However, State Street shall keep in a separate and safe place additional copies
of all records required to be maintained pursuant to this Agreement or
additional tapes, disks or other sources of information necessary to reproduce
all such records. Furthermore, at all times during this Agreement, State Street
shall maintain a contractual arrangement whereby State Street will have a
back-up computer facility available for its use in providing the services
required hereunder in the event circumstances beyond State Street's control
result in State Street not being able to process the necessary work at its
principal computer facility, State Street shall, from time to time, upon request
from the Fund provide written evidence and details of its arrangement for
obtaining the use of such a back-up computer facility. State Street shall use
its best efforts to minimize the likelihood of all damage, loss of data, delays
and errors resulting from an uncontrollable event, and should such damage, loss
of data, delays or errors occur, State Street shall use its best efforts to
mitigate the effects of such occurrence. Representatives of the Fund shall be
entitled to inspect the State Street premises and operating capabilities within
reasonable business hours upon reasonable notice to State Street, and, upon
request of such representative or representatives, State Street shall from time
to time as appropriate, furnish to the Fund a letter setting forth the insurance
coverage thereon, any changes in such coverage which may occur and any claim
relating to the Fund which State Street may have made under such insurance.
D. Confidentiality. State Street agrees to treat all records and other
information relative to the Fund and its Portfolios confidentially and State
Street on behalf of itself and its officers, employees and agents agrees to keep
confidential all such information, except after prior notification to and
approval by the Fund (which approval shall not be unreasonably withheld and may
not be withheld where State Street may be exposed to civil or criminal contempt
proceedings), when requested to divulge such information by duly constituted
authorities or when so requested by a properly authorized person.
State Street and the Fund agree that they, their officers, employees and
agents shall maintain all information disclosed to them by the other in
connection with this Agreement in confidence and will not disclose any such
information to any other person, nor use such information for their own benefit
or for the benefit of third parties without the consent in writing of the other;
provided, however, that each party shall have the right to use any such
information for its own necessary internal purposes while this Agreement is in
effect. The provisions of the paragraph shall not apply to information which (i)
is in or becomes part of the public domain, or (ii) is demonstrably known
previously to the party to whom it is disclosed, or (iii) is independently
developed outside this Agreement by the party to whom it is disclosed or (iv) is
rightfully obtained from third parties by the party to whom it is disclosed.
9. The Fund shall not circulate any printed matter which contains any
reference to State Street without the prior written approval of State Street,
excepting solely such printed matter as merely identifies State Street as
Depository or Custodian. The Fund will submit printed matter requiring approval
to State Street in draft form, allowing sufficient time for review by State
Street and its counsel prior to any deadline for printing.
10. In the event of a reorganization of one of the Fund's Portfolios through
a merger, consolidation, sale of assets or other reorganization, State Street,
at the request of the Fund, shall act as Custodian for shares of any investment
company or other company obtained in any such reorganization by the Portfolio
for distribution to those Portfolio shareholders whose shares are represented by
certificates. The Fund shall give notice to each such shareholder of his or her
right to exchange his or her Portfolio shares represented by certificates for
shares held by State Street upon surrender to State Street of his or her
certificates representing such Portfolio shares properly endorsed and in proper
form for transfer. Upon the surrender of such Portfolio certificates State
Street will issue a certificate or certificates to the surrendering shareholder
for an approximate number of shares held by State Street, unless such
shareholder establishes an Open Account Plan or other similar account at that
time in which case such shares will be credited to his or her account. State
Street shall not be required to issue certificates for any fractional shares
held by it. Instead, fractional interests in such shares shall be distributed to
the shareholder in cash at their then current market value or, if the fractional
share represents an interest in an investment company, it shall be redeemed by
State Street at the then current redemption price for such shares and the
proceeds of such redemption shall be distributed to such shareholder in cash.
State Street shall not release to any shareholder any such shares held by it
until such shareholder has properly surrendered for exchange his or her
Portfolio shares represented by certificates.
11. In the event that the Fund establishes one or more series of Shares
in addition to Keystone America Pennsylvania Tax Free Fund and the Keystone
America Florida Tax Free Fund, with respect to which it desires to have the
Custodian render services as custodian under the terms hereof, it shall so
notify the Custodian in writing, and if the Custodian agrees in writing to
provide such services, such series of Shares shall become a Portfolio hereunder.
12. This Agreement is executed and delivered in The Commonwealth of
Massachusetts and shall be subject to and be construed in accordance with the
laws of said Commonwealth.
13. Notices and other writings delivered or mailed postage prepaid to
Keystone America State Tax Free Fund, c/o Keystone Custodian Funds, Inc., 99
High Street, 32nd Floor, Boston, Massachusetts 02110 or to State Street at 225
Franklin Street, Boston, Massachusetts 02110 or to such other address as the
Fund or State Street may hereafter specify, shall be deemed to have been
properly delivered or given hereunder to the respective address.
14. This Agreement shall be binding upon and shall inure to the benefit of
the Fund and its Portfolios and State Street and their respective successors or
assigns.
15. This Agreement may be executed simultaneously in two or more
counterparts, each of which shall be deemed an original.
16. This Agreement is made on behalf of the Fund and its Portfolios by
an officer or Trustee of the Fund, not individually but solely as an officer or
Trustee under the Fund's Declaration of Trust, and the obligations under this
Agreement are not binding upon, nor shall resort be had to the property of any
of the Trustees, shareholders, officers, employees or agents of the Fund
personally, but are binding only on the property of the Fund and its Portfolios.
IN WITNESS WHEREOF, each of the parties hereto has caused this Agreement to
be executed in its name and on its behalf by a duly authorized officer as of the
day and year first above written.
ATTEST: KEYSTONE AMERICA STATE TAX FREE FUND
/s/ Rosemary D. Van Antwerp By: /s/ Albert H. Elfner III
- --------------------------- ------------------------
President
ATTEST: STATE STREET BANK AND TRUST
COMPANY
/s/ illegible By: /s/ illegible
- --------------------------- ------------------------
Vice President
<PAGE>
SCHEDULE A
State Street BANK AND TRUST COMPANY
Custodian Fee Schedule
KEYSTONE
I. Administration
Custodian, Portfolio and Fund Accounting Service - Maintain custody of fund
assets. Settle portfolio purchases and sales. Report buy and sell fails.
Determine and collect portfolio income. Make cash disbursements and report
cash transactions. Maintain investment ledgers, provide selected portfolio
transactions, position and income reports. Maintain general ledger and capital
stock accounts. Prepare daily trial balance. Calculate net asset value daily.
Provide from Fund approved pricing sources or vendors daily pricing for Fund
portfolio securities. Provide selected general ledger reports. Securities yield
or market value quotations for short term Fund portfolio securities will be
provided to State Street from a source designated by the Fund.
The administration fee shown below is an annual charge, billed and payable
monthly, based on average net assets and calculated in the same manner as the
Fund advisory and management fee.
ANNUAL FEES PER PORTFOLIO
Fund Net Assets Annual Fee
First $35 million 1/30 of 1%
Next $25 million 1/25 of 1%
Next $40 million 1/28 of 1%
Next $250 million 2/100 of 1%
Excess 1/100 of 1%
Global Custody Fee Annual Fee
Non-domestic 1/8 of 1% (.125%)
Net Assets
II. Portfolio Trades - For each line item processed
a. Depository Trust Company and Federal Reserve $10.00
Book - Entry System
b. PTC Settlements $20.00
c. New York Physical Settlements
Receive $24.00
Deliver $24.00
Transfer $ 6.00
Maturity $ 8.00
d. International Settlements $24.00
e. Options and All Other Trades $24.00
III. Holdings & Appraisal Charge
For each issue maintained -
monthly charge $ 5.00
Paydown on government securities -
monthly charge $ 5.00
Dividend charges (for items held at
the request of traders over record
date in street form) $50.00
IV. Out of Pocket Expense
A billing for the recovery of applicable out-of-pocket expenses will be
made as of the end of each month. Out-of-pocket expenses include, but
are not limited to the following:
Telephone
Wire charges ($5.25 per wire in and $5.00 out) Postage and insurance
Courier service Duplicating Legal fees Supplies related to Fund records
Rush transfer - $8.00 Transfer fees Sub-custodian charges Telex charges
Price Waterhouse audit letter Checkwriting ($.50 per check) Federal
Reserve Fee for
returned check items over $2,500 - $4.25
GNMA transfer - $15.00 each
V. Additional Accounting and Reporting Functions
$150.00 per month
<PAGE>
SCHEDULE B
I. Operating Plan - Fund Custodian Services
1. Page 1
a) Trade instructions by tape input compatible with the
SPARK system will not be given.
b) System 34 terminals will not be provided for trade
input.
2. Page 2
a) Distributions will be charged against the custodian
account and credited to the disbursement account on
the payable date.
b) Reports - improved or new SPARK Reports will be made
available to the Fund at its request for no
additional cost, if made available at no additional
cost to other customers of State Street.
II. Fund Custodian Services
A. Page 1
1) The Fund will receive Custody and Full Accounting
Services.
B. Page 2
1) Polaris Fund Inc. is now Keystone International Fund
Inc.
III. Custodian Reports
A. Page 1
2) Analytics - SPARK information reports - the Funds
will receive none of these.
IV. KM - SSB Reports Comparison
A. Page 1 - MassCo Report
1) (9) Different form with similar content to be
prepared for Keystone Tax Free Fund (and Keystone Tax
Exempt Trust) rather than Master Reserves Trust
(MRT).
2) (12) To be prepared for all Funds.
3) (13) Trade Settlement Authorizations and all other
reports as provided to the Keystone Funds will be
provided MassCo Funds.
4) (26) Initial instructions in memo from Mr. Joseph
Naples. Instructions may be changed from time to
time by Proper Instructions.
5) (30) Letter to be supplied by Mellon Bank, N.A.
6) (31) Report to be supplied by Mellon Bank, N.A.
B. Keystone Reports
1) (3) Information to be supplied by Open Order System.
2) (16) Will be prepared manually by State Street.
Calculations to be based on initial instructions
provided under (4) (26) memo.
3) (18) To be prepared by State Street.
4) (30) New SPARK Report to be provided the Funds.
5) (31) Pricing Quotes for foreign issues, restricted
securities and private placements not otherwise
available to State Street to be supplied by the Fund.
6) (46) KIMCO Reports unnecessary.
7) (58) State Street to prepare manually.
8) (57) Keystone to provide.
9) (70) New SPARK Report to be provided the Funds.
10) (73) SPARK Report to be provided the Funds.
11) (74) New SPARK Report and hard copy tape to be
provided the Funds.
12) (75) State Street to provide weekly report of fails
for each Fund.
13) All new SPARK reports must be reviewed and accepted
by the Funds before they will be considered to comply
with State Street's Custodian, Fund Accounting and
Recordkeeping Agreements with the Funds, such
acceptance not to be unreasonably withheld.
VI. Responses
I. Fund Custodian Services
a) Page 2
Checkwriting privilege is $.35 per check - charged only for
Keystone Liquid Trust at this time. Other Fund agreements to
be amended to include this charge if such privilege is ever
offered to shareholders of other Funds.
b) Page 3 (6) Individuals responsible for Fund services
may change as long as the quality of the personnel
is maintained.
c) Page 6 (11) State Street is liable for the acts of
its sub-custodians to the same extent that it is
liable for the acts of its agents.
II. Exhibits
1. Exhibit 1-2
a) (6) Notices of corporate actions shall include,
without limitation, notices of class actions and
bankruptcy actions in connection with issues held by
the Funds.
<PAGE>
Exhibit 99.10
May 31, 1996
Keystone Florida Tax Free Fund
200 Berkeley Street
Boston, Massachusetts 02116-5034
Gentlemen:
I am a Senior Vice President of and General Counsel to Keystone
Investment Management Company (formerly named Keystone Custodian Funds, Inc.),
the investment adviser to Keystone Florida Tax Free Fund (the "Fund"). You
have asked for my opinion with respect to the proposed issuance of 699,269
additional shares of the Fund.
To my knowledge, a Prospectus is being filed with the Securities and
Exchange Commission (the "Commission") as part of this Post-Effective Amendment
No. 11 to the Fund's Registration Statement, which will cover the public
offering and sale of the Fund shares currently registered with the Commission.
In my opinion, such additional shares, if issued and sold in accordance
with the Fund's Declaration of Trust, as amended, and offering Prospectus, will
be legally issued, fully paid, and nonassessable by the Fund, entitling the
holders thereof to the rights set forth in the Declaration of Trust and subject
to the limitations set forth therein.
My opinion is based upon my examination of the Fund's Declaration of
Trust, as amended, and By-Laws; a review of the minutes of the Fund's Board of
Trustees authorizing the issuance of such additional shares; and the Fund's
Prospectus. In my examination of such documents, I have assumed the genuineness
of all signatures and the conformity of copies to originals.
I hereby consent to the use of this opinion in connection with
Post-Effective Amendment No. 11 to the Fund's Registration Statement, which
covers the registration of such additional shares.
Very truly yours,
/s/ Rosemary D. Van Antwerp
Rosemary D. Van Antwerp
Senior Vice President and
General Counsel
10160780
<PAGE>
Exhibit 99.11
CONSENT OF INDEPENDENT AUDITORS
The Trustees and Shareholders
Keystone State Tax Free Fund
We consent to the use of our report dated April 26, 1996 included
herein and to the reference to our firm under the caption "ADDITIONAL
INFORMATION" in the statement of additional information.
/s/ KPMG Peat Marwick LLP
KPMG PEAT MARWICK LLP
Boston, Massachusetts
May 31, 1996
<PAGE>
EXHIBIT 99.15
KEYSTONE AMERICA FLORIDA TAX FREE FUND
CLASS A DISTRIBUTION PLAN
Section 1. Keystone America Florida Tax Free Fund ("Fund"), a portfolio
of Keystone America State Tax Free Fund, may act as the distributor of
securities of which it is the issuer, pursuant to Rule 12b-1 under the
Investment Company Act of 1940 ("Act") according to the terms of this
Distribution Plan ("Plan").
Section 2. Amounts not exceeding in the aggregate a maximum amount
equal to 0.25% of the average of the daily aggregate net asset value of Class A
shares of the Fund during each fiscal year of the Fund elapsed after the
inception of the Plan may be paid by the Fund to the Principal Underwriter at
any time after the inception of the Plan in order to pay to the Principal
Underwriter for efforts expended in respect of or in furtherance of sales of
Class A shares of the Fund and to enable to Principal Underwriter to pay or to
have paid to others who sell or have sold Class A shares, a maintenance or other
fee, at such intervals as the Principal Underwriter may determine, in respect of
Class A shares previously sold by any such others at any time and remaining
outstanding during the period in respect of which such fee is or has been paid.
Section 3. This Plan shall not take effect until it has been approved
by a vote of at least a majority (as defined in the Act) of the outstanding
Class A shares of the Fund.
Section 4. This Plan shall not take effect until it has been approved
together with any related agreements of the Fund by votes of a majority of both
(a) the Trustees of the Fund and (b) those Trustees who are not "interested
persons" of the Fund as defined in the 1940 Act and who have no direct or
indirect financial interest in the operation of this Plan or any agreements of
the Fund or any other person related to this Plan (the "Rule 12b-1 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 8, this Plan
shall continue in effect for a period of one year from the date it takes effect
and thereafter shall continue in effect so long as such continuance is
specifically approved at least annually in the manner provided for approval of
this Plan in Section 4.
Section 6. Any person authorized to direct the disposition of monies
paid or payable by the Fund pursuant to this Plan or any related agreement shall
provide to the Fund's Board and the Board shall review at least quarterly a
written report of the amounts so expended and the purposes for which such
expenditures were made.
Section 7. This Plan may be terminated at any time by vote of a
majority of the Rule 12b-1 Directors, or by vote of a majority of the Fund's
outstanding Class A shares.
Section 8. Any agreement of the Fund related to this Plan shall be in
writing, and shall provide:
A. That such agreement may be terminated at any time, without
payment of any penalty, by vote of a majority of the Rule 12b-1
Directors or by a vote of majority of the Fund's outstanding Class A
shares on not more than sixty days written notice to any other party to
the agreement; and
B. That such agreement shall terminate automatically in the
event of its assignment.
Section 9. This Plan may not be amended to increase materially the
amount of distribution expenses provided for in Section 2 hereof unless such
amendment is approved in the manner provided in Section 3 hereof and no material
amendment to the Plan shall be made unless approved in the manner provided for
in Section 4 hereof.
<PAGE>
KEYSTONE AMERICA MASSACHUSETTS TAX FREE FUND
CLASS A DISTRIBUTION PLAN
Section 1. Keystone America Massachusetts Tax Free Fund ("Fund"), a
portfolio of Keystone America State Tax Free Fund, may act as the distributor of
securities of which it is the issuer, pursuant to Rule 12b-1 under the
Investment Company Act of 1940 ("Act") according to the terms of this
Distribution Plan ("Plan").
Section 2. Amounts not exceeding in the aggregate a maximum amount
equal to 0.25% of the average of the daily aggregate net asset value of Class A
shares of the Fund during each fiscal year of the Fund elapsed after the
inception of the Plan may be paid by the Fund to the Principal Underwriter at
any time after the inception of the Plan in order to pay to the Principal
Underwriter for efforts expended in respect of or in furtherance of sales of
Class A shares of the Fund and to enable to Principal Underwriter to pay or to
have paid to others who sell or have sold Class A shares, a maintenance or other
fee, at such intervals as the Principal Underwriter may determine, in respect of
Class A shares previously sold by any such others at any time and remaining
outstanding during the period in respect of which such fee is or has been paid.
Section 3. This Plan shall not take effect until it has been approved
by a vote of at least a majority (as defined in the Act) of the outstanding
Class A shares of the Fund.
Section 4. This Plan shall not take effect until it has been approved
together with any related agreements of the Fund by votes of a majority of both
(a) the Trustees of the Fund and (b) those Trustees who are not "interested
persons" of the Fund as defined in the 1940 Act and who have no direct or
indirect financial interest in the operation of this Plan or any agreements of
the Fund or any other person related to this Plan (the "Rule 12b-1 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 8, this Plan
shall continue in effect for a period of one year from the date it takes effect
and thereafter shall continue in effect so long as such continuance is
specifically approved at least annually in the manner provided for approval of
this Plan in Section 4.
Section 6. Any person authorized to direct the disposition of monies
paid or payable by the Fund pursuant to this Plan or any related agreement shall
provide to the Fund's Board and the Board shall review at least quarterly a
written report of the amounts so expended and the purposes for which such
expenditures were made.
Section 7. This Plan may be terminated at any time by vote of a
majority of the Rule 12b-1 Directors, or by vote of a majority of the Fund's
outstanding Class A shares.
Section 8. Any agreement of the Fund related to this Plan shall be in
writing, and shall provide:
A. That such agreement may be terminated at any time, without
payment of any penalty, by vote of a majority of the Rule 12b-1
Directors or by a vote of majority of the Fund's outstanding Class A
shares on not more than sixty days written notice to any other party to
the agreement; and
B. That such agreement shall terminate automatically in the
event of its assignment.
Section 9. This Plan may not be amended to increase materially the
amount of distribution expenses provided for in Section 2 hereof unless such
amendment is approved in the manner provided in Section 3 hereof and no material
amendment to the Plan shall be made unless approved in the manner provided for
in Section 4 hereof.
<PAGE>
KEYSTONE AMERICA NEW YORK TAX FREE FUND
CLASS A DISTRIBUTION PLAN
Section 1. Keystone America New York Tax Free Fund ("Fund"), a
portfolio of Keystone America State Tax Free Fund, may act as the distributor of
securities of which it is the issuer, pursuant to Rule 12b-1 under the
Investment Company Act of 1940 ("Act") according to the terms of this
Distribution Plan ("Plan").
Section 2. Amounts not exceeding in the aggregate a maximum amount
equal to 0.25% of the average of the daily aggregate net asset value of Class A
shares of the Fund during each fiscal year of the Fund elapsed after the
inception of the Plan may be paid by the Fund to the Principal Underwriter at
any time after the inception of the Plan in order to pay to the Principal
Underwriter for efforts expended in respect of or in furtherance of sales of
Class A shares of the Fund and to enable to Principal Underwriter to pay or to
have paid to others who sell or have sold Class A shares, a maintenance or other
fee, at such intervals as the Principal Underwriter may determine, in respect of
Class A shares previously sold by any such others at any time and remaining
outstanding during the period in respect of which such fee is or has been paid.
Section 3. This Plan shall not take effect until it has been approved
by a vote of at least a majority (as defined in the Act) of the outstanding
Class A shares of the Fund.
Section 4. This Plan shall not take effect until it has been approved
together with any related agreements of the Fund by votes of a majority of both
(a) the Trustees of the Fund and (b) those Trustees who are not "interested
persons" of the Fund as defined in the 1940 Act and who have no direct or
indirect financial interest in the operation of this Plan or any agreements of
the Fund or any other person related to this Plan (the "Rule 12b-1 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 8, this Plan
shall continue in effect for a period of one year from the date it takes effect
and thereafter shall continue in effect so long as such continuance is
specifically approved at least annually in the manner provided for approval of
this Plan in Section 4.
Section 6. Any person authorized to direct the disposition of monies
paid or payable by the Fund pursuant to this Plan or any related agreement shall
provide to the Fund's Board and the Board shall review at least quarterly a
written report of the amounts so expended and the purposes for which such
expenditures were made.
Section 7. This Plan may be terminated at any time by vote of a
majority of the Rule 12b-1 Directors, or by vote of a majority of the Fund's
outstanding Class A shares.
Section 8. Any agreement of the Fund related to this Plan shall be in
writing, and shall provide:
A. That such agreement may be terminated at any time, without
payment of any penalty, by vote of a majority of the Rule 12b-1
Directors or by a vote of majority of the Fund's outstanding Class A
shares on not more than sixty days written notice to any other party to
the agreement; and
B. That such agreement shall terminate automatically in the
event of its assignment.
Section 9. This Plan may not be amended to increase materially the
amount of distribution expenses provided for in Section 2 hereof unless such
amendment is approved in the manner provided in Section 3 hereof and no material
amendment to the Plan shall be made unless approved in the manner provided for
in Section 4 hereof.
<PAGE>
KEYSTONE AMERICA PENNSYLVANIA TAX FREE FUND
CLASS A DISTRIBUTION PLAN
Section 1. Keystone America Pennsylvania Tax Free Fund ("Fund"), a
portfolio of Keystone America State Tax Free Fund, may act as the distributor of
securities of which it is the issuer, pursuant to Rule 12b-1 under the
Investment Company Act of 1940 ("Act") according to the terms of this
Distribution Plan ("Plan").
Section 2. Amounts not exceeding in the aggregate a maximum amount
equal to 0.25% of the average of the daily aggregate net asset value of Class A
shares of the Fund during each fiscal year of the Fund elapsed after the
inception of the Plan may be paid by the Fund to the Principal Underwriter at
any time after the inception of the Plan in order to pay to the Principal
Underwriter for efforts expended in respect of or in furtherance of sales of
Class A shares of the Fund and to enable to Principal Underwriter to pay or to
have paid to others who sell or have sold Class A shares, a maintenance or other
fee, at such intervals as the Principal Underwriter may determine, in respect of
Class A shares previously sold by any such others at any time and remaining
outstanding during the period in respect of which such fee is or has been paid.
Section 3. This Plan shall not take effect until it has been approved
by a vote of at least a majority (as defined in the Act) of the outstanding
Class A shares of the Fund.
Section 4. This Plan shall not take effect until it has been approved
together with any related agreements of the Fund by votes of a majority of both
(a) the Trustees of the Fund and (b) those Trustees who are not "interested
persons" of the Fund as defined in the 1940 Act and who have no direct or
indirect financial interest in the operation of this Plan or any agreements of
the Fund or any other person related to this Plan (the "Rule 12b-1 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 8, this Plan
shall continue in effect for a period of one year from the date it takes effect
and thereafter shall continue in effect so long as such continuance is
specifically approved at least annually in the manner provided for approval of
this Plan in Section 4.
Section 6. Any person authorized to direct the disposition of monies
paid or payable by the Fund pursuant to this Plan or any related agreement shall
provide to the Fund's Board and the Board shall review at least quarterly a
written report of the amounts so expended and the purposes for which such
expenditures were made.
Section 7. This Plan may be terminated at any time by vote of a
majority of the Rule 12b-1 Directors, or by vote of a majority of the Fund's
outstanding Class A shares.
Section 8. Any agreement of the Fund related to this Plan shall be in
writing, and shall provide:
A. That such agreement may be terminated at any time, without
payment of any penalty, by vote of a majority of the Rule 12b-1
Directors or by a vote of majority of the Fund's outstanding Class A
shares on not more than sixty days written notice to any other party to
the agreement; and
B. That such agreement shall terminate automatically in the
event of its assignment.
Section 9. This Plan may not be amended to increase materially the
amount of distribution expenses provided for in Section 2 hereof unless such
amendment is approved in the manner provided in Section 3 hereof and no material
amendment to the Plan shall be made unless approved in the manner provided for
in Section 4 hereof.
<PAGE>
DISTRIBUTION PLAN
FOR
CLASS B-1 SHARES
OF
KEYSTONE FLORIDA TAX FREE FUND,
A SERIES OF KEYSTONE STATE TAX FREE FUND
Section 1. Keystone State Tax Free Fund, individually and/or on behalf
of its series, if any, referred to above in the title of this 12b-1 Plan (the
"Plan"), to which series this Plan shall then relate, as applicable (the
"Fund"), may act as the distributor of certain securities of which it is the
issuer pursuant to Rule 12b-1 under the Investment Company Act of 1940 (the
"1940 Act") according to the terms of this Distribution Plan.
Section 2. The Fund may expend daily amounts at an annual rate of up to
1.00% of the average daily net asset value of the Fund attributable to the
Fund's Class B-1 shares (the "Shares"). Such amounts may be expended to finance
any activity that is principally intended to result in the sale of Shares,
including, without limitation, expenditures consisting of payments to a
principal underwriter of the Fund or others as sales commissions or other
compensation for services provided or to be provided ("Distribution Fees") or as
reimbursement for expenses that are incurred or accrued at any time during which
this Plan is in effect, together with interest on any such amounts, at rates
approved by the Rule 12b-1 Directors (as defined below) in the manner referred
to below, all whether or not this Plan has been otherwise terminated, if such
payment of such expenditures is for services theretofore provided or for
reimbursement of expenses theretofore incurred or accrued prior to termination
of this Plan in other respects and if such payment is or has been so approved by
such Rule 12b-1 Directors, or agreed to by the Fund with such approval, all
subject to such specific implementation as such 12b-1 Directors may approve;
provided that, at the time any such payment is made, whether or not this Plan
has been otherwise terminated, the making of such payment will not cause the
limitation upon such payments set forth in the preceding sentence to be
exceeded. Without limiting the generality of the foregoing, the Fund may pay to,
or on the order of, any person who has served from time to time as principal
underwriter (a "Principal Underwriter") amounts for distribution services
pursuant to a principal underwriting agreement or otherwise. No principal
underwriting agreement or other agreement shall be an agreement related to this
Plan, as referred to in Rule 12b-1 of the Securities and Exchange Commission,
unless it specifically states that it is such a related agreement. Any such
principal underwriting agreement may, but need not, provide that such Principal
Underwriter may be paid for distribution services to Class B-1 Shares
and/or other specified classes of shares of the Fund (together the
"B-Class-of-Shares"), a fee which may be designated a Distribution Fee and may
be paid at a rate per annum up to .75% of the average daily net asset value of
such B-Class-of-Shares of the Fund and may, but need not, also provide: (I) that
a Principal Underwriter will be deemed to have fully earned its "Allocable
Portion" of the Distribution Fee upon the sale of the Commission Shares (as
defined in the Allocation Schedule) taken into account in determining its
Allocable Portion; (II) that the Fund's obligation to pay such Principal
Underwriter its Allocable Portion of the Distribution Fees shall be absolute and
unconditional and shall not be subject to dispute, offset, counterclaim or any
defense whatsoever (it being understood that such provision is not a waiver of
the Fund's right to pursue such Principal Underwriter and enforce such claims
against the assets of such Principal Underwriter other than its right to its
Allocable Portion of the Distribution Fees and CDSCs (as defined below) (III)
that the Fund's obligation to pay such Principal Underwriter its Allocable
Portion of the Distribution Fees shall not be changed or terminated except to
the extent required by any change in applicable law, including without
limitation, the Investment Company Act of 1940, the Rules promulgated thereunder
by the Securities and Exchange Commission and the Rules of Fair Practice of the
National Association of Securities Dealers, Inc., in each case enacted or
promulgated after June 1, 1995, or in connection with a "Complete Termination"
(as hereinafter defined); (IV) that the Fund will not waive or change any
contingent deferred sales charge ("CDSC") in respect of the Distributor's
Allocable Portion thereof, except as provided in the Fund's prospectus or
statement of additional information without the consent of the Principal
Underwriter or any assignee of such Principal Underwriter's rights to its
Allocable Portion; (V) that the termination of the Principal Underwriter, the
principal underwriting agreement or this Plan will not terminate such Principal
Underwriter's rights to its Allocable Portion of the CDSCs; and (VI) that any
Principal Underwriter may assign its rights to its Allocable Portion of the
Distribution Fees and CDSCs (but not such Principal Underwriter's obligations to
the Fund under its principal underwriting agreement) to raise funds to make
expenditures described in Section 2 above and in connection therewith, and upon
receipt of notice of such assignment, the Fund shall pay to the assignee such
portion of the Principal Underwriter's Allocable Portion of the Distribution
Fees and CDSCs so assigned. For purposes of such principal underwriting
agreement, the term Allocable Portion of Distribution Fees as applied to any
Principal Underwriter may mean the portion of the Distribution Fee allocable to
Distributor Shares in accordance with the "Allocation Schedule" attached to such
Principal Underwriter's principal underwriting agreement. For purposes of such
principal underwriting agreement, the term Allocable Portion of CDSCs as applied
to any Principal Underwriter may mean the portion of the CDSCs allocable to
Distributor Shares in accordance with the Allocation Schedule attached to such
Principal Underwriter's principal underwriting agreement. For purposes of such
principal underwriting agreement, the term "Complete Termination" may mean a
termination of this Plan involving the cessation of payments of the Distribution
Fees thereunder, the cessation of payments of distribution fees pursuant to
every other rule 12b-1 plan of the Fund for every existing or future
B-Class-of-Shares and the cessation of the offering by the Fund of existing or
future B-Class-of-Shares, which conditions shall be deemed to be satisfied when
they are first complied with and so long thereafter as they are complied with
prior to the earlier of (i) the date upon which all of the B-2 Shares which are
Distributor Shares pursuant to the Allocation Schedule shall have been redeemed
or converted or (ii) a specified date, after either of which times such
conditions need no longer be complied with. For purposes of such principal
underwriting agreement, the term "B-Class-of-Shares" may mean each of the B-1
Class of Shares of the Fund, the B-2 Class of Shares of the Fund and each other
class of shares of the Fund hereafter issued which would be treated as "Shares"
under such Allocation Schedule or which has economic characteristics
substantially similar to those of the B-1 or B-2 Classes of Shares taking into
account the total sales charge, CDSC or other similar charges borne directly or
indirectly by the holder of the shares of such classes. The parties may agree
that the existing C Class of Shares of the Fund does not have substantially
similar economic characteristics to the B-1 or B-2 Classes of Shares taking into
account the total sales charge, CDSC or other similar charges borne directly or
indirectly by the holder of such shares. For purposes of clarity the parties to
such principal underwriting agreement may state that they intend that a new
installment load class of shares which may be authorized by amendments to Rule
6(c)-10 under the 1940 Act will be considered to be a B-Class-of-Shares if it
has economic characteristics substantially similar to the economic
characteristics of the existing B-1 or B-2 Classes of Shares taking into account
the total sales charge, CDSC or other similar charges borne directly or
indirectly by the holder of such shares and will not be considered to be a
B-Class-of-Shares if it has economic characteristics substantially similar to
the economic characteristics of the existing C Class of shares of the Fund
taking into account the total sales charge, CDSC or other similar charges borne
directly or indirectly by the holder of such shares. For purposes of such
principal underwriting agreement, "Allocation Schedule" may mean a schedule
which shall be approved by Directors (as defined below) in connection with their
required approval of such principal underwriting agreement as assigning to each
Principal Underwriter of Shares the portion of the total Distribution Fees
payable by the Fund under such principal underwriting agreement which has been
earned by such Principal Underwriter to the extent necessary so that the
continued payments thereof if such Principal Underwriter ceases to serve in that
capacity does not penalize the Fund by requiring it to pay for services that
have not been earned.
