<PAGE>
FILED WITH THE SECURITIES AND EXCHANGE COMMISSION DECEMBER 1, 1995.
File Nos. 33-38946
and 811-6278
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. 7 X
and
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940
Amendment No. 8 X
KEYSTONE CAPITAL PRESERVATION AND INCOME FUND
(formerly Keystone America Capital Preservation and Income Fund-II)
(Exact Name of Registrant as Specified in Charter)
200 Berkeley Street, Boston, Massachusetts 02116-5034
(Address of Principal Executive Offices) (Zip Code)
Registrant's Telephone Number, including Area Code:(617) 338-3200
Rosemary D. Van Antwerp, Esq., 200 Berkeley Street,
Boston, MA 02116-5034
(Name and Address of Agent for Service)
It is proposed that this filing will become effective:
___ immediately upon filing pursuant to paragraph (b) of Rule 485.
___ on (date) pursuant to paragraph (b).
X 60 days after filing pursuant to paragraph (a)(1).
___ on (date) pursuant to paragraph (a)(1).
___ 75 days after filing pursuant to paragraph (a)(2).
___ on (date) pursuant to paragraph (a)(2) of Rule 485.
<PAGE>
CALCULATION OF REGISTRATION FEE UNDER THE SECURITIES ACT OF 1933
Proposed Proposed
Title of Maximum Maximum
Securities Amount Offering Aggregate Amount of
Being Being Price Offering Registration
Registered Registered Per Unit* Price ** Fee
- --------------------------------------------------------------------------
Shares
Without 7,325,939 $9.99 $290,000 $100
Par Value
- --------------------------------------------------------------------------
*Computed under Rule 457(d) on the basis of the offering price per share at the
close of business on November 29,1995.
** The calculation of the maximum aggregate offering price is made pursuant to
Rule 24e-2 under the Investment Company Act of 1940. 7,296,910 shares of the
Fund were redeemed during its fiscal year ended September 30, 1995. Of such
shares, none were used for a reduction pursuant to Rule 24f-2(c).
Pursuant to Rule 24f-2 under the Investment Company Act of 1940, the Registrant
has elected to register an indefinite number of its securities under the
Securities Act of 1933. A Rule 24f-2 Notice for Registrant's most recent fiscal
year ended September 30, 1995 was filed on November 28, 1995.
<PAGE>
KEYSTONE AMERICA CAPITAL PRESERVATION AND INCOME FUND
(FORMERLY KEYSTONE AMERICA CAPITAL PRESERVATION AND INCOME FUND-II)
CONTENTS OF
POST-EFFECTIVE AMENDMENT NO. 7
TO
REGISTRATION STATEMENT
This Post-Effective Amendment No. 7 to Registration
Statement No. 33-38946/811-6278 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 - OTHER INFORMATION - ITEMS 24(a) and 24(b)
Financial Statements
Independent Auditors' Report
Listing of Exhibits
PART C - OTHER INFORMATION - ITEMS 25-32 and SIGNATURES PAGES
Numbers of Holders of Securities
Indemnification
Business and Other Connections
Principal Underwriter
Locations of Accounts and Records
Signatures
Exhibits (Including Powers of Attorney)
<PAGE>
KEYSTONE AMERICA CAPITAL PRESERVATION AND INCOME FUND
(FORMERLY KEYSTONE AMERICA CAPITAL PRESERVATION AND INCOME FUND-II)
Cross-Reference Sheet pursuant to Rules 404 and 495 under the Securities Act of
1933.
Items in
Part A of
Form N-1A Prospectus Caption
- --------- ------------------
1 Cover Page
2 Fee Table
3 Financial Highlights
Performance Data
4 Cover Page
The Fund
Investment Restrictions
Investment Objective and Policies
Risk Factors
Additional Investment Information
5 Fund Management and Expenses
Additional Information
5A Not applicable
6 The Fund
Dividends and Taxes
Fund Shares
Shareholder Services
7 Pricing Shares
How to Buy Shares
Alternative Sales Options
Distribution Plans
Shareholder Services
Exhibit A
8 How to Redeem Shares
Calculations of 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 Fund
Investment Objective and Policies
Investment Restrictions
Appendix A
14 Trustees and Officers
Investment Adviser
15 Additional Information
16 Investment Adviser
Principal Underwriter
Distribution Plans
Additional Information
17 Brokerage
Distribution Plans
18 The Fund
Declaration of Trust
19 Valuation of Securities
Sales Charges
20 Not applicable
21 Principal Underwriter
22 Standardized Total Return and Yield Quotations
23 Financial Statements
<PAGE>
KEYSTONE AMERICA CAPITAL PRESERVATION AND INCOME FUND
(FORMERLY KEYSTONE AMERICA CAPITAL PRESERVATION AND INCOME FUND-II)
PART A
PROSPECTUS
<PAGE>
KEYSTONE CAPITAL PRESERVATION
AND INCOME FUND
PROSPECTUS JANUARY , 1996
Keystone Capital Preservation and Income Fund (formerly Keystone America
Capital Preservation and Income Fund-II) (the "Fund") is a mutual fund that
seeks a high level of current income consistent with low volatility of principal
by investing under ordinary circumstances at least 65% of its assets in
adjustable rate securities issued or guaranteed by the United States ("U.S.")
government, its agencies or instrumentalities, such as adjustable rate mortgage
securities, loan pools and collateralized mortgage obligations. The Fund does
not attempt to maintain a constant price per share. The Fund does, however,
follow a strategy that seeks to minimize changes in its net asset value per
share by investing primarily in adjustable rate securities whose interest rates
are periodically reset when market rates change. The Fund seeks to maintain a
relatively stable net asset value while providing high current income relative
to high quality, short-term investment alternatives.
Generally, the Fund offers three classes of shares. Information on share
classes and their fee and sales charge structures may be found in the Fund's fee
table, "How to Buy Shares," "Alternative Sales Options," "Contingent Deferred
Sales Charge and Waiver of Sales Charges," "Distribution Plans," and "Fund
Shares."
This prospectus concisely states information about the Fund that you should
know before investing. Please read it and retain it for future reference.
KEYSTONE CAPITAL PRESERVATION
AND INCOME FUND
200 BERKELEY STREET
BOSTON, MASSACHUSETTS 02116-5034
CALL TOLL FREE 1-800-343-2898
Additional information about the Fund is contained in a statement of
additional information dated January , 1996, which has been filed with the
Securities and Exchange Commission and is incorporated by reference into this
prospectus. For a free copy, or for other information about the Fund, write to
the address or call the telephone number listed below.
TABLE OF CONTENTS
Page
Fee Table 2
Financial Highlights 3
The Fund 6
Investment Objective and Policies 6
Risk Factors 9
Investment Restrictions 11
Pricing Shares 12
Dividends and Taxes 12
Fund Management and Expenses 13
How to Buy Shares 15
Alternative Sales Options 16
Contingent Deferred Sales Charge and
Waiver of Sales Charges 20
Distribution Plans 21
How to Redeem Shares 22
Shareholder Services 24
Performance Data 26
Fund Shares 26
Additional Information 27
Additional Investment Information (i)
Exhibit A A-1
SHARES OF THE FUND ARE NOT DEPOSITS OR OBLIGATIONS OF, OR GUARANTEED OR
ENDORSED BY, ANY BANK, AND SHARES ARE NOT FEDERALLY INSURED BY THE FEDERAL
DEPOSIT INSURANCE CORPORATION, THE FEDERAL RESERVE BOARD, OR ANY OTHER AGENCY.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
<PAGE>
FEE TABLE
KEYSTONE CAPITAL PRESERVATION AND INCOME FUND
The purpose of this fee table is to assist investors in understanding the
costs and expenses that an investor in each class will bear directly or
indirectly. For more complete descriptions of the various costs and expenses,
see the following sections of this prospectus: "Fund Management and Expenses";
"How to Buy Shares"; "Alternative Sales Options"; "Contingent Deferred Sales
Charge and Waiver of Sales Charges"; "Distribution Plans"; and "Shareholder
Services."
<TABLE>
<CAPTION>
CLASS A SHARES CLASS B SHARES CLASS C SHARES
FRONT END BACK END LEVEL LOAD
SHAREHOLDER TRANSACTION EXPENSES LOAD OPTION LOAD OPTION<F1> OPTION<F2>
--------- --------- ---------
<S> <C> <C> <C>
Sales Charge ....................................... 3.00%<F3> None None
(as a percentage of offering price)
Contingent Deferred Sales Charge ................... 0.00%<F4> 3.00% in the first 12 1.00% in the first
(as a percentage of the lesser of cost or month period declining year and 0.00%
market value of shares redeemed) to 1.00% in the fourth thereafter
12 month period and
0.00% thereafter
Exchange Fee (per exchange)<F5>..................... $10.00 $10.00 $10.00
ANNUAL FUND OPERATING EXPENSES<F6>
After Expense Reimbursements
(as a percentage of average net assets)
Management Fees .................................... 0.64% 0.64% 0.64%
12b-1 Fees ......................................... 0.25% 1.00%<F7> 1.00%<F7>
Other Expenses ..................................... 0.01% 0.01% 0.01%
---- ---- ----
Total Fund Operating Expenses ...................... 0.90% 1.65% 1.65%
==== ==== ====
<CAPTION>
EXAMPLES<F8> 1 YEAR 3 YEARS 5 YEARS 10 YEARS
------ ------- ------- --------
You would pay the following expenses on a $1,000 investment, assuming
(1) 5% annual return and (2) redemption at the end of each period:
<S> <C> <C> <C> <C>
Class A ................................................................ $39.00 $58.00 $78.00 $138.00
Class B ................................................................ $47.00 $72.00 $90.00 N/A<F1>
Class C ................................................................ $27.00 $52.00 $90.00 $195.00
You would pay the following expenses on the same investment, assuming
no redemption at the end of each period:
Class A ................................................................ $39.00 $58.00 $78.00 $138.00
Class B ................................................................ $17.00 $52.00 $90.00 N/A<F1>
Class C ................................................................ $17.00 $52.00 $90.00 $195.00
AMOUNTS SHOWN IN THE EXAMPLE SHOULD NOT BE CONSIDERED A REPRESENTATION OF PAST OR FUTURE EXPENSES. ACTUAL EXPENSES MAY BE GREATER
OR LESS THAN THOSE SHOWN.
<FN>
- ----------
<F1> Class B shares purchased on or after June 1, 1995 convert to Class A shares after six years. See "Class B Shares" for more
information.
<F2> Class C shares are available only through dealers who have entered into special distribution agreements with Keystone
Investment Distributors Company, the Fund's principal underwriter. See "Class C Shares" for more information.
<F3> The sales charge applied to purchases of Class A shares declines as the amount invested increases. See "Class A Shares."
<F4> Purchase of Class A shares in the amount of $1,000,000 or more and/or purchases made by certain qualifing retirement or other
plans are not subject to a sales charge, but are subject to a contingent deferred sales charge. See the "Class A Shares" and
"Contingent Deferred Sales Charge and Waiver of Sales Charges" sections of this prospectus for an explanation of the charge.
<F5> There is no exchange fee for exchange orders received by the Fund directly from an individual shareholder over the Keystone
Automated Response Line ("KARL"). (For a description of KARL, see "Shareholder Services.")
<F6> Expense ratios are estimated for the fiscal year ended September 30, 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 the Fund's Class A, B and C shares to 0.90%, 1.65% and 1.65%
of average net class assets, respectively. Keystone intends to continue the foregoing expense limitations on a calendar
month-by-month basis. The estimated expense ratios above assume the extension of the expense limitations until September 30,
1996, which Keystone is under no obligation to do. Prior to reimbursement, expense ratios for the fiscal year ended September
30, 1996 for the Fund's Class A, B and C shares, respectively, are estimated to be 1.45%, 2.20% and 2.20%. Total Fund
Operating Expenses for the fiscal year ended September 30, 1996 include indirectly paid expenses. For an explanation of
expense reimbursements, see "Fund Management and Expenses."
<F7> Long-term shareholders may pay more than the economic equivalent of the maximum front end sales charges permitted by rules
adopted by the National Association of Securities Dealers, Inc. ("NASD").
<F8> The Securities and Exchange Commission requires use of a 5% annual return figure for purposes of this example. Actual return
for the Fund may be greater or less than 5%.
</TABLE>
<PAGE>
FINANCIAL HIGHLIGHTS
KEYSTONE CAPITAL PRESERVATION AND INCOME FUND
CLASS A SHARES
(FOR A SHARE OUTSTANDING THROUGHOUT THE PERIOD)
The following table contains important financial information relating to the
Fund and has been audited by KPMG Peat Marwick LLP, the Fund's independent
auditors. The table appears in the Fund's Annual Report and should be read in
conjunction with the Fund's financial statements and related notes, which also
appear, together with the independent auditors' report, in the Fund's Annual
Report. The Fund's financial statements, related notes, and independent
auditors' report are included in the statement of additional information.
Additional information about the Fund's performance is contained in its Annual
Report, which will be made available upon request and without charge.
DECEMBER 30, 1994
(DATE OF
INITIAL OFFERING) TO
SEPTEMBER 30, 1995
------------------
NET ASSET VALUE BEGINNING OF PERIOD .................... $9.51
-----
Income from investment operations:
Net investment income ................................. 0.46
Net realized and unrealized gain (loss) on investments 0.14
-----
Total from investment operations ...................... 0.60
-----
Less distributions from:
Net investment income ................................. (0.42)
In excess of net investment income .................... (0.01)
-----
Total distributions ................................... (0.43)
-----
NET ASSET VALUE END OF PERIOD ........................ $9.68
=====
TOTAL RETURN (A) ...................................... 6.36%
RATIOS/SUPPLEMENTAL DATA
RATIOS TO AVERAGE NET ASSETS:
Total expenses (b) .................................. 0.86%(c)(d)
Net investment income ............................... 6.37%(d)
Portfolio turnover rate ............................... 67%
Net assets, end of period (thousands) ................. $19,293
- ----------
(a) Excluding applicable sales charges.
(b) Figures are net of expense reimbursement by Keystone in connection with the
voluntary expense limitations. Before the expense reimbursement, the "Ratio
of total expenses to average net assets" would have been 1.27% (annualized)
for the period December 30, 1994 (Date of Initial Offering) to September 30,
1995.
(c) "Ratio of total expenses to average net assets" for the period ended
September 30, 1995 includes indirectly paid expenses. Excluding indirectly
paid expenses for the period December 30, 1994 (Date of Initial Offering) to
September 30, 1995, the expense ratio would have been 0.82% (annualized).
(d) Annualized.
<PAGE>
FINANCIAL HIGHLIGHTS
KEYSTONE CAPITAL PRESERVATION AND INCOME FUND
CLASS B SHARES
(FOR A SHARE OUTSTANDING THROUGHOUT THE PERIOD)
The following table contains important financial information relating to the
Fund and has been audited by KPMG Peat Marwick LLP, the Fund's independent
auditors. The table appears in the Fund's Annual Report and should be read in
conjunction with the Fund's financial statements and related notes, which also
appear, together with the independent auditors' report, in the Fund's Annual
Report. The Fund's financial statements, related notes, and independent
auditors' report are included in the statement of additional information.
Additional information about the Fund's performance is contained in its Annual
Report, which will be made available upon request and without charge.
<TABLE>
<CAPTION>
JULY 1, 1991
YEAR ENDED SEPTEMBER 30, (COMMENCEMENT OF
---------------------------------------------- OPERATIONS) TO
1995 1994 1993 1992 SEPTEMBER 30, 1991
---- ---- ---- ---- ------------------
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE BEGINNING OF YEAR $9.62 $9.91 $9.88 $10.06 $10.00
----- ----- ----- ------ ------
Income from investment operations:
Net investment income .............. 0.52 0.47 0.45 0.58 0.18
Net realized and unrealized gain
(loss) on investments............. 0.03 (0.41) (0.05) (0.21) 0.06
----- ----- ----- ------ ------
Total from investment operations.... 0.55 0.06 0.40 0.37 0.24
----- ----- ----- ------ ------
Less distributions from:
Net investment income .............. (0.48) (0.34) (0.37) (0.55) (0.18)
In excess of net investment income . (0.01) (0.01) 0 0 0
----- ----- ----- ------ ------
Total distributions ................ (0.49) (0.35) (0.37) (0.55) (0.18)
----- ----- ----- ------ ------
NET ASSET VALUE END OF YEAR $9.68 $9.62 $9.91 $9.88 $10.06
===== ===== ===== ===== ======
TOTAL RETURN<F1> ................... 5.81% 0.58% 4.16% 3.71% 2.43%
RATIOS/SUPPLEMENTAL DATA
RATIOS TO AVERAGE NET ASSETS:
Total expenses<F2> ............... 1.53%<F3> 1.50% 1.50% 1.36% 1.19%<F4>
Net investment income ............ 5.46% 4.05% 4.44% 5.50% 6.42%<F4>
Portfolio turnover rate ............ 67% 34% 60% 41% 2%
Net assets, end of year (thousands). $62,998 $95,761 $144,725 $188,742 $25,769
<FN>
- ----------
<F1> Excluding applicable sales charges.
<F2> Figures are net of expense reimbursement by Keystone in connection with the voluntary expense limitation. Before the expense
reimbursement the "Ratio of total expenses to average net assets" would have been 2.09%, 1.93%, 1.94%, 2.03% and 3.19%
(annualized) for the years ended September 30, 1995, 1994, 1993, 1992, and the period July 1, 1991 (Commencement of
Operations) to September 30, 1991, respectively.
<F3> "Ratio of total expenses to average net assets" for the year ended September 30, 1995 includes indirectly paid expenses.
Excluding indirectly paid expenses for the year ended September 30, 1995, the expense ratio would have been 1.50%.
<F4> Annualized.
</TABLE>
<PAGE>
FINANCIAL HIGHLIGHTS
KEYSTONE CAPITAL PRESERVATION AND INCOME FUND
CLASS C SHARES
(FOR A SHARE OUTSTANDING THROUGHOUT THE PERIOD)
The following table contains important financial information relating to the
Fund and has been audited by KPMG Peat Marwick LLP, the Fund's independent
auditors. The table appears in the Fund's Annual Report and should be read in
conjunction with the Fund's financial statements and related notes, which also
appear, together with the independent auditors' report, in the Fund's Annual
Report. The Fund's financial statements, related notes, and independent
auditors' report are included in the statement of additional information.
Additional information about the Fund's performance is contained in its Annual
Report, which will be made available upon request and without charge.
<TABLE>
<CAPTION>
FEBRUARY 1, 1993
YEAR ENDED SEPTEMBER 30, (DATE OF INITIAL
----------------------- PUBLIC OFFERING) TO
1995 1994 SEPTEMBER 30, 1993
---- ---- -------------------
<S> <C> <C> <C>
NET ASSET VALUE BEGINNING OF YEAR .. $ 9.60 $ 9.90 $ 9.82
------ ------ ------
Income from investment operations:
Net investment income .............. 0.52 0.40 0.23
Net realized and unrealized gain
(loss) on investments ........... 0.04 (0.35) 0.09
------ ------ ------
Total from investment operations ... 0.56 0.05 0.32
------ ------ ------
Less distributions from:
Net investment income .............. (0.48) (0.34) (0.24)
In excess of net investment income . (0.01) (0.01) 0
------ ------ ------
Total distributions ................ (0.49) (0.35) (0.24)
------ ------ ------
Net asset value end of year ........ $ 9.67 $ 9.60 $ 9.90
====== ====== ======
TOTAL RETURN<F1> ................... 5.93% 0.48% 3.28%
RATIOS/SUPPLEMENTAL DATA
RATIOS TO AVERAGE NET ASSETS:
Total expenses<F2> ............... 1.53%<F3> 1.50% 1.50%<F4>
Net investment income ............ 5.51% 4.08% 2.91%<F4>
Portfolio turnover rate ............ 67% 34% 60%
Net assets, end of year (thousands) $2,755 $2,874 $2,077
<FN>
- ----------
<F1> Excluding applicable sales charges.
<F2> Figures are net of expense reimbursement by Keystone in connection with the voluntary expense limitation. Before the expense
reimbursement, the "Ratio of total expenses to average net assets" would have been 2.08%, 1.94% and 1.67% (annualized) for
the years ended September 30, 1995, 1994 and the period February 1, 1993 (Commencement of Operations) to September 30, 1993,
respectively.
<F3> "Ratio of total expenses to average net assets" for years ended on or after September 30, 1995 includes indirectly paid
expenses. Excluding indirectly paid expenses for the year ended September 30, 1995, the expense ratio would have been 1.50%.
<F4> Annualized.
</TABLE>
<PAGE>
THE FUND
The Fund is a diversified, open-end management investment company, commonly
known as a mutual fund. The Fund was formed as a Massachusetts business trust on
December 19, 1990. The Fund is one of thirty funds managed or advised by
Keystone Investment Management Company (formerly named Keystone Custodian Funds,
Inc.) ("Keystone"), the Fund's investment adviser.
INVESTMENT OBJECTIVE AND POLICIES
INVESTMENT OBJECTIVE
The Fund's investment objective is to seek a high level of current income,
consistent with low volatility of principal. The Fund pursues its investment
objective by investing under ordinary circumstances at least 65% of its assets
in loan pool securities ("Loan Pool(s)") or in mortgage securities or other
securities collateralized by, or representing an interest in, a pool of
mortgages (collectively, "Mortgage Securities") that have interest rates that
reset at periodic intervals and are issued or guaranteed by the U.S. government,
its agencies or instrumentalities. The Fund does not attempt to maintain a
constant price per share. The Fund follows a strategy that seeks to minimize
changes in its net asset value per share by investing primarily in adjustable
rate securities, the interest rates of which are periodically reset when market
rates change. The average dollar weighted reset period of adjustable rate
securities held by the Fund will not exceed one year. The Fund seeks to provide
a relatively stable net asset value while providing high current income relative
to high quality, short-term investment alternatives.
The investment objective of the Fund is fundamental and may not be changed
without approval of the holders of a majority of the Fund's outstanding voting
shares 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 is no assurance that the Fund will achieve its investment objective
since there is uncertainty in every investment.
INVESTMENT POLICIES AND APPROACH
Keystone believes that by investing primarily in Mortgage Securities and Loan
Pools with adjustable rates of interest issued or guaranteed by the U.S.
government, its agencies or instrumentalities, the Fund will achieve a less
volatile net asset value per share than is characteristic of mutual funds that
invest primarily in U.S. government securities paying a fixed rate of interest.
Although the Fund does not attempt to maintain a constant price per share, this
strategy seeks to minimize the extent of changes in the Fund's net asset value
per share by investing in a diverse portfolio of securities, which Keystone
believes will, when combined, experience relatively low price volatility.
Unlike fixed rate mortgages and loans, which generally decline in value during
periods of rising interest rates, adjustable rate mortgage securities ("ARMS")
and adjustable rate Loan Pools ("AR Loan Pools") allow the Fund to participate
in increases in interest rates through periodic adjustments in the coupons of
the underlying mortgages or loans, resulting in both higher current yields and
lower price fluctuations in the Fund's net asset value per share. The Fund is
also affected by decreases in interest rates through periodic decreases in the
coupons of the underlying mortgages or loans resulting in lower income to the
Fund. This downward adjustment results in lower price fluctuations in the net
asset value per share in a decreasing interest rate environment. As the interest
rates on the mortgages or loans underlying the Fund's investments are reset
periodically, coupons of portfolio securities will gradually align themselves to
reflect changes in market rates and should cause the net asset value per share
of the Fund to fluctuate less dramatically than it would if the Fund invested in
more traditional long-term, fixed rate mortgages.
The portion of the Fund that is not invested in ARMS and AR Loan Pools is
intended to add incremental yield from changes in market rates while not
materially increasing the volatility of the net asset value per share. As a
result, the overall impact on the Fund of this portion of the Fund's portfolio
is expected to be neutral in terms of price risk.
For example, the Fund may invest in GNMA, FNMA and FHLMC (each as hereinafter
defined) fixed rate Mortgage Securities. The expected price behavior of fixed
rate GNMA, FNMA and FHLMC Mortgage Securities is like that of other fixed rate
debt securities in that their principal value rises as market interest rates
fall and declines as market interest rates rise. For further information, see
"Other Permitted Investments."
The Fund intends to follow policies of the Securities and Exchange Commission
as they are adopted from time to time with respect to illiquid securities,
including at this time (1) treating as illiquid, securities that may not be sold
or disposed of in the ordinary course of business within seven days at
approximately the value at which the Fund has valued such securities on its
books and (2) limiting its holdings of such securities to 15% of net assets.
PERMITTED INVESTMENTS
LOAN POOL SECURITIES
A loan pool security is an interest in a pool of loans. Loans underlying the
Loan Pools generally include working capital loans, equipment loans and real
estate loans. Most Loan Pools consist of pass-through securities, which means
that they provide investors with payments consisting of both interest and
principal as loans in the underlying loan pool are paid off by the borrower. The
Fund will invest only in Loan Pools that are issued or guaranteed by the U.S.
government, its agencies or instrumentalities. Such Loan Pools are called
"modified pass-throughs," since the holder does not bear the risk of default on
the underlying loan.
Currently, the dominant issuer and guarantor of Loan Pools issued or
guaranteed by the U.S. government, its agencies or instrumentalities is the
Small Business Administration ("SBA"). The SBA creates Loan Pools from pools of
SBA guaranteed portions of loans ("SBA Loan Pools"). SBA Loan Pools have a
guarantee of timely payment of both principal and interest and are backed by the
full faith and credit of the U.S. government.
AR Loan Pools are pass-through Loan Pools collateralized by loans with
adjustable rather than fixed interest rates, which means that there are periodic
adjustments in their coupons subject to limitations or "caps" on the maximum and
minimum interest that is charged to the borrower during the life of the loan or
to maximum and minimum changes to that interest rate during a given period. The
AR Loan Pools in which the Fund invests are primarily SBA Loan Pools and are
actively traded in the secondary market.
MORTGAGE SECURITIES
Most Mortgage Securities are also "modified pass-through" securities. The
dominant issuers or guarantors of Mortgage Securities today are the Government
National Mortgage Association ("GNMA"), the Federal National Mortgage
Association ("FNMA") and the Federal Home Loan Mortgage Corporation
("FHLMC").
The Mortgage Securities either issued or guaranteed by GNMA, FNMA or FHLMC are
called "pass-through" Mortgage Securities because a pro rata share of both
regular interest and principal payments (less GNMA's, FNMA's or FHLMC's fees and
any applicable loan servicing fees) as well as unscheduled early prepayments on
the underlying mortgage pool are passed through monthly to the holder of the
Mortgage Securities (i.e., the Fund). The principal and interest on GNMA
securities are guaranteed by GNMA and backed by the full faith and credit of the
U.S. government. FNMA guarantees full and timely payment of all interest and
principal. FHLMC guarantees timely payment of interest and the ultimate
collection of principal. Mortgage Securities from FNMA and FHLMC are not backed
by the full faith and credit of the U.S. government and are supported only by
the credit of FNMA and FHLMC. Although their close relationship with the U.S.
government is believed to make them high quality securities with minimal credit
risks, the U.S. government is not obligated by law to support either FNMA or
FHLMC. Historically, however, there have been no defaults in any FNMA or FHLMC
issues.
Adjustable rate mortgages are an increasingly important form of residential
financing. Generally, adjustable rate mortgages are mortgages that have a
specified maturity date and amortize in a manner similar to that of a fixed rate
mortgage. As a result, in periods of declining interest rates there is a
reasonable likelihood that adjustable rate mortgages will behave like fixed rate
mortgages in that current levels of prepayments of principal on the underlying
mortgages could accelerate. However, one difference between adjustable rate
mortgages and fixed rate mortgages is that for certain types of adjustable rate
mortgages the rate of amortization of principal as well as interest payments can
and does change in accordance with movements in a particular, pre-specified,
published interest rate index. The amount of interest due a holder of an
adjustable rate mortgage is calculated by adding a specified additional amount
(margin) to the index, subject to limitations or "caps" on the maximum and
minimum interest that is charged to the mortgagor during the life of the
mortgage or to maximum and minimum changes to that interest rate during a given
period. It is these special characteristics, unique to the adjustable rate
mortgages underlying the ARMS in which the Fund invests, that are believed to
make ARMS attractive investments in seeking to accomplish the Fund's objective.
For further information, see "Prepayments" in the section on "Risk Factors."
COLLATERALIZED MORTGAGE OBLIGATIONS
The Fund may also invest in fixed rate and adjustable rate collateralized
mortgage obligations ("CMOs"), including CMOs with rates that move inversely to
market rates that are issued by and guaranteed as to principal and interest by
the U.S. government, its agencies or instrumentalities. The principal
governmental issuer of CMOs is FNMA. In addition, FHLMC issues a significant
number of CMOs. The Fund will not invest in CMOs that are issued by private
issuers. CMOs are debt obligations collateralized by Mortgage Securities in
which the payment of the principal and interest is supported by the credit of,
or guaranteed by, the U.S. government or an agency or instrumentality of the
U.S. government. The secondary market for CMOs is actively traded.
CMOs are structured by redirecting the total payment of principal and interest
on the underlying Mortgage Securities used as collateral to create classes with
different interest rates, maturities and payment schedules. Instead of interest
and principal payments on the underlying Mortgage Securities being passed
through or paid pro rata to each holder (e.g., the Fund), each class of a CMO is
paid from and secured by a separate priority payment of the cash flow generated
by the pledged Mortgage Securities.
Most CMO issues have at least four classes. Classes with an earlier maturity
receive priority on payments to assure the early maturity. After the first class
is redeemed, excess cash flow not necessary to pay interest on the remaining
classes is directed to the repayment of the next maturing class until that class
is fully redeemed. This process continues until all classes of the CMO issue
have been paid in full. Among the CMO classes available are floating
(adjustable) rate classes, which have characteristics similar to ARMS, and
inverse floating rate classes whose coupons vary inversely with the rate of some
market index. The Fund may purchase any class of CMO other than the residual
(final) class.
An inverse floating rate CMO, i.e., an "inverse floater," bears an interest
rate that resets in the opposite direction of the change in a specified interest
rate index. As market interest rates rise, the interest rate 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.
GENERAL
Except as described above, the Fund does not currently intend to invest in
derivative Mortgage Securities, including residual interests in Mortgage
Securities.
OTHER PERMITTED INVESTMENTS
The Fund may invest up to 35% of its assets under ordinary circumstances and
up to 100% of its assets for temporary defensive purposes in certain instruments
other than ARMS, adjustable rate CMOs or AR Loan Pools. Specifically, the Fund
may so invest in the following instruments: obligations of the U.S. government,
its agencies or instrumentalities, including the Federal Home Loan Banks, FNMA,
GNMA, Bank for Cooperatives (including Central Bank for Cooperatives), Federal
Land Banks, Federal Intermediate Credit Banks, Tennessee Valley Authority,
Export-Import Bank of the United States, Commodity Credit Corporation, Federal
Financing Bank, The Student Loan Marketing Association, FHLMC, SBA or the
National Credit Union Administration. The Fund may assume a temporary defensive
position, for example, upon Keystone's determination that market conditions so
warrant. The Fund may not be pursuing its investment objective when it assumes a
temporary defensive position. Although the securities described in this section
are all issued or guaranteed by the U.S. government, its agencies or
instrumentalities, the value of these securities, like those of other fixed
income securities, fluctuates in response to changes in interest rates. When
interest rates decline, the value of these securities can be expected to rise.
Conversely, when interest rates rise, the value of these securities can be
expected to decline. The corresponding increase or decrease in the value of
fixed rate securities generally becomes more significant for instruments with
longer remaining maturities or expected remaining lives.
INVESTMENT TECHNIQUES
The Fund may enter into repurchase and reverse repurchase agreements and
interest rate swap agreements. The Fund may also purchase and sell securities or
rights to interest payments on a when issued or delayed delivery basis. The Fund
will not, without thirty days prior notice to shareholders, enter into interest
rate swap contracts or financial futures contracts and related options
transactions. In addition, the Fund may use subsequently developed investment
techniques related to any of its investment policies, unless such investment
techniques violate the securities laws of any state in which the Fund's shares
are registered for sale.
For further information about the types of investments and investment
techniques available to the Fund, including the associated risks, see
"Additional Investment Information" and the statement of additional information.
ADDITIONAL INFORMATION
An investment in the Fund may be a permissible investment for national banks,
federal credit unions and some state savings and loan associations. Any
financial institution considering an investment in the Fund should refer to the
applicable laws and regulations governing its operations in order to determine
if the Fund is a permissible investment.
RISK FACTORS
Like any investment, your investment in the Fund involves an element of risk.
Before you invest in the Fund, you should carefully evaluate your ability to
assume the risks your investment in the Fund poses.
Certain risks related to the Fund are discussed below. To the extent not
discussed in this section, specific risks attendant to individual securities or
investment practices are discussed in "Additional Investment Information."
By itself the Fund does not constitute a balanced investment program. You
should take into account your own investment objectives as well as your other
investments when considering an investment in the Fund.
Should the Fund need to raise cash to meet a large number of redemptions it
might have to sell portfolio securities at a time when it would be
disadvantageous to do so.
PREPAYMENTS
The Mortgage Securities and Loan Pools in which the Fund principally invests
differ from conventional bonds in that principal is repaid over the life of the
investment rather than at maturity. As a result, the holder of the investment
(i.e., the Fund) receives monthly scheduled payments of principal and interest
and may receive unscheduled principal payments representing prepayments on the
underlying mortgages or loans. When the holder reinvests the payments and any
unscheduled prepayments of principal it receives, it may receive a rate of
interest that is higher or lower than the rate on the existing investment.
RESETS
The interest rates paid on the securities held in AR Loan Pools, ARMS and
adjustable rate CMOs in which the Fund invests are readjusted at intervals of up
to three years (generally one year or less) to an increment over some
predetermined interest rate index.
The Fund's net asset value per share could vary to the extent that current
interest rates on Loan Pools or Mortgage Securities are different from market
interest rates during periods between coupon reset dates. During periods of
rising or falling interest rates, changes in the coupon rate lag behind changes
in the market rate, possibly resulting in a net asset value per share which is
slightly lower or higher, as the case may be, until the coupon resets to market
rates. Investors could suffer some principal loss if they sold their shares of
the Fund during periods of rising interest rates before the interest rates on
the underlying mortgages or loans were adjusted to reflect current market rates.
During periods of extreme fluctuations in interest rates, the Fund's net asset
value per share will fluctuate as well.
CAPS AND FLOORS
The underlying loans or mortgages that collateralize the AR Loan Pools, ARMS
and CMOs in which the Fund invests will frequently have caps and floors, which
limit the maximum amount by which the loan rate to the borrower may change up or
down per reset or adjustment interval and over the life of the loan.
The Fund will not benefit from increases in interest rates to the extent that
interest rates rise to the point where they cause the current coupon of loans or
mortgages held as investments to reach their maximum allowable annual or
lifetime reset limits (cap rates). Fluctuation in interest rates above these
levels would cause such mortgages or loans to "cap" out and to behave more like
long-term fixed rate debt securities. Conversely, the Fund will not benefit from
decreases in interest rates to the extent that prepayments increase. In
addition, when interest rates decline, the Fund's income will be reduced when
the interest rate on an underlying adjustable rate mortgage is reduced.
ADDITIONAL FACTORS
It is possible in an environment in which interest rates on short-term fixed
rate debt securities are rising faster than interest rates on long-term fixed
rate debt securities that the Fund's investments may not perform as expected
primarily because of the reset risk described above. In this abnormal interest
rate environment, the market value of Mortgage Securities in general will
typically under-perform other fixed rate debt securities.
ARMS and AR Loan Pools may be less effective as a means of "locking in"
long-term interest rates than fixed rate debt securities. The market value of
ARMS and AR Loan Pools will generally vary inversely with changes in market
interest rates, declining when interest rates rise and rising when interest
rates decline. However, ARMS and AR Loan Pools have less risk of a decline than
fixed rate debt securities of comparable maturities during periods of rapidly
rising rates and have less potential than such investments for capital
appreciation due to their adjustable rate features and the likelihood of
increased prepayments of mortgages or loans as interest rates decline.
To the extent that ARMS and AR Loan Pools are purchased at a premium, mortgage
foreclosures or loan defaults and unscheduled principal prepayments may result
in some loss of the holder's principal investment to the extent of the premium
paid over the face value of the security. On the other hand, if ARMS and AR Loan
Pools are purchased at a discount, both a scheduled payment of principal and an
unscheduled prepayment of principal will increase current and total returns and
will accelerate the recognition of income, which, when distributed to
shareholders, will be taxable as ordinary income.
While the securities in which the Fund may invest are issued or guaranteed by
the U.S. government, its agencies or instrumentalities, the market value of such
securities is not guaranteed. In addition, current yield levels should not be
considered representative of yields for any future period of time.
If and when the Fund invests in zero coupon bonds, the Fund does not expect to
have enough zero coupon bonds to have a material effect on dividends. The Fund
has undertaken to a state securities authority to disclose that zero coupon
securities pay no interest to holders prior to maturity, and that the interest
on these securities is reported as income to the Fund and distributed to its
shareholders. These distributions must be made from the Fund's cash assets or,
if necessary, from the proceeds of sales of portfolio securities. The Fund will
not be able to purchase additional income producing securities with cash used to
make such distributions, and its current income ultimately may be reduced as a
result.
Past performance should not be considered representative of results for any
future period of time.
For further information about the risks associated with the Fund's investments
and investment techniques, see "Additional Investment Information" and the
statement of additional information.
INVESTMENT RESTRICTIONS
The Fund has adopted the fundamental restrictions summarized below, which may
not be changed without the approval of a 1940 Act majority of the Fund's
outstanding shares. These restrictions and certain other fundamental and
nonfundamental restrictions are set forth in the statement of additional
information. Unless otherwise stated, all references to the Fund's assets are in
terms of current market value.
Generally, the Fund may not do the following:
(1) with respect to 75% of its total assets, invest more than 5% of the
value of its total assets in the securities of any one issuer; this limitation
does not apply to investments in securities issued or guaranteed by the U.S.
government, its agencies or instrumentalities;
(2) borrow money or enter into reverse repurchase agreements, except that
the Fund may enter into reverse repurchase agreements or borrow money from
banks for temporary or emergency purposes in aggregate amounts up to one-third
of the value of its net assets; and
(3) make loans, except that the Fund may purchase or hold debt securities
consistent with its investment objective, lend portfolio securities valued at
not more than 15% of its total assets to broker-dealers, and enter into
repurchase agreements.
If a percentage limit is satisfied at the time of an investment or borrowing,
a later increase or decrease resulting from a change in asset value is not a
violation of the limit.
PRICING SHARES
The net asset value of a Fund share is computed each day on which the New York
Stock Exchange (the "Exchange") is open as of the close of trading on the
Exchange (currently 4:00 p.m. eastern time for the purpose of pricing Fund
shares) except on days when changes in the value of the Fund's portfolio
securities do not affect its current net asset value per share. The Exchange
currently is closed on weekends, New Year's Day, Presidents' Day, Good Friday,
Memorial Day, Independence Day, Labor Day, Thanksgiving Day and Christmas Day.
The net asset value per share of the Fund is arrived at by determining the value
of the Fund's assets, subtracting its liabilities and dividing the result by the
number of its shares outstanding. Net asset value per share is calculated to two
decimal places for purposes of purchases and redemptions of the Fund's shares.
The Fund values most of its securities at the mean of the bid and asked price
at the time of valuation and values other securities at fair value according to
procedures established by the Board of Trustees, including valuing certain of
its fixed rate Mortgage Securities and Loan Pools on the basis of valuations
provided by a pricing service, approved by the Fund's Board of Trustees, which
uses information with respect to transactions in Mortgage Securities and Loan
Pools, quotations from dealers, market transactions in comparable securities and
various relationships between securities in determining value.
The Fund values short-term investments with maturities of sixty days or less
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 securities with remaining maturities of more
than 60 days, for which market quotations are readily available, are valued at
market. Short-term securities with remaining maturities of more than 60 days
when purchased that are held on the sixtieth day prior to maturity are valued at
amortized cost (market value on the sixtieth day adjusted for amortization of
premium or accretion of discount), which, when combined with accrued interest,
approximates market. All other investments are valued at market value or, where
market quotations are not readily available, are valued at fair value as
determined in good faith in accordance with procedures established by the Fund's
Board of Trustees.
DIVIDENDS AND TAXES
The 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. Fund distributions in the form of additional shares are made at net asset
value without the imposition of a sales charge. Shareholders who have not opted
to receive cash prior to the payable date for any net investment income dividend
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 per share is used in computing the number of shares in both capital gains
and income distribution reinvestments. Account statements and/or checks as
appropriate will be mailed to you within seven days after the Fund pays the
distribution. Unless the Fund receives instructions to the contrary from you
before the record or payable date, as the case may be, it will assume that you
wish to receive that distribution and future capital gains and income
distributions in shares. Instructions continue in effect until changed in
writing.
Because Class A shares bear most of the costs of distribution of such shares
through payment of a front end sales charge, while Class B and Class C shares
bear such expenses through a higher annual distribution fee, expenses
attributable to Class B shares and Class C shares will generally be higher, and
income distributions paid by the Fund with respect to Class A shares will
generally be greater than those paid with respect to Class B and Class C shares.
The Fund intends to qualify as a regulated investment company under the
Internal Revenue Code of 1986, as amended (the "Code"). The Fund qualifies if,
among other things, it distributes to its shareholders at least 90% of its net
investment income for its fiscal year. The Fund also intends to make timely
distributions, if necessary, sufficient in amount to avoid the nondeductible 4%
excise tax imposed on a regulated investment company to the extent that it fails
to distribute, with respect to each calendar year, at least 98% of its ordinary
income for such calendar year and 98% of its net capital gains for the one-year
period ending on October 31 of such calendar year. If the Fund qualifies and if
it distributes substantially all of its net investment income and net capital
gains, if any, to shareholders, it will be relieved of any federal income tax
liability.
Any distribution declared in October, November or December to shareholders of
record in such a month, and paid by the following January 31, will be includable
in the taxable income of the shareholders December 31 of the year in which such
distribution was declared.
The Fund intends to distribute its net long-term capital gains as capital gain
dividends. Such dividends are treated by shareholders as long-term capital gains
regardless of the length of time the shareholder has owned the shares. These
distributions will be designated as long-term capital gain dividends by a
written notice mailed to each shareholder no later than 60 days after the close
of the Fund's taxable year. However, if such shares are held less than six
months and redeemed at a loss, the shareholder will recognize a long term
capital loss on such shares to the extent of the capital gains distribution
received in connection with such shares.
Since none of the Fund's income will consist of corporate dividends, no
distributions will qualify for the corporate dividends received deduction.
FUND MANAGEMENT AND EXPENSES
BOARD OF TRUSTEES
Under Massachusetts law, the Fund's Board of Trustees has absolute and
exclusive control over the management and disposition of all assets of the Fund.
Subject to the authority of the Board of Trustees, Keystone serves as investment
adviser to the Fund and is responsible for the overall management of the Fund's
business and affairs.
INVESTMENT ADVISER
Keystone, the Fund's investment adviser, located at 200 Berkeley Street,
Boston, Massachusetts 02116-5034, has provided investment advisory and
management services to investment companies and private accounts since it was
organized in 1932. Keystone is a wholly-owned subsidiary of Keystone
Investments, Inc. (formerly named Keystone Group, Inc.) ("Keystone
Investments"), located at 200 Berkeley Street, Boston, Massachusetts 02116-
5034.
Keystone Investments is a corporation predominantly owned by current and
former members of management of Keystone and its affiliates. The shares of
Keystone Investments common stock beneficially owned by management are held in a
number of voting trusts, the trustees of which are George S. Bissell, Albert H.
Elfner, III, Edward F. Godfrey and Ralph J. Spuehler, Jr. Keystone Investments
provides accounting, bookkeeping, legal, personnel and general corporate
services to Keystone, its affiliates and the Keystone Investments Family of
Funds.
Pursuant to its Investment Advisory and Management Agreement with the Fund,
(the "Advisory Agreement"), Keystone provides investment advisory and management
services to the Fund.
The Fund pays Keystone a fee for its services at the annual rate set forth
below:
Aggregate Net Asset
Management Value of the Shares
Fee of the Fund
- --------------------------------------------------------------------------------
2% of Gross Dividend and
Interest Income
plus
0.50% of the first $100,000,000, plus
0.45% of the next $100,000,000, plus
0.40% of the next $100,000,000, plus
0.35% of the next $100,000,000, plus
0.30% of the next $100,000,000, plus
0.25% of amounts over $500,000,000
computed as of the close of business each business day and paid daily.
During the fiscal year ended September 30, 1995, the Fund paid or accrued to
Keystone investment management and administrative services fees of $605,247,
which represented 0.64% of the Fund's average net assets.
The Advisory Agreement continues in effect from year to year only so long as
such continuance is specifically approved at least annually by the Board of
Trustees or by vote of a majority of the outstanding shares of the Fund. In
either case, the terms of the Advisory Agreement and continuance thereof must be
approved by the vote of a majority of independent Trustees ("Independent
Trustees") in person at a meeting called for the purpose of voting on such
approval. The Advisory Agreement may be terminated, without penalty, on 60 days'
written notice by the Fund or Keystone, or by a vote of shareholders of the
Fund.
The Fund has adopted a Code of Ethics incorporating policies on personal
securities trading as recommended by the Investment Company Institute.
FUND EXPENSES
The Fund will pay all of its expenses. In addition to the investment advisory
and management fee discussed above, the principal expenses that the 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; fees of its Independent Trustees, its independent auditors, its legal
counsel, and legal counsel to its Board of Trustees; and fees payable to
government agencies, including registration and qualification fees of the Fund
and its shares under federal and state securities laws. In addition, each class
will pay all of the expenses attributable to it. Such expenses are currently
limited to Distribution Plan expenses. The Fund also pays its brokerage
commissions, interest charges and taxes and certain extraordinary expenses.
In connection with the expense limits in effect for the fiscal year ended
September 30, 1995, Keystone reimbursed the Fund $65,140, $421,990, and $15,875
for Class A, Class B and Class C shares, respectively. Keystone has voluntarily
limited annual expenses of each of the Fund's Class A, B and C shares to 0.90%,
1.65% and 1.65%, respectively, of average daily net assets. Keystone currently
intends to continue the foregoing expense limitations on a calendar
month-by-month basis. Keystone, from time to time, will make determinations
whether to continue these expense limits and, if so, at what rates. Keystone
will not be required to reimburse the Fund for amounts in excess of an expense
limit if such reimbursement would result in the Fund's inability to qualify as a
regulated investment company under provisions of the Code.
For the fiscal year ended September 30, 1995, after expense reimbursements,
the Fund's Class A, Class B and Class C shares each paid 0.86% (annualized),
1.53% and 1.53%, respectively, of its average net assets in expenses.
During the fiscal year ended September 30, 1995, the Fund paid or accrued to
Keystone Investor Resource Center, Inc. ("KIRC"), the Fund's transfer and
dividend disbursing agent, and Keystone Investments $17,744 for certain
accounting and printing services and $177,284 for transfer agent fees. KIRC is a
wholly-owned subsidiary of Keystone.
PORTFOLIO MANAGER
Christopher P. Conkey has been the Fund's portfolio manager since 1991. Mr.
Conkey is a Keystone Senior Vice President with over 12 years of investment
experience.
SECURITIES TRANSACTIONS
Under policies established by the Fund's Board of Trustees, Keystone selects
broker-dealers to execute transactions subject to the receipt of best execution.
When selecting broker-dealers to execute portfolio transactions for the Fund,
Keystone may follow a policy of considering, as a factor, the number of shares
of the Fund sold by such broker-dealer. In addition, broker-dealers executing
portfolio transactions may, from time to time, be affiliated with the Fund,
Keystone, the Fund's principal underwriter or their affiliates.
The Fund may pay higher commissions to broker-dealers who provide research
services. Keystone may use these services in advising the Fund as well as in
advising its other clients.
PORTFOLIO TURNOVER
The Fund's turnover rates for the fiscal years ended September 30, 1995 and
1994 were 67% and 34%, respectively.