Section 3. This Plan shall not take effect until it has been approved by a
vote of at least a majority (as defined in the 1940 Act) of the outstanding
Shares.
Section 4. This Plan, and the specific implementation of expenditures
provided for under this Plan, shall not take effect until this Plan, and such
implementation, have been approved, together with any related agreements of the
Fund, by votes of both (a) a majority of the Board of Trustees or Directors
(together the "Directors") of the Fund and (b) a majority of those Directors of
the Fund who are not "interested persons" of the Fund (as said term is defined
in the 1940 Act) and who have no direct or indirect financial interest in the
operation of this Plan or any agreements of the Fund or any other person related
to this Plan (the "Rule 12b-1 Directors"), cast in person at a meeting called
for the purpose of voting on this Plan or such agreements.
Section 5. Unless sooner terminated pursuant to Section 7 hereof, this Plan
shall continue in effect for a period of one year from the date it takes effect
and thereafter shall continue in effect so long as such continuance is
specifically approved at least annually in the manner provided for approval of
this Plan in Section 4 hereof, except that, if terminated except for payments
provided to be made after termination of other aspects of this Plan, such
payments may be made pursuant to approvals made, and or agreements approved, as
provided above.
Section 6. Any person authorized to direct the disposition of monies paid
or payable by the Fund pursuant to this Plan or any related agreement shall
provide to the Fund's Board of Directors, and the Board shall review, at least
quarterly a written report of the amounts so expended and the purposes for which
such expenditures were made.
Section 7. This Plan may be terminated, in whole or in part, at any time by
vote of a majority of the Rule 12b-1 Directors or by vote of a majority of the
outstanding Shares, with the effects provided for in Section 2, as applicable.
Section 8. Any agreement of the Fund related to this Plan shall be in
writing, and shall provide as follows:
(a) That such agreement may be terminated at any time, without payment of
any penalty, by vote of a majority of the Rule 12b-1 Directors or by a
vote of a majority of the outstanding Shares on not more than sixty
days written notice to any other party to the agreement; and
(b) That such agreement shall terminate automatically in the event of its
assignment.
Section 9. This Plan may not be amended to increase materially the amount
of distribution expenses provided for in Section 2 hereof unless such amendment
is approved in the manner provided in Section 3 hereof, and no material
amendment to this Plan shall be made unless approved in the manner provided for
in Section 4 hereof.
<PAGE>
DISTRIBUTION PLAN
FOR
CLASS B-1 SHARES
OF
KEYSTONE MASSACHUSETTS TAX FREE FUND,
A SERIES OF KEYSTONE STATE TAX FREE FUND
Section 1. Keystone State Tax Free Fund, individually and/or on behalf
of its series, if any, referred to above in the title of this 12b-1 Plan (the
"Plan"), to which series this Plan shall then relate, as applicable (the
"Fund"), may act as the distributor of certain securities of which it is the
issuer pursuant to Rule 12b-1 under the Investment Company Act of 1940 (the
"1940 Act") according to the terms of this Distribution Plan.
Section 2. The Fund may expend daily amounts at an annual rate of up to
1.00% of the average daily net asset value of the Fund attributable to the
Fund's Class B-1 shares (the "Shares"). Such amounts may be expended to finance
any activity that is principally intended to result in the sale of Shares,
including, without limitation, expenditures consisting of payments to a
principal underwriter of the Fund or others as sales commissions or other
compensation for services provided or to be provided ("Distribution Fees") or as
reimbursement for expenses that are incurred or accrued at any time during which
this Plan is in effect, together with interest on any such amounts, at rates
approved by the Rule 12b-1 Directors (as defined below) in the manner referred
to below, all whether or not this Plan has been otherwise terminated, if such
payment of such expenditures is for services theretofore provided or for
reimbursement of expenses theretofore incurred or accrued prior to termination
of this Plan in other respects and if such payment is or has been so approved by
such Rule 12b-1 Directors, or agreed to by the Fund with such approval, all
subject to such specific implementation as such 12b-1 Directors may approve;
provided that, at the time any such payment is made, whether or not this Plan
has been otherwise terminated, the making of such payment will not cause the
limitation upon such payments set forth in the preceding sentence to be
exceeded. Without limiting the generality of the foregoing, the Fund may pay to,
or on the order of, any person who has served from time to time as principal
underwriter (a "Principal Underwriter") amounts for distribution services
pursuant to a principal underwriting agreement or otherwise. No principal
underwriting agreement or other agreement shall be an agreement related to this
Plan, as referred to in Rule 12b-1 of the Securities and Exchange Commission,
unless it specifically states that it is such a related agreement. Any such
principal underwriting agreement may, but need not, provide that such Principal
Underwriter may be paid for distribution services to Class B-1 Shares
and/or other specified classes of shares of the Fund (together the
"B-Class-of-Shares"), a fee which may be designated a Distribution Fee and may
be paid at a rate per annum up to .75% of the average daily net asset value of
such B-Class-of-Shares of the Fund and may, but need not, also provide: (I) that
a Principal Underwriter will be deemed to have fully earned its "Allocable
Portion" of the Distribution Fee upon the sale of the Commission Shares (as
defined in the Allocation Schedule) taken into account in determining its
Allocable Portion; (II) that the Fund's obligation to pay such Principal
Underwriter its Allocable Portion of the Distribution Fees shall be absolute and
unconditional and shall not be subject to dispute, offset, counterclaim or any
defense whatsoever (it being understood that such provision is not a waiver of
the Fund's right to pursue such Principal Underwriter and enforce such claims
against the assets of such Principal Underwriter other than its right to its
Allocable Portion of the Distribution Fees and CDSCs (as defined below) (III)
that the Fund's obligation to pay such Principal Underwriter its Allocable
Portion of the Distribution Fees shall not be changed or terminated except to
the extent required by any change in applicable law, including without
limitation, the Investment Company Act of 1940, the Rules promulgated thereunder
by the Securities and Exchange Commission and the Rules of Fair Practice of the
National Association of Securities Dealers, Inc., in each case enacted or
promulgated after June 1, 1995, or in connection with a "Complete Termination"
(as hereinafter defined); (IV) that the Fund will not waive or change any
contingent deferred sales charge ("CDSC") in respect of the Distributor's
Allocable Portion thereof, except as provided in the Fund's prospectus or
statement of additional information without the consent of the Principal
Underwriter or any assignee of such Principal Underwriter's rights to its
Allocable Portion; (V) that the termination of the Principal Underwriter, the
principal underwriting agreement or this Plan will not terminate such Principal
Underwriter's rights to its Allocable Portion of the CDSCs; and (VI) that any
Principal Underwriter may assign its rights to its Allocable Portion of the
Distribution Fees and CDSCs (but not such Principal Underwriter's obligations to
the Fund under its principal underwriting agreement) to raise funds to make
expenditures described in Section 2 above and in connection therewith, and upon
receipt of notice of such assignment, the Fund shall pay to the assignee such
portion of the Principal Underwriter's Allocable Portion of the Distribution
Fees and CDSCs so assigned. For purposes of such principal underwriting
agreement, the term Allocable Portion of Distribution Fees as applied to any
Principal Underwriter may mean the portion of the Distribution Fee allocable to
Distributor Shares in accordance with the "Allocation Schedule" attached to such
Principal Underwriter's principal underwriting agreement. For purposes of such
principal underwriting agreement, the term Allocable Portion of CDSCs as applied
to any Principal Underwriter may mean the portion of the CDSCs allocable to
Distributor Shares in accordance with the Allocation Schedule attached to such
Principal Underwriter's principal underwriting agreement. For purposes of such
principal underwriting agreement, the term "Complete Termination" may mean a
termination of this Plan involving the cessation of payments of the Distribution
Fees thereunder, the cessation of payments of distribution fees pursuant to
every other rule 12b-1 plan of the Fund for every existing or future
B-Class-of-Shares and the cessation of the offering by the Fund of existing or
future B-Class-of-Shares, which conditions shall be deemed to be satisfied when
they are first complied with and so long thereafter as they are complied with
prior to the earlier of (i) the date upon which all of the B-2 Shares which are
Distributor Shares pursuant to the Allocation Schedule shall have been redeemed
or converted or (ii) a specified date, after either of which times such
conditions need no longer be complied with. For purposes of such principal
underwriting agreement, the term "B-Class-of-Shares" may mean each of the B-1
Class of Shares of the Fund, the B-2 Class of Shares of the Fund and each other
class of shares of the Fund hereafter issued which would be treated as "Shares"
under such Allocation Schedule or which has economic characteristics
substantially similar to those of the B-1 or B-2 Classes of Shares taking into
account the total sales charge, CDSC or other similar charges borne directly or
indirectly by the holder of the shares of such classes. The parties may agree
that the existing C Class of Shares of the Fund does not have substantially
similar economic characteristics to the B-1 or B-2 Classes of Shares taking into
account the total sales charge, CDSC or other similar charges borne directly or
indirectly by the holder of such shares. For purposes of clarity the parties to
such principal underwriting agreement may state that they intend that a new
installment load class of shares which may be authorized by amendments to Rule
6(c)-10 under the 1940 Act will be considered to be a B-Class-of-Shares if it
has economic characteristics substantially similar to the economic
characteristics of the existing B-1 or B-2 Classes of Shares taking into account
the total sales charge, CDSC or other similar charges borne directly or
indirectly by the holder of such shares and will not be considered to be a
B-Class-of-Shares if it has economic characteristics substantially similar to
the economic characteristics of the existing C Class of shares of the Fund
taking into account the total sales charge, CDSC or other similar charges borne
directly or indirectly by the holder of such shares. For purposes of such
principal underwriting agreement, "Allocation Schedule" may mean a schedule
which shall be approved by Directors (as defined below) in connection with their
required approval of such principal underwriting agreement as assigning to each
Principal Underwriter of Shares the portion of the total Distribution Fees
payable by the Fund under such principal underwriting agreement which has been
earned by such Principal Underwriter to the extent necessary so that the
continued payments thereof if such Principal Underwriter ceases to serve in that
capacity does not penalize the Fund by requiring it to pay for services that
have not been earned.
Section 3. This Plan shall not take effect until it has been approved by a
vote of at least a majority (as defined in the 1940 Act) of the outstanding
Shares.
Section 4. This Plan, and the specific implementation of expenditures
provided for under this Plan, shall not take effect until this Plan, and such
implementation, have been approved, together with any related agreements of the
Fund, by votes of both (a) a majority of the Board of Trustees or Directors
(together the "Directors") of the Fund and (b) a majority of those Directors of
the Fund who are not "interested persons" of the Fund (as said term is defined
in the 1940 Act) and who have no direct or indirect financial interest in the
operation of this Plan or any agreements of the Fund or any other person related
to this Plan (the "Rule 12b-1 Directors"), cast in person at a meeting called
for the purpose of voting on this Plan or such agreements.
Section 5. Unless sooner terminated pursuant to Section 7 hereof, this Plan
shall continue in effect for a period of one year from the date it takes effect
and thereafter shall continue in effect so long as such continuance is
specifically approved at least annually in the manner provided for approval of
this Plan in Section 4 hereof, except that, if terminated except for payments
provided to be made after termination of other aspects of this Plan, such
payments may be made pursuant to approvals made, and or agreements approved, as
provided above.
Section 6. Any person authorized to direct the disposition of monies paid
or payable by the Fund pursuant to this Plan or any related agreement shall
provide to the Fund's Board of Directors, and the Board shall review, at least
quarterly a written report of the amounts so expended and the purposes for which
such expenditures were made.
Section 7. This Plan may be terminated, in whole or in part, at any time by
vote of a majority of the Rule 12b-1 Directors or by vote of a majority of the
outstanding Shares, with the effects provided for in Section 2, as applicable.
Section 8. Any agreement of the Fund related to this Plan shall be in
writing, and shall provide as follows:
(a) That such agreement may be terminated at any time, without payment of
any penalty, by vote of a majority of the Rule 12b-1 Directors or by a
vote of a majority of the outstanding Shares on not more than sixty
days written notice to any other party to the agreement; and
(b) That such agreement shall terminate automatically in the event of its
assignment.
Section 9. This Plan may not be amended to increase materially the amount
of distribution expenses provided for in Section 2 hereof unless such amendment
is approved in the manner provided in Section 3 hereof, and no material
amendment to this Plan shall be made unless approved in the manner provided for
in Section 4 hereof.
<PAGE>
DISTRIBUTION PLAN
FOR
CLASS B-1 SHARES
OF
KEYSTONE NEW YORK INSURED TAX FREE FUND,
A SERIES OF KEYSTONE STATE TAX FREE FUND
Section 1. Keystone State Tax Free Fund, individually and/or on behalf
of its series, if any, referred to above in the title of this 12b-1 Plan (the
"Plan"), to which series this Plan shall then relate, as applicable (the
"Fund"), may act as the distributor of certain securities of which it is the
issuer pursuant to Rule 12b-1 under the Investment Company Act of 1940 (the
"1940 Act") according to the terms of this Distribution Plan.
Section 2. The Fund may expend daily amounts at an annual rate of up to
1.00% of the average daily net asset value of the Fund attributable to the
Fund's Class B-1 shares (the "Shares"). Such amounts may be expended to finance
any activity that is principally intended to result in the sale of Shares,
including, without limitation, expenditures consisting of payments to a
principal underwriter of the Fund or others as sales commissions or other
compensation for services provided or to be provided ("Distribution Fees") or as
reimbursement for expenses that are incurred or accrued at any time during which
this Plan is in effect, together with interest on any such amounts, at rates
approved by the Rule 12b-1 Directors (as defined below) in the manner referred
to below, all whether or not this Plan has been otherwise terminated, if such
payment of such expenditures is for services theretofore provided or for
reimbursement of expenses theretofore incurred or accrued prior to termination
of this Plan in other respects and if such payment is or has been so approved by
such Rule 12b-1 Directors, or agreed to by the Fund with such approval, all
subject to such specific implementation as such 12b-1 Directors may approve;
provided that, at the time any such payment is made, whether or not this Plan
has been otherwise terminated, the making of such payment will not cause the
limitation upon such payments set forth in the preceding sentence to be
exceeded. Without limiting the generality of the foregoing, the Fund may pay to,
or on the order of, any person who has served from time to time as principal
underwriter (a "Principal Underwriter") amounts for distribution services
pursuant to a principal underwriting agreement or otherwise. No principal
underwriting agreement or other agreement shall be an agreement related to this
Plan, as referred to in Rule 12b-1 of the Securities and Exchange Commission,
unless it specifically states that it is such a related agreement. Any such
principal underwriting agreement may, but need not, provide that such Principal
Underwriter may be paid for distribution services to Class B-1 Shares
and/or other specified classes of shares of the Fund (together the
"B-Class-of-Shares"), a fee which may be designated a Distribution Fee and may
be paid at a rate per annum up to .75% of the average daily net asset value of
such B-Class-of-Shares of the Fund and may, but need not, also provide: (I) that
a Principal Underwriter will be deemed to have fully earned its "Allocable
Portion" of the Distribution Fee upon the sale of the Commission Shares (as
defined in the Allocation Schedule) taken into account in determining its
Allocable Portion; (II) that the Fund's obligation to pay such Principal
Underwriter its Allocable Portion of the Distribution Fees shall be absolute and
unconditional and shall not be subject to dispute, offset, counterclaim or any
defense whatsoever (it being understood that such provision is not a waiver of
the Fund's right to pursue such Principal Underwriter and enforce such claims
against the assets of such Principal Underwriter other than its right to its
Allocable Portion of the Distribution Fees and CDSCs (as defined below) (III)
that the Fund's obligation to pay such Principal Underwriter its Allocable
Portion of the Distribution Fees shall not be changed or terminated except to
the extent required by any change in applicable law, including without
limitation, the Investment Company Act of 1940, the Rules promulgated thereunder
by the Securities and Exchange Commission and the Rules of Fair Practice of the
National Association of Securities Dealers, Inc., in each case enacted or
promulgated after June 1, 1995, or in connection with a "Complete Termination"
(as hereinafter defined); (IV) that the Fund will not waive or change any
contingent deferred sales charge ("CDSC") in respect of the Distributor's
Allocable Portion thereof, except as provided in the Fund's prospectus or
statement of additional information without the consent of the Principal
Underwriter or any assignee of such Principal Underwriter's rights to its
Allocable Portion; (V) that the termination of the Principal Underwriter, the
principal underwriting agreement or this Plan will not terminate such Principal
Underwriter's rights to its Allocable Portion of the CDSCs; and (VI) that any
Principal Underwriter may assign its rights to its Allocable Portion of the
Distribution Fees and CDSCs (but not such Principal Underwriter's obligations to
the Fund under its principal underwriting agreement) to raise funds to make
expenditures described in Section 2 above and in connection therewith, and upon
receipt of notice of such assignment, the Fund shall pay to the assignee such
portion of the Principal Underwriter's Allocable Portion of the Distribution
Fees and CDSCs so assigned. For purposes of such principal underwriting
agreement, the term Allocable Portion of Distribution Fees as applied to any
Principal Underwriter may mean the portion of the Distribution Fee allocable to
Distributor Shares in accordance with the "Allocation Schedule" attached to such
Principal Underwriter's principal underwriting agreement. For purposes of such
principal underwriting agreement, the term Allocable Portion of CDSCs as applied
to any Principal Underwriter may mean the portion of the CDSCs allocable to
Distributor Shares in accordance with the Allocation Schedule attached to such
Principal Underwriter's principal underwriting agreement. For purposes of such
principal underwriting agreement, the term "Complete Termination" may mean a
termination of this Plan involving the cessation of payments of the Distribution
Fees thereunder, the cessation of payments of distribution fees pursuant to
every other rule 12b-1 plan of the Fund for every existing or future
B-Class-of-Shares and the cessation of the offering by the Fund of existing or
future B-Class-of-Shares, which conditions shall be deemed to be satisfied when
they are first complied with and so long thereafter as they are complied with
prior to the earlier of (i) the date upon which all of the B-2 Shares which are
Distributor Shares pursuant to the Allocation Schedule shall have been redeemed
or converted or (ii) a specified date, after either of which times such
conditions need no longer be complied with. For purposes of such principal
underwriting agreement, the term "B-Class-of-Shares" may mean each of the B-1
Class of Shares of the Fund, the B-2 Class of Shares of the Fund and each other
class of shares of the Fund hereafter issued which would be treated as "Shares"
under such Allocation Schedule or which has economic characteristics
substantially similar to those of the B-1 or B-2 Classes of Shares taking into
account the total sales charge, CDSC or other similar charges borne directly or
indirectly by the holder of the shares of such classes. The parties may agree
that the existing C Class of Shares of the Fund does not have substantially
similar economic characteristics to the B-1 or B-2 Classes of Shares taking into
account the total sales charge, CDSC or other similar charges borne directly or
indirectly by the holder of such shares. For purposes of clarity the parties to
such principal underwriting agreement may state that they intend that a new
installment load class of shares which may be authorized by amendments to Rule
6(c)-10 under the 1940 Act will be considered to be a B-Class-of-Shares if it
has economic characteristics substantially similar to the economic
characteristics of the existing B-1 or B-2 Classes of Shares taking into account
the total sales charge, CDSC or other similar charges borne directly or
indirectly by the holder of such shares and will not be considered to be a
B-Class-of-Shares if it has economic characteristics substantially similar to
the economic characteristics of the existing C Class of shares of the Fund
taking into account the total sales charge, CDSC or other similar charges borne
directly or indirectly by the holder of such shares. For purposes of such
principal underwriting agreement, "Allocation Schedule" may mean a schedule
which shall be approved by Directors (as defined below) in connection with their
required approval of such principal underwriting agreement as assigning to each
Principal Underwriter of Shares the portion of the total Distribution Fees
payable by the Fund under such principal underwriting agreement which has been
earned by such Principal Underwriter to the extent necessary so that the
continued payments thereof if such Principal Underwriter ceases to serve in that
capacity does not penalize the Fund by requiring it to pay for services that
have not been earned.
Section 3. This Plan shall not take effect until it has been approved by a
vote of at least a majority (as defined in the 1940 Act) of the outstanding
Shares.
Section 4. This Plan, and the specific implementation of expenditures
provided for under this Plan, shall not take effect until this Plan, and such
implementation, have been approved, together with any related agreements of the
Fund, by votes of both (a) a majority of the Board of Trustees or Directors
(together the "Directors") of the Fund and (b) a majority of those Directors of
the Fund who are not "interested persons" of the Fund (as said term is defined
in the 1940 Act) and who have no direct or indirect financial interest in the
operation of this Plan or any agreements of the Fund or any other person related
to this Plan (the "Rule 12b-1 Directors"), cast in person at a meeting called
for the purpose of voting on this Plan or such agreements.
Section 5. Unless sooner terminated pursuant to Section 7 hereof, this Plan
shall continue in effect for a period of one year from the date it takes effect
and thereafter shall continue in effect so long as such continuance is
specifically approved at least annually in the manner provided for approval of
this Plan in Section 4 hereof, except that, if terminated except for payments
provided to be made after termination of other aspects of this Plan, such
payments may be made pursuant to approvals made, and or agreements approved, as
provided above.
Section 6. Any person authorized to direct the disposition of monies paid
or payable by the Fund pursuant to this Plan or any related agreement shall
provide to the Fund's Board of Directors, and the Board shall review, at least
quarterly a written report of the amounts so expended and the purposes for which
such expenditures were made.
Section 7. This Plan may be terminated, in whole or in part, at any time by
vote of a majority of the Rule 12b-1 Directors or by vote of a majority of the
outstanding Shares, with the effects provided for in Section 2, as applicable.
Section 8. Any agreement of the Fund related to this Plan shall be in
writing, and shall provide as follows:
(a) That such agreement may be terminated at any time, without payment of
any penalty, by vote of a majority of the Rule 12b-1 Directors or by a
vote of a majority of the outstanding Shares on not more than sixty
days written notice to any other party to the agreement; and
(b) That such agreement shall terminate automatically in the event of its
assignment.
Section 9. This Plan may not be amended to increase materially the amount
of distribution expenses provided for in Section 2 hereof unless such amendment
is approved in the manner provided in Section 3 hereof, and no material
amendment to this Plan shall be made unless approved in the manner provided for
in Section 4 hereof.
<PAGE>
DISTRIBUTION PLAN
FOR
CLASS B-1 SHARES
OF
KEYSTONE PENNSYLVANIA TAX FREE FUND,
A SERIES OF KEYSTONE STATE TAX FREE FUND
Section 1. Keystone State Tax Free Fund, individually and/or on behalf
of its series, if any, referred to above in the title of this 12b-1 Plan (the
"Plan"), to which series this Plan shall then relate, as applicable (the
"Fund"), may act as the distributor of certain securities of which it is the
issuer pursuant to Rule 12b-1 under the Investment Company Act of 1940 (the
"1940 Act") according to the terms of this Distribution Plan.
Section 2. The Fund may expend daily amounts at an annual rate of up to
1.00% of the average daily net asset value of the Fund attributable to the
Fund's Class B-1 shares (the "Shares"). Such amounts may be expended to finance
any activity that is principally intended to result in the sale of Shares,
including, without limitation, expenditures consisting of payments to a
principal underwriter of the Fund or others as sales commissions or other
compensation for services provided or to be provided ("Distribution Fees") or as
reimbursement for expenses that are incurred or accrued at any time during which
this Plan is in effect, together with interest on any such amounts, at rates
approved by the Rule 12b-1 Directors (as defined below) in the manner referred
to below, all whether or not this Plan has been otherwise terminated, if such
payment of such expenditures is for services theretofore provided or for
reimbursement of expenses theretofore incurred or accrued prior to termination
of this Plan in other respects and if such payment is or has been so approved by
such Rule 12b-1 Directors, or agreed to by the Fund with such approval, all
subject to such specific implementation as such 12b-1 Directors may approve;
provided that, at the time any such payment is made, whether or not this Plan
has been otherwise terminated, the making of such payment will not cause the
limitation upon such payments set forth in the preceding sentence to be
exceeded. Without limiting the generality of the foregoing, the Fund may pay to,
or on the order of, any person who has served from time to time as principal
underwriter (a "Principal Underwriter") amounts for distribution services
pursuant to a principal underwriting agreement or otherwise. No principal
underwriting agreement or other agreement shall be an agreement related to this
Plan, as referred to in Rule 12b-1 of the Securities and Exchange Commission,
unless it specifically states that it is such a related agreement. Any such
principal underwriting agreement may, but need not, provide that such Principal
Underwriter may be paid for distribution services to Class B-1 Shares
and/or other specified classes of shares of the Fund (together the
"B-Class-of-Shares"), a fee which may be designated a Distribution Fee and may
be paid at a rate per annum up to .75% of the average daily net asset value of
such B-Class-of-Shares of the Fund and may, but need not, also provide: (I) that
a Principal Underwriter will be deemed to have fully earned its "Allocable
Portion" of the Distribution Fee upon the sale of the Commission Shares (as
defined in the Allocation Schedule) taken into account in determining its
Allocable Portion; (II) that the Fund's obligation to pay such Principal
Underwriter its Allocable Portion of the Distribution Fees shall be absolute and
unconditional and shall not be subject to dispute, offset, counterclaim or any
defense whatsoever (it being understood that such provision is not a waiver of
the Fund's right to pursue such Principal Underwriter and enforce such claims
against the assets of such Principal Underwriter other than its right to its
Allocable Portion of the Distribution Fees and CDSCs (as defined below) (III)
that the Fund's obligation to pay such Principal Underwriter its Allocable
Portion of the Distribution Fees shall not be changed or terminated except to
the extent required by any change in applicable law, including without
limitation, the Investment Company Act of 1940, the Rules promulgated thereunder
by the Securities and Exchange Commission and the Rules of Fair Practice of the
National Association of Securities Dealers, Inc., in each case enacted or
promulgated after June 1, 1995, or in connection with a "Complete Termination"
(as hereinafter defined); (IV) that the Fund will not waive or change any
contingent deferred sales charge ("CDSC") in respect of the Distributor's
Allocable Portion thereof, except as provided in the Fund's prospectus or
statement of additional information without the consent of the Principal
Underwriter or any assignee of such Principal Underwriter's rights to its
Allocable Portion; (V) that the termination of the Principal Underwriter, the
principal underwriting agreement or this Plan will not terminate such Principal
Underwriter's rights to its Allocable Portion of the CDSCs; and (VI) that any
Principal Underwriter may assign its rights to its Allocable Portion of the
Distribution Fees and CDSCs (but not such Principal Underwriter's obligations to
the Fund under its principal underwriting agreement) to raise funds to make
expenditures described in Section 2 above and in connection therewith, and upon
receipt of notice of such assignment, the Fund shall pay to the assignee such
portion of the Principal Underwriter's Allocable Portion of the Distribution
Fees and CDSCs so assigned. For purposes of such principal underwriting
agreement, the term Allocable Portion of Distribution Fees as applied to any
Principal Underwriter may mean the portion of the Distribution Fee allocable to
Distributor Shares in accordance with the "Allocation Schedule" attached to such
Principal Underwriter's principal underwriting agreement. For purposes of such
principal underwriting agreement, the term Allocable Portion of CDSCs as applied
to any Principal Underwriter may mean the portion of the CDSCs allocable to
Distributor Shares in accordance with the Allocation Schedule attached to such
Principal Underwriter's principal underwriting agreement. For purposes of such
principal underwriting agreement, the term "Complete Termination" may mean a
termination of this Plan involving the cessation of payments of the Distribution
Fees thereunder, the cessation of payments of distribution fees pursuant to
every other rule 12b-1 plan of the Fund for every existing or future
B-Class-of-Shares and the cessation of the offering by the Fund of existing or
future B-Class-of-Shares, which conditions shall be deemed to be satisfied when
they are first complied with and so long thereafter as they are complied with
prior to the earlier of (i) the date upon which all of the B-2 Shares which are
Distributor Shares pursuant to the Allocation Schedule shall have been redeemed
or converted or (ii) a specified date, after either of which times such
conditions need no longer be complied with. For purposes of such principal
underwriting agreement, the term "B-Class-of-Shares" may mean each of the B-1
Class of Shares of the Fund, the B-2 Class of Shares of the Fund and each other
class of shares of the Fund hereafter issued which would be treated as "Shares"
under such Allocation Schedule or which has economic characteristics
substantially similar to those of the B-1 or B-2 Classes of Shares taking into
account the total sales charge, CDSC or other similar charges borne directly or
indirectly by the holder of the shares of such classes. The parties may agree
that the existing C Class of Shares of the Fund does not have substantially
similar economic characteristics to the B-1 or B-2 Classes of Shares taking into
account the total sales charge, CDSC or other similar charges borne directly or
indirectly by the holder of such shares. For purposes of clarity the parties to
such principal underwriting agreement may state that they intend that a new
installment load class of shares which may be authorized by amendments to Rule
6(c)-10 under the 1940 Act will be considered to be a B-Class-of-Shares if it
has economic characteristics substantially similar to the economic
characteristics of the existing B-1 or B-2 Classes of Shares taking into account
the total sales charge, CDSC or other similar charges borne directly or
indirectly by the holder of such shares and will not be considered to be a
B-Class-of-Shares if it has economic characteristics substantially similar to
the economic characteristics of the existing C Class of shares of the Fund
taking into account the total sales charge, CDSC or other similar charges borne
directly or indirectly by the holder of such shares. For purposes of such
principal underwriting agreement, "Allocation Schedule" may mean a schedule
which shall be approved by Directors (as defined below) in connection with their
required approval of such principal underwriting agreement as assigning to each
Principal Underwriter of Shares the portion of the total Distribution Fees
payable by the Fund under such principal underwriting agreement which has been
earned by such Principal Underwriter to the extent necessary so that the
continued payments thereof if such Principal Underwriter ceases to serve in that
capacity does not penalize the Fund by requiring it to pay for services that
have not been earned.
Section 3. This Plan shall not take effect until it has been approved by a
vote of at least a majority (as defined in the 1940 Act) of the outstanding
Shares.
Section 4. This Plan, and the specific implementation of expenditures
provided for under this Plan, shall not take effect until this Plan, and such
implementation, have been approved, together with any related agreements of the
Fund, by votes of both (a) a majority of the Board of Trustees or Directors
(together the "Directors") of the Fund and (b) a majority of those Directors of
the Fund who are not "interested persons" of the Fund (as said term is defined
in the 1940 Act) and who have no direct or indirect financial interest in the
operation of this Plan or any agreements of the Fund or any other person related
to this Plan (the "Rule 12b-1 Directors"), cast in person at a meeting called
for the purpose of voting on this Plan or such agreements.
Section 5. Unless sooner terminated pursuant to Section 7 hereof, this Plan
shall continue in effect for a period of one year from the date it takes effect
and thereafter shall continue in effect so long as such continuance is
specifically approved at least annually in the manner provided for approval of
this Plan in Section 4 hereof, except that, if terminated except for payments
provided to be made after termination of other aspects of this Plan, such
payments may be made pursuant to approvals made, and or agreements approved, as
provided above.
Section 6. Any person authorized to direct the disposition of monies paid
or payable by the Fund pursuant to this Plan or any related agreement shall
provide to the Fund's Board of Directors, and the Board shall review, at least
quarterly a written report of the amounts so expended and the purposes for which
such expenditures were made.
Section 7. This Plan may be terminated, in whole or in part, at any time by
vote of a majority of the Rule 12b-1 Directors or by vote of a majority of the
outstanding Shares, with the effects provided for in Section 2, as applicable.
Section 8. Any agreement of the Fund related to this Plan shall be in
writing, and shall provide as follows:
(a) That such agreement may be terminated at any time, without payment of
any penalty, by vote of a majority of the Rule 12b-1 Directors or by a
vote of a majority of the outstanding Shares on not more than sixty
days written notice to any other party to the agreement; and
(b) That such agreement shall terminate automatically in the event of its
assignment.
Section 9. This Plan may not be amended to increase materially the amount
of distribution expenses provided for in Section 2 hereof unless such amendment
is approved in the manner provided in Section 3 hereof, and no material
amendment to this Plan shall be made unless approved in the manner provided for
in Section 4 hereof.
<PAGE>
DISTRIBUTION PLAN
FOR
CLASS B-2 SHARES
OF
KEYSTONE FLORIDA TAX FREE FUND,
A SERIES OF KEYSTONE STATE TAX FREE FUND
Section 1. Keystone State Tax Free Fund, individually and/or on behalf
of its series, if any, referred to above in the title of this 12b-1 Plan (the
"Plan"), to which series this Plan shall then relate, as applicable (the
"Fund"), may act as the distributor of certain securities of which it is the
issuer pursuant to Rule 12b-1 under the Investment Company Act of 1940 (the
"1940 Act") according to the terms of this Distribution Plan.
Section 2. The Fund may expend daily amounts at an annual rate of up to
1.00% of the average daily net asset value of the Fund attributable to the
Fund's Class B-2 shares (the "Shares"). Such amounts may be expended to finance
any activity that is principally intended to result in the sale of Shares,
including, without limitation, expenditures consisting of payments to a
principal underwriter of the Fund or others as sales commissions or other
compensation for services provided or to be provided ("Distribution Fees") or as
reimbursement for expenses that are incurred or accrued at any time during which
this Plan is in effect, together with interest on any such amounts, at rates
approved by the Rule 12b-1 Directors (as defined below) in the manner referred
to below, all whether or not this Plan has been otherwise terminated, if such
payment of such expenditures is for services theretofore provided or for
reimbursement of expenses theretofore incurred or accrued prior to termination
of this Plan in other respects and if such payment is or has been so approved by
such Rule 12b-1 Directors, or agreed to by the Fund with such approval, all
subject to such specific implementation as such 12b-1 Directors may approve;
provided that, at the time any such payment is made, whether or not this Plan
has been otherwise terminated, the making of such payment will not cause the
limitation upon such payments set forth in the preceding sentence to be
exceeded. Without limiting the generality of the foregoing, the Fund may pay to,
or on the order of, any person who has served from time to time as principal
underwriter (a "Principal Underwriter") amounts for distribution services
pursuant to a principal underwriting agreement or otherwise. No principal
underwriting agreement or other agreement shall be an agreement related to this
Plan, as referred to in Rule 12b-1 of the Securities and Exchange Commission,
unless it specifically states that it is such a related agreement. Any such
principal underwriting agreement may, but need not, provide that such Principal
Underwriter may be paid for distribution services to Class B-2 Shares
and/or other specified classes of shares of the Fund (together the
"B-Class-of-Shares"), a fee which may be designated a Distribution Fee and may
be paid at a rate per annum up to .75% of the average daily net asset value of
such B-Class-of-Shares of the Fund and may, but need not, also provide: (I) that
a Principal Underwriter will be deemed to have fully earned its "Allocable
Portion" of the Distribution Fee upon the sale of the Commission Shares (as
defined in the Allocation Schedule) taken into account in determining its
Allocable Portion; (II) that the Fund's obligation to pay such Principal
Underwriter its Allocable Portion of the Distribution Fees shall be absolute and
unconditional and shall not be subject to dispute, offset, counterclaim or any
defense whatsoever (it being understood that such provision is not a waiver of
the Fund's right to pursue such Principal Underwriter and enforce such claims
against the assets of such Principal Underwriter other than its right to its
Allocable Portion of the Distribution Fees and CDSCs (as defined below); (III)
that the Fund's obligation to pay such Principal Underwriter its Allocable
Portion of the Distribution Fees shall not be changed or terminated except to
the extent required by any change in applicable law, including without
limitation, the Investment Company Act of 1940, the Rules promulgated thereunder
by the Securities and Exchange Commission and the Rules of Fair Practice of the
National Association of Securities Dealers, Inc., in each case enacted or
promulgated after June 1, 1995, or in connection with a "Complete Termination"
(as hereinafter defined); (IV) that the Fund will not waive or change any
contingent deferred sales charge ("CDSC") in respect of the Distributor's
Allocable Portion thereof, except as provided in the Fund's prospectus or
statement of additional information without the consent of the Principal
Underwriter or any assignee of such Principal Underwriter's rights to its
Allocable Portion; (V) that the termination of the Principal Underwriter, the
principal underwriting agreement or this Plan will not terminate such Principal
Underwriter's rights to its Allocable Portion of the CDSCs; and (VI) that any
Principal Underwriter may assign its rights to its Allocable Portion of the
Distribution Fees and CDSCs (but not such Principal Underwriter's obligations to
the Fund under its principal underwriting agreement) to raise funds to make
expenditures described in Section 2 above and in connection therewith, and upon
receipt of notice of such assignment, the Fund shall pay to the assignee such
portion of the Principal Underwriter's Allocable Portion of the Distribution
Fees and CDSCs so assigned. For purposes of such principal underwriting
agreement, the term Allocable Portion of Distribution Fees as applied to any
Principal Underwriter may mean the portion of the Distribution Fee allocable to
Distributor Shares in accordance with the "Allocation Schedule" attached to such
Principal Underwriter's principal underwriting agreement. For purposes of such
principal underwriting agreement, the term Allocable Portion of CDSCs as applied
to any Principal Underwriter may mean the portion of the CDSCs allocable to
Distributor Shares in accordance with the Allocation Schedule attached to such
Principal Underwriter's principal underwriting agreement. For purposes of such
principal underwriting agreement, the term "Complete Termination" may mean a
termination of this Plan involving the cessation of payments of the Distribution
Fees thereunder, the cessation of payments of distribution fees pursuant to
every other rule 12b-1 plan of the Fund for every existing or future
B-Class-of-Shares and the cessation of the offering by the Fund of existing or
future B-Class-of-Shares, which conditions shall be deemed to be satisfied when
they are first complied with and so long thereafter as they are complied with
prior to the earlier of (i) the date upon which all of the B-2 Shares which are
Distributor Shares pursuant to the Allocation Schedule shall have been redeemed
or converted or (ii) a specified date, after either of which times such
conditions need no longer be complied with. For purposes of such principal
underwriting agreement, the term "B-Class-of-Shares" may mean each of the B-1
Class of Shares of the Fund, the B-2 Class of Shares of the Fund and each other
class of shares of the Fund hereafter issued which would be treated as "Shares"
under such Allocation Schedule or which has economic characteristics
substantially similar to those of the B-1 or B-2 Classes of Shares taking into
account the total sales charge, CDSC or other similar charges borne directly or
indirectly by the holder of the shares of such classes. The parties may agree
that the existing C Class of Shares of the Fund does not have substantially
similar economic characteristics to the B-1 or B-2 Classes of Shares taking into
account the total sales charge, CDSC or other similar charges borne directly or
indirectly by the holder of such shares. For purposes of clarity the parties to
such principal underwriting agreement may state that they intend that a new
installment load class of shares which may be authorized by amendments to Rule
6(c)-10 under the 1940 Act will be considered to be a B-Class-of-Shares if it
has economic characteristics substantially similar to the economic
characteristics of the existing B-1 or B-2 Classes of Shares taking into account
the total sales charge, CDSC or other similar charges borne directly or
indirectly by the holder of such shares and will not be considered to be a
B-Class-of-Shares if it has economic characteristics substantially similar to
the economic characteristics of the existing C Class of shares of the Fund
taking into account the total sales charge, CDSC or other similar charges borne
directly or indirectly by the holder of such shares. For purposes of such
principal underwriting agreement, "Allocation Schedule" may mean a schedule
which shall be approved by Directors (as defined below) in connection with their
required approval of such principal underwriting agreement as assigning to each
Principal Underwriter of Shares the portion of the total Distribution Fees
payable by the Fund under such principal underwriting agreement which has been
earned by such Principal Underwriter to the extent necessary so that the
continued payments thereof if such Principal Underwriter ceases to serve in that
capacity does not penalize the Fund by requiring it to pay for services that
have not been earned.
Section 3. This Plan shall not take effect until it has been approved by a
vote of at least a majority (as defined in the 1940 Act) of the outstanding
Shares.
Section 4. This Plan, and the specific implementation of expenditures
provided for under this Plan, shall not take effect until this Plan, and such
implementation, have been approved, together with any related agreements of the
Fund, by votes of both (a) a majority of the Board of Trustees or Directors
(together the "Directors") of the Fund and (b) a majority of those Directors of
the Fund who are not "interested persons" of the Fund (as said term is defined
in the 1940 Act) and who have no direct or indirect financial interest in the
operation of this Plan or any agreements of the Fund or any other person related
to this Plan (the "Rule 12b-1 Directors"), cast in person at a meeting called
for the purpose of voting on this Plan or such agreements.
Section 5. Unless sooner terminated pursuant to Section 7 hereof, this Plan
shall continue in effect for a period of one year from the date it takes effect
and thereafter shall continue in effect so long as such continuance is
specifically approved at least annually in the manner provided for approval of
this Plan in Section 4 hereof, except that, if terminated except for payments
provided to be made after termination of other aspects of this Plan, such
payments may be made pursuant to approvals made, and or agreements approved, as
provided above.
Section 6. Any person authorized to direct the disposition of monies paid
or payable by the Fund pursuant to this Plan or any related agreement shall
provide to the Fund's Board of Directors, and the Board shall review, at least
quarterly a written report of the amounts so expended and the purposes for which
such expenditures were made.
Section 7. This Plan may be terminated, in whole or in part, at any time by
vote of a majority of the Rule 12b-1 Directors or by vote of a majority of the
outstanding Shares, with the effects provided for in Section 2, as applicable.
Section 8. Any agreement of the Fund related to this Plan shall be in
writing, and shall provide as follows:
(a) That such agreement may be terminated at any time, without payment of
any penalty, by vote of a majority of the Rule 12b-1 Directors or by a
vote of a majority of the outstanding Shares on not more than sixty
days written notice to any other party to the agreement; and
(b) That such agreement shall terminate automatically in the event of its
assignment.
Section 9. This Plan may not be amended to increase materially the amount
of distribution expenses provided for in Section 2 hereof unless such amendment
is approved in the manner provided in Section 3 hereof, and no material
amendment to this Plan shall be made unless approved in the manner provided for
in Section 4 hereof.
<PAGE>
DISTRIBUTION PLAN
FOR
CLASS B-2 SHARES
OF
KEYSTONE MASSACHUSETTS TAX FREE FUND,
A SERIES OF KEYSTONE STATE TAX FREE FUND - SERIES II
Section 1. Keystone State Tax Free Fund - Series II, 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>
DISTRIBUTION PLAN
FOR
CLASS B-2 SHARES
OF
KEYSTONE NEW YORK INSURED TAX FREE FUND,
A SERIES OF KEYSTONE STATE TAX FREE FUND - SERIES II
Section 1. Keystone State Tax Free Fund, individually and/or on behalf
of its series, if any, referred to above in the title of this 12b-1 Plan (the
"Plan"), to which series this Plan shall then relate, as applicable (the
"Fund"), may act as the distributor of certain securities of which it is the
issuer pursuant to Rule 12b-1 under the Investment Company Act of 1940 (the
"1940 Act") according to the terms of this Distribution Plan.
Section 2. The Fund may expend daily amounts at an annual rate of up to
1.00% of the average daily net asset value of the Fund attributable to the
Fund's Class B-2 shares (the "Shares"). Such amounts may be expended to finance
any activity that is principally intended to result in the sale of Shares,
including, without limitation, expenditures consisting of payments to a
principal underwriter of the Fund or others as sales commissions or other
compensation for services provided or to be provided ("Distribution Fees") or as
reimbursement for expenses that are incurred or accrued at any time during which
this Plan is in effect, together with interest on any such amounts, at rates
approved by the Rule 12b-1 Directors (as defined below) in the manner referred
to below, all whether or not this Plan has been otherwise terminated, if such
payment of such expenditures is for services theretofore provided or for
reimbursement of expenses theretofore incurred or accrued prior to termination
of this Plan in other respects and if such payment is or has been so approved by
such Rule 12b-1 Directors, or agreed to by the Fund with such approval, all
subject to such specific implementation as such 12b-1 Directors may approve;
provided that, at the time any such payment is made, whether or not this Plan
has been otherwise terminated, the making of such payment will not cause the
limitation upon such payments set forth in the preceding sentence to be
exceeded. Without limiting the generality of the foregoing, the Fund may pay to,
or on the order of, any person who has served from time to time as principal
underwriter (a "Principal Underwriter") amounts for distribution services
pursuant to a principal underwriting agreement or otherwise. No principal
underwriting agreement or other agreement shall be an agreement related to this
Plan, as referred to in Rule 12b-1 of the Securities and Exchange Commission,
unless it specifically states that it is such a related agreement. Any such
principal underwriting agreement may, but need not, provide that such Principal
Underwriter may be paid for distribution services to Class B-2 Shares
and/or other specified classes of shares of the Fund (together the
"B-Class-of-Shares"), a fee which may be designated a Distribution Fee and may
be paid at a rate per annum up to .75% of the average daily net asset value of
such B-Class-of-Shares of the Fund and may, but need not, also provide: (I) that
a Principal Underwriter will be deemed to have fully earned its "Allocable
Portion" of the Distribution Fee upon the sale of the Commission Shares (as
defined in the Allocation Schedule) taken into account in determining its
Allocable Portion; (II) that the Fund's obligation to pay such Principal
Underwriter its Allocable Portion of the Distribution Fees shall be absolute and
unconditional and shall not be subject to dispute, offset, counterclaim or any
defense whatsoever (it being understood that such provision is not a waiver of
the Fund's right to pursue such Principal Underwriter and enforce such claims
against the assets of such Principal Underwriter other than its right to its
Allocable Portion of the Distribution Fees and CDSCs (as defined below); (III)
that the Fund's obligation to pay such Principal Underwriter its Allocable
Portion of the Distribution Fees shall not be changed or terminated except to
the extent required by any change in applicable law, including without
limitation, the Investment Company Act of 1940, the Rules promulgated thereunder
by the Securities and Exchange Commission and the Rules of Fair Practice of the
National Association of Securities Dealers, Inc., in each case enacted or
promulgated after June 1, 1995, or in connection with a "Complete Termination"
(as hereinafter defined); (IV) that the Fund will not waive or change any
contingent deferred sales charge ("CDSC") in respect of the Distributor's
Allocable Portion thereof, except as provided in the Fund's prospectus or
statement of additional information without the consent of the Principal
Underwriter or any assignee of such Principal Underwriter's rights to its
Allocable Portion; (V) that the termination of the Principal Underwriter, the
principal underwriting agreement or this Plan will not terminate such Principal
Underwriter's rights to its Allocable Portion of the CDSCs; and (VI) that any
Principal Underwriter may assign its rights to its Allocable Portion of the
Distribution Fees and CDSCs (but not such Principal Underwriter's obligations to
the Fund under its principal underwriting agreement) to raise funds to make
expenditures described in Section 2 above and in connection therewith, and upon
receipt of notice of such assignment, the Fund shall pay to the assignee such
portion of the Principal Underwriter's Allocable Portion of the Distribution
Fees and CDSCs so assigned. For purposes of such principal underwriting
agreement, the term Allocable Portion of Distribution Fees as applied to any
Principal Underwriter may mean the portion of the Distribution Fee allocable to
Distributor Shares in accordance with the "Allocation Schedule" attached to such
Principal Underwriter's principal underwriting agreement. For purposes of such
principal underwriting agreement, the term Allocable Portion of CDSCs as applied
to any Principal Underwriter may mean the portion of the CDSCs allocable to
Distributor Shares in accordance with the Allocation Schedule attached to such
Principal Underwriter's principal underwriting agreement. For purposes of such
principal underwriting agreement, the term "Complete Termination" may mean a
termination of this Plan involving the cessation of payments of the Distribution
Fees thereunder, the cessation of payments of distribution fees pursuant to
every other rule 12b-1 plan of the Fund for every existing or future
B-Class-of-Shares and the cessation of the offering by the Fund of existing or
future B-Class-of-Shares, which conditions shall be deemed to be satisfied when
they are first complied with and so long thereafter as they are complied with
prior to the earlier of (i) the date upon which all of the B-2 Shares which are
Distributor Shares pursuant to the Allocation Schedule shall have been redeemed
or converted or (ii) a specified date, after either of which times such
conditions need no longer be complied with. For purposes of such principal
underwriting agreement, the term "B-Class-of-Shares" may mean each of the B-1
Class of Shares of the Fund, the B-2 Class of Shares of the Fund and each other
class of shares of the Fund hereafter issued which would be treated as "Shares"
under such Allocation Schedule or which has economic characteristics
substantially similar to those of the B-1 or B-2 Classes of Shares taking into
account the total sales charge, CDSC or other similar charges borne directly or
indirectly by the holder of the shares of such classes. The parties may agree
that the existing C Class of Shares of the Fund does not have substantially
similar economic characteristics to the B-1 or B-2 Classes of Shares taking into
account the total sales charge, CDSC or other similar charges borne directly or
indirectly by the holder of such shares. For purposes of clarity the parties to
such principal underwriting agreement may state that they intend that a new
installment load class of shares which may be authorized by amendments to Rule
6(c)-10 under the 1940 Act will be considered to be a B-Class-of-Shares if it
has economic characteristics substantially similar to the economic
characteristics of the existing B-1 or B-2 Classes of Shares taking into account
the total sales charge, CDSC or other similar charges borne directly or
indirectly by the holder of such shares and will not be considered to be a
B-Class-of-Shares if it has economic characteristics substantially similar to
the economic characteristics of the existing C Class of shares of the Fund
taking into account the total sales charge, CDSC or other similar charges borne
directly or indirectly by the holder of such shares. For purposes of such
principal underwriting agreement, "Allocation Schedule" may mean a schedule
which shall be approved by Directors (as defined below) in connection with their
required approval of such principal underwriting agreement as assigning to each
Principal Underwriter of Shares the portion of the total Distribution Fees
payable by the Fund under such principal underwriting agreement which has been
earned by such Principal Underwriter to the extent necessary so that the
continued payments thereof if such Principal Underwriter ceases to serve in that
capacity does not penalize the Fund by requiring it to pay for services that
have not been earned.
Section 3. This Plan shall not take effect until it has been approved by a
vote of at least a majority (as defined in the 1940 Act) of the outstanding
Shares.
Section 4. This Plan, and the specific implementation of expenditures
provided for under this Plan, shall not take effect until this Plan, and such
implementation, have been approved, together with any related agreements of the
Fund, by votes of both (a) a majority of the Board of Trustees or Directors
(together the "Directors") of the Fund and (b) a majority of those Directors of
the Fund who are not "interested persons" of the Fund (as said term is defined
in the 1940 Act) and who have no direct or indirect financial interest in the
operation of this Plan or any agreements of the Fund or any other person related
to this Plan (the "Rule 12b-1 Directors"), cast in person at a meeting called
for the purpose of voting on this Plan or such agreements.
Section 5. Unless sooner terminated pursuant to Section 7 hereof, this Plan
shall continue in effect for a period of one year from the date it takes effect
and thereafter shall continue in effect so long as such continuance is
specifically approved at least annually in the manner provided for approval of
this Plan in Section 4 hereof, except that, if terminated except for payments
provided to be made after termination of other aspects of this Plan, such
payments may be made pursuant to approvals made, and or agreements approved, as
provided above.
Section 6. Any person authorized to direct the disposition of monies paid
or payable by the Fund pursuant to this Plan or any related agreement shall
provide to the Fund's Board of Directors, and the Board shall review, at least
quarterly a written report of the amounts so expended and the purposes for which
such expenditures were made.
Section 7. This Plan may be terminated, in whole or in part, at any time by
vote of a majority of the Rule 12b-1 Directors or by vote of a majority of the
outstanding Shares, with the effects provided for in Section 2, as applicable.
Section 8. Any agreement of the Fund related to this Plan shall be in
writing, and shall provide as follows:
(a) That such agreement may be terminated at any time, without payment of
any penalty, by vote of a majority of the Rule 12b-1 Directors or by a
vote of a majority of the outstanding Shares on not more than sixty
days written notice to any other party to the agreement; and
(b) That such agreement shall terminate automatically in the event of its
assignment.
Section 9. This Plan may not be amended to increase materially the amount
of distribution expenses provided for in Section 2 hereof unless such amendment
is approved in the manner provided in Section 3 hereof, and no material
amendment to this Plan shall be made unless approved in the manner provided for
in Section 4 hereof.
<PAGE>
DISTRIBUTION PLAN
FOR
CLASS B-2 SHARES
OF
KEYSTONE PENNSYLVANIA TAX FREE FUND,
A SERIES OF KEYSTONE STATE TAX FREE FUND
Section 1. Keystone State Tax Free Fund, individually and/or on behalf
of its series, if any, referred to above in the title of this 12b-1 Plan (the
"Plan"), to which series this Plan shall then relate, as applicable (the
"Fund"), may act as the distributor of certain securities of which it is the
issuer pursuant to Rule 12b-1 under the Investment Company Act of 1940 (the
"1940 Act") according to the terms of this Distribution Plan.
Section 2. The Fund may expend daily amounts at an annual rate of up to
1.00% of the average daily net asset value of the Fund attributable to the
Fund's Class B-2 shares (the "Shares"). Such amounts may be expended to finance
any activity that is principally intended to result in the sale of Shares,
including, without limitation, expenditures consisting of payments to a
principal underwriter of the Fund or others as sales commissions or other
compensation for services provided or to be provided ("Distribution Fees") or as
reimbursement for expenses that are incurred or accrued at any time during which
this Plan is in effect, together with interest on any such amounts, at rates
approved by the Rule 12b-1 Directors (as defined below) in the manner referred
to below, all whether or not this Plan has been otherwise terminated, if such
payment of such expenditures is for services theretofore provided or for
reimbursement of expenses theretofore incurred or accrued prior to termination
of this Plan in other respects and if such payment is or has been so approved by
such Rule 12b-1 Directors, or agreed to by the Fund with such approval, all
subject to such specific implementation as such 12b-1 Directors may approve;
provided that, at the time any such payment is made, whether or not this Plan
has been otherwise terminated, the making of such payment will not cause the
limitation upon such payments set forth in the preceding sentence to be
exceeded. Without limiting the generality of the foregoing, the Fund may pay to,
or on the order of, any person who has served from time to time as principal
underwriter (a "Principal Underwriter") amounts for distribution services
pursuant to a principal underwriting agreement or otherwise. No principal
underwriting agreement or other agreement shall be an agreement related to this
Plan, as referred to in Rule 12b-1 of the Securities and Exchange Commission,
unless it specifically states that it is such a related agreement. Any such
principal underwriting agreement may, but need not, provide that such Principal
Underwriter may be paid for distribution services to Class B-2 Shares
and/or other specified classes of shares of the Fund (together the
"B-Class-of-Shares"), a fee which may be designated a Distribution Fee and may
be paid at a rate per annum up to .75% of the average daily net asset value of
such B-Class-of-Shares of the Fund and may, but need not, also provide: (I) that
a Principal Underwriter will be deemed to have fully earned its "Allocable
Portion" of the Distribution Fee upon the sale of the Commission Shares (as
defined in the Allocation Schedule) taken into account in determining its
Allocable Portion; (II) that the Fund's obligation to pay such Principal
Underwriter its Allocable Portion of the Distribution Fees shall be absolute and
unconditional and shall not be subject to dispute, offset, counterclaim or any
defense whatsoever (it being understood that such provision is not a waiver of
the Fund's right to pursue such Principal Underwriter and enforce such claims
against the assets of such Principal Underwriter other than its right to its
Allocable Portion of the Distribution Fees and CDSCs (as defined below); (III)
that the Fund's obligation to pay such Principal Underwriter its Allocable
Portion of the Distribution Fees shall not be changed or terminated except to
the extent required by any change in applicable law, including without
limitation, the Investment Company Act of 1940, the Rules promulgated thereunder
by the Securities and Exchange Commission and the Rules of Fair Practice of the
National Association of Securities Dealers, Inc., in each case enacted or
promulgated after June 1, 1995, or in connection with a "Complete Termination"
(as hereinafter defined); (IV) that the Fund will not waive or change any
contingent deferred sales charge ("CDSC") in respect of the Distributor's
Allocable Portion thereof, except as provided in the Fund's prospectus or
statement of additional information without the consent of the Principal
Underwriter or any assignee of such Principal Underwriter's rights to its
Allocable Portion; (V) that the termination of the Principal Underwriter, the
principal underwriting agreement or this Plan will not terminate such Principal
Underwriter's rights to its Allocable Portion of the CDSCs; and (VI) that any
Principal Underwriter may assign its rights to its Allocable Portion of the
Distribution Fees and CDSCs (but not such Principal Underwriter's obligations to
the Fund under its principal underwriting agreement) to raise funds to make
expenditures described in Section 2 above and in connection therewith, and upon
receipt of notice of such assignment, the Fund shall pay to the assignee such
portion of the Principal Underwriter's Allocable Portion of the Distribution
Fees and CDSCs so assigned. For purposes of such principal underwriting
agreement, the term Allocable Portion of Distribution Fees as applied to any
Principal Underwriter may mean the portion of the Distribution Fee allocable to
Distributor Shares in accordance with the "Allocation Schedule" attached to such
Principal Underwriter's principal underwriting agreement. For purposes of such
principal underwriting agreement, the term Allocable Portion of CDSCs as applied
to any Principal Underwriter may mean the portion of the CDSCs allocable to
Distributor Shares in accordance with the Allocation Schedule attached to such
Principal Underwriter's principal underwriting agreement. For purposes of such
principal underwriting agreement, the term "Complete Termination" may mean a
termination of this Plan involving the cessation of payments of the Distribution
Fees thereunder, the cessation of payments of distribution fees pursuant to
every other rule 12b-1 plan of the Fund for every existing or future
B-Class-of-Shares and the cessation of the offering by the Fund of existing or
future B-Class-of-Shares, which conditions shall be deemed to be satisfied when
they are first complied with and so long thereafter as they are complied with
prior to the earlier of (i) the date upon which all of the B-2 Shares which are
Distributor Shares pursuant to the Allocation Schedule shall have been redeemed
or converted or (ii) a specified date, after either of which times such
conditions need no longer be complied with. For purposes of such principal
underwriting agreement, the term "B-Class-of-Shares" may mean each of the B-1
Class of Shares of the Fund, the B-2 Class of Shares of the Fund and each other
class of shares of the Fund hereafter issued which would be treated as "Shares"
under such Allocation Schedule or which has economic characteristics
substantially similar to those of the B-1 or B-2 Classes of Shares taking into
account the total sales charge, CDSC or other similar charges borne directly or
indirectly by the holder of the shares of such classes. The parties may agree
that the existing C Class of Shares of the Fund does not have substantially
similar economic characteristics to the B-1 or B-2 Classes of Shares taking into
account the total sales charge, CDSC or other similar charges borne directly or
indirectly by the holder of such shares. For purposes of clarity the parties to
such principal underwriting agreement may state that they intend that a new
installment load class of shares which may be authorized by amendments to Rule
6(c)-10 under the 1940 Act will be considered to be a B-Class-of-Shares if it
has economic characteristics substantially similar to the economic
characteristics of the existing B-1 or B-2 Classes of Shares taking into account
the total sales charge, CDSC or other similar charges borne directly or
indirectly by the holder of such shares and will not be considered to be a
B-Class-of-Shares if it has economic characteristics substantially similar to
the economic characteristics of the existing C Class of shares of the Fund
taking into account the total sales charge, CDSC or other similar charges borne
directly or indirectly by the holder of such shares. For purposes of such
principal underwriting agreement, "Allocation Schedule" may mean a schedule
which shall be approved by Directors (as defined below) in connection with their
required approval of such principal underwriting agreement as assigning to each
Principal Underwriter of Shares the portion of the total Distribution Fees
payable by the Fund under such principal underwriting agreement which has been
earned by such Principal Underwriter to the extent necessary so that the
continued payments thereof if such Principal Underwriter ceases to serve in that
capacity does not penalize the Fund by requiring it to pay for services that
have not been earned.
Section 3. This Plan shall not take effect until it has been approved by a
vote of at least a majority (as defined in the 1940 Act) of the outstanding
Shares.
Section 4. This Plan, and the specific implementation of expenditures
provided for under this Plan, shall not take effect until this Plan, and such
implementation, have been approved, together with any related agreements of the
Fund, by votes of both (a) a majority of the Board of Trustees or Directors
(together the "Directors") of the Fund and (b) a majority of those Directors of
the Fund who are not "interested persons" of the Fund (as said term is defined
in the 1940 Act) and who have no direct or indirect financial interest in the
operation of this Plan or any agreements of the Fund or any other person related
to this Plan (the "Rule 12b-1 Directors"), cast in person at a meeting called
for the purpose of voting on this Plan or such agreements.
Section 5. Unless sooner terminated pursuant to Section 7 hereof, this Plan
shall continue in effect for a period of one year from the date it takes effect
and thereafter shall continue in effect so long as such continuance is
specifically approved at least annually in the manner provided for approval of
this Plan in Section 4 hereof, except that, if terminated except for payments
provided to be made after termination of other aspects of this Plan, such
payments may be made pursuant to approvals made, and or agreements approved, as
provided above.
Section 6. Any person authorized to direct the disposition of monies paid
or payable by the Fund pursuant to this Plan or any related agreement shall
provide to the Fund's Board of Directors, and the Board shall review, at least
quarterly a written report of the amounts so expended and the purposes for which
such expenditures were made.
Section 7. This Plan may be terminated, in whole or in part, at any time by
vote of a majority of the Rule 12b-1 Directors or by vote of a majority of the
outstanding Shares, with the effects provided for in Section 2, as applicable.