High portfolio turnover may involve correspondingly greater brokerage
commissions and other transaction costs, which would be borne directly by the
Fund, as well as additional realized gains and/or losses to shareholders. For
further information about brokerage and distributions, see the statement of
additional information.
HOW TO BUY SHARES
You may purchase shares of the Fund from any broker-dealer that has a selling
agreement with Keystone Investment Distributors Company (formerly named Keystone
Distributors, Inc.) (the "Principal Underwriter"), the Fund's principal
underwriter. The Principal Underwriter, a wholly-owned subsidiary of Keystone,
is located at 200 Berkeley Street, Boston, Massachusetts 02116-5034.
In addition, you may open an account for the purchase of Fund shares by
mailing to the Fund, c/o KIRC, P.O. Box 2121, Boston, Massachusetts 02106-2121,
a completed account application, specifying that you are investing in the Fund,
and a check payable to the Fund. Or you may telephone 1-800-343-2898 to obtain
the number of an account to which you can wire or electronically transfer funds
and then send in a completed account application specifying that you are
investing in the Fund. Subsequent investments in the 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 the Fund will be confirmed at an offering
price equal to the net asset value per share next determined after receipt of
the order in proper form by the Principal Underwriter (generally as of the close
of the Exchange on that day) plus, in the case of Class A shares, the applicable
sales charge. Orders received by broker-dealers or other applicable firms prior
to the close of the Exchange and received by the Principal Underwriter prior to
its close of its business day will be confirmed at the offering price effective
as of the close of trading on the Exchange on that day. Orders for shares
received other than as stated above will receive the offering price equal to the
net asset value per share next determined (generally the next business day's
offering price) plus, in the case of Class A shares, the applicable sales
charge.
Your initial purchase must be at least $1,000. There is no minimum amount for
subsequent purchases.
The Fund reserves the right to determine the net asset value more frequently
than once a day if deemed desirable. Dealers and other financial services firms
are obligated to transmit orders promptly.
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 or her broker-dealer promptly forwards payment to
the Principal Underwriter for shares being purchased through a broker-dealer.
The Fund reserves the right to withdraw all or any part of the offering made
by this prospectus and to reject purchase orders.
Shareholder inquiries should be directed to KIRC by calling toll free 1-800-
343-2898 or writing to KIRC or to the firm from which you received this
prospectus.
ALTERNATIVE SALES OPTIONS
Generally, the Fund offers three classes of shares:
CLASS A SHARES -- FRONT END LOAD OPTION
Class A shares are sold with a sales charge at the time of purchase. Class A
shares are not subject to a sales charge when they are redeemed except as
follows: Class A shares purchased on or after April 10, 1995 (1) in an amount
equal to or exceeding $1,000,000 or (2) by a corporate qualified retirement plan
or a non-qualified deferred compensation plan sponsored by a corporation having
100 or more eligible employees (a "Qualifying Plan"), in either case without a
front end sales charge, will be subject to a contingent deferred sales charge
for the 24 month period following the date of purchase. Certain Class A shares
purchased prior to April 10, 1995 may be subject to a deferred sales charge upon
redemption during the one year period following the date of purchase.
CLASS B SHARES -- BACK END LOAD OPTION
Class B shares are sold without a sales charge at the time of purchase, but
are, with certain exceptions, subject to a contingent deferred sales charge if
they are redeemed. Class B shares purchased on or after June 1, 1995 are subject
to a contingent deferred sales charge if redeemed during the 48 month period
commencing with and including the month of purchase. Class B shares purchased
prior to June 1, 1995 are subject to a contingent deferred sales charge if
redeemed during the four calendar years following purchase. Class B shares
purchased on or after June 1, 1995 that have been outstanding for six 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 exchange
rights.
CLASS C SHARES -- LEVEL LOAD OPTION
Class C shares are sold without a sales charge at the time of purchase, but
are subject to a deferred sales charge if they are redeemed within one year
after the date of purchase. Class C shares are available only through dealers
who have entered into special distribution agreements with the Principal
Underwriter.
Each class of shares, pursuant to its Distribution Plan, pays an annual
service fee of 0.25% of the Fund's average daily net assets attributable to that
class. In addition to the 0.25% service fee, the Class B and C Distribution
Plans provide for the payment of an annual distribution fee of up to 0.75% of
the average daily net assets attributable to their respective classes. As a
result, income distributions paid by the Fund with respect to Class B and Class
C shares will generally be less than those paid with respect to Class A shares.
Investors who would rather pay the entire cost of distribution at the time of
investment, rather than spreading the cost over time, might consider Class A
shares. Other investors might consider Class B or Class C shares, in which case
100% of the purchase price is invested immediately, depending on the amount of
the purchase and the intended length of investment.
The Fund will not normally accept any purchase of Class B shares in the amount
of $250,000 or more and will not normally accept any purchase of Class C shares
in the amount of $1,000,000 or more.
<PAGE>
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<F1> OFFERING PRICE
- --------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Less than $100,000 .......................................... 3.00% 3.09% 3.00%
$100,000 but less than $250,000 ............................. 2.50% 2.56% 2.50%
$250,000 but less than $500,000 ............................. 1.50% 1.52% 1.50%
$500,000 but less than $1,000,000 ........................... 1.00% 1.01% 1.00%
- ----------
<FN>
<F1> Rounded to the nearest one-hundredth percent.
</TABLE>
----------------------------------------------
Purchases of the Fund's Class A shares in the amount of $1 million or more
and/or purchases of Class A shares made by a Qualifying Plan or a tax sheltered
annuity plan sponsored by a public educational entity having 5,000 or more
eligible employees (a "TSA Plan"), will be at net asset value without the
imposition of a front-end sales charge (each such purchase, an "NAV Purchase").
With respect to NAV Purchases, the Principal Underwriter will pay broker/
dealers or others concessions based on (1) the investor's cumulative purchases
during the one-year period beginning with the date of the initial NAV Purchase
and (2) the investor's cumulative purchases during each subsequent one-year
period beginning with the first NAV Purchase following the end of the prior
period. For such purchases, concessions will be paid at the following rate:
0.50% of the investment amount up to $4,999,999, plus 0.25% of the investment
amount over $4,999,999.
With the exception of Class A shares acquired by a TSA Plan, Class A shares
acquired on or after April 10, 1995 in an NAV Purchase are subject to a
contingent deferred sales charge of 0.50% upon redemption during the 24 month
period commencing on the date the shares were originally purchased. Class A
shares acquired by a TSA Plan in an NAV Purchase are not subject to a contingent
deferred sales charge. Certain Class A shares purchased without a front-end
sales charge prior to April 10, 1995 are subject to a contingent deferred sales
charge of 0.25% upon redemption during the one year period commencing on the
date such shares were originally purchased.
The sales charge is paid to the Principal Underwriter, which in turn normally
reallows a portion to your broker-dealer. In addition, your broker-dealer
currently will be paid periodic service fees at an annual rate of up to 0.25% of
the average daily net asset value of Class A shares maintained by such recipient
on the books of the Fund for specified periods.
Upon written notice to dealers with whom it has dealer agreements, the
Principal Underwriter may reallow up to the full applicable sales charge.
Initial sales charges may be eliminated for persons purchasing Class A shares
which are included in a broker dealer or investment adviser managed fee based
program (a wrap account) with broker/dealers or investment advisers who have
entered into special agreements with the Principal Underwriter. Initial sales
charges may be reduced or eliminated for persons or organizations purchasing
Class A shares of the Fund alone or in combination with Class A shares of other
Keystone America Funds. See Exhibit A to this prospectus.
Upon prior notification to the Principal Underwriter, Class A shares may be
purchased at net asset value by clients of registered representatives within six
months after a change in the registered representative's employment when 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.
In addition, until December 31, 1995 and upon prior notification to the
Principal Underwriter, Class A shares may be purchased at net asset value by
clients of registered representatives within six months after the redemption of
shares of any registered open-end investment company not distributed or managed
by Keystone or its affiliates when the amount invested represents redemption
proceeds from such unrelated registered open-end investment company, and the
shareholder either (1) paid a front end sales charge, or (2) was at some time
subject to, but did not actually pay, a contingent deferred sales charge with
respect to the redemption proceeds.
CLASS A DISTRIBUTION PLAN
The Fund has adopted a Distribution Plan with respect to its Class A shares
(the "Class A Distribution Plan") that provides for expenditures, which are
currently limited to 0.25% annually of the average daily net asset value of
Class A shares, to pay expenses associated with the distribution of Class A
shares. Payments under the Class A Distribution Plan are currently made to the
Principal Underwriter (which may reallow all or part to others, such as dealers)
as service fees currently at an annual rate of up to 0.25% of the average daily
net asset value of Class A shares maintained by the recipients on the books of
the Fund for specified periods.
CLASS B SHARES
Class B shares are offered at net asset value, without an initial sales
charge.
With respect to Class B shares purchased on or after June 1, 1995, the Fund,
with certain exceptions, imposes a deferred sales charge in accordance with the
following schedule:
DEFERRED
SALES
CHARGE
REDEMPTION TIMING IMPOSED
- ----------------- -------
First twelve month period .................... 3.00%
Second twelve month period ................... 3.00%
Third twelve month period .................... 2.00%
Fourth twelve month period ................... 1.00%
No deferred sales charge is imposed on amounts redeemed thereafter.
With respect to Class B shares purchased prior to June 1, 1995, the Fund, with
certain exceptions, imposes a deferred sales charge of 3.00% on shares redeemed
during the calendar year of purchase and the first calendar year after the year
of purchase; 2.00% on shares redeemed during the second calendar year after the
year of purchase; and 1.00% on shares redeemed during the third calendar year
after the year of purchase. No deferred sales charge is imposed on amounts
redeemed thereafter.
When imposed, the deferred sales charge is deducted from the redemption
proceeds otherwise payable to you. The deferred sales charge is retained by the
Principal Underwriter. Amounts received by the Principal Underwriter under the
Class B Distribution Plans are reduced by deferred sales charges retained by the
Principal Underwriter. See "Contingent Deferred Sales Charge and Waiver of Sales
Charges" below.
Class B shares purchased on or after June 1, 1995 that have been outstanding
for six years from and including the month of purchase will automatically
convert to Class A shares (which are subject to a lower Distribution Plan
charge) without imposition of a front-end sales charge or exchange fee.
(Conversion of Class B shares represented by stock certificates will require the
return of the stock certificates to KIRC.) Under current law, it is the Fund's
opinion that such a conversion will not constitute a taxable event under federal
income tax law. In the event that this ceases to be the case, the Board of
Trustees will consider what action, if any, is appropriate and in the best
interests of such Class B shareholders.
In addition to the exchange privileges described in the section of the
prospectus entitled "Exchanges," Class B shares purchased prior to June 1, 1995
that have been outstanding during seven calendar years, as a general matter, may
be exchanged for Class A shares of the Fund without imposition of a front end
sales charge.
The Class B shares so converted or exchanged will no longer be subject to the
higher distribution expenses and other expenses, if any, borne by Class B
shares. Because the net asset value per share of Class A shares may be higher or
lower than that of the Class B shares at the time of conversion or exchange,
although the dollar value will be the same, a shareholder may receive more or
fewer Class A shares than the number of Class B shares converted or exchanged.
For more information on current exchange privileges, see "Exchanges."
CLASS B DISTRIBUTION PLANS
The Fund has adopted Distribution Plans with respect to its Class B shares
(the "Class B Distribution Plans") that provide for expenditures at an annual
rate of up to 1.00% of the average daily net asset value of Class B shares to
pay expenses of the distribution of Class B shares. Payments under the Class B
Distribution Plans are currently made to the Principal Underwriter (which may
reallow all or part to others, such as dealers) (1) as commissions for Class B
shares sold and (2) as shareholder service fees. Amounts paid or accrued to the
Principal Underwriter under (1) and (2) in the aggregate may not exceed the
annual limitation referred to above.
The Principal Underwriter generally reallows to brokers or others a commission
equal to 2.75% of the price paid for each Class B share sold plus the first
year's service fee in advance in the amount of 0.25% of the price paid for each
Class B share sold. Beginning approximately 12 months after the purchase of a
Class B share, the broker or other party will receive service fees at an annual
rate of 0.25% of the average daily net asset value of such Class B share
maintained by the recipient on the books of the Fund for specified periods. See
"Distribution Plans" below.
CLASS C SHARES
Class C shares are offered only through dealers who have entered into special
distribution agreements with the Principal Underwriter. Class C shares are
offered at net asset value without an initial sales charge. With certain
exceptions, the Fund may impose a deferred sales charge of 1.00% on shares
redeemed within one year after the date of purchase. No deferred sales charge is
imposed on amounts redeemed thereafter. If imposed, the deferred sales charge is
deducted from the redemption proceeds otherwise payable to you. The deferred
sales charge is retained by the Principal Underwriter. See "Contingent Deferred
Sales Charge and Waiver of Sales Charges" below.
CLASS C DISTRIBUTION PLAN
The Fund has adopted a Distribution Plan with respect to its Class C shares
(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 to
pay expenses of the distribution of Class C shares. Payments under the Class C
Distribution Plan are currently made to the Principal Underwriter (which may
reallow all or part to others, such as dealers) (1) as commissions for Class C
shares sold and (2) as shareholder service fees. Amounts paid or accrued to the
Principal Underwriter under (1) and (2) in the aggregate may not exceed the
annual limitation referred to above. The Principal Underwriter generally
reallows to brokers or others a commission in the amount of 0.75% of the price
paid for each Class C share sold, plus the first year's service fee in advance
in the amount of 0.25% of the price paid for each Class C share sold, and,
beginning approximately fifteen months after purchase, a commission at an annual
rate of 0.75% (subject to NASD rules -- see "Distribution Plans") plus service
fees at an annual rate of 0.25%, respectively, of the average daily net asset
value of each Class C share maintained by such recipients on the books of the
Fund for specified periods. See "Distribution Plans" below.
CONTINGENT DEFERRED SALES CHARGE
AND WAIVER OF SALES CHARGES
Any contingent deferred sales charge imposed upon the redemption of Class A,
Class B or Class C shares is a percentage of the lesser of (1) the net asset
value of the shares redeemed or (2) the net asset value at the time of purchase
of such shares.
No contingent deferred sales charge is imposed when you redeem amounts derived
from (1) increases in the value of your account above the net cost of such
shares due to increases in the net asset value per share of the Fund; (2)
certain shares with respect to which the Fund did not pay a commission on
issuance, including shares acquired through reinvestment of dividend income and
capital gains distributions; (3) certain Class A shares held for more than one
year or two years, as the case may be; (4) Class B shares held during more than
four consecutive calendar years or more than 48 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.
With respect to Class A shares purchased by a Qualifying Plan at net asset
value or Class C shares purchased by a Qualifying Plan, no contingent deferred
sales charge will be imposed on any redemptions made specifically by an
individual participant in the Qualifying Plan. This waiver is not available in
the event a Qualifying Plan (as a whole) redeems substantially all of its
assets.
In addition, no contingent deferred sales charge is imposed on a redemption of
shares of the Fund in the event of (1) death or disability of the shareholder;
(2) a lump-sum distribution from a 401(k) plan or other benefit plan qualified
under the Employee Retirement Income Security Act of 1974 ("ERISA"); (3)
automatic withdrawals from ERISA plans if the shareholder is at least 59 1/2
years old; (4) involuntary redemptions of accounts having an aggregate net asset
value of less than $1,000; (5) automatic withdrawals under an automatic
withdrawal plan of up to 1 1/2% per month of the shareholder's initial account
balance; (6) withdrawals consisting of loan proceeds to a retirement plan
participant; (7) financial hardship withdrawals made by a retirement plan
participant; or (8) withdrawals consisting of returns of excess contributions or
excess deferral amounts made to a retirement plan participant.
The Fund also may 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 details.
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
dealers whose representatives have sold or are expected to sell significant
amounts of Fund shares. In addition, from time to time, dealers may receive
additional cash payments. The Principal Underwriter may provide written
information to dealers with whom it has dealer agreements that relates to sales
incentive campaigns conducted by such dealers for their representatives as well
as financial assistance in connection with pre-approved seminars, conferences
and advertising. No such programs or additional compensation will be offered to
the extent they are prohibited by the laws of any state or any self-regulatory
agency such as the NASD.
The Principal Underwriter may, at its own expense, pay concessions in addition
to those described above to dealers that satisfy certain criteria established
from time to time by the Principal Underwriter. These conditions relate to
increasing sales of shares of Keystone funds over specified periods and certain
other factors. Such payments may, depending on the dealer's satisfaction of the
required conditions, be periodic and may be up to 0.25% of the value of shares
sold by such dealers.
The Principal Underwriter may also pay banks or other financial service firms
that facilitate transactions in shares of the Fund for their clients a
transaction fee (up to the level of payments allowed by dealers for sale of
shares as described above). The Glass-Steagall Act currently limits the ability
of a depository institution (such as a commercial bank or a savings and loan
association) to become an underwriter or distributor of securities. In the event
the Glass-Steagall Act is deemed to prohibit depository institutions from
accepting payments under the arrangement described above, or should Congress
relax current restrictions on depository institutions, the Board of Trustees
will consider what action, if any, is appropriate.
In addition, state securities laws on this issue may differ from the
interpretations of federal law expressed herein and banks and financial
institutions may be required to register as dealers pursuant to state law.
DISTRIBUTION PLANS
As described above, the Fund bears some of the costs of selling its shares
under Distribution Plans adopted with respect to its Class A, Class B and Class
C shares pursuant to Rule 12b-1 under the 1940 Act.
The NASD currently limits the amount that a Fund may pay annually in
distribution costs for sale of its shares and shareholder service fees. The NASD
limits such annual expenditures to 1% of the aggregate average daily net asset
value of its shares, of which 0.75% may be used to pay distribution costs and
0.25% may be used to pay shareholder service fees. The NASD also limits the
aggregate amount that the Fund may pay for such distribution costs to 6.25% of
gross share sales since the inception of the 12b-1 Distribution Plan, plus
interest at the prime rate plus 1% on such amounts (less any contingent deferred
sales charges paid by shareholders to the Principal Underwriter) remaining
unpaid from time to time.
The Principal Underwriter intends, but is not obligated, to continue to pay or
accrue distribution charges incurred in connection with the Class B Distribution
Plans that exceed current annual payments permitted to be received by the
Principal Underwriter from the Fund. The Principal Underwriter intends to seek
full payment of such charges from the Fund (together with annual interest
thereon at the prime rate plus one percent) at such time in the future as, and
to the extent that, payment thereof by the Fund would be within the permitted
limits.
If the Fund's Independent Trustees authorize such payments, the effect would
be to extend the period of time during which the Fund incurs the maximum amount
of costs allowed by a Distribution Plan. If a Distribution Plan is terminated,
the Principal Underwriter will ask the Independent Trustees to take whatever
action they deem appropriate under the circumstances with respect to payment of
such amounts.
In connection with financing its distribution costs, including commission
advances to dealers and others, the Principal Underwriter has sold to a
financial institution substantially all of its 12b-1 fee collection rights and
contingent deferred sales charge collection rights in respect of Class B shares
sold during the two-year period commencing approximately June 1, 1995. The Fund
has agreed not to reduce the rate of payment of 12b-1 fees in respect of such
Class B shares unless it terminates such shares' Distribution Plan completely.
If it terminates such Distribution Plan, the Fund may be subject to possible
adverse distribution consequences.
Each of the Distribution Plans may be terminated at any time by vote of the
Independent Trustees or by vote of a majority of the outstanding voting shares
of the respective class.
For the fiscal year ended September 30, 1995, the Fund paid the Principal
Underwriter $34,962, $761,357 ($759,804 with respect to Class B shares sold
prior to June 1, 1995 and $1,553 with respect to Class B shares sold on or
after June , 1995) and $29,051 pursuant to the Fund's Class A, Class B and
Class C Distribution Plans, respectively.
Under NASD rules, the maximum uncollected amounts for which the Principal
Underwriter may seek payment from the Fund under its Distribution Plans were, as
of September 30, 1995, $8,487,962 for Class B shares purchased prior to June 1,
1995 (13.47% of such Class B net assets at September 30, 1995) and $42,766 for
Class B shares purchased on or after June 1, 1995 (0.07% of such Class B net
assets at September 30, 1995) and $380,401 for Class C shares (13.81% of Class C
net assets at September 30, 1995).
Dealers or others may receive different levels of compensation depending on
which class of shares they sell. Payments pursuant to a Distribution Plan are
included in the operating expenses of the class.
HOW TO REDEEM SHARES
You may redeem shares for cash at their net asset value upon written order by
you to the Fund, c/o KIRC, and presentation to the Fund of a properly endorsed
share certificate if certificates have been issued. Your signature(s) on the
written order and certificates must be guaranteed as described below. In order
to redeem by telephone you must have completed the authorization in your account
application.
The redemption value is the net asset value adjusted for fractions of a cent
and may be more or less than your cost depending upon changes in the value of
the Fund's portfolio securities between purchase and redemption. The Fund may
impose a deferred sales charge at the time of redemption of certain shares as
explained in "Alternative Sales Options."
If imposed, the deferred sales charge is deducted from the redemption proceeds
otherwise payable to you.
REDEMPTION OF SHARES IN GENERAL
At various times, the Fund may be requested to redeem shares for which it has
not yet received good payment. In such a case, the Fund will mail the redemption
proceeds upon clearance of the purchase check, which may take up to 15 days or
more. Any delay may be avoided by purchasing shares either with a certified
check or by Federal Reserve or bank wire of funds or by EFT. Although the
mailing of a redemption check or the wiring or EFT of redemption proceeds may be
delayed, the redemption value will be determined and the redemption processed in
the ordinary course of business upon receipt of proper documentation. In such a
case, after the redemption and prior to the release of the proceeds, no
appreciation or depreciation will occur in the value of the redeemed shares, and
no interest will be paid on the redemption proceeds. If the payment of a
redemption has been delayed, the check will be mailed or the proceeds wired or
sent EFT promptly after good payment has been collected.
The Fund computes the redemption value at the close of the Exchange at the end
of the day on which it has received all proper documentation from you. Payment
of the amount due on redemption, less any applicable contingent deferred sales
charge (as described above), will be made within seven days thereafter except as
discussed herein.
You may also redeem your shares through broker-dealers. The Principal
Underwriter, acting as agent for the Fund, stands ready to repurchase the Fund's
shares upon orders from dealers at the redemption value described above computed
on the day the Principal Underwriter receives the order. If the Principal
Underwriter has received proper documentation, it will pay the redemption
proceeds to the broker-dealer placing the order within seven days thereafter.
The Principal Underwriter charges no fees for this service. Your broker-dealer,
however, may do so.
For your protection, SIGNATURES ON CERTIFICATES, STOCK POWERS AND ALL WRITTEN
ORDERS OR AUTHORIZATIONS MUST BE GUARANTEED BY A U.S. STOCK EXCHANGE MEMBER, A
BANK OR OTHER PERSONS ELIGIBLE TO GUARANTEE SIGNATURES UNDER THE SECURITIES
EXCHANGE ACT OF 1934 AND KIRC'S POLICIES. The Fund and KIRC may waive this
requirement, but may also require additional documents in certain cases.
Currently, the requirement for a signature guarantee has been waived on
redemptions of $50,000 or less where the account address of record has been the
same for a minimum period of 30 days. The Fund and KIRC reserve the right to
withdraw this waiver at any time.
If the Fund receives a redemption or repurchase order, but you have not
clearly indicated the amount of money or number of shares involved, the Fund
cannot execute the order. In such cases, the Fund will request the missing
information from you and process the order on the day such information is
received.
TELEPHONE
Under ordinary circumstances, you may redeem up to $50,000 from your account
by telephone by calling toll free 1-800-343-2898. You must complete the
pertinent section of the application to enjoy telephone redemption privileges.
In order to insure that instructions received by KIRC are genuine when you
initiate a telephone transaction, you will be asked to verify certain criteria
specific to your account. At the conclusion of the transaction, you will be
given a transaction number confirming your request, and written confirmation of
your transaction will be mailed the next business day. Your telephone
instructions will be recorded. Redemptions by telephone are allowed only if the
address and bank account of record have been the same for a minimum period of 30
days.
If the redemption proceeds are less than $2,500, they will be mailed by check.
If they are $2,500 or more, they will be mailed, wired or sent by EFT to your
previously designated bank account as you direct. If you do not specify how you
wish your redemption proceeds to be sent, they will be mailed by check.
If you cannot reach the Fund by telephone, you should follow the procedures
for redeeming by mail or through a broker as set forth above.
SMALL ACCOUNTS
Because of the high cost of maintaining small accounts, the Fund reserves the
right to redeem shares in your account if its value has fallen to less than
$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 the account to the minimum investment
level. No contingent deferred sales charges are applied to such redemptions.
REDEMPTIONS IN KIND
If conditions arise that would make it undesirable for the Fund to pay for all
redemptions in cash, the Fund may authorize payment to be made in portfolio
securities or other property. The Fund has obligated itself, however, under the
1940 Act to redeem for cash all shares presented for redemption by any one
shareholder in any 90 day period up to the lesser of $250,000 or 1% of the
Fund's net assets. Securities delivered in payment of redemptions would be
valued at the same value assigned to them in computing the net asset value per
share and would, to the extent permitted by law, be readily marketable.
Shareholders receiving such securities would incur brokerage costs when these
securities are sold.
GENERAL
The Fund reserves the right, at any time, to terminate, suspend or change the
terms of any redemption method described in this prospectus, except redemption
by mail, and to impose fees.
Except as otherwise noted, neither the Fund, KIRC nor the Principal
Underwriter assumes responsibility for the authenticity of any instructions
received by any of them from a shareholder in writing, over the Keystone
Automated Response Line ("KARL") or by telephone. KIRC will employ reasonable
procedures to confirm that instructions received over KARL or by telephone are
genuine. Neither the Fund, KIRC nor the Principal Underwriter will be liable
when following instructions received over KARL or by telephone that KIRC
reasonably believes to be genuine.
The Fund may temporarily suspend the right to redeem its shares when (1) the
Exchange is closed, other than customary weekend and holiday closings; (2)
trading on the Exchange is restricted; (3) an emergency exists and the Fund
cannot dispose of its investments or fairly determine their value; or (4) the
Securities and Exchange Commission so orders.
SHAREHOLDER SERVICES
Details on all shareholder services may be obtained from KIRC by writing or by
calling toll free 1-800-343-2898.
KEYSTONE AUTOMATED RESPONSE LINE
KARL offers you specific fund account information and price, total return and
yield quotations as well as the ability to do account transactions, including
investments and redemptions. You may access KARL by dialing toll free
1-800-346-3858 on any touch-tone telephone, 24 hours a day, seven days a week.
EXCHANGES
A shareholder who has obtained the appropriate prospectus may exchange shares
of the Fund for shares of certain other Keystone America Funds and Keystone
Liquid Trust ("KLT") as follows:
Class A shares may be exchanged for Class A shares of other Keystone America
Funds and Class A shares of KLT;
Class B shares may be exchanged for the same type of Class B shares of other
Keystone America Funds and for 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.
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, or
(2) Class B shares that have been held for less than 48 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
by 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. The Fund reserves the right to terminate this exchange offer or
to change its terms, including the right to change the service charge for any
exchange.
Orders to exchange a certain class of shares of the Fund for the corresponding
class of shares of KLT will be executed by redeeming the shares of the Fund and
purchasing the corresponding class of shares of KLT at the net asset value of
KLT shares determined after the proceeds from such redemption become available,
which may be up to seven days after such redemption. In all other cases, orders
for exchanges received by the Fund prior to 4:00 p.m. eastern time on any day
the funds are open for business will be executed at the respective net asset
values determined as of the close of business that day. Orders for exchanges
received after 4:00 p.m. eastern time on any business day will be executed at
the respective net asset values determined at the close of the next business
day.
An excessive number of exchanges may be disadvantageous to the Fund.
Therefore, the Fund, in addition to its right to reject any exchange, reserves
the right to terminate the exchange privilege of any shareholder who makes more
than five exchanges of shares of the funds in a year or three in a calendar
quarter.
An exchange order must comply with the requirements for a redemption or
repurchase order and must specify the dollar value or number of shares to be
exchanged. Exchanges are subject to the minimum initial purchase requirements of
the fund being acquired. An exchange constitutes a sale for federal income tax
purposes.
The exchange privilege is available only in states where shares of the fund
being acquired may legally be sold.
CHECKWRITING
If requested, the Fund will establish a checking account for each class of
shares held by you with State Street Bank and Trust Company (the "Bank"). Checks
may be drawn for $500 or more payable to anyone. When a check is presented to
the Bank for payment, it will cause the Fund to redeem at the net asset value
next determined a sufficient number of your shares to cover the check. You
receive the daily dividends declared on the shares redeemed to cover your check
through the day the Bank instructs the Fund to redeem them. There is currently
no charge to you for this checking account. A redemption by check constitutes a
sale for federal tax purposes and may result in a taxable event for the
shareholder.
Amounts redeemed by check will be subject to the contingent deferred sales
charge if applicable.
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 the Fund's shares in any amount and to redeem up to $50,000
worth of the 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 Fund with one telephone call. You must allow two business days after the
call for the transfer to take place. For money recently invested, you must allow
normal check clearing time before redemption proceeds are sent to your bank.
You may also arrange for systematic monthly or quarterly investments in your
account. Once proper authorization is given, your bank account will be debited
to purchase shares in the Fund. You will receive confirmation from the Principal
Underwriter for every transaction.
To change the amount of or terminate a Keystone America Money Line service
(which could take up to 30 days), you must write to KIRC, P.O. Box 2121, Boston,
Massachusetts 02106-2121, and include your account number.
AUTOMATIC WITHDRAWAL PLAN
Under an Automatic Withdrawal Plan, if your account for the 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 Automatic Withdrawal Plan is opened. Excessive
withdrawals may decrease or deplete the value of your account.
DOLLAR COST AVERAGING
Through dollar cost averaging you can invest a fixed dollar amount each month
or each quarter in any Keystone America Fund. This results in more shares being
purchased when the net asset value of the selected class is relatively low and
fewer shares being purchased when the fund's net asset value is relatively high,
which may cause a lower average cost per share than a less systematic investment
approach.
Prior to participating in dollar cost averaging, you must have established an
account in a Keystone America Fund or a money market fund managed or advised by
Keystone. You should designate on the application the dollar amount of each
monthly or quarterly investment (minimum $100) you wish to make and the fund in
which the investment is to be made. Thereafter, on the first day of the
designated month an amount equal to the specified monthly or quarterly
investment will automatically be redeemed from your initial account and invested
in shares of the designated fund.
If you are a Class A investor and paid a sales charge on your initial
purchase, the shares purchased will be eligible for Rights of Accumulation and
the sales charge applicable to the purchase will be determined accordingly. In
addition, the value of shares purchased will be included in the total amount
required to fulfill a Letter of Intent. If a sales charge was not paid on the
initial purchase, a sales charge will be imposed at the time of subsequent
purchases and the value of shares purchased will become eligible for Rights of
Accumulation and Letters of Intent. See Exhibit A -- "Reduced Sales Charges" at
the back of the prospectus.
TWO DIMENSIONAL INVESTING
You may elect to have income and capital gains distributions from any class of
Keystone America Fund shares you may own automatically invested to purchase the
same class of shares of any other Keystone America Fund. You may select this
service on your application and indicate the Keystone America Fund(s) into which
distributions are to be invested. The value of shares purchased will be
ineligible for Rights of Accumulation and Letters of Intent. See Exhibit A --
"Reduced Sales Charges" at the back of the prospectus.
RETIREMENT PLANS
The Fund has various pension and profit sharing plans available to investors,
including Individual Retirement Accounts ("IRAs"); Rollover IRAs; Simplified
Employee Pension Plans ("SEPs"); Tax Sheltered Annuity Plans ("TSAs"); 401(k)
Plans; Keogh Plans; Corporate Profit-Sharing Plans; Pension and Target Benefit
Plans; Money Purchase Pension Plans; and Salary-Reduction Plans. For details,
including fees and application forms, call toll free 1- 800-247-4075 or write to
KIRC.
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 per share.
PERFORMANCE DATA
From time to time, the Fund may advertise "total return" and "current yield."
ALL DATA IS BASED ON HISTORICAL EARNINGS AND ARE NOT INTENDED TO INDICATE FUTURE
PERFORMANCE. Total return and yield are computed separately for each class of
shares of the Fund. Total return refers to average annual compounded rates of
return over specified periods determined by comparing the initial amount
invested in a particular class to the ending redeemable value of that amount.
The resulting equation assumes reinvestment of all dividends and distributions
and deduction of the maximum sales charge or applicable contingent deferred
sales charge and all recurring charges, if any, applicable to all shareholder
accounts. The exchange fee is not included in the calculation.
Current yield quotations represent the yield on an investment for a stated
30-day period computed by dividing net investment income earned per share during
the base period by the maximum offering price per share on the last day of the
base period.
The Fund may also include comparative performance data for each class of
shares when advertising or marketing the Fund's shares, such as data from Lipper
Analytical Services, Inc., Morningstar, Inc. Standard & Poor's Corporation,
Ibbotson Associates, or other industry publications.
FUND SHARES
Generally, the Fund currently has authorized three classes of shares, which
participate in dividends and distributions and have equal voting, liquidation
and other rights except that (1) expenses related to the distribution of each
class of shares, or other expenses that the Board of Trustees may designate as
class expenses from time to time, are borne solely by each class; (2) each class
of shares has exclusive voting rights with respect to its Distribution Plan; (3)
each class has different exchange privileges; and (4) each class generally has a
different designation. When issued and paid for, the shares will be fully paid
and nonassessable by the Fund. Shares may be exchanged as explained under
"Shareholder Services," but will have no other preference, conversion, exchange
or preemptive rights. Shares are redeemable, transferable and freely assignable
as collateral. There are no sinking fund provisions. The Fund is authorized to
issue additional series or classes of shares.
Shareholders are entitled to one vote for each full share owned and fractional
votes for fractional shares. Shares of the Fund vote together except when
required by law to vote separately by class. The Fund does not have annual
meetings. The Fund will have special meetings, from time to time, as required
under its Declaration of Trust and under the 1940 Act. As provided in the Fund's
Declaration of Trust, shareholders have the right to remove Trustees by an
affirmative vote of two-thirds of the outstanding shares. A special meeting of
the shareholders will be held when 10% of the outstanding shares request a
meeting for the purpose of removing a Trustee. As prescribed by Section 16(c) of
the 1940 Act, the Fund is prepared to assist shareholders in communications with
one another for the purpose of convening such a meeting.
Under Massachusetts law, it is possible that a Fund shareholder may be held
personally liable for the Fund's obligations. The Fund's Declaration of Trust
provides, however, that shareholders shall not be subject to any personal
liability for the Fund's obligations and provides indemnification from Fund
assets for any shareholder held personally liable for the Fund's obligations.
Disclaimers of such liability are included in each Fund agreement.
ADDITIONAL INFORMATION
KIRC, located at 101 Main Street, Cambridge, Massachusetts 02142-1519, is a
wholly-owned subsidiary of Keystone and serves as the Fund's transfer agent and
dividend disbursing agent.
When the Fund determines from its records that more than one account in the
Fund is registered in the name of a shareholder or shareholders having the same
address, upon notice to those shareholders, the Fund intends, when an annual
report or a semi-annual report of the Fund is required to be furnished, to mail
one copy of such report to that address.
Except as otherwise stated in this prospectus or required by law, the Fund
reserves the right to change the terms of the offer stated in this prospectus
without shareholder approval, including the right to impose or change fees for
services provided.
<PAGE>
ADDITIONAL INVESTMENT INFORMATION
REPURCHASE AGREEMENTS
The Fund may enter into repurchase agreements with member banks of the Federal
Reserve System having at least $1 billion in assets, primary dealers in U.S.
government securities or other financial institutions believed by Keystone to be
creditworthy. Such persons must be registered as U.S. government securities
dealers with an appropriate regulatory organization. Under such agreements, the
bank, primary dealer or other financial institution agrees to repurchase the
security at a mutually agreed upon date and price, thereby determining the yield
during the term of the agreement. This results in a fixed rate of return
insulated from market fluctuations during such period. Under a repurchase
agreement, the seller must maintain the value of the securities subject to the
agreement at not less than the repurchase price, such value will be determined
on a daily basis by marking the underlying securities to their market value.
Although the securities subject to the repurchase agreement might bear
maturities exceeding a year, the Fund only intends to enter into repurchase
agreements that provide for settlement within a year and usually within seven
days. Securities subject to repurchase agreements will be held by the Fund's
custodian or in the Federal Reserve book entry system. The Fund does not bear
the risk of a decline in the value of the underlying security unless the seller
defaults under its repurchase obligation. In the event of a bankruptcy or other
default of a seller of a repurchase agreement, the Fund could experience both
delays in liquidating the underlying securities and losses including (1)
possible declines in the value of the underlying securities during the period
while the Fund seeks to enforce its rights thereto; (2) possible subnormal
levels of income and lack of access to income during this period; and (3)
expenses of enforcing its rights. The Board of Trustees of the Fund has
established procedures to evaluate the creditworthiness of each party with whom
the Fund enters into repurchase agreements by setting guidelines and standards
of review for Keystone and monitoring Keystone's actions with regard to
repurchase agreements.
REVERSE REPURCHASE AGREEMENTS
Under a reverse repurchase agreement, the Fund would sell securities and agree
to repurchase them at a mutually agreed upon date and price. The Fund intends to
enter into reverse repurchase agreements to avoid otherwise having to sell
securities during unfavorable market conditions in order to meet redemptions. At
the time the Fund enters into a reverse repurchase agreement, it will establish
a segregated account with the Fund's custodian containing liquid assets having a
value not less than the repurchase price (including accrued interest) and will
subsequently monitor the account to ensure such value is maintained. Reverse
repurchase agreements involve the risk that the market value of the securities
that the Fund is obligated to repurchase may decline below the repurchase price.
Borrowing and reverse repurchase agreements magnify the potential for gain or
loss on the portfolio securities of the Fund and, therefore, increase the
possibility of fluctuation in the Fund's net asset value. Such practices may
constitute leveraging. In the event the buyer of securities under a reverse
repurchase agreement files for bankruptcy or becomes insolvent, such buyer or
its trustee or receiver may receive an extension of time to determine whether to
enforce the Fund's obligation to repurchase the securities and the Fund's use of
the proceeds of the reverse repurchase agreement may effectively be restricted
pending such determination. The staff of the Securities and Exchange Commission
has taken the position that reverse repurchase agreements are subject to the
percentage limit on borrowings imposed on a fund under the 1940 Act.
"WHEN ISSUED" SECURITIES
The Fund may also purchase and sell securities on a when issued or delayed
delivery basis. When issued and delayed delivery transactions arise when
securities or rights to interest on securities are purchased or sold by the Fund
with payment and delivery taking place in the future. This practice is intended
to secure what is considered to be an advantageous price and yield to the Fund
at the time of entering into the transaction. When the Fund engages in when
issued or delayed delivery transactions, the Fund relies on the buyer or seller,
as the case may be, to consummate the sale. Failure to do so may result in the
Fund missing the opportunity to obtain a price or yield considered to be
advantageous. When issued and delayed delivery transactions may be expected to
occur a month or more before delivery is due. No payment or delivery is made by
the Fund, however, until it receives payment or delivery from the other party to
the transaction. The Securities and Exchange Commission has established certain
requirements to assure that a fund is able to meet its obligations under these
contracts. For example, a separate account of liquid assets equal to the value
of such purchase commitments may be maintained until payment is made. When
issued or delayed delivery agreements are subject to risks from changes in value
based upon changes in the level of interest rates and other market factors, both
before and after delivery. The Fund does not accrue any income on such
securities prior to their delivery. To the extent the Fund engages in when
issued or delayed delivery transactions, it will do so for the purpose of
acquiring portfolio securities or rights to interest on securities consistent
with its investment objective and policies and not for the purpose of investment
leverage. The Fund does not currently intend to invest more than 5% of its
assets in when issued or delayed delivery transactions.
LOANS OF SECURITIES TO BROKER-DEALERS
The Fund may lend securities to brokers and dealers pursuant to agreements
requiring that the loans be continuously secured by cash or securities of the
U.S. government, its agencies or instrumentalities, or any combination of cash
and such securities, as collateral equal at all times in value to at least the
market value of the securities loaned. Such securities loans will not be made
with respect to the Fund if as a result the aggregate of all outstanding
securities loans exceeds 15% of the value of the Fund's total assets taken at
their current value. The Fund continues to receive interest or dividends on the
securities loaned and simultaneously earns interest on the investment of the
cash loan collateral in U.S. Treasury notes, certificates of deposit, other
high-grade, short-term obligations or interest bearing cash equivalents.
Although voting rights attendant to securities loaned pass to the borrower, such
loans may be called at any time and will be called so that the securities may be
voted by the Fund if, in the opinion of the Fund, a material event affecting the
investment is to occur. There may be risks of delay in receiving additional
collateral or in recovering the securities loaned or even loss of rights in the
collateral should the borrower of the securities fail financially. Loans may
only be made, however, to borrowers deemed to be of good standing, under
standards approved by the Board of Trustees, when the income to be earned from
the loan justifies the attendant risks.
<PAGE>
EXHIBIT A
REDUCED SALES CHARGES
Initial sales charges may be reduced or eliminated for persons or
organizations purchasing Class A shares of the Fund alone or in combination with
Class A shares of other Keystone America Funds. Only Class A shares subject to
an initial or deferred sales charge are eligible for inclusion in reduced sales
charge programs.
For purposes of qualifying for reduced sales charges on purchases made
pursuant to Rights of Accumulation or Letters of Intent, the term "Purchaser"
includes the following persons: an individual; an individual, his or her spouse
and children under the age of 21; a trustee or other fiduciary of a single trust
estate or single fiduciary account established for their benefit; an
organization exempt from federal income tax under Section 501 (c)(3) or (13) of
the Code; a pension, profit-sharing or other employee benefit plan whether or
not qualified under Section 401 of the Code; or other organized groups of
persons, whether incorporated or not, provided the organization has been in
existence for at least six months and has some purpose other than the purchase
of redeemable securities of a registered investment company at a discount. In
order to qualify for a lower sales charge, all orders from an organized group
will have to be placed through a single investment dealer or other firm and
identified as originating from a qualifying purchaser.
CONCURRENT PURCHASES
For purposes of qualifying for a reduced sales charge, a Purchaser may combine
concurrent direct purchases of Class A shares of two or more of the "Eligible
Funds," as defined below. For example, if a Purchaser concurrently invested
$75,000 in one of the other "Eligible Funds" and $75,000 in the Fund, the sales
charge would be that applicable to a $150,000 purchase, i.e., 2.50% of the
offering price, as indicated in the sales charge schedule in the prospectus.
RIGHT OF ACCUMULATION
In calculating the sales charge applicable to current purchases of the Fund's
Class A shares, a Purchaser is entitled to accumulate current purchases with the
current value of previously purchased Class A shares of the Fund and Class A
shares of certain other eligible funds that are still held in (or exchanged for
shares of and are still held in) the same or another eligible fund ("Eligible
Fund(s)"). The Eligible Funds are the Keystone America Funds and Keystone Liquid
Trust.
For example, if a Purchaser held shares valued at $99,999 and purchased an
additional $5,000 of Fund shares, the sales charge for the $5,000 purchase would
be at the next lower sales charge of 2.50% of the offering price as indicated in
the sales charge schedule. KIRC must be notified at the time of purchase that
the Purchaser is entitled to a reduced sales charge, which reduction will be
granted subject to confirmation of the Purchaser's holdings. The Right of
Accumulation may be modified or discontinued at any time.
LETTER OF INTENT
A Purchaser may qualify for a reduced sales charge on a purchase of Class A
shares of the Fund alone or in combination with purchases of Class A shares of
any of the other Eligible Funds by completing the Letter of Intent section of
the application. By so doing, the Purchaser agrees to invest within a
thirteen-month period a specified amount which, if invested at one time, would
qualify for a reduced sales charge. Each purchase will be made at a public
offering price applicable to a single transaction of the dollar amount specified
on the application, as described in this prospectus. The Letter of Intent does
not obligate the Purchaser to purchase, nor the Fund to sell, the amount
indicated.
After the Letter of Intent is received by KIRC, each investment made will be
entitled to the sales charge applicable to the level of investment indicated on
the application. The Letter of Intent may be back-dated up to ninety days so
that any investments made in any of the Eligible Funds during the preceding
ninety-day period, valued at the Purchaser's cost, can be applied toward
fulfillment of the Letter of Intent. However, there will be no refund of sales
charges already paid during the ninety-day period. No retroactive adjustment
will be made if purchases exceed the amount specified in the Letter of Intent.
Income and capital gains distributions taken in additional shares will not apply
toward completion of the Letter of Intent.
If total purchases made pursuant to the Letter of Intent are less than the
amount specified, the Purchaser will be required to remit an amount equal to the
difference between the sales charge paid and the sales charge applicable to
purchases actually made. Out of the initial purchase (or subsequent purchases,
if necessary), 5% of the dollar amount specified on the application will be held
in escrow by KIRC in the form of shares registered in the Purchaser's name. The
escrowed shares will not be available for redemption, transfer or encumbrance by
the Purchaser until the Letter of Intent is completed or the higher sales charge
paid. All income and capital gains distributions on escrowed shares will be paid
to the Purchaser or his order.
When the minimum investment specified in the Letter of Intent is completed
(either prior to or by the end of the thirteen-month period), the Purchaser will
be notified and the escrowed shares will be released. If the intended investment
is not completed, the Purchaser will be asked to remit to the Principal
Underwriter any difference between the sales charge on the amount specified and
on the amount actually attained. If the Purchaser does not within 20 days after
written request by the Principal Underwriter or his dealer pay such difference
in sales charge, KIRC will redeem an appropriate number of the escrowed shares
in order to realize such difference. Shares remaining after any such redemption
will be released by KIRC. Any redemptions made by the Purchaser during the
thirteen-month period will be subtracted from the amount of the purchases for
purposes of determining whether the Letter of Intent has been completed. In the
event of a total redemption of the account prior to completion of the Letter of
Intent, the additional sales charge due will be deducted from the proceeds of
the redemption and the balance will be forwarded to the Purchaser.
By signing the application, the Purchaser irrevocably constitutes and appoints
KIRC his attorney to surrender for redemption any or all escrowed shares with
full power of substitution.
The Purchaser or his dealer must inform the Principal Underwriter or KIRC that
a Letter of Intent is in effect each time a purchase is made.
<PAGE>
-------------------------------------
KEYSTONE AMERICA
FUND FAMILY
o
Capital Preservation and Income Fund
Government Securities Fund
Intermediate Term Bond Fund
Strategic Income Fund
World Bond Fund
Tax Free Income Fund
California Insured Tax Free Fund
Florida Tax Free Fund
Massachusetts Tax Free Fund
Missouri Tax Free Fund
New York Insured Tax Free Fund
Pennsylvania Tax Free Fund
Texas Tax Free Fund
Fund for Total Return
Global Opportunities Fund
Hartwell Emerging Growth Fund, Inc.
Hartwell Growth Fund
Omega Fund
Fund of the Americas
Strategic Development Fund
-------------------------------------
[logo] KEYSTONE
INVESTMENTS
Keystone Investment Distributors Company
200 Berkeley Street
Boston, Massachusetts 02116-5034
[recycle logo]
KEYSTONE
--------
--------
CAPITAL
PRESERVATION AND
INCOME FUND
[logo]
PROSPECTUS AND
APPLICATION
<PAGE>
KEYSTONE AMERICA CAPITAL PRESERVATION AND INCOME FUND
(FORMERLY KEYSTONE AMERICA CAPITAL PRESERVATION AND INCOME FUND-II)
PART B
STATEMENT OF ADDITIONAL INFORMATION
<PAGE>
KEYSTONE CAPITAL PRESERVATION AND INCOME FUND
STATEMENT OF ADDITIONAL INFORMATION
DATED JANUARY __, 1996
This statement of additional information is not a prospectus, but
relates to, and should be read in conjunction with, the prospectus of Keystone
Capital Preservation and Income Fund (formerly named Keystone America Capital
Preservation and Income Fund and formerly Keystone America Capital Preservation
and Income Fund - II) (the "Fund") dated January __, 1996. A copy of the
prospectus may be obtained from Keystone Investment Distributors Company
(formerly named Keystone Distributors, Inc.) (the "Principal Underwriter"), the
Fund's principal underwriter, located at 200 Berkeley Street, Boston,
Massachusetts 02116-5034, or your broker-dealer.
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TABLE OF CONTENTS
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Page
The Fund 2
Investment Objective and Policies 2
Investment Restrictions 3
Distributions and Taxes 6
Valuation of Securities 7
Sales Charges 8
Distribution Plans 12
Investment Adviser 15
Trustees and Officers 18
Principal Underwriter 22
Brokerage 23
Declaration of Trust 25
Standardized Total Return and Yield Quotations 27
Additional Information 28
Appendix A-1
Financial Statements F-1
Independent Auditors' Report F-12
#1016065f
<PAGE>
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THE FUND
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The Fund is an open-end diversified management investment company
commonly known as a mutual fund. The Fund was formed as Massachusetts business
trust on December 19, 1990. The Fund is one of thirty funds managed or advised
by Keystone Investment Management Company (formerly named Keystone Custodian
Funds, Inc.) ("Keystone"), the Fund's investment adviser.
On December 30, 1994, the Fund acquired substantially all of the assets
of Keystone America Capital Preservation and Income Fund in exchange for Class A
shares of the Fund. Immediately following the reorganization, the Fund changed
its name from Keystone America Capital Preservation and Income Fund - II to
Keystone America Capital Preservation and Income Fund. On May 1, 1995, the Fund
changed its name to Keystone Capital Preservation and Income Fund.
Certain information about the Fund is contained in its prospectus. This
statement of additional information provides additional information about the
Fund.
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INVESTMENT OBJECTIVE AND POLICIES
- --------------------------------------------------------------------------------
The following information supplements that in the prospectus:
MORTGAGE SECURITIES
The Government National Mortgage Association ("GNMA") creates mortgage
securities ("Mortgage Securities") from pools of government-guaranteed or
insured Federal Housing Authority ("FHA") or Veterans Administration ("VA")
mortgages originated by mortgage bankers, commercial banks, and savings and loan
associations. The Federal National Mortgage Association ("FNMA") and the Federal
Home Loan Mortgage Corporation ("FHLMC") issue Mortgage Securities from pools of
conventional and federally insured and/or guaranteed residential mortgages
obtained from various entities, including savings and loan associations, savings
banks, commercial banks, credit unions, and mortgage bankers.
ADDITIONAL CHARACTERISTICS OF THE FUND'S MORTGAGE SECURITIES INVESTMENTS
ADJUSTABLE RATE MORTGAGE SECURITIES
Adjustable Rate Mortgage Securities ("ARMs") are pass-through Mortgage
Securities collateralized by mortgages with adjustable rather than fixed
interest rates. The ARMs in which the Fund invests are issued primarily by GNMA,
FNMA and FHLMC and are actively traded in the secondary market. The underlying
mortgages that collateralize ARMs issued by GNMA are fully guaranteed by the FHA
or the VA, while those collateralizing ARMs issued by FHLMC or FNMA are
typically conventional residential mortgages conforming to standard underwriting
size and maturity constraints.
RESET CHARACTERISTICS OF THE FUND'S LOAN POOLS AND MORTGAGE SECURITIES
The interest rates paid on the loan pool securities, ARMs and
collateralized mortgage obligations ("CMOs") in which the Fund invests are
generally readjusted at intervals of three years or less to an increment over
some predetermined interest rate index. There are various categories of indices,
including (1) those based on United States ("U.S.") Treasury securities; (2)
those derived from a calculated measure, such as a cost of funds index; or (3) a
moving average of mortgage rates. Commonly utilized indices include the
one-year, three-year and five-year constant maturity Treasury rates; the
three-month Treasury Bill rate; the 180-day Treasury Bill rate; rates on
longer-term Treasury securities; the 11th District Federal Home Loan Bank Cost
of Funds; the National Median Cost of Funds; the one-month, three-month,
six-month or one year London Interbank Offered Rate ("LIBOR"); the prime rate of
a specific bank; or commercial paper rates. Some indices, such as the one-year
constant maturity Treasury rate, closely mirror changes in market interest rate
levels. Others, such as the 11th District Home Loan Bank Cost of Funds Index,
tend to lag behind changes in market rate levels and tend to be somewhat less
volatile.
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INVESTMENT RESTRICTIONS
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The following investment restrictions of the Fund are fundamental and
may not be changed without the vote of a majority of the Fund's outstanding
voting shares (which means the lesser of (1) 67% of the shares represented at a
meeting at which more than 50% of the outstanding shares are represented or (2)
more than 50% of the outstanding shares). Unless otherwise stated, all
references to the assets of the Fund are in terms of current market value. The
Fund shall not do any of the following:
(1) with respect to 75% of its total assets, invest more than 5% of the
value of its total assets in the securities of any one issuer; this limitation
does not apply to investments in securities issued or guaranteed by the U.S.
government, its agencies or instrumentalities;
(2) invest more than 5% of its total assets in securities of any
company having a record, together with its predecessors, of less than three
years of continuous operation;
(3) pledge more than 15% of its net assets to secure indebtedness (the
purchase or sale of securities on a "when issued" basis or collateral
arrangement with respect to the writing of options on securities are not deemed
to be a pledge of assets);
(4) borrow money or enter into reverse repurchase agreements, except
that the Fund may enter into reverse repurchase agreements or borrow money from
banks for temporary or emergency purposes in aggregate amounts up to one-third
of the value of the Fund's net assets; provided that, while borrowings from
banks (not including reverse repurchase agreements) exceed 5% of the Fund's net
assets, any such excess borrowings will be repaid before additional investments
are made;
(5) make loans, except that the Fund may purchase or hold debt
securities consistent with its investment objective, lend portfolio securities
valued at not more than 15% of its total assets to broker-dealers, and enter
into repurchase agreements;
(6) make short sales of securities or maintain a short position, unless
at all times when a short position is open it owns an equal amount of such
securities or of securities which, without payment of any further consideration,
are convertible into or exchangeable for securities of the same issue as, and
equal in amount to, the securities sold short;
(7) 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;
(8) 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;
(9) purchase securities of other investment companies, except as part
of a merger, consolidation, purchase of assets or similar transaction;
(10) 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
financial futures contracts and related options transactions; and
(11) 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 Fund intends to follow policies of the Securities and Exchange
Commission as they are adopted from time to time with respect to illiquid
securities, including at this time (1) treating as illiquid, securities that may
not be sold or disposed of in the ordinary course of business within seven days
at approximately the value at which the Fund has valued the investment on its
books and (2) limiting its holdings of such securities to 15% of its net assets.
Additional restrictions adopted for the Fund, which may be changed by
the Board of Trustees, provide that the Fund may not purchase or retain
securities of an issuer if, to the knowledge of the Fund, officers, Trustees or
Directors of the Fund or Keystone each owning beneficially more than 1/2 of 1%
of the securities of such issuer own in the aggregate more than 5% of the
securities of such issuer, or such persons or management personnel of the Fund
or Keystone have a substantial beneficial interest in the securities of such
issuer. Portfolio securities of the Fund may not be purchased from or sold to
Keystone or any affiliate thereof or any of their Directors, officers or
employees. Portfolio securities of the Fund may be loaned if collateral values
are continuously maintained at not less than 100% by "marking to market" daily.
The Fund is also subject to various investment restrictions imposed by
certain states securities authorities. These restrictions are not fundamental
and do not require a shareholders' vote to be changed.
Specifically, so long as the respective state authority requires and
shares of the Fund are registered for sale in that state, the Fund
(1) (a) will not invest in interests in oil, gas or other mineral
exploration or development programs, except publicly traded securities of
companies engaging in such activities; and (b) will not purchase puts, calls,
straddles, spreads or combinations thereof, if by reason thereof the value of
its aggregate investments in such securities will exceed 5% of its total assets,
except that it may purchase "stand-by commitments" and master demand notes;
(2) (a) will limit its purchase of warrants to 5% of net assets, of
which 2% may be warrants not listed on the New York Stock Exchange (the
"Exchange"); (b) will not invest in oil, gas or other mineral leases;
(3) will not write, buy or sell stock index futures, financial futures
contracts or options thereon unless (a) the option is written by other persons;
(b) the options on futures are offered through the facilities of a national
securities association approved by the state or are listed on a national
securities or commodities exchange; (c) the aggregate premiums paid on all
options held at any time do not exceed 20% of the Fund's net assets; and (d) the
aggregate margin deposits required on all futures and options thereon at any
time do not exceed 5% of the Fund's total assets; and
(4) will not invest in real estate limited partnerships.
In order to permit the sale of the Fund's shares in certain states, the
Fund may make commitments more restrictive than the investment restrictions
described above. Should the Fund determine that any such commitment is no longer
in its best interests, 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.
Although not a fundamental restriction or policy requiring a
shareholder's vote to change, the Fund has agreed that so long as the state
authority requires and shares of the Fund are registered for sale in that state,
the Fund will maintain 300% asset coverage on any leverage or bank borrowings.
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DISTRIBUTIONS AND TAXES
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The Fund intends to declare dividends from net investment income daily
and distribute to its shareholders such dividends monthly and to declare all net
realized long-term capital gains annually. Fund distributions are made in the
form of additional shares of that class of shares upon which the distribution is
based or, at the option of the shareholder, in cash. Distributions are taxable
whether paid in cash or shares. All shareholders may receive dividends in shares
without being subject to a deferred sales charge when such shares are redeemed.
Shareholders who have not opted prior to the record date for any distribution to
receive cash will have the number of such shares determined on the basis of the
Fund's net asset value per share computed at the end of the day on the record
date after adjustment for the distribution. Net asset value is used in computing
the number of shares in both gains and income distribution reinvestments.
Account statements and/or checks as appropriate will be mailed to shareholders
within seven days after the Fund pays the distribution. Unless the Fund receives
instructions to the contrary before the record date, it will assume that the
shareholder wishes to receive that distribution and all future gains and income
distributions in shares. Instructions continue in effect until changed in
writing.
It is not expected that the Fund's income dividends will be eligible
for the corporate dividends received deduction. Distributed long term capital
gains are taxable as such to the shareholder regardless of the period of time
Fund shares have been held by the shareholder. However, if such shares are held
less than six months and redeemed at a loss, the shareholder will recognize a
long term capital loss on such shares to the extent of the capital gains
distribution received in connection with such shares. If the net asset value of
the Fund's shares is reduced below a shareholder's cost by a capital gains
distribution, such distribution, to the extent of the reduction, would be a
return of investment, though taxable as stated above. Since distributions of
capital gains depend upon profits actually realized from the sale of securities
by the Fund, they may or may not occur. The foregoing comments relating to the
taxation of dividends and distributions paid on the Fund's shares relate solely
to federal income taxation and such dividends and distributions may also be
subject to state and local taxes.
When the Fund makes a distribution it intends to distribute only the
Fund's net capital gains and such income as has been predetermined to the best
of the Fund's ability to be taxable as ordinary income. Therefore, net
investment income distributions will not be made on the basis of distributable
income as computed on the books of the Fund, but will be made on a federal
income tax basis. Shareholders of the Fund will be advised annually of the
federal income tax status of distributions.
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VALUATION OF SECURITIES
- --------------------------------------------------------------------------------
Current values for the Fund's portfolio securities are determined in
the following manner:
1. securities for which market quotations are readily available are
valued at market value, which is deemed to be the mean of the bid and asked
prices at the time of valuation;
2. (a) short-term investments 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) short-term investments maturing in more than sixty days when
purchased that are held on the sixtieth day prior to maturity are valued at
amortized cost (market value on the sixtieth day adjusted for amortization of
premium or accretion of discount), which, when combined with accrued interest,
approximates market; and which in either case reflects fair value as determined
by the Fund's Board of Trustees;
3. short-term investments 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 Fund believes that reliable market quotations are generally not
readily available for purposes of valuing Mortgage Securities. As a result,
depending on the particular Mortgage Securities owned by the 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 the Fund's Mortgage Securities and certain other securities. 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. Any securities
for which market quotations are not readily available or other assets are valued
on a consistent basis at fair value as determined in good faith using methods
prescribed by the Board of Trustees.
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SALES CHARGES
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GENERAL
Generally, the Fund currently offers three classes of shares: Class A,
B and C shares. The Fund began publicly offering its Class A shares on January
3, 1995. Class A shares are offered with a maximum front end sales charge of
3.00% payable at the time of purchase ("Front End Load Option"). Class B Shares
purchased on or after June 1, 1995 are subject to a contingent deferred sales
charge payable upon redemption during the 48 month period commencing with and
including the month of purchase. Class B shares purchased prior to June 1, 1995
are sold without an initial sales charge and are subject to a contingent
deferred sales charge payable upon redemption within three calendar years after
the year of purchase ("Back End Load Option"). Class B shares purchased on or
after June 1, 1995 that have been outstanding for six years commencing with and
including the month of purchase will automatically convert to Class A shares
without the imposition of a front-end sales charge. Class B shares purchased
prior to June 1, 1995 may be exchanged for Class A shares as described in the
prospectus. (Conversion of Class B shares represented by stock certificates will
require the return of stock certificates to Keystone Investor Resource Center,
Inc., the Fund's transfer and dividend disbursing agent ("KIRC").) Class C
shares are sold without an initial sales charge and are subject to a contingent
deferred sales charge payable upon redemption within one year after purchase
("Level Load Option"). Class C shares are available only through dealers who
have entered into special distribution agreements with the Principal
Underwriter. The prospectus contains a general description of how investors may
buy shares of the Fund and a description of applicable contingent deferred sales
charges.
CONTINGENT DEFERRED SALES CHARGES
A contingent deferred sales charge is imposed at the time of
redemption of certain Fund shares as follows:
CLASS A SHARES
With certain exceptions, purchases of Class A shares made on or after
April 10, 1995 (1) in an amount equal to or exceeding $1,000,000 and/or (2) by a
corporate qualified retirement plan or a non-qualified deferred compensation
plan sponsored by a corporation having 100 or more eligible employees (a
"Qualifying Plan"), in either case without a front-end sales charge, will be
subject to a contingent deferred sales charge of 0.50% during the 24 month
period following the date of purchase. Certain Class A shares purchased without
a front-end sales charge prior to April 10, 1995 may be subject to a contingent
deferred sales charge of 0.25% upon redemption during the one-year period
commencing on the date such shares were originally purchased. The contingent
deferred sales charge will be retained by the Principal Underwriter. See
"Calculation of Contingent Deferred Sales Charge" below.
CLASS B SHARES
With respect to Class B shares purchased on or after June 1, 1995, the
Fund, with certain exceptions, will impose a deferred sales charge as a
percentage of the lesser of net asset value or net cost of such Class B shares
redeemed during succeeding twelve-month periods as follows: 3% during the first
period; 3% during the second period; 2% during the third period; and 1% during
the fourth period. No deferred sales charge is imposed on amounts redeemed
thereafter.
With respect to Class B shares purchased prior to June 1, 1995, the
Fund, with certain exceptions, will impose a deferred sales charge of 3.00% on
shares redeemed during the calendar year of purchase and the first calendar year
after the year of purchase; 2.00% on shares redeemed during the second calendar
year after the year of purchase; and 1.00% on shares redeemed during the third
calendar year after the year of purchase. No deferred sales charge is imposed on
amounts redeemed thereafter.
When imposed, the deferred sales charge is deducted from the redemption
proceeds otherwise payable to you. The deferred sales charge is retained by the
Principal Underwriter. Amounts received by the Principal Underwriter under the
Class B Distribution Plans are reduced by deferred sales charges retained by the
Principal Underwriter. See "Calculation of Contingent Deferred Sales Charge"
below.
CLASS C SHARES
With certain exceptions, the Fund may impose a deferred sales charge of
1% on Class C shares redeemed within one year after the date of purchase. No
deferred sales charge is imposed on amounts redeemed thereafter.
When imposed, the deferred sales charge is deducted from the redemption
proceeds otherwise payable to you. The deferred sales charge is retained by the
Principal Underwriter. See "Calculation of Contingent Deferred Sales Charge"
below.
CALCULATION OF CONTINGENT DEFERRED SALES CHARGE
Any contingent deferred sales charge imposed upon the redemption of
Class A, Class B or Class C shares is a percentage of the lesser of (1) the net
asset value of the shares redeemed or (2) the net cost of such shares.
No contingent deferred sales charge is imposed when you redeem amounts
derived from (1) increases in the value of your account above the net cost of
such shares due to increases in the net asset value per share of the Fund; (2)
certain shares with respect to which the Fund did not pay a commission on
issuance, including shares acquired through reinvestment of dividend income and
capital gains distributions; (3) certain Class A shares held for more than one
or two years, as the case may be, from the date of purchase; (4) Class B shares
held during more than four consecutive calendar years or more than 48 months
from and including the month of purchase, as the case may be; or (5) Class C
shares held for more than one year from the date of purchase.
Upon request for redemption, shares not subject to the contingent
deferred sales charge will be redeemed first. Thereafter, shares held the
longest will be the first to be redeemed. There is no contingent deferred sales
charge imposed when the shares of a class are exchanged for the shares of the
same class of another Keystone America Fund. Moreover, when shares of one such
class of a fund have been exchanged for shares of another such class of a fund,
for purposes of any future contingent deferred sales charge, the calendar year
of the purchase of the shares of the fund exchanged into is deemed to be the
year shares tendered for exchange were originally purchased.
WAIVER OF SALES CHARGES
Shares also may be sold, to the extent permitted by applicable law,
regulations, interpretations or exemptions, at net asset value without the
imposition of an initial sales charge or a contingent deferred sales charge to
officers, Directors, Trustees, full-time employees and sales representatives of
the Fund, Keystone Management, Inc. ("Keystone Management"), Keystone, Keystone
Investments, Inc. (formerly named Keystone Group, Inc.) ("Keystone
Investments"), Harbor Capital Management Company, Inc., their subsidiaries and
the Principal Underwriter, who have been such for not less than ninety days and
to the pension and profit-sharing plans established by such companies, their
subsidiaries and affiliates, for the benefit of their officers, Directors,
Trustees, full-time employees and sales representatives, and to registered
representatives of firms which have dealer agreements with the Principal
Underwriter; provided all such sales are made upon the written assurance of the
purchaser that the purchase is made for investment purposes and that the
securities will not be resold except through redemption by the Fund.
In addition, a sales charge is not imposed on a purchase of Fund shares
by a bank or trust company in a single account in the name of such bank or trust
company as trustee if the initial investment in shares of the Fund and/or any
other Keystone Investments Fund is at least $500,000 in the aggregate and any
commission paid at the time of such purchase is not more than 1% of the amount
invested. Moreover, no deferred sales charge is imposed on redemptions of such
shares.
No contingent deferred sales charge is imposed on redemptions of shares
of the Fund held by a bank or trust company in a single account in the name of
such bank or trust company as trustee, if the initial investment in shares of
the Fund and/or any fund in the Keystone Investments Family of Funds is at least
$500,000 in the aggregate, and no commission has been paid.
With respect to Class A shares purchased by a Qualifying Plan at net
asset value or Class C shares purchased by a Qualifying Plan, no contingent
deferred sales charge will be imposed on any redemptions made specifically by an
individual participant in the Qualifying Plan. This waiver is not available in
the event a Qualifying Plan, as a whole, redeems substantially all of its
assets.
In addition, no contingent deferred sales charge is imposed on a
redemption of shares of the Fund in the event of (1) death or disability of the
shareholder; (2) a lump-sum distribution from a benefit plan qualified under the
Employee Retirement Income Security Act of 1974 ("ERISA"); (3) automatic
withdrawals from ERISA qualified plans if the shareholder is at least 59-1/2
years old; (4) involuntary redemptions of accounts with a net asset value of
less than $1,000; (5) automatic withdrawals under a automatic withdrawal plan of
up to 1-1/2% per month of the shareholder's initial account balance; (6)
withdrawals consisting of loan proceeds to a retirement plan participant; (7)
financial hardship withdrawals made by a retirement plan participant; or (8)
withdrawals consisting of returns of excess contributions or excess deferral
amounts made to a retirement plan participant.
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DISTRIBUTION PLANS
- --------------------------------------------------------------------------------
Rule 12b-1 under the Investment Company Act of 1940 ("1940 Act")
permits investment companies such as the Fund to use their assets to bear
expenses of distributing their shares if they comply with various conditions,
including adoption of a distribution plan containing certain provisions set
forth in Rule 12b-1. The Fund bears some of the costs of selling its classes of
shares under individual Distribution Plans adopted pursuant to Rule 12b-1 for
each class of shares (referred to herein as the "Distribution Plans" or
"Plans").
The National Association of Securities Dealers, Inc. ("NASD") limits
the amount that the Fund may pay annually in distribution costs for sale of its
shares and shareholder service fees. The NASD limits annual expenditures to 1%
of the aggregate average daily net asset value of 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. NASD rules also limit the aggregate amount that the Fund may pay
for such distribution costs to 6.25% of gross share sales since the inception of
the 12b-1 Plan, plus interest at the prime rate plus 1% on such amounts (less
any contingent deferred sales charges paid by shareholders to the Principal
Underwriter).
CLASS A DISTRIBUTION PLAN
The Class A Distribution Plan provides that the Fund may expend daily
amounts currently at the rate of 0.25% of the Fund's average daily net asset
value attributable to Class A shares to finance any activity that is primarily
intended to result in the sale of Class A shares, including, without limitation,
expenditures consisting of payments to a principal underwriter of the Fund
(currently the Principal Underwriter) to enable the Principal Underwriter to pay
or to have paid to others who sell Class A shares a service or other fee, at
such intervals as the Principal Underwriter any determine, in respect of Class A
shares maintained by such recipients on the books of the Fund for specified
periods.
Amounts paid by the Fund under the Class A Distribution Plan are
currently used to pay others, such as dealers, service fees at an annual rate of
up to 0.25% of the average daily net asset value of Class A shares maintained by
such recipients on the books of the Fund for specified periods.
CLASS B DISTRIBUTION PLANS
The Fund has adopted Distribution Plans for its Class B shares that provide
that the Fund may expend daily amounts at an annual rate of up to 1.00% of the
Fund's average daily net asset value attributable to Class B shares to finance
any activity that is primarily intended to result in the sale of Class B shares,
including, without limitation, expenditures consisting of payments to the
principal underwriter of the Fund (currently the Principal Underwriter) (1) to
enable the Principal Underwriter to pay to others (dealers) commissions in
respect of Class B shares sold since inception of the Distribution Plan; and (2)
to enable the Principal Underwriter to pay or to have paid to others a service
fee, at such intervals as the Principal Underwriter may determine, in respect of
Class B shares maintained by any such recipients on the books of the Fund for
specified periods.
The Principal Underwriter generally reallows to brokers or others a
commission equal to 2.75% of the price paid for each Class B share sold plus the
first year's service fee in advance in the amount of 0.25% of the price paid for
each Class B share sold. Beginning approximately 12 months after the purchase of
a Class B share, the broker or other party receives service fees at an annual
rate of 0.25% of the average daily net asset value of such Class B share
maintained by such 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 permitted to be received
by the Principal Underwriter from the Fund. The Principal Underwriter intends to
seek full payment of such charges from the Fund (together with annual interest
thereon at the prime rate plus one percent) at such time in the future as, and
to the extent that, payment thereof by the Fund would be within the permitted
limits. See also "Distribution Plans - General."
If the Fund's Independent Trustees authorize such payments, the effect
would be to extend the period of time during which the Fund incurs the maximum
amount of costs allowed by a Class B Distribution Plan. If a Class B
Distribution Plan is terminated, the Principal Underwriter will ask the
Independent Trustees to take whatever action they deem appropriate under the
circumstances with respect to payment of such amounts.
In connection with financing its distribution costs, including
commission advances to dealers and others, the Principal Underwriter has sold to
a financial institution substantially all of its 12b-1 fee collection rights and
contingent deferred sales charge collection rights in respect of Class B shares
sold during the two-year period commencing approximately June 1, 1995. The Fund
has agreed not to reduce the rate of payment of 12b-1 fees in respect of such
Class B shares unless it terminates such shares' Distribution Plan completely.
If it terminates such Distribution Plan, the Fund may be subject to possible
adverse distribution consequences.
CLASS C DISTRIBUTION PLAN. The Class C Distribution Plan provides that the Fund
may expend daily amounts at an annual rate of up to 1.00% of the Fund's average
daily net asset value attributable to Class C shares to finance any activity
that is primarily intended to result in the sale of Class C shares, including,
without limitation, expenditures consisting of payments to the principal
underwriter of the Fund (currently the Principal Underwriter) (1) to enable the
Principal Underwriter to pay to others (dealers) commissions in respect of Class
C shares sold since inception of the Distribution Plan; and (2) to enable the
Principal Underwriter to pay or to have paid to others a service fee, at such
intervals as the Principal Underwriter may determine, in respect of Class C
shares maintained by any such recipients on the books of the Fund for specified
periods.
The Principal Underwriter generally reallows to brokers or others a
commission in the amount of 0.75% of the price paid for each Class C share sold
plus the first year's service fee in advance in the amount of 0.25% of the price
paid for each Class C share sold. Beginning approximately fifteen months after
purchase, brokers or others receive a commission at an annual rate of 0.75%
(subject to NASD rules) plus service fees at the annual rate of 0.25% of the
average daily net asset value of each Class C share maintained by such
recipients on the books of the Fund for specified periods.
DISTRIBUTION PLANS - GENERAL
Whether any expenditure under a Distribution Plan is subject to a state
expense limit will depend upon the nature of the expenditure and the terms of
the state law, regulation or order imposing the limit. A portion of the Fund's
Distribution Plan expenses may be includable in the Fund's total operating
expenses for purposes of determining compliance with state expense limits.
Each of the Distribution Plans may be terminated at any time by vote of
the Independent Trustees or by vote of a majority of the outstanding voting
shares of the respective class of the Fund. Any change in a Distribution Plan
that would materially increase the distribution expenses of the Fund provided
for in a Distribution Plan requires shareholder approval. Otherwise, a
Distribution Plan may be amended by the Trustees, including the Independent
Trustees.
While a Distribution Plan is in effect, the Fund will be required to
commit the selection and nomination of candidates for Independent Trustees to
the discretion of the Independent Trustees.
The total amounts paid by the Fund under the foregoing arrangements may
not exceed the maximum Distribution Plan limit 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 the Fund under a Distribution Plan be kept
within limits lower than the maximum amount permitted by the Distribution Plan
as stated above.
The Independent Trustees of the Fund have determined that the sales of
the Fund's shares resulting from payments under the Distribution Plans are
expected to benefit the Fund.
During the period December 30, 1994 (date of initial offering) to
September 30, 1995, the Fund paid or accrued to the Principal Underwriter
$34,962 under its Class A Distribution Plan. During the fiscal year ended
September 30, 1995, the Fund paid or accrued to the Principal Underwriter
$761,357 ($ for Class B shares sold prior to June 1, 1995 and
$ for Class B shares sold on or after June 1, 1995) and $29,051 pursuant
to the Fund's Class B and C Distribution Plans, respectively. These amounts
represent 0.22% (annualized), 1.00% and 1.00%, respectively, of the average
daily net assets of Class A, B and C.
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INVESTMENT ADVISER
- --------------------------------------------------------------------------------
Subject to the general supervision of the Fund's Board of Trustees,
Keystone serves as investment adviser to the Fund and is responsible for the
overall management of the Fund'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 corporation predominantly owned by current
and former members of management of Keystone and its affiliates. The shares of
Keystone Investments common stock beneficially owned by management are held in a
number of voting trusts, the trustees of which are George S. Bissell, Albert H.
Elfner, III, Edward F. Godfrey, and Ralph J. Spuehler, Jr. Keystone Investments
provides accounting, bookkeeping, legal, personnel and general corporate
services to Keystone, its affiliates and the Keystone Investments Family of
Funds.
Pursuant to an Investment Advisory and Management Agreement between the
Fund and Keystone (the "Advisory Agreement"), and subject to the supervision of
the Fund's Board of Trustees, Keystone manages and administers the Fund's
operation and manages the investment and reinvestment of the Fund's assets in
conformity with the Fund's investment objective and restrictions. The Advisory
Agreement stipulates that Keystone shall provide office space, all necessary
office facilities, equipment and personnel in connection with its services under
the Advisory Agreement and pay or reimburse the Fund for the compensation of
officers and Trustees of the Fund who are affiliated with the investment adviser
as well as pay all expenses of Keystone incurred in connection with the
provision of its services. All charges and expenses other than those
specifically referred to as being borne by Keystone will be paid by the Fund,
including, but not limited to, custodian charges and expenses; bookkeeping and
auditors' charges and expenses; transfer agent charges and expenses; fees of
Independent Trustees; brokerage commissions; brokers' fees and expenses; issue
and transfer taxes; costs and expenses under the Distribution Plans; taxes and
trust fees payable to governmental agencies; the cost of share certificates;
fees and expenses of the registration and qualification of the Fund and its
shares with the Securities and Exchange Commission ("SEC" or "Commission") or
under state or other securities laws; expenses of preparing, printing and
mailing prospectuses, statements of additional information, notices, reports and
proxy materials to shareholders of the Fund; expenses of shareholders' and
Trustees' meetings; charges and expenses of legal counsel for the Fund and for
the Trustees of the Fund on matters relating to the Fund; charges and expenses
of filing annual and other reports with the SEC and other authorities; and all
extraordinary charges and expenses of the Fund.
The Fund pays Keystone a fee for its services to the Fund at the annual
rate set forth below:
Annual Aggregate Net Asset
Management Value of the Shares
Fee of the Fund
- -----------------------------------------------------------------
2% of Gross Dividend and
Interest Income plus
0.50% of the first $ 100,000,000, plus
0.45% of the next $ 100,000,000, plus
0.40% of the next $ 100,000,000, plus
0.35% of the next $ 100,000,000, plus
0.30% of the next $ 100,000,000, plus
0.25% of amounts over $ 500,000,000
computed as of the close of business each business day and paid daily.
During the fiscal year ended September 30, 1993, the Fund paid or
accrued to Keystone investment management and administrative services fees of
$1,027,987, which represented 0.60% of the Fund's average net assets.
During the fiscal year ended September 30, 1994, the Fund paid or
accrued to Keystone investment management and administrative services fees of
$735,254, which represented 0.60% of the Fund's average net assets.
During the fiscal year ended September 30, 1995, the Fund paid or
accrued to Keystone investment management and administrative services fees of
$605,247, which represented 0.64% of the Fund's average net assets.
Currently, Keystone has voluntarily agreed to limit annual expenses of
each of the Fund's Class A, B and C shares to 0.90%, 1.65%, and 1.65% of average
net class assets, respectively. Keystone 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. In accordance with this voluntary expense
limitation in place during the fiscal year ended September 30, 1995, Keystone
reimbursed the Fund $65,140, $421,990, and $15,875 for Class A, B and C shares,
respectively, for the fiscal year ended September 30, 1995. Keystone does not
intend to seek repayment for these amounts. Keystone, from time to time, will
make determinations whether to continue these limits and, if so, at what rates.
Keystone will not be required to reimburse the Fund for amounts in excess of an
expense limit if such reimbursement would result in the Fund's inability to
qualify as a regulated investment company under the provisions of the Internal
Revenue Code of 1986, as amended.
The Fund is subject to certain annual state expense limitations the
most restrictive of which is currently:
2.5% of the first $30 million of a Fund's average net assets; 2.0% of
the next $70 million of a Fund's average net assets; and 1.5% of a Fund's
average net assets over $100 million.
Capital charges and certain expenses, including a portion of the fees
arising under the Fund's Distribution Plans, are not included in the calculation
of the state expense limitation. This limitation may be modified or eliminated
in the future.
The Advisory Agreement continues in effect if approved at least
annually by the Board of Trustees of the Fund or by a vote of a majority of the
outstanding shares of the Fund and such renewal has been approved by the vote of
a majority of the Independent Trustees cast in person at a meeting called for
the purpose of voting on such approval. The Advisory Agreement may be
terminated, without penalty, on 60 days' written notice by the Fund's Board of
Trustees or by a vote of a majority of outstanding shares of the Fund. The
Advisory Agreement will terminate automatically upon its "assignment" as that
term is defined in the 1940 Act.
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TRUSTEES AND OFFICERS
- --------------------------------------------------------------------------------
Trustees and officers of the Fund, their principal occupations and some
of their affiliations over the last five years are as follows:
*ALBERT H. ELFNER, III: President, Chief Executive Officer and Trustee of the
Fund; Chairman of the Board, President, Director and Chief Executive
Officer of Keystone Investments; President, Chief Executive Officer and
Trustee or Director of all 30 funds in the Keystone Investments Family of
Funds; Director and Chairman of the Board, Chief Executive Officer and Vice
Chairman of Keystone; Chairman of the Board and Director of Keystone
Institutional Company, Inc. ("Keystone Institutional") (formerly named
Keystone Investment Management Corporation), and Keystone Fixed Income
Advisors ("KFIA"); Director, Chairman of the Board, Chief Executive Officer
and President of Keystone Management, Keystone Software Inc. ("Keystone
Software"); former Director and President of Hartwell Keystone Advisers,
Inc. ("Hartwell Keystone"); 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"); former Director and Vice President of Robert Van
Partners, Inc.; Director of Boston Children's Services Association; Trustee
of Anatolia College, Middlesex School, and Middlebury College; Member,
Board of Governors, New England Medical Center; and former Trustee of
Neworld Bank.
FREDERICK AMLING: 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; former Director and Chairman of the Board
of Hartwell Keystone; Chairman of the Board and Trustee of Anatolia
College; Trustee of University Hospital (and Chairman of its Investment
Committee); former Chairman of the Board and Chief Executive Officer of
Keystone Investments; and former Chief Executive Officer of the Fund.
EDWIN D. CAMPBELL: Trustee of the Fund; Trustee or Director of all other
Keystone Investments Funds; Executive Director, Coalition of Essential
Schools, Brown University; Director and former Executive Vice President,
National Alliance of Business; former Vice President, Educational Testing
Services; and former Dean, School of Business, Adelphi University.
CHARLES F. CHAPIN: Trustee of the Fund; Trustee or Director of all other
Keystone Investments Funds; former Group Vice President, Textron Corp.; and
former Director, Peoples Bank (Charlotte, N.C).
LEROY KEITH, JR.: Trustee of the Fund; Trustee or Director of all other Keystone
Investments Funds; Director of Phoenix Total Return Fund and Equifax, Inc.;
Trustee of Phoenix Series Fund, Phoenix Multi-Portfolio Fund and The
Phoenix Big Edge Series Fund; and former President, Morehouse College.
K. DUN GIFFORD: Trustee of the Fund; Trustee or Director of all other Keystone
Investments Funds; Chairman of the Board, Director and Executive Vice
President, The London Harness Company; Managing Partner, Roscommon Capital
Corp.; Trustee, Cambridge College; Chairman Emeritus and Director, American
Institute of Food and Wine; Chief Executive Officer, Gifford Gifts of Fine
Foods; Chairman, Gifford, Drescher & Associates (environmental consulting);
President, Oldways Preservation and Exchange Trust (education); and former
Director, Keystone Investments and Keystone.
F. RAY KEYSER, JR.: Trustee of the Fund; Trustee or Director of all other
Keystone Investments Funds; Of Counsel, Keyser, Crowley & Meub, P.C.;
Member, Governor's (VT) Council of Economic Advisers; Chairman of the Board
and Director, Central Vermont Public Service Corporation and Hitchcock
Clinic; Director, Vermont Yankee Nuclear Power Corporation, Vermont
Electric Power Company, Inc., Grand Trunk Corporation, Central Vermont
Railway, Inc., S.K.I. Ltd., Sherburne Corporation, Union Mutual Fire
Insurance Company, New England Guaranty Insurance Company, Inc. and the
Investment Company Institute; former Governor of Vermont; former Director
and President, Associated Industries of Vermont; former Chairman and
President, Vermont Marble Company; former Director of Keystone; and former
Director and Chairman of the Board, Green Mountain Bank.
DAVID M. RICHARDSON: Trustee of the Fund; Trustee or Director of all other
Keystone Investments Funds; Executive Vice President, DHR International,
Inc. (executive recruitment); former Senior Vice President, Boyden
International Inc. (executive recruitment); and Director, Commerce and
Industry Association of New Jersey, 411 International, Inc. and J & M
Cumming Paper Co.
RICHARD J. SHIMA: Trustee of the Fund; Trustee or Director of all other Keystone
Investments Funds; Chairman, Environmental Warranty, Inc., and Consultant,
Drake Beam Morin, Inc. (executive outplacement); Director of Connecticut
Natural Gas Corporation, Trust Company of Connecticut, Hartford Hospital,
Old State House Association and Enhanced Financial Services, Inc.; Member,
Georgetown College Board of Advisors; Chairman, Board of Trustees, Hartford
Graduate Center; Trustee, Kingswood-Oxford School and Greater Hartford
YMCA; former Director, Executive Vice President and Vice Chairman of The
Travelers Corporation; and former Managing Director of Russell Miller, Inc.
ANDREW J. SIMONS: Trustee of the Fund; Trustee or Director of all other Keystone
Investments Funds; Partner, Farrell, Fritz, Caemmerer, Cleary, Barnosky &
Armentano, P.C.; former President, Nassau County Bar Association; and
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; former Treasurer and Director of Hartwell Keystone; former
Treasurer of Robert Van Partners, Inc.; Vice President and Treasurer of
KFIA; and Director of KIRC.
JAMES R. McCALL: Senior Vice President of the Fund; Senior Vice President of all
other Keystone Investments Funds; and President of Keystone.
KEVIN J. MORRISSEY: Treasurer of the Fund; Treasurer of all other Keystone
Investments Funds; Vice President of Keystone Investments; Assistant
Treasurer of FICO and Keystone; and former Vice President and Treasurer of
KIRC.
CHRISTOPHER P. CONKEY: Vice President of the Fund; Vice President of certain
other Keystone Investments Funds; and Senior Vice President of Keystone.
ROSEMARY D. VAN ANTWERP: Senior Vice President and Secretary of the Fund; Senior
Vice President and Secretary of all other Keystone Investments Funds;
Senior Vice President, General Counsel and Secretary of Keystone; Senior
Vice President, General Counsel, Secretary and Director of the Principal
Underwriter, Keystone Management and Keystone Software; Senior Vice
President and General Counsel of Keystone Institutional; Senior Vice
President, General Counsel and Director of FICO and KIRC; former Senior
Vice President and Secretary of Hartwell Keystone, and Robert Van Partners,
Inc.; Vice President and Secretary of KFIA; Senior Vice President, General
Counsel and Secretary of Keystone Investments, Keystone Asset Corporation,
Keystone Capital Corporation and Keystone Trust Company.
* This Trustee may be considered an "interested person" within the meaning of
the 1940 Act.
Mr. Elfner and Mr. Bissell are "interested persons" by virtue of their
positions as officers and/or Directors of Keystone Investments and several of
its affiliates including Keystone, the Principal Underwriter and KIRC. Mr.
Elfner and Mr. Bissell own shares of Keystone Investments. Mr. Elfner is
Chairman of the Board, Chief Executive Officer and Director of Keystone
Investments. Mr. Bissell is a Director of Keystone Investments.
During the fiscal year ended September 30, 1995, no Trustee affiliated
with Keystone or any officer received any direct remuneration from the Fund.
During the same period, the unaffiliated Trustees received $____________ in
retainers and fees from the Fund. Aggregate compensation paid by all funds in
the Keystone Investments Family of Funds (which includes 30 mutual funds) for
the calendar year ended December 31, 1994 totalled approximately $____________.
On October 31, 1995, the Trustees and officers of the Fund as a group owned less
than .01% of the Fund's then outstanding shares.
The address of all the Fund's Trustees and officers is 200 Berkeley
Street, Boston, Massachusetts 02116-5034.
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PRINCIPAL UNDERWRITER
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Pursuant to principal underwriting agreements between the Fund and the
Principal Underwriter (the "Underwriting Agreements"), the Principal Underwriter
acts as the Fund's principal underwriter. The Principal Underwriter, located at
200 Berkeley Street, Boston, Massachusetts, 02116-5034, is a wholly-owned
subsidiary of Keystone. The Principal Underwriter, as agent, has agreed to use
its best efforts to find purchasers for the shares. The Principal Underwriter
may retain and employ representatives to promote distribution of the shares and
may obtain orders from brokers, dealers and others, acting as principals, for
sales of shares to them. The Underwriting Agreements provide that the Principal
Underwriter will bear the expense of preparing, printing and distributing
advertising and sales literature and prospectuses used by it. In its capacity as
principal underwriter, the Principal Underwriter may receive payments from the
Fund pursuant to the Fund's Distribution Plans.
All subscriptions and sales of shares by the Principal Underwriter are
at the offering price of the shares in accordance with the provisions of the
Declaration of Trust, By-Laws, the current prospectus and statement of
additional information of the Fund. All orders are subject to acceptance by the
Fund, and the Fund reserves the right in its sole discretion to reject any order
received. Under the Underwriting Agreements, the Fund is not liable to anyone
for failure to accept any order.
Under the Underwriting Agreements, the Fund has agreed to pay all
expenses in connection with registration of Fund shares with the Commission and
auditing and filing fees in connection with registration of such shares under
the various state "blue-sky" laws. The Principal Underwriter assumes the cost of
sales literature and preparation of prospectuses used by it and certain other
expenses.
From time to time, if, in the Principal Underwriter's judgment, it
could benefit the sales of Fund's shares, the Principal Underwriter may use its
discretion in providing to selected dealers promotional materials and selling
aids, including, but not limited to, personal computers, related software and
Fund data files.
The Principal Underwriter has agreed that it will in all respects duly
conform with all state and federal laws applicable to the sale of the Fund's
shares and will indemnify and hold harmless the Fund and each person who has
been, is or may be a Trustee or officer of the Fund against expenses reasonably
incurred by any of them in connection with any claim or in connection with any
action, suit or proceeding to which any of them may be a party, which arises out
of or is alleged to arise out of any misrepresentation or omission to state a
material fact on the part of the Principal Underwriter or any other person for
whose acts the Principal Underwriter is responsible or is alleged to be
responsible, unless such misrepresentation or omission was made in reliance upon
written information furnished by the Fund.
The Underwriting Agreements provide that they will remain in effect as
long as their terms and continuance are approved by a majority of Independent
Trustees of the Fund and a majority of the Fund's Rule 12b-1 Trustees at least
annually in accordance with the 1940 Act and rules and regulations thereunder.
The Underwriting Agreements may be terminated, without penalty, on 60
days' written notice by the Board of Trustees or the Principal Underwriter or
terminated by a vote of a majority of outstanding shares of the Fund. The
Underwriting Agreements will terminate automatically upon their "assignment" as
that term is defined in the 1940 Act.
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BROKERAGE
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It is the policy of the Fund, in effecting transactions in portfolio
securities, to seek best execution of orders at the most favorable prices. The
determination of what may constitute best execution and price in the execution
of a securities transaction by a broker involves a number of considerations,
including, without limitation, the overall direct net economic result to the
Fund, involving both price paid or received and any commissions and other costs
paid, the efficiency with which the transaction is effected, the ability to
effect the transaction at all where a large block is involved, the availability
of the broker to stand ready to execute potentially difficult transactions in
the future and the financial strength and stability of the broker. Such
considerations are are weighed by management in determining the overall
reasonableness of brokerage commissions paid.
Subject to the foregoing, a factor in the selection of brokers is the
receipt of research services, such as analyses and reports concerning issuers,
industries, securities, economic factors and trends and other statistical and
factual information. Any such research and other statistical and factual
information provided by brokers to the Fund 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. The cost, value and specific application of such
information are indeterminable and cannot be practically allocated among the
Fund and other clients of Keystone who may indirectly benefit from the
availability of such information. Similarly, the Fund may indirectly benefit
from information made available as a result of transactions effected for such
other clients. Under the 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 which is fair and equitable to
the Fund.
The Fund expects that purchases and sales of Mortgage Securities and
short-term instruments usually will be principal transactions. Mortgage
Securities and short-term instruments are normally purchased directly from the
issuer or from an underwriter or market maker for the securities. There usually
will be no brokerage commissions paid by the Fund for such purchases. Purchases
from underwriters will include the underwriting commission or concession, and
purchases from dealers serving as market makers will include a dealer's mark up
or reflect a dealer's mark down. Where transactions are made in the
over-the-counter market, the Fund will deal with primary market makers unless
more favorable prices are otherwise obtainable.
The Fund may participate, if and when practicable, in group bidding for
the purchase directly from an issuer of certain securities for the Fund's
portfolio in order to take advantage of the lower purchase price available to
members of such a group.
Neither Keystone nor the Fund intends to place securities transactions
with any particular broker-dealer or group thereof. The Fund's Board of
Trustees, however, has determined that the Fund may follow a policy of
considering sales of shares as a factor in the selection of broker-dealers to
execute portfolio transactions, subject to the requirements of best execution,
including best price, described above.
The policy of the Fund with respect to brokerage is and will be
reviewed by the Fund's Board of Trustees from time to time. Because of the
possibility of further regulatory developments affecting the securities
exchanges and brokerage practices generally, the foregoing practices may be
changed, modified or eliminated.
Investment decisions for the Fund are made independently by Keystone
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 Fund is concerned. In other cases, however, it is believed that the
ability of the Fund to participate in volume transactions will produce better
executions for the Fund.
For the fiscal years ended September 30, 1995, 1994 and 1993, the Fund
paid no brokerage commissions.
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.
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DECLARATION OF TRUST
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MASSACHUSETTS BUSINESS TRUST
The Fund is a Massachusetts business trust established under a
Declaration of Trust dated December 19, 1990. The Fund is similar in most
respects to a business corporation. The principal distinction between the Fund
and a corporation relates to the shareholder liability described below. A copy
of the Declaration of Trust (the "Declaration of Trust") has been filed as an
exhibit to the Fund's Registration Statement. This summary is qualified in its
entirety by reference to the Declaration of Trust.
DESCRIPTION OF SHARES
The Declaration of Trust authorizes the issuance of an unlimited number
of shares of beneficial interest and the creation of additional series and/or
classes of series of Fund shares. Each share represents an equal proportionate
interest with each other share of that class. Upon liquidation, shares are
entitled to a pro rata share of the Fund based on the relative net assets of
each class. Shareholders have no preemptive or conversion rights. Shares are
transferable, redeemable and fully assignable as collateral. There are no
sinking fund provisions. Generally, the Fund currently issues three classes of
shares, but may issue additional classes or series of shares.
SHAREHOLDER LIABILITY
Pursuant to certain decisions of the Massachusetts courts, shareholders
of a Massachusetts business trust may, under certain circumstances, be held
personally liable for the obligations of the trust. The possibility of the
shareholders incurring financial loss for that reason appears remote because the
Fund's Declaration of Trust (1) contains an express disclaimer of shareholder
liability for obligations of the Fund; (2) requires that notice of such
disclaimer be given in each agreement, obligation or instrument entered into or
executed by the Fund or the Trustees; and (3) provides for indemnification out
of Fund property for any shareholder held personally liable for the obligations
of the Fund.
VOTING RIGHTS
Under the terms of the Declaration of Trust, the Fund does not hold
annual meetings. Shares of the Fund are entitled to one vote per share on
matters subject to vote by the Fund, such as investment advisory agreements.
Shares generally vote together as one class on election of Trustees and
selection of accountants. Classes of shares of the Fund have equal voting rights
except that each 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 or until such time as less than a majority of the Trustees holding office
have been elected by shareholders, at which time the Trustees then in office
will call a shareholders' meeting for election of Trustees.