Section 8. Any agreement of the Fund related to this Plan shall be in
writing, and shall provide as follows:
(a) That such agreement may be terminated at any time, without payment of
any penalty, by vote of a majority of the Rule 12b-1 Directors or by a
vote of a majority of the outstanding Shares on not more than sixty
days written notice to any other party to the agreement; and
(b) That such agreement shall terminate automatically in the event of its
assignment.
Section 9. This Plan may not be amended to increase materially the amount
of distribution expenses provided for in Section 2 hereof unless such amendment
is approved in the manner provided in Section 3 hereof, and no material
amendment to this Plan shall be made unless approved in the manner provided for
in Section 4 hereof.
<PAGE>
KEYSTONE AMERICA FLORIDA TAX FREE FUND
CLASS C DISTRIBUTION PLAN
SECTION 1. Keystone America Florida Tax Free Fund (the "Fund") may act
as the distributor of securities of which it is the issuer pursuant to Rule
12b-1 under the Investment Company Act of 1940 (the "1940 Act") according to the
terms of this Distribution Plan ("Plan").
SECTION 2. The Fund may expend daily amounts at an annual rate of 1.00%
of the average daily net asset value of the Fund attributable to the Fund's
Class C shares to finance any activity that is principally intended to result in
the sale of Class C shares, including, without limitation, expenditures
consisting of payments to a principal underwriter of the Fund ("Principal
Underwriter") or others as sales commissions or other compensation for their
services that have been earned or as reimbursement for expenses that have been
incurred or accrued at any time during which this Plan has been in effect
together with interest at a rate approved from time to time by the Rule 12b-1
Trustees (as defined below) on any such amounts.
SECTION 3. This Plan shall not take effect until it has been approved
by a vote of at least a majority (as defined in the 1940 Act) of the outstanding
Class C shares.
SECTION 4. This Plan shall not take effect until it has been approved
together with any related agreements of the Fund by votes of a majority of both
(a) the Board of Trustees of the Fund and (b) those Trustees of the Fund who are
not "interested persons" of the Fund (as said term is defined in the 1940 Act)
and who have no direct or indirect financial interest in the operation of this
Plan or any agreements of the Fund or any other person related to this Plan (the
"Rule 12b-1 Trustees"), cast in person at a meeting called for the purpose of
voting on this Plan or such agreements.
SECTION 5. Unless sooner terminated pursuant to Section 7 hereof, this
Plan shall continue in effect for a period of one year from the date it takes
effect and thereafter shall continue in effect so long as such continuance is
specifically approved at least annually in the manner provided for approval of
this Plan in Section 4 hereof.
SECTION 6. Any person authorized to direct the disposition of monies
paid or payable by the Fund pursuant to this Plan or any related agreement shall
provide to the Fund's Board of Trustees and the Board shall review at least
quarterly a written report of the amounts so expended and the purposes for which
such expenditures were made.
SECTION 7. This Plan may be terminated at any time by vote of a
majority of the Rule 12b-1 Trustees or by vote of a majority of the outstanding
Class C shares.
SECTION 8. Any agreement of the Fund related to this Plan shall be in
writing, and shall provide as follows:
(a) That such agreement may be terminated at any time, without
payment of any penalty, by vote of a majority of the Rule
12b-1 Trustees or by a vote of a majority of the outstanding
Class C shares on not more than sixty days written notice to
any other party to the agreement; and
(b) That such agreement shall terminate automatically in
the event of its assignment.
SECTION 9. This Plan may not be amended to increase materially the
amount of distribution expenses provided for in Section 2 hereof unless such
amendment is approved in the manner provided in Section 3 hereof and no material
amendment to this Plan shall be made unless approved in the manner provided for
in Section 4 hereof.
<PAGE>
KEYSTONE AMERICA MASSACHUSETTS TAX FREE FUND
CLASS C DISTRIBUTION PLAN
SECTION 1. Keystone America Massachusetts Tax Free Fund (the "Fund")
may act as the distributor of securities of which it is the issuer pursuant to
Rule 12b-1 under the Investment Company Act of 1940 (the "1940 Act") according
to the terms of this Distribution Plan ("Plan").
SECTION 2. The Fund may expend daily amounts at an annual rate of 1.00%
of the average daily net asset value of the Fund attributable to the Fund's
Class C shares to finance any activity that is principally intended to result in
the sale of Class C shares, including, without limitation, expenditures
consisting of payments to a principal underwriter of the Fund ("Principal
Underwriter") or others as sales commissions or other compensation for their
services that have been earned or as reimbursement for expenses that have been
incurred or accrued at any time during which this Plan has been in effect
together with interest at a rate approved from time to time by the Rule 12b-1
Trustees (as defined below) on any such amounts.
SECTION 3. This Plan shall not take effect until it has been approved
by a vote of at least a majority (as defined in the 1940 Act) of the outstanding
Class C shares.
SECTION 4. This Plan shall not take effect until it has been approved
together with any related agreements of the Fund by votes of a majority of both
(a) the Board of Trustees of the Fund and (b) those Trustees of the Fund who are
not "interested persons" of the Fund (as said term is defined in the 1940 Act)
and who have no direct or indirect financial interest in the operation of this
Plan or any agreements of the Fund or any other person related to this Plan (the
"Rule 12b-1 Trustees"), cast in person at a meeting called for the purpose of
voting on this Plan or such agreements.
SECTION 5. Unless sooner terminated pursuant to Section 7 hereof, this
Plan shall continue in effect for a period of one year from the date it takes
effect and thereafter shall continue in effect so long as such continuance is
specifically approved at least annually in the manner provided for approval of
this Plan in Section 4 hereof.
SECTION 6. Any person authorized to direct the disposition of monies
paid or payable by the Fund pursuant to this Plan or any related agreement shall
provide to the Fund's Board of Trustees and the Board shall review at least
quarterly a written report of the amounts so expended and the purposes for which
such expenditures were made.
SECTION 7. This Plan may be terminated at any time by vote of a
majority of the Rule 12b-1 Trustees or by vote of a majority of the outstanding
Class C shares.
SECTION 8. Any agreement of the Fund related to this Plan shall be in
writing, and shall provide as follows:
(a) That such agreement may be terminated at any time, without
payment of any penalty, by vote of a majority of the Rule
12b-1 Trustees or by a vote of a majority of the outstanding
Class C shares on not more than sixty days written notice to
any other party to the agreement; and
(b) That such agreement shall terminate automatically in
the event of its assignment.
SECTION 9. This Plan may not be amended to increase materially the
amount of distribution expenses provided for in Section 2 hereof unless such
amendment is approved in the manner provided in Section 3 hereof and no material
amendment to this Plan shall be made unless approved in the manner provided for
in Section 4 hereof.
<PAGE>
KEYSTONE AMERICA NEW YORK INSURED TAX FREE FUND
CLASS C DISTRIBUTION PLAN
SECTION 1. Keystone America New York Insured Tax Free Fund (the "Fund")
may act as the distributor of securities of which it is the issuer pursuant to
Rule 12b-1 under the Investment Company Act of 1940 (the "1940 Act") according
to the terms of this Distribution Plan ("Plan").
SECTION 2. The Fund may expend daily amounts at an annual rate of 1.00%
of the average daily net asset value of the Fund attributable to the Fund's
Class C shares to finance any activity that is principally intended to result in
the sale of Class C shares, including, without limitation, expenditures
consisting of payments to a principal underwriter of the Fund ("Principal
Underwriter") or others as sales commissions or other compensation for their
services that have been earned or as reimbursement for expenses that have been
incurred or accrued at any time during which this Plan has been in effect
together with interest at a rate approved from time to time by the Rule 12b-1
Trustees (as defined below) on any such amounts.
SECTION 3. This Plan shall not take effect until it has been approved
by a vote of at least a majority (as defined in the 1940 Act) of the outstanding
Class C shares.
SECTION 4. This Plan shall not take effect until it has been approved
together with any related agreements of the Fund by votes of a majority of both
(a) the Board of Trustees of the Fund and (b) those Trustees of the Fund who are
not "interested persons" of the Fund (as said term is defined in the 1940 Act)
and who have no direct or indirect financial interest in the operation of this
Plan or any agreements of the Fund or any other person related to this Plan (the
"Rule 12b-1 Trustees"), cast in person at a meeting called for the purpose of
voting on this Plan or such agreements.
SECTION 5. Unless sooner terminated pursuant to Section 7 hereof, this
Plan shall continue in effect for a period of one year from the date it takes
effect and thereafter shall continue in effect so long as such continuance is
specifically approved at least annually in the manner provided for approval of
this Plan in Section 4 hereof.
SECTION 6. Any person authorized to direct the disposition of monies
paid or payable by the Fund pursuant to this Plan or any related agreement shall
provide to the Fund's Board of Trustees and the Board shall review at least
quarterly a written report of the amounts so expended and the purposes for which
such expenditures were made.
SECTION 7. This Plan may be terminated at any time by vote of a
majority of the Rule 12b-1 Trustees or by vote of a majority of the outstanding
Class C shares.
SECTION 8. Any agreement of the Fund related to this Plan shall be in
writing, and shall provide as follows:
(a) That such agreement may be terminated at any time, without
payment of any penalty, by vote of a majority of the Rule
12b-1 Trustees or by a vote of a majority of the outstanding
Class C shares on not more than sixty days written notice to
any other party to the agreement; and
(b) That such agreement shall terminate automatically in
the event of its assignment.
SECTION 9. This Plan may not be amended to increase materially the
amount of distribution expenses provided for in Section 2 hereof unless such
amendment is approved in the manner provided in Section 3 hereof and no material
amendment to this Plan shall be made unless approved in the manner provided for
in Section 4 hereof.
<PAGE>
KEYSTONE AMERICA PENNSYLVANIA TAX FREE FUND
CLASS C DISTRIBUTION PLAN
SECTION 1. Keystone America California Insured Tax Free Fund (the
"Fund") may act as the distributor of securities of which it is the issuer
pursuant to Rule 12b-1 under the Investment Company Act of 1940 (the "1940 Act")
according to the terms of this Distribution Plan ("Plan").
SECTION 2. The Fund may expend daily amounts at an annual rate of 1.00%
of the average daily net asset value of the Fund attributable to the Fund's
Class C shares to finance any activity that is principally intended to result in
the sale of Class C shares, including, without limitation, expenditures
consisting of payments to a principal underwriter of the Fund ("Principal
Underwriter") or others as sales commissions or other compensation for their
services that have been earned or as reimbursement for expenses that have been
incurred or accrued at any time during which this Plan has been in effect
together with interest at a rate approved from time to time by the Rule 12b-1
Trustees (as defined below) on any such amounts.
SECTION 3. This Plan shall not take effect until it has been approved
by a vote of at least a majority (as defined in the 1940 Act) of the outstanding
Class C shares.
SECTION 4. This Plan shall not take effect until it has been approved
together with any related agreements of the Fund by votes of a majority of both
(a) the Board of Trustees of the Fund and (b) those Trustees of the Fund who are
not "interested persons" of the Fund (as said term is defined in the 1940 Act)
and who have no direct or indirect financial interest in the operation of this
Plan or any agreements of the Fund or any other person related to this Plan (the
"Rule 12b-1 Trustees"), cast in person at a meeting called for the purpose of
voting on this Plan or such agreements.
SECTION 5. Unless sooner terminated pursuant to Section 7 hereof, this
Plan shall continue in effect for a period of one year from the date it takes
effect and thereafter shall continue in effect so long as such continuance is
specifically approved at least annually in the manner provided for approval of
this Plan in Section 4 hereof.
SECTION 6. Any person authorized to direct the disposition of monies
paid or payable by the Fund pursuant to this Plan or any related agreement shall
provide to the Fund's Board of Trustees and the Board shall review at least
quarterly a written report of the amounts so expended and the purposes for which
such expenditures were made.
SECTION 7. This Plan may be terminated at any time by vote of a
majority of the Rule 12b-1 Trustees or by vote of a majority of the outstanding
Class C shares.
SECTION 8. Any agreement of the Fund related to this Plan shall be in
writing, and shall provide as follows:
(a) That such agreement may be terminated at any time, without
payment of any penalty, by vote of a majority of the Rule
12b-1 Trustees or by a vote of a majority of the outstanding
Class C shares on not more than sixty days written notice to
any other party to the agreement; and
(b) That such agreement shall terminate automatically in
the event of its assignment.
SECTION 9. This Plan may not be amended to increase materially the
amount of distribution expenses provided for in Section 2 hereof unless such
amendment is approved in the manner provided in Section 3 hereof and no material
amendment to this Plan shall be made unless approved in the manner provided for
in Section 4 hereof.
<PAGE>
EXHIBIT 99.16
<TABLE>
<CAPTION>
KAFTF CLASS A MTD YTD ONE YEAR THREE YEAR THREE YEAR
29-Mar-96 TOTAL RETURN COMPOUNDED
<S> <C> <C> <C> <C> <C>
4.75% LOAD -6.93% 3.03% 10.75% 3.46%
no load -1.60% -2.29% 8.16% 16.27% 5.15%
Beg dates 29-Feb-96 29-Dec-95 31-Mar-95 31-Mar-93 31-Mar-93
Beg Value (LOAD) 15,915 16,027 14,478 13,469 13,469
Beg Value (no load) 15159.0238 15265.9339 13,791 12,829 12,829
End Value 14,916 14,916 14,916 14,916 14,916
TIME 3
INCEPTION DATE 28-Dec-90
Compound Total Return Time Period:
<CAPTION>
KAFTF CLASS A [continued] FIVE YEAR FIVE YEAR TEN YEAR TEN YEAR
TOTAL RETURN COMPOUNDED TOTAL RETURN COMPOUNDED
<S> <C> <C> <C> <C>
4.75% LOAD 37.25% 6.54% 42.08% 6.91%
no load 44.09% 7.58% 49.16% 7.90%
Beg dates 29-Mar-91 29-Mar-91 28-Dec-90 28-Dec-90
Beg Value (LOAD) 10,868 10,868 10,499 10,499
Beg Value (no load) 10,352 10,352 10,000 10,000
End Value 14,916 14,916 14,916 14,916
TIME 5 5.2583333333333
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
KAMATF CLASS A MTD YTD ONE YEAR THREE YEAR THREE YEAR
29-Mar-96 TOTAL RETURN COMPOUNDED
<S> <C> <C> <C> <C> <C>
4.75% LOAD -7.08% 1.57% -0.08% -0.04%
no load -1.56% -2.45% 6.64% 4.90% 2.24%
Beg dates 29-Feb-96 29-Dec-95 31-Mar-95 03-Feb-94 03-Feb-94
Beg Value (LOAD) 11,188 11,290 10,328 10,499 10,499
Beg Value (no load) 10,657 10,754 9,837 10,000 10,000
End Value 10,490 10,490 10,490 10,490 10,490
TIME 2.1611111111111
INCEPTION DATE 03-Feb-94
Compound Total Return Time Period begining 12/30/94
<CAPTION>
KAMATF CLASS A [continued] FIVE YEAR FIVE YEAR TEN YEAR TEN YEAR
TOTAL RETURN COMPOUNDED TOTAL RETURN COMPOUNDED
<S> <C> <C> <C> <C>
4.75% LOAD -0.08% -0.04% -0.08% -0.04%
no load 4.90% 2.24% 4.90% 2.24%
Beg dates 03-Feb-94 03-Feb-94 03-Feb-94 03-Feb-94
Beg Value (LOAD) 10,499 10,499 10,499 10,499
Beg Value (no load) 10,000 10,000 10,000 10,000
End Value 10,490 10,490 10,490 10,490
TIME 2.1611111111111 2.1611111111111
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
KANYTF CLASS A MTD YTD ONE YEAR THREE YEAR THREE YEAR
29-Mar-96 TOTAL RETURN COMPOUNDED
<S> <C> <C> <C> <C> <C>
4.75% LOAD -6.74% 2.61% 3.38% 1.55%
no load -1.71% -2.09% 7.73% 8.54% 3.86%
Beg dates 29-Feb-96 29-Dec-95 31-Mar-95 03-Feb-94 03-Feb-94
Beg Value (LOAD) 11,594 11,639 10,578 10,499 10,499
Beg Value (no load) 11,043 11,086 10,075 10,000 10,000
End Value 10,854 10,854 10,854 10,854 10,854
TIME 2.1611111111111
INCEPTION DATE 03-Feb-94
Compound Total Return Time Period: begining 12/30/94
Through 03/29/96
<CAPTION>
KANYTF CLASS A [continued] FIVE YEAR FIVE YEAR TEN YEAR TEN YEAR
TOTAL RETURN COMPOUNDED TOTAL RETURN COMPOUNDED
<S> <C> <C> <C> <C>
4.75% LOAD 3.38% 1.55% 3.38% 1.55%
no load 8.54% 3.86% 8.54% 3.86%
Beg dates 03-Feb-94 03-Feb-94 03-Feb-94 03-Feb-94
Beg Value (LOAD) 10,499 10,499 10,499 10,499
Beg Value (no load) 10,000 10,000 10,000 10,000
End Value 10,854 10,854 10,854 10,854
TIME 2.1611111111111 2.1611111111111
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
KAPTFF CLASS A MTD YTD ONE YEAR THREE YEAR THREE YEAR
29-Mar-96 TOTAL RETURN COMPOUNDED
<S> <C> <C> <C> <C> <C>
4.75% LOAD -7.10% 2.55% 10.36% 3.34%
no load -1.85% -2.47% 7.66% 15.86% 5.03%
Beg dates 29-Feb-96 29-Dec-95 31-Mar-95 31-Mar-93 31-Mar-93
Beg Value (LOAD) 16,424 16,528 14,972 13,913 13,913
Beg Value (no load) 15,644 15,743 14,261 13,252 13,252
End Value 15,354 15,354 15,354 15,354 15,354
TIME 3
INCEPTION DATE 27-Dec-90
Compound Total Return Time Period:
<CAPTION>
KAPTFF CLASS A [continued] FIVE YEAR FIVE YEAR TEN YEAR TEN YEAR
TOTAL RETURN COMPOUNDED TOTAL RETURN COMPOUNDED
<S> <C> <C> <C> <C> <C>
4.75% LOAD 40.12% 6.98% 46.25% 7.49%
no load 47.11% 8.03% 53.54% 8.49%
Beg dates 29-Mar-91 29-Mar-91 27-Dec-90 27-Dec-90
Beg Value (LOAD) 10,958 10,958 10,499 10,499
Beg Value (no load) 10,437 10,437 10,000 10,000
End Value 15,354 15,354 15,354 15,354
TIME 5 5.2611111111111
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
KAFTF-B MTD YTD ONE YEAR THREE YEAR THREE YEAR
29-Mar-96 TOTAL RETURN COMPOUNDED
<S> <C> <C> <C> <C> <C>
with cdsc N/A -7.24% 3.48% 10.85% 3.49%
W/O CDSC -1.65% -2.42% 7.48% 13.73% 4.38%
Beg dates 29-Feb-96 29-Dec-95 31-Mar-95 31-Mar-93 31-Mar-93
Beg Value (no load) 11,802 11,894 10,798 10,206 10,206
End Value (W/O CDSC) 11,607 11,607 11,607 11,607 11,607
End Value (with cdsc) 11,033 11,175 11,313 11,313
beg nav 10.70 10.87 10.24 10.94 10.94
end nav 10.48 10.48 10.48 10.48 10.48
shares originally purhased 1,102.97 1,094.23 1,054.52 932.87 932.87
5% cdsc thru date = 31-Jan-94
TIME 4% cdsc thru date = 31-Jan-95 3
INCEPTION DATE 01-Feb-93 3% cdsc effect. date = 31-Jan-97
2% cdsc effect. date = 31-Jan-98
1% cdsc effect. date = 31-Jan-99
<CAPTION>
KAFTF-B FIVE YEAR FIVE YEAR TEN YEAR TEN YEAR
TOTAL RETURN COMPOUNDED TOTAL RETURN COMPOUNDED
<S> <C> <C> <C> <C>
with cdsc 13.16% 3.98% NA NA
W/O CDSC 16.07% 4.82% NA NA
Beg dates 01-Feb-93 01-Feb-93 01-Feb-93 01-Feb-93
Beg Value (no load) 10,000 10,000 10,000 10,000
End Value (W/O CDSC) 11,607 11,607 11,607 11,607
End Value (with cdsc) 11,316 11315.737404434 11,607 11606.57921757
beg nav 10.81 10.81 10.81 10.81
end nav 10.48 10.48 10.48 10.48
shares originally purhased 925.07 925.07 925.07 925.07
TIME 3.1666666666667 3.1666666666667
INCEPTION DATE 31-Dec-96
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
KAMATF-B MTD YTD ONE YEAR THREE YEAR THREE YEAR
29-Mar-96 TOTAL RETURN COMPOUNDED
<S> <C> <C> <C> <C> <C>
with cdsc N/A -7.56% 1.77% 0.70% 0.32%
W/O CDSC -1.74% -2.75% 5.77% 3.47% 1.59%
Beg dates 29-Feb-96 29-Dec-95 31-Mar-95 03-Feb-94 03-Feb-94
Beg Value (no load) 10,530 10,639 9,782 10,000 10,000
End Value (W/O CDSC) 10,347 10,347 10,347 10,347 10,347
End Value (with cdsc) 9,835 9,955 10,070 10,070
beg nav 9.42 9.59 9.15 10.00 10
end nav 9.22 9.22 9.22 9.22 9.22
shares originally purhased 1,117.83 1,109.40 1,069.10 1,000.00 1,000.00
5% cdsc thru date = 31-Jan-95
TIME 4% cdsc thru date = 31-Jan-96 2.16111111111
INCEPTION DATE 03-Feb-94 3% cdsc effect. date = 31-Jan-98
2% cdsc effect. date = 31-Jan-99
INCEPTION DATE 03-Feb-94 1% cdsc effect. date = 01-Feb-00
<CAPTION>
KAMATF-B [continued] FIVE YEAR FIVE YEAR TEN YEAR TEN YEAR
TOTAL RETURN COMPOUNDED TOTAL RETURN COMPOUNDED
<S> <C> <C> <C> <C>
with cdsc NA NA NA NA
W/O CDSC NA NA NA NA
Beg dates 03-Feb-94 03-Feb-94 03-Feb-94 03-Feb-94
Beg Value (no load) 10,000 10,000 10,000 10,000
End Value (W/O CDSC) 10,347 10,347 10,347 10,347
End Value (with cdsc) 10,254 10254.422332535 10,347 10346.622332535
beg nav 10.00 10 10.00 10
end nav 9.22 9.22 9.22 9.22
shares originally purhased 1,000.00 1,000.00 1,000.00 1,000.00
TIME 2.1611111111111 2.1611111111111
INCEPTION DATE 31-Dec-96
INCEPTION DATE
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
KANYTF-B MTD YTD ONE YEAR THREE YEAR THREE YEAR
29-Mar-96 TOTAL RETURN COMPOUNDED
<S> <C> <C> <C> <C> <C>
with cdsc N/A -7.02% 3.02% 4.14% 1.90%
W/O CDSC -1.69% -2.19% 7.02% 7.02% 3.19%
Beg dates 29-Feb-96 29-Dec-95 31-Mar-95 03-Feb-94 03-Feb-94
Beg Value (no load) 10,886 10,941 10,000 10,000 10,000
End Value (W/O CDSC) 10,702 10,702 10,702 10,702 10,702
End Value (with cdsc) 10,173 10,302 10,414 10,414
beg nav 9.79 9.91 9.38 10.00 10
end nav 9.59 9.59 9.59 9.59 9.59
shares originally purhased 1,111.90 1,104.05 1,066.11 1,000.00 1,000.00
5% cdsc thru date = 31-Jan-95
TIME 4% cdsc thru date = 31-Jan-96 2.16111111111
INCEPTION DATE 03-Feb-94 3% cdsc effect. date = 31-Jan-98
2% cdsc effect. date = 31-Jan-99
INCEPTION DATE 03-Feb-94 1% cdsc effect. date = 01-Feb-00
<CAPTION>
KANYTF-B [continued] FIVE YEAR FIVE YEAR TEN YEAR TEN YEAR
TOTAL RETURN COMPOUNDED TOTAL RETURN COMPOUNDED
<S> <C> <C> <C> <C>
with cdsc NA NA NA NA
W/O CDSC NA NA NA NA
Beg dates 03-Feb-94 03-Feb-94 03-Feb-94 03-Feb-94
Beg Value (no load) 10,000 10,000 10,000 10,000
End Value (W/O CDSC) 10,702 10,702 10,702 10,702
End Value (with cdsc) 10,606 10606.14933071 10,702 10702.04933071
beg nav 10.00 10 10.00 10
end nav 9.59 9.59 9.59 9.59
shares originally purhased 1,000.00 1,000.00 1,000.00 1,000.00
TIME 2.16111111111 2.1611111111111
INCEPTION DATE 31-Dec-96
INCEPTION DATE
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
KAPTFF-B MTD YTD ONE YEAR THREE YEAR THREE YEAR
29-Mar-96 TOTAL RETURN COMPOUNDED
<S> <C> <C> <C> <C> <C>
with cdsc N/A -7.49% 2.84% 10.27% 3.31%
W/O CDSC -1.91% -2.69% 6.84% 13.16% 4.21%
Beg dates 29-Feb-96 29-Dec-95 31-Mar-95 31-Mar-93 31-Mar-93
Beg Value (no load) 11,862 11,957 10,891 10,282 10,282
End Value (W/O CDSC) 11,636 11,636 11,636 11,636 11,636
End Value (with cdsc) 11,061 11,200 11,339 11,339
beg nav 11.26 11.44 10.81 11.42 11.42
end nav 11.00 11.00 11 11 11
shares originally purhased 1,053.49 1,045.19 1,007.49 900.37 900.37
5% cdsc thru da 31-Jan-94
TIME 4% cdsc thru da 31-Jan-95 3
INCEPTION DATE 01-Feb-93 3% cdsc effect. 31-Jan-97
2% cdsc effect. 31-Jan-98
1% cdsc effect. 31-Jan-99
<CAPTION>
KAPTFF-B [continued] FIVE YEAR FIVE YEAR TEN YEAR TEN YEAR
TOTAL RETURN COMPOUNDED TOTAL RETURN COMPOUNDED
<S> <C> <C> <C> <C>
with cdsc 13.41% 4.05% NA NA
W/O CDSC 16.36% 4.90% NA NA
Beg dates 01-Feb-93 01-Feb-93 01-Feb-93 01-Feb-93
Beg Value (no load) 10,000 10,000 10,000 10,000
End Value (W/O CDSC) 11,636 11,636 11,636 11,636
End Value (with cdsc) 11,341 11341.105009039 11,636 11635.7478662182
beg nav 11.20 11.2 11.20 11.2
end nav 11 11 11 11
shares originally purhased 892.86 892.86 892.86 892.86
TIME 3.1666666666667 3.1666666666667
INCEPTION DATE 31-Dec-96
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
KAFLTFF-C MTD YTD ONE YEAR THREE YEAR THREE YEAR
29-Mar-96 TOTAL RETURN COMPOUNDED
<S> <C> <C> <C> <C> <C>
with cdsc N/A -3.38% 7.47% 13.80% 4.40%
W/O CDSC -1.65% -2.41% 7.47% 13.80% 4.40%
Beg dates 29-Feb-96 29-Dec-95 31-Mar-95 31-Mar-93 31-Mar-93
Beg Value (no load) 11,798 11,890 10,796 10,195 10,195
End Value (W/O CDSC) 11,603 11,603 11,603 11,603 11,603
End Value (with cdsc) 11,488 11,603 11,603 11,603
beg nav 10.72 10.89 10.26 10.93 10.93
end nav 10.50 10.50 10.5 10.5 10.5
shares originally purhased 1,100.52 1,091.81 1,052.26 932.79 932.79
TIME 3
INCEPTION DATE 01-Feb-93 1% cdsc effect. 01-Jan-96
Compound Return Time Period: BEGINNING Dec-95
Through Mar-96
<CAPTION>
KAFLTFF-C [continued] FIVE YEAR FIVE YEAR TEN YEAR TEN YEAR
TOTAL RETURN COMPOUNDED TOTAL RETURN COMPOUNDED
<S> <C> <C> <C> <C>
with cdsc 16.03% 4.81% NA NA
W/O CDSC 16.03% 4.81% NA NA
Beg dates 01-Feb-93 01-Feb-93 01-Feb-93 01-Feb-93
Beg Value (no load) 10,000 10,000 10,000 10,000
End Value (W/O CDSC) 11,603 11,603 11,603 11,603
End Value (with cdsc) 11,603 11602.756003008 11,603 11602.756003008
beg nav 10.81 10.81 10.81 10.81
end nav 10.5 10.5 10.5 10.5
shares originally purhased 925.07 925.07 925.07 925.07
TIME 3.1666666666667 3.1666666666667
INCEPTION DATE 31-Dec-96
1% cdsc thru date^
Compound Return Time Period:
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
KAMATF-C MTD YTD ONE YEAR THREE YEAR THREE YEAR
29-Mar-96 TOTAL RETURN COMPOUNDED
<S> <C> <C> <C> <C> <C>
with cdsc N/A -3.61% 5.89% 3.36% 1.54%
W/O CDSC -1.74% -2.65% 5.89% 3.36% 1.54%
Beg dates 29-Feb-96 29-Dec-95 31-Mar-95 03-Feb-94 03-Feb-94
Beg Value (no load) 10,520 10,618 9,761 10,000 10,000
End Value (W/O CDSC) 10,336 10,336 10,336 10,336 10,336
End Value (with cdsc) 10,234 10,336 10,336 10,336
beg nav 9.42 9.58 9.14 10.00 10
end nav 9.22 9.22 9.22 9.22 9.22
shares originally purhased 1,116.72 1,108.30 1,068.00 1,000.00 1,000.00
TIME 2.16111111111
INCEPTION DATE 03-Feb-94 1% cdsc effe 01-Jan-96
INCEPTION DATE 03-Feb-94
<CAPTION>
KAMATF-C [continued] FIVE YEAR FIVE YEAR TEN YEAR TEN YEAR
TOTAL RETURN COMPOUNDED TOTAL RETURN COMPOUNDED
<S> <C> <C> <C> <C>
with cdsc 3.36% 1.54% NA NA
W/O CDSC 3.36% 1.54% NA NA
Beg dates 03-Feb-94 03-Feb-94 03-Feb-94 03-Feb-94
Beg Value (no load) 10,000 10,000 10,000 10,000
End Value (W/O CDSC) 10,336 10,336 10,336 10,336
End Value (with cdsc) 10,336 10336.394083412 10,336 10336.394083412
beg nav 10.00 10 10.00 10
end nav 9.22 9.22 9.22 9.22
shares originally purhased 1,000.00 1,000.00 1,000.00 1,000.00
TIME 2.1611111111111 2.1611111111111
INCEPTION DATE 31-Dec-96
1% cdsc thru date^
INCEPTION DATE
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
KANYTF-C MTD YTD ONE YEAR THREE YEAR THREE YEAR
29-Mar-96 TOTAL RETURN COMPOUNDED
<S> <C> <C> <C> <C> <C>
with cdsc N/A -3.25% 7.02% 6.80% 3.09%
W/O CDSC -1.79% -2.29% 7.02% 6.80% 3.09%
Beg dates 29-Feb-96 29-Dec-95 31-Mar-95 03-Feb-94 03-Feb-94
Beg Value (no load) 10,874 10,930 9,979 10,000 10,000
End Value (W/O CDSC) 10,680 10,680 10,680 10,680 10,680
End Value (with cdsc) 10,574 10,680 10,680 10,680
beg nav 9.79 9.91 9.37 10.00 10
end nav 9.58 9.58 9.58 9.58 9.58
shares originally purhased 1,110.76 1,102.92 1,065.02 1,000.00 1,000.00
TIME 2.16111111111
INCEPTION DATE 03-Feb-94 1% cdsc effect. 01-Jan-96
INCEPTION DATE 03-Feb-94
<CAPTION>
KANYTF-C [continued] FIVE YEAR FIVE YEAR TEN YEAR TEN YEAR
TOTAL RETURN COMPOUNDED TOTAL RETURN COMPOUNDED
<S> <C> <C> <C> <C>
with cdsc 6.80% 3.09% NA NA
W/O CDSC 6.80% 3.09% NA NA
Beg dates 03-Feb-94 03-Feb-94 03-Feb-94 03-Feb-94
Beg Value (no load) 10,000 10,000 10,000 10,000
End Value (W/O CDSC) 10,680 10,680 10,680 10,680
End Value (with cdsc) 10,680 10679.991469944 10,680 10679.991469944
beg nav 10.00 10 10.00 10
end nav 9.58 9.58 9.58 9.58
shares originally purhased 1,000.00 1,000.00 1,000.00 1,000.00
TIME 2.1611111111111 2.1611111111111
INCEPTION DATE 31-Dec-96
1% cdsc thru date^
INCEPTION DATE
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
KAPATFF-C MTD YTD ONE YEAR THREE YEAR THREE YEAR
29-Mar-96 TOTAL RETURN COMPOUNDED
<S> <C> <C> <C> <C> <C>
with cdsc N/A -3.64% 6.92% 13.23% 4.23%
W/O CDSC -1.90% -2.68% 6.92% 13.23% 4.23%
Beg dates 29-Feb-96 29-Dec-95 31-Mar-95 31-Mar-93 31-Mar-93
Beg Value (no load) 11,867 11,962 10,888 10,281 10,281
End Value (W/O CDSC) 11,641 11,641 11,641 11,641 11,641
End Value (with cdsc) 11,526 11,641 11,641 11,641
beg nav 11.29 11.47 10.83 11.42 11.42
end nav 11.03 11.03 11.03 11.03 11.03
shares originally purhased 1,051.12 1,042.87 1,005.35 900.29 900.29
TIME 3
INCEPTION DATE 01-Feb-93 1% cdsc effect. 01-Jan-96
Compound Return Time Period: BEGINNING Dec-95
Through Mar-96
<CAPTION>
KAPATFF-C [continued] FIVE YEAR FIVE YEAR TEN YEAR TEN YEAR
TOTAL RETURN COMPOUNDED TOTAL RETURN COMPOUNDED
<S> <C> <C> <C> <C>
with cdsc 16.41% 4.92% NA NA
W/O CDSC 16.41% 4.92% NA NA
Beg dates 01-Feb-93 01-Feb-93 01-Feb-93 01-Feb-93
Beg Value (no load) 10,000 10,000 10,000 10,000
End Value (W/O CDSC) 11,641 11,641 11,641 11,641
End Value (with cdsc) 11,641 11641.179579505 11,641 11641.179579505
beg nav 11.20 11.2 11.20 11.2
end nav 11.03 11.03 11.03 11.03
shares originally purhased 892.86 892.86 892.86 892.86
TIME 3.1666666666667 3.1666666666667
INCEPTION DATE 31-Dec-96
1% cdsc thru date^
Compound Return Time Period:
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
FLORIDA TAX FREE FUND CLASS A
PRICING DATE 03/26/96
............