Except as set forth above, the Trustees shall continue to hold office
indefinitely, unless otherwise required by law, and may appoint successor
Trustees. A Trustee may be removed from or cease to hold office (as the case may
be) (1) at any time by two-thirds vote of the remaining Trustees; (2) when such
Trustee becomes mentally or physically incapacitated; or (3) at a special
meeting of shareholders by a two-thirds vote of the outstanding shares. Any
Trustee may voluntarily resign from office.
LIMITATION OF TRUSTEES' LIABILITY
The Declaration of Trust provides that a Trustee shall be liable only
for his own willful defaults and, if reasonable care has been exercised in the
selection of officers, agents, employees or investment advisers, shall not be
liable for any neglect or wrongdoing of any such person; provided, however, that
nothing in the Declaration of Trust shall protect a Trustee against any
liability for his willful misfeasance, bad faith, gross negligence or reckless
disregard of his duties.
The Trustees have absolute and exclusive control over the management
and disposition of all assets of the Fund and may perform such acts as in their
sole judgment and discretion are necessary and proper for conducting the
business and affairs of the Fund or promoting the interests of the Fund and the
shareholders.
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STANDARDIZED TOTAL RETURN AND YIELD QUOTATIONS
- --------------------------------------------------------------------------------
Total return quotations for a class of shares of the Fund as they may
appear from time to time in advertisements are calculated by finding the average
annual compounded rates of return over one, five and ten year periods, or the
time periods for which such class of shares has been effective, whichever is
relevant, on a hypothetical $1,000 investment that would equate the initial
amount invested in the class to the ending redeemable value. To the initial
investment all dividends and distributions are added, and all recurring fees
charged to all shareholder accounts are deducted. The ending redeemable value
assumes a complete redemption at the end of the relevant periods.
The total return for Class A shares for the period December 30, 1994
(date of initial offering) through the fiscal period ended September 30, 1995
was 3.17% (including any applicable sales charge).
The cumulative total return for Class B shares for the period July 1,
1991 (commencement of operations) through the fiscal year ended September 30,
1995 was 17.76% (including any applicable sales charge). The cumulative total
return for Class C shares for the period February 1, 1993 (commencement of
operations) through the fiscal year ended September 30, 1995 was 9.93%
(including any applicable sales charges).
The compounded average annual rates of return for Class B and Class C
shares for the fiscal year ended September 30, 1995 were 2.81% and 5.93%,
respectively (including any applicable sales charge). The compounded average
annual rates of return for Class B and Class C shares for the respective periods
beginning on commencement of class operations through September 30, 1995 were
3.92% and 3.61%, respectively (including any applicable sales charge).
Current yield quotations as they may appear from time to time in
advertisements will consist of a quotation based on a 30-day period ended on the
date of the most recent balance sheet of the Fund, computed by dividing the net
investment income per share earned during the period by the maximum offering
price per share on the last day of the base period. Such yield will include
income from sources other than municipal obligations, if any.
The Fund's current yields for Class A, Class B and Class C for the
30-day period ended September 30, 1995 were 5.63%, 5.20% and 5.19%,
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.
The Fund may also include comparative performance information in
advertising or marketing the Fund's yield or total return for any future period.
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ADDITIONAL INFORMATION
- --------------------------------------------------------------------------------
State Street Bank and Trust Company, 225 Franklin Street, Boston,
Massachusetts 02110, is custodian of all securities and cash of the Fund. State
Street performs no investment management functions for the Fund, but, in
addition to its custodial services, is responsible for accounting and related
recordkeeping on behalf of the Fund.
KPMG Peat Marwick LLP, 99 High Street, Boston, Massachusetts 02110,
Certified Public Accountants, are the independent auditors for the Fund.
Keystone Investor Resource Center, Inc., 101 Main Street, Cambridge,
Massachusetts 02142, a wholly-owned subsidiary of Keystone, acts as transfer and
dividend disbursing agent for the Fund.
Except as otherwise stated in its prospectus or required by law, the
Fund reserves the right to change the terms of the offer stated in its
prospectus without shareholder approval, including the right to impose or change
fees for services provided.
No dealer, salesman or other person is authorized to give any
information or to make any representation not contained in the Fund's
prospectus, statement of additional information or in supplemental sales
literature issued by the Fund or the Principal Underwriter, and no person is
entitled to rely on any information or representation not contained therein.
As of October 31, 1995, Great Amearican Federal Savings and Loan, Attn:
Mr. Raymond G. Suchta, 4750 Clairton Blvd., Pittsburgh, PA 55236-2116 owned of
record 27.440% of the Fund's outstanding Class A shares; and Merrill Lynch
Pierce, Fenner & Smith, Attn: Book Entry, 4800 Deer Lake Dr, E 3rd FL,
Jacksonville, FL 32246-6484, owned of record 12.720% of the Fund's outstanding
Class A shares.
As of October 31, 1995, Merrill Lynch Pierce, Fenner & Smith, Attn:
Book Entry, 4800 Deer Lake Dr, E 3rd FL, Jacksonville, FL 32246-6484, owned of
record 15.132% of the Fund's outstanding Class B shares.
As of October 31, 1995, Merrill Lynch Pierce, Fenner & Smith, Inc.,
Attn: Book Entry, 4800 Deer Lake Dr., E 3rd FL, Jacksonville, FL 32246-6486,
owned of record 12.797% of the Fund's outstanding Class C shares.
The Fund's prospectus and statement of additional information omit
certain information contained in the registration statement filed with the
Commission, which may be obtained from the Commission's principal office in
Washington, D.C. upon payment of the fee prescribed by the rules and regulations
promulgated by the Commission.
The Fund is one of 15 different investment companies in the Keystone
America Family, which offers a range of choices to serve shareholder needs. In
addition to the Fund, the Keystone America Family includes the following funds
having 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 HARTWELL GROWTH FUND - Seeks capital appreciation by investment in
securities selected for their long-term growth prospects.
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 50%).
KEYSTONE GLOBAL OPPORTUNITIES FUND - Seeks long-term capital growth from foreign
and domestic securities.
KEYSTONE GOVERNMENT SECURITIES FUND - Seeks income and capital preservation from
U.S. government securities.
KEYSTONE INTERMEDIATE TERM BOND FUND - Seeks income, capital preservation and
price appreciation potential from investment grade corporate bonds.
KEYSTONE OMEGA FUND - Seeks maximum capital growth from common stocks and
securities convertible into common stocks.
KEYSTONE STATE TAX FREE FUND - A mutual fund currently offering five separate
series of shares investing in different portfolio securities which seeks the
highest possible current income, exempt from federal income taxes and applicable
state taxes.
KEYSTONE STATE TAX FREE FUND-SERIES II - A mutual fund consisting of two
separate series of shares investing in different portfolio securities which
seeks the highest possible current income, exempt from federal income taxes and
applicable state taxes.
KEYSTONE STRATEGIC INCOME FUND - Seeks high yield and capital appreciation
potential from corporate bonds, discount bonds, convertible bonds, preferred
stock and foreign bonds.
KEYSTONE TAX FREE INCOME FUND - Seeks income exempt from federal income taxes
and capital preservation from the four highest grades of municipal bonds.
KEYSTONE WORLD BOND FUND - Seeks total return from interest income, capital
gains and losses and currency exchange gains and losses from investment in debt
securities denominated in U.S. and foreign currencies.
KEYSTONE FUND OF THE AMERICAS - Seeks long term growth of capital through
investments in equity and debt securities in North America (the United States
and Canada) and Latin America (Mexico and countries in South and Central
America).
KEYSTONE STRATEGIC DEVELOPMENT FUND - Seeks long term capital growth by
investing primarily in equity securities.
<PAGE>
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APPENDIX
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This Appendix is solely intended to provide additional investment
information and is qualified in its entirety by the information and language
contained in the Fund's prospectus.
U.S. GOVERNMENT SECURITIES
Securities issued or guaranteed by the U.S. government include (i) a
variety of Treasury securities that differ only in their interest rates,
maturities and dates of issuance and (ii) securities issued by GNMA. Treasury
bills have maturities of one year or less. Treasury notes have maturities of one
to ten years Treasury bonds generally have maturities of greater than ten years
at the date of issuance. GNMA securities include GNMA mortgage pass-through
certificates. Such securities are supported by the full faith and credit of the
U.S. government.
Securities issued or guaranteed by U.S. government agencies or
instrumentalities include securities issued or guaranteed by the Federal Housing
Administration, Farmers Home Administration, Export-Import Bank of the U.S.,
Small Business Administration, General Services Administration, Central Bank for
Cooperatives, Federal Home Loan Banks, FHLMC, Federal Intermediate Credit Banks,
Federal Land Banks, Maritime Administration, The Tennessee Valley Authority,
District of Columbia Armory Board and FNMA.
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 FNMA, a
private corporation, are supported only by the credit of the instrumentality.
The U.S. government is not obligated by law to provide support to an
instrumentality it sponsors. U.S. government securities held by the Fund 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.
FUTURES CONTRACTS AND RELATED OPTIONS TRANSACTIONS
The Fund intends 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 the Fund or as a hedge against
changes in the prices of securities held by the Fund or to be acquired by the
Fund. The Fund's hedging may include sales of futures as an offset against the
effect of expected increases in interest rates or securities prices and
purchases of futures as an offset against the effect of expected declines in
interest rates.
For example, when the Fund anticipates a significant change in interest
rates, it will purchase a financial futures contract as a hedge against not
participating in such change in interest rates at a time when the Fund is not
fully invested. The purchase of a futures contract serves as a temporary
substitute for the purchase of individual securities which may then be purchased
in an orderly fashion. As such purchases are made, an equivalent amount of
financial futures contracts would be terminated by offsetting sales. In
contrast, the Fund would sell financial futures contracts in anticipation of or
in a general interest rate 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 change in interest
rates, and, by doing so, provide an alternative to the liquidation of the Fund's
securities positions and the resulting transaction costs.
The Fund intends to engage in options transactions which are related to
financial futures contracts for hedging purposes and in connection with the
hedging strategies described above.
Although techniques other than sales and purchases of futures contracts
and related options transactions could be used to reduce the Fund's exposure to
interest rate and/or market fluctuations, the Fund may be able to hedge its
exposure more effectively and perhaps at a lower cost through using futures
contracts and related options transactions. While the Fund does not intend to
take delivery of the instruments underlying futures contracts it holds, the Fund
does not intend to engage in such futures contracts for speculation.
FUTURES CONTRACTS
Futures contracts are transactions in the commodities markets rather
than in the securities markets. A futures contract creates an obligation by the
seller to deliver to the buyer the commodity specified in the contract at a
specified future time for a specified price. The futures contract creates an
obligation by the buyer to accept delivery from the seller of the commodity
specified at the specified future time for the specified price. In contrast, a
spot transaction creates an immediate obligation for the seller to deliver and
the buyer to accept delivery of and pay for an identified commodity. In general,
futures contracts involve transactions in fungible goods such as wheat, coffee
and soybeans. However, in the last decade an increasing number of futures
contracts have been developed which specify financial instruments or financially
based indexes as the underlying commodity.
U.S. futures contracts are traded only on national futures exchanges
and are standardized as to maturity date and underlying financial instrument.
The principal financial futures exchanges in the United States are The Board of
Trade of the City of Chicago, the Chicago Mercantile Exchange, the International
Monetary Market (a division of the Chicago Mercantile Exchange), the New York
Futures Exchange and the Kansas City Board of Trade. Each exchange guarantees
performance under contract provisions through a clearing corporation, a
nonprofit organization managed by the exchange membership, which is also
responsible for handling daily accounting of deposits or withdrawals of margin.
A futures commission merchant ("Broker") effects each transaction in connection
with futures contracts for a commission. Futures exchanges and trading are
regulated under the Commodity Exchange Act by the Commodity Futures Trading
Commission ("CFTC") and National Futures Association ("NFA").
INTEREST RATE FUTURES CONTRACTS
The sale of an interest rate futures contract creates an obligation by
the Fund, as seller, to deliver the type of financial instrument specified in
the contract at a specified future time for a specified price. The purchase of
an interest rate futures contract creates an obligation by the Fund, as
purchaser, to accept delivery of the type of financial instrument specified at a
specified future time for a specified price. The specific securities delivered
or accepted, respectively, at settlement date, are not determined until at or
near that date. The determination is in accordance with the rules of the
exchange on which the futures contract sale or purchase was made.
Currently interest rate futures contracts can be purchased or sold on
90-day U.S. Treasury bills, U.S. Treasury bonds, U.S. Treasury notes with
maturities between 6 1/2 and 10 years, Government National Mortgage Association
("GNMA") certificates, 90-day domestic bank certificates of deposit, 90-day
commercial paper, and 90-day Eurodollar certificates of deposit. It is expected
that futures contracts trading in additional financial instruments will be
authorized. The standard contract size is $100,000 for futures contracts in U.S.
Treasury bonds, U.S. Treasury notes and GNMA certificates, and $1,000,000 for
the other designated contracts. While U.S. Treasury bonds, U.S. Treasury bills
and U.S. Treasury notes are backed by the full faith and credit of the U.S.
government and GNMA certificates are guaranteed by a U.S. government agency, the
futures contracts in U.S. government securities are not obligations of the U.S.
Treasury.
INDEX BASED FUTURES CONTRACTS, 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 Fund will sell interest rate index and
other index based futures contracts to hedge against changes which are expected
to affect the Fund's portfolio.
The purchase or sale of a futures contract differs from the purchase or
sale of a security, in that no price or premium is paid or received. Instead, to
initiate trading an amount of cash, cash equivalents, money market instruments,
or U.S. Treasury bills equal to approximately 1 1/2% (up to 5%) of the contract
amount must be deposited by the Fund with the Broker. This amount is known as
initial margin. The nature of initial margin in futures transactions is
different from that of margin in security transactions. Futures contract margin
does not involve the borrowing of funds by the customer to finance the
transactions. Rather, the initial margin is in the nature of a performance bond
or good faith deposit on the contract which is returned to the Fund upon
termination of the futures contract assuming all contractual obligations have
been satisfied. The margin required for a particular futures contract is set by
the exchange on which the contract is traded and may be significantly modified
from time to time by the exchange during the term of the contract.
Subsequent payments, called variation margin, to the Broker and from
the Broker, are made on a daily basis as the value of the underlying instrument
or index fluctuates making the long and short positions in the futures contract
more or less valuable, a process known as mark-to-market. For example, when the
Fund has purchased a futures contract and the price of the underlying financial
instrument or index has risen, that position will have increased in value, and
the Fund will receive from the Broker a variation margin payment equal to that
increase in value. Conversely, where the Fund has purchased a futures contract
and the price of the underlying financial instrument or index has declined, the
position would be less valuable and the Fund would be required to make a
variation margin payment to the Broker. At any time prior to expiration of the
futures contract, the Fund may elect to close the position. A final
determination of variation margin is then made, additional cash is required to
be paid to or released by the Broker, and the Fund realizes a loss or gain.
The Fund intends to enter into arrangements with its custodian and with
Brokers to enable the initial margin of the 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 the Fund enters into a futures contract purchase for the
same aggregate amount of the specific type of financial instrument or index and
same delivery date. If the price in the sale exceeds the price in the offsetting
purchase, the Fund is paid the difference and thus realizes a gain. If the
offsetting purchase price exceeds the sale price, the Fund pays the difference
and realizes a loss. Similarly, the closing out of a futures contract purchase
is effected by an offsetting transaction in which the Fund enters into a futures
contract sale. If the offsetting sale price exceeds the purchase price, the Fund
realizes a gain. If the purchase price exceeds the offsetting sale price the
Fund realizes a loss. The amount of the Fund's gain or loss on any transaction
is reduced or increased, respectively, by the amount of any transaction costs
incurred by the Fund.
As an example of an offsetting transaction, the contractual obligations
arising from the sale of one contract of September U.S. Treasury bills on an
exchange may be fulfilled at any time before delivery of the contract is
required (i.e. on a specified date in September, the "delivery month") by the
purchase of one contract of September U.S. Treasury bills on the same exchange.
In such instance the difference between the price at which the futures contract
was sold and the price paid for the offsetting purchase, after allowance for
transaction costs, represents the profit or loss to the Fund.
There can be no assurance, however, that the Fund will be able to enter
into an offsetting transaction with respect to a particular contract at a
particular time. If the Fund is not able to enter into an offsetting
transaction, the Fund will continue to be required to maintain the margin
deposits on the contract and to complete the contract according to its terms.
OPTIONS ON FINANCIAL FUTURES
The Fund intends 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 Fund intends to use options on financial futures contracts in
connection with hedging strategies. In the future, when permitted by applicable
law, the Fund 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 the Fund. Put options may be purchased to hedge a portfolio
of stocks or debt instruments or a position in the futures contract upon which
the put option is based.
PURCHASE OF CALL OPTIONS ON FUTURES CONTRACTS
The purchase of 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 the Fund is not fully invested.
USE OF NEW INVESTMENT TECHNIQUES INVOLVING FINANCIAL FUTURES CONTRACTS OR
RELATED OPTIONS
The Fund may employ new investment techniques involving financial
futures contracts and related options. The Fund intends to take advantage of new
techniques in these areas which may be developed from time to time and which are
consistent with the Fund's investment objective. The Fund believes that no
additional techniques have been identified for employment by the Fund in the
foreseeable future other than those described above.
LIMITATIONS ON PURCHASE AND SALE OF FUTURES CONTRACTS AND RELATED OPTIONS ON
SUCH FUTURES CONTRACTS
The Fund will not enter into a futures contract if, as a result
thereof, more than 5% of the Fund's total assets (taken at market value at the
time of entering into the contract) would be committed to margin deposits on
such futures contracts.
The Fund intends that its futures contracts and related options
transactions will be entered into for traditional hedging purposes. That is,
futures contracts will be sold to protect against a decline in the price of
securities that the Fund owns, or futures contracts will be purchased to protect
the Fund against an increase in the price of securities it intends to purchase.
The Fund does not intend to enter into futures contracts for speculation.
In instances involving the purchase of futures contracts by the Fund,
an amount of cash and cash equivalents, equal to the market value of the futures
contracts will be deposited in a segregated account with the Fund's custodian
and/or in a margin account with a Broker to collateralize the position and
thereby insure that the use of such futures is unleveraged.
FEDERAL INCOME TAX TREATMENT
For federal income tax purposes, the Fund is required to recognize as
income for each taxable year its net unrealized gains and losses on futures
contracts as of the end of the year as well as those actually realized during
the year. Any gain or loss recognized with respect to a futures contract or
option is considered to be 60% long term and 40% short term, without regard to
the holding period of the contract. In the case of a futures transaction
classified as a "mixed straddle," the recognition of losses may be deferred to a
later taxable year. The federal income tax treatment of gains or losses from
transactions in options on futures is unclear.
In order for the Fund to continue to qualify for federal income tax
treatment as a regulated investment company, at least 90% of its gross income
for a taxable year must be derived from qualifying income. Any net gain realized
from the closing out of futures contracts, for purposes of the 90% requirement,
will be qualifying income. In addition, gains realized on the sale or other
disposition of securities held for less than three months must be limited to
less than 30% of the Fund's annual gross income. The 1986 Tax Act added a
provision which effectively treats both positions in certain hedging
transactions as a single transaction for the purpose of the 30% requirement. The
provision provides that, in the case of any "designated hedge," increases and
decreases in the value of positions of the hedge are to be netted for the
purposes of the 30% requirement. However, in certain situations, in order to
avoid realizing a gain within a three month period, the Fund may be required to
defer the closing out of a contract beyond the time when it would otherwise be
advantageous to do so.
RISKS OF FUTURES CONTRACTS
Financial futures contracts prices are volatile and are influenced,
among other things, by changes in stock prices, market conditions, prevailing
interest rates and anticipation of future stock prices, market movements or
interest rate changes, all of which in turn are affected by economic conditions,
such as government fiscal and monetary policies and actions, and national and
international political and economic events.
At best, the correlation between changes in prices of futures contracts
and of the securities being hedged can be only approximate. The degree of
imperfection of correlation depends upon circumstances, such as variations in
speculative market demand for futures contracts and for securities, including
technical influences in futures contracts trading; differences between the
securities being hedged and the financial instruments and indexes underlying the
standard futures contracts available for trading, in such respects as interest
rate levels, maturities and credit-worthiness of issuers, or identities of
securities comprising the index and those in the Fund's portfolio. In addition
futures contract transactions involve the remote risk that a party be unable to
fulfill its obligations and that the amount of the obligation will be beyond the
ability of the clearing broker to satisfy. A decision of whether, when and how
to hedge involves the exercise of skill and judgment, and even a well conceived
hedge may be unsuccessful to some degree because of market behavior or
unexpected interest rate trends.
Because of the low margin deposits required, futures trading involves
an extremely high degree of leverage. As a result, a relatively small price
movement in a futures contract may result in immediate and substantial loss, as
well as gain, to the investor. For example, if at the time of purchase, 10% of
the value of the futures contract is deposited as margin, a 10% decrease in the
value of the futures contract would result in a total loss of the margin
deposit, before any deduction for the transaction costs, if the account were
then closed out, and a 15% decrease would result in a loss equal to 150% of the
original margin deposit. Thus, a purchase or sale of a futures contract may
result in losses in excess of the amount invested in the futures contract.
However, the Fund would presumably have sustained comparable losses if, instead
of entering into the futures contract, it had invested in the underlying
financial instrument. Furthermore, in order to be certain that the Fund has
sufficient assets to satisfy its obligations under a futures contract, the Fund
will establish a segregated account in connection with its futures contracts
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. The Fund will not purchase
options on any futures contract unless and until it believes that the market for
such options has developed sufficiently that the risks in connection with such
options are not greater than the risks in connection with the futures contracts.
Compared to the use of futures contracts, the purchase of options on such
futures involves less potential risk to the Fund because the maximum amount at
risk is the premium paid for the options (plus transaction costs). However,
there may be circumstances when the use of an option on a futures contract would
result in a loss to the Fund, even though the use of a futures contract would
not, such as when there is no movement in the level of the futures contract.
#10160660
<PAGE>
SCHEDULE OF INVESTMENTS--September 30, 1995
<TABLE>
<CAPTION>
Interest Maturity Face Market
Rate Date Amount Value
===============================================================================================================
<S> <C> <C> <C> <C>
ADJUSTABLE RATE MORTGAGE SECURITIES (91.9%)
FHLMC (38.5%)
FHLMC Pool #605386, Cap 12.890%, Margin 2.114% + CMT,
Resets Annually 7.736% 09/01/17 $ 2,809,768 $ 2,886,587
FHLMC Pool #605343, Cap 13.604%, Margin 2.125% + CMT,
Resets Annually 7.782 03/01/19 3,547,819 3,645,384
FHLMC Pool #645062, Cap 14.110%, Margin 2.337% + CMT,
Resets Annually 7.788 05/01/19 252,823 257,326
FHLMC Pool #785114, Cap 13.280%, Margin 2.125% + CMT,
Resets Annually 8.204 07/01/19 209,845 215,976
FHLMC Pool #865220, Cap 15.060%, Margin 2.345% + CMT,
Resets Annually 7.785 04/01/20 1,062,056 1,080,217
FHLMC Pool #785147, Cap 12.783%, Margin 2.015% + CMT,
Resets Annually 7.988 05/01/20 93,813 95,000
FHLMC Pool #845039, Cap 12.463%, Margin 2.080% + CMT,
Resets Annually 7.612 10/01/21 5,479,396 5,623,230
FHLMC Pool #606679, Cap 12.052%, Margin 2.159% + CMT,
Resets Annually 7.566 10/01/21 2,098,487 2,154,222
FHLMC Pool #845049, Cap 12.678%, Margin 2.183% + CMT,
Resets Annually 7.767 11/01/21 1,590,569 1,637,292
FHLMC Pool #845063, Cap 12.050%, Margin 2.174% + CMT,
Resets Annually 7.750 11/01/21 4,974,545 5,120,673
FHLMC Pool #845070, Cap 11.924%, Margin 2.127% + CMT,
Resets Annually 7.691 01/01/22 7,088,968 7,323,791
FHLMC Pool #845082, Cap 12.350%, Margin 1.997% + CMT,
Resets Annually 7.687 03/01/22 2,615,112 2,677,221
- ---------------------------------------------------------------------------------------------------------------
TOTAL FHLMC 32,716,919
===============================================================================================================
FNMA (53.4%)
FNMA Pool #094564, Cap 15.859%, Margin 1.975% + CMT,
Resets Annually 7.551 01/01/16 3,200,836 3,283,866
FNMA Pool #092086, Cap 15.445%, Margin 2.075% + CMT,
Resets Annually 8.208 10/01/16 1,248,478 1,276,569
FNMA Pool #070033, Cap 14.352%, Margin 1.750% + CMT,
Resets Annually 7.335 10/01/17 1,016,146 1,033,929
FNMA Pool #070119, Cap 12.021%, Margin 2.000% + CMT,
Resets Annually 7.802 11/01/17 4,056,580 4,185,883
FNMA Pool #062610, Cap 12.750%, Margin 2.125% + CMT,
Resets Annually 8.125 06/01/18 481,151 497,991
FNMA Pool #090678, Cap 13.136%, Margin 2.177% + CMT,
Resets Annually 7.747 09/01/18 5,693,198 5,883,579
</TABLE>
See Notes to Schedule of Investments. (continued on next page)
<PAGE>
- -------------------------------------------------------------------------------
Keystone Capital Preservation and Income Fund
SCHEDULE OF INVESTMENTS--September 30, 1995
<TABLE>
<CAPTION>
Interest Maturity Face Market
Rate Date Amount Value
===============================================================================================================
<S> <C> <C> <C> <C>
FNMA (continued)
FNMA Pool #124015, Cap 13.307%, Margin 1.817% + CMT,
Resets Annually 7.580% 11/01/18 $ 2,178,811 $ 2,221,363
FNMA Pool #114714, Cap 12.603%, Margin 1.750% + CMT,
Resets Annually 7.441 03/01/19 427,887 435,507
FNMA Pool #105007, Cap 13.165%, Margin 2.030% + CMT,
Resets Annually 7.940 07/01/19 393,903 399,568
FNMA Pool #095405, Cap 13.738%, Margin 2.068% + CMT,
Resets Annually 7.853 12/01/19 2,252,023 2,318,176
FNMA Pool #102905, Cap 13.071%, Margin 2.000% + CMT,
Resets Annually 8.025 07/01/20 1,127,214 1,155,744
FNMA Pool #124289, Cap 13.425%, Margin 2.005% + CMT,
Resets Annually 7.696 09/01/21 10,673,033 10,956,509
FNMA Pool #124204, Cap 13.506%, Margin 2.026% + CMT,
Resets Annually 7.644 01/01/22 2,606,214 2,682,785
FNMA Pool #238847, Cap 13.334%, Margin 2.317% + CMT,
Resets Annually 8.023 06/01/31 8,775,760 9,082,912
- ---------------------------------------------------------------------------------------------------------------
TOTAL FNMA 45,414,381
===============================================================================================================
TOTAL ADJUSTABLE RATE MORTGAGE SECURITIES (COST--$78,479,966) 78,131,300
===============================================================================================================
FIXED RATE MORTGAGE SECURITIES (3.6%)
FHLMC (1.2%)
FHLMC CMO, Series 11 Class 11C (Est. Mat. 1997) (b) 9.500 04/15/19 47,275 48,560
FHLMC CMO, Series 41 Class 41E (Est. Mat. 1996) (b) 10.000 08/15/19 968,164 977,545
- ---------------------------------------------------------------------------------------------------------------
TOTAL FHLMC 1,026,105
===============================================================================================================
FNMA (1.6%)
FNMA Pool #058442 11.000 01/01/18 1,263,837 1,392,445
- ---------------------------------------------------------------------------------------------------------------
GNMA (0.8%)
GNMA Pool #265405 10.000 03/15/04 142,567 149,828
GNMA Pool #265615 10.000 03/15/04 43,598 45,818
GNMA Pool #272915 10.000 04/15/04 57,335 60,255
GNMA Pool #185579 10.000 05/15/04 46,914 49,304
GNMA Pool #258327 10.000 05/15/04 168,026 176,584
GNMA Pool #258340 10.000 05/15/04 147,770 155,296
- ---------------------------------------------------------------------------------------------------------------
TOTAL GNMA 637,085
===============================================================================================================
TOTAL FIXED RATE MORTGAGE SECURITIES (COST--$3,093,211) 3,055,635
===============================================================================================================
</TABLE>
See Notes to Schedule of Investments.
<PAGE>
- -------------------------------------------------------------------------------
SCHEDULE OF INVESTMENTS--September 30, 1995
<TABLE>
<CAPTION>
Interest Maturity Face Market
Rate Date Amount Value
===============================================================================================================
<S> <C> <C> <C> <C>
U.S. GOVERNMENT ISSUES (2.1%)
U.S. Treasury Notes (Cost--$1,753,555) 6.000% 08/31/97 $ 1,750,000 $ 1,754,375
- ---------------------------------------------------------------------------------------------------------------
<CAPTION>
Maturity
Value
===============================================================================================================
<S> <C> <C> <C> <C>
REPURCHASE AGREEMENT (1.4%)
Keystone Joint Repurchase Agreement (Investments in
repurchase agreements, in a joint trading account,
purchased 9/29/95) (c) (Cost--$1,223,000) 6.391 10/02/95 1,223,651 1,223,000
===============================================================================================================
TOTAL INVESTMENTS (COST--$84,549,732) (a) 84,164,310
===============================================================================================================
OTHER ASSETS AND LIABILITIES--NET (1.0%) 881,874
===============================================================================================================
NET ASSETS (100.0%) $85,046,184
===============================================================================================================
</TABLE>
NOTES TO SCHEDULE OF INVESTMENTS
(a) The cost of investments for federal income tax purposes is identical to
book basis. Gross unrealized appreciation and depreciation of
investments, based on identified tax cost at September 30, 1995 are as
follows:
<TABLE>
<CAPTION>
<S> <C>
Gross unrealized appreciation $ 76,897
Gross unrealized depreciation (462,319)
--------
Net unrealized appreciation (depreciation) $(385,422)
========
</TABLE>
(b) The estimated maturity of a Collateralized Mortgage Obligation ("CMO") is
based on current and projected pre-payment rates. Changes in interest
rates can cause the estimated maturity to differ from the listed dates.
These estimated maturity dates are unaudited.
(c) The repurchase agreements are fully collateralized by U.S. government
and/or agency obligations based on market prices at September 30, 1995.
Legend of Portfolio Abbreviations:
CMO--Collateralized Mortgage Obligation
CMT--1, 3, or 5 year Constant Maturity Treasury Index
FHLMC--Federal Home Loan Mortgage Corporation
FNMA--Federal National Mortgage Association
GNMA--Government National Mortgage Association
See Notes to Financial Statements.
<PAGE>
- -------------------------------------------------------------------------------
Keystone Capital Preservation and Income Fund
FINANCIAL HIGHLIGHTS--CLASS A SHARES
(For a share outstanding throughout the period)
<TABLE>
<CAPTION>
December 30, 1994
(Date of Initial
Public Offering) to
September 30, 1995
=============================================================================
<S> <C>
Net asset value beginning of period $ 9.51
- -----------------------------------------------------------------------------
Income from investment operations:
Net investment income 0.46
Net realized and unrealized gain (loss) on
investments 0.14
- -----------------------------------------------------------------------------
Total from investment operations 0.60
- -----------------------------------------------------------------------------
Less distributions from:
Net investment income (0.42)
In excess of net investment income (0.01)
- -----------------------------------------------------------------------------
Total distributions (0.43)
- -----------------------------------------------------------------------------
Net asset value end of period $ 9.68
=============================================================================
Total return (a) 6.36%
Ratios/supplemental data
Ratios to average net assets:
Total expenses (b) 0.86%(c)(d)
Net investment income 6.37%(d)
Portfolio turnover rate 67%
- -----------------------------------------------------------------------------
Net assets end of period (thousands) $19,293
=============================================================================
</TABLE>
(a) Excluding applicable sales charges.
(b) Figures are net of expense reimbursement by Keystone in connection with
the voluntary expense limitation. Before the expense reimbursement, the
"Ratio of total expenses to average net assets" would have been 1.27%
(annualized) for the period December 30, 1994 (Date of Initial Public
Offering) to September 30, 1995.
(c) "Ratio of total expenses to average net assets" for the period ended
September 30, 1995 includes indirectly paid expenses. Excluding
indirectly paid expenses for the period December 30, 1994 (Date of
Initial Public Offering) to September 30, 1995, the expense ratio would
have been 0.82% (annualized).
(d) Annualized.
See Notes to Financial Statements.
<PAGE>
FINANCIAL HIGHLIGHTS--CLASS B SHARES
(For a share outstanding throughout the period)
<TABLE>
<CAPTION>
July 1, 1991
(Commencement
of Operations) to
Year Ended September 30, September 30,
1995 1994 1993 1992 1991
========================================================================================================
<S> <C> <C> <C> <C> <C>
Net asset value beginning of year $ 9.62 $ 9.91 $ 9.88 $ 10.06 $ 10.00
- --------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income 0.52 0.47 0.45 0.58 0.18
Net realized and unrealized gain (loss)
on investments 0.03 (0.41) (0.05) (0.21) 0.06
- --------------------------------------------------------------------------------------------------------
Total from investment operations 0.55 0.06 0.40 0.37 0.24
- --------------------------------------------------------------------------------------------------------
Less distributions from:
Net investment income (0.48) (0.34) (0.37) (0.55) (0.18)
In excess of net investment income (0.01) (0.01) 0 0 0
- --------------------------------------------------------------------------------------------------------
Total distributions (0.49) (0.35) (0.37) (0.55) (0.18)
- --------------------------------------------------------------------------------------------------------
Net asset value end of year $ 9.68 $ 9.62 $ 9.91 $ 9.88 $ 10.06
========================================================================================================
Total return (a) 5.81% 0.58% 4.16% 3.71% 2.43%
Ratios/supplemental data
Ratios to average net assets:
Total expenses (b) 1.53%(c) 1.50% 1.50% 1.36% 1.19%(d)
Net investment income 5.46% 4.05% 4.44% 5.50% 6.42%(d)
Portfolio turnover rate 67% 34% 60% 41% 2%
- --------------------------------------------------------------------------------------------------------
Net assets end of year (thousands) $62,998 $95,761 $144,725 $186,742 $25,769
========================================================================================================
</TABLE>
(a) Excluding applicable sales charges.
(b) Figures are net of expense reimbursement by Keystone in connection with
the voluntary expense limitation. Before the expense reimbursement, the
"Ratio of total expenses to average net assets" would have been 2.09%,
1.93%, 1.94%, 2.03%, and 3.19% (annualized) for the years ended September
30, 1995, 1994, 1993, 1992, and the period July 1, 1991 (Commencement of
Operations) to September 30, 1991, respectively.
(c) "Ratio of total expenses to average net assets" for the year ended
September 30, 1995 includes indirectly paid expenses. Excluding
indirectly paid expenses for the year ended September 30, 1995, the
expense ratio would have been 1.50%.
(d) Annualized.
See Notes to Financial Statements.
<PAGE>
- -------------------------------------------------------------------------------
Keystone Capital Preservation and Income Fund
FINANCIAL HIGHLIGHTS--CLASS C SHARES
(For a share outstanding throughout the period)
<TABLE>
<CAPTION>
February 1, 1993
Year Ended (Date of Initial
September 30, Public Offering) to
1995 1994 September 30, 1993
==============================================================================================
<S> <C> <C> <C>
Net asset value beginning of year $ 9.60 $ 9.90 $ 9.82
- ----------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income 0.52 0.40 0.23
Net realized and unrealized gain (loss) on
investment 0.04 (0.35) 0.09
- ----------------------------------------------------------------------------------------------
Total from investment operations 0.56 0.05 0.32
- ----------------------------------------------------------------------------------------------
Less distributions from:
Net investment income (0.48) (0.34) (0.24)
In excess of net investment income (0.01) (0.01) 0
- ----------------------------------------------------------------------------------------------
Total distributions (0.49) (0.35) (0.24)
- ----------------------------------------------------------------------------------------------
Net asset value end of year $ 9.67 $ 9.60 $ 9.90
==============================================================================================
Total return (a) 5.93% 0.48% 3.28%
Ratios/supplemental data
Ratios to average net assets:
Total expenses (b) 1.53%(c) 1.50% 1.50%(d)
Net investment income 5.51% 4.08% 2.91%(d)
Portfolio turnover rate 67% 34% 60%
- ----------------------------------------------------------------------------------------------
Net assets end of year (thousands) $2,755 $2,874 $2,077
==============================================================================================
</TABLE>
(a) Excluding applicable sales charges.
(b) Figures are net of expense reimbursement by Keystone in connection with
the voluntary expense limitation. Before the expense reimbursement, the
"Ratio of total expenses to average net assets" would have been 2.08%,
1.94% and 1.67% (annualized) for the years ended September 30, 1995, 1994
and the period February 1, 1993 (Date of Initial Public Offering) to
September 30, 1993, respectively.
(c) "Ratio of total expenses to average net assets" for the year ended
September 30, 1995 includes indirectly paid expenses. Excluding
indirectly paid expenses for the year ended September 30, 1995, the
expense ratio would have been 1.50%.
(d) Annualized.
See Notes to Financial Statements.
<PAGE>
- -------------------------------------------------------------------------------
STATEMENT OF ASSETS AND LIABILITIES
September 30, 1995
<TABLE>
<CAPTION>
<S> <C>
===================================================================
Assets (Notes 1 and 4):
Investments at market value (identified
cost--$84,549,732) $84,164,310
Cash 851
Receivable for:
Principal paydown 708,751
Interest 754,978
Fund shares sold 24,140
Due from Investment Advisor 53,272
Unamortized organization expenses 3,896
Prepaid expenses and other assets 3,734
- -------------------------------------------------------------------
Total assets 85,713,932
- -------------------------------------------------------------------
Liabilities (Notes 2 and 4):
Payable for:
Fund shares redeemed 187,990
Distributions to shareholders 408,294
Commissions payable to Principal Underwriter 5,625
Transfer agent fees payable 12,781
Accrued reimbursable expenses 2,001
Other accrued expenses 51,057
- -------------------------------------------------------------------
Total liabilities 667,748
- -------------------------------------------------------------------
Net assets $85,046,184
===================================================================
Net assets represented by (Note 1):
Paid-in capital $92,980,379
Distributions in excess of net investment income (415,117)
Accumulated net realized gain (loss) on
investments (7,133,656)
Net unrealized appreciation (depreciation) on
investments (385,422)
- -------------------------------------------------------------------
Total net assets $85,046,184
- -------------------------------------------------------------------
Net Asset Value (Notes 1 and 2):
Class A Shares
Net assets of $19,293,209/1,993,700 shares
outstanding $9.68
Offering price per share ($9.68/0.97) (based on
a sales charge of 3.00% of the offering price
at September 30, 1995) $9.98
Class B Shares
Net assets of $62,997,920/6,509,082 shares
outstanding $9.68
Class C Shares
Net assets of $2,755,055/285,040 shares
outstanding $9.67
===================================================================
</TABLE>
<PAGE>
STATEMENT OF OPERATIONS
Year Ended September 30, 1995
<TABLE>
<CAPTION>
<S> <C> <C>
===================================================================
Investment income (Note 1):
Interest $ 6,619,373
- -------------------------------------------------------------------
Expenses (Notes 2 and 4):
Management fee $ 605,247
Transfer agent fees 177,284
Accounting, auditing, and legal
fees 50,970
Custodian fees 83,965
Printing 22,535
Distribution Plan expenses 825,370
Registration fees 53,531
Amortization of organization
expenses 12,215
Insurance expenses 4,906
Miscellaneous 9,060
Reimbursement from investment
adviser (503,005)
- -------------------------------------------------------------------
Total expenses 1,342,078
Less: Expenses paid indirectly
(Note 4) (30,773)
- -------------------------------------------------------------------
Net expenses 1,311,305
- -------------------------------------------------------------------
Net investment income 5,308,068
- -------------------------------------------------------------------
Net realized and unrealized gain (loss) on
investments (Notes 1 and 3):
Net realized gain (loss) on
investments (1,162,200)
Net change in unrealized
appreciation (depreciation) on
investments 1,169,382
- -------------------------------------------------------------------
Net realized and unrealized gain
(loss) on investments 7,182
- -------------------------------------------------------------------
Net increase (decrease) in net
assets resulting from operations $ 5,315,250
===================================================================
</TABLE>
See Notes to Financial Statements.
<PAGE>
- -------------------------------------------------------------------------------
Keystone Capital Preservation and Income Fund
STATEMENTS OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
Year ended September 30,
1995 1994
===================================================================================================================
<S> <C> <C>
Operations (Notes 1 and 3):
Net investment income $ 5,308,068 $ 4,985,154
Net realized gain (loss) on investments (1,162,200) (1,149,491)
Net change in unrealized appreciation (depreciation) on
investments 1,169,382 (3,057,603)
- -------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in net assets resulting from operations 5,315,250 778,060
- -------------------------------------------------------------------------------------------------------------------
Distributions to shareholders from (Note 1):
Net investment income:
Class A Shares (909,585) 0
Class B Shares (3,706,229) (4,106,725)
Class C Shares (143,406) (110,103)
In excess of net investment income:
Class A Shares (26,148) 0
Class B Shares (106,543) (102,697)
Class C Shares (4,122) (3,081)
- -------------------------------------------------------------------------------------------------------------------
Total distributions to shareholders (4,896,033) (4,322,606)
- -------------------------------------------------------------------------------------------------------------------
Capital share transactions (Note 2):
Shares issued in connection with acquisition of Keystone America
Capital Preservation and Income Fund--Class A (Note 5) 23,825,980 0
Proceeds from shares sold:
Class A Shares 699,481 0
Class B Shares 26,668,622 5,381,706
Class C Shares 1,440,686 4,231,471
Payments for shares redeemed:
Class A Shares (6,023,682) 0
Class B Shares (62,204,625) (53,383,466)
Class C Shares (1,696,123) (3,402,642)
Net asset value of shares issued in reinvestment of dividends and distributions:
Class A Shares 689,075 0
Class B Shares 2,480,740 2,480,644
Class C Shares 111,984 69,654
- -------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in net assets resulting from capital
share transactions (14,007,862) (44,622,633)
- -------------------------------------------------------------------------------------------------------------------
Total increase (decrease) in net assets (13,588,645) (48,167,179)
- -------------------------------------------------------------------------------------------------------------------
Net assets:
Beginning of year 98,634,829 146,802,008
- -------------------------------------------------------------------------------------------------------------------
End of year [including distributions in excess of net investment
income as follows: September 30, 1995--($415,117), September
30, 1994--($327,922)] (Note 1) $ 85,046,184 $ 98,634,829
===================================================================================================================
</TABLE>
See Notes to Financial Statements.
<PAGE>
- -------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS
(1.) Significant Accounting Policies
Keystone Capital Preservation and Income Fund (formerly Keystone America
Capital Preservation and Income Fund II) (the "Fund") is a Massachusetts
business trust for which Keystone Investment Management Company (formerly
Keystone Custodian Funds, Inc.) ("Keystone") is the Investment Advisor and
Manager. The Fund was organized on December 19, 1990 and had no operations
prior to July 1, 1991. It is registered under the Investment Company Act of
1940, as amended (the "1940 Act"), as a diversified open-end investment
company.
The Fund currently offers three classes of shares. Class A shares are sold
subject to a maximum sales charge of 3.00% of the amount invested payable at
the time of purchase. Class B shares are sold subject to a contingent
deferred sales charge payable upon redemption which decreases depending on
when the shares were purchased and how long the shares have been held. Class
C shares are sold subject to a contingent deferred sales charge payable upon
redemption within one year after purchase, and are available only through
dealers who have entered into special distribution agreements with Keystone
Investment Distributors Company (formerly Keystone Distributors, Inc.)
("KIDC"), the Fund's principal underwriter.
Keystone is a wholly-owned subsidiary of Keystone Investments, Inc. (formerly
Keystone Group, Inc.) ("KII"), a Delaware corporation. KII is privately owned
by an investor group consisting of current and former members of management
of Keystone. Keystone Investor Resource Center, Inc. ("KIRC"), a wholly-owned
subsidiary of Keystone, is the Fund's transfer agent.
The following is a summary of significant accounting policies consistently
followed by the Fund in the preparation of its financial statements. The
policies are in conformity with generally accepted accounting principles.
A. U.S. Government agency securities and certificates are traded in the
over-the-counter market and are valued at the mean of bid and asked prices at
the time of valuation. Short-term investments 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 for which market quotations are readily
available are valued at current market value. Management values the following
securities at prices it deems in good faith to be fair: (a) securities
(including restricted securities) for which complete quotations are not
readily available and (b) listed securities if, in the opinion of management,
the last sales price does not reflect a current value, or if no sale
occurred.
B. Securities transactions are accounted for no later than one business day
after the trade date. Realized gains and losses are computed on the
identified cost basis. Interest income is recorded on the accrual basis. All
discounts are amortized for both financial reporting and federal income tax
purposes. Distributions to shareholders are recorded by the Fund at the close
of business on the ex-dividend date.
<PAGE>
- -------------------------------------------------------------------------------
Keystone Capital Preservation and Income Fund
C. The Fund has qualified and intends to qualify in the future as a regulated
investment company under the Internal Revenue Code of 1986, as amended
("Internal Revenue Code"). Thus, the Fund expects to be relieved of any
federal income or excise tax liability by distributing all of its net taxable
investment income and net taxable capital gains, if any, to its shareholders.
The Fund intends to avoid any excise tax liability by making the required
distributions under the Internal Revenue Code. Any distribution which is
declared before December 31 and paid before the next February 1 will be
taxable to the shareholder in the year declared.
D. When the Fund enters into a repurchase agreement (a purchase of securities
whereby the seller agrees to repurchase the securities at a mutually agreed
upon date and price) the repurchase price of the securities will generally
equal the amount paid by the Fund plus a negotiated interest amount. The
seller under the repurchase agreement will be required to provide securities
("collateral") to the Fund whose value will be maintained at an amount not
less than the repurchase price, and which generally will be maintained at
101% of the repurchase price. The Fund monitors the value of collateral on a
daily basis, and if the value of collateral falls below required levels, the
Fund intends to seek additional collateral from the seller or terminate the
repurchase agreement. If the seller defaults, the Fund would suffer a loss to
the extent that the proceeds from the sale of the underlying securities were
less than the repurchase price. Any such loss would be increased by any cost
incurred on disposing of such securities. If bankruptcy proceedings are
commenced against the seller under the repurchase agreement, the realization
on the collateral may be delayed or limited. Repurchase agreements entered
into by the Fund will be limited to transactions with dealers or domestic
banks believed to present minimal credit risks, and the Fund will take
constructive receipt of all securities underlying repurchase agreements until
such agreements expire.
Pursuant to an exemptive order issued by the Securities and Exchange
Commission, the Fund, along with certain other Keystone funds, may transfer
uninvested cash balances into a joint trading account. These balances are
invested in one or more repurchase agreements that are fully collateralized
by U.S. Treasury and/or Federal Agency obligations.
E. 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 amortized 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.
F. The 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, to shareholders
annually.
Distributions are determined in accordance with income tax regulations.
Distributions from taxable net investment income and net capital gains can
exceed book basis net investment income and net capital gains.
Differences between book basis net investment income available for
distribution and tax basis net investment income available for distribution
are primarily attributable to differences in the treatment of paydown gains
and losses.
(2.) Capital Share Transactions
The Trust Agreement authorizes the issuance of an unlimited number of
shares of beneficial interest without par value. Transactions in shares of
the Fund were as follows:
<PAGE>
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Class A Shares
December 30, 1994
(Date of Initial Public Offering)
to September 30, 1995
- ------------------------------------------------------------------------
<S> <C>
Shares issued in
connection with
acquisition of
Keystone America
Capital Preservation
and Income Fund
(Note 5) 2,506,041
Shares sold 72,460
Shares redeemed (656,221)
Shares issued in
reinvestment of
dividends and
distributions 71,420
- ------------------------------------------------------------------------
Net increase
(decrease) 1,993,700
========================================================================
</TABLE>
<TABLE>
<CAPTION>
Class B Shares
--------------------------
Year Ended September 30,
1995 1994
- ----------------------------------------------------
<S> <C> <C>
Shares sold 2,758,618 549,945
Shares redeemed (6,464,191) (5,448,882)
Shares issued in
reinvestment of
dividends and
distributions 257,649 253,073
- ----------------------------------------------------
Net increase
(decrease) (3,447,924) (4,645,864)
====================================================
</TABLE>
<TABLE>
<CAPTION>
Class C Shares
----------------------
Year Ended September 30,
1995 1994
- ------------------------------------------------
<S> <C> <C>
Shares sold 150,700 432,197
Shares redeemed (176,498) (349,958)
Shares issued in
reinvestment of
dividends and
distributions 11,638 7,141
- ------------------------------------------------
Net increase
(decrease) (14,160) 89,380
================================================
</TABLE>
The Fund bears some of the costs of selling its shares under a
Distribution Plan adopted with respect to its Class A, Class B and Class C
shares pursuant to Rule 12b-1 under the 1940 Act.
The Class A Distribution Plan provides for payments which are currently
limited to 0.25% annually of the average daily net asset value of Class A
shares to pay expenses for the distribution of Class A shares. Amounts paid
by the Fund to KIDC under the Class A Distribution Plan are currently used to
pay others, such as dealers, service fees at an annual rate of up to 0.25% of
the average net asset value of Class A shares maintained by the such others
and remaining outstanding on the Fund's books for specified periods.
The Class B Distribution Plan provides for payment at an annual rate of up
to 1.00% of the average daily net asset value of Class B shares to pay
expenses for the distribution of Class B shares. Amounts paid by the Fund
under the Class B Distribution Plan are currently used to pay others
(dealers) a commission at the time of purchase normally equal to 2.75% of the
value of each share sold plus the first year's service in the amount of 0.25%
of the price paid for each Class B share sold. Beginning approximately 12
months after the purchase of a Class B share, the dealer or other party will
receive service fees at an annual rate of 0.25% of the average daily net
asset value of such Class B shares maintained by such others and remaining
outstanding on the Fund's books for specified periods. A contingent deferred
sales charge will be imposed, if applicable, on Class B shares purchased
after June 1, 1995 at rates ranging from a maximum of 3% of amounts redeemed
during the first 12 months following the date of purchase to 1% of amounts
redeemed during the fourth twelve month period following the date of
purchase. Class B shares purchased on or after June 1, 1995 that have been
outstanding for 8 years following the month of pur-
<PAGE>
- -------------------------------------------------------------------------------
Keystone Capital Preservation and Income Fund
chase will automatically convert to Class A shares without a front-end sales
charge or exchange fee. Class B shares purchased prior to June 1, 1995 will
retain their existing conversion rights.
The Class C Distribution Plan provides for payments at an annual rate of
up to 1.00% of the average daily net asset value of Class C shares to pay
expenses for the distribution of Class C shares. Amounts paid by the Fund
under the Class C Distribution Plan are currently used to pay others
(dealers) a commission at the time of purchase in the amount of 0.75% of the
price paid for each Class C share sold, plus the first year's service fee in
advance in the amount of 0.25% of the price paid for each Class C share.
Beginning approximately 15 months after purchase the dealer or other party
will receive a commission at an annual rate of 0.75% (subject to applicable
limitations imposed by the rules of the National Association of Securities
Dealers, Inc.) ("NASD Rule") plus service fees at an annual rate of 0.25%,
respectively, of the average net asset value of each Class C share maintained
by such others and remaining outstanding on the books of the Fund for
specified periods.
Each of the Distribution Plans may be terminated at any time by vote of
the Independent Trustees or by vote of a majority of the outstanding voting
shares of the respective class. However, after the termination of any
Distribution Plan, at the discretion of the Independent Trustees, payments to
KIDC may continue as compensation for its services which had been earned
while the Distribution Plan was in effect.
During the period December 30, 1994 (Date of Initial Public Offering) to
September 30, 1995, the Fund paid or accrued to KIDC $34,962 under its Class
A Distribution Plan. During the year ended September 30, 1995, the Fund paid
or accrued to KIDC $759,804 for Class B shares sold prior to June 1, 1995 and
$1,553 for Class B shares sold on or after June 1, 1995. During the year
ended September 30, 1995, the Fund paid or accrued $29,051 under its Class C
Distribution Plan. These amounts represent 0.22% (annualized), 1.00% and
1.00%, respectively, of the average daily net assets of Class A, B and C.
Under the NASD Rule, the maximum uncollected amounts for which KIDC may
seek payment from the Fund under its Distribution Plans are $8,487,962 for
Class B shares purchased prior to June 1, 1995 and $42,766 for Class B shares
purchased on or after June 1, 1995 and $380,401 for Class C shares. These
amounts represent 13.54% and 13.81% of the net assets of Classes B and C,
respectively, as of September 30, 1995.
(3.) Securities Transactions
As of September 30, 1995 the Fund had a capital loss carryover for federal
income tax purposes of approximately $6,867,000 which expires as follows:
$59,000 in 1999, $34,000 in 2000, $5,935,000 in 2001, $197,000 in 2002, and
$642,000 in 2003.
Purchases and sales of investment securities (including proceeds received
at maturity) for the year ended September 30, 1995 were as follows:
<TABLE>
<CAPTION>
Cost of Proceeds
Purchases From Sales
- ----------------------------------------------------
<S> <C> <C>
Portfolio securities $ 60,428,326 $ 73,066,544
Short-term
investments 487,450,000 487,848,000
- ----------------------------------------------------
$547,878,326 $560,914,544
====================================================
</TABLE>
(4.) Investment Management Agreement and Other Transactions
Under the terms of the Investment Advisory and Management Agreement between
Keystone and the Fund, Keystone provided investment advisory and management
services to the Fund for the year ended September 30,
<PAGE>
- -------------------------------------------------------------------------------
1995. In return, Keystone was paid a management fee computed and payable
daily calculated at a rate of 2.0% of the Fund's gross investment income plus
an amount determined by applying percentage rates, starting at 0.50% and
declining as net assets increase to 0.25% per annum, to the net asset value
of the Fund. During the year ended September 30, 1995 the Fund paid or
accrued to Keystone investment management and advisory services fees of
$605,247, which represented 0.64% of the Fund's average net assets.
During the year ended September 30, 1995, the Fund paid or accrued to KII
$17,744 as reimbursement for the cost of certain accounting and printing
services provided to the Fund and $177,284 was paid or accrued to KIRC for
transfer agent fees.
The Fund is subject to certain state annual expense limits, the most
restrictive of which is as follows: 2.5% of the first $30 million of Fund
assets, 2.0% of the next $70 million of Fund assets, and 1.5% of Fund assets
over $100 million.
Keystone voluntarily agreed to reimburse all expenses incurred by the Fund
in excess of certain expense limitations. In accordance with this voluntary
expense limitation, Keystone reimbursed the Fund $65,140 for Class A Shares
for the period December 30, 1994 (Date of Initial Public Offering) to
September 30, 1995. For the year ended September 30, 1995 Keystone reimbursed
the Fund $421,990 and $15,875 for Class B Shares and Class C Shares,
respectively. Keystone does not intend to seek repayment for these amounts.
The Fund has entered into an expense offset arrangement with its
custodian. For the year ended September 30, 1995, the Fund paid custody fees
in the amount of $53,192 and received a credit of $30,773 pursuant to the
expense offset arrangement, resulting in a total expense of $83,965. The
assets deposited with the custodian under this expense offset arrangement
could have been invested in an income- producing asset.
Certain officers and/or Directors of Keystone are also officers and/or
Trustees of the Fund. Officers of Keystone and affiliated Trustees receive no
compensation directly from the Fund. Currently, the Independent Trustees of
the Fund receive no compensation for their services.
(5.) Fund Reorganization
On December 30, 1994, the Fund acquired the net assets of Keystone America
Capital Preservation and Income Fund in exchange for Class A Shares of the
Fund pursuant to a plan of reorganization approved by the shareholders of
Keystone America Capital Preservation and Income Fund on December 30, 1994.
The acquisition was accomplished by a tax-free exchange of 2,506,041 shares
of the Fund for the net assets of Keystone America Capital Preservation and
Income Fund. The net assets of Keystone America Capital Preservation and
Income Fund on that date including $301,751 of unrealized depreciation on
investments, were combined with the Fund. The aggregate net assets of the
Fund and Keystone America Capital Preservation and Income Fund immediately
before the acquisition were $91,920,877 and $23,825,980, respectively. The
net assets of the Fund immediately after the acquisition was $115,746,857.
<PAGE>
- -------------------------------------------------------------------------------
Keystone Capital Preservation and Income Fund
INDEPENDENT AUDITORS' REPORT
The Trustees and Shareholders
Keystone Capital Preservation and Income Fund
We have audited the accompanying statement of assets and liabilities of
Keystone Capital Preservation and Income Fund (formerly Keystone America
Capital Preservation and Income Fund II) including the schedule of
investments, as of September 30, 1995, and the related statement of
operations for the year then ended, the statements of changes in net assets
for each of the years in the two-year period then ended and the financial
highlights for the period from December 30, 1994 (Date of Initial Public
Offering) to September 30, 1995 for Class A Shares, for each of the years in
the four-year period then ended and the period from July 1, 1991
(Commencement of Operations) to September 30, 1991 for Class B Shares and for
each of the years in the two-year period then ended and the period from
February 1, 1993 (Date of Initial Public Offering) to September 30, 1993 for
Class C Shares. These financial statements and financial highlights are the
responsibility of the Fund's management. Our responsibility is to express an
opinion on these financial statements and financial highlights based on our
audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements and
financial highlights are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures
in the financial statements. Our procedures included confirmation of
securities owned as of September 30, 1995, by correspondence with the
custodian and brokers. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well as
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights referred
to above present fairly, in all material respects, the financial position of
Keystone Capital Preservation and Income Fund as of September 30, 1995, the
results of its operations for the year then ended, the changes in its net
assets for each of the years in the two- year period then ended, and the
financial highlights for each of the years or periods specified in the first
paragraph above in conformity with generally accepted accounting principles.
KPMG Peat Marwick LLP
Boston, Massachusetts
October 27, 1995
<PAGE>
- -------------------------------------------------------------------------------
FEDERAL TAX STATUS--Fiscal 1995 Distributions (Unaudited)
During the period December 30, 1994 (Date of Initial Public Offering) to
September 30, 1995, dividends of $0.43 per share were paid or are payable to
shareholders of Class A. During the fiscal year ended September 30, 1995,
dividends of $0.49 per share were paid or are payable to shareholders of
Class B and Class C shares. These dividends are taxable to shareholders as
ordinary income in the year in which received by them or credited to their
accounts and none are eligible for the corporate dividends received
deduction. In January 1996, we will send you information on the distributions
paid during the calendar year to help you in completing your federal tax
return.
<PAGE>
KEYSTONE AMERICA CAPITAL PRESERVATION AND INCOME FUND
(FORMERLY KEYSTONE AMERICA CAPITAL PRESERVATION AND INCOME FUND-II)
PART C
OTHER INFORMATION
Item 24. Financial Statements and Exhibits
Item 24(a) Financial Statements
All financial statements listed below are included in
Registrant's Statement of Additional Information.
Schedule of Investments September 30, 1995
Financial Highlights For the period from December
30, 1994 to September 30, 1995
for Class A Shares, for each of
the years in the four-year period
then ended and the period from
July 1, 1991 to September 30, 1991
for Class B Shares and for each
of the years in the two-year period
then ended and the period from
February 1, 1993 to September 30,
1993 for Class C Shares
Statement of Assets and Liabilities September 30, 1995
Statement of Operations Year ended
September 30, 1995
Statements of Changes in Net Assets Two years ended
September 30, 1995
Notes to Financial Statements
Independent Auditors' Report
dated October 27, 1995
<PAGE>
Item (24)(b). Exhibits
1. A copy of Registrant's Declaration of Trust dated December 19, 1990, as
amended, is filed herewith as Exhibit 24(b)(1).
2. A copy of Registrant's By-Laws is filed herewith as Exhibit 24(b)(2).
3. Not applicable.
4. Not applicable.
5. A copy of the Investment Advisory and Management Agreement dated August 19,
1993 between Registrant and Keystone Investment Management Company
(formerly named Keystone Custodian Funds, Inc.) is filed herewith as
Exhibit 24(b)(5).
6. A. Copies of the Principal Underwriting Agreements, including any
amendments thereto, between Registrant and Keystone Investment
Distributors Company (formerly named Keystone Distributors, Inc.) are
filed herewith as Exhibit 24(b)(6)(A).
B. A copy of the form of Dealer Agreement used by Keystone Investment
Distributors Company is filed herewith as Exhibit 24(b)(6)(B).
7. Not applicable.
8. A copy of the Custodian, Fund Accounting and Recordkeeping Agreement dated
February 27, 1991 between Registrant and State Street Bank and Trust
Company is filed herewith as Exhibit 24(b)(8).
9. Not applicable.
10. An opinion and consent of counsel as to the legality of securities
registered being registered is filed herewith as Exhibit 24(b)(10).
11. Consent as to use of the opinion of Registrant's Independent Auditors is
filed herewith as Exhibit 24(b)(11).
12. Not applicable.
13. A copy of the Subscription Agreement between Registrant and Keystone
Investment Management Company was filed with Registration Statement No.
33-38946/811-6278 as Exhibit 24(b)(13) and is incorporated by reference
herein.
14. Copies of model plans used in the establishment of retirement plans in
connection with which the Registrant offer its securities were filed with
Post-Effective Amendment No. 66 to the Registration Statement No.
2-10527/811-96 as Exhibit 24(b)(14) and are incorporated herein by
reference.
15. Copies of the Registrant's Class A, Class B, and Class C Distribution Plans
are filed herewith as Exhibit 24(b)(15).
16. Performance Data Schedules are filed herewith as Exhibit 24(b)(16).
17. Financial Data Schedules are filed herewith as Exhibit 27.
18. Not applicable.
19. Powers of Attorney are filed herewith as Exhibit 24(b)(19).
Item 25. Persons Controlled by or Under Common Control With Registrant
Not applicable.
<PAGE>
Item 26. Number of Holders of Securities
Number of Record
Title of Class Holders as of October 31, 1995
-------------- ------------------------------
Shares of Beneficial Class A: 755
Interest, without par Class B: 2,501
value Class C: 124
Item 27. Indemnification
Provisions for the indemnification of the Registrant's Trustees and
officers are contained in Article VIII of Registrant's Declaration of Trust, a
copy of which is filed herewith and incorporated by reference herein.
Provisions for the indemnification of Keystone Investment Distributors
Company, the Registrant's principal underwriter, are contained in Sections 9 of
the Principal Underwriter Agreements between the Registrant and Keystone
Investment Distributors Company, copies of which are filed herewith and
incorporated by reference herein.
Provisions for the indemnification of Keystone Investment Management
Company, investment adviser to the Registrant, are contained in Section 6 of the
Investment Advisory and Management Agreement between Registrant and Keystone
Investment Management Company, a copy of which is filed herewith and
incorporated by reference herein.
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
Investment
Name Management Company Other Business Affiliations
- ---- ------------------ ---------------------------
Albert H. Chairman of Chairman of the Board,
Elfner, III the Board, Chief Executive Officer,
Chief Executive President and Director:
Officer,and Keystone Investments, Inc.
Director Keystone Management, Inc.
Keystone Software, Inc.
Keystone Asset Corporation
Keystone Capital
Corporation
Chairman of the Board and
Director:
Keystone Fixed Income
Advisers, Inc.
Keystone Institutional
Company, Inc.
President and Director:
Keystone Trust Company
Director or Trustee:
Fiduciary Investment
Company, Inc.
Keystone Investment
Distributors Company
Keystone Investor
Resource Center, Inc.
Boston Children's
Services Associates
Middlesex School
Middlebury College
Former Trustee or Director:
Neworld Bank
Robert Van Partners, Inc.
Philip M. Byrne Director President and Director:
Keystone Institutional
Company, Inc.
Senior Vice President:
Keystone Investments, Inc.
Herbert L. Senior Vice None
Bishop, Jr. President
Donald C. Dates Senior Vice None
President
Gilman Gunn Senior Vice None
President
Edward F. Director, Director, Senior Vice
Godfrey Senior Vice President
President, Chief Financial Officer and
Treasurer and Treasurer:
Chief Financial Keystone Investments, Inc.
Officer Keystone Investment
Distributors Company
Treasurer:
Keystone Institutional
Company, Inc.
Keystone Management,
Inc.
Keystone Software, Inc.
Fiduciary Investment
Company, Inc.
Former Treasurer and
Director: Hartwell
Keystone Advisers, Inc.
James R. McCall Director and None
President
Ralph J. Director President and Director:
Spuehler, Jr. Keystone Investment
Distributors Company
Senior Vice President and
Director:
Keystone Investments, Inc.
Chairman and Director:
Keystone Investor
Resource Center, Inc.
Keystone Management, Inc.
Formerly President:
Keystone Management, Inc.
Formerly Treasurer:
The Kent Funds
Keystone Investments, Inc.
Keystone Investment
Management Company
Rosemary D. Senior Vice General Counsel, Senior
Van Antwerp President, Vice President and
General Counsel Secretary:
and Secretary Keystone Investments, Inc.
Senior Vice President and
General Counsel:
Keystone Institutional
Company, Inc.
Senior Vice President,
General Counsel and
Director:
Keystone Investor
Resource Center, Inc.
Fiduciary Investment
Company, Inc.
Keystone Investment
Distributors Company
Senior Vice President,
General Counsel, Director
and Secretary:
Keystone Management, Inc.
Keystone Software, Inc.
Former Senior Vice
President and Secretary:
Hartwell Keystone
Advisers, Inc.
Vice President and
Secretary:
Keystone Fixed Income
Advisers, Inc.
Harry Barr Vice President None
Robert K. Vice President None
Baumback
Betsy A. Blacher Senior Vice None
President
Francis X. Claro Vice President None
Kristine R. Vice President None
Cloyes
Christopher P. Senior Vice None
Conkey President
Richard Cryan Senior Vice None
President
Maureen E. Senior Vice None
Cullinane President
George E. Dlugos Vice President None
Antonio T. Docal Vice President None
Christopher R. Senior Vice None
Ely President
Robert L. Hockett Vice President None
Sami J. Karam Vice President None
Donald M. Keller Senior Vice None
President
George J. Kimball Vice President None
JoAnn L. Lyndon Vice President None
John C. Vice President None
Madden, Jr.
Stephen A. Marks Vice President None
Eleanor H. Marsh Vice President None
Walter T. Senior Vice None
McCormick President
Barbara McCue Vice President None
Stanley M. Niksa Vice President None
Robert E. O'Brien Vice President None
Margery C. Parker Vice President None
William H. Vice President None
Parsons
Daniel A. Rabasco Vice President None
David L. Smith Vice President None
Kathy K. Wang Vice President None
Judith A. Warners Vice President None
J. Kevin Kenely Vice President None
and Controller
Joseph J. Asst. Vice President None
Decristofaro
<PAGE>
Item 29. Principal Underwriter
Keystone Investment Distributors Company (formerly named Keystone
Distributors, Inc.), which acts as Registrant's principal underwriter,
also acts as principal underwriter for the following entities:
Keystone America Hartwell Emerging Growth Fund, Inc.
Keystone Quality Fund (B-1)
Keystone Diversified Bond Fund (B-2)
Keystone Balanced Fund (K-1)
Keystone Strategic Growth Fund (K-2)
Keystone Growth and Income Fund (S-1)
Keystone Mid-Cap Growth Fund (S-3)
Keystone Small Company Growth Fund (S-4)
Keystone Capital Preservation and Income Fund
Keystone Fund of the Americas
Keystone Fund for Total Return
Keystone Global Opportunities Fund
Keystone Government Securities Fund
Keystone Hartwell Growth Fund
Keystone Intermediate Term Bond Fund
Keystone International Fund, Inc.
Keystone Liquid Trust
Keystone Omega Fund
Keystone Precious Metals Holdings, Inc.
Keystone State Tax Free Fund
Keystone State Tax Free Fund - Series II
Keystone Strategic Development Fund
Keystone Strategic Income Fund
Keystone Tax Free Income Fund
Keystone Tax Exempt Trust
Keystone Tax Free Fund
Keystone World Bond Fund
(b) For information with respect to each officer and director of
Registrant's principal underwriter, see the following pages.
Positions with
Keystone Investment Positions with
Name Distributors Company Registrant
- ---- -------------------- --------------
Ralph J. Spuehler* Director, President None
Edward F. Godfrey* Director, Senior Vice Senior Vice
President, Treasurer President
and Chief Financial
Officer
Rosemary D. Van Antwerp* Director, Senior Vice Senior Vice
President, General President
Counsel and Secretary and Secretary
Albert H. Elfner, III* Director President
Charles W. Carr* Senior Vice President None
Peter M. Delehanty* Senior Vice President None
J. Kevin Kenely* Vice President and None
Controller
C. Kenneth Molander Divisional Vice None
8 King Edward Drive President
Londenderry, NH 03053
David S. Ashe Regional Manager and None
32415 Beaconsfield Vice President
Birmingham, MI 48025
David E. Achzet Regional Vice None
60 Lawn Avenue President
Greenway 27
Stamford, CT 06902
William L. Carey, Jr. Regional Vice None
4 Treble Lane President
Malvern, PA 19355
John W. Crites Regional Vice None
2769 Oakland Circle W. President
Aurora, CO 80014
Michael S. Festa* Vice President None
Jeffrey M. Lundes* Vice President None
Richard J. Fish Regional Vice None
309 West 90th Street President
New York, NY 10024
Michael T. Flaherty* Regional Vice None
President
Michael E. Gathings Regional Vice None
245 Wicklawn Way President
Roswell, GA 30076
Robert G. Holz, Jr. Regional None
313 Meadowcrest Drive President
Richardson, Texas 75080
Todd L. Kobrin Regional Vice None
20 Iron Gate President
Metuchen, NJ 08840
Ralph H. Johnson Regional Vice None
345 Masters Court, #2 President
Walnut Creek, CA 94598
Paul J. McIntyre* Regional Vice None
President
Thomas E. Meloy* Regional Vice None
President
Juliana Perkins Regional Vice None
2348 West Adrian Street President
Newbury Park, CA 91320
Matthew D. Twomey Regional Vice None
9627 Sparrow Court President
Ellicott City, MD 21042
Mitchell I. Weiser Regional Vice None
7031 Ventura Court President
Parkland, FL 33067
Welden L. Evans Vice President None
490 Huntcliff Green
Atlanta, GA 30350
Russell A. Haskell* Vice President None
John M. McAllister* Vice President None
Gregg A. Mahalich Vice President None
14952 Richards Drive W.
Minnetonka, MN 55345
Robert J. Matson* Vice President None
Alan V. Neimi* Vice President None
Ronald L. Noble* Vice President None
Burton Robbins Vice President None
1586 Folkstone Terrace
Westlake Village, CA
91361
Thomas E. Ryan, III* Vice President None
Peter Willis* Vice President None
Raymond P. Ajemian* Vice President None
Joan M. Balchunas* Assistant Vice None
President
Jody R. Baum* Assistant Vice None
President
Thomas J. Gainey* Assistant Vice None
President
Eric S. Jeppson* Assistant Vice None
President
Julie A. Robinson* Assistant Vice None
President
Peter M. Sullivan Assistant Vice None
21445 Southeast 35th Way President
Issaquah, WA 98027
*Located at 200 Berkeley Street, Boston, Massachusetts 02116-5034
Item 29(c). - Not applicable
Item 30. Location of Accounts and Records
200 Berkeley Street
Boston, Massachusetts 02116-5034
Keystone Investor Resource Center, Inc.
101 Main Street
Cambridge, Massachusetts 02142
State Street Bank and Trust Company
1776 Heritage Drive
Quincy, Massachusetts 02171
Data Vault Inc.
3431 Sharp Slot Road
Swansea, Massachusetts 02277
Item 31. Management Services
Not applicable.
Item 32. Undertakings
Registrant hereby undertakes to furnish to each person to whom a copy
of Registrant's prospectus is delivered with a copy of the Registrant's
latest annual report to shareholders upon request and without charge.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933 and the Investment
Company Act of 1940, the Registrant has duly caused this Amendment to its
Registration Statement to be signed on its behalf by the undersigned, thereunto
duly authorized, in the City of Boston, in The Commonwealth of Massachusetts, on
the 1st day of December, 1995.
KEYSTONE CAPITAL PRESERVATION
AND INCOME FUND
(formerly Keystone America Capital
Preservation and Income Fund-II)
By: /s/ George S. Bissell
----------------------------
George S. Bissell*
Chairman of the Board
*By: /s/ James M. Wall
----------------------------
James M. Wall**
Attorney-in-Fact
Pursuant to the requirements of the Securities Act of 1933, this Amendment to
Registrant's Registration Statement has been signed below by the following
persons in the capacities indicated on the 1st day of December, 1995.
SIGNATURES TITLE
- ---------- -----
/s/ George S. Bissell Chairman of the Board and Trustee
- -------------------------
George S. Bissell*
/s/ Albert H. Elfner, III President, Chief Executive Officer
- ------------------------- and Trustee
Albert H. Elfner, III*
/s/ Kevin J. Morrissey Treasurer (Principal Accounting
- ------------------------- and Financial Officer)
Kevin J. Morrissey*
*By: /s/ James M. Wall
----------------------------
James M. Wall**
Attorney-in-Fact
<PAGE>
SIGNATURES TITLE
- ---------- -----
/s/ Frederick Amling Trustee
- --------------------------
Frederick Amling*
/s/ Charles A. Austin, III Trustee
- --------------------------
Charles A. Austin, III*
/s/ Edwin D. Campbell Trustee
- --------------------------
Edwin D. Campbell*
/s/ Charles F. Chapin Trustee
- --------------------------
Charles F. Chapin*
/s/ K. Dun Gifford Trustee
- --------------------------
K. Dun Gifford*
/s/ Leroy Keith, Jr. Trustee
- --------------------------
Leroy Keith, Jr.*
/s/ 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
Supplements to Trust
2 By-Laws
5 Investment Advisory and
Management Agreement
6 Principal Underwriting Agreements
Dealers Agreement
8 Custodian, Fund Accounting and
Recordkeeping Agreement
10 Opinion and Consent of Counsel
11 Independent Auditors' Consent
13 Subscription Agreement1
14 Model Retirement Plans2
15 Class A Distribution Plan
Class B and C Distribution Plans
16 Total Return and Yield Schedules
17 Financial Data Schedules (filed as Exhibit 27).
19 Powers of Attorney
- ----------------------------------
1 Incorporated herein by reference to Registration Statement No.
33-38946/811-6278.
2 Incorporated herein by reference to Post-Effective Amendment No. 66
to Registration Statement No. 2-10527/811-96.
KEYSTONE GOVERNMENT INCOME AND CAPITAL STABILITY FUND
DECLARATION OF TRUST
Dated: December 19, 1990
This DECLARATION OF TRUST of Keystone Government Income and Capital
Stability Fund, made at Boston, Massachusetts on December 19, 1990 by George S.
Bissell, John M. Haffenreffer, Everett P. Pope and Rodney M. Vining (hereinafter
with their successors referred to as the "Trustees").
WITNESSETH:
WHEREAS the Trustees have agreed to manage all property received by
them as Trustees in accordance with the provisions hereinafter set forth.
NOW, THEREFORE, the Trustees hereby declare that they will hold all
cash, securities and other assets which they may from time to time acquire in
any manner as Trustees hereunder IN TRUST to manage and dispose of the same upon
the following terms and conditions for the pro rata benefit of the holders from
time to time of Shares in this Trust as hereinafter set forth.
ARTICLE I
Name and Definitions
Section 1. Name. This Trust shall be known as Keystone Government
Income and Capital Stability Fund and the Trustees shall conduct the business of
this Trust under that name or any other name as they may from time to time
determine.
Section 2. Definitions. Whenever used herein, unless otherwise
required by the context or specifically provided
(a) The terms "Affiliated Person", "Assignment", "Commission",
"Interested Person" and "Principal Underwriter" shall have the
meanings given them in the 1940 Act;
(b) The "Trust" refers to the Massachusetts business trust
established by and under this Declaration of Trust;
(c) "Declaration of Trust" shall mean this Declaration of Trust
as amended or restated from time to time;
(d) "Net Asset Value Per Share" means the net asset value per
share of the Trust determined in the manner provided or authorized in
Article VI, Section 4;
(e) "Shareholder" means a record owner of Shares of the Trust;
(f) "Shares" means the equal proportionate units of interest
into which the beneficial interest in the Trust shall be divided from
time to time or, if more than one series ("Series") or more than one
class ("Class") of Shares is authorized by the Trustees, the equal
proportionate units into which each such Series or Class of Shares
shall be divided from time to time, and includes where appropriate
fractions of a Share as well as a whole Share, unless the Trustees
provide that there shall be no fractions of any particular Shares.
(g) "Trustees" refers to the Trustee or Trustees of the Trust
who become such in accordance with Article IV and where appropriate
means a majority or other portion of them acting in accordance with
this Declaration of Trust or the By-laws of the Trust; and
(h) The "1940 Act" refers to the Investment Company Act of 1940
and the Rules and Regulations thereunder, all as amended from time to
time.
ARTICLE II
Purpose of Trust
The purpose of the Trust is to provide investors a continuous source
of managed investments.
ARTICLE III
Beneficial Interest
Section 1. Shares of Beneficial Interest. The beneficial interest in
the Trust shall at all times be divided into transferable Shares, without par
value, each of which shall represent an equal proportionate interest in the
Trust with each other Share outstanding, none having priority or preference over
another, except to the extent modified by the Trustees under the provisions of
this Section. The number of Shares which may be issued is unlimited. The
Trustees may from time to time divide or combine the outstanding Shares into a
greater or lesser number without thereby changing the proportionate beneficial
interests in the Trust. Contributions to the Trust may be accepted for, and
Shares shall be redeemed as, whole Shares and/or fractions.
From time to time, as they deem appropriate, the Trustees may create
additional Series and/or Classes of Shares, in addition to the Shares initially
created under this instrument ("Original Series"). References in this
Declaration of Trust to Shares of the Trust shall apply, as appropriate, to each
such Series of Shares and to each such Class of Shares.
Any additional Series of Shares created hereunder shall represent the
beneficial interest in the assets (and related liabilities) allocated by the
Trustees to such Series of Shares and acquired by the Trust only after creation
of the respective Series of Shares and only on account of such Series. If the
Trustees create any additional Series of Shares hereunder, then the Original
Series shall be deemed a separate Series of Shares. Upon creation of each Series
of Shares, the Trustees may designate it appropriately and determine the
investment policies with respect to the assets allocated to such Series of
Shares, redemption rights, dividend policies, conversion rights, liquidation
rights, voting rights, and such other rights and restrictions as the Trustees
deem appropriate, to the extent not inconsistent with the provisions of this
Declaration of Trust.
The Trustees may divide any Series (including the Original Series)
into more than one Class of Shares. Upon creation of each additional Class of
Shares the Trustees may designate it appropriately and determine its rights and
restrictions (including without limitation such redemption rights, dividend
rights, conversion rights, liquidation rights, voting rights, and such other
rights and restrictions as the Trustees deem appropriate).
Section 2. Ownership of Shares. The ownership of Shares shall be
recorded in the books of the Trust or a transfer agent or a similar agent. The
Trustees may make such rules as they consider appropriate for the transfer of
Shares and similar matters. The record books of the Trust as kept by the Trust
or any transfer agent or similar agent, as the case may be, shall be conclusive
as to who are the holders of Shares of each Series or Class and as to the number
of Shares of each Series or Class held from time to time by each.
Section 3. Investments in the Trust. The Trustees shall accept
investments in the Trust from such persons and on such terms and, subject to any
requirements of law, for such consideration as the Trustees from time to time
authorize and may cease offering Shares to the public at any time After such
acceptance, the number of Shares of the appropriate Series or Class to represent
the contribution may in the Trustees' discretion be considered as outstanding
and the amount receivable by the Trustees on account of the contribution may be
treated as an asset of the Series or Class.
Section 4. No Preemptive Rights. Shareholders shall have no
preemptive or other right to subscribe to any additional Shares or other
securities issued by the Trust.
Section 5. Provisions Relating to Series or Classes of Shares.
Whenever no Shares of a Series or Class are outstanding, then the Trustees may
abolish such Series or Class. Whenever more than one series or class of shares
is outstanding, then the following provisions shall apply:
(a) Assets Belonging to Each Series or Class. All consideration
received by the Trust for the issue or sale of Shares of a particular
Series or Class, together with all assets in which such consideration
is invested or reinvested, all income, earnings and proceeds thereof,
and any funds derived from any reinvestment of such proceeds, shall,
except to the extent specifically otherwise provided in the
provisions adopted by the Board of Trustees establishing the Series
or Class, irrevocably belong to that Series or Class for all
purposes, subject only to the rights of creditors, and shall be so
recorded upon the books of the Trust. In the event there are assets,
income, earnings, and proceeds thereof which are not readily
identifiable as belonging to a particular Series or Class, then the
Trustees shall allocate such items to the various Series or Classes
then existing, in such manner and on such basis as they, in their
sole discretion, deem fair and equitable. The amount of each such
item allocated to a particular Series or Class by the Trustees shall
then belong to that Series or Class, and each such allocation shall
be conclusive and binding upon the Shareholders of all Series or
Classes for all purposes.
(b) Liabilities Belonging to Each Series or Class. The assets
belonging to each particular Series or Class shall, except to the
extent specifically otherwise provided in the provisions adopted by
the Board of Trustees establishing the Series or Class, be charged
with the liabilities, expenses, costs and reserves of the Trust
attributable to that Series or Class; and any general liabilities,
expenses, costs and reserves of the Trust which are not readily
identifiable as attributable to a particular Series or Class shall be
allocated by the Trustees to the various Series or Classes then
existing, in such manner and on such basis as they, in their sole
discretion, deem fair and equitable. Each such allocation shall be
conclusive and binding upon the Shareholders of all Series or Classes
for all purposes.
(c) Series or Classes of Shares, Dividends and Liquidation. Each
Share of each respective Class or Series shall, except to the extent
specifically otherwise provided in the provisions adopted by the
Board of Trustees establishing the Series or Class, have the same
rights and pro rata beneficial interest in the assets and liabilities
of the Series or Class as any other such Share. Any dividends paid on
the Shares of any Series or Class shall, except to the extent
specifically otherwise provided in the provisions adopted by the
Board of Trustees establishing the Series or Class, only be payable
from and to the extent of the assets (net of liabilities) belonging
to that Series or Class. In the event of liquidation of a Series or
Class, only the assets (less provision for liabilities) of that
Series or Class shall be distributed to the holders of the shares of
that Series or Class.
(d) Voting by Series or Class. Except as provided in this
Section or as limited by the rights and restrictions of any series or
class, each share of the trust may vote with and in the same manner
as any other share on matters submitted to a vote of the shareholders
entitled to vote thereon, without differentiation among votes from
the separate series or classes; provided, however, that (i) as to any
matter with respect to which a separate vote of any Series or Class
is required by the 1940 act, or otherwise by applicable law, such
requirement as to a separate vote shall apply in lieu of the voting
described above; (ii) in the event that the separate vote
requirements referred to in (i) above apply with respect to one or
more Series or Classes, then, subject to (iii) below, the Shares of
all other Series or Classes shall vote without differentiation among
their votes; and (iii) as to any matter which does not affect the
interest of any particular Series or Class, only the holders of
Shares of the one or more affected Series or Classes shall be
entitled to vote.
Section 6. Limitation of Personal Liability. The Trustees shall have
no power to bind any Shareholder personally or to call upon any Shareholder for
the payment of any sum of money or assessment whatsoever other than such as the
Shareholder may at any time personally agree to pay by way of subscription to
any Shares or otherwise. Every note, bond, contract or other undertaking issued
by or on behalf of the Trust or the Trustees relating to the Trust shall include
a recitation limiting the obligation represented thereby to the Trust and its
assets (but the omission of such a recitation shall not operate to bind any
Shareholder).
ARTICLE IV
The Trustees
Section 1. Number of Trustees. The number of Trustees shall initially
be such number as shall be elected as such by a vote of the shareholders of the
Trust and thereafter shall be such number as shall be fixed from time to time by
action of a majority of the Trustees.
Section 2. Election or Appointment and Term. The initial Trustees
shall be the individuals signing this Declaration in that capacity, who shall
have been previously elected by a vote of the shareholders of the Trust.
Thereafter, subject to Section 16(a) of the 1940 Act, the Trustees may elect
themselves or their successors at such intervals, as they deem proper, and may
appoint Trustees to fill vacancies as provided in Section 4 hereof; provided,
that Trustees shall be elected by vote of a majority of Shares voting thereon at
such time or times as the Trustees shall determine that such action is
advisable. Subject to Section 3 hereof, the trustees shall have the power to set
and alter the terms of office of the trustees, and they may at any time lengthen
or shorten their own terms or make their terms of unlimited duration; provided,
that the term of office of any incumbent Trustee shall continue until
terminated, as provided in section 4 hereof or, if not so terminated, until the
election of such Trustee's successor in office has become effective in
accordance with this Section 2.
Section 3. Resignation and Removal. Any Trustee may resign his trust
(without need for prior or subsequent accounting) by an instrument in writing
signed by him and delivered to the other Trustees, and such resignation shall be
effective upon such delivery or at any later date according to the terms of the
instrument. Any Trustee may be removed by the action of two-thirds of the
remaining Trustees. Upon the resignation or removal of a Trustee, or his
otherwise ceasing to be a Trustee, he shall execute and deliver such documents
as the remaining Trustees shall require for the purpose of conveying to the
Trust or the remaining Trustees any Trust property held in his name. Upon the
incapacity or death of any Trustee, his legal representative shall execute and
deliver on his behalf such documents as the remaining Trustees shall require as
provided in the preceding sentence. However, the execution and delivery of such
documents by a former Trustee or his legal representative shall not be requisite
to the vesting of title to the Trust property in the remaining Trustees.
Section 4. Vacancies. The term of office of a Trustee shall terminate
and a vacancy shall occur in the event of such Trustee's death, resignation,
removal, bankruptcy, adjudicated incompetence or other incapacity to perform the
duties of the office of Trustee. No such vacancy shall operate to annul this
Declaration of Trust or to revoke any existing agency created pursuant to the
terms of this Declaration of Trust. In the case of an existing vacancy,
including a vacancy existing by reason of an increase in the number of Trustees,
subject to applicable law, the remaining Trustees or, if only one Trustee shall
then remain in office, the sole remaining Trustee, shall appoint such individual
to fill such vacancy as they or he, in their or his discretion, shall see fit.
An appointment of a Trustee may be made in anticipation of a vacancy to occur at
a later date by reason of retirement or resignation of a Trustee or an increase
in the number of Trustees; provided, that such appointment shall not become
effective prior to such retirement or resignation or such increase in the number
of Trustees. Whenever a vacancy in the number of Trustees shall occur, until
such vacancy is filled as provided in this Section 4, the Trustees in office,
regardless of their number, shall have all the powers granted to the Trustees
and shall discharge all the duties imposed upon the Trustees by this Declaration
of Trust in the manner provided by this Declaration of Trust. A written
instrument certifying the existence of such vacancy signed by a majority of the
Trustees shall be conclusive evidence of the existence of such vacancy.
Section 5. Management of the Trust. Subject to the provisions of this
Declaration of Trust, the business and affairs of the Trust shall be managed by
the Trustees, and they shall have all powers necessary and desirable to carry
out that responsibility. Action by the Trustees may be taken by majority vote of
the Trustees at a meeting at which a quorum (which shall be a majority of the
Trustees then in office) shall be present, or by a writing signed by a majority
of the Trustees in office.
Without limiting the foregoing, the Trustees may adopt By-Laws not
inconsistent with this Declaration of Trust providing for the conduct of the
business of the Trust and may amend and repeal them to the extent that they do
not reserve that right to any Shareholders; they may elect and remove such
officers and appoint and terminate such agents as they consider appropriate;
they may appoint from their own number and terminate any one or more committees;
they may employ one or more custodians of the assets of the Trust and may
authorize such custodians to employ subcustodians and to deposit all or any part
of such assets in a system or systems for the central handling of securities,
retain a transfer agent or a Shareholder servicing agent, or both, provide for
the distribution of Shares by the Trust, through one or more principal
underwriters or otherwise, set, or otherwise provide for the setting of, record
dates, and in general delegate such authority to do any or all things which the
Trustees may do in the operation of the business of the Trust as they consider
desirable to any officers of the Trust and committees of the Trustees and to any
agent or employee, custodian or underwriter. Any action relating to the
operation of the Trust provided for herein to be taken by the Trustees may be
taken by any other person under authority granted by the Trustees whether or not
specifically so stated, and unless specifically so stated to the contrary. A
specific statement indicating that the Trustees may delegate any authority shall
not give rise to any contrary implication with respect to any provision of this
Declaration of Trust.
Without limiting the foregoing, the Trustees in addition to all
powers granted by law shall have power and authority:
(a) To invest and reinvest cash, and to hold cash uninvested,
without in anywise being bound or limited by any present or future
law or custom in regard to investments by trustees;
(b) To sell, exchange, lend, pledge, mortgage, hypothecate or
lease any or all of the assets of the Trust;
(c) To vote or give assent, or exercise any rights of ownership,
with respect to stock or other securities or property, and to execute
and deliver proxies or powers of attorney to such person or persons
as the Trustees shall deem proper, granting to such person or persons
such power and discretion with relation to securities or property as
the Trustees shall deem proper;
(d) To exercise powers and rights of subscription or otherwise
which in any manner arise out of ownership of securities;
(e) To hold any security or property in a form not indicating
any trust, whether in bearer, unregistered or other negotiable form,
or in the trust's own name or in the name of a custodian or
subcustodian or a nominee or nominees or otherwise;
(f) To consent to or participate in any plan for the
reorganization, consolidation or merger of any corporation or
concern, any security of which is held in the Trust; to consent to
any contract, lease, mortgage, purchase or sale of property by such
corporation or concern, and to pay calls or subscriptions with
respect to any security held in the Trust;
(g) To join with other security holders in acting through a
committee, depository, voting trustee or otherwise, and in that
connection to deposit any security with, or transfer any security to,
any such committee, depository or trustee, and to delegate to them
such power and authority with relation to any security (whether or
not so deposited or transferred) as the Trustees shall deem proper,
and to agree to pay, and to pay, such portion of the expenses and
compensation of such committee, depository or trustee as the Trustees
shall deem proper;
(h) To compromise, arbitrate, or otherwise adjust claims in
favor of or against the Trust for any matter in controversy,
including but not limited to claims for taxes; and
(i) To borrow funds.
The Trustees shall not be required to obtain any court order to deal
with any assets of the Trust or take any other action hereunder.
Section 6. Ownership of Assets of the Trust. The assets of the Trust
shall be held separate and apart from any assets now or hereafter held in any
capacity other than as Trustee hereunder by the Trustees or by any successor
Trustees. All of the assets of the Trust shall at all times be considered as
vested in the Trustees. No Shareholder shall be deemed to have a severable
ownership in any individual asset of the Trust or any right of partition or
possession thereof, but each Shareholder shall have a proportionate undivided
beneficial interest in the assets of the Series or Class of Shares of which he
is a holder, subject to any rights or restrictions applicable to any Series or
Class of Shares of which he is a holder.
Section 7. Payment of Expenses. The Trustees shall pay or cause to be
paid out of the principal or income of the Trust, or partly out of principal and
partly out of income, as they deem fair, all expenses, charges, taxes and
liabilities incurred or arising in connection with the Trust, or in connection
with the management thereof, including but not limited to the Trustees'
compensation and such expenses and charges for the services of the trust's
investment adviser or manager, administrator, auditor, counsel, custodian,
transfer agent, Shareholder servicing agent, and such other agents or
independent contractors and such other expenses and charges as the Trustees may
deem necessary or proper to incur.
Section 8. Investment Management and Other Services. Without limiting
the generality of the powers of the Trustees, subject to applicable law, the
Trustees may enter into a contract with any person or persons, including any
firm, corporation, trust or association in which any Trustee, Shareholder or
officer of the Trust may be interested, to act as investment advisers and/or
managers of the Trust and to provide such investment advice and/or management as
the Trustees may from time to time consider appropriate ("Adviser"). Any such
contract may authorize the Adviser to determine from time to time what
securities shall be acquired, held or disposed of by the Trust and what portion
of assets of the Trust shall be held uninvested and to take, on behalf of the
Trust, actions which the Adviser deems necessary to implement the investment
policies of the Trust, including the placement of all orders for the purchase,
sale or loan of portfolio securities for the Trust's account with brokers or
dealers or others selected by the Adviser and the giving of instructions to the
custodian of the Trust's assets as to deliveries of securities and payments of
cash for the account of the Trust.
Without limiting the generality of the powers of the Trustees,
subject to applicable law, the Adviser may enter into an agreement to retain at
its own expense any person or persons, including any firm, corporation, trust or
association in which any Trustee, Shareholder or officer of the Trust may be
interested, to provide the Trust investment advice and/or management and any
person or persons so retained may be granted all authority which has been
granted to the Adviser under the contract which the Adviser entered into
pursuant to the preceding paragraph.
Without limiting the generality of the powers of the Trustees, the
Trustees may enter into a contract with any person or persons, including any
firm, corporation, trust or association in which any Trustee, Shareholder or
officer of the Trust may be interested, to act as principal underwriter for the
Shares.
Section 9. Affiliations of Trustees or Officers, Etc. The fact that
(i) any of the Shareholders, Trustees or officers of the Trust is a shareholder,
Director, officer, partner, Trustee, employee, manager, adviser or distributor
of or for any partnership, corporation, trust, association or other organization
or for any parent or affiliate of any organization, with which any contract
including, without limitation, contracts for services as manager, investment
adviser, distributor, principal underwriter, custodian, transfer agent or
dividend disbursing agent or for related services may have been or may hereafter
be made, or that any such organization, or any parent or affiliate thereof, is a
Shareholder of or has an interest in the Trust, or that (ii) any partnership,
corporation, trust, association or other organization with which a contract
referred to in (i) above may have been or may hereafter be made also has any one
or more of such contracts with one or more other partnerships, corporations,
trusts, associations or other organizations, or has other business or interests,
shall not affect the validity of any such contract or disqualify any
Shareholder, Trustee or officer of the Trust from voting upon or executing the
same or create any liability or accountability to the Trust or its Shareholders.
ARTICLE V
Shareholders' Voting Powers and Meetings
Section 1. Voting Powers. The Shareholders shall have power to vote
only (i) for the election of Trustees as provided in Section 2 of Article IV
hereof and the removal of Trustees to the extent provided in Section 16(c) of
the 1940 Act, (ii) with respect to approval or termination in accordance with
the 1940 Act of any investment advisory or management agreement described in
Article IV hereof, (iii) with respect to any amendment of this Declaration of
Trust to the extent and as provided in Section 7 of Article IX hereof, (iv) to
the same extent as the stockholders of a Massachusetts corporation as to whether
or not a court action, proceeding or claim should or should not be brought or
maintained derivatively or as a class action on behalf of the Trust or the
Shareholders, and (v) with respect to such additional matters relating to the
Trust as may be required by this Declaration of Trust or the By-Laws, or as to
which the Trustees in their discretion shall determine such Shareholder vote to
be required by law or otherwise to be necessary, appropriate or advisable.
Each whole share shall be entitled to one vote as to any matter on
which it is entitled to vote and each fractional Share shall be entitled to a
proportionate fractional vote. There shall be no cumulative voting in the
election of Trustees. Shares may be voted in person or by proxy. A proxy with
respect to Shares held in the name of two or more persons shall be valid if
executed by any one of them unless at or prior to exercise of the proxy the
Trust receives a specific written notice to the contrary from any one of them. A
proxy purporting to be executed by or on behalf of a Shareholder shall be deemed
valid unless challenged at or prior to its exercise and the burden of proving
invalidity shall rest on the challenger. Until Shares are issued, the Trustees
may exercise all rights of Shareholders and may take any action required by law,
this Declaration of Trust or any By-Laws of the Trust to be taken by
Shareholders.