TOTAL INCOME FOR PERIOD 183,981.56
TOTAL EXPENSES FOR PERIOD 23,679.25
30 DAY YTM 4.90174% AVERAGE SHARES OUTSTANDING 3,549,027.92
............
LAST PRICE DURING PERIOD 11.17
...............................................................................................................
PRICE ST VARIABLE LONG TERM ZERO COUPON TOTAL DIV ADJUSTED
DATE INCOME INCOME INCOME INCOME FACTOR INCOME
...............................................................................................................
<S> <C> <C> <C> <C> <C> <C> <C>
1 02/26/96 383.20 16,612.53 16,995.73 36.04330701 6,125.82
2 02/27/96 41.98 17,324.88 17,366.86 35.79116320 6,215.80
3 02/28/96 15.42 17,170.08 17,185.50 36.05508831 6,196.25
4 02/29/96 11.40 17,195.30 17,206.70 36.09430028 6,210.64
5 03/01/96 17.92 17,079.88 17,097.80 36.12556325 6,176.68
6 03/02/96 17.92 17,079.88 17,097.80 36.12556325 6,176.68
7 03/03/96 17.92 17,079.88 17,097.80 36.12556325 6,176.68
8 03/04/96 106.46 16,921.44 17,027.90 36.09699770 6,146.56
9 03/05/96 32.17 16,933.10 16,965.27 36.15224990 6,133.33
10 03/06/96 92.45 16,817.94 16,910.39 36.12701970 6,109.22
11 03/07/96 43.13 16,809.43 16,852.56 36.14458250 6,091.29
12 03/08/96 17.84 16,942.68 16,960.52 36.21209260 6,141.76
13 03/09/96 17.84 16,942.68 16,960.52 36.21209260 6,141.76
14 03/10/96 17.84 16,942.68 16,960.52 36.21209260 6,141.76
15 03/11/96 21.38 16,786.83 16,808.21 36.20901520 6,086.09
16 03/12/96 77.79 16,824.62 16,902.41 36.19676140 6,118.13
17 03/13/96 78.54 16,828.00 16,906.54 36.13942190 6,109.93
18 03/14/96 71.40 16,830.77 16,902.17 36.16000900 6,111.83
19 03/15/96 68.04 16,893.24 16,961.28 36.16659310 6,134.32
20 03/16/96 68.04 16,893.24 16,961.28 36.16659310 6,134.32
21 03/17/96 68.04 16,893.24 16,961.28 36.16659310 6,134.32
22 03/18/96 66.17 16,891.12 16,957.29 36.17439330 6,134.20
23 03/19/96 71.76 16,873.23 16,944.99 36.14000240 6,123.92
24 03/20/96 77.61 16,863.27 16,940.88 36.12824070 6,120.44
25 03/21/96 77.44 16,834.02 16,911.46 36.11197493 6,107.06
26 03/22/96 81.09 16,832.45 16,913.54 36.10135807 6,106.02
27 03/23/96 81.09 16,832.45 16,913.54 36.10135807 6,106.02
28 03/24/96 81.09 16,832.45 16,913.54 36.10135807 6,106.02
29 03/25/96 78.08 16,808.24 16,886.32 36.05661360 6,088.64
30 03/26/96 71.31 16,815.00 16,886.31 35.98221249 6,076.07
1,972.35 507,384.55 0.00 509,356.90 1,083.62017458 183,981.56
<PAGE>
<CAPTION>
............................................................................................................
PRICE DAILY DAILY DAILY ACCUMULATED ACCUMULATED ACCUMULATED
DATE EXPENSES SHARES PRICE INCOME EXPENSES SHARES
............................................................................................................
<S> <C> <C> <C> <C> <C> <C> <C>
1 02/26/96 792.12 3,572,850.797 11.38 6,125.82 792.12 3,572,850.797
2 02/27/96 790.78 3,557,249.737 11.38 12,341.62 1,582.90 7,130,100.534
3 02/28/96 790.98 3,557,249.737 11.39 18,537.87 2,373.88 10,687,350.271
4 02/29/96 791.25 3,558,555.571 11.36 24,748.51 3,165.13 14,245,905.842
5 03/01/96 789.01 3,561,436.597 11.41 30,925.19 3,954.14 17,807,342.439
6 03/02/96 789.01 3,561,436.597 11.41 37,101.87 4,743.16 21,368,779.036
7 03/03/96 789.01 3,561,436.597 11.41 43,278.55 5,532.17 24,930,215.633
8 03/04/96 793.58 3,559,396.392 11.44 49,425.11 6,325.75 28,489,612.025
9 03/05/96 794.72 3,559,396.392 11.42 55,558.44 7,120.47 32,049,008.417
10 03/06/96 791.69 3,561,147.705 11.38 61,667.66 7,912.16 35,610,156.122
11 03/07/96 789.53 3,561,147.705 11.36 67,758.95 8,701.69 39,171,303.827
12 03/08/96 785.09 3,557,045.705 11.15 73,900.71 9,486.78 42,728,349.532
13 03/09/96 785.09 3,557,045.705 11.15 80,042.47 10,271.88 46,285,395.237
14 03/10/96 785.09 3,557,045.705 11.15 86,184.23 11,056.97 49,842,440.942
15 03/11/96 774.07 3,547,273.559 11.16 92,270.32 11,831.04 53,389,714.501
16 03/12/96 773.71 3,543,664.058 11.10 98,388.45 12,604.75 56,933,378.559
17 03/13/96 767.15 3,543,667.055 11.09 104,498.38 13,371.90 60,477,045.614
18 03/14/96 767.16 3,543,648.116 11.09 110,610.21 14,139.06 64,020,693.730
19 03/15/96 767.89 3,542,137.116 10.99 116,744.53 14,906.95 67,562,830.846
20 03/16/96 767.89 3,542,137.116 10.99 122,878.85 15,674.83 71,104,967.962
21 03/17/96 767.89 3,542,137.116 10.99 129,013.17 16,442.72 74,647,105.078
22 03/18/96 760.62 3,542,122.075 11.00 135,147.37 17,203.34 78,189,227.153
23 03/19/96 815.58 3,537,642.802 11.02 141,271.29 18,018.92 81,726,869.955
24 03/20/96 815.35 3,536,096.802 11.06 147,391.73 18,834.27 85,262,966.757
25 03/21/96 818.21 3,537,694.075 11.12 153,498.79 19,652.48 88,800,660.832
26 03/22/96 823.19 3,538,392.473 11.12 159,604.81 20,475.67 92,339,053.305
27 03/23/96 823.19 3,538,392.473 11.12 165,710.83 21,298.87 95,877,445.778
28 03/24/96 823.19 3,538,392.473 11.12 171,816.85 22,122.06 99,415,838.251
29 03/25/96 439.52 3,532,547.117 11.18 177,905.49 22,561.58 102,948,385.368
30 03/26/96 767.88 3,522,452.172 11.17 183,981.56 23,329.46 106,470,837.540
23,329.46 3,549,027.918
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
FLORIDA TAX FREE FUND CLASS B
PRICING DATE 03/26/96
.............
TOTAL INCOME FOR PERIOD 266,871.97
TOTAL EXPENSES FOR PERIOD 68,268.07
30 DAY YTM 4.38803% AVERAGE SHARES OUTSTANDING 5,209,778.20
.............
LAST PRICE DURING PERIOD 10.52
............................................................................................................
PRICE ST VARIABLE LONG TERM ZERO COUPON TOTAL DIV ADJUSTED
DATE INCOME INCOME INCOME INCOME FACTOR INCOME
............................................................................................................
<S> <C> <C> <C> <C> <C> <C> <C>
1 02/26/96 383.20 16,612.53 0.00 16,995.73 52.38471153 8,903.16
2 02/27/96 41.98 17,324.88 0.00 17,366.86 52.66752790 9,146.70
3 02/28/96 15.42 17,170.08 0.00 17,185.50 52.34104036 8,995.07
4 02/29/96 11.40 17,195.30 0.00 17,206.70 52.31321496 9,001.38
5 03/01/96 17.92 17,079.88 0.00 17,097.80 52.26813501 8,936.70
6 03/02/96 17.92 17,079.88 0.00 17,097.80 52.26813501 8,936.70
7 03/03/96 17.92 17,079.88 0.00 17,097.80 52.26813501 8,936.70
8 03/04/96 106.46 16,921.44 0.00 17,027.90 52.30210390 8,905.95
9 03/05/96 32.17 16,933.10 0.00 16,965.27 52.23748060 8,862.23
10 03/06/96 92.45 16,817.94 0.00 16,910.39 52.26302910 8,837.88
11 03/07/96 43.13 16,809.43 0.00 16,852.56 52.24000710 8,803.78
12 03/08/96 17.84 16,942.68 0.00 16,960.52 52.34130030 8,877.35
13 03/09/96 17.84 16,942.68 0.00 16,960.52 52.34130030 8,877.35
14 03/10/96 17.84 16,942.68 0.00 16,960.52 52.34130030 8,877.35
15 03/11/96 21.38 16,786.83 0.00 16,808.21 52.35132870 8,799.32
16 03/12/96 77.79 16,824.62 0.00 16,902.41 52.35389600 8,849.07
17 03/13/96 78.54 16,828.00 0.00 16,906.54 52.39750330 8,858.60
18 03/14/96 71.40 16,830.77 0.00 16,902.17 52.36861030 8,851.43
19 03/15/96 68.04 16,893.24 0.00 16,961.28 52.40621750 8,888.77
20 03/16/96 68.04 16,893.24 0.00 16,961.28 52.40621750 8,888.77
21 03/17/96 68.04 16,893.24 0.00 16,961.28 52.40621750 8,888.77
22 03/18/96 66.17 16,891.12 0.00 16,957.29 52.42665470 8,890.14
23 03/19/96 71.76 16,873.23 0.00 16,944.99 52.46807270 8,890.71
24 03/20/96 77.61 16,863.27 0.00 16,940.88 52.48212290 8,890.93
25 03/21/96 77.44 16,834.02 0.00 16,911.46 52.49083515 8,876.97
26 03/22/96 81.09 16,832.45 0.00 16,913.54 52.50715865 8,880.82
27 03/23/96 81.09 16,832.45 0.00 16,913.54 52.50715865 8,880.82
28 03/24/96 81.09 16,832.45 0.00 16,913.54 52.50715865 8,880.82
29 03/25/96 78.08 16,808.24 0.00 16,886.32 52.54752227 8,873.34
30 03/26/96 71.31 16,815.00 0.00 16,886.31 52.61295882 8,884.39
1,972.35 507,384.55 0.00 509,356.90 1571.8170547 266,871.97
<PAGE>
<CAPTION>
...............................................................................................................
PRICE DAILY DAILY DAILY ACCUMULATED ACCUMULATED ACCUMULATED
DATE EXPENSES SHARES PRICE INCOME EXPENSES SHARES
...............................................................................................................
<S> <C> <C> <C> <C> <C> <C> <C>
1 02/26/96 2,334.52 5,250,696.958 10.72 8,903.16 2,334.52 5,250,696.958
2 02/27/96 2,325.23 5,293,078.572 10.72 18,049.86 4,659.75 10,543,775.530
3 02/28/96 2,317.83 5,221,801.993 10.73 27,044.93 6,977.58 15,765,577.523
4 02/29/96 2,291.87 5,215,307.361 10.70 36,046.31 9,269.45 20,980,884.884
5 03/01/96 2,286.68 5,210,572.130 10.75 44,983.01 11,556.13 26,191,457.014
6 03/02/96 2,286.68 5,210,572.130 10.75 53,919.71 13,842.81 31,402,029.144
7 03/03/96 2,286.68 5,210,572.130 10.75 62,856.41 16,129.49 36,612,601.274
8 03/04/96 2,294.68 5,207,122.112 10.77 71,762.36 18,424.17 41,819,723.386
9 03/05/96 2,299.42 5,203,217.868 10.76 80,624.59 20,723.59 47,022,941.254
10 03/06/96 2,292.21 5,206,101.767 10.72 89,462.47 23,015.80 52,229,043.021
11 03/07/96 2,284.07 5,207,475.294 10.70 98,266.25 25,299.87 57,436,518.315
12 03/08/96 2,277.07 5,201,419.962 10.50 107,143.60 27,576.94 62,637,938.277
13 03/09/96 2,277.07 5,201,419.962 10.50 116,020.95 29,854.02 67,839,358.239
14 03/10/96 2,277.07 5,201,419.962 10.50 124,898.30 32,131.09 73,040,778.201
15 03/11/96 2,238.80 5,201,663.867 10.51 133,697.62 34,369.89 78,242,442.068
16 03/12/96 2,239.06 5,196,619.241 10.45 142,546.69 36,608.95 83,439,061.309
17 03/13/96 2,225.05 5,196,717.865 10.45 151,405.29 38,834.00 88,635,779.174
18 03/14/96 2,223.35 5,197,462.037 10.45 160,256.72 41,057.35 93,833,241.211
19 03/15/96 2,223.30 5,203,916.054 10.35 169,145.49 43,280.65 99,037,157.265
20 03/16/96 2,223.30 5,203,916.054 10.35 178,034.26 45,503.96 104,241,073.319
21 03/17/96 2,223.30 5,203,916.054 10.35 186,923.03 47,727.26 109,444,989.373
22 03/18/96 2,205.86 5,204,012.086 10.36 195,813.17 49,933.12 114,649,001.459
23 03/19/96 2,287.13 5,204,529.086 10.38 204,703.88 52,220.25 119,853,530.545
24 03/20/96 2,292.95 5,207,055.659 10.41 213,594.81 54,513.20 125,060,586.204
25 03/21/96 2,299.28 5,200,866.547 10.47 222,471.78 56,812.48 130,261,452.751
26 03/22/96 2,309.99 5,205,089.547 10.47 231,352.60 59,122.47 135,466,542.298
27 03/23/96 2,309.99 5,205,089.547 10.47 240,233.42 61,432.46 140,671,631.845
28 03/24/96 2,309.99 5,205,089.547 10.47 249,114.24 63,742.45 145,876,721.392
29 03/25/96 1,761.89 5,207,147.120 10.53 257,987.58 65,504.34 151,083,868.512
30 03/26/96 2,250.11 5,209,477.354 10.52 266,871.97 67,754.45 156,293,345.866
67,754.45 5,209,778.196
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
FLORIDA TAX FREE FUND CLASS C
PRICING DATE 03/26/96
.............
TOTAL INCOME FOR PERIOD 58,503.36
TOTAL EXPENSES FOR PERIOD 15,160.60
30 DAY YTM 4.37622% AVERAGE SHARES OUTSTANDING 1,137,845.86
.............
LAST PRICE DURING PERIOD 10.54
................................................................................................................
PRICE ST FIXED LONG TERM ZERO COUPON TOTAL DIV ADJUSTED
DATE INCOME INCOME INCOME INCOME FACTOR INCOME
................................................................................................................
<S> <C> <C> <C> <C> <C> <C> <C>
1 02/26/96 383.20 16,612.53 0.00 16,995.73 11.57198146 1,966.74
2 02/27/96 41.98 17,324.88 0.00 17,366.86 11.54130890 2,004.36
3 02/28/96 15.42 17,170.08 0.00 17,185.50 11.60387133 1,994.18
4 02/29/96 11.40 17,195.30 0.00 17,206.70 11.59248476 1,994.68
5 03/01/96 17.92 17,079.88 0.00 17,097.80 11.60630173 1,984.42
6 03/02/96 17.92 17,079.88 0.00 17,097.80 11.60630173 1,984.42
7 03/03/96 17.92 17,079.88 0.00 17,097.80 11.60630173 1,984.42
8 03/04/96 106.46 16,921.44 0.00 17,027.90 11.60089840 1,975.39
9 03/05/96 32.17 16,933.10 0.00 16,965.27 11.61026950 1,969.71
10 03/06/96 92.45 16,817.94 0.00 16,910.39 11.60995130 1,963.29
11 03/07/96 43.13 16,809.43 0.00 16,852.56 11.61541040 1,957.49
12 03/08/96 17.84 16,942.68 0.00 16,960.52 11.44660710 1,941.40
13 03/09/96 17.84 16,942.68 0.00 16,960.52 11.44660710 1,941.40
14 03/10/96 17.84 16,942.68 0.00 16,960.52 11.44660710 1,941.40
15 03/11/96 21.38 16,786.83 0.00 16,808.21 11.43965610 1,922.80
16 03/12/96 77.79 16,824.62 0.00 16,902.41 11.44934260 1,935.21
17 03/13/96 78.54 16,828.00 0.00 16,906.54 11.46307480 1,938.01
18 03/14/96 71.40 16,830.77 0.00 16,902.17 11.47138070 1,938.91
19 03/15/96 68.04 16,893.24 0.00 16,961.28 11.42718940 1,938.20
20 03/16/96 68.04 16,893.24 0.00 16,961.28 11.42718940 1,938.20
21 03/17/96 68.04 16,893.24 0.00 16,961.28 11.42718940 1,938.20
22 03/18/96 66.17 16,891.12 0.00 16,957.29 11.39895200 1,932.95
23 03/19/96 71.76 16,873.23 0.00 16,944.99 11.39192490 1,930.36
24 03/20/96 77.61 16,863.27 0.00 16,940.88 11.38963640 1,929.50
25 03/21/96 77.44 16,834.02 0.00 16,911.46 11.39718992 1,927.43
26 03/22/96 81.09 16,832.45 0.00 16,913.54 11.39148329 1,926.70
27 03/23/96 81.09 16,832.45 0.00 16,913.54 11.39148329 1,926.70
28 03/24/96 81.09 16,832.45 0.00 16,913.54 11.39148329 1,926.70
29 03/25/96 78.08 16,808.24 0.00 16,886.32 11.39586413 1,924.34
30 03/26/96 71.31 16,815.00 0.00 16,886.31 11.40482869 1,925.85
1,972.35 507,384.55 0.00 509,356.90 344.5627709 58,503.36
<PAGE>
<CAPTION>
............................................................................................................
PRICE DAILY DAILY DAILY ACCUMULATED ACCUMULATED ACCUMULATED
DATE EXPENSES SHARES PRICE INCOME EXPENSES SHARES
............................................................................................................
<S> <C> <C> <C> <C> <C> <C> <C>
1 02/26/96 510.86 1,157,886.228 10.74 1,966.74 510.86 1,157,886.228
2 02/27/96 508.84 1,157,886.228 10.74 3,971.10 1,019.70 2,315,772.456
3 02/28/96 508.60 1,155,650.782 10.75 5,965.28 1,528.30 3,471,423.238
4 02/29/96 707.73 1,153,696.774 10.72 7,959.96 2,236.03 4,625,120.012
5 03/01/96 506.93 1,155,035.854 10.77 9,944.38 2,742.96 5,780,155.866
6 03/02/96 506.93 1,155,035.854 10.77 11,928.80 3,249.88 6,935,191.720
7 03/03/96 506.93 1,155,035.854 10.77 13,913.22 3,756.81 8,090,227.574
8 03/04/96 509.03 1,154,748.958 10.79 15,888.61 4,265.84 9,244,976.532
9 03/05/96 510.79 1,154,748.958 10.78 17,858.32 4,776.63 10,399,725.490
10 03/06/96 513.60 1,135,857.096 10.73 19,821.61 5,290.23 11,535,582.586
11 03/07/96 503.48 1,135,857.096 10.72 21,779.10 5,793.71 12,671,439.682
12 03/08/96 497.46 1,135,857.096 10.52 23,720.50 6,291.17 13,807,296.778
13 03/09/96 497.46 1,135,857.096 10.52 25,661.90 6,788.64 14,943,153.874
14 03/10/96 497.46 1,135,857.096 10.52 27,603.30 7,286.10 16,079,010.970
15 03/11/96 489.70 1,135,857.096 10.53 29,526.10 7,775.80 17,214,868.066
16 03/12/96 489.68 1,134,931.587 10.47 31,461.31 8,265.48 18,349,799.653
17 03/13/96 487.74 1,130,411.342 10.46 33,399.32 8,753.22 19,480,210.995
18 03/14/96 486.37 1,127,406.342 10.46 35,338.23 9,239.59 20,607,617.337
19 03/15/96 484.23 1,127,310.740 10.37 37,276.43 9,723.82 21,734,928.077
20 03/16/96 484.23 1,127,310.740 10.37 39,214.63 10,208.06 22,862,238.817
21 03/17/96 484.23 1,127,310.740 10.37 41,152.83 10,692.29 23,989,549.557
22 03/18/96 479.13 1,127,310.740 10.38 43,085.78 11,171.42 25,116,860.297
23 03/19/96 496.47 1,127,314.444 10.40 45,016.14 11,667.89 26,244,174.741
24 03/20/96 497.51 1,127,314.444 10.43 46,945.64 12,165.40 27,371,489.185
25 03/21/96 498.85 1,127,314.444 10.49 48,873.07 12,664.25 28,498,803.629
26 03/22/96 501.32 1,127,314.444 10.49 50,799.77 13,165.57 29,626,118.073
27 03/23/96 501.32 1,127,314.444 10.49 52,726.47 13,666.88 30,753,432.517
28 03/24/96 501.32 1,127,314.444 10.49 54,653.17 14,168.20 31,880,746.961
29 03/25/96 381.92 1,127,314.444 10.55 56,577.51 14,550.12 33,008,061.405
30 03/26/96 487.06 1,127,314.444 10.54 58,503.36 15,037.18 34,135,375.849
15,037.18 1,137,845.862
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
NEW YORK TAX FREE CLASS A
PRICING DATE 03/26/96
............
TOTAL INCOME FOR PERIOD 18,004.12
TOTAL EXPENSES FOR PERIOD 2,400.07
30 DAY YTM 4.69386% AVERAGE SHARES OUTSTANDING 395,295.25
............
LAST PRICE DURING PERIOD 10.19
.....................................................................................................
PRICE ST VARIABLE LONG TERM AMORTIATION TOTAL DIV ADJUSTED
DATE INCOME INCOME INCOME INCOME FACTOR INCOME
.....................................................................................................
<S> <C> <C> <C> <C> <C> <C> <C>
1 02/26/96 14.26 3,573.11 32.33 3,619.70 16.36485270 592.36
2 02/27/96 36.30 3,573.20 32.34 3,641.84 16.20279377 590.08
3 02/28/96 38.34 3,570.48 32.35 3,641.17 16.31907567 594.21
4 02/29/96 39.83 3,579.04 32.35 3,651.22 16.32069244 595.90
5 03/01/96 57.13 3,537.16 32.36 3,626.65 16.29911832 591.11
6 03/02/96 57.13 3,537.16 32.36 3,626.65 16.29911832 591.11
7 03/03/96 57.13 3,537.16 32.36 3,626.65 16.29911832 591.11
8 03/04/96 54.92 3,533.34 32.38 3,620.64 16.27988222 589.44
9 03/05/96 52.56 3,538.11 32.38 3,623.05 16.27540216 589.67
10 03/06/96 50.72 3,548.65 32.39 3,631.76 16.27509992 591.07
11 03/07/96 48.47 3,553.00 32.40 3,633.87 16.31628122 592.91
12 03/08/96 56.86 3,595.93 32.41 3,685.20 16.25586685 599.06
13 03/09/96 56.86 3,595.93 32.41 3,685.20 16.25586685 599.06
14 03/10/96 56.86 3,595.93 32.41 3,685.20 16.25586685 599.06
15 03/11/96 53.13 3,595.07 32.42 3,680.62 16.22731299 597.27
16 03/12/96 57.01 3,606.03 32.43 3,695.47 16.29024121 602.00
17 03/13/96 53.30 3,607.97 32.44 3,693.71 16.32627660 603.05
18 03/14/96 54.97 3,608.35 32.44 3,695.76 16.29068990 602.06
19 03/15/96 73.64 3,629.42 32.45 3,735.51 16.27356560 607.90
20 03/16/96 73.64 3,629.42 32.45 3,735.51 16.27356560 607.90
21 03/17/96 73.64 3,629.42 32.45 3,735.51 16.27356560 607.90
22 03/18/96 44.88 3,628.91 32.46 3,706.25 16.49567180 611.37
23 03/19/96 71.83 3,623.94 32.47 3,728.24 16.23962720 605.45
24 03/20/96 46.16 3,617.89 32.48 3,696.53 16.46146230 608.50
25 03/21/96 43.97 3,606.09 32.49 3,682.55 16.46479130 606.32
26 03/22/96 43.97 3,604.84 32.50 3,681.31 16.46475230 606.12
27 03/23/96 43.97 3,604.84 32.50 3,681.31 16.46475230 606.12
28 03/24/96 43.97 3,604.84 32.50 3,681.31 16.46475230 606.12
29 03/25/96 45.16 3,597.53 32.51 3,675.20 16.47060900 605.33
30 03/26/96 46.16 3,645.64 32.52 3,724.32 16.50125410 614.56
<PAGE>
<CAPTION>
..............................................................................................................
PRICE DAILY DAILY DAILY ACCUMULATED ACCUMULATED ACCUMULATED
DATE EXPENSES SHARES PRICE INCOME EXPENSES SHARES
..............................................................................................................
<S> <C> <C> <C> <C> <C> <C> <C>
1 02/26/966 79.42 390,373.216 10.38 592.36 79.42 390,373.216
2 02/27/968 79.23 390,373.216 10.39 1,182.44 158.65 780,746.432
3 02/28/961 79.27 393,774.577 10.40 1,776.65 237.92 1,174,521.009
4 02/29/960 57.85 393,776.205 10.37 2,372.55 295.77 1,568,297.214
5 03/01/961 79.80 394,610.324 10.43 2,963.66 375.57 1,962,907.538
6 03/02/961 79.80 394,610.324 10.43 3,554.77 455.36 2,357,517.862
7 03/03/961 79.80 394,610.324 10.43 4,145.88 535.16 2,752,128.186
8 03/04/964 80.38 394,727.573 10.45 4,735.32 615.54 3,146,855.759
9 03/05/967 80.58 394,727.573 10.43 5,324.99 696.12 3,541,583.332
10 03/06/967 80.45 394,739.476 10.38 5,916.06 776.57 3,936,322.808
11 03/07/961 80.11 395,218.540 10.36 6,508.97 856.68 4,331,541.348
12 03/08/966 79.81 395,218.540 10.16 7,108.03 936.49 4,726,759.888
13 03/09/966 79.81 395,218.540 10.16 7,707.09 1,016.30 5,121,978.428
14 03/10/966 79.81 395,218.540 10.16 8,306.15 1,096.11 5,517,196.968
15 03/11/967 78.26 394,388.419 10.18 8,903.42 1,174.37 5,911,585.387
16 03/12/960 78.36 396,353.055 10.12 9,505.42 1,252.73 6,307,938.442
17 03/13/965 78.31 396,353.055 10.12 10,108.47 1,331.04 6,704,291.497
18 03/14/966 78.28 396,372.121 10.12 10,710.53 1,409.32 7,100,663.618
19 03/15/960 78.28 396,372.121 10.02 11,318.43 1,487.60 7,497,035.739
20 03/16/960 78.41 396,372.121 10.02 11,926.33 1,566.01 7,893,407.860
21 03/17/960 78.41 396,372.121 10.02 12,534.23 1,644.42 8,289,779.981
22 03/18/967 77.50 396,372.121 10.03 13,145.60 1,721.92 8,686,152.102
23 03/19/965 77.55 396,480.059 10.06 13,751.05 1,799.47 9,082,632.161
24 03/20/960 77.82 396,480.059 10.09 14,359.55 1,877.29 9,479,112.220
25 03/21/962 78.34 396,480.059 10.15 14,965.87 1,955.63 9,875,592.279
26 03/22/962 87.36 396,480.059 10.16 15,571.99 2,042.99 10,272,072.338
27 03/23/962 87.36 396,480.059 10.16 16,178.11 2,130.35 10,668,552.397
28 03/24/962 87.36 396,480.059 10.16 16,784.23 2,217.71 11,065,032.456
29 03/25/963 56.75 396,912.469 10.20 17,389.56 2,274.46 11,461,944.925
30 03/26/966 80.21 396,912.469 10.19 18,004.12 2,354.67 11,858,857.394
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
NEW YORK TAX FREE CLASS B
PRICING DATE 03/26/96
.............