Section 2. Meetinqs. Meetings of Shareholders shall be held at such
times at the principal office of the Trust or such other place as the Trustees
may designate. Meetings of the Shareholders may be called by the Trustees or
such other person or persons as may be specified in the By-laws. Shareholders
shall be entitled to at least seven days' notice of any meeting.
Section 3. Quorum and Required vote. Except as otherwise provided by
law, to constitute a quorum for the transaction of business at a Shareholders'
meeting there must be present, in person or by proxy, holders of a majority of
the total number of Shares of the Trust then outstanding and entitled to vote at
the meeting, but any lesser number shall be sufficient for adjournment, and any
adjourned session or sessions may be held within 90 days after the date set for
the original meeting without the necessity of further notice. Subject to any
applicable requirements of law, a majority of the Shares present and entitled to
vote on a question or election shall decide such question or election, except
when a larger vote is required by any provision of this Declaration of Trust,
the By-Laws of the Trust or any applicable provision of law.
Section 4. Action by Written Consent. Except as otherwise required by
law, any action required or permitted to be taken at any meeting may be taken
without a meeting if a consent in writing setting forth such action is signed by
the Shareholders entitled to vote on the subject matter thereof holding a
majority of the Shares entitled to vote thereon.
Section 5. Additional Provisions. The By-Laws may include further
provisions for Shareholders' votes and meetings and related matters.
ARTICLE VI
Distributions and Redemptions
Section 1. Distributions. The Trustees may, but need not, each year
distribute to the Shareholders of each Series or Class such income and gains as
the Trustees may determine, after providing for actual and accrued expenses and
liabilities (including such reserves as the Trustees may establish) determined
in accordance with generally accepted accounting practices. The Trustees shall
have full discretion to determine which items shall be treated as income and
which items as capital and their determination shall be binding upon the
Shareholders. Distributions of each year's income of each Series or Class, if
any be made, may be made in one or more payments, which shall be in Shares, in
cash or otherwise and on a date or dates and as of a record date or dates
determined by or under the authority of the Trustees. At any time and from time
to time in their discretion the Trustees may distribute to the Shareholders of
any one or more Series or Class as of a record date or dates determined by or
under the authority of the Trustees, in Shares, in cash or otherwise, all or
part of any gain realized on the sale or disposition of property of the Trust or
otherwise, or all or part of any other principal of the Trust. Each distribution
pursuant to this Section 1 shall be made ratably according to the number of
Shares of the Series or Class held by the several Shareholders on the applicable
record date thereof, provided that no distribution need be made on shares
purchased pursuant to orders received or for which payment is made after such
time or times as may be determined by or under the authority of the Trustees.
Any such distribution paid in Shares will be paid at the net asset value thereof
as determined in accordance with Section 4 hereof.
Section 2. Redemptions. Upon offer by any Shareholder of all or part
of the Shares held by the Shareholder for redemption hereunder, in accordance
with such methods, upon such terms and subject to such conditions as from time
to time may be determined by or under the authority of the Trustees, the Trust
shall redeem the Shares so offered by distributing to the Shareholder the Net
Asset Value per Share thereof determined as of a time fixed by or under the
authority of the Trustees. The Trust shall have the right at its option and at
any time to redeem the Shares of any Shareholder for their Net Asset Value per
Share if the Shareholder owns Shares of a Series or Class having an aggregate
net asset value of less than such minimum amount as may from time to time be
prescribed by or under the authority of the Trustees or if ownership of such
Shares by the Shareholder could create adverse tax consequences for the Trust or
any Series or Class thereof. With respect to all Shares or any Series or Class
of Shares, the right to redemption or the date for payment may, however, be
delayed or suspended by the Trustees if there is an extraordinary closing or
restriction of trading on the New York Stock Exchange as determined under rules
and regulations of the Commission, or an emergency exists as a result of which
it is not reasonably practicable for the Trust to dispose of securities or
fairly to determine the value of its net assets, or as the Commission may
permit. The completion of such distribution on redemption of Shares shall
constitute a full discharge of the Trust and Trustees with respect to such
Shares, and the Trustees may require that any certificate or certificates issued
by the Trust to evidence the ownership of the Shares shall be surrendered to the
Trustees for cancellation or notation. Shares so redeemed shall be cancelled or
held by the Trust for reissue, as the Trustees may from time to time determine.
Section 3. Payment in Kind. Subject to any generally applicable
limitation imposed by the Trustees, any distribution on redemption may, if
authorized by the Trustees, be made wholly or partly in kind, instead of in
cash. Such distribution in kind shall be made by distributing investments
constituting, in the opinion of the Trustees, a fair representation of the
various types of securities then held by the Series or Class of Shares being
redeemed (but not necessarily including a portion of each particular investment)
and in each case having an aggregate value equal to the amount of cash instead
of which such distribution in kind is made.
Section 4. Determination of Net Asset Value per Share. Subject to
applicable law, the Net Asset Value per Share of each Series or Class shall be
computed as of such times as may be determined by or under authority of the
Trustees by determining the value of all the investments of such series or class
in such manner as may be determined by or under authority OF the Trustees,
adding any other assets of such series or class, subtracting all liabilities of
such Series or Class and dividing the result by the number of Shares of such
Series or Class outstanding.
Determination of Net Asset Value per Share so made in good faith and
pursuant to the provisions of the 1940 Act shall be binding on all parties
concerned.
Section 5. Automatic Redemption from Small Accounts. The Trustees
shall have the power to redeem shares at a redemption price determined in
accordance with Section 4 of this Article if at any time the total investment in
an account does not have a value of at least $1,000 or such other minimum amount
as the Trustees may from time to time determine. Before redeeming such Shares,
the Shareholder will be notified that the value of his account is less than the
required minimum amount and be allowed 60 days or such period as is permitted by
law to make an additional investment to bring the total value of such account to
such amount or more.
Section 6. Power to Modify Foregoing Procedures. Notwithstanding any
of the foregoing provisions of this Article VI, the Trustees may prescribe, in
their absolute discretion, such other bases and times for the declaration and
payment of dividends and distributions as they may deem desirable or necessary
to enable the Trust to comply with any provision of the 1940 Act or the Internal
Revenue Code, including any rule or regulation adopted by the Commission or any
securities association registered under the Securities Exchange Act of 1934, or
any order of exemption issued by the Commission or any rule or regulation issued
under the Internal Revenue Code, all as in effect now or as hereafter amended or
modified.
ARTICLE VII
Compensation and Limitation of Liability of Trustees
Section 1. Compensation. The Trustees shall be entitled to reasonable
compensation from the Trust; they may fix the amount of their compensation.
Section 2. Limitation of Liability. Provided they have exercised
reasonable care in their selection, the Trustees shall not be responsible or
liable in any event for any neglect or wrongdoing of any officer, agent,
employee or Adviser of the Trust nor shall any Trustee be responsible for the
act or omission of any other Trustee, but nothing herein contained shall protect
any Trustee against any liability to which he would otherwise be subject by
reason of wilful misfeasance, bad faith, gross negligence or reckless disregard
of the duties involved in the conduct of his office.
Every note, bond, contract, instrument, certificate, share or
undertaking and every other act or thing whatsoever executed or done by or on
behalf of the Trust or the Trustees or any of them in connection with the Trust
shall be conclusively deemed to have been executed or done only in their or his
capacity as Trustees or Trustee, and such Trustees or Trustee shall not be
personally liable thereon.
The Trustees shall use their best efforts to ensure that every note,
bond, contract, instrument, certificate or undertaking made or issued by the
Trustees or by any officers shall give notice of the existence of this
Declaration of Trust and shall recite to the effect that the same was executed
or made by or on behalf of the Trust or by them as Trustees or officers, and not
individually, and is not binding upon any of them or the Shareholders
individually, but is binding only upon the Trust property, or the assets of the
particular Series or Class in question, as the case may be, but the omission
thereof shall not operate to bind any Trustee or officer or Shareholder
individually, or to subject the assets of any Series or Class to the obligations
of any other Series or Class.
ARTICLE VIII
Indemnification
Section 1. Trustees, Officers, etc. The Trust shall indemnify each of
its present and former Trustees and officers and may indemnify any of its
present or former employees or agents, and shall indemnify any persons who serve
or have served at the Trust's request as Directors, officers or Trustees of
another organization, and may indemnify persons who serve or have served at the
Trust's request as employees or agents of another organization in which the
Trust has any interest as a shareholder, creditor or otherwise (hereinafter
referred to as a "Covered Person") against all liabilities and expenses,
including but not limited to amounts paid in satisfaction of judgments, in
compromise or as fines and penalties, and counsel fees reasonably incurred by
any such Covered Person in connection with the defense or disposition of any
action, suit or other proceeding, whether civil or criminal, before any court or
administrative or legislative body, in which such Covered Person may be or may
have been involved as a party or otherwise or with which such person may be or
may have been threatened, while in office, employed or acting as agent, or
thereafter, by reason of being or having been such a Trustee, officer, Director,
employee or agent, except with respect to any matter as to which such Covered
Person shall have been finally adjudicated in any such action, suit or other
proceeding not to have acted in good faith in the reasonable belief that such
Covered Person's action was in the best interest of the Trust and except that no
person shall be indemnified against any liability to the Trust or its
Shareholders to which such Covered Person shall otherwise be subject by reason
of wilful misfeasance, bad faith, gross negligence or reckless disregard of the
duties involved in the conduct of his office. Expenses, including counsel fees
so incurred by any Covered Person, may in the discretion of the Trustees be paid
from time to time by the Trust in advance of the final disposition of any such
action, suit or proceeding upon receipt of an undertaking by or on behalf of
such Covered Person to repay amounts so paid to the Trust if it is ultimately
determined that indemnification against such expenses is not authorized under
this Article.
Except as otherwise provided by law, the Trust shall have power to
purchase and maintain insurance on behalf of a Covered Person against any
liability asserted against him and incurred by him in his capacity as a Covered
Person, or arising out of his status as such, whether or not the Trust would
have the power to indemnify him against the liability under the provisions of
this Section.
Section 2. Compromise Payment. As to any matter disposed of by a
compromise payment by any Covered Person referred to in Section 1 above,
pursuant to a consent decree or otherwise, no such indemnification either for
such payment or for any other expenses shall be provided unless such compromise
shall be approved as in the best interests of the Trust, after notice that it
involved such indemnification, (a) by a disinterested majority of the Trustees
then in office; or (b) by a majority of the disinterested Trustees then in
office; or (c) by any disinterested person or persons to whom the question may
be referred by the Trustees, provided that in the case of approval pursuant to
clause (b) or (c) there has been obtained an opinion in writing of independent
legal counsel to the effect that such Covered Person appears to have acted in
good faith in the reasonable belief that his action was in the best interests of
the Trust and that such indemnification would not protect such person against
any liability to the Trust to which such person would otherwise be subject by
reason of wilful misfeasance, bad faith, gross negligence or reckless disregard
of the duties involved in the conduct of his office; or (d) by vote of a
majority of the Shares voting thereon, exclusive of any Shares beneficially
owned by any interested Covered Person. Approval by the Trustees pursuant to
clause (a) or (b) or any disinterested person or persons pursuant to clause (c)
of this Section shall not prevent the recovery from any Covered Person of any
amount paid to such Covered Person in accordance with any such clauses as
indemnification if such Covered Person is subsequently adjudicated by a court of
competent jurisdiction not to have acted in good faith in the reasonable belief
that such person's action was in the best interests of the Trust or to have been
liable to the Trust or its Shareholders by reason of wilful misfeasance, bad
faith, gross negligence or reckless disregard of the duties involved in the
conduct of his office.
Section 3. Indemnification Not Exclusive. The right of
indemnification hereby provided shall not be exclusive or affect any other
rights to which any such Covered Person may be entitled. As used in this article
VIII, the term "Covered Person" shall include such person's heirs, executors and
administrators. An "interested covered person" is one against whom the action,
suit or other proceeding in question or another action, suit or other proceeding
on the same or similar grounds is then or has been pending, and a "disinterested
person" is a person against whom none of such actions, suits or other
proceedings or another action, suit or other proceeding on the same or similar
grounds is then or has been pending. Nothing contained in this Article shall
affect any rights to indemnification to which personnel of the Trust other than
Trustees and officers or other persons may be entitled by contract or otherwise
under law.
Section 4. Shareholders. In case any Shareholder or former
Shareholder shall be held to be personally liable solely by reason of his being
or having been a Shareholder and not because of his acts or omissions or for
some other reason, the Shareholder or former Shareholder (or his heirs,
executors, administrators or other legal representatives or in the case of a
corporation or other entity, its corporate or other successor) shall be entitled
out of the assets of the Trust to be held harmless from and indemnified against
all loss and expense arising from such liability.
ARTICLE IX
Miscellaneous
Section 1. Trust Not a Partnership. It is hereby expressly declared
that a trust and not a partnership is created hereby. Neither the Trust nor the
Trustees, nor any officer, employee or agent of the Trust shall have any power
to bind personally either the Trust's Trustees or officers or any Shareholders.
All persons extending credit to, contracting with or having any claim against
the Trust shall look only to the assets of the Trust for payment under such
credit, contract or claim, and neither the Shareholders nor the Trustees, nor
any of the Trust's officers, employees or agents, whether past, present or
future, shall be personally liable therefor. Nothing in this Declaration of
Trust shall protect any Trustee against any liability to which such Trustee
would otherwise be subject by reason of wilful misfeasance, bad faith, gross
negligence or reckless disregard of the duties involved in the conduct of the
office of Trustee hereunder.
Section 2. Trustee's Good Faith Action, Expert Advice, No Bond or
Surety. The exercise by the Trustees of their powers and discretions hereunder
in good faith and with reasonable care under the circumstances then prevailing
shall be binding upon everyone interested. Subject to the provisions of Section
1 of this Article IX, a Trustee shall be liable for his own wilful defaults, and
for nothing else, and shall not be liable for errors of judgment or mistakes of
fact or law. The Trustees may take advice of counsel or other experts with
respect to the meaning and operation of this Declaration of Trust, and subject
to the provisions of said Section 1 shall be under no liability for any act or
omission in accordance with such advice or for failing to follow such advice.
The Trustees shall not be required to give any bond as such, nor any surety if a
bond is required.
Section 3. Liability of Third Persons Dealing with Trustees. No
person dealing with the Trustees shall be bound to make any inquiry concerning
the validity of any transaction made or to be made by the Trustees pursuant
hereto or to see to the application of any payments made or property transferred
to the Trust or upon its order.
Section 4. Duration; Termination of Trust; Amendments; Mergers, etc.
(a) This Trust shall continue without limitation of time but
subject to the provisions of this Section 4.
(b) The Trust (as used in this Section 4 the term "Trust"
specifically also means any Series or Class) may be terminated by
action of the Trustees.
(c) Upon the termination of the Trust:
(i) The Trust shall carry on no business except for the
purpose of winding up its affairs.
(ii) The Trustees shall proceed to wind up the affairs of the
Trust and all of the powers of the Trustees under this Declaration
of Trust shall continue until the affairs of the Trust shall have
been wound up, including the power to fulfill or discharge the
contracts of the Trust, collect its assets, sell, convey, assign,
exchange, transfer or otherwise dispose of all or any part of the
remaining Trust property to one or more persons at public or
private sale for consideration which may consist in whole or in
part of cash, securities or other property of any kind, discharge
or pay its liabilities, and to do all other acts appropriate to
liquidate its business.
(iii) After paying or adequately providing for the payment of
all liabilities, and upon receipt of such releases, indemnities
and refunding agreements as they deem necessary for their
protection, the Trustees shall distribute the remaining Trust
property, in cash or in kind or partly each, among the
Shareholders according to their respective rights and interests.
(d) After termination of the Trust and distribution to the
Shareholders as herein provided, a majority of the Trustees shall
execute and lodge among the records of the Trust an instrument in
writing setting forth the fact of such termination, and the Trustees
shall thereupon be discharged from all further liabilities and duties
hereunder, and the rights and interests of all Shareholders shall
thereupon cease.
(e) Upon completion of the distribution of the remaining
proceeds or the remaining assets as provided in paragraphs (c) and
(d), the Trust shall terminate and the Trustees shall be discharged
of any and all further liabilities and duties hereunder and the
right, title and interest of all parties shall be canceled and
discharged.
Section 5. Filing of Copies, References, Headings. The original or a
copy of this instrument and of each Declaration of Trust supplemental hereto or
Amendment hereof shall be kept at the office of the Trust where it may be
inspected by any Shareholder. Anyone dealing with the Trust may rely on a
certificate by an officer of the Trust as to whether or not any Supplemental
Declaration of Trust or Amendments have been made and as to any matters in
connection with the trust hereunder; and, with the same effect as if it were the
original, may rely on a copy certified by an officer of the Trust to be a copy
of this instrument or of any such Supplemental Declaration of Trust or
Amendment. In this instrument or in any such Amendment or Supplemental
Declaration of Trust, references to this instrument, and all expressions such as
"herein," "hereof," and "hereunder," shall be deemed to refer to this instrument
as amended or affected by any such Supplemental Declaration of Trust or
Amendment. Headings are placed herein for convenience of reference only and in
case of any conflict, the text of this instrument, rather than the headings,
shall control. This instrument may be executed in any number of counterparts
each of which shall be deemed an original.
Section 6. Applicable Law. The Trust set forth in this instrument is
made in The Commonwealth of Massachusetts, and it is created under and is to be
governed by and construed and administered according to the laws of such
Commonwealth. The Trust shall be of the type commonly called a Massachusetts
business trust, and, without limiting the provisions hereof, the Trust may
exercise all powers which are ordinarily exercised by such a trust.
Section 7. Amendments. (a) This Declaration of Trust may be amended
by a vote or written consent of the Trustees. However, if such amendment
adversely affects the rights of any Shares of any Series or any Class with
respect to matters to which such amendment is applicable, such amendment shall
be subject to approval by holders of a majority of the Shares of such Series or
Class. An amendment or other action which provides for an additional Series of
Shares (and/or Class thereof), which Series may vote together with Shares of
other Series (and/or Classes thereof) and makes other provisions with respect to
such Series (and/or Class thereof) and its relation to existing Series (and/or
Classes thereof), shall not be deemed to adversely affect the rights of any
other Series of Shares or Class thereof. The Trustees may also amend this
Declaration of Trust without any Shareholder approval to change the name of the
Trust, to supply any omission, to cure, correct or supplement any ambiguous,
defective or inconsistent provision hereof, or, if they deem it necessary, to
conform this Declaration of Trust to the requirements of applicable federal laws
or regulations or the requirements of the Internal Revenue Code, or to eliminate
or reduce any federal, state or local taxes which are or may be payable by the
Trust or the shareholders, but the trustees shall not be liable for failing to
do so.
(b) Nothing contained in this Declaration of Trust shall permit the
amendment of this Declaration of Trust to impair the exemption from personal
liability of the Shareholders, Trustees, officers, employees and agents of the
Trust or to permit assessments upon Shareholders.
(c) A certificate signed by a majority of the Trustees or by the
Secretary or any Assistant Secretary of the Trust, setting forth an amendment by
reciting that it was duly adopted by the Shareholders or by the Trustees as
aforesaid, or a copy of the Declaration of Trust as amended, and executed by a
majority of the Trustees or certified by the Secretary or any Assistant
Secretary of the Trust, shall be conclusive evidence of such amendment when
lodged among the records of the Trust.
Section 8. Merger, Consolidation and Sale of Assets. The Trust may
merge into or consolidate with any other corporation, association, trust or
other organization or may sell, lease or exchange all or substantially all of
the Trust property, including its good will, upon such terms and conditions and
for such consideration when and as authorized by the Trustees.
Section 9. Incorporation. The Trustees may cause to be organized or
assist in organizing a corporation or corporations under the laws of any
jurisdiction or any other trust, partnership, association or other organization
to take over all the Trust property or to carry on any business in which the
Trust shall directly or indirectly have any interest, and to sell, convey and
transfer the Trust property to any such corporation, trust, partnership,
association or organization in exchange for the shares or securities thereof or
otherwise, and to lend money to, subscribe for the shares or securities of, and
enter into any contracts with any such corporation, trust, partnership,
association or organization in which the Trust holds or is about to acquire
shares or any other interest. The Trustees may also cause a merger or
consolidation between the Trust or any successor thereto and any corporation,
trust, partnership, association or other organization if and to the extent
permitted by law, as provided under the law then in effect. Nothing contained
herein shall be construed as requiring approval of Shareholders for the Trustees
to organize or assist in organizing one or more corporations, trusts,
partnerships, associations or other organizations and selling, conveying or
transferring the Trust property to such organizations or entities.
IN WITNESS WHEREOF, the undersigned have hereunto set their hands and
seals in the City of Boston, Massachusetts, for themselves and their assigns, as
of the day and year first above written.
/s/ George S. Bissell
-----------------------------------
George S. Bissell
/s/ John M. Haffenreffer
-----------------------------------
John M. Haffenreffer
/s/ Everett P. Pope
-----------------------------------
Everett P. Pope
/s/ Rodney M. Vining
-----------------------------------
Rodney M. Vining
<PAGE>
KEYSTONE GOVERNMENT INCOME AND CAPITAL STABILITY FUND
FIRST SUPPLEMENTAL
DECLARATION OF TRUST
Dated February 26, 1991
FIRST SUPPLEMENTAL DECLARATION OF TRUST dated February 26, 1991 made by
George S. Bissell, John M. Haffenreffer, Everett P. Pope and Rodney M. Vining
(hereinafter with their successors referred to as the "Trustees") to DECLARATION
OF TRUST, dated December 19, 1990.
WHEREAS the Trustees have determined to change the name of the Trust.
NOW, THEREFORE, the Trustees hereby declare that they will amend the Declaration
of Trust of this Trust as hereinafter set forth:
ARTICLE I, Name and Definitions,
Section 1. Name, is hereby amended to read as follows: "This Trust
shall be known as the "Keystone Capital Preservation and Income Fund -
II" and the Trustees shall conduct the business of this Trust under
that name or any other name as they may from time to time determine."
All other provisions of the Declaration of Trust shall continue as
originally stated.
IN WITNESS WHEREOF, the undersigned, being all of the Trustees of the
Trust, have caused this Supplemental Declaration of Trust to be executed on the
26th day of February 1991.
/s/ George S. Bissell
- --------------------------
George S. Bissell, Trustee
/s/ John M. Haffenreffer
- --------------------------
John M. Haffenreffer, Trustee
/s/ Everett P. Pope
- --------------------------
Everett P. Pope, Trustee
/s/ Rodney M. Vining
- --------------------------
Rodney M. Vining, Trustee
<PAGE>
KEYSTONE CAPITAL PRESERVATION AND INCOME FUND - II
SECOND SUPPLEMENTAL
DECLARATION OF TRUST
Dated June 19, 1991
SECOND SUPPLEMENTAL DECLARATION OF TRUST dated June 19, 1991 made by
George S. Bissell, K.Dun Gifford, John M. Haffenreffer, Philip B. Harley, F. Ray
Keyser, Everett P. Pope, James A. Reed, John W. Sharp, Spencer R. Stuart, Russel
R. Taylor, Rodney M. Vining and Charles M. Williams (hereinafter with their
successors referred to as the "Trustees") to DECLARATION OF TRUST, dated
December 19, 1990.
WHEREAS the Trustees have determined to change the name of the Trust.
NOW, THEREFORE, the Trustees hereby declare that they will amend the Declaration
of Trust of this Trust as hereinafter set forth:
ARTICLE I, Name and Definitions,
Section 1. Name, is hereby amended to read as follows: "This Trust
shall be known as the "Keystone America Capital Preservation and Income
Fund - II" and the Trustees shall conduct the business of this Trust
under that name or any other name as they may from time to time
determine."
All other provisions of the Declaration of Trust shall continue as
originally stated.
IN WITNESS WHEREOF, the undersigned, being all of the Trustees of the
Trust, have caused this Supplemental Declaration of Trust to be executed on the
19th day of June 1991.
/s/ George S. Bissell /s/ K. Dun Gifford
- --------------------------- --------------------------
George S. Bissell, Trustee K. Dun Gifford, Trustee
/s/ John M. Haffenreffer /s/ Philip B. Harley
- ----------------------------- ---------------------------
John M. Haffenreffer, Trustee Philip B. Harley, Trustee
/s/ F. Ray Keyser /s/ Everett P. Pope
- --------------------------- --------------------------
F. Ray Keyser, Trustee Everett P. Pope, Trustee
<PAGE>
KEYSTONE AMERICA CAPITAL PRESERVATION AND INCOME FUND - II
THIRD SUPPLEMENTAL DECLARATION OF TRUST
THIRD SUPPLEMENTAL DECLARATION OF TRUST dated as of December 30, 1994,
made by Frederick Amling, Charles A. Austin, III, George S. Bissell, Edwin D.
Campbell, Charles F. Chapin, Albert H. Elfner, III, K. Dun Gifford, Leroy Keith,
Jr., F. Ray Keyser, Jr., David N. Richardson, Richard J. Shima and Andrew J.
Simons (hereinafter with their successors referred to as the "Trustees") to
DECLARATION OF TRUST dated December 19, 1990.
WHEREAS, the Trustees have determined to change the name of the Trust;
NOW, THEREFORE, the Trustees hereby declare that they will amend the
Declaration of Trust of this Trust as hereinafter set forth:
ARTICLE I. NAME AND DEFINITIONS.
Section 1 Name. is hereby amended to read as follows:
"This Trust shall be known as Keystone America Capital Preservation
and Income Fund, and the Trustees shall conduct the business of this
Trust under that name or any other name as they may from time to time
determine."
All other provisions of the Declaration of Trust shall continue as
originally stated.
This Third Supplemental Declaration of Trust may be executed
simultaneously in two or more counterparts, each of which shall be deemed an
original, but all of which together shall constitute one and the same Third
Supplemental Declaration of Trust.
IN WITNESS WHEREOF, the undersigned, being all of the Trustees of the Trust,
have caused this Third Supplemental Declaration of Trust to be executed as of
the date set forth above.
/s/ Frederick Amling /s/ Charles A. Austin, III
- ------------------------------ ----------------------------------
Frederick Amling Charles A. Austin, III
/s/ George S. Bissell /s/ Edwin D. Campbell
- ------------------------------ ----------------------------------
George S. Bissell Edwin D. Campbell
/s/ Charles F. Chapin /s/ Albert H. Elfner, III
- ------------------------------ ----------------------------------
Charles F. Chapin Albert H. Elfner, III
/s/ K. Dun Gifford /s/ Leroy Keith, Jr.
- ------------------------------ ----------------------------------
K. Dun Gifford Leroy Keith, Jr.
/s/ F. Ray Keyser, Jr. /s/ David M. Richardson
- ------------------------------ ----------------------------------
F. Ray Keyser, Jr. David M. Richardson
/S/ Richard J. Shima /S/ Andrew J. Simons
- ------------------------------ ----------------------------------
Richard J. Shima Andrew J. Simons
<PAGE>
KEYSTONE AMERICA CAPITAL PRESERVATION AND INCOME FUND
FOURTH SUPPLEMENTAL
DECLARATION OF TRUST
Effective May 1, 1995
FOURTH SUPPLEMENTAL DECLARATION OF TRUST DATED MARCH 15, l995 made by
George S. Bissell, Albert H. Elfner, III, Frederick Amling, Charles A. Austin,
III, Edwin D. Campbell, Charles F. Chapin, K. Dun Gifford, Leroy Keith, Jr., F.
Ray Keyser, Jr., David M. Richardson, Richard J. Shima and Andrew J. Simons
(hereinafter with their successors referred to as the "Trustees") to DECLARATION
OF TRUST dated December 19, 1990.
WHEREAS, the Trustees have determined to change the name of the Trust
and to change the designation of its principal office to 200 Berkeley Street,
Boston, Massachusetts 02116.
NOW, THEREFORE, the Trustees hereby declare that they will amend the
Declaration of Trust of this Trust as hereinafter set forth:
ARTICLE I, Name and Definitions, Section 1. Name., is hereby amended
to read as follows:
"This Trust shall be known as the "Keystone Capital Preservation and
Income Fund" and the Trustees shall conduct the business of this Trust
under that name or any other name as they may from time to time
determine."
This Amendment shall become effective as of May 1, 1995.
All other provisions of the Declaration of Trust shall continue as
originally stated.
IN WITNESS WHEREOF, the undersigned being of all of the Trustees of
the Trust, have caused this Fourth Supplemental Declaration of Trust to be
executed on the 15th day of March, 1995.
/s/ George S. Bissell
------------------------------------
George S. Bissell, Trustee
/s/ Albert H. Elfner
------------------------------------
Albert H. Elfner, III, Trustee
/s/ Frederick Amling
------------------------------------
Frederick Amling, Trustee
/s/ Charles A. Austin
------------------------------------
Charles A. Austin, III, Trustee
/s/ Edwin D. Campbell
------------------------------------
Edwin D. Campbell, Trustee
/s/ Charles F. Chapin
------------------------------------
Charles F. Chapin, Trustee
/s/ K. Dun Gifford
------------------------------------
K. Dun Gifford, Trustee
/s/ Leroy Keith, Jr.
------------------------------------
Leroy Keith, Jr., Trustee
/s/ F. Ray Keyser, Jr.
------------------------------------
F. Ray Keyser, Jr., Trustee
/s/ David M. Richardson
------------------------------------
David M. Richardson, Trustee
/s/ Richard J. Shima
------------------------------------
Richard J. Shima, Trustee
/s/ Andrew J. Simons
------------------------------------
Andrew J. Simons, Trustee
<PAGE>
BY-LAWS
KEYSTONE CAPITAL PRESERVATION AND INCOME 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 Declaration of Trust ("Trust Agreement") of
Keystone Capital Preservation and Income Fund ("Fund").
1.2 Principal Office of the Fund. The principal office of the Fund shall be
located in Boston, Massachusetts, or such other place as the Trustees may
designate from time to time.
ARTICLE 2.
Meetings of Shareholders
2.1 Meetings. Meetings may be called by the Trustees or by the President or by
any other officers designated for the purpose by the Trustees.
2.2 Business to be Transacted. At any meeting of shareholders, such business may
be transacted as is referred to in the notice of the meeting, and any other
business considered appropriate by or under authority of the Trustees.
2.3 Notice. A written notice of each meeting of the shareholders, specifying the
time, place and purposes thereof, shall be given as hereinafter provided by the
Secretary of the Fund or any Assistant Secretary or by a person or persons
designated by either of them, to each shareholder who is entitled to vote
thereat at least seven (7) days (including Sundays and holidays) before such
meeting. Notice of a meeting need not be given to any shareholder if a written
waiver of notice, executed by the shareholder or his attorney thereunto duly
authorized before or after the meeting, is filed with the records of the
meeting, or to any shareholder who attends the meeting either in person or by
proxy without protesting, prior thereto or at its commencement, the lack of
notice to such shareholder. Every notice to any shareholder required or provided
for herein may be given to him personally or by mailing it to him postage
prepaid, addressed to him at his address specified in the records of the Trust.
Notice shall be deemed to have been given at the time when it is so mailed. In
respect of any share held jointly by several persons notice so given to any one
of them shall be sufficient notice to all of them. Any notice so sent to the
address of any shareholder shall be deemed to have been duly sent in respect of
any such share whether held by him solely or jointly with others,
notwithstanding he be then deceased or be bankrupt or insolvent or legally
incompetent, and whether or not the Trustees or any person sending such notice
have knowledge of his death, bankruptcy or insolvency or legal incompetence,
until some other person or persons shall be registered as holders. The
certificate of the person or persons giving such notice shall be sufficient
evidence thereof, and shall protect all persons acting in good faith in reliance
on such certificate.
2.5 Voting. Shares may be voted in person by the shareholder or by proxy in form
reasonably acceptable to the Trust. If the holder of any share is a minor or a
person of unsound mind, or subject to guardianship or to the legal control of
any other person as regards the charge or management of such share, he may vote
by his guardian or such other person appointed or having such control, and such
vote may be given in person or by proxy.
2.6 Record Dates. For the purpose of determining the shareholders who are
entitled to vote or act at any meeting or any adjournment thereof, or who are
entitled to receive payment of any dividend or of any other distribution, the
Trustees may from time to time fix or authorize the fixing by others of a time
as the record date for determining the shareholders having the right to notice
of and to vote at such meeting and any adjournment thereof or the right to
receive such dividend or distribution, and in such case only shareholders of
record on such record date shall have such right, notwithstanding any transfer
of shares on the books of the Fund after the record date; or without fixing such
record date the Trustees may for any of such purposes close the register or
transfer books for all or any part of such period.
ARTICLE 3.
Meetings of Trustees
3.1 Regular Meetings. Regular meetings of the Trustees may be held without call
or notice at such places and at such times as the Trustees may from time to time
determine.
3.2 Special Meetings. Special meetings of the Trustees may be held at any time
and at any place designated in the call of the meeting when called by the
Chairman, the President or the Treasurer, or by any other officer authorized by
the Trustees to do so, or by two or more Trustees, sufficient notice thereof
being given to each Trustee by the Secretary or an Assistant Secretary or by the
officer or one of the Trustees calling the meeting.
3.3 Notice. It shall be sufficient notice to a Trustee of a special meeting to
send notice by mail at least forty-eight hours or by telegram at least
twenty-four hours before the meeting addressed to him at his usual or last known
business or residence address or to give notice to him in person or by telephone
at least twenty-four hours before the meeting. Notice of a meeting need not be
given to any Trustee if a written waiver of notice, executed by him before or
after the meeting, is filed with the records of the meeting, or to any Trustee
who attends the meeting without protesting prior thereto or at its commencement
the lack of notice to him. Neither notice of a meeting nor a waiver of a notice
need specify the purposes of the meeting.
3.4 Quorum. At any meeting of the Trustees a majority of the Trustees then in
office shall constitute a quorum. Any meeting may be adjourned from time to time
by a majority of the votes cast upon the question, whether or not a quorum is
present and the meeting may be held as adjourned without further notice.
3.5 Action by Vote. When a quorum is present at any meeting, a majority of the
Trustees present may take any action, except when a larger vote is required by
the 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
September 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.
#1016058c
<PAGE>
INVESTMENT ADVISORY AND MANAGEMENT AGREEMENT
Agreement made the 19th day of August, 1993, by and between KEYSTONE
AMERICA CAPITAL PRESERVATION AND INCOME FUND-II, 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.
THEREFORE, in consideration of the promises and the mutual agreements
hereinafter contained, the Fund and the Adviser agree as follows:
1. The Fund hereby employs the Adviser to manage and administer the
operation of the Fund, to supervise the provision of services to the Fund by
others, and to manage the investment and reinvestment of the assets of the
Fund in conformity with the Fund's investment objectives and restrictions as
may be set forth from time to time in the Fund's then current prospectus and
statement of additional information, if any, and other governing documents,
all subject to the supervision of the Board of Trustees of the Fund, for the
period and on the terms set forth in this Agreement. The 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 an agent of the Fund.
2. The Adviser shall place all orders for the purchase and sale of
portfolio securities for the account of the Fund with broker-dealers selected
by the Adviser. In executing portfolio transactions and selecting broker-
dealers, the adviser will use its best efforts to seek best execution on
behalf of the Fund. In assessing the best execution available for any
transaction, the Adviser shall consider all factors it deems relevant,
including the breadth of the market in the security, the price of the
security, the financial condition and execution capability of the broker-
dealer, and the reasonableness of the Commission, if any (all for the specific
transaction and on a continuing basis). In evaluating the best execution
available, and in selecting the broker-dealer to execute a particular
transaction, the Adviser may also consider the brokerage and research services
(as those terms are used in Section 28(e) of the Securities Exchange Act of
1934 (the "1934 Act") provided to the Fund and/or other accounts over which
the Adviser or an affiliate of the Adviser exercises investment discretion.
The Adviser is authorized to pay a broker-dealer who provides such brokerage
and research services a commission 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, 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 at the annual
rate of:
Aggregate Net
Management Asset Value of the
Fee Shares of the Fund
- ------------------------------------------------------------------------------
2% of Gross Dividend and Interest Income
0.50% of the first $ 100,000,000, plus
0.45% of the next $ 100,000,000, plus
0.40% of the next $ 100,000,000, plus
0.35% of the next $ 100,000,000, plus
0.30% of the next $ 100,000,000, plus
0.25% of amounts over $ 500,000,000.
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, 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 Fund; and on sixty days' written notice
to the Fund, this Agreement may be terminated at any time without the payment
of any penalty by the 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 Fund and by the vote of a majority of
Trustees of the Fund who are not interested persons (as that term is defined
in the 1940 Act) of the Adviser, 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 CAPITAL PRESERVATION AND
INCOME FUND-II
By: /s/
----------------------------
Title: Vice President
KEYSTONE CUSTODIAN FUNDS, INC.
By: /s/
----------------------------
Title: Senior Vice President
<PAGE>
PRINCIPAL UNDERWRITING AGREEMENT
KEYSTONE AMERICA CAPITAL PRESERVATION AND INCOME FUND - II
AGREEMENT made this 19th day of August, 1993 by and between Keystone
America Capital Preservation and Income Fund - II, a Massachusetts business
trust, ("Fund"), and Keystone Distributors, Inc., a Delaware corporation
("Principal Underwriter").
It is hereby mutually agreed as follows:
1. The Fund hereby appoints Principal Underwriter a principal
underwriter of the shares of beneficial interest of the Fund ("Shares") as an
independent contractor upon the terms and conditions hereinafter set forth.
Except as the Fund may from time to time agree, Principal Underwriter will act
as agent for the Fund and not as principal.
2. Principal Underwriter will use its best efforts to find purchasers
for the Shares, to promote distribution of the Shares and may obtain orders from
brokers, dealers or other persons for sales of Shares to them. No such dealer,
broker or other person shall have any authority to act as agent for the Fund;
such dealer, broker or other person shall act only as principal in the sale of
Shares.
3. Sales of Shares by Principal Underwriter shall be at the applicable
public offering price determined in the manner set forth in the prospectus
and/or statement of additional information of the Fund current at the time of
the Fund's acceptance of the order for Shares; provided that Principal
Underwriter also shall have the right to sell shares at net asset value, if such
sale is permissible under and consistent with applicable statutes, rules,
regulations and orders. All orders shall be subject to acceptance by the Fund
and the Fund reserves the right in its sole discretion to reject any order
received. The Fund shall not be liable to anyone for failure to accept any
order.
4. On all sales of Shares, the Fund shall receive the current net asset
value and Principal Underwriter shall be entitled to receive payments in
accordance with the 12b-1 Plan and as set forth in the then current prospectus
and/or statement of additional information of the Fund and to receive the sales
charges, including contingent deferred sales charges, as set forth in the then
current prospectus and/or statement of additional information of the Fund.
Principal Underwriter may reallow all or a part of the 12b-1 payments and the
sales charges to such brokers, dealers or other persons as Principal Underwriter
may determine.
5. Payment to the Fund for Shares shall be in New York or Boston
Clearing House funds received by Principal Underwriter within ten (10) business
days after notice of acceptance of the purchase order and the amount of the
applicable public offering price has been given to the purchaser. If such
payment is not received within such ten-day period, the Fund reserves the right,
without further notice, forthwith to cancel its acceptance of any such order.
The Fund shall pay such issue taxes as may be required by law in connection with
the issue of the Shares.
6. Principal Underwriter shall not make in connection with any sale or
solicitation of a sale of the Shares any representations concerning the Shares
except those contained in the then current prospectus and/or statement of
additional information covering the Shares and in printed information approved
by the Fund as information supplemental to such prospectus and statement of
additional information. Copies of the then current prospectus and statement of
additional information and any such printed supplemental information will be
supplied by the Fund to Principal Underwriter in reasonable quantities upon
request.
7. Principal Underwriter agrees to comply with the Rules of Fair
Practice of the National Association of Securities Dealers, Inc.
8. The Fund appoints Principal Underwriter as its agent to accept
orders for redemptions and repurchases of Shares at values and in the manner
determined in accordance with the then current prospectus and/or statement of
additional information of the Fund.
9. The Fund agrees to indemnify and hold harmless the Principal
Underwriter, its officers and Directors and each person, if any, who controls
the Principal Underwriter within the meaning of Section 15 of the Securities Act
of 1933 ("1933 Act"), against any losses, claims, damages, liabilities and
expenses (including the cost of any legal fees incurred in connection therewith)
which the Principal Underwriter, its officers, Directors or any such controlling
person may incur under the 1933 Act, under any other statute, at common law or
otherwise, arising out of or based upon:
a. any untrue statement or alleged untrue statement of a material
fact contained in the Fund's registration statement, prospectus or
statement of additional information (including amendments and
supplements thereto), or
b. any omission or alleged omission to state a material fact
required to be stated in the Fund's registration statement, prospectus
or statement of additional information necessary to make the statements
therein not misleading, provided, however, that insofar as losses,
claims, damages, liabilities or expenses arise out of or are based upon
any such untrue statement or omission or alleged untrue statement or
omission made in reliance and in conformity with information furnished
to the Fund by the Principal Underwriter for use in the Fund's
registration statement, prospectus or statement of additional
information, such indemnification is not applicable. In no case shall
the Fund indemnify the Principal Underwriter or its controlling person
as to any amounts incurred for any liability arising out of or based
upon any action for which the Principal Underwriter, its officers and
Directors or any controlling person would otherwise be subject to
liability by reason of willful misfeasance, bad faith or gross
negligence in the performance of its duties or by reason of the
reckless disregard of its obligations and duties under this Agreement.
10. The Principal Underwriter agrees to indemnify and hold harmless the
Fund, its officers and Trustees and each person, if any, who controls the Fund
within the meaning of Section 15 of the 1933 Act against any loss, claims,
damages, liabilities and expenses (including the cost of any legal fees incurred
in connection therewith) which the Fund, its officers, Trustees or any such
controlling person may incur under the 1933 Act, under any other statute, at
common law or otherwise arising out of the acquisition of any Shares by any
person which:
a. may be based upon any wrongful act by the Principal
Underwriter or any of its employees or representatives, or
b. may be based upon any untrue statement or alleged untrue
statement of a material fact contained in the Fund's registration
statement, prospectus or statement of additional information (including
amendments and supplements thereto), or any omission or alleged
omission to state a material fact required to be stated therein or
necessary to make the statements therein not misleading, if such
statement or omission was made in reliance upon information furnished
or confirmed in writing to the Fund by the Principal Underwriter.
11. The Fund agrees to execute such papers and to do such acts and
things as shall from time to time be reasonably requested by Principal
Underwriter for the purpose of qualifying the Shares for sale under the
so-called "blue sky" laws of any state or for registering Shares under the 1933
Act or the Fund under the Investment Company Act of 1940 ("1940 Act"). Principal
Underwriter shall bear the expense of preparing, printing and distributing
advertising, sales literature, prospectuses and statements of additional
information. The Fund shall bear the expense of registering Shares under the
1933 Act and the Fund under the 1940 Act, qualifying Shares for sale under the
so-called "blue sky" laws of any state, the preparation and printing of
prospectuses, statements of additional information and reports required to be
filed with the Securities and Exchange Commission and other authorities, the
preparation, printing and mailing of prospectuses and statements of additional
information to shareholders of the Fund, and the direct expenses of the issue of
Shares.
12. To the extent required by the 12b-1 Plan, Principal Underwriter
shall provide to the Board of Trustees of the Fund in connection with the 12b-1
Plan, not less than quarterly, a written report of the amounts expended pursuant
to such 12b-1 Plan and the purpose for which such expenditures were made.
13. The term of this agreement shall begin on the date hereof and,
unless sooner terminated or continued as provided below, shall expire after two
years. This agreement shall continue in effect after such term if its
continuance is specifically approved by a majority of the Trustees of the Fund
and a majority of the 12b-1 Trustees referred to in the 12b-1 Plan of the Fund
("Rule 12b-1 Trustees") at least annually in accordance with the 1940 Act and
the rules and regulations thereunder.
This agreement may be terminated at any time, without payment of any
penalty, by vote of a majority of the Rule 12b-1 Trustees or by a vote of a
majority of the Fund's outstanding Shares on not more than sixty days written
notice to any other party to the agreement; and shall terminate automatically in
the event of its assignment (as defined in the 1940 Act).
14. This agreement shall be construed in accordance with the laws of
The Commonwealth of Massachusetts. All sales hereunder are to be made, and title
to the Shares shall pass, in Boston, Massachusetts.
15. The Fund is a Massachusetts business trust established under a
Declaration of Trust, as it may be amended from time to time. The obligations of
the Fund are not personally binding upon, nor shall recourse be had against the
private property of any of the Trustees, shareholders, officers, employees or
agents of the Fund, but only the property of the Fund shall be bound.
IN WITNESS WHEREOF, the parties hereto have caused this agreement to be
executed by their respective officers thereunto duly authorized at Boston,
Massachusetts, on the day and year first written above.
KEYSTONE AMERICA CAPITAL
PRESERVATION AND INCOME FUND - II
By: /s/ George S. Bissell
------------------------
Title: Chairman
KEYSTONE DISTRIBUTORS, INC.
By: /s/ [ illegible ]
------------------------
Title: Sr. Vice President
#10160341
<PAGE>
FIRST AMENDMENT
TO
PRINCIPAL UNDERWRITING AGREEMENT
OF
KEYSTONE CAPITAL PRESERVATION AND INCOME FUND
FIRST AMENDMENT (the "Amendment") made as of the 31st day of May 1995
to AGREEMENT (the "Agreement") made the 19th day of August 1993 by and between
Keystone Capital Preservation and Income Fund, a Massachusetts business trust,
("Fund"), and Keystone Investment Distributors Company, a Delaware corporation
(the "Principal Underwriter").
1. This Amendment is made by the Fund, individually and/or on behalf of its
series if any, referred to above in the title of this Amendment, to which
series, if any, this Amendment shall relate, as applicable (the "Fund").
The Fund and the Principal Underwriter mutually agree that Section 1 of the
Agreement is amended as follows:
" 1. The Fund hereby appoints the Principal Underwriter a principal
underwriter of the Class A and Class C shares of beneficial interest
of the Fund ("Shares") as an independent contractor upon the terms and
conditions hereinafter set forth. Except as the Fund may from time to
time agree, the Principal Underwriter will act as agent for the Fund
and not as principal."
2. In all other respects the Agreement is unchanged.
IN WITNESS WHEREOF, the parties hereto have caused this agreement to be
executed by their respective officers thereunto duly authorized at Boston,
Massachusetts on the day and year first written above.
KEYSTONE CAPITAL PRESERVATION AND INCOME FUND
By: /s/
---------------------------------------
Title:
KEYSTONE INVESTMENT DISTRIBUTORS COMPANY
By: /s/
---------------------------------------
Title:
<PAGE>
PRINCIPAL UNDERWRITING AGREEMENT
FOR CLASS B-1 SHARES
OF
KEYSTONE CAPITAL PRESERVATION AND INCOME FUND
AGREEMENT made this 31st day of May 1995 by and between Keystone Capital
Preservation and Income Fund, a Massachusetts business trust, ("Fund"), and
Keystone Investment Distributors Company, a Delaware corporation (the "Principal
Underwriter").
The Fund, individually and/or on behalf of its series, if any, referred to
above in the title of this Agreement, to which series, if any, this Agreement
shall relate, as applicable (the Fund ), may act as the distributor of certain
securities of which it is the issuer pursuant to Rule 12b-1 under the Investment
Company Act of 1940 (the 1940 Act ). Accordingly, it is hereby mutually agreed
as follows:
1. The Fund hereby appoints the Principal Underwriter a principal
underwriter of the Class B-1 shares of beneficial interest of the Fund ("B-1
Shares") as an independent contractor upon the terms and conditions hereinafter
set forth. The general term "Shares" as used herein has the same meaning as is
provided therefor in Schedule I hereto. Except as the Fund may from time to time
agree, the Principal Underwriter will act as agent for the Fund and not as
principal.
2. The Principal Underwriter will use its best efforts to find purchasers
for the B-1 Shares and to promote distribution of the B-1 Shares and may obtain
orders from brokers, dealers or other persons for sales of B-1 Shares to them.
No such dealer, broker or other person shall have any authority to act as agent
for the Fund; such dealer, broker or other person shall act only as principal in
the sale of B-1 Shares.
3. Sales of B-1 Shares by Principal Underwriter shall be at the public
offering price determined in the manner set forth in the prospectus and/or
statement of additional information of the Fund current at the time of the
Fund's acceptance of the order for B-2 Shares. All orders shall be subject to
acceptance by the Fund and the Fund reserves the right in its sole discretion to
reject any order received. The Fund shall not be liable to anyone for failure to
accept any order.
4. On all sales of B-1 Shares the Fund shall receive the current net asset
value. The Fund shall pay the Principal Underwriter Distribution Fees (as
defined in Section 14 hereof), as commissions for the sale of B-1 Shares and
other Shares, which shall be paid in conjunction with distribution fees paid to
the Principal Underwriter by other classes of Shares of the Fund to the extent
required in order to comply with Section 14 hereof, and shall pay over to the
Principal Underwriter CDSCs (as defined in Section 14 hereof) as set forth in
the Fund's current prospectus and statement of additional information, and as
required by Section 14 hereof. The Principal Underwriter shall also receive
payments consisting of shareholder service fees ("Service Fees") at the rate of
.25% per annum of the average daily net asset value of the Class B-1 Shares. The
Principal Underwriter may allow all or a part of said Distribution Fees and
CDSCs received by it (not paid to others as hereinafter provided) to such
brokers, dealers or other persons as Principal Underwriter may determine.
5. Payment to the Fund for B-1 Shares shall be in New York or Boston
Clearing House funds received by the Principal Underwriter within three business
days after notice of acceptance of the purchase order and the amount of the
applicable public offering price has been given to the purchaser. If such
payment is not received within such period, the Fund reserves the right, without
further notice, forthwith to cancel its acceptance of any such order. The Fund
shall pay such issue taxes as may be required by law in connection with the
issue of the B-1 Shares.
6. The Principal Underwriter shall not make in connection with any sale or
solicitation of a sale of the B-1 Shares any representations concerning the B-1
Shares except those contained in the then current prospectus and/or statement of
additional information covering the Shares and in printed information approved
by the Fund as information supplemental to such prospectus and statement of
additional information. Copies of the then current prospectus and statement of
additional information and any such printed supplemental information will be
supplied by the Fund to the Principal Underwriter in reasonable quantities upon
request.
7. The Principal Underwriter agrees to comply with the Rules of Fair
Practice of the National Association of Securities Dealers, Inc. (as defined in
the Purchase and Sale Agreement, dated as of May 31, 1995 (the Purchase
Agreement ), between the Principal Underwriter, Citibank, N.A. and Citicorp
North America, Inc., as agent (the "Rules of Fair Practice")).
8. The Fund appoints the Principal Underwriter as its agent to accept
orders for redemptions and repurchases of B-1 Shares at values and in the manner
determined in accordance with the then current prospectus and/or statement of
additional information of the Fund.
9. The Fund agrees to indemnify and hold harmless the Principal
Underwriter, its officers and Directors and each person, if any, who controls
the Principal Underwriter within the meaning of Section 15 of the Securities Act
of 1933 ("1933 Act"), against any losses, claims, damages, liabilities and
expenses (including the cost of any legal fees incurred in connection therewith)
which the Principal Underwriter, its officers, Directors or any such controlling
person may incur under the 1933 Act, under any other statute, at common law or
otherwise, arising out of or based upon
a. any untrue statement or alleged untrue statement of a material fact
contained in the Fund's registration statement, prospectus or
statement of additional information (including amendments and
supplements thereto) or
b. any omission or alleged omission to state a material fact required to
be stated in the Fund's registration statement, prospectus or
statement of additional information necessary to make the statements
therein not misleading, provided, however, that insofar as losses,
claims, damages, liabilities or expenses arise out of or are based
upon any such untrue statement or omission or alleged untrue statement
or omission made in reliance and in conformity with information
furnished to the Fund by the Principal Underwriter for use in the
Fund's registration statement, prospectus or statement of additional
information, such indemnification is not applicable. In no case shall
the Fund indemnify the Principal Underwriter or its controlling person
as to any amounts incurred for any liability arising out of or based
upon any action for which the Principal Underwriter, its officers and
Directors or any controlling person would otherwise be subject to
liability by reason of willful misfeasance, bad faith, or gross
negligence in the performance of its duties or by reason of the
reckless disregard of its obligations and duties under this Agreement.
10. The Principal Underwriter agrees to indemnify and hold harmless the
Fund, its officers and Trustees and each person, if any, who controls the Fund
within the meaning of Section 15 of the 1933 Act against any loss, claims,
damages, liabilities and expenses (including the cost of any legal fees incurred
in connection therewith) which the Fund, its officers, Directors or any such
controlling person may incur under the 1933 Act, under any other statute, at
common law or otherwise arising out of the acquisition of any Shares by any
person which
(a) may be based upon any wrongful act by the Principal Underwriter or any
of its employees or representatives, or
(b) may be based upon any untrue statement or alleged untrue statement of
a material fact contained in the Fund's registration statement,
prospectus or statement of additional information (including
amendments and supplements thereto), or any omission or alleged
omission to state a material fact required to be stated therein or
necessary to make the statements therein not misleading, if such
statement or omission was made in reliance upon information furnished
or confirmed in writing to the Fund by the Principal Underwriter.
11. The Fund agrees to execute such papers and to do such acts and things
as shall from time to time be reasonably requested by the Principal Underwriter
for the purpose of qualifying the B-1 Shares for sale under the so-called "blue
sky" laws of any state or for registering B-1 Shares under the 1933 Act or the
Fund under the Investment Company Act of 1940 ("1940 Act"). The Principal
Underwriter shall bear the expenses of preparing, printing and distributing
advertising, sales literature, prospectuses, and statements of additional
information. The Fund shall bear the expense of registering B-1 Shares under the
1933 Act and the Fund under the 1940 Act, qualifying B-1 Shares for sale under
the so-called "blue sky" laws of any state, the preparation and printing of
prospectuses, statements of additional information and reports required to be
filed with the Securities and Exchange Commission and other authorities, the
preparation, printing and mailing of prospectuses and statements of additional
information to holders of B-1 Shares, and the direct expenses of the issue of
B-1 Shares.
12. The Principal Underwriter shall, at the request of the Fund, provide to
the Board of Trustees or Directors (together herein called the Directors ) of
the Fund in connection with sales of B-1 Shares not less than quarterly a
written report of the amounts received from the Fund therefor and the purpose
for which such expenditures by the Fund were made.
13. The term of this Agreement shall begin on the date hereof and, unless
sooner terminated or continued as provided below, shall expire after one year.
This Agreement shall continue in effect after such term if its continuance is
specifically approved by a majority of the outstanding voting securities of
Class B-1 of the Fund or by a majority of the Directors of the Fund and a
majority of the Directors who are not parties to this Agreement or "interested
persons", as defined in the Investment Company Act of 1940 (the 1940 Act ), of
any such party and who have no direct or indirect financial interest in the
operation of the Fund's Rule 12b-1 plan for Class B-1 Shares or in any
agreements related to the plan at least annually in accordance with the 1940 Act
and the rules and regulations thereunder.
This Agreement may be terminated at any time, without payment of any
penalty, by vote of a majority of the Directors of the Fund, or a majority of
such Directors who are not parties to this Agreement or "interested persons", as
defined in the 1940 Act, of any such party and who have no direct or indirect
financial interest in the operation of the Fund's Rule 12b-1 plan for Class B-1
Shares or in any agreement related to the plan or by a vote of a majority of the
outstanding voting securities of Class B-1 on not more than sixty days written
notice to any other party to the agreement; and shall terminate automatically in
the event of its assignment (as defined in the 1940 Act), which shall not
include assignment of the Principal Underwriter's (as hereinafter defined)
provided for hereunder and/or rights related to such Allocable Portions.
14. The provisions of this Section 14 shall be applicable to the extent
necessary to enable the Fund to comply with the obligation of the Fund to pay
the Principal Underwriter its Allocable Portion of Distribution Fees paid in
respect of Shares while the Fund is required to do so pursuant the Principal
Underwriting Agreement, of even date herewith, in respect of Class B-2 Shares,
and shall remain in effect so long as any payments are required to be made by
the Fund pursuant to the irrevocable payment instruction (as defined in the
Purchase Agreement (the Irrevocable Payment Instruction )).
14.1 The Fund shall pay to the Principal Underwriter the Principal
Underwriter's Allocable Portion (as hereinafter defined) of a fee (the
"Distribution Fee") at the rate of .75% per annum of the average daily net asset
value of the Shares, subject to the limitation on the maximum aggregate amount
of such fees under the Rules of Fair Practice as applicable to such Distribution
Fee on the date hereof.
14.2 The Principal Underwriter's Allocable Portion of Distribution Fees
paid by the Fund in respect of Shares shall be equal to the portion of the Asset
Based Sales Charge allocable to Distributor Shares (as defined in Schedule I
hereto to this Agreement) in accordance with Schedule I hereto. The Fund agrees
to cause its transfer agent to maintain the records and arrange for the payments
on behalf of the Fund at the times and in the amounts and to the accounts
required by Schedule I hereto, as the same may be amended from time to time. It
is acknowledged and agreed that by virtue of the operation of Schedule I hereto
the Principal Underwriter's Allocable Portion of Distribution Fees paid by the
Fund in respect of Shares, may, to the extent provided in Schedule I hereto,
take into account Distribution Fees payable by the Fund in respect of other
existing and future classes and/or sub-classes of shares of the Fund which would
be treated as "Shares" under Schedule I hereto. The Fund will limit amounts paid
to any subsequent principal underwriters of Shares to the portion of the Asset
Based Sales Charge paid in respect of Shares which is allocable to
Post-distributor Shares (as defined in Schedule I hereto) in accordance with
Schedule I hereto. The Fund's payments to the Principal Underwriter in
consideration of its services in connection with the sale of B-1 Shares shall be
the Distribution Fees attributable to B-1 Shares which are Distributor Shares
(as defined in Schedule I hereto) and all other amounts constituting the
Principal Underwriter's Allocable Portion of Distribution Fees shall be the
Distribution Fees related to the sale of other Shares which are Distributor
Shares (as defined in Schedule I hereto).
The Fund shall cause its transfer agent and sub-transfer agents to withhold
from redemption proceeds payable to holders of Shares on redemption thereof the
contingent deferred sales charges payable upon redemption thereof as set forth
in the then current prospectus and/or statement of additional information of the
Fund ("CDSCs") and to pay over to the Principal Underwriter The Principal
Underwriter's Allocable Portion of said CDSCs paid in respect of Shares which
shall be equal to the portion thereof allocable to Distributor Shares (as
defined in Schedule I hereto) in accordance with Schedule I hereto.
14.3 The Principal Underwriter shall be considered to have completely
earned the right to the payment of its Allocable Portion of the Distribution Fee
and the right to payment over to it of its' Allocable Portion of the CDSC in
respect of Shares as provided for hereby upon the completion of the sale of each
Commission Share (as defined in Schedule I hereto) taken into account as a
Distributor Share in computing the Principal Underwriter's Allocable Portion in
accordance with Schedule I hereto.
14.4 Except as provided in Section 14.5 hereof in respect of Distribution
Fees only, the Fund's obligation to pay the Principal Underwriter the
Distribution Fees and to pay over to the Principal Underwriter CDSCs provided
for hereby shall be absolute and unconditional and shall not be subject to
dispute, offset, counterclaim or any defense whatsoever (it being understood
that nothing in this sentence shall be deemed a waiver by the Fund of its right
separately to pursue any claims it may have against the Principal Underwriter
and enforce such claims against any assets (other than the Principal
Underwriter's right to its Allocable Portion of the Distribution Fees and CDSCs
(the "Collection Rights") of the Principal Underwriter).
14.5 Notwithstanding anything in this Agreement to the contrary, the Fund
shall pay to the Principal Underwriter its Allocable Portion of Distribution
Fees provided for hereby notwithstanding its termination as Principal
Underwriter for the Shares or any termination of this Agreement and such payment
of such Distribution Fees, and that obligation and the method of computing such
payment, shall not be changed or terminated except to the extent required by any
change in applicable law, including, without limitation, the 1940 Act, the Rules
promulgated thereunder by the Securities and Exchange Commission and the Rules
of Fair Practice, in each case enacted or promulgated after June 1, 1995, or in
connection with a Complete Termination (as hereinafter defined). For the
purposes of this Section 14.5, "Complete Termination" means a termination of the
Fund's Rule 12b-1 plan for B-2 Shares involving the cessation of payments of the
Distribution Fees, and the cessation of payments of distribution fees pursuant
to every other Rule 12b-1 plan of the Fund for every existing or future
B-Class-of-Shares (as hereinafter defined) and the Fund's discontinuance of the
offering of every existing or future B-Class-of-Shares, which conditions shall
be deemed satisfied when they are first complied with hereafter and so long
thereafter as they are complied with prior to the earlier of (i) the date upon
which all of the B-2 Shares which are Distributor Shares pursuant to Schedule I
hereto shall have been redeemed or converted or (ii) June 1, 2005. For purposes
of this Section 14.5, the term B-Class-of-Shares means each of the B-1 Class of
Shares of the Fund, the B-2 Class of Shares of the Fund and each other class of
shares of the Fund hereafter issued which would be treated as Shares under
Schedule I hereto or which has substantially similar economic characteristics to
the B-1 or B-2 Classes of Shares taking into account the total sales charge,
CDSC or other similar charges borne directly or indirectly by the holder of the
shares of such class. The parties agree that the existing C Class of Shares of
the Fund does not have substantially similar economic characteristics to the B-1
or B-2 Classes of Shares taking into account the total sales charge, CDSC or
other similar charges borne directly or indirectly by the holder of such shares.
For purposes of clarity the parties to this agreement hereby state that they
intend that a new installment load class of shares which may be authorized by
amendments to Rule 6(c)-10 under the 1940 Act will be considered to be a
B-Class-of-Shares if it has economic characteristics substantially similar to
the economic characteristics of the existing B-1 or B-2 Classes of Shares taking
into account the total sale charge, CDSC or other similar charges borne directly
or indirectly by the holder of such shares and will not be considered to be a
B-Class-of-Shares if it has economic characteristics substantially similar to
the economic characteristics of the existing C Class of shares of the Fund
taking into account the total sales charge, CDSC or other similar charges borne
directly or indirectly by the holder of such shares.
14.6 The Principal Underwriter may assign any part of its Allocable
Portions and obligations of the Fund related thereto (but not the Principal
Underwriter's obligations to the Fund provided for in this Agreement) to any
person (an "Assignee") and any such assignment shall be effective as to the Fund
upon written notice to the Fund by the Principal Underwriter. In connection
therewith the Fund shall pay all or any amounts in respect of its Allocable
Portions directly to the Assignee thereof as directed in a writing by the
Principal Underwriter in the Irrevocable Payment Instruction, as the same may be
amended from time to time with the consent of the Fund, and the Fund shall be
without liability to any person if it pays such amounts when and as so directed,
except for underpayments of amounts actually due, without any amount payable as
consequential or other damages due to such underpayment and without interest
except to the extent that delay in payment of Distribution Fees and CDSCs
results in an increase in the maximum Sales Charge allowable under the Rules of
Fair Practice, which increases daily at a rate of prime plus one percent per
annum.
14.7 The Fund will not, to the extent it may otherwise be empowered to do
so, change or waive any CDSC with respect to B-1 Shares, except as provided in
the Fund's prospectus or statement of additional information without the
Principal Underwriter's or Assignee's consent, as applicable. Notwithstanding
anything to the contrary in this Agreement or any termination of this Agreement
or the Principal Underwriter as principal underwriter for the Shares of the
Fund, the Principal Underwriter shall be entitled to be paid its Allocable
Portion of the CDSCs whether or not the Fund's Rule 12b-1 plan for B-1 Shares is
terminated and whether or not any such termination is a Complete Termination, as
defined above.
15. This Agreement shall be construed in accordance with the laws of The
Commonwealth of Massachusetts. All sales hereunder are to be made, and title to
the Shares shall pass, in Boston, Massachusetts.
16. The Fund is a Massachusetts business trust established under a
Declaration of Trust, as it may be amended from time to time. The obligations of
the Fund are not personally binding upon, nor shall recourse be had against the
private property of any of the Trustees, shareholders, officers, employees or
agents of the Fund, but only the property of the Fund shall be bound.
IN WITNESS WHEREOF, the parties hereto have caused this agreement to be
executed by their respective officers thereunto duly authorized at Boston,
Massachusetts, on the day and year first written above.
KEYSTONE CAPITAL PRESERVATION AND INCOME FUND
By: /s/
----------------------------
Title:
KEYSTONE INVESTMENT DISTRIBUTORS, INC.
By: /s/
----------------------------
Title:
<PAGE>
SCHEDULE I
TO
PRINCIPAL UNDERWRITING AGREEMENT
FOR CLASS B-1 SHARES
OF
KEYSTONE CAPITAL PRESERVATION AND INCOME FUND
TRANSFER AGENT PROCEDURES FOR DIFFERENTIATING
AMONG DISTRIBUTOR SHARES AND POST-DISTRIBUTOR SHARES
Amounts (in respect of Asset Based Sales Charges (as hereinafter defined)
and CDSCs (as hereinafter defined) in respect of Shares (as hereinafter defined)
of each Fund (as hereinafter defined) shall be allocated between Distributor
Shares (as hereinafter defined) and Post-distributor Shares (as hereinafter
defined) of such Fund in accordance with the rules set forth in clauses (B) and
(C). Clause (B) sets forth the rules to be followed by the Transfer Agent for
each Fund and the record owner of each Omnibus Account (as hereinafter defined)
in maintaining records relating to Distributor Shares and Post-distributor
Shares. Clause (C) sets forth the rules to be followed by the Transfer Agent for
each Fund and the record owner of each Omnibus Account in determining what
portion of the Asset Based Sales Charge (as hereinafter defined) payable in
respect of each class of Shares of such Fund and what portion of the CDSC (as
hereinafter defined) payable by the holders of Shares of such Fund is
attributable to Distributor Shares and Post-distributor Shares, respectively.
(A) DEFINITIONS:
Generally, for purposes of this Schedule I, defined terms shall be used
with the meaning assigned to them in the Agreement, except that for purposes of
the following rules the following definitions are also applicable:
"Agreement" shall mean the Principal Underwriting Agreement for Class B-1
Shares of the Instant Fund dated as of June 1, 1995 between the Instant Fund and
the Distributor.
"Asset Based Sales Charge" shall have the meaning set forth in Section
26(b)(8)(C) of the Rules of Fair Practice it being understood that for purposes
of this Exhibit I such term does not include the Service Fee.
"Business Day" shall mean any day on which the banks and the New York Stock
Exchange are not authorized or required to close in New York City.
"Capital Gain Dividend" shall mean, in respect of any Share of any Fund, a
Dividend in respect of such Share which is designated by such Fund as being a
"capital gain dividend" as such term is defined in Section 852 of the Internal
Revenue Code of 1986, as amended.
"CDSC" shall mean with respect to any Fund, the contingent deferred sales
charge payable, either directly or by withholding from the proceeds of the
redemption of the Shares of such Fund, by the shareholders of such Fund on any
redemption of Shares of such Fund in accordance with the Prospectus relating to
such Fund.
"Commission Share" shall mean, in respect of any Fund, a Share of such Fund
issued under circumstances where a CDSC would be payable upon the redemption of
such Share if such CDSC is not waived or shall have not otherwise expired.
"Date of Original Purchase" shall mean, in respect of any Commission Share
of any Fund, the date on which such Commission Share was first issued by such
Fund; provided, that if such Share is a Commission Share and such Fund issued
the Commission Share (or portion thereof) in question in connection with a Free
Exchange for a Commission Share (or portion thereof) of another Fund, the Date
of Original Purchase for the Commission Share (or portion thereof) in question
shall be the date on which the Commission Share (or portion thereof) of the
other Fund was first issued by such other Fund (unless such Commission Share (or
portion thereof) was also issued by such other Fund in a Free Exchange, in which
case this proviso shall apply to that Free Exchange and this application shall
be repeated until one reaches a Commission Share (or portion thereof) which was
issued by a Fund other than in a Free Exchange).
"Distributor" shall mean Keystone Investment Distributors Company, its
successors and assigns.
"Distributor's Account" shall mean the account of the Distributor, account
no. 9903-584-2, ABA No. 011 0000 28, entitled "General Account" maintained with
State Street Bank & Trust Company or such other account as the Distributor may
designate in a notice to the Transfer Agent.
"Distributor Inception Date" shall mean, in respect of any Fund, the date
identified as the date Shares of such Fund are first sold by the Distributor.
"Distributor Last Sale Cut-off Date" shall mean, in respect of any Fund,
the date identified as the last sale of a Commission Share during the period the
Distributor served as principal underwriter under the Agreement.
"Distributor Shares" shall mean, in respect of any Fund, all Shares of such
Fund the Month of Original Purchase of which occurs on or after the Inception
Date for such Fund and on or prior to the Distributor Last Sale Cut-off Date in
respect of such Fund.
"Dividend" shall mean, in respect of any Share of any Fund, any dividend or
other distribution by such Fund in respect of such Share.
"Free Exchange" shall mean any exchange of a Commission Share (or portion
thereof) of one Fund (the "Redeeming Fund") for a Share (or portion thereof) of
another Fund (the "Issuing Fund"), under any arrangement which defers the
exchanging Shareholder's obligation to pay the CDSC in respect of the Commission
Share (or portion thereof) of the Redeeming Fund so exchanged until the later
redemption of the Share (or portion thereof) of the Issuing Fund received in
such exchange.
"Free Share" shall mean, in respect of any Fund, each Share of such Fund
other than a Commission Share, including, without limitation: (i) Shares issued
in connection with the automatic reinvestment of Capital Gain Dividends or Other
Dividends by such Fund, (ii) Special Free Shares issued by such Fund and (iii)
Shares (or portion thereof) issued by such Fund in connection with an exchange
whereby a Free Share (or portion thereof) of another Fund is redeemed and the
Net Asset Value of such redeemed Free Share (or portion thereof) is invested in
such Shares (or portion thereof) of such Fund.
"Fund" shall mean each of the regulated investment companies or series or
portfolios of regulated investment companies identified in Schedule II to the
Irrevocable Payment Instruction, as the same may be amended from time to time in
accordance with the terms thereof.
"Instant Fund" shall mean Keystone Capital Preservation and Income Fund.
"ML Omnibus Account" shall mean, in respect of any Fund, the Omnibus
Account maintained by Merrill Lynch, Pierce, Fenner & Smith as subtransfer
agent.
"Month of Original Purchase" shall mean, in respect of any Share of any
Fund, the calendar month in which such Share was first issued by such Fund;
provided, that if such Share is a Commission Share and such Fund issued the
Commission Share (or portion thereof) in question in connection with a Free
Exchange for a Commission Share (or portion thereof) of another Fund, the Month
of Original Purchase for the Commission Share (or portion thereof) in question
shall be the calendar month in which the Commission Share (or portion thereof)
of the other Fund was first issued by such other Fund (unless such Commission
Share (or portion thereof) was also issued by such other Fund in a Free
Exchange, in which case this proviso shall apply to that Free Exchange and this
application shall be repeated until one reaches a Commission Share (or portion
thereof) which was issued by a Fund other than in a Free Exchange); provided,
further, that if such Share is a Free Share and such Fund issued such Free Share
in connection with the automatic reinvestment of dividends in respect of other
Shares of such Fund, the Month of Original Purchase of such Free Share shall be
deemed to be the Month of Original Purchase of the Share in respect of which
such dividend was paid; provided, further, that if such Share is a Free Share
and such Fund issued such Free Share in connection with an exchange whereby a
Free Share (or portion thereof) of another Fund is redeemed and the Net Asset
Value of such redeemed Free Share (or portion thereof) is invested in a Free
Share (or portion thereof) of such Fund, the Month of Original Issue of such
Free Share shall be the Month of Original Issue of the Free Share of such other
Fund so redeemed (unless such Free Share of such other Fund was also issued by
such other Fund in such an exchange, in which case this proviso shall apply to
that exchange and this application shall be repeated until one reaches a Free
Share which was issued by a Fund other than in such an exchange); and provided,
finally, that for purposes of this Schedule I each of the following periods
shall be treated as one calendar month for purposes of applying the rules of
this Schedule I to any Fund: (i) the period of time from and including the
Distributor Inception Date for such Fund to and including the last day of the
calendar month in which such Distributor Inception Date occurs; (ii) the period
of time commencing with the first day of the calendar month in which the
Distributor Last Sale Cutoff Date in respect of such Fund occurs to and
including such Distributor Last Sale Cutoff Date; and (iii) the period of time
commencing on the day immediately following the Distributor Last Sale Cutoff
Date in respect of such Fund to and including the last day of the calendar month
in which such Distributor Last Sale Cut-off Date occurs.
"Omnibus Account" shall mean any Shareholder Account the record owner of
which is a registered broker-dealer which has agreed with the Transfer Agent to
provide sub-transfer agent functions relating to each Sub-shareholder Account
within such Shareholder Account as contemplated by this Schedule I in respect of
each of the Funds.
"Omnibus Asset Based Sales Charge Settlement Date" shall mean, in respect
of each Omnibus Account, the Business Day next following the twentieth day of
each calendar month for the calendar month immediately preceding such date so
long as the record owner is able to allocate the Asset Based Sales Charge
accruing in respect of Shares of any Fund as contemplated by this Schedule I no
more frequently than monthly; provided, that at such time as the record owner of
such Omnibus Account is able to provide information sufficient to allocate the
Asset Based Sales Charge accruing in respect of such Shares of such Fund owned
of record by such Omnibus Account as contemplated by this Schedule I on a weekly
or daily basis, the Omnibus Asset Based Sales Charge Settlement Date shall be a
weekly date as in the case of the Omnibus CDSC Settlement Date or a daily date
as in the case of Asset Based Sales Charges accruing in respect of Shareholder
Accounts other than Omnibus Accounts, as the case may be.
"Omnibus CDSC Settlement Date" shall mean, in respect of each Omnibus
Account, the third Business Day of each calendar week for the calendar week
immediately preceding such date so long as the record owner of such Omnibus
Account is able to allocate the CDSCs accruing in respect of any Shares of any
Fund as contemplated by this Schedule I for no more frequently than weekly;
provided, that at such time as the record owner of such Shares of such Fund
owned of record by such Omnibus Account is able to provide information
sufficient to allocate the CDSCs accruing in respect of such Omnibus Account as
contemplated by this Schedule I on a daily basis, the Omnibus CDSC Settlement
Date for such Omnibus Account shall be a daily date as in the case of CDSCs
accruing in respect of Shareholder Accounts other than Omnibus Accounts.
"Original Purchase Amount" shall mean, in respect of any Commission Share
of any Fund, the amount paid (i.e., the Net Asset Value thereof on such date),
on the Date of Original Purchase in respect of such Commission Share, by such
Shareholder Account or Sub-shareholder Account for such Commission Share;
provided, that if such Fund issued the Commission Share (or portion thereof) in
question in connection with a Free Exchange for a Commission Share (or portion
thereof) of another Fund, the Original Purchase Amount for the Commission Share
(or portion thereof) in question shall be the Original Purchase Amount in
respect of such Commission Share (or portion thereof) of such other Fund (unless
such Commission Share (or portion thereof) was also issued by such other Fund in
a Free Exchange, in which case this proviso shall apply to that Free Exchange
and this application shall be repeated until one reaches a Commission Share (or
portion thereof) which was issued by a Fund other than in a Free Exchange).
"Other Dividend" shall mean in respect of any Share, any Dividend paid in
respect of such Share other than a Capital Gain Dividend.
"Post-distributor Shares" shall mean, in respect of any Fund, all Shares of
such Fund the Month of Original Purchase of which occurs after the Distributor
Last Sale Cut-off Date for such Fund.
"Program Agent" shall mean Citicorp North America, Inc., as Program Agent
under the Purchase Agreement, and its successors and assigns in such capacity.
"Purchase Agreement" shall mean that certain Purchase and Sale Agreement
dated as of May 31, 1995, among Keystone Investment Distributors Company, as
Seller, Citibank, N.A., as Purchaser, and Citicorp North America, Inc., as
Program Agent.
"Share" shall mean in respect of any Fund any share of the classes of
shares specified in Schedule II to the Irrevocable Payment Instruction opposite
the name of such Fund, as the same may be amended from time to time by notice
from the Distributor and the Program Agent to the Fund and the Transfer Agent;
provided, that such term shall include, after the Distributor Last Sale Cut-off
Date, a share of a new class of shares of such Fund: (i) with respect to each
record owner of Shares which is not treated in the records of each Transfer
Agent and Sub-transfer Agent for such Fund as an entirely separate and distinct
class of shares from the classes of shares specified Schedule II to the
Irrevocable Payment Instruction or (ii) the shares of which class may be
exchanged for shares of another Fund of the classes of shares specified on
Schedule II to the Irrevocable Payment Instruction of any class existing on or
prior to the Distributor Last Sale Cut-off Date; or (iii) dividends on which can
be reinvested in shares of the classes specified on Schedule II to the
Irrevocable Payment Instruction under the automatic dividend reinvestment
options; or (iv) which is otherwise treated as though it were of the same class
as the class of shares specified on Schedule II to the Irrevocable Payment
Instruction.
"Shareholder Account" shall have the meaning set forth in clause (B)(1)
hereof.
"Special Free Share" shall mean, in respect of any Fund, a Share (other
than a Commission Share) issued by such Fund other than in connection with the
automatic reinvestment of Dividends and other than in connection with an
exchange whereby a Free Share (or portion thereof) of another Fund is redeemed
and the Net Asset Value of such redeemed Share (or portion thereof) is invested
in a Share (or portion thereof) of such Fund.
"Sub-shareholder Account" shall have the meaning set forth in clause (B)(1)
hereof.
"Sub-transfer Agent" shall mean, in respect of each Omnibus Account, the
record owner thereof.
(B) RECORDS TO BE MAINTAINED BY THE TRANSFER AGENT FOR EACH FUND AND THE
RECORD OWNER OF EACH OMNIBUS ACCOUNT:
The Transfer Agent shall maintain Shareholder Accounts, and shall cause
each record owner of each Omnibus Account to maintain Sub-shareholder Accounts,
each in accordance with the following rules:
(1) SHAREHOLDER ACCOUNTS AND SUB-SHAREHOLDER ACCOUNTS. The Transfer Agent
shall maintain a separate account (a "Shareholder Account") for each record
owner of Shares of each Fund. Each Shareholder Account (other than Omnibus
Accounts) will represent a record owner of Shares of such Fund, the records of
which will be kept in accordance with this Schedule I. In the case of an Omnibus
Account, the Transfer Agent shall require that the record owner of the Omnibus
Account maintain a separate account (a "Sub-shareholder Account") for each
record owner of Shares which are reflected in the Omnibus Account, the records
of which will be kept in accordance with this Schedule I. Each such Shareholder
Account and Sub-shareholder Account shall relate solely to Shares of such Fund
and shall not relate to any other class of shares of such Fund.
(2) COMMISSION SHARES. For each Shareholder Account (other than an Omnibus
Account), the Transfer Agent shall maintain daily records of each Commission
Share of such Fund which records shall identify each Commission Share of such
Fund reflected in such Shareholder Account by the Month of Original Purchase of
such Commission Share.
For each Omnibus Account, the Transfer Agent shall require that the
Sub-transfer Agent in respect thereof maintain daily records of such
Sub-shareholder Account which records shall identify each Commission Share of
such Fund reflected in such Sub-shareholder Account by the Month of Original
Purchase; provided, that until the Sub-transfer Agent in respect of the ML
Omnibus Account develops the data processing capability to conform to the
foregoing requirements, such Sub-transfer Agent shall maintain daily records of
Sub-shareholder Accounts which identify each Commission Share of such Fund
reflected in such Sub-shareholder Account by the Date of Original Purchase. Each
such Commission Share shall be identified as either a Distributor Share or a
Post-distributor Share based upon the Month of Original Purchase of such
Commission Share (or in the case of a Sub-shareholder Account within the ML
Omnibus Account, based upon the Date of Original Purchase).
(3) FREE SHARES. The Transfer Agent shall maintain daily records of each
Shareholder Account (other than an Omnibus Account) in respect of any Fund so as
to identify each Free Share (including each Special Free Share) reflected in
such Shareholder Account by the Month of Original Purchase of such Free Share.
In addition, the Transfer Agent shall require that each Shareholder Account
(other than an Omnibus Account) have in effect separate elections relating to
reinvestment of Capital Gain Dividends and relating to reinvestment of Other
Dividends in respect of any Fund. Either such Shareholder Account shall have
elected to reinvest all Capital Gain Dividends or such Shareholder Account shall
have elected to have all Capital Gain Dividends distributed. Similarly, either
such Shareholder Account shall have elected to reinvest all Other Dividends or
such Shareholder Account shall have elected to have all Other Dividends
distributed.
The Transfer Agent shall require that the Sub-transfer Agent in respect of
each Omnibus Account maintain daily records for each Sub-shareholder Account in
the manner described in the immediately preceding paragraph for Shareholder
Accounts (other than Omnibus Accounts); provided, that until the Sub-transfer
Agent in respect of the ML Omnibus Account develops the data processing
capability to conform to the foregoing requirements, such Sub-transfer Agent
shall not be obligated to conform to the foregoing requirements. Each
Sub-shareholder Account shall also have in effect Dividend reinvestment
elections as described in the immediately preceding paragraph.
The Transfer Agent and each Sub-transfer Agent in respect of an Omnibus
Account shall identify each Free Share as either a Distributor Share or a
Post-distributor Share based upon the Month of Original Purchase of such Free
Share; provided, that until the Sub-transfer Agent in respect of the ML Omnibus
Account develops the data processing capability to conform to the foregoing
requirements, the Transfer Agent shall require such Sub-transfer Agent to
identify each Free Share of a given Fund in the ML Omnibus Account as a
Distributor Share, or Post-distributor Share, as follows:
(a) Free Shares of such Fund which are outstanding on the Distributor Last
Sale Cut-off Date for such Fund shall be identified as Distributor
Shares.
(b) Free Shares of such Fund which are issued (whether or not in
connection with an exchange for a Free Share of another Fund) to the
ML Omnibus Account during any calendar month (or portion thereof)
after the Distributor Last Sale Cut-off Date for such Fund shall be
identified as Distributor Shares in a number computed as follows:
A X (B/C)
where:
A = Free Shares of such Fund issued to the ML Omnibus Account during
such calendar month (or portion thereof)
B = Number of Commission Shares and Free Shares of such Fund in the
ML Omnibus Account identified as Distributor Shares and
outstanding as of the close of business in the last day of the
immediately preceding calendar month (or portion thereof)
C = Total number of Commission Shares and Free Shares of such Fund
in the ML Omnibus Account and outstanding as of the close of
business on the last day of the immediately preceding calendar
month (or portion thereof).
(c) Free Shares of such Fund which are issued (whether or not in
connection with an exchange for a free share of another Fund) to the
ML Omnibus Account during any calendar month (or portion thereof)
after the Distributor Last Sale Cut-off Date for such Fund shall be
identified as Post-distributor Shares in a number computed as follows:
(A X (B/C)
where:
A = Free Shares of such Fund issued to the ML Omnibus Account during
such calendar month (or portion thereof)
B = Number of Commission Shares and Free Shares of such Fund in the
ML Omnibus Account identified as Post-distributor Shares and
outstanding as of the close of business in the last day of the
immediately preceding calendar month (or portion thereof)
C = Total number of Commission Shares and Free Shares of such Fund
in the ML Omnibus Account and outstanding as of the close of
business on the last day of the immediately preceding calendar
month (or portion thereof).
(d) Free Shares of such Fund which are redeemed (whether or not in
connection with an exchange for Free Shares of another Fund or in
connection with the conversion of such Shares into a Class A Share of
such Fund) from the ML Omnibus Account in any calendar month (or
portion thereof) after the Distributor Last Sale Cut-off Date for such
Fund shall be identified as Distributor Shares in a number computed as
follows:
A X (B/C)
Where:
A = Free Shares of such Fund which are redeemed (whether or not in
connection with an exchange for Free Shares of another Fund or in
connection with the conversion of such Shares into a class A share
of such Fund) from the ML Omnibus Account during such calendar
month (or portion thereof)
B = Free Shares of such Fund in the ML Omnibus Account identified as
Distributor Shares and outstanding as of the close of business on
the last day of the immediately preceding calendar month.
C = Total number of Free Shares of such Fund in the ML Omnibus
Account and outstanding as of the close of business on the last
day of the immediately preceding calendar month.
(e) Free Shares of such Fund which are redeemed (whether or not in
connection with an exchange for Free Shares of another Fund or in
connection with the conversion of such Shares into a class A share of
such Fund) from the ML Omnibus Account in any calendar month (or
portion thereof) after the Distributor Last Sale Cut-off Date for such
Fund shall be identified as Post-distributor Shares in a number
computed as follows:
A X (B/C)
where:
A = Free Shares of such Fund which are redeemed (whether or not in
connection with an exchange for Free Shares of another Fund or in
connection with the conversion of such Shares into a class A share
of such Fund) from the ML Omnibus Account during such calendar
month (or portion thereof)
B = Free Shares of such Fund in the ML Omnibus Account identified as
Post-distributor Shares and outstanding as of the close of
business on the last day of the immediately preceding calendar
month.
C = Total number of Free Shares of such Fund in the ML Omnibus
Account and outstanding as of the close of business on the last
day of the immediately preceding calendar month.
(4) APPRECIATION AMOUNT AND COST ACCUMULATION AMOUNT. The Transfer Agent
shall maintain on a daily basis in respect of each Shareholder Account (other
than Omnibus Accounts) a Cost Accumulation Amount representing the total of the
Original Purchase Amounts paid by such Shareholder Account for all Commission
Shares reflected in such Shareholder Account as of the close of business on each
day. In addition, the Transfer Agent shall maintain on a daily basis in respect
of each Shareholder Account (other than Omnibus Accounts) sufficient records to
enable it to compute, as of the date of any actual or deemed redemption or Free
Exchange of a Commission Share reflected in such Shareholder Account an amount
(such amount an "Appreciation Amount") equal to the excess, if any, of the Net
Asset Value as of the close of business on such day of the Commission Shares
reflected in such Shareholder Account minus the Cost Accumulation Amount as of
the close of business on such day. In the event that a Commission Share (or
portion thereof) reflected in a Shareholder Account is redeemed or under these
rules is deemed to have been redeemed (whether in a Free Exchange or otherwise),
the Appreciation Amount for such Shareholder Account shall be reduced, to the
extent thereof, by the Net Asset Value of the Commission Share (or portion
thereof) redeemed, and if the Net Asset Value of the Commission Share (or
portion thereof) being redeemed equals or exceeds the Appreciation Amount, the
Cost Accumulation Amount will be reduced to the extent thereof, by such excess.
If the Appreciation Amount for such Shareholder Account immediately prior to any
redemption of a Commission Share (or portion thereof) is equal to or greater
than the Net Asset Value of such Commission Share (or portion thereof) deemed to
have been tendered for redemption, no CDSCs will be payable in respect of such
Commission Share (or portion thereof).
The Transfer Agent shall require that the Sub-transfer Agent in respect of
each Omnibus Account maintain on a daily basis in respect of each
Sub-shareholder Account reflected in such Omnibus Account a Cost Accumulation
Amount and sufficient records to enable it to compute, as of the date of any
actual or deemed redemption or Free Exchange of a Commission Share reflected in
such Sub-shareholder Account an Appreciation Amount in accordance with the
preceding paragraph and to apply the same to determine whether a CDSC is payable
(as though such Sub-shareholder Account were a Shareholder Account other than an
Omnibus Account; provided, that until the Sub-transfer Agent in respect of the
ML Omnibus Account develops the data processing capability to conform to the
foregoing requirements, such Sub-transfer Agent shall maintain for each
Sub-shareholder Account a separate Cost Accumulation Amount and a separate
Appreciation Amount for each Date of Original Purchase of any Commission Share
which shall be applied as set forth in the preceding paragraph as if each Date
of Original Purchase were a separate Month of Original Purchase.
(5) NASD CAP. On the date the distribution fees paid in respect of any
class of Shares equals the maximum amount thereon under the Rules of Fair
Practice, in respect of such class, all outstanding Shares of such class of such
Fund shall be converted into Class A shares of such Fund and will be deemed to
have been redeemed for their Net Asset Value for purposes of this Schedule I.
(6) IDENTIFICATION OF REDEEMED SHARES. If a Shareholder Account (other than
an Omnibus Account) tenders a Share of a Fund for redemption (other than in
connection with an exchange of such Share for a Share of another Fund or in
connection with the conversion of such Share pursuant to a Conversion Feature),
such tendered Share will be deemed to be a Free Share if there are any Free
Shares reflected in such Shareholder Account immediately prior to such tender.
If there is more than one Free Share reflected in such Shareholder Account
immediately prior to such tender, such tendered Share will be deemed to be the
Free Share with the earliest Month of Original Purchase. If there are no Free
Shares reflected in such Shareholder Account immediately prior to such tender,
such tendered Share will be deemed to be the Commission Share with the earliest
Month of Original Purchase reflected in such Shareholder Account.
If a Sub-shareholder Account reflected in an Omnibus Account tenders a
Share for redemption (other than in connection with an Exchange of such Share
for a Share of another Fund or in connection with the conversion of such Share
pursuant to a Conversion Feature), the Transfer Agent shall require that the
record owner of each Omnibus Account supply the Transfer Agent sufficient
records to enable the Transfer Agent to apply the rules of the preceding
paragraph to such Sub-shareholder Account (as though such Sub-shareholder
Account were a Shareholder Account other than an Omnibus Account); provided,
that until the Sub-transfer Agent in respect of the ML Omnibus Account develops
the data processing capability to conform to the foregoing requirements, such
Sub-transfer Agent shall not be required to conform to the foregoing rules
regarding Free Shares (and the Transfer Agent shall account for such Free Shares
as provided in (3) above) but shall apply the foregoing rules to each Commission
Share with respect to the Date of Original Purchase of any Commission Share as
though each such Date were a separate Month of Original Purchase.
(7) IDENTIFICATION OF EXCHANGED SHARES. When a Shareholder Account (other
than an Omnibus Account) tenders Shares of one Fund (the "Redeeming Fund") for
redemption where the proceeds of such redemption are to be automatically
reinvested in shares of another Fund (the "Issuing Fund") to effect an exchange
(whether or not pursuant to a Free Exchange) into Shares of the Issuing Fund:
(1) such Shareholder Account will be deemed to have tendered Shares (or portions
thereof) of the Redeeming Fund with each Month of Original Purchase represented
by Shares of the Redeeming Fund reflected in such Shareholder Account
immediately prior to such tender in the same proportion that the number of
Shares of the redeeming Fund with such Month of Original Purchase reflected in
such Shareholder immediately prior to such tender bore to the total number of
Shares of the Redeeming Fund reflected in such Shareholder Account immediately
prior to such tender, and on that basis the tendered Shares of the Redeeming
Fund will be identified as Distributor Shares or Post-distributor Shares; (2)
such Shareholder Account will be deemed to have tendered Commission Shares (or
portions thereof) and Free Shares (or portions thereof) of the Redeeming Fund of
each category (i.e., Distributor Shares or Post-distributor Shares) in the same
proportion that the number of Commission Shares or Free Shares (as the case may
be) of the Redeeming Fund in such category reflected in such Shareholder Account
bore to the total number of Shares of the Redeeming Fund in such category
reflected in such Shareholder Account immediately prior to such tender, (3) the
Shares (or portions thereof) of the Issuing Fund issued in connection with such
exchange will be deemed to have the same Months of Original Purchase as the
Shares (or portions thereof) of the Redeeming Fund so tendered and will be
categorized as Distributor Shares and Post-distributor Shares accordingly, and
(4) the Shares (or portions thereof) of each Category of the Issuing Fund issued
in connection with such exchange will be deemed to be Commission Shares and Free
Shares in the same proportion that the Shares of such Category of the Redeeming
Fund were Commission Shares and Free Shares.
The Transfer Agent shall require that each record owner of an Omnibus
Account maintain records relating to each Sub-shareholder Account in such
Omnibus Account sufficient to apply the foregoing rules to each such
Sub-shareholder Account (as though such Sub-shareholder Account were a
Shareholder Account other than an Omnibus Account); provided, that until the
Sub-transfer Agent in respect of the ML Omnibus Account develops the data
processing capability to conform to the foregoing requirements, such
Sub-transfer Agent shall not be required to conform to the foregoing rules
relating to Free Shares (and the Sub-transfer Agent shall account for such Free
Shares as provided in (3) above) and shall apply a first-in-first-out procedure
(based upon the Date of Original Purchase) to determine which Commission Shares
(or portions thereof) of a Redeeming Fund were redeemed in connection with an
exchange.
(8) IDENTIFICATION OF CONVERTED SHARES. The Transfer Agent records
maintained for each Shareholder Account (other than an Omnibus Account) will
treat each Commission Share of a Fund as though it were redeemed at its Net
Asset Value on the date such Commission Share converts into a class A share of
such Fund in accordance with an applicable Conversion Feature applied with
reference to its Month of Original Purchase and will treat each Free Share of
such Fund with a given Month of Original Purchase as though it were redeemed at
its Net Asset Value when it is simultaneously converted to a class A share at
the time the Commission Shares of such Fund with such Month of Original Purchase
are so converted.
The Transfer Agent shall require that each record owner of an Omnibus
Account maintain records relating to each Sub-shareholder Account in such
Omnibus Account sufficient to apply the foregoing rules to each such
Sub-shareholder Account (as though such Sub-shareholder Account were a
Shareholder Account other than an Omnibus Account) ; provided, that until the
Sub-transfer Agent in respect of the ML Omnibus Account develops the data
processing capability to conform to the foregoing requirements, such
Sub-transfer Agent shall apply the foregoing rules to Commission Shares with
reference to the Date of Original Issue of each Commission Share (as though each
such date were a separate Month of Original Issue) and shall not be required to
apply the foregoing rules to Free Shares (and the Sub-transfer Agent shall
account for such Free Shares as provided in (3) above).
(C) ALLOCATIONS OF ASSET BASED SALE CHARGES AND CDSCS AMONG DISTRIBUTOR
SHARES AND POST-DISTRIBUTOR SHARES:
The Transfer Agent shall use the following rules to allocate the amounts of
Asset Based Sales Charges and CDSCs payable by each Fund in respect of Shares
between Distributor Shares and Post-distributor Shares:
(1) RECEIVABLES CONSTITUTING CDSCS: CDSCs will be treated as relating to
Distributor Shares or Post-distributor Shares depending upon the Month of
Original Purchase of the Commission Share the redemption of which gives rise to
the payment of a CDSC by a Shareholder Account.
The Transfer Agent shall cause each Sub-transfer Agent to apply the
foregoing rule to each Sub-shareholder Account based on the records maintained
by such Sub-transfer Agent; provided, that until the Sub-transfer Agent in
respect of the ML Omnibus Account develops the data processing capability to
conform to the foregoing requirements, such Sub-transfer Agent shall apply the
foregoing rules to each Sub-shareholder Account with respect to the Date of
Original Purchase of any Commission Share as though each such date were a
separate Month of Original Purchase.
(2) RECEIVABLES CONSTITUTING ASSET BASED SALES CHARGES:
The Asset Based Sales Charges accruing in respect of each Shareholder
Account (other than an Omnibus Account) shall be allocated to each Share
reflected in such Shareholder Account as of the close of business on such day on
an equal per share basis. For example, the Asset Based Sales Charges
attributable to Distributor Shares on any day shall be computed and allocated as
follows:
A X (B/C)
where:
A. = Total amount of Asset Based Sales Charge accrued in respect of such
Shareholder Account (other than an Omnibus Account) on such day.