TOTAL INCOME FOR PERIOD 81,501.27
TOTAL EXPENSES FOR PERIOD 21,519.04
30 DAY YTM 4.17529% AVERAGE SHARES OUTSTANDING 1,805,666.30
.............
LAST PRICE DURING PERIOD 9.63
....................................................................................................
PRICE ST VARIABLE LONG TERM TOTAL DIV ADJUSTED
DATE INCOME INCOME INCOME FACTOR INCOME
....................................................................................................
<S> <C> <C> <C> <C> <C> <C> <C> <C>
1 02/26/96 14.26 0.00 3,573.11 32.33 3,619.70 74.47279450 2,695.69
2 02/27/96 36.30 0.00 3,573.20 32.34 3,641.84 74.03150547 2,696.11
3 02/28/96 38.34 0.00 3,570.48 32.35 3,641.17 73.92810550 2,691.85
4 02/29/96 39.83 0.00 3,579.04 32.35 3,651.22 73.92651887 2,699.22
5 03/01/96 57.13 0.00 3,537.16 32.36 3,626.65 73.95772333 2,682.19
6 03/02/96 57.13 0.00 3,537.16 32.36 3,626.65 73.95772333 2,682.19
7 03/03/96 57.13 0.00 3,537.16 32.36 3,626.65 73.95772333 2,682.19
8 03/04/96 54.92 0.00 3,533.34 32.38 3,620.64 73.99139337 2,678.96
9 03/05/96 52.56 0.00 3,538.11 32.38 3,623.05 73.99029348 2,680.71
10 03/06/96 50.72 0.00 3,548.65 32.39 3,631.76 73.98984356 2,687.13
11 03/07/96 48.47 0.00 3,553.00 32.40 3,633.87 73.93588006 2,686.73
12 03/08/96 56.86 0.00 3,595.93 32.41 3,685.20 74.03240527 2,728.24
13 03/09/96 56.86 0.00 3,595.93 32.41 3,685.20 74.03240527 2,728.24
14 03/10/96 56.86 0.00 3,595.93 32.41 3,685.20 74.03240527 2,728.24
15 03/11/96 53.13 0.00 3,595.07 32.42 3,680.62 74.05763404 2,725.78
16 03/12/96 57.01 0.00 3,606.03 32.43 3,695.47 74.00542662 2,734.85
17 03/13/96 53.30 0.00 3,607.97 32.44 3,693.71 73.94796446 2,731.42
18 03/14/96 54.97 0.00 3,608.35 32.44 3,695.76 74.00522740 2,735.06
19 03/15/96 73.64 0.00 3,629.42 32.45 3,735.51 74.03256550 2,765.49
20 03/16/96 73.64 0.00 3,629.42 32.45 3,735.51 74.03256550 2,765.49
21 03/17/96 73.64 0.00 3,629.42 32.45 3,735.51 74.03256550 2,765.49
22 03/18/96 44.88 0.00 3,628.91 32.46 3,706.25 73.67820500 2,730.70
23 03/19/96 71.83 0.00 3,623.94 32.47 3,728.24 74.08940330 2,762.23
24 03/20/96 46.16 0.00 3,617.89 32.48 3,696.53 73.73547740 2,725.65
25 03/21/96 43.97 0.00 3,606.09 32.49 3,682.55 73.73018810 2,715.15
26 03/22/96 43.97 0.00 3,604.84 32.50 3,681.31 73.72983950 2,714.22
27 03/23/96 43.97 0.00 3,604.84 32.50 3,681.31 73.72983950 2,714.22
28 03/24/96 43.97 0.00 3,604.84 32.50 3,681.31 73.72983950 2,714.22
29 03/25/96 45.16 0.00 3,597.53 32.51 3,675.20 73.73121920 2,709.77
30 03/26/96 46.16 0.00 3,645.64 32.52 3,724.32 73.67364530 2,743.84
<PAGE>
<CAPTION>
............................................................................................................
PRICE DAILY DAILY DAILY ACCUMULATED ACCUMULATED ACCUMULATED
DATE EXPENSES SHARES PRICE INCOME EXPENSES SHARES
............................................................................................................
<S> <C> <C> <C> <C> <C> <C> <C>
1 02/26/96 725.03 1,792,554.907 9.80 2,695.69 725.03 1,792,554.907
2 02/27/96 723.27 1,799,758.413 9.81 5,391.80 1,448.30 3,592,313.320
3 02/28/96 724.80 1,799,988.247 9.82 8,083.65 2,173.10 5,392,301.567
4 02/29/96 726.64 1,799,787.483 9.79 10,782.87 2,899.74 7,192,089.050
5 03/01/96 725.26 1,806,761.661 9.84 13,465.06 3,625.00 8,998,850.711
6 03/02/96 725.26 1,806,761.661 9.84 16,147.25 4,350.26 10,805,612.372
7 03/03/96 725.26 1,806,761.661 9.84 18,829.44 5,075.52 12,612,374.033
8 03/04/96 731.16 1,810,268.742 9.86 21,508.40 5,806.68 14,422,642.775
9 03/05/96 732.89 1,810,744.488 9.84 24,189.11 6,539.57 16,233,387.263
10 03/06/96 730.67 1,810,825.169 9.80 26,876.24 7,270.24 18,044,212.432
11 03/07/96 732.49 1,807,136.808 9.79 29,562.97 8,002.73 19,851,349.240
12 03/08/96 728.44 1,816,224.808 9.60 32,291.21 8,731.17 21,667,574.048
13 03/09/96 728.44 1,816,224.808 9.60 35,019.45 9,459.60 23,483,798.856
14 03/10/96 728.44 1,816,224.808 9.60 37,747.69 10,188.04 25,300,023.664
15 03/11/96 714.38 1,816,224.808 9.61 40,473.47 10,902.42 27,116,248.472
16 03/12/96 699.96 1,816,952.216 9.56 43,208.32 11,602.38 28,933,200.688
17 03/13/96 698.34 1,811,539.512 9.55 45,939.74 12,300.72 30,744,740.200
18 03/14/96 697.89 1,816,991.512 9.55 48,674.80 12,998.61 32,561,731.712
19 03/15/96 698.55 1,819,576.766 9.46 51,440.29 13,697.16 34,381,308.478
20 03/16/96 698.55 1,819,576.766 9.46 54,205.78 14,395.71 36,200,885.244
21 03/17/96 698.55 1,819,576.766 9.46 56,971.27 15,094.26 38,020,462.010
22 03/18/96 693.25 1,786,404.277 9.47 59,701.97 15,787.51 39,806,866.287
23 03/19/96 694.31 1,824,684.102 9.50 62,464.20 16,481.82 41,631,550.389
24 03/20/96 697.14 1,791,493.184 9.52 65,189.85 17,178.96 43,423,043.573
25 03/21/96 699.23 1,791,493.184 9.58 67,905.00 17,878.19 45,214,536.757
26 03/22/96 738.00 1,791,493.184 9.59 70,619.22 18,616.19 47,006,029.941
27 03/23/96 738.00 1,791,493.184 9.59 73,333.44 19,354.19 48,797,523.125
28 03/24/96 738.00 1,791,493.184 9.59 76,047.66 20,092.19 50,589,016.309
29 03/25/96 599.88 1,792,848.763 9.64 78,757.43 20,692.07 52,381,865.072
30 03/26/96 706.63 1,788,123.969 9.63 81,501.27 21,398.70 54,169,989.041
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
NEW YORK TAX FREE CLASS C
PRICING DATE 03/26/96
.............
TOTAL INCOME FOR PERIOD 10,722.17
TOTAL EXPENSES FOR PERIOD 2,843.80
30 DAY YTM 4.17177% AVERAGE SHARES OUTSTANDING 237,610.41
.............
LAST PRICE DURING PERIOD 9.62
.................................................................................................
PRICE ST FIXED ZERO COUPON LONG TERM TOTAL DIV ADJUSTED
DATE INCOME AND DIV INC INCOME INCOME FACTOR INCOME
.................................................................................................
<S> <C> <C> <C> <C> <C> <C> <C> <C>
1 02/26/96 14.26 0.00 3,573.11 32.33 3,619.70 9.16235280 331.65
2 02/27/96 36.30 0.00 3,573.20 32.34 3,641.84 9.76570076 355.65
3 02/28/96 38.34 0.00 3,570.48 32.35 3,641.17 9.75281883 355.12
4 02/29/96 39.83 0.00 3,579.04 32.35 3,651.22 9.75278869 356.10
5 03/01/96 57.13 0.00 3,537.16 32.36 3,626.65 9.74315835 353.35
6 03/02/96 57.13 0.00 3,537.16 32.36 3,626.65 9.74315835 353.35
7 03/03/96 57.13 0.00 3,537.16 32.36 3,626.65 9.74315835 353.35
8 03/04/96 54.92 0.00 3,533.34 32.38 3,620.64 9.72872441 352.24
9 03/05/96 52.56 0.00 3,538.11 32.38 3,623.05 9.73430436 352.68
10 03/06/96 50.72 0.00 3,548.65 32.39 3,631.76 9.73505652 353.55
11 03/07/96 48.47 0.00 3,553.00 32.40 3,633.87 9.74783872 354.22
12 03/08/96 56.86 0.00 3,595.93 32.41 3,685.20 9.71172789 357.90
13 03/09/96 56.86 0.00 3,595.93 32.41 3,685.20 9.71172789 357.90
14 03/10/96 56.86 0.00 3,595.93 32.41 3,685.20 9.71172789 357.90
15 03/11/96 53.13 0.00 3,595.07 32.42 3,680.62 9.71505297 357.57
16 03/12/96 57.01 0.00 3,606.03 32.43 3,695.47 9.70433217 358.62
17 03/13/96 53.30 0.00 3,607.97 32.44 3,693.71 9.72575894 359.24
18 03/14/96 54.97 0.00 3,608.35 32.44 3,695.76 9.70408270 358.64
19 03/15/96 73.64 0.00 3,629.42 32.45 3,735.51 9.69386890 362.12
20 03/16/96 73.64 0.00 3,629.42 32.45 3,735.51 9.69386890 362.12
21 03/17/96 73.64 0.00 3,629.42 32.45 3,735.51 9.69386890 362.12
22 03/18/96 44.88 0.00 3,628.91 32.46 3,706.25 9.82612330 364.18
23 03/19/96 71.83 0.00 3,623.94 32.47 3,728.24 9.67096950 360.56
24 03/20/96 46.16 0.00 3,617.89 32.48 3,696.53 9.80306030 362.37
25 03/21/96 43.97 0.00 3,606.09 32.49 3,682.55 9.80502070 361.07
26 03/22/96 43.97 0.00 3,604.84 32.50 3,681.31 9.80540810 360.97
27 03/23/96 43.97 0.00 3,604.84 32.50 3,681.31 9.80540810 360.97
28 03/24/96 43.97 0.00 3,604.84 32.50 3,681.31 9.80540810 360.97
29 03/25/96 45.16 0.00 3,597.53 32.51 3,675.20 9.78917190 359.77
30 03/26/96 46.16 0.00 3,645.64 32.52 3,724.32 9.82510060 365.92
<PAGE>
<CAPTION>
..........................................................................................................
PRICE DAILY DAILY DAILY ACCUMULATED ACCUMULATED ACCUMULATED
DATE EXPENSES SHARES PRICE INCOME EXPENSES SHARES
..........................................................................................................
<S> <C> <C> <C> <C> <C> <C> <C>
1 02/26/96 107.64 220,582.547 9.80 331.65 107.64 220,582.547
2 02/27/96 89.41 237,461.833 9.80 687.30 197.05 458,044.380
3 02/28/96 95.43 237,512.416 9.81 1,042.42 292.48 695,556.796
4 02/29/96 82.27 237,490.500 9.79 1,398.52 374.75 933,047.296
5 03/01/96 95.26 238,073.361 9.84 1,751.87 470.01 1,171,120.657
6 03/02/96 95.26 238,073.361 9.84 2,105.22 565.28 1,409,194.018
7 03/03/96 95.26 238,073.361 9.84 2,458.57 660.54 1,647,267.379
8 03/04/96 95.98 238,073.361 9.86 2,810.81 756.52 1,885,340.740
9 03/05/96 96.18 238,275.799 9.84 3,163.49 852.70 2,123,616.539
10 03/06/96 96.12 238,306.287 9.80 3,517.04 948.82 2,361,922.826
11 03/07/96 95.70 238,306.287 9.78 3,871.26 1,044.52 2,600,229.113
12 03/08/96 92.78 238,306.287 9.60 4,229.16 1,137.30 2,838,535.400
13 03/09/96 92.78 238,306.287 9.60 4,587.06 1,230.09 3,076,841.687
14 03/10/96 92.78 238,306.287 9.60 4,944.96 1,322.87 3,315,147.974
15 03/11/96 102.05 238,306.287 9.61 5,302.53 1,424.92 3,553,454.261
16 03/12/96 93.84 238,306.287 9.55 5,661.15 1,518.76 3,791,760.548
17 03/13/96 93.40 238,306.287 9.55 6,020.39 1,612.16 4,030,066.835
18 03/14/96 93.26 238,306.287 9.55 6,379.03 1,705.42 4,268,373.122
19 03/15/96 93.00 238,306.287 9.45 6,741.15 1,798.42 4,506,679.409
20 03/16/96 93.00 238,306.287 9.45 7,103.27 1,891.42 4,744,985.696
21 03/17/96 93.00 238,306.287 9.45 7,465.39 1,984.42 4,983,291.983
22 03/18/96 92.33 238,306.287 9.46 7,829.57 2,076.75 5,221,598.270
23 03/19/96 92.41 238,306.287 9.49 8,190.13 2,169.16 5,459,904.557
24 03/20/96 92.68 238,306.287 9.52 8,552.50 2,261.84 5,698,210.844
25 03/21/96 92.98 238,306.287 9.58 8,913.57 2,354.82 5,936,517.131
26 03/22/96 98.14 238,316.725 9.59 9,274.54 2,452.96 6,174,833.856
27 03/23/96 98.14 238,316.725 9.59 9,635.51 2,551.10 6,413,150.581
28 03/24/96 98.14 238,316.725 9.59 9,996.48 2,649.24 6,651,467.306
29 03/25/96 80.00 238,316.725 9.63 10,356.25 2,729.24 6,889,784.031
30 03/26/96 94.51 238,528.409 9.62 10,722.17 2,823.75 7,128,312.440
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
PENN TAX FREE CLASS A
PRICING DATE 03/26/96
............
TOTAL INCOME FOR PERIOD 147,260.99
TOTAL EXPENSES FOR PERIOD 17,972.95
30 DAY YTM 5.14386% AVERAGE SHARES OUTSTANDING 2,596,505.16
............
LAST PRICE DURING PERIOD 11.74
.......................................................................................................
PRICE ST VARIABLE LONG TERM AMORTIATION TOTAL DIV ADJUSTED
DATE INCOME INCOME INCOME INCOME FACTOR INCOME
.......................................................................................................
<S> <C> <C> <C> <C> <C> <C> <C>
1 02/26/96 122.86 10,854.27 1,799.10 12,776.23 38.16457520 4,875.99
2 02/27/96 123.76 10,856.10 1,799.38 12,779.24 38.16599470 4,877.32
3 02/28/96 130.07 10,857.42 1,799.67 12,787.16 38.10405470 4,872.43
4 02/29/96 130.72 10,876.86 1,799.49 12,807.07 38.10347802 4,879.94
5 03/01/96 120.64 10,847.59 1,801.23 12,769.46 38.11720806 4,867.36
6 03/02/96 120.64 10,847.59 1,801.23 12,769.46 38.11720806 4,867.36
7 03/03/96 120.64 10,847.59 1,801.23 12,769.46 38.11720806 4,867.36
8 03/04/96 123.70 10,840.74 1,802.93 12,767.37 38.13409363 4,868.72
9 03/05/96 128.06 10,850.31 1,802.57 12,780.94 38.11827682 4,871.87
10 03/06/96 122.46 10,870.42 1,801.92 12,794.80 38.11539813 4,876.79
11 03/07/96 122.11 10,879.51 1,801.69 12,803.31 37.99187720 4,864.22
12 03/08/96 122.08 10,960.78 1,796.20 12,879.06 37.98598386 4,892.24
13 03/09/96 122.08 10,960.78 1,796.20 12,879.06 37.98598386 4,892.24
14 03/10/96 122.08 10,960.78 1,796.20 12,879.06 37.98598386 4,892.24
15 03/11/96 124.12 10,962.01 1,797.70 12,883.83 37.97002965 4,891.99
16 03/12/96 90.16 11,132.20 1,795.99 13,018.35 37.93195865 4,938.12
17 03/13/96 91.70 11,134.00 1,795.60 13,021.30 37.93207038 4,939.25
18 03/14/96 91.24 11,139.24 1,795.88 13,026.36 37.93270833 4,941.25
19 03/15/96 92.08 11,184.98 1,792.18 13,069.24 37.93465052 4,957.77
20 03/16/96 92.08 11,184.98 1,792.18 13,069.24 37.93465052 4,957.77
21 03/17/96 92.08 11,184.98 1,792.18 13,069.24 37.93465052 4,957.77
22 03/18/96 93.72 11,185.65 1,793.04 13,072.41 37.92644429 4,957.90
23 03/19/96 92.17 11,180.25 1,794.22 13,066.64 37.91269692 4,953.92
24 03/20/96 84.13 11,171.71 1,795.63 13,051.47 37.81367484 4,935.24
25 03/21/96 83.49 11,151.49 1,798.40 13,033.38 37.81390847 4,928.43
26 03/22/96 80.85 11,140.40 1,799.05 13,020.30 37.85068507 4,928.27
27 03/23/96 80.85 11,140.40 1,799.05 13,020.30 37.85068507 4,928.27
28 03/24/96 80.85 11,140.40 1,799.05 13,020.30 37.85068507 4,928.27
29 03/25/96 79.57 11,126.79 1,801.75 13,008.11 37.85737311 4,924.53
30 03/26/96 78.69 11,131.07 1,801.70 13,011.46 37.86012849 4,926.16
<PAGE>
<CAPTION>
.............................................................................................................
PRICE DAILY DAILY DAILY ACCUMULATED ACCUMULATED ACCUMULATED
DATE EXPENSES SHARES PRICE INCOME EXPENSES SHARES
.............................................................................................................
<S> <C> <C> <C> <C> <C> <C> <C>
1 02/26/96 610.36 2,597,445.367 12.01 4,875.99 610.36 2,597,445.367
2 02/27/96 609.09 2,598,288.309 12.01 9,753.31 1,219.45 5,195,733.676
3 02/28/96 609.08 2,597,657.577 12.01 14,625.74 1,828.53 7,793,391.253
4 02/29/96 609.75 2,597,336.861 11.98 19,505.68 2,438.28 10,390,728.114
5 03/01/96 607.68 2,603,476.790 12.03 24,373.04 3,045.96 12,994,204.904
6 03/02/96 607.68 2,603,476.790 12.03 29,240.40 3,653.63 15,597,681.694
7 03/03/96 607.68 2,603,476.790 12.03 34,107.76 4,261.31 18,201,158.484
8 03/04/96 612.01 2,605,942.191 12.06 38,976.48 4,873.32 20,807,100.675
9 03/05/96 613.84 2,606,578.451 12.04 43,848.35 5,487.16 23,413,679.126
10 03/06/96 612.76 2,606,705.172 11.99 48,725.14 6,099.92 26,020,384.298
11 03/07/96 610.53 2,598,005.633 11.97 53,589.36 6,710.45 28,618,389.931
12 03/08/96 607.11 2,597,961.688 11.74 58,481.60 7,317.56 31,216,351.619
13 03/09/96 607.11 2,597,961.688 11.74 63,373.84 7,924.66 33,814,313.307
14 03/10/96 607.11 2,597,961.688 11.74 68,266.08 8,531.77 36,412,274.995
15 03/11/96 595.08 2,597,725.941 11.75 73,158.07 9,126.85 39,010,000.936
16 03/12/96 595.76 2,597,725.941 11.69 78,096.19 9,722.61 41,607,726.877
17 03/13/96 592.46 2,597,725.941 11.67 83,035.44 10,315.07 44,205,452.818
18 03/14/96 591.94 2,597,671.984 11.67 87,976.69 10,907.01 46,803,124.802
19 03/15/96 591.64 2,598,408.005 11.56 92,934.46 11,498.65 49,401,532.807
20 03/16/96 591.64 2,598,408.005 11.56 97,892.23 12,090.30 51,999,940.812
21 03/17/96 591.64 2,598,408.005 11.56 102,850.00 12,681.94 54,598,348.817
22 03/18/96 585.81 2,598,594.504 11.56 107,807.90 13,267.75 57,196,943.321
23 03/19/96 583.53 2,597,045.066 11.58 112,761.82 13,851.28 59,793,988.387
24 03/20/96 584.40 2,585,818.066 11.61 117,697.06 14,435.68 62,379,806.453
25 03/21/96 586.06 2,585,834.406 11.69 122,625.49 15,021.74 64,965,640.859
26 03/22/96 589.51 2,585,902.841 11.69 127,553.76 15,611.25 67,551,543.700
27 03/23/96 589.51 2,585,902.841 11.69 132,482.03 16,200.76 70,137,446.541
28 03/24/96 589.51 2,585,902.841 11.69 137,410.30 16,790.27 72,723,349.382
29 03/25/96 589.92 2,585,902.841 11.75 142,334.83 17,380.19 75,309,252.223
30 03/26/96 592.76 2,585,902.539 11.74 147,260.99 17,972.95 77,895,154.762
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
PENN TAX FREE CLASS B
PRICING DATE 03/26/96
.............
TOTAL INCOME FOR PERIOD 191,019.18
TOTAL EXPENSES FOR PERIOD 46,676.04
30 DAY YTM 4.64329% AVERAGE SHARES OUTSTANDING 3,411,497.84
.............
LAST PRICE DURING PERIOD 11.04
................................................................................................................
PRICE ST VARIABLE LONG TERM TOTAL DIV ADJUSTED
DATE INCOME INCOME INCOME FACTOR INCOME
................................................................................................................
<S> <C> <C> <C> <C> <C> <C> <C> <C>
1 02/26/96 122.86 0.00 10,854.27 1,799.10 12,776.23 49.13807580 6,277.99
2 02/27/96 123.76 0.00 10,856.10 1,799.38 12,779.24 49.11178250 6,276.11
3 02/28/96 130.07 0.00 10,857.42 1,799.67 12,787.16 49.19141070 6,290.18
4 02/29/96 130.72 0.00 10,876.86 1,799.49 12,807.07 49.19073165 6,299.89
5 03/01/96 120.64 0.00 10,847.59 1,801.23 12,769.46 49.19374658 6,281.78
6 03/02/96 120.64 0.00 10,847.59 1,801.23 12,769.46 49.19374658 6,281.78
7 03/03/96 120.64 0.00 10,847.59 1,801.23 12,769.46 49.19374658 6,281.78
8 03/04/96 123.70 0.00 10,840.74 1,802.93 12,767.37 49.17691522 6,278.60
9 03/05/96 128.06 0.00 10,850.31 1,802.57 12,780.94 49.20124757 6,288.38
10 03/06/96 122.46 0.00 10,870.42 1,801.92 12,794.80 49.20519909 6,295.71
11 03/07/96 122.11 0.00 10,879.51 1,801.69 12,803.31 49.22225314 6,302.08
12 03/08/96 122.08 0.00 10,960.78 1,796.20 12,879.06 49.22057643 6,339.15
13 03/09/96 122.08 0.00 10,960.78 1,796.20 12,879.06 49.22057643 6,339.15
14 03/10/96 122.08 0.00 10,960.78 1,796.20 12,879.06 49.22057643 6,339.15
15 03/11/96 124.12 0.00 10,962.01 1,797.70 12,883.83 49.25396403 6,345.80
16 03/12/96 90.16 0.00 11,132.20 1,795.99 13,018.35 49.27930251 6,415.35
17 03/13/96 91.70 0.00 11,134.00 1,795.60 13,021.30 49.29288978 6,418.58
18 03/14/96 91.24 0.00 11,139.24 1,795.88 13,026.36 49.30549093 6,422.71
19 03/15/96 92.08 0.00 11,184.98 1,792.18 13,069.24 49.30657997 6,444.00
20 03/16/96 92.08 0.00 11,184.98 1,792.18 13,069.24 49.30657997 6,444.00
21 03/17/96 92.08 0.00 11,184.98 1,792.18 13,069.24 49.30657997 6,444.00
22 03/18/96 93.72 0.00 11,185.65 1,793.04 13,072.41 49.31879272 6,447.15
23 03/19/96 92.17 0.00 11,180.25 1,794.22 13,066.64 49.32973907 6,445.74
24 03/20/96 84.13 0.00 11,171.71 1,795.63 13,051.47 49.40074335 6,447.52
25 03/21/96 83.49 0.00 11,151.49 1,798.40 13,033.38 49.40065252 6,438.57
26 03/22/96 80.85 0.00 11,140.40 1,799.05 13,020.30 49.37996105 6,429.42
27 03/23/96 80.85 0.00 11,140.40 1,799.05 13,020.30 49.37996105 6,429.42
28 03/24/96 80.85 0.00 11,140.40 1,799.05 13,020.30 49.37996105 6,429.42
29 03/25/96 79.57 0.00 11,126.79 1,801.75 13,008.11 49.37140735 6,422.29
30 03/26/96 78.69 0.00 11,131.07 1,801.70 13,011.46 49.36785445 6,423.48
<PAGE>
<CAPTION>
............................................................................................................
PRICE DAILY DAILY DAILY ACCUMULATED ACCUMULATED ACCUMULATED
DATE EXPENSES SHARES PRICE INCOME EXPENSES SHARES
............................................................................................................
<S> <C> <C> <C> <C> <C> <C> <C>
1 02/26/96 1,575.29 3,387,035.895 11.29 6,277.99 1,575.29 3,387,035.895
2 02/27/96 1,572.33 3,386,231.706 11.29 12,554.10 3,147.62 6,773,267.601
3 02/28/96 1,571.01 3,396,441.450 11.29 18,844.28 4,718.63 10,169,709.051
4 02/29/96 1,572.93 3,396,063.251 11.26 25,144.17 6,291.56 13,565,772.302
5 03/01/96 1,570.34 3,403,111.262 11.32 31,425.95 7,861.90 16,968,883.564
6 03/02/96 1,570.34 3,403,111.262 11.32 37,707.73 9,432.25 20,371,994.826
7 03/03/96 1,570.34 3,403,111.262 11.32 43,989.51 11,002.59 23,775,106.088
8 03/04/96 1,580.67 3,403,772.262 11.35 50,268.11 12,583.26 27,178,878.350
9 03/05/96 1,585.53 3,407,739.262 11.33 56,556.49 14,168.79 30,586,617.612
10 03/06/96 1,582.80 3,408,476.271 11.28 62,852.20 15,751.59 33,995,093.883
11 03/07/96 1,577.44 3,409,360.710 11.26 69,154.28 17,329.03 37,404,454.593
12 03/08/96 1,577.54 3,409,757.816 11.04 75,493.43 18,906.57 40,814,212.409
13 03/09/96 1,577.54 3,409,757.816 11.04 81,832.58 20,484.11 44,223,970.225
14 03/10/96 1,577.54 3,409,757.816 11.04 88,171.73 22,061.65 47,633,728.041
15 03/11/96 1,547.48 3,413,307.411 11.05 94,517.53 23,609.13 51,047,035.452
16 03/12/96 1,548.89 3,418,529.670 10.99 100,932.88 25,158.02 54,465,565.122
17 03/13/96 1,540.69 3,419,497.550 10.98 107,351.46 26,698.71 57,885,062.672
18 03/14/96 1,540.18 3,420,278.778 10.98 113,774.17 28,238.89 61,305,341.450
19 03/15/96 1,540.15 3,421,183.778 10.87 120,218.17 29,779.04 64,726,525.228
20 03/16/96 1,540.15 3,421,183.778 10.87 126,662.17 31,319.19 68,147,709.006
21 03/17/96 1,540.15 3,421,183.778 10.87 133,106.17 32,859.34 71,568,892.784
22 03/18/96 1,524.42 3,423,127.446 10.87 139,553.32 34,383.76 74,992,020.230
23 03/19/96 1,524.47 3,423,117.606 10.89 145,999.06 35,908.23 78,415,137.836
24 03/20/96 1,527.66 3,422,202.759 10.92 152,446.58 37,435.89 81,837,340.595
25 03/21/96 1,532.05 3,422,230.232 10.98 158,885.15 38,967.94 85,259,570.827
26 03/22/96 1,540.16 3,417,598.613 10.99 165,314.57 40,508.10 88,677,169.440
27 03/23/96 1,540.16 3,417,598.613 10.99 171,743.99 42,048.26 92,094,768.053
28 03/24/96 1,540.16 3,417,598.613 10.99 178,173.41 43,588.42 95,512,366.666
29 03/25/96 1,539.49 3,416,514.294 11.04 184,595.70 45,127.91 98,928,880.960
30 03/26/96 1,548.13 3,416,054.294 11.04 191,019.18 46,676.04 102,344,935.254
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
PENN TAX FREE CLASS C
PRICING DATE 03/26/96
.............
TOTAL INCOME FOR PERIOD 49,423.41
TOTAL EXPENSES FOR PERIOD 12,053.86
30 DAY YTM 4.64593% AVERAGE SHARES OUTSTANDING 880,326.60
.............
LAST PRICE DURING PERIOD 11.07
...........................................................................................................
PRICE ST FIXED ZERO COUPON LONG TERM TOTAL DIV ADJUSTED
DATE INCOME AND DIV INC INCOME INCOME FACTOR INCOME
...........................................................................................................
<S> <C> <C> <C> <C> <C> <C> <C> <C>
1 02/26/96 122.86 0.00 10,854.27 1,799.10 12,776.23 12.69734910 1,622.24
2 02/27/96 123.76 0.00 10,856.10 1,799.38 12,779.24 12.72222280 1,625.80
3 02/28/96 130.07 0.00 10,857.42 1,799.67 12,787.16 12.70453460 1,624.55
4 02/29/96 130.72 0.00 10,876.86 1,799.49 12,807.07 12.70579032 1,627.24
5 03/01/96 120.64 0.00 10,847.59 1,801.23 12,769.46 12.68904536 1,620.32
6 03/02/96 120.64 0.00 10,847.59 1,801.23 12,769.46 12.68904536 1,620.32
7 03/03/96 120.64 0.00 10,847.59 1,801.23 12,769.46 12.68904536 1,620.32
8 03/04/96 123.70 0.00 10,840.74 1,802.93 12,767.37 12.68899116 1,620.05
9 03/05/96 128.06 0.00 10,850.31 1,802.57 12,780.94 12.68047562 1,620.68
10 03/06/96 122.46 0.00 10,870.42 1,801.92 12,794.80 12.67940278 1,622.30
11 03/07/96 122.11 0.00 10,879.51 1,801.69 12,803.31 12.78586966 1,637.01
12 03/08/96 122.08 0.00 10,960.78 1,796.20 12,879.06 12.79343971 1,647.67
13 03/09/96 122.08 0.00 10,960.78 1,796.20 12,879.06 12.79343971 1,647.67
14 03/10/96 122.08 0.00 10,960.78 1,796.20 12,879.06 12.79343971 1,647.67
15 03/11/96 124.12 0.00 10,962.01 1,797.70 12,883.83 12.77600632 1,646.04
16 03/12/96 90.16 0.00 11,132.20 1,795.99 13,018.35 12.78873884 1,664.88
17 03/13/96 91.70 0.00 11,134.00 1,795.60 13,021.30 12.77503984 1,663.48
18 03/14/96 91.24 0.00 11,139.24 1,795.88 13,026.36 12.76180075 1,662.40
19 03/15/96 92.08 0.00 11,184.98 1,792.18 13,069.24 12.75876951 1,667.47
20 03/16/96 92.08 0.00 11,184.98 1,792.18 13,069.24 12.75876951 1,667.47
21 03/17/96 92.08 0.00 11,184.98 1,792.18 13,069.24 12.75876951 1,667.47
22 03/18/96 93.72 0.00 11,185.65 1,793.04 13,072.41 12.75476299 1,667.35
23 03/19/96 92.17 0.00 11,180.25 1,794.22 13,066.64 12.75756401 1,666.98
24 03/20/96 84.13 0.00 11,171.71 1,795.63 13,051.47 12.78558181 1,668.71
25 03/21/96 83.49 0.00 11,151.49 1,798.40 13,033.38 12.78543901 1,666.37
26 03/22/96 80.85 0.00 11,140.40 1,799.05 13,020.30 12.76935388 1,662.61
27 03/23/96 80.85 0.00 11,140.40 1,799.05 13,020.30 12.76935388 1,662.61
28 03/24/96 80.85 0.00 11,140.40 1,799.05 13,020.30 12.76935388 1,662.61
29 03/25/96 79.57 0.00 11,126.79 1,801.75 13,008.11 12.77121954 1,661.29
30 03/26/96 78.69 0.00 11,131.07 1,801.70 13,011.46 12.77201706 1,661.83
<PAGE>
<CAPTION>
.............................................................................................................
PRICE DAILY DAILY DAILY ACCUMULATED ACCUMULATED ACCUMULATED
DATE EXPENSES SHARES PRICE INCOME EXPENSES SHARES
.............................................................................................................
<S> <C> <C> <C> <C> <C> <C> <C>
1 02/26/96 405.10 872,915.197 11.32 1,622.24 405.10 872,915.197
2 02/27/96 405.37 874,884.914 11.32 3,248.04 810.47 1,747,800.111
3 02/28/96 405.96 874,884.914 11.32 4,872.59 1,216.43 2,622,685.025
4 02/29/96 405.12 874,884.914 11.29 6,499.83 1,621.55 3,497,569.939
5 03/01/96 403.92 875,490.175 11.35 8,120.15 2,025.47 4,373,060.114
6 03/02/96 403.92 875,490.175 11.35 9,740.47 2,429.40 5,248,550.289
7 03/03/96 403.92 875,490.175 11.35 11,360.79 2,833.32 6,124,040.464
8 03/04/96 407.12 875,955.175 11.38 12,980.84 3,240.44 6,999,995.639
9 03/05/96 408.39 875,955.541 11.36 14,601.52 3,648.83 7,875,951.180
10 03/06/96 408.20 875,999.555 11.31 16,223.82 4,057.03 8,751,950.735
11 03/07/96 406.28 883,278.606 11.29 17,860.83 4,463.31 9,635,229.341
12 03/08/96 408.54 883,900.849 11.07 19,508.50 4,871.85 10,519,130.190
13 03/09/96 408.54 883,900.849 11.07 21,156.17 5,280.38 11,403,031.039
14 03/10/96 408.54 883,900.849 11.07 22,803.84 5,688.92 12,286,931.888
15 03/11/96 400.43 883,014.926 11.08 24,449.88 6,089.35 13,169,946.814
16 03/12/96 400.49 884,792.394 11.02 26,114.76 6,489.84 14,054,739.208
17 03/13/96 399.08 883,850.815 11.01 27,778.24 6,888.92 14,938,590.023
18 03/14/96 398.83 882,910.249 11.01 29,440.64 7,287.75 15,821,500.272
19 03/15/96 398.28 882,914.646 10.89 31,108.11 7,686.03 16,704,414.918
20 03/16/96 398.28 882,914.646 10.89 32,775.58 8,084.30 17,587,329.564
21 03/17/96 398.28 882,914.646 10.89 34,443.05 8,482.58 18,470,244.210
22 03/18/96 394.81 882,918.523 10.90 36,110.40 8,877.39 19,353,162.733
23 03/19/96 394.54 882,913.126 10.92 37,777.38 9,271.93 20,236,075.859
24 03/20/96 395.20 883,343.242 10.95 39,446.09 9,667.13 21,119,419.101
25 03/21/96 395.44 883,343.126 11.01 41,112.46 10,062.57 22,002,762.227
26 03/22/96 397.78 881,407.126 11.02 42,775.07 10,460.35 22,884,169.353
27 03/23/96 397.78 881,407.126 11.02 44,437.68 10,858.13 23,765,576.479
28 03/24/96 397.78 881,407.126 11.02 46,100.29 11,255.91 24,646,983.605
29 03/25/96 398.01 881,407.126 11.07 47,761.58 11,653.92 25,528,390.731
30 03/26/96 399.94 881,407.126 11.07 49,423.41 12,053.86 26,409,797.857
</TABLE>
<PAGE>
KEYSTONE AMERICA MA TAX FREE CLASS A
PRICING DATE 26-Mar-96
=========
30 DAY YTM 5.14801%
=========
<TABLE>
<CAPTION>
Fund Fund Ad Yd Rt Class Class
- -----------------------------------------------------------------------------------------------------------------------------------
PRICE ST FIXED OID AMORT. GAIN / LONG TERM TOTAL DIV ADJUSTED DAILY FD &
DATE INCOME INCOME INCOME LOSS ADJ INCOME INCOME FACTOR INCOME CLASS EXPENSES
Input Input Input Input input Input Input
----- --------- ------- ------ ------- -------- ---------- -------- ---------- -------- --------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1.00 26-Feb-96 32.50 0.00 0.00 1,941.66 1,974.16 16.1041214 317.92 39.52
2.00 27-Feb-96 31.60 0.00 0.00 1,942.50 1,974.10 15.9846565 315.55 39.40
3.00 28-Feb-96 30.22 0.00 0.00 1,942.33 1,972.55 15.9441497 314.51 39.06
4.00 29-Feb-96 20.51 0.00 0.00 1,945.10 1,965.61 15.0645312 296.11 38.95
5.00 01-Mar-96 22.89 0.00 0.00 1,932.95 1,955.84 15.0759724 294.86 36.33
6.00 02-Mar-96 22.89 0.00 0.00 1,932.95 1,955.84 15.0759724 294.86 36.33
7.00 03-Mar-96 22.89 0.00 0.00 1,932.95 1,955.84 15.0759724 294.86 36.33
8.00 04-Mar-96 18.95 0.00 0.00 1,931.55 1,950.50 15.0958168 294.44 36.60
9.00 05-Mar-96 22.07 0.00 0.00 1,933.20 1,955.27 15.0322642 293.92 37.21
10.00 06-Mar-96 20.65 0.00 0.00 1,936.94 1,957.59 15.0322198 294.27 37.14
11.00 07-Mar-96 21.01 0.00 0.00 1,938.58 1,959.59 15.2470266 298.78 36.99
12.00 08-Mar-96 21.36 0.00 0.00 1,952.64 1,974.00 15.2474753 300.99 36.91
13.00 09-Mar-96 21.36 0.00 0.00 1,952.64 1,974.00 15.2474753 300.99 36.91
14.00 10-Mar-96 21.36 0.00 0.00 1,952.64 1,974.00 15.2474753 300.99 36.91
15.00 11-Mar-96 21.36 0.00 0.00 1,952.66 1,974.02 15.2471154 300.98 36.16
16.00 12-Mar-96 18.29 0.00 0.00 1,956.15 1,974.44 15.3454660 302.99 36.35
17.00 13-Mar-96 18.04 0.00 0.00 1,956.88 1,974.92 15.3455723 303.06 36.26
18.00 14-Mar-96 18.42 0.00 0.00 1,957.11 1,975.53 15.3889442 304.01 36.21
19.00 15-Mar-96 16.78 0.00 0.00 1,824.40 1,841.18 15.4598110 284.64 36.20
20.00 16-Mar-96 16.78 0.00 0.00 1,824.40 1,841.18 15.4598110 284.64 36.20
21.00 17-Mar-96 16.78 0.00 0.00 1,824.40 1,841.18 15.4598110 284.64 36.20
22.00 18-Mar-96 12.00 0.00 0.00 1,972.92 1,984.92 15.5444879 308.55 35.88
23.00 19-Mar-96 17.41 0.00 0.00 1,957.34 1,974.75 15.5444534 306.96 36.16
24.00 20-Mar-96 18.59 0.00 0.00 1,956.14 1,974.73 15.5444551 306.96 36.22
25.00 21-Mar-96 13.25 0.00 0.00 1,952.46 1,965.71 15.6165216 306.98 36.32
26.00 22-Mar-96 18.49 0.00 0.00 1,936.15 1,954.64 15.6759897 306.41 36.53
27.00 23-Mar-96 18.49 0.00 0.00 1,936.15 1,954.64 15.6759897 306.41 36.53
28.00 24-Mar-96 18.49 0.00 0.00 1,936.15 1,954.64 15.6759897 306.41 36.53
29.00 25-Mar-96 14.46 0.00 0.00 1,934.22 1,948.68 15.7309619 306.55 36.55
30.00 26-Mar-96 13.98 0.00 0.00 1,935.18 1,949.16 15.7310045 306.62 36.72
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
AA
AAA AAA
AAA AAA
AAAAAAAAAAAAA
AA AA
TOTAL INCOME FOR PERIOD 9,039.86 AA AA
TOTAL EXPENSES FOR PERIOD 1,105.61 AA AA
AVERAGE SHARES OUTSTANDING 191,321.19 AA AA
LAST PRICE DURING PERIOD 9.77
Class Class
- ------------------------------------------------- 30 DAY 30 DAY 30 DAY
PRICE DAILY DAILY ACCUMULATED ACCUMULATED ACCUMULATED
DATE SHARES PRICE INCOME EXPENSES SHARES
Input input
----- --------- -------------- ------ ----------- ---------- --------------
<S> <C> <C> <C> <C> <C> <C>
1.00 26-Feb-96 202,328.671 9.98 317.92 39.52 202,328.671
2.00 27-Feb-96 200,542.131 9.97 633.47 78.92 402,870.802
3.00 28-Feb-96 199,938.447 9.98 947.98 117.98 602,809.249
4.00 29-Feb-96 186,949.297 9.95 1,244.09 156.93 789,758.546
5.00 01-Mar-96 187,323.855 10.01 1,538.95 193.26 977,082.401
6.00 02-Mar-96 187,323.855 10.01 1,833.81 229.59 1,164,406.256
7.00 03-Mar-96 187,323.855 10.01 2,128.67 265.92 1,351,730.111
8.00 04-Mar-96 187,323.855 10.04 2,423.11 302.52 1,539,053.966
9.00 05-Mar-96 187,323.855 10.02 2,717.03 339.73 1,726,377.821
10.00 06-Mar-96 187,323.855 9.97 3,011.30 376.87 1,913,701.676
11.00 07-Mar-96 189,921.258 9.95 3,310.08 413.86 2,103,622.934
12.00 08-Mar-96 189,927.592 9.75 3,611.07 450.77 2,293,550.526
13.00 09-Mar-96 189,927.592 9.75 3,912.06 487.68 2,483,478.118
14.00 10-Mar-96 189,927.592 9.75 4,213.05 524.59 2,673,405.710
15.00 11-Mar-96 189,927.592 9.77 4,514.03 560.75 2,863,333.302
16.00 12-Mar-96 190,452.587 9.72 4,817.02 597.10 3,053,785.889
17.00 13-Mar-96 190,453.667 9.71 5,120.08 633.36 3,244,239.556
18.00 14-Mar-96 191,090.009 9.71 5,424.09 669.57 3,435,329.565
19.00 15-Mar-96 191,089.957 9.62 5,708.73 705.77 3,626,419.522
20.00 16-Mar-96 191,089.957 9.62 5,993.37 741.97 3,817,509.479
21.00 17-Mar-96 191,089.957 9.62 6,278.01 778.17 4,008,599.436
22.00 18-Mar-96 192,337.358 9.63 6,586.56 814.05 4,200,936.794
23.00 19-Mar-96 192,337.358 9.65 6,893.52 850.21 4,393,274.152
24.00 20-Mar-96 192,337.358 9.67 7,200.48 886.43 4,585,611.510
25.00 21-Mar-96 192,337.358 9.73 7,507.46 922.75 4,777,948.868
26.00 22-Mar-96 192,337.358 9.73 7,813.87 959.28 4,970,286.226
27.00 23-Mar-96 192,337.358 9.73 8,120.28 995.81 5,162,623.584
28.00 24-Mar-96 192,337.358 9.73 8,426.69 1,032.34 5,354,960.942
29.00 25-Mar-96 192,337.358 9.78 8,733.24 1,068.89 5,547,298.300
30.00 26-Mar-96 192,337.358 9.77 9,039.86 1,105.61 5,739,635.658
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
KEYSTONE AMERICA MA TAX FREE CLASS B BBBBBBB
BB BB
PRICING DATE 26-Mar-96 BB BB
BBBBB
BB BB
========= TOTAL INCOME FOR PERIOD 37,804.69 BB BB
TOTAL EXPENSES FOR PERIOD 9,238.48 BBBBBBBB
30 DAY YTM 4.64698% AVERAGE SHARES OUTSTANDING 805,168.70
========= LAST PRICE DURING PERIOD 9.25
Class
- -----------------------------------------------------------------------------------------------------------------------------------
PRICE ST FIXED OID AMORT. GAIN / LONG TERM TOTAL DIV ADJUSTED DAILY
DATE INCOME INCOME INCOME LOSS ADJ INCOME INCOME FACTOR INCOME EXPENSES
INPUT Input
- ------ --------- -------- ------ ------ -------- --------- ------- ---------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1.00 26-Feb-96 32.50 0.00 0.00 0.00 1,941.66 1,974.16 64.0672189 1,264.79 315.05
2.00 27-Feb-96 31.60 0.00 0.00 0.00 1,942.50 1,974.10 64.1584511 1,266.55 314.20
3.00 28-Feb-96 30.22 0.00 0.00 0.00 1,942.33 1,972.55 64.1893899 1,266.17 314.06
4.00 29-Feb-96 20.51 0.00 0.00 0.00 1,945.10 1,965.61 64.8608561 1,274.91 314.19
5.00 01-Mar-96 22.89 0.00 0.00 0.00 1,932.95 1,955.84 64.9336024 1,270.00 313.47
6.00 02-Mar-96 22.89 0.00 0.00 0.00 1,932.95 1,955.84 64.9336024 1,270.00 313.47
7.00 03-Mar-96 22.89 0.00 0.00 0.00 1,932.95 1,955.84 64.9336024 1,270.00 313.47
8.00 04-Mar-96 18.95 0.00 0.00 0.00 1,931.55 1,950.50 64.8875420 1,265.63 315.77
9.00 05-Mar-96 22.07 0.00 0.00 0.00 1,933.20 1,955.27 65.0353512 1,271.62 315.08
10.00 06-Mar-96 20.65 0.00 0.00 0.00 1,936.94 1,957.59 65.0354690 1,273.13 315.77
11.00 07-Mar-96 21.01 0.00 0.00 0.00 1,938.58 1,959.59 64.8123416 1,270.06 314.86
12.00 08-Mar-96 21.36 0.00 0.00 0.00 1,952.64 1,974.00 64.8123416 1,279.40 314.86
13.00 09-Mar-96 21.36 0.00 0.00 0.00 1,952.64 1,974.00 64.8123416 1,279.40 314.86
14.00 10-Mar-96 21.36 0.00 0.00 0.00 1,952.64 1,974.00 64.8123416 1,279.40 314.86
15.00 11-Mar-96 21.36 0.00 0.00 0.00 1,952.66 1,974.02 64.8124683 1,279.41 307.70
16.00 12-Mar-96 18.29 0.00 0.00 0.00 1,956.15 1,974.44 64.6407988 1,276.29 308.16
17.00 13-Mar-96 18.04 0.00 0.00 0.00 1,956.88 1,974.92 64.6406840 1,276.60 304.45
18.00 14-Mar-96 18.42 0.00 0.00 0.00 1,957.11 1,975.53 64.6075837 1,276.34 304.02
19.00 15-Mar-96 16.78 0.00 0.00 0.00 1,824.40 1,841.18 64.4446183 1,186.54 303.97
20.00 16-Mar-96 16.78 0.00 0.00 0.00 1,824.40 1,841.18 64.4446183 1,186.54 303.97
21.00 17-Mar-96 16.78 0.00 0.00 0.00 1,824.40 1,841.18 64.4446183 1,186.54 303.97
22.00 18-Mar-96 12.00 0.00 0.00 0.00 1,972.92 1,984.92 64.3809289 1,277.91 299.17
23.00 19-Mar-96 17.41 0.00 0.00 0.00 1,957.34 1,974.75 64.3809457 1,271.36 299.41
24.00 20-Mar-96 18.59 0.00 0.00 0.00 1,956.14 1,974.73 64.3809675 1,271.35 300.03
25.00 21-Mar-96 13.25 0.00 0.00 0.00 1,952.46 1,965.71 64.2158364 1,262.30 300.82
26.00 22-Mar-96 18.49 0.00 0.00 0.00 1,936.15 1,954.64 64.1005653 1,252.94 300.42
27.00 23-Mar-96 18.49 0.00 0.00 0.00 1,936.15 1,954.64 64.1005653 1,252.94 300.42
28.00 24-Mar-96 18.49 0.00 0.00 0.00 1,936.15 1,954.64 64.1005653 1,252.94 300.42
29.00 25-Mar-96 14.46 0.00 0.00 0.00 1,934.22 1,948.68 63.9746981 1,246.66 298.93
30.00 26-Mar-96 13.98 0.00 0.00 0.00 1,935.18 1,949.16 63.9746219 1,246.97 298.65
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Class
- ------------------------------------------ 30 DAY 30 DAY 30 DAY
PRICE DAILY DAILY ACCUMULATED ACCUMULATED ACCUMULATED
DATE SHARES PRICE INCOME EXPENSES SHARES
Input Input
----- --------- ------------ ----- --------- -------- --------------
<S> <C> <C> <C> <C> <C> <C>
1.00 26-Feb-96 810,012.612 9.45 1,264.79 315.05 810,012.612
2.00 27-Feb-96 810,012.612 9.44 2,531.34 629.25 1,620,025.224
3.00 28-Feb-96 810,012.612 9.45 3,797.51 943.31 2,430,037.836
4.00 29-Feb-96 809,999.384 9.42 5,072.42 1,257.50 3,240,037.220
5.00 01-Mar-96 811,889.946 9.47 6,342.42 1,570.97 4,051,927.166
6.00 02-Mar-96 811,889.946 9.47 7,612.42 1,884.44 4,863,817.112
7.00 03-Mar-96 811,889.946 9.47 8,882.42 2,197.91 5,675,707.058
8.00 04-Mar-96 810,251.412 9.50 10,148.05 2,513.68 6,485,958.470
9.00 05-Mar-96 815,536.127 9.48 11,419.67 2,828.76 7,301,494.597
10.00 06-Mar-96 815,538.764 9.44 12,692.80 3,144.53 8,117,033.361
11.00 07-Mar-96 812,402.162 9.43 13,962.86 3,459.39 8,929,435.523
12.00 08-Mar-96 812,402.162 9.24 15,242.26 3,774.25 9,741,837.685
13.00 09-Mar-96 812,402.162 9.24 16,521.66 4,089.11 10,554,239.847
14.00 10-Mar-96 812,402.162 9.24 17,801.06 4,403.97 11,366,642.009
15.00 11-Mar-96 812,428.955 9.25 19,080.47 4,711.67 12,179,070.964
16.00 12-Mar-96 807,308.802 9.20 20,356.76 5,019.83 12,986,379.766
17.00 13-Mar-96 807,308.802 9.19 21,633.36 5,324.28 13,793,688.568
18.00 14-Mar-96 807,308.802 9.19 22,909.70 5,628.30 14,600,997.370
19.00 15-Mar-96 801,581.754 9.11 24,096.24 5,932.27 15,402,579.124
20.00 16-Mar-96 801,581.754 9.11 25,282.78 6,236.24 16,204,160.878
21.00 17-Mar-96 801,581.754 9.11 26,469.32 6,540.21 17,005,742.632
22.00 18-Mar-96 801,629.622 9.11 27,747.23 6,839.38 17,807,372.254
23.00 19-Mar-96 801,629.622 9.13 29,018.59 7,138.79 18,609,001.876
24.00 20-Mar-96 801,629.622 9.16 30,289.94 7,438.82 19,410,631.498
25.00 21-Mar-96 795,883.817 9.21 31,552.24 7,739.64 20,206,515.315
26.00 22-Mar-96 791,443.926 9.22 32,805.18 8,040.06 20,997,959.241
27.00 23-Mar-96 791,443.926 9.22 34,058.12 8,340.48 21,789,403.167
28.00 24-Mar-96 791,443.926 9.22 35,311.06 8,640.90 22,580,847.093
29.00 25-Mar-96 787,106.975 9.26 36,557.72 8,939.83 23,367,954.068
30.00 26-Mar-96 787,106.975 9.25 37,804.69 9,238.48 24,155,061.043
</TABLE>
<PAGE>
KEYSTONE AMERICA MA TAX FREE CLASS C
PRICING DATE 26-Mar-96
========== TOTAL INCOME FOR PERIOD 11,738.70
TOTAL EXPENSES FOR PERIOD 2,862.66
30 DAY YTM 4.65134% AVERAGE SHARES OUTSTANDING 250,219.08
========== LAST PRICE DURING PERIOD 9.24
<TABLE>
<CAPTION>
Class
- ------------------------------------------------------------------------------------------------------------------------------
PRICE ST FIXED OID AMORT. GAIN / LONG TERM TOTAL DIV ADJUSTED DAILY
DATE INCOME INCOME INCOME LOSS ADJ. INCOME INCOME FACTOR INCOME EXPENSES
Input
- ------ --------- ------- ------- ------ -------- ---------- -------- ---------- ------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1.00 26-Feb-96 32.50 0.00 0.00 0.00 1941.66 1974.16 19.8286597 391.45 97.35
2.00 27-Feb-96 31.60 0.00 0.00 0.00 1942.50 1974.10 19.8568924 391.99 97.06
3.00 28-Feb-96 30.22 0.00 0.00 0.00 1942.33 1972.55 19.8664604 391.88 97.01
4.00 29-Feb-96 20.51 0.00 0.00 0.00 1945.10 1965.61 20.0746127 394.59 97.06
5.00 01-Mar-96 22.89 0.00 0.00 0.00 1932.95 1955.84 19.9904252 390.98 96.83
6.00 02-Mar-96 22.89 0.00 0.00 0.00 1932.95 1955.84 19.9904252 390.98 96.83
7.00 03-Mar-96 22.89 0.00 0.00 0.00 1932.95 1955.84 19.9904252 390.98 96.83
8.00 04-Mar-96 18.95 0.00 0.00 0.00 1931.55 1950.50 20.0166412 390.42 97.02
9.00 05-Mar-96 22.07 0.00 0.00 0.00 1933.20 1955.27 19.9323846 389.73 97.30
10.00 06-Mar-96 20.65 0.00 0.00 0.00 1936.94 1957.59 19.9323112 390.19 97.16
11.00 07-Mar-96 21.01 0.00 0.00 0.00 1938.58 1959.59 19.9406318 390.75 96.75
12.00 08-Mar-96 21.36 0.00 0.00 0.00 1952.64 1974.00 19.9401831 393.62 96.56
13.00 09-Mar-96 21.36 0.00 0.00 0.00 1952.64 1974.00 19.9401831 393.62 96.56
14.00 10-Mar-96 21.36 0.00 0.00 0.00 1952.64 1974.00 19.9401831 393.62 96.56
15.00 11-Mar-96 21.36 0.00 0.00 0.00 1952.66 1974.02 19.9404163 393.63 94.59
16.00 12-Mar-96 18.29 0.00 0.00 0.00 1956.15 1974.44 20.0137352 395.16 94.74
17.00 13-Mar-96 18.04 0.00 0.00 0.00 1956.88 1974.92 20.0137437 395.26 94.26
18.00 14-Mar-96 18.42 0.00 0.00 0.00 1957.11 1975.53 20.0034721 395.17 94.13
19.00 15-Mar-96 16.78 0.00 0.00 0.00 1824.40 1841.18 20.0955707 370.00 94.11
20.00 16-Mar-96 16.78 0.00 0.00 0.00 1824.40 1841.18 20.0955707 370.00 94.11
21.00 17-Mar-96 16.78 0.00 0.00 0.00 1824.40 1841.18 20.0955707 370.00 94.11
22.00 18-Mar-96 12.00 0.00 0.00 0.00 1972.92 1984.92 20.0745832 398.46 93.29
23.00 19-Mar-96 17.41 0.00 0.00 0.00 1957.34 1974.75 20.0746009 396.42 93.36
24.00 20-Mar-96 18.59 0.00 0.00 0.00 1956.14 1974.73 20.0745774 396.42 93.56
25.00 21-Mar-96 13.25 0.00 0.00 0.00 1952.46 1965.71 20.1676420 396.44 93.71
26.00 22-Mar-96 18.49 0.00 0.00 0.00 1936.15 1954.64 20.2234450 395.30 94.26
27.00 23-Mar-96 18.49 0.00 0.00 0.00 1936.15 1954.64 20.2234450 395.30 94.26
28.00 24-Mar-96 18.49 0.00 0.00 0.00 1936.15 1954.64 20.2234450 395.30 94.26
29.00 25-Mar-96 14.46 0.00 0.00 0.00 1934.22 1948.68 20.2943400 395.47 94.30
30.00 26-Mar-96 13.98 0.00 0.00 0.00 1935.18 1949.16 20.2943736 395.57 94.73
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
CCCCCCC
CCC
CCC
CCC
CCC
CCC
CCCCCCC
Class Class
- -------------------------------------------- 30 DAY 30 DAY 30 DAY
PRICE DAILY DAILY ACCUMULATED ACCUMULATED ACCUMULATED
DATE SHARES PRICE INCOME EXPENSES SHARES
input Input
----- --------- ----------- ------ ---------- ----------- --------------
<S> <C> <C> <C> <C> <C> <C>
1.00 26-Feb-96 250,909.257 9.44 391.45 97.35 250,909.26
2.00 27-Feb-96 250,909.257 9.43 783.44 194.41 501,818.51
3.00 28-Feb-96 250,909.257 9.44 1,175.32 291.42 752,727.77
4.00 29-Feb-96 250,909.257 9.42 1,569.91 388.48 1,003,637.03
5.00 01-Mar-96 250,159.567 9.46 1,960.89 485.31 1,253,796.60
6.00 02-Mar-96 250,159.567 9.46 2,351.87 582.14 1,503,956.16
7.00 03-Mar-96 250,159.567 9.46 2,742.85 678.97 1,754,115.73
8.00 04-Mar-96 250,159.567 9.49 3,133.27 775.99 2,004,275.30
9.00 05-Mar-96 250,159.567 9.48 3,523.00 873.29 2,254,434.86
10.00 06-Mar-96 250,159.567 9.44 3,913.19 970.45 2,504,594.43
11.00 07-Mar-96 250,159.567 9.42 4,303.94 1,067.20 2,754,754.00
12.00 08-Mar-96 250,159.563 9.23 4,697.56 1,163.76 3,004,913.56
13.00 09-Mar-96 250,159.563 9.23 5,091.18 1,260.32 3,255,073.12
14.00 10-Mar-96 250,159.563 9.23 5,484.80 1,356.88 3,505,232.69
15.00 11-Mar-96 250,164.758 9.24 5,878.43 1,451.47 3,755,397.44
16.00 12-Mar-96 250,164.758 9.19 6,273.59 1,546.21 4,005,562.20
17.00 13-Mar-96 250,164.758 9.18 6,668.85 1,640.47 4,255,726.96
18.00 14-Mar-96 250,164.758 9.18 7,064.02 1,734.60 4,505,891.72
19.00 15-Mar-96 250,164.758 9.10 7,434.02 1,828.71 4,756,056.48
20.00 16-Mar-96 250,164.758 9.10 7,804.02 1,922.82 5,006,221.23
21.00 17-Mar-96 250,164.758 9.10 8,174.02 2,016.93 5,256,385.99
22.00 18-Mar-96 250,164.758 9.11 8,572.48 2,110.22 5,506,550.75
23.00 19-Mar-96 250,164.758 9.13 8,968.90 2,203.58 5,756,715.51
24.00 20-Mar-96 250,164.758 9.15 9,365.32 2,297.14 6,006,880.27
25.00 21-Mar-96 250,164.758 9.20 9,761.76 2,390.85 6,257,045.02
26.00 22-Mar-96 249,905.446 9.21 10,157.06 2,485.11 6,506,950.47
27.00 23-Mar-96 249,905.446 9.21 10,552.36 2,579.37 6,756,855.92
28.00 24-Mar-96 249,905.446 9.21 10,947.66 2,673.63 7,006,761.36
29.00 25-Mar-96 249,905.446 9.25 11,343.13 2,767.93 7,256,666.81
30.00 26-Mar-96 249,905.446 9.24 11,738.70 2,862.66 7,506,572.25
</TABLE>
<PAGE>
CALCULATION OF FEDERAL TAX EQUIVALENT YIELD
Fund: Keystone Florida Tax Free Fund/Class A
Calculation Period: 30 days ended March 31, 1996
Yield:
The Keystone Florida Tax Free Fund intends to advertise tax equivalent
yield based on the yield of the Fund over a 30-day period. The calculation
includes the tax equivalent yield from an investment which is exempt from
federal taxes.
Calculation below assumes:
Joint Return, 31% tax bracket
Method:
Subtract federal rate from 1 and divide yield by the result:
1.00
0.31
----
0.69
30 day yield 4.90 = 7.10% % Federal Tax Equivalent Yield
----
0.69
<PAGE>
CALCULATION OF FEDERAL TAX EQUIVALENT YIELD
Fund: Keystone Florida Tax Free Fund/Class B
Calculation Period: 30 days ended March 31, 1996
Yield:
The Keystone Florida Tax Free Fund intends to advertise tax equivalent
yield based on the yield of the Fund over a 30-day period. The calculation
includes the tax equivalent yield from an investment which is exempt from
federal taxes.
Calculation below assumes:
Joint Return, 31% tax bracket
Method:
Subtract federal rate from 1 and divide yield by the
result:
1.00
0.31
----
0.69
30 day yield 4.39 = 6.36% Federal Tax Equivalent Yield
----
0.69
<PAGE>
CALCULATION OF FEDERAL TAX EQUIVALENT YIELD
Fund: Keystone Florida Tax Free Fund/Class C
Calculation Period: 30 days ended March 31, 1996
Yield:
The Keystone Florida Tax Free Fund intends to advertise tax equivalent
yield based on the yield of the Fund over a 30-day period. The calculation
includes the tax equivalent yield from an investment which is exempt from
federal taxes.