B. = Number of Distributor Shares reflected in such Shareholder Account
(other than an Omnibus Account) on the close of business on such day
C. = Total number of Distributor Shares and Post-Distributor Shares
reflected in such Shareholder Account (other than an Omnibus Account)
and outstanding as of the close of business on such day.
The Portion of the Asset Based Sales Charges of such Fund accruing in respect of
such Shareholder Account for such day allocated to Post-distributor Shares will
be obtained using the same formula but substituting for "B" the number of
Post-distributor Shares, as the case may be, reflected in such Shareholder
Account and outstanding on the close of business on such day. The foregoing
allocation formula may be adjusted from time to time by notice to the Fund and
the transfer agent for the Fund from the Seller and the Program Agent pursuant
to Section 8.18 of the Purchase Agreement.
The Transfer Agent shall, based on the records maintained by the record
owner of such Omnibus Account, allocate the Asset Based Sales Charge accruing in
respect of each Omnibus Account on each day among all Sub-shareholder Accounts
reflected in such Omnibus Account on an equal per share basis based upon the
total number of Distributor Shares and Post-distributor Shares reflected in each
such Sub-shareholder Account as of the close of business on such day. In
addition, the Transfer Agent shall apply the foregoing rules to each
Sub-shareholder Account (as though it were a Shareholder Account other than an
Omnibus Account), based on the records maintained by the record owner, to
allocate the Asset Based Sales Charge so allocated to any Sub-shareholder
Account among the Distributor Shares and Post-distributor Shares reflected in
each such Sub-shareholder Account in accordance with the rules set forth in the
preceding paragraph; provided, that until the Sub-transfer Agent in respect of
the ML Omnibus Account develops the data processing capacity to apply the rules
of this Schedule I as applicable to Sub-shareholder Accounts other than ML
Omnibus Accounts, the Transfer Agent shall allocate the Asset Based Sales Charge
accruing in respect of Shares of any Fund in the ML Omnibus Account during any
calendar month (or portion thereof) among Distributor Shares and
Post-distributor Shares as follows:
(a) The portion of such Asset Based Sales Charge allocable to Distributor
Shares shall be computed as follows:
A X ((B + C)/2)
-----------
((D + E)/2)
where:
A = Total amount of Asset Based Sales Charge accrued during such
calendar month (or portion thereof) in respect of Shares of such
Fund in the ML Omnibus Account
B = Shares of such Fund in the ML Omnibus Account and identified as
Distributor Shares and outstanding as of the close of business on
the last day of the immediately preceding calendar month (or
portion thereof), times Net Asset Value per Share as of such time
C = Shares of such Fund in the ML Omnibus Account and identified as
Distributor Shares and outstanding as of the close of business on
the last day of such calendar month (or portion thereof), times
Net Asset Value per Share as of such time
D = Total number of Shares of such Fund in the ML Omnibus Account
and outstanding as of the close of business on the last day of
the immediately preceding calendar month (or portion thereof),
times Net Asset Value per Share as of such time.
E = Total number of Shares of such Fund in the ML Omnibus Account
and outstanding as of the close of business on the last day of
such calendar month (or portion thereof), times Net Asset Value
per Share as of such time.
(b) The portion of such Asset Based Sales Charge allocable to
Post-distributor Shares shall be computed s follows:
A X ((B + C)/2)
-----------
((D + E)/2)
where:
A = Total amount of Asset Based Sales Charge accrued during such
calendar month (or portion thereof) in respect of Shares of such
Fund in the ML Omnibus Account
B = Shares of such Fund in the ML Omnibus Account and identified as
Post-distributor Shares and outstanding as of the close of
business on the last day of the immediately preceding calendar
month (or portion thereof), times Net Asset Value per Share as of
such time
C = Shares of such Fund in the ML Omnibus Account and identified as
Post-distributor Shares and outstanding as of the close of
business on the last day of such calendar month (or portion
thereof), times Net Asset Value per Share as of such time
D = Total number of Shares of such Fund in the ML Omnibus Account
and outstanding as of the close of business on the last day of
the immediately preceding calendar month (or portion thereof),
times Net Asset Value per Share as of such time.
E = Total number of Shares of such Fund in the ML Omnibus Account
outstanding as of the close of business on the last day of such
calendar month, times Net Asset Value per Share as of such time.
(3) PAYMENTS ON BEHALF OF EACH FUND.
On the close of business on each day the Transfer Agent shall cause payment to
be made of the amount of the Asset Based Sales Charge and CDSCs accruing on such
day in respect of the Shares of such Fund owned of record by Shareholder
Accounts (other than Omnibus Accounts) by two separate wire transfers, directly
from accounts of such Fund as follows:
1. The Asset Based Sales Charge and CDSCs accruing in respect of
Shareholder Accounts other than Omnibus Accounts and allocable to
Distributor Shares in accordance with the preceding rules shall be paid to
the Distributor's Account, unless the Distributor otherwise instructs the
Fund in any irrevocable payment instruction; and
2. The Asset Based Sales Charges and CDSCs accruing in respect of
Shareholder Accounts other than Omnibus Accounts and allocable to
Post-distributor Shares in accordance with the preceding rules shall be
paid in accordance with direction received from any future distributor of
Shares of the Instant Fund.
On each Omnibus CDSC Settlement Date, the Transfer Agent for each Fund
shall cause the applicable Sub-transfer Agent to cause payment to be made of the
amount of the CDSCs accruing during the period to which such Omnibus CDSC
Settlement Date relates in respect of the Shares of such Fund owned of record by
each Omnibus Account by two separate wire transfers directly from the account of
such Fund maintained by such Transfer Agent, as follows:
1. The CDSCs accruing in respect of such Omnibus Account and allocable to
Distributor Shares in accordance with the preceding rules shall be paid to
the Distributor's Account, unless the Distributor otherwise instructs the
Fund in any irrevocable payment instruction; and
2. The CDSCs accruing in respect of such Omnibus Account and allocable to
Post-distributor Shares in accordance with the preceding rules shall be
paid in accordance with direction received from any future distributor of
Shares of the Instant Fund.
On each Omnibus Asset Based Sales Charge Settlement Date the Transfer Agent
for each Fund shall cause payment to be made of the amount of the Asset Based
Sales Charge accruing for the period to which such Omnibus Asset Based Sales
Charge Settlement Date relates in respect of the Shares of such Fund owned of
record by each Omnibus Account by two separate wire transfers directly from
accounts of such Fund as follows:
1. The Asset Based Sales Charge accruing in respect of such Omnibus Account
and allocable to Distributor Shares shall be paid to the Distributor's
Collection Account, unless the Distributor otherwise instructs the Fund in
any irrevocable payment instruction; and
2. The Asset Based Sales Charge accruing in respect of such Omnibus Account
and allocable to Post-Distributor Shares shall be paid in accordance with
direction received from any future distributor of Shares of the Instant
Fund.
<PAGE>
PRINCIPAL UNDERWRITING AGREEMENT
FOR CLASS B-2 SHARES
OF
KEYSTONE CAPITAL PRESERVATION AND INCOME FUND
AGREEMENT made this 31st day of May 1995 by and between Keystone Capital
Preservation and Income Fund, a Massachusetts business trust, ("Fund"), and
Keystone Investment Distributors Company, a Delaware corporation (the "Principal
Underwriter").
The Fund, individually and/or on behalf of its series, if any, referred to
above in the title of this Agreement, to which series, if any, this Agreement
shall relate, as applicable (the Fund ), may act as the distributor of certain
securities of which it is the issuer pursuant to Rule 12b-1 under the Investment
Company Act of 1940 (the 1940 Act ). Accordingly, it is hereby mutually agreed
as follows:
1. The Fund hereby appoints the Principal Underwriter a principal
underwriter of the Class B-2 shares of beneficial interest of the Fund ("B-2
Shares") as an independent contractor upon the terms and conditions hereinafter
set forth. The general term "Shares" as used herein has the same meaning as is
provided therefor in Schedule I hereto. Except as the Fund may from time to time
agree, the Principal Underwriter will act as agent for the Fund and not as
principal.
2. The Principal Underwriter will use its best efforts to find purchasers
for the B-2 Shares and to promote distribution of the B-2 Shares and may obtain
orders from brokers, dealers or other persons for sales of B-2 Shares to them.
No such dealer, broker or other person shall have any authority to act as agent
for the Fund; such dealer, broker or other person shall act only as principal in
the sale of B-2 Shares.
3. Sales of B-2 Shares by Principal Underwriter shall be at the public
offering price determined in the manner set forth in the prospectus and/or
statement of additional information of the Fund current at the time of the
Fund's acceptance of the order for B-2 Shares. All orders shall be subject to
acceptance by the Fund and the Fund reserves the right in its sole discretion to
reject any order received. The Fund shall not be liable to anyone for failure to
accept any order.
4. On all sales of B-2 Shares the Fund shall receive the current net asset
value. The Fund shall pay the Principal Underwriter Distribution Fees (as
defined in Section 14 hereof), as commissions for the sale of B-2 Shares and
other Shares, which shall be paid in conjunction with distribution fees paid to
the Principal Underwriter by other classes of Shares of the Fund to the extent
required in order to comply with Section 14 hereof, and shall pay over to the
Principal Underwriter CDSCs (as defined in Section 14 hereof) as set forth in
the Fund's current prospectus and statement of additional information, and as
required by Section 14 hereof. The Principal Underwriter shall also receive
payments consisting of shareholder service fees ("Service Fees") at the rate of
.25% per annum of the average daily net asset value of the Class B-2 Shares. The
Principal Underwriter may allow all or a part of said Distribution Fees and
CDSCs received by it (not paid to others as hereinafter provided) to such
brokers, dealers or other persons as Principal Underwriter may determine.
5. Payment to the Fund for B-2 Shares shall be in New York or Boston
Clearing House funds received by the Principal Underwriter within three business
days after notice of acceptance of the purchase order and the amount of the
applicable public offering price has been given to the purchaser. If such
payment is not received within such period, the Fund reserves the right, without
further notice, forthwith to cancel its acceptance of any such order. The Fund
shall pay such issue taxes as may be required by law in connection with the
issue of the B-2 Shares.
6. The Principal Underwriter shall not make in connection with any sale or
solicitation of a sale of the B-2 Shares any representations concerning the B-2
Shares except those contained in the then current prospectus and/or statement of
additional information covering the Shares and in printed information approved
by the Fund as information supplemental to such prospectus and statement of
additional information. Copies of the then current prospectus and statement of
additional information and any such printed supplemental information will be
supplied by the Fund to the Principal Underwriter in reasonable quantities upon
request.
7. The Principal Underwriter agrees to comply with the Rules of Fair
Practice of the National Association of Securities Dealers, Inc. (as defined in
the Purchase and Sale Agreement, dated as of May 31, 1995 (the Purchase
Agreement ), between the Principal Underwriter, Citibank, N.A. and Citicorp
North America, Inc., as agent (the "Rules of Fair Practice")).
8. The Fund appoints the Principal Underwriter as its agent to accept
orders for redemptions and repurchases of B-2 Shares at values and in the manner
determined in accordance with the then current prospectus and/or statement of
additional information of the Fund.
9. The Fund agrees to indemnify and hold harmless the Principal
Underwriter, its officers and Directors and each person, if any, who controls
the Principal Underwriter within the meaning of Section 15 of the Securities Act
of 1933 ("1933 Act"), against any losses, claims, damages, liabilities and
expenses (including the cost of any legal fees incurred in connection therewith)
which the Principal Underwriter, its officers, Directors or any such controlling
person may incur under the 1933 Act, under any other statute, at common law or
otherwise, arising out of or based upon
a. any untrue statement or alleged untrue statement of a material fact
contained in the Fund's registration statement, prospectus or
statement of additional information (including amendments and
supplements thereto) or
b. any omission or alleged omission to state a material fact required to
be stated in the Fund's registration statement, prospectus or
statement of additional information necessary to make the statements
therein not misleading, provided, however, that insofar as losses,
claims, damages, liabilities or expenses arise out of or are based
upon any such untrue statement or omission or alleged untrue statement
or omission made in reliance and in conformity with information
furnished to the Fund by the Principal Underwriter for use in the
Fund's registration statement, prospectus or statement of additional
information, such indemnification is not applicable. In no case shall
the Fund indemnify the Principal Underwriter or its controlling person
as to any amounts incurred for any liability arising out of or based
upon any action for which the Principal Underwriter, its officers and
Directors or any controlling person would otherwise be subject to
liability by reason of willful misfeasance, bad faith, or gross
negligence in the performance of its duties or by reason of the
reckless disregard of its obligations and duties under this Agreement.
10. The Principal Underwriter agrees to indemnify and hold harmless the
Fund, its officers and Trustees and each person, if any, who controls the Fund
within the meaning of Section 15 of the 1933 Act against any loss, claims,
damages, liabilities and expenses (including the cost of any legal fees incurred
in connection therewith) which the Fund, its officers, Directors or any such
controlling person may incur under the 1933 Act, under any other statute, at
common law or otherwise arising out of the acquisition of any Shares by any
person which
(a) may be based upon any wrongful act by the Principal Underwriter or any
of its employees or representatives, or
(b) may be based upon any untrue statement or alleged untrue statement of
a material fact contained in the Fund's registration statement,
prospectus or statement of additional information (including
amendments and supplements thereto), or any omission or alleged
omission to state a material fact required to be stated therein or
necessary to make the statements therein not misleading, if such
statement or omission was made in reliance upon information furnished
or confirmed in writing to the Fund by the Principal Underwriter.
11. The Fund agrees to execute such papers and to do such acts and things
as shall from time to time be reasonably requested by the Principal Underwriter
for the purpose of qualifying the B-2 Shares for sale under the so-called "blue
sky" laws of any state or for registering B-2 Shares under the 1933 Act or the
Fund under the Investment Company Act of 1940 ("1940 Act"). The Principal
Underwriter shall bear the expenses of preparing, printing and distributing
advertising, sales literature, prospectuses, and statements of additional
information. The Fund shall bear the expense of registering B-2 Shares under the
1933 Act and the Fund under the 1940 Act, qualifying B-2 Shares for sale under
the so-called "blue sky" laws of any state, the preparation and printing of
prospectuses, statements of additional information and reports required to be
filed with the Securities and Exchange Commission and other authorities, the
preparation, printing and mailing of prospectuses and statements of additional
information to holders of B-2 Shares, and the direct expenses of the issue of
B-2 Shares.
12. The Principal Underwriter shall, at the request of the Fund, provide to
the Board of Trustees or Directors (together herein called the Directors ) of
the Fund in connection with sales of B-2 Shares not less than quarterly a
written report of the amounts received from the Fund therefor and the purpose
for which such expenditures by the Fund were made.
13. The term of this Agreement shall begin on the date hereof and, unless
sooner terminated or continued as provided below, shall expire after one year.
This Agreement shall continue in effect after such term if its continuance is
specifically approved by a majority of the outstanding voting securities of
Class B-2 of the Fund or by a majority of the Directors of the Fund and a
majority of the Directors who are not parties to this Agreement or "interested
persons", as defined in the Investment Company Act of 1940 (the 1940 Act ), of
any such party and who have no direct or indirect financial interest in the
operation of the Fund's Rule 12b-1 plan for Class B-2 Shares or in any
agreements related to the plan at least annually in accordance with the 1940 Act
and the rules and regulations thereunder.
This Agreement may be terminated at any time, without payment of any
penalty, by vote of a majority of the Directors of the Fund, or a majority of
such Directors who are not parties to this Agreement or "interested persons", as
defined in the 1940 Act, of any such party and who have no direct or indirect
financial interest in the operation of the Fund's Rule 12b-1 plan for Class B-2
Shares or in any agreement related to the plan or by a vote of a majority of the
outstanding voting securities of Class B-2 on not more than sixty days written
notice to any other party to the agreement; and shall terminate automatically in
the event of its assignment (as defined in the 1940 Act), which shall not
include assignment of the Principal Underwriter's (as hereinafter defined)
provided for hereunder and/or rights related to such Allocable Portions.
14. The provisions of this Section 14 shall be applicable to the extent
necessary to enable the Fund to comply with the obligation of the Fund to pay
the Principal Underwriter its Allocable Portion of Distribution Fees paid in
respect of Shares while the Fund is required to do so pursuant the Principal
Underwriting Agreement, of even date herewith, in respect of Class B-2 Shares,
and shall remain in effect so long as any payments are required to be made by
the Fund pursuant to the irrevocable payment instruction (as defined in the
Purchase Agreement (the Irrevocable Payment Instruction )).
14.1 The Fund shall pay to the Principal Underwriter the Principal
Underwriter's Allocable Portion (as hereinafter defined) of a fee (the
"Distribution Fee") at the rate of .75% per annum of the average daily net asset
value of the Shares, subject to the limitation on the maximum aggregate amount
of such fees under the Rules of Fair Practice as applicable to such Distribution
Fee on the date hereof.
14.2 The Principal Underwriter's Allocable Portion of Distribution Fees
paid by the Fund in respect of Shares shall be equal to the portion of the Asset
Based Sales Charge allocable to Distributor Shares (as defined in Schedule I
hereto to this Agreement) in accordance with Schedule I hereto. The Fund agrees
to cause its transfer agent to maintain the records and arrange for the payments
on behalf of the Fund at the times and in the amounts and to the accounts
required by Schedule I hereto, as the same may be amended from time to time. It
is acknowledged and agreed that by virtue of the operation of Schedule I hereto
the Principal Underwriter's Allocable Portion of Distribution Fees paid by the
Fund in respect of Shares, may, to the extent provided in Schedule I hereto,
take into account Distribution Fees payable by the Fund in respect of other
existing and future classes and/or sub-classes of shares of the Fund which would
be treated as "Shares" under Schedule I hereto. The Fund will limit amounts paid
to any subsequent principal underwriters of Shares to the portion of the Asset
Based Sales Charge paid in respect of Shares which is allocable to
Post-distributor Shares (as defined in Schedule I hereto) in accordance with
Schedule I hereto. The Fund's payments to the Principal Underwriter in
consideration of its services in connection with the sale of B-2 Shares shall be
the Distribution Fees attributable to B-2 Shares which are Distributor Shares
(as defined in Schedule I hereto) and all other amounts constituting the
Principal Underwriter's Allocable Portion of Distribution Fees shall be the
Distribution Fees related to the sale of other Shares which are Distributor
Shares (as defined in Schedule I hereto).
The Fund shall cause its transfer agent and sub-transfer agents to withhold
from redemption proceeds payable to holders of Shares on redemption thereof the
contingent deferred sales charges payable upon redemption thereof as set forth
in the then current prospectus and/or statement of additional information of the
Fund ("CDSCs") and to pay over to the Principal Underwriter The Principal
Underwriter's Allocable Portion of said CDSCs paid in respect of Shares which
shall be equal to the portion thereof allocable to Distributor Shares (as
defined in Schedule I hereto) in accordance with Schedule I hereto.
14.3 The Principal Underwriter shall be considered to have completely
earned the right to the payment of its Allocable Portion of the Distribution Fee
and the right to payment over to it of its' Allocable Portion of the CDSC in
respect of Shares as provided for hereby upon the completion of the sale of each
Commission Share (as defined in Schedule I hereto) taken into account as a
Distributor Share in computing the Principal Underwriter's Allocable Portion in
accordance with Schedule I hereto.
14.4 Except as provided in Section 14.5 hereof in respect of Distribution
Fees only, the Fund's obligation to pay the Principal Underwriter the
Distribution Fees and to pay over to the Principal Underwriter CDSCs provided
for hereby shall be absolute and unconditional and shall not be subject to
dispute, offset, counterclaim or any defense whatsoever (it being understood
that nothing in this sentence shall be deemed a waiver by the Fund of its right
separately to pursue any claims it may have against the Principal Underwriter
and enforce such claims against any assets (other than the Principal
Underwriter's right to its Allocable Portion of the Distribution Fees and CDSCs
(the "Collection Rights") of the Principal Underwriter).
14.5 Notwithstanding anything in this Agreement to the contrary, the Fund
shall pay to the Principal Underwriter its Allocable Portion of Distribution
Fees provided for hereby notwithstanding its termination as Principal
Underwriter for the Shares or any termination of this Agreement and such payment
of such Distribution Fees, and that obligation and the method of computing such
payment, shall not be changed or terminated except to the extent required by any
change in applicable law, including, without limitation, the 1940 Act, the Rules
promulgated thereunder by the Securities and Exchange Commission and the Rules
of Fair Practice, in each case enacted or promulgated after 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 CAPITAL PRESERVATION AND INCOME FUND
By: /s/
-------------------------------
Title:
KEYSTONE INVESTMENT DISTRIBUTORS, INC.
By: /s/
-------------------------------
Title:
<PAGE>
SCHEDULE I
TO
PRINCIPAL UNDERWRITING AGREEMENT
FOR CLASS B-2SHARES
OF
KEYSTONE CAPITAL PRESERVATION AND INCOME FUND
TRANSFER AGENT PROCEDURES FOR DIFFERENTIATING
AMONG DISTRIBUTOR SHARES AND POST-DISTRIBUTOR SHARES
Amounts (in respect of Asset Based Sales Charges (as hereinafter defined)
and CDSCs (as hereinafter defined) in respect of Shares (as hereinafter defined)
of each Fund (as hereinafter defined) shall be allocated between Distributor
Shares (as hereinafter defined) and Post-distributor Shares (as hereinafter
defined) of such Fund in accordance with the rules set forth in clauses (B) and
(C). Clause (B) sets forth the rules to be followed by the Transfer Agent for
each Fund and the record owner of each Omnibus Account (as hereinafter defined)
in maintaining records relating to Distributor Shares and Post-distributor
Shares. Clause (C) sets forth the rules to be followed by the Transfer Agent for
each Fund and the record owner of each Omnibus Account in determining what
portion of the Asset Based Sales Charge (as hereinafter defined) payable in
respect of each class of Shares of such Fund and what portion of the CDSC (as
hereinafter defined) payable by the holders of Shares of such Fund is
attributable to Distributor Shares and Post-distributor Shares, respectively.
(A) DEFINITIONS:
Generally, for purposes of this Schedule I, defined terms shall be used
with the meaning assigned to them in the Agreement, except that for purposes of
the following rules the following definitions are also applicable:
"Agreement" shall mean the Principal Underwriting Agreement for Class B-2
Shares of the Instant Fund dated as of June 1, 1995 between the Instant Fund and
the Distributor.
"Asset Based Sales Charge" shall have the meaning set forth in Section
26(b)(8)(C) of the Rules of Fair Practice it being understood that for purposes
of this Exhibit I such term does not include the Service Fee.
"Business Day" shall mean any day on which the banks and the New York Stock
Exchange are not authorized or required to close in New York City.
"Capital Gain Dividend" shall mean, in respect of any Share of any Fund, a
Dividend in respect of such Share which is designated by such Fund as being a
"capital gain dividend" as such term is defined in Section 852 of the Internal
Revenue Code of 1986, as amended.
"CDSC" shall mean with respect to any Fund, the contingent deferred sales
charge payable, either directly or by withholding from the proceeds of the
redemption of the Shares of such Fund, by the shareholders of such Fund on any
redemption of Shares of such Fund in accordance with the Prospectus relating to
such Fund.
"Commission Share" shall mean, in respect of any Fund, a Share of such Fund
issued under circumstances where a CDSC would be payable upon the redemption of
such Share if such CDSC is not waived or shall have not otherwise expired.
"Date of Original Purchase" shall mean, in respect of any Commission Share
of any Fund, the date on which such Commission Share was first issued by such
Fund; provided, that if such Share is a Commission Share and such Fund issued
the Commission Share (or portion thereof) in question in connection with a Free
Exchange for a Commission Share (or portion thereof) of another Fund, the Date
of Original Purchase for the Commission Share (or portion thereof) in question
shall be the date on which the Commission Share (or portion thereof) of the
other Fund was first issued by such other Fund (unless such Commission Share (or
portion thereof) was also issued by such other Fund in a Free Exchange, in which
case this proviso shall apply to that Free Exchange and this application shall
be repeated until one reaches a Commission Share (or portion thereof) which was
issued by a Fund other than in a Free Exchange).
"Distributor" shall mean Keystone Investment Distributors Company, its
successors and assigns.
"Distributor's Account" shall mean the account of the Distributor, account
no. 9903-584-2, ABA No. 011 0000 28, entitled "General Account" maintained with
State Street Bank & Trust Company or such other account as the Distributor may
designate in a notice to the Transfer Agent.
"Distributor Inception Date" shall mean, in respect of any Fund, the date
identified as the date Shares of such Fund are first sold by the Distributor.
"Distributor Last Sale Cut-off Date" shall mean, in respect of any Fund,
the date identified as the last sale of a Commission Share during the period the
Distributor served as principal underwriter under the Agreement.
"Distributor Shares" shall mean, in respect of any Fund, all Shares of such
Fund the Month of Original Purchase of which occurs on or after the Inception
Date for such Fund and on or prior to the Distributor Last Sale Cut-off Date in
respect of such Fund.
"Dividend" shall mean, in respect of any Share of any Fund, any dividend or
other distribution by such Fund in respect of such Share.
"Free Exchange" shall mean any exchange of a Commission Share (or portion
thereof) of one Fund (the "Redeeming Fund") for a Share (or portion thereof) of
another Fund (the "Issuing Fund"), under any arrangement which defers the
exchanging Shareholder's obligation to pay the CDSC in respect of the Commission
Share (or portion thereof) of the Redeeming Fund so exchanged until the later
redemption of the Share (or portion thereof) of the Issuing Fund received in
such exchange.
"Free Share" shall mean, in respect of any Fund, each Share of such Fund
other than a Commission Share, including, without limitation: (i) Shares issued
in connection with the automatic reinvestment of Capital Gain Dividends or Other
Dividends by such Fund, (ii) Special Free Shares issued by such Fund and (iii)
Shares (or portion thereof) issued by such Fund in connection with an exchange
whereby a Free Share (or portion thereof) of another Fund is redeemed and the
Net Asset Value of such redeemed Free Share (or portion thereof) is invested in
such Shares (or portion thereof) of such Fund.
"Fund" shall mean each of the regulated investment companies or series or
portfolios of regulated investment companies identified in Schedule II to the
Irrevocable Payment Instruction, as the same may be amended from time to time in
accordance with the terms thereof.
"Instant Fund" shall mean Keystone Preservation and Income Fund.
"ML Omnibus Account" shall mean, in respect of any Fund, the Omnibus
Account maintained by Merrill Lynch, Pierce, Fenner & Smith as subtransfer
agent.
"Month of Original Purchase" shall mean, in respect of any Share of any
Fund, the calendar month in which such Share was first issued by such Fund;
provided, that if such Share is a Commission Share and such Fund issued the
Commission Share (or portion thereof) in question in connection with a Free
Exchange for a Commission Share (or portion thereof) of another Fund, the Month
of Original Purchase for the Commission Share (or portion thereof) in question
shall be the calendar month in which the Commission Share (or portion thereof)
of the other Fund was first issued by such other Fund (unless such Commission
Share (or portion thereof) was also issued by such other Fund in a Free
Exchange, in which case this proviso shall apply to that Free Exchange and this
application shall be repeated until one reaches a Commission Share (or portion
thereof) which was issued by a Fund other than in a Free Exchange); provided,
further, that if such Share is a Free Share and such Fund issued such Free Share
in connection with the automatic reinvestment of dividends in respect of other
Shares of such Fund, the Month of Original Purchase of such Free Share shall be
deemed to be the Month of Original Purchase of the Share in respect of which
such dividend was paid; provided, further, that if such Share is a Free Share
and such Fund issued such Free Share in connection with an exchange whereby a
Free Share (or portion thereof) of another Fund is redeemed and the Net Asset
Value of such redeemed Free Share (or portion thereof) is invested in a Free
Share (or portion thereof) of such Fund, the Month of Original Issue of such
Free Share shall be the Month of Original Issue of the Free Share of such other
Fund so redeemed (unless such Free Share of such other Fund was also issued by
such other Fund in such an exchange, in which case this proviso shall apply to
that exchange and this application shall be repeated until one reaches a Free
Share which was issued by a Fund other than in such an exchange); and provided,
finally, that for purposes of this Schedule I each of the following periods
shall be treated as one calendar month for purposes of applying the rules of
this Schedule I to any Fund: (i) the period of time from and including the
Distributor Inception Date for such Fund to and including the last day of the
calendar month in which such Distributor Inception Date occurs; (ii) the period
of time commencing with the first day of the calendar month in which the
Distributor Last Sale Cutoff Date in respect of such Fund occurs to and
including such Distributor Last Sale Cutoff Date; and (iii) the period of time
commencing on the day immediately following the Distributor Last Sale Cutoff
Date in respect of such Fund to and including the last day of the calendar month
in which such Distributor Last Sale Cut-off Date occurs.
"Omnibus Account" shall mean any Shareholder Account the record owner of
which is a registered broker-dealer which has agreed with the Transfer Agent to
provide sub-transfer agent functions relating to each Sub-shareholder Account
within such Shareholder Account as contemplated by this Schedule I in respect of
each of the Funds.
"Omnibus Asset Based Sales Charge Settlement Date" shall mean, in respect
of each Omnibus Account, the Business Day next following the twentieth day of
each calendar month for the calendar month immediately preceding such date so
long as the record owner is able to allocate the Asset Based Sales Charge
accruing in respect of Shares of any Fund as contemplated by this Schedule I no
more frequently than monthly; provided, that at such time as the record owner of
such Omnibus Account is able to provide information sufficient to allocate the
Asset Based Sales Charge accruing in respect of such Shares of such Fund owned
of record by such Omnibus Account as contemplated by this Schedule I on a weekly
or daily basis, the Omnibus Asset Based Sales Charge Settlement Date shall be a
weekly date as in the case of the Omnibus CDSC Settlement Date or a daily date
as in the case of Asset Based Sales Charges accruing in respect of Shareholder
Accounts other than Omnibus Accounts, as the case may be.
"Omnibus CDSC Settlement Date" shall mean, in respect of each Omnibus
Account, the third Business Day of each calendar week for the calendar week
immediately preceding such date so long as the record owner of such Omnibus
Account is able to allocate the CDSCs accruing in respect of any Shares of any
Fund as contemplated by this Schedule I for no more frequently than weekly;
provided, that at such time as the record owner of such Shares of such Fund
owned of record by such Omnibus Account is able to provide information
sufficient to allocate the CDSCs accruing in respect of such Omnibus Account as
contemplated by this Schedule I on a daily basis, the Omnibus CDSC Settlement
Date for such Omnibus Account shall be a daily date as in the case of CDSCs
accruing in respect of Shareholder Accounts other than Omnibus Accounts.
"Original Purchase Amount" shall mean, in respect of any Commission Share
of any Fund, the amount paid (i.e., the Net Asset Value thereof on such date),
on the Date of Original Purchase in respect of such Commission Share, by such
Shareholder Account or Sub-shareholder Account for such Commission Share;
provided, that if such Fund issued the Commission Share (or portion thereof) in
question in connection with a Free Exchange for a Commission Share (or portion
thereof) of another Fund, the Original Purchase Amount for the Commission Share
(or portion thereof) in question shall be the Original Purchase Amount in
respect of such Commission Share (or portion thereof) of such other Fund (unless
such Commission Share (or portion thereof) was also issued by such other Fund in
a Free Exchange, in which case this proviso shall apply to that Free Exchange
and this application shall be repeated until one reaches a Commission Share (or
portion thereof) which was issued by a Fund other than in a Free Exchange).
"Other Dividend" shall mean in respect of any Share, any Dividend paid in
respect of such Share other than a Capital Gain Dividend.
"Post-distributor Shares" shall mean, in respect of any Fund, all Shares of
such Fund the Month of Original Purchase of which occurs after the Distributor
Last Sale Cut-off Date for such Fund.
"Program Agent" shall mean Citicorp North America, Inc., as Program Agent
under the Purchase Agreement, and its successors and assigns in such capacity.
"Purchase Agreement" shall mean that certain Purchase and Sale Agreement
dated as of May 31, 1995, among Keystone Investment Distributors Company, as
Seller, Citibank, N.A., as Purchaser, and Citicorp North America, Inc., as
Program Agent.
"Share" shall mean in respect of any Fund any share of the classes of
shares specified in Schedule II to the Irrevocable Payment Instruction opposite
the name of such Fund, as the same may be amended from time to time by notice
from the Distributor and the Program Agent to the Fund and the Transfer Agent;
provided, that such term shall include, after the Distributor Last Sale Cut-off
Date, a share of a new class of shares of such Fund: (i) with respect to each
record owner of Shares which is not treated in the records of each Transfer
Agent and Sub-transfer Agent for such Fund as an entirely separate and distinct
class of shares from the classes of shares specified Schedule II to the
Irrevocable Payment Instruction or (ii) the shares of which class may be
exchanged for shares of another Fund of the classes of shares specified on
Schedule II to the Irrevocable Payment Instruction of any class existing on or
prior to the Distributor Last Sale Cut-off Date; or (iii) dividends on which can
be reinvested in shares of the classes specified on Schedule II to the
Irrevocable Payment Instruction under the automatic dividend reinvestment
options; or (iv) which is otherwise treated as though it were of the same class
as the class of shares specified on Schedule II to the Irrevocable Payment
Instruction.
"Shareholder Account" shall have the meaning set forth in clause (B)(1)
hereof.
"Special Free Share" shall mean, in respect of any Fund, a Share (other
than a Commission Share) issued by such Fund other than in connection with the
automatic reinvestment of Dividends and other than in connection with an
exchange whereby a Free Share (or portion thereof) of another Fund is redeemed
and the Net Asset Value of such redeemed Share (or portion thereof) is invested
in a Share (or portion thereof) of such Fund.
"Sub-shareholder Account" shall have the meaning set forth in clause (B)(1)
hereof.
"Sub-transfer Agent" shall mean, in respect of each Omnibus Account, the
record owner thereof.
(B) RECORDS TO BE MAINTAINED BY THE TRANSFER AGENT FOR EACH FUND AND THE
RECORD OWNER OF EACH OMNIBUS ACCOUNT:
The Transfer Agent shall maintain Shareholder Accounts, and shall cause
each record owner of each Omnibus Account to maintain Sub-shareholder Accounts,
each in accordance with the following rules:
(1) SHAREHOLDER ACCOUNTS AND SUB-SHAREHOLDER ACCOUNTS. The Transfer Agent
shall maintain a separate account (a "Shareholder Account") for each record
owner of Shares of each Fund. Each Shareholder Account (other than Omnibus
Accounts) will represent a record owner of Shares of such Fund, the records of
which will be kept in accordance with this Schedule I. In the case of an Omnibus
Account, the Transfer Agent shall require that the record owner of the Omnibus
Account maintain a separate account (a "Sub-shareholder Account") for each
record owner of Shares which are reflected in the Omnibus Account, the records
of which will be kept in accordance with this Schedule I. Each such Shareholder
Account and Sub-shareholder Account shall relate solely to Shares of such Fund
and shall not relate to any other class of shares of such Fund.
(2) COMMISSION SHARES. For each Shareholder Account (other than an Omnibus
Account), the Transfer Agent shall maintain daily records of each Commission
Share of such Fund which records shall identify each Commission Share of such
Fund reflected in such Shareholder Account by the Month of Original Purchase of
such Commission Share.
For each Omnibus Account, the Transfer Agent shall require that the
Sub-transfer Agent in respect thereof maintain daily records of such
Sub-shareholder Account which records shall identify each Commission Share of
such Fund reflected in such Sub-shareholder Account by the Month of Original
Purchase; provided, that until the Sub-transfer Agent in respect of the ML
Omnibus Account develops the data processing capability to conform to the
foregoing requirements, such Sub-transfer Agent shall maintain daily records of
Sub-shareholder Accounts which identify each Commission Share of such Fund
reflected in such Sub-shareholder Account by the Date of Original Purchase. Each
such Commission Share shall be identified as either a Distributor Share or a
Post-distributor Share based upon the Month of Original Purchase of such
Commission Share (or in the case of a Sub-shareholder Account within the ML
Omnibus Account, based upon the Date of Original Purchase).
(3) FREE SHARES. The Transfer Agent shall maintain daily records of each
Shareholder Account (other than an Omnibus Account) in respect of any Fund so as
to identify each Free Share (including each Special Free Share) reflected in
such Shareholder Account by the Month of Original Purchase of such Free Share.
In addition, the Transfer Agent shall require that each Shareholder Account
(other than an Omnibus Account) have in effect separate elections relating to
reinvestment of Capital Gain Dividends and relating to reinvestment of Other
Dividends in respect of any Fund. Either such Shareholder Account shall have
elected to reinvest all Capital Gain Dividends or such Shareholder Account shall
have elected to have all Capital Gain Dividends distributed. Similarly, either
such Shareholder Account shall have elected to reinvest all Other Dividends or
such Shareholder Account shall have elected to have all Other Dividends
distributed.
The Transfer Agent shall require that the Sub-transfer Agent in respect of
each Omnibus Account maintain daily records for each Sub-shareholder Account in
the manner described in the immediately preceding paragraph for Shareholder
Accounts (other than Omnibus Accounts); provided, that until the Sub-transfer
Agent in respect of the ML Omnibus Account develops the data processing
capability to conform to the foregoing requirements, such Sub-transfer Agent
shall not be obligated to conform to the foregoing requirements. Each
Sub-shareholder Account shall also have in effect Dividend reinvestment
elections as described in the immediately preceding paragraph.
The Transfer Agent and each Sub-transfer Agent in respect of an Omnibus
Account shall identify each Free Share as either a Distributor Share or a
Post-distributor Share based upon the Month of Original Purchase of such Free
Share; provided, that until the Sub-transfer Agent in respect of the ML Omnibus
Account develops the data processing capability to conform to the foregoing
requirements, the Transfer Agent shall require such Sub-transfer Agent to
identify each Free Share of a given Fund in the ML Omnibus Account as a
Distributor Share, or Post-distributor Share, as follows:
(a) Free Shares of such Fund which are outstanding on the Distributor Last
Sale Cut-off Date for such Fund shall be identified as Distributor
Shares.
(b) Free Shares of such Fund which are issued (whether or not in
connection with an exchange for a Free Share of another Fund) to the
ML Omnibus Account during any calendar month (or portion thereof)
after the Distributor Last Sale Cut-off Date for such Fund shall be
identified as Distributor Shares in a number computed as follows:
A X (B/C)
where:
A = Free Shares of such Fund issued to the ML Omnibus Account
during such calendar month (or portion thereof)
B = Number of Commission Shares and Free Shares of such Fund in the
ML Omnibus Account identified as Distributor Shares and
outstanding as of the close of business in the last day of the
immediately preceding calendar month (or portion thereof)
C = Total number of Commission Shares and Free Shares of such Fund
in the ML Omnibus Account and outstanding as of the close of
business on the last day of the immediately preceding calendar
month (or portion thereof).
(c) Free Shares of such Fund which are issued (whether or not in
connection with an exchange for a free share of another Fund) to the
ML Omnibus Account during any calendar month (or portion thereof)
after the Distributor Last Sale Cut-off Date for such Fund shall be
identified as Post-distributor Shares in a number computed as follows:
(A X (B/C)
where:
A = Free Shares of such Fund issued to the ML Omnibus Account
during such calendar month (or portion thereof)
B = Number of Commission Shares and Free Shares of such Fund in the
ML Omnibus Account identified as Post-distributor Shares and
outstanding as of the close of business in the last day of the
immediately preceding calendar month (or portion thereof)
C = Total number of Commission Shares and Free Shares of such Fund
in the ML Omnibus Account and outstanding as of the close of
business on the last day of the immediately preceding calendar
month (or portion thereof).
(d) Free Shares of such Fund which are redeemed (whether or not in
connection with an exchange for Free Shares of another Fund or in
connection with the conversion of such Shares into a Class A Share of
such Fund) from the ML Omnibus Account in any calendar month (or
portion thereof) after the Distributor Last Sale Cut-off Date for such
Fund shall be identified as Distributor Shares in a number computed as
follows:
A X (B/C)
Where:
A = Free Shares of such Fund which are redeemed (whether or not in
connection with an exchange for Free Shares of another Fund or in
connection with the conversion of such Shares into a class A
share of such Fund) from the ML Omnibus Account during such
calendar month (or portion thereof)
B = Free Shares of such Fund in the ML Omnibus Account identified
as Distributor Shares and outstanding as of the close of business
on the last day of the immediately preceding calendar month.
C = Total number of Free Shares of such Fund in the ML Omnibus
Account and outstanding as of the close of business on the last
day of the immediately preceding calendar month.
(e) Free Shares of such Fund which are redeemed (whether or not in
connection with an exchange for Free Shares of another Fund or in
connection with the conversion of such Shares into a class A share of
such Fund) from the ML Omnibus Account in any calendar month (or
portion thereof) after the Distributor Last Sale Cut-off Date for such
Fund shall be identified as Post-distributor Shares in a number
computed as follows:
A X (B/C)
where:
A = Free Shares of such Fund which are redeemed (whether or not in
connection with an exchange for Free Shares of another Fund or in
connection with the conversion of such Shares into a class A
share of such Fund) from the ML Omnibus Account during such
calendar month (or portion thereof)
B = Free Shares of such Fund in the ML Omnibus Account identified
as Post-distributor Shares and outstanding as of the close of
business on the last day of the immediately preceding calendar
month.
C = Total number of Free Shares of such Fund in the ML Omnibus
Account and outstanding as of the close of business on the last
day of the immediately preceding calendar month.
(4) APPRECIATION AMOUNT AND COST ACCUMULATION AMOUNT. The Transfer Agent
shall maintain on a daily basis in respect of each Shareholder Account (other
than Omnibus Accounts) a Cost Accumulation Amount representing the total of the
Original Purchase Amounts paid by such Shareholder Account for all Commission
Shares reflected in such Shareholder Account as of the close of business on each
day. In addition, the Transfer Agent shall maintain on a daily basis in respect
of each Shareholder Account (other than Omnibus Accounts) sufficient records to
enable it to compute, as of the date of any actual or deemed redemption or Free
Exchange of a Commission Share reflected in such Shareholder Account an amount
(such amount an "Appreciation Amount") equal to the excess, if any, of the Net
Asset Value as of the close of business on such day of the Commission Shares
reflected in such Shareholder Account minus the Cost Accumulation Amount as of
the close of business on such day. In the event that a Commission Share (or
portion thereof) reflected in a Shareholder Account is redeemed or under these
rules is deemed to have been redeemed (whether in a Free Exchange or otherwise),
the Appreciation Amount for such Shareholder Account shall be reduced, to the
extent thereof, by the Net Asset Value of the Commission Share (or portion
thereof) redeemed, and if the Net Asset Value of the Commission Share (or
portion thereof) being redeemed equals or exceeds the Appreciation Amount, the
Cost Accumulation Amount will be reduced to the extent thereof, by such excess.
If the Appreciation Amount for such Shareholder Account immediately prior to any
redemption of a Commission Share (or portion thereof) is equal to or greater
than the Net Asset Value of such Commission Share (or portion thereof) deemed to
have been tendered for redemption, no CDSCs will be payable in respect of such
Commission Share (or portion thereof).
The Transfer Agent shall require that the Sub-transfer Agent in respect of
each Omnibus Account maintain on a daily basis in respect of each
Sub-shareholder Account reflected in such Omnibus Account a Cost Accumulation
Amount and sufficient records to enable it to compute, as of the date of any
actual or deemed redemption or Free Exchange of a Commission Share reflected in
such Sub-shareholder Account an Appreciation Amount in accordance with the
preceding paragraph and to apply the same to determine whether a CDSC is payable
(as though such Sub-shareholder Account were a Shareholder Account other than an
Omnibus Account; provided, that until the Sub-transfer Agent in respect of the
ML Omnibus Account develops the data processing capability to conform to the
foregoing requirements, such Sub-transfer Agent shall maintain for each
Sub-shareholder Account a separate Cost Accumulation Amount and a separate
Appreciation Amount for each Date of Original Purchase of any Commission Share
which shall be applied as set forth in the preceding paragraph as if each Date
of Original Purchase were a separate Month of Original Purchase.
(5) NASD CAP. On the date the distribution fees paid in respect of any
class of Shares equals the maximum amount thereon under the Rules of Fair
Practice, in respect of such class, all outstanding Shares of such class of such
Fund shall be converted into Class A shares of such Fund and will be deemed to
have been redeemed for their Net Asset Value for purposes of this Schedule I.
(6) IDENTIFICATION OF REDEEMED SHARES. If a Shareholder Account (other than
an Omnibus Account) tenders a Share of a Fund for redemption (other than in
connection with an exchange of such Share for a Share of another Fund or in
connection with the conversion of such Share pursuant to a Conversion Feature),
such tendered Share will be deemed to be a Free Share if there are any Free
Shares reflected in such Shareholder Account immediately prior to such tender.
If there is more than one Free Share reflected in such Shareholder Account
immediately prior to such tender, such tendered Share will be deemed to be the
Free Share with the earliest Month of Original Purchase. If there are no Free
Shares reflected in such Shareholder Account immediately prior to such tender,
such tendered Share will be deemed to be the Commission Share with the earliest
Month of Original Purchase reflected in such Shareholder Account.
If a Sub-shareholder Account reflected in an Omnibus Account tenders a
Share for redemption (other than in connection with an Exchange of such Share
for a Share of another Fund or in connection with the conversion of such Share
pursuant to a Conversion Feature), the Transfer Agent shall require that the
record owner of each Omnibus Account supply the Transfer Agent sufficient
records to enable the Transfer Agent to apply the rules of the preceding
paragraph to such Sub-shareholder Account (as though such Sub-shareholder
Account were a Shareholder Account other than an Omnibus Account); provided,
that until the Sub-transfer Agent in respect of the ML Omnibus Account develops
the data processing capability to conform to the foregoing requirements, such
Sub-transfer Agent shall not be required to conform to the foregoing rules
regarding Free Shares (and the Transfer Agent shall account for such Free Shares
as provided in (3) above) but shall apply the foregoing rules to each Commission
Share with respect to the Date of Original Purchase of any Commission Share as
though each such Date were a separate Month of Original Purchase.
(7) IDENTIFICATION OF EXCHANGED SHARES. When a Shareholder Account (other
than an Omnibus Account) tenders Shares of one Fund (the "Redeeming Fund") for
redemption where the proceeds of such redemption are to be automatically
reinvested in shares of another Fund (the "Issuing Fund") to effect an exchange
(whether or not pursuant to a Free Exchange) into Shares of the Issuing Fund:
(1) such Shareholder Account will be deemed to have tendered Shares (or portions
thereof) of the Redeeming Fund with each Month of Original Purchase represented
by Shares of the Redeeming Fund reflected in such Shareholder Account
immediately prior to such tender in the same proportion that the number of
Shares of the redeeming Fund with such Month of Original Purchase reflected in
such Shareholder immediately prior to such tender bore to the total number of
Shares of the Redeeming Fund reflected in such Shareholder Account immediately
prior to such tender, and on that basis the tendered Shares of the Redeeming
Fund will be identified as Distributor Shares or Post-distributor Shares; (2)
such Shareholder Account will be deemed to have tendered Commission Shares (or
portions thereof) and Free Shares (or portions thereof) of the Redeeming Fund of
each category (i.e., Distributor Shares or Post-distributor Shares) in the same
proportion that the number of Commission Shares or Free Shares (as the case may
be) of the Redeeming Fund in such category reflected in such Shareholder Account
bore to the total number of Shares of the Redeeming Fund in such category
reflected in such Shareholder Account immediately prior to such tender, (3) the
Shares (or portions thereof) of the Issuing Fund issued in connection with such
exchange will be deemed to have the same Months of Original Purchase as the
Shares (or portions thereof) of the Redeeming Fund so tendered and will be
categorized as Distributor Shares and Post-distributor Shares accordingly, and
(4) the Shares (or portions thereof) of each Category of the Issuing Fund issued
in connection with such exchange will be deemed to be Commission Shares and Free
Shares in the same proportion that the Shares of such Category of the Redeeming
Fund were Commission Shares and Free Shares.
The Transfer Agent shall require that each record owner of an Omnibus
Account maintain records relating to each Sub-shareholder Account in such
Omnibus Account sufficient to apply the foregoing rules to each such
Sub-shareholder