Calculation below assumes:
Joint Return, 31% tax bracket
Method:
Subtract federal rate from 1 and divide yield by the result:
1.00
0.31
----
0.69
30 day yield 4.38 = 6.35% Federal Tax Equivalent Yield
----
0.69
<PAGE>
CALCULATION OF FEDERAL TAX EQUIVALENT YIELD
Fund: Keystone Massachusetts Tax Free Fund/Class A
Calculation Period: 30 days ended March 31, 1996
Yield:
The Keystone Massachusetts Tax Free Fund intends to advertise tax
equivalent yield based on the yield of the Fund over a 30-day period. The
calculation includes the tax equivalent yield from an investment which is exempt
from federal taxes.
Calculation below assumes:
Joint Return, 31% tax bracket
Method:
Subtract federal rate from 1 and divide yield by the result:
1.00
0.31
----
0.69
30 day yield 5.15 = 7.46% Federal Tax Equivalent Yield
----
0.69
<PAGE>
CALCULATION OF FEDERAL TAX EQUIVALENT YIELD
Fund: Keystone Massachusetts Tax Free Fund/Class B
Calculation Period: 30 days ended March 31, 1996
Yield:
The Keystone Massachusetts Tax Free Fund intends to advertise tax
equivalent yield based on the yield of the Fund over a 30-day period. The
calculation includes the tax equivalent yield from an investment which is exempt
from federal taxes.
Calculation below assumes:
Joint Return, 31% tax bracket
Method:
Subtract federal rate from 1 and divide yield by the result:
1.00
0.31
----
0.69
30 day yield 4.65 = 6.74% Federal Tax Equivalent Yield
----
0.69
<PAGE>
CALCULATION OF FEDERAL TAX EQUIVALENT YIELD
Fund: Keystone Massachusetts Tax Free Fund/Class C
Calculation Period: 30 days ended March 31, 1996
Yield:
The Keystone Massachusetts Tax Free Fund intends to advertise tax
equivalent yield based on the yield of the Fund over a 30-day period. The
calculation includes the tax equivalent yield from an investment which is exempt
from federal taxes.
Calculation below assumes:
Joint Return, 31% tax bracket
Method:
Subtract federal rate from 1 and divide yield by the result:
1.00
0.31
----
0.69
30 day yield 4.65 = 6.74% Federal Tax Equivalent Yield
----
0.69
<PAGE>
CALCULATION OF FEDERAL TAX EQUIVALENT YIELD
Fund: Keystone New York Insured Tax Free Fund/Class A
Calculation Period: 30 days ended March 31, 1996
Yield:
The Keystone New York Insured Tax Free Fund intends to advertise tax
equivalent yield based on the yield of the Fund over a 30-day period. The
calculation includes the tax equivalent yield from an investment which is exempt
from federal taxes.
Calculation below assumes:
Joint Return, 31% tax bracket
Method:
Subtract federal rate from 1 and divide yield by the result:
1.00
0.31
----
0.69
30 day yield 4.69 = 6.80% Federal Tax Equivalent Yield
----
0.69
<PAGE>
CALCULATION OF FEDERAL TAX EQUIVALENT YIELD
Fund: Keystone New York Insured Tax Free Fund/Class B
Calculation Period: 30 days ended March 31, 1996
Yield:
The Keystone New York Insured Tax Free Fund intends to advertise tax
equivalent yield based on the yield of the Fund over a 30-day period. The
calculation includes the tax equivalent yield from an investment which is exempt
from federal taxes.
Calculation below assumes:
Joint Return, 31% tax bracket
Method:
Subtract federal rate from 1 and divide yield by the result:
1.00
0.31
----
0.69
30 day yield 4.18 = 6.06% Federal Tax Equivalent Yield
----
0.69
<PAGE>
CALCULATION OF FEDERAL TAX EQUIVALENT YIELD
Fund: Keystone New York Insured Tax Free Fund/Class C
Calculation Period: 30 days ended March 31, 1996
Yield:
The Keystone New York Insured Tax Free Fund intends to advertise tax
equivalent yield based on the yield of the Fund over a 30-day period. The
calculation includes the tax equivalent yield from an investment which is exempt
from federal taxes.
Calculation below assumes:
Joint Return, 31% tax bracket
Method:
Subtract federal rate from 1 and divide yield by the result:
1.00
0.31
----
0.69
30 day yield 4.17 = 6.04% Federal Tax Equivalent Yield
----
0.69
<PAGE>
CALCULATION OF FEDERAL TAX EQUIVALENT YIELD
Fund: Keystone Pennsylvania Tax Free Fund/Class A
Calculation Period: 30 days ended March 31, 1996
Yield:
The Keystone Pennsylvania Tax Free Fund intends to advertise tax
equivalent yield based on the yield of the Fund over a 30-day period. The
calculation includes the tax equivalent yield from an investment which is exempt
from federal taxes.
Calculation below assumes:
Joint Return, 31% tax bracket
Method:
Subtract federal rate from 1 and divide yield by the result:
1.00
0.31
----
0.69
30 day yield 5.14 = 7.45% Federal Tax Equivalent Yield
----
0.69
<PAGE>
CALCULATION OF FEDERAL TAX EQUIVALENT YIELD
Fund: Keystone Pennsylvania Tax Free Fund/Class B
Calculation Period: 30 days ended March 31, 1996
Yield:
The Keystone Pennsylvania Tax Free Fund intends to advertise tax
equivalent yield based on the yield of the Fund over a 30-day period. The
calculation includes the tax equivalent yield from an investment which is exempt
from federal taxes.
Calculation below assumes:
Joint Return, 31% tax bracket
Method:
Subtract federal rate from 1 and divide yield by the result:
1.00
0.31
----
0.69
30 day yield 4.64 = 6.72% Federal Tax Equivalent Yield
----
0.69
<PAGE>
CALCULATION OF FEDERAL TAX EQUIVALENT YIELD
Fund: Keystone Pennsylvania Tax Free Fund/Class C
Calculation Period: 30 days ended March 31, 1996
Yield:
The Keystone Pennsylvania Tax Free Fund intends to advertise tax
equivalent yield based on the yield of the Fund over a 30-day period. The
calculation includes the tax equivalent yield from an investment which is exempt
from federal taxes.
Calculation below assumes:
Joint Return, 31% tax bracket
Method:
Subtract federal rate from 1 and divide yield by the result:
1.00
0.31
----
0.69
30 day yield 4.65 = 6.74% Federal Tax Equivalent Yield
----
0.69
<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
WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 6
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM ACCOUNTING
RECORDS AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH ACCOUNTING
RECORDS.
</LEGEND>
<SERIES>
<NUMBER> 101
<NAME> KEYSTONE FLORIDA TAX FREE FUND CLASS A
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> MAR-31-1996
<PERIOD-START> APR-1-1995
<PERIOD-END> MAR-31-1996
<INVESTMENTS-AT-COST> 99,213,553
<INVESTMENTS-AT-VALUE> 101,718,310
<RECEIVABLES> 2,294,514
<ASSETS-OTHER> 4,617
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 104,017,441
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 503,457
<TOTAL-LIABILITIES> 503,457
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 36,849,137
<SHARES-COMMON-STOCK> 3,518,095
<SHARES-COMMON-PRIOR> 4,090,563
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> (79,796)
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> (1,203,921)
<ACCUM-APPREC-OR-DEPREC> 1,720,555
<NET-ASSETS> 37,285,975
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 2,460,671
<OTHER-INCOME> 0
<EXPENSES-NET> (303,085)
<NET-INVESTMENT-INCOME> 2,157,586
<REALIZED-GAINS-CURRENT> 1,244,827
<APPREC-INCREASE-CURRENT> (91,650)
<NET-CHANGE-FROM-OPS> 3,310,763
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (2,149,724)
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 247,534
<NUMBER-OF-SHARES-REDEEMED> (873,200)
<SHARES-REINVESTED> 53,198
<NET-CHANGE-IN-ASSETS> (4,952,688)
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> (168,607)
<OVERDIST-NET-GAINS-PRIOR> (2,387,907)
<GROSS-ADVISORY-FEES> (210,159)
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> (367,377)
<AVERAGE-NET-ASSETS> 40,549,386
<PER-SHARE-NAV-BEGIN> 10.33
<PER-SHARE-NII> 0.56
<PER-SHARE-GAIN-APPREC> 0.27
<PER-SHARE-DIVIDEND> (0.56)
<PER-SHARE-DISTRIBUTIONS> 0.00
<RETURNS-OF-CAPITAL> 0.00
<PER-SHARE-NAV-END> 10.60
<EXPENSE-RATIO> 0.76
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 6
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM ACCOUNTING
RECORDS AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH ACCOUNTING
RECORDS.
</LEGEND>
<SERIES>
<NUMBER> 12
<NAME> KEYSTONE FLORIDA TAX FREE FUND CLASS B
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> MAR-31-1995
<PERIOD-START> APR-01-1994
<PERIOD-END> MAR-31-1995
<INVESTMENTS-AT-COST> 110,808,963
<INVESTMENTS-AT-VALUE> 113,793,367
<RECEIVABLES> 4,181,619
<ASSETS-OTHER> 28,267
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 118,003,253
<PAYABLE-FOR-SECURITIES> 7,209,862
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 4,641,185
<TOTAL-LIABILITIES> 11,851,047
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 52,106,303
<SHARES-COMMON-STOCK> 4,988,012
<SHARES-COMMON-PRIOR> 1,945,072
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> (190,865)
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> (2,069,963)
<ACCUM-APPREC-OR-DEPREC> 1,237,323
<NET-ASSETS> 51,082,798
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 2,468,549
<OTHER-INCOME> 0
<EXPENSES-NET> (586,805)
<NET-INVESTMENT-INCOME> 1,881,744
<REALIZED-GAINS-CURRENT> (1,813,692)
<APPREC-INCREASE-CURRENT> 2,459,172
<NET-CHANGE-FROM-OPS> 2,527,224
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (2,213,479)
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 3,504,376
<NUMBER-OF-SHARES-REDEEMED> (544,344)
<SHARES-REINVESTED> 82,908
<NET-CHANGE-IN-ASSETS> 31,098,430
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> (41,718)
<OVERDIST-NET-GAINS-PRIOR> (246,235)
<GROSS-ADVISORY-FEES> (202,523)
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> (655,758)
<AVERAGE-NET-ASSETS> 39,233,795
<PER-SHARE-NAV-BEGIN> 10.27
<PER-SHARE-NII> 0.53
<PER-SHARE-GAIN-APPREC> 0.02
<PER-SHARE-DIVIDEND> (0.58)
<PER-SHARE-DISTRIBUTIONS> 0.00
<RETURNS-OF-CAPITAL> 0.00
<PER-SHARE-NAV-END> 10.24
<EXPENSE-RATIO> 1.50
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 6
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM ACCOUNTING
RECORDS AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH ACCOUNTING
RECORDS.
</LEGEND>
<SERIES>
<NUMBER> 103
<NAME> KEYSTONE FLORIDA TAX FREE FUND CLASS C
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> MAR-31-1996
<PERIOD-START> APR-1-1995
<PERIOD-END> MAR-31-1996
<INVESTMENTS-AT-COST> 99,213,553
<INVESTMENTS-AT-VALUE> 101,718,310
<RECEIVABLES> 2,294,514
<ASSETS-OTHER> 4,617
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 104,017,441
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 503,457
<TOTAL-LIABILITIES> 503,457
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 12,589,804
<SHARES-COMMON-STOCK> 1,123,702
<SHARES-COMMON-PRIOR> 1,250,634
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> (99,289)
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> (569,348)
<ACCUM-APPREC-OR-DEPREC> (126,453)
<NET-ASSETS> 11,794,715
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 751,249
<OTHER-INCOME> 0
<EXPENSES-NET> (181,709)
<NET-INVESTMENT-INCOME> 569,540
<REALIZED-GAINS-CURRENT> 385,023
<APPREC-INCREASE-CURRENT> (61,328)
<NET-CHANGE-FROM-OPS> 893,234
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (607,913)
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 92,047
<NUMBER-OF-SHARES-REDEEMED> (244,752)
<SHARES-REINVESTED> 25,772
<NET-CHANGE-IN-ASSETS> (1,036,031)
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> (85,623)
<OVERDIST-NET-GAINS-PRIOR> (935,800)
<GROSS-ADVISORY-FEES> (64,193)
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> (206,220)
<AVERAGE-NET-ASSETS> 12,376,977
<PER-SHARE-NAV-BEGIN> 10.26
<PER-SHARE-NII> 0.48
<PER-SHARE-GAIN-APPREC> 0.28
<PER-SHARE-DIVIDEND> (0.52)
<PER-SHARE-DISTRIBUTIONS> 0.00
<RETURNS-OF-CAPITAL> 0.00
<PER-SHARE-NAV-END> 10.50
<EXPENSE-RATIO> 1.48
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 6
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM ACCOUNTING
RECORDS AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH ACCOUNTING
RECORDS.
</LEGEND>
<SERIES>
<NUMBER> 101
<NAME> KEYSTONE MASSACHUSETTS TAX FREE FUND CLASS A
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> MAR-31-1996
<PERIOD-START> APR-01-1995
<PERIOD-END> MAR-31-1996
<INVESTMENTS-AT-COST> 11,168,639
<INVESTMENTS-AT-VALUE> 11,215,563
<RECEIVABLES> 204,784
<ASSETS-OTHER> 10,440
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 11,430,787
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 67,466
<TOTAL-LIABILITIES> 67,466
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 1,855,077
<SHARES-COMMON-STOCK> 192,338
<SHARES-COMMON-PRIOR> 214,903
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 11,551
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> (48,145)
<ACCUM-APPREC-OR-DEPREC> (32,560)
<NET-ASSETS> 1,785,923
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 134,412
<OTHER-INCOME> 0
<EXPENSES-NET> (16,242)
<NET-INVESTMENT-INCOME> 118,170
<REALIZED-GAINS-CURRENT> 47,817
<APPREC-INCREASE-CURRENT> (14,385)
<NET-CHANGE-FROM-OPS> 151,602
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (118,321)
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 77,233
<NUMBER-OF-SHARES-REDEEMED> (106,698)
<SHARES-REINVESTED> 6,900
<NET-CHANGE-IN-ASSETS> (188,070)
<ACCUMULATED-NII-PRIOR> 11,855
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> (95,183)
<GROSS-ADVISORY-FEES> (12,087)
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> (34,856)
<AVERAGE-NET-ASSETS> 2,205,388
<PER-SHARE-NAV-BEGIN> 9.19
<PER-SHARE-NII> 0.51
<PER-SHARE-GAIN-APPREC> 0.09
<PER-SHARE-DIVIDEND> (0.50)
<PER-SHARE-DISTRIBUTIONS> 0.00
<RETURNS-OF-CAPITAL> 0.00
<PER-SHARE-NAV-END> 9.29
<EXPENSE-RATIO> 0.75
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 6
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM ACCOUNTING
RECORDS AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH ACCOUNTING
RECORDS.
</LEGEND>
<SERIES>
<NUMBER> 102
<NAME> KEYSTONE MASSACHUSETTS TAX FREE FUND CLASS B
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> MAR-31-1996
<PERIOD-START> APR-01-1995
<PERIOD-END> MAR-31-1996
<INVESTMENTS-AT-COST> 11,168,639
<INVESTMENTS-AT-VALUE> 11,215,563
<RECEIVABLES> 204,784
<ASSETS-OTHER> 10,440
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 11,430,787
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 67,466
<TOTAL-LIABILITIES> 67,466
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 7,269,364
<SHARES-COMMON-STOCK> 788,724
<SHARES-COMMON-PRIOR> 674,296
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> (11,889)
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> (48,173)
<ACCUM-APPREC-OR-DEPREC> 65,076
<NET-ASSETS> 7,274,378
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 432,014
<OTHER-INCOME> 0
<EXPENSES-NET> (105,443)
<NET-INVESTMENT-INCOME> 326,571
<REALIZED-GAINS-CURRENT> 159,588
<APPREC-INCREASE-CURRENT> (89,027)
<NET-CHANGE-FROM-OPS> 397,132
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (343,583)
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 170,546
<NUMBER-OF-SHARES-REDEEMED> (78,313)
<SHARES-REINVESTED> 22,195
<NET-CHANGE-IN-ASSETS> 1,105,738
<ACCUMULATED-NII-PRIOR> 5,616
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> (205,252)
<GROSS-ADVISORY-FEES> (38,935)
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> (168,403)
<AVERAGE-NET-ASSETS> 7,102,697
<PER-SHARE-NAV-BEGIN> 9.15
<PER-SHARE-NII> 0.43
<PER-SHARE-GAIN-APPREC> 0.09
<PER-SHARE-DIVIDEND> (0.45)
<PER-SHARE-DISTRIBUTIONS> 0.00
<RETURNS-OF-CAPITAL> 0.00
<PER-SHARE-NAV-END> 9.22
<EXPENSE-RATIO> 1.49
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 6
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM ACCOUNTING
RECORDS AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH ACCOUNTING
RECORDS.
</LEGEND>
<SERIES>
<NUMBER> 103
<NAME> KEYSTONE MASSACHUSETTS TAX FREE FUND CLASS C
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> MAR-31-1996
<PERIOD-START> APR-01-1995
<PERIOD-END> MAR-31-1996
<INVESTMENTS-AT-COST> 11,168,639
<INVESTMENTS-AT-VALUE> 11,215,563
<RECEIVABLES> 204,784
<ASSETS-OTHER> 10,440
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 11,430,787
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 67,466
<TOTAL-LIABILITIES> 67,466
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 2,311,876
<SHARES-COMMON-STOCK> 249,905
<SHARES-COMMON-PRIOR> 215,636
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> (2,534)
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> (20,730)
<ACCUM-APPREC-OR-DEPREC> 14,408
<NET-ASSETS> 2,303,020
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 130,266
<OTHER-INCOME> 0
<EXPENSES-NET> (31,789)
<NET-INVESTMENT-INCOME> 98,477
<REALIZED-GAINS-CURRENT> 48,020
<APPREC-INCREASE-CURRENT> (30,742)
<NET-CHANGE-FROM-OPS> 115,755
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (103,685)
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 48,902
<NUMBER-OF-SHARES-REDEEMED> (21,034)
<SHARES-REINVESTED> 6,401
<NET-CHANGE-IN-ASSETS> 331,793
<ACCUMULATED-NII-PRIOR> 2,823
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> (67,994)
<GROSS-ADVISORY-FEES> (11,738)
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> (50,944)
<AVERAGE-NET-ASSETS> 2,142,286
<PER-SHARE-NAV-BEGIN> 9.14
<PER-SHARE-NII> 0.43
<PER-SHARE-GAIN-APPREC> 0.10
<PER-SHARE-DIVIDEND> (0.45)
<PER-SHARE-DISTRIBUTIONS> 0.00
<RETURNS-OF-CAPITAL> 0.00
<PER-SHARE-NAV-END> 9.22
<EXPENSE-RATIO> 1.49
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 6
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM ACCOUNTING
RECORDS AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH ACCOUNTING
RECORDS.
</LEGEND>
<SERIES>
<NUMBER> 101
<NAME> KEYSTONE NEW YORK TAX FREE FUND CLASS A
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> MAR-31-1996
<PERIOD-START> APR-01-1995
<PERIOD-END> MAR-31-1996
<INVESTMENTS-AT-COST> 22,442,721
<INVESTMENTS-AT-VALUE> 23,155,388
<RECEIVABLES> 346,114
<ASSETS-OTHER> 7,157
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 23,508,659
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 114,139
<TOTAL-LIABILITIES> 114,139
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 3,812,252
<SHARES-COMMON-STOCK> 408,090
<SHARES-COMMON-PRIOR> 352,186
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 10,851
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> (17,775)
<ACCUM-APPREC-OR-DEPREC> 141,885
<NET-ASSETS> 3,947,213
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 213,383
<OTHER-INCOME> 0
<EXPENSES-NET> (27,606)
<NET-INVESTMENT-INCOME> 185,777
<REALIZED-GAINS-CURRENT> 54,824
<APPREC-INCREASE-CURRENT> 32,192
<NET-CHANGE-FROM-OPS> 272,793
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (189,416)
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 107,459
<NUMBER-OF-SHARES-REDEEMED> (63,070)
<SHARES-REINVESTED> 11,515
<NET-CHANGE-IN-ASSETS> 624,168
<ACCUMULATED-NII-PRIOR> 14,056
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> (70,406)
<GROSS-ADVISORY-FEES> (20,559)
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> (48,382)
<AVERAGE-NET-ASSETS> 3,751,023
<PER-SHARE-NAV-BEGIN> 9.44
<PER-SHARE-NII> 0.48
<PER-SHARE-GAIN-APPREC> 0.24
<PER-SHARE-DIVIDEND> (0.49)
<PER-SHARE-DISTRIBUTIONS> 0.00
<RETURNS-OF-CAPITAL> 0.00
<PER-SHARE-NAV-END> 9.67
<EXPENSE-RATIO> 0.75
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 6
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM ACCOUNTING
RECORDS AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH ACCOUNTING
RECORDS.
</LEGEND>
<SERIES>
<NUMBER> 102
<NAME> KEYSTONE NEW YORK TAX FREE FUND CLASS B
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> MAR-31-1996
<PERIOD-START> APR-01-1995
<PERIOD-END> MAR-31-1996
<INVESTMENTS-AT-COST> 22,442,721
<INVESTMENTS-AT-VALUE> 23,155,388
<RECEIVABLES> 346,114
<ASSETS-OTHER> 7,157
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 23,508,659
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 114,139
<TOTAL-LIABILITIES> 114,139
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 16,793,534
<SHARES-COMMON-STOCK> 1,789,124
<SHARES-COMMON-PRIOR> 1,269,971
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> (44,273)
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> (39,997)
<ACCUM-APPREC-OR-DEPREC> 442,204
<NET-ASSETS> 17,151,468
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 881,223
<OTHER-INCOME> 0
<EXPENSES-NET> (230,470)
<NET-INVESTMENT-INCOME> 650,753
<REALIZED-GAINS-CURRENT> 240,045
<APPREC-INCREASE-CURRENT> 89,044
<NET-CHANGE-FROM-OPS> 979,842
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (704,736)
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 658,066
<NUMBER-OF-SHARES-REDEEMED> (182,936)
<SHARES-REINVESTED> 44,023
<NET-CHANGE-IN-ASSETS> 5,244,793
<ACCUMULATED-NII-PRIOR> 7,914
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> (270,972)
<GROSS-ADVISORY-FEES> (85,016)
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> (315,828)
<AVERAGE-NET-ASSETS> 15,517,057
<PER-SHARE-NAV-BEGIN> 9.38
<PER-SHARE-NII> 0.41
<PER-SHARE-GAIN-APPREC> 0.24
<PER-SHARE-DIVIDEND> (0.44)
<PER-SHARE-DISTRIBUTIONS> 0.00
<RETURNS-OF-CAPITAL> 0.00
<PER-SHARE-NAV-END> 9.59
<EXPENSE-RATIO> 1.50
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 6
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM ACCOUNTING
RECORDS AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH ACCOUNTING
RECORDS.
</LEGEND>
<SERIES>
<NUMBER> 103
<NAME> KEYSTONE NEW YORK TAX FREE FUND CLASS C
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> MAR-31-1996
<PERIOD-START> APR-01-1995
<PERIOD-END> MAR-31-1996
<INVESTMENTS-AT-COST> 22,442,721
<INVESTMENTS-AT-VALUE> 23,155,388
<RECEIVABLES> 346,114
<ASSETS-OTHER> 7,157
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 23,508,659
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 114,139
<TOTAL-LIABILITIES> 114,139
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 2,205,415
<SHARES-COMMON-STOCK> 239,549
<SHARES-COMMON-PRIOR> 308,360
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> (4,481)
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> (33,673)
<ACCUM-APPREC-OR-DEPREC> 128,578
<NET-ASSETS> 2,295,839
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 135,426
<OTHER-INCOME> 0
<EXPENSES-NET> (35,088)
<NET-INVESTMENT-INCOME> 100,338
<REALIZED-GAINS-CURRENT> 30,618
<APPREC-INCREASE-CURRENT> 34,029
<NET-CHANGE-FROM-OPS> 164,985
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (108,972)
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 77,987
<NUMBER-OF-SHARES-REDEEMED> (155,157)
<SHARES-REINVESTED> 8,359
<NET-CHANGE-IN-ASSETS> (594,643)
<ACCUMULATED-NII-PRIOR> 3,880
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> (62,906)
<GROSS-ADVISORY-FEES> (13,014)
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> (48,562)
<AVERAGE-NET-ASSETS> 2,368,877
<PER-SHARE-NAV-BEGIN> 9.37
<PER-SHARE-NII> 0.41
<PER-SHARE-GAIN-APPREC> 0.24
<PER-SHARE-DIVIDEND> (0.44)
<PER-SHARE-DISTRIBUTIONS> 0.00
<RETURNS-OF-CAPITAL> 0.00
<PER-SHARE-NAV-END> 9.58
<EXPENSE-RATIO> 1.50
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 6
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM ACCOUNTING
RECORDS AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH ACCOUNTING
RECORDS.
</LEGEND>
<SERIES>
<NUMBER> 101
<NAME> KEYSTONE PENNSYLVANIA TAX FREE FUND CLASS A
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> MAR-31-1996
<PERIOD-START> APR-01-1995
<PERIOD-END> MAR-31-1996
<INVESTMENTS-AT-COST> 72,977,229
<INVESTMENTS-AT-VALUE> 75,203,941
<RECEIVABLES> 1,337,220
<ASSETS-OTHER> 6,373
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 76,547,534
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 443,464
<TOTAL-LIABILITIES> 443,464
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 27,347,540
<SHARES-COMMON-STOCK> 2,575,175
<SHARES-COMMON-PRIOR> 2,791,272
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 40,718
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> (1,051,774)
<ACCUM-APPREC-OR-DEPREC> 2,373,819
<NET-ASSETS> 28,710,303
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 1,836,686
<OTHER-INCOME> 0
<EXPENSES-NET> (227,370)
<NET-INVESTMENT-INCOME> 1,609,316
<REALIZED-GAINS-CURRENT> 503,065
<APPREC-INCREASE-CURRENT> 168,656
<NET-CHANGE-FROM-OPS> 2,281,037
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (1,592,417)
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 162,995
<NUMBER-OF-SHARES-REDEEMED> (455,676)
<SHARES-REINVESTED> 76,584
<NET-CHANGE-IN-ASSETS> (1,740,095)
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 22,655
<OVERDIST-NET-GAINS-PRIOR> (1,539,895)
<GROSS-ADVISORY-FEES> (161,648)
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> (298,638)
<AVERAGE-NET-ASSETS> 30,418,982
<PER-SHARE-NAV-BEGIN> 10.91
<PER-SHARE-NII> 0.60
<PER-SHARE-GAIN-APPREC> 0.23
<PER-SHARE-DIVIDEND> (0.59)
<PER-SHARE-DISTRIBUTIONS> 0.00
<RETURNS-OF-CAPITAL> 0.00
<PER-SHARE-NAV-END> 11.15
<EXPENSE-RATIO> 0.76
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 6
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM ACCOUNTING
RECORDS AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH ACCOUNTING
RECORDS.
</LEGEND>
<SERIES>
<NUMBER> 102
<NAME> KEYSTONE PENNSYLVANIA TAX FREE FUND CLASS B
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> MAR-31-1996
<PERIOD-START> APR-01-1995
<PERIOD-END> MAR-31-1996
<INVESTMENTS-AT-COST> 72,977,229
<INVESTMENTS-AT-VALUE> 75,203,941
<RECEIVABLES> 1,337,220
<ASSETS-OTHER> 6,373
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 76,547,534
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 443,464
<TOTAL-LIABILITIES> 443,464
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 38,824,388
<SHARES-COMMON-STOCK> 3,428,337
<SHARES-COMMON-PRIOR> 2,836,903
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> (213,147)
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> (891,707)
<ACCUM-APPREC-OR-DEPREC> (925)
<NET-ASSETS> 37,718,609
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 2,144,733
<OTHER-INCOME> 0
<EXPENSES-NET> (523,029)
<NET-INVESTMENT-INCOME> 1,621,704
<REALIZED-GAINS-CURRENT> 627,115
<APPREC-INCREASE-CURRENT> 14,910
<NET-CHANGE-FROM-OPS> 2,263,729
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (1,733,281)
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 844,393
<NUMBER-OF-SHARES-REDEEMED> (343,491)
<SHARES-REINVESTED> 90,532
<NET-CHANGE-IN-ASSETS> 7,061,394
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> (102,933)
<OVERDIST-NET-GAINS-PRIOR> (1,501,329)
<GROSS-ADVISORY-FEES> (189,040)
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> (616,090)
<AVERAGE-NET-ASSETS> 35,610,431
<PER-SHARE-NAV-BEGIN> 10.81
<PER-SHARE-NII> 0.51
<PER-SHARE-GAIN-APPREC> 0.22
<PER-SHARE-DIVIDEND> (0.54)
<PER-SHARE-DISTRIBUTIONS> 0.00
<RETURNS-OF-CAPITAL> 0.00
<PER-SHARE-NAV-END> 11.00
<EXPENSE-RATIO> 1.48
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 6
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM ACCOUNTING
RECORDS AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH ACCOUNTING
RECORDS.
</LEGEND>
<SERIES>
<NUMBER> 103
<NAME> KEYSTONE PENNSYLVANIA TAX FREE FUND CLASS C
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> MAR-31-1996
<PERIOD-START> APR-01-1995
<PERIOD-END> MAR-31-1996
<INVESTMENTS-AT-COST> 72,977,229
<INVESTMENTS-AT-VALUE> 75,203,941
<RECEIVABLES> 1,337,220
<ASSETS-OTHER> 6,373
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 76,547,534
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 443,464
<TOTAL-LIABILITIES> 443,464
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 10,226,730
<SHARES-COMMON-STOCK> 877,001
<SHARES-COMMON-PRIOR> 882,307
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> (54,782)
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> (350,608)
<ACCUM-APPREC-OR-DEPREC> (146,182)
<NET-ASSETS> 9,675,158
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 588,230
<OTHER-INCOME> 0
<EXPENSES-NET> (142,972)
<NET-INVESTMENT-INCOME> 445,258
<REALIZED-GAINS-CURRENT> 160,874
<APPREC-INCREASE-CURRENT> 33,092
<NET-CHANGE-FROM-OPS> 639,224
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (474,172)
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 136,525
<NUMBER-OF-SHARES-REDEEMED> (173,811)
<SHARES-REINVESTED> 31,980
<NET-CHANGE-IN-ASSETS> 116,544
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> (26,241)
<OVERDIST-NET-GAINS-PRIOR> (506,696)
<GROSS-ADVISORY-FEES> (51,779)
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> (168,775)
<AVERAGE-NET-ASSETS> 9,741,726
<PER-SHARE-NAV-BEGIN> 10.83
<PER-SHARE-NII> 0.51
<PER-SHARE-GAIN-APPREC> 0.23
<PER-SHARE-DIVIDEND> (0.54)
<PER-SHARE-DISTRIBUTIONS> 0.00
<RETURNS-OF-CAPITAL> 0.00
<PER-SHARE-NAV-END> 11.03
<EXPENSE-RATIO> 1.48
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
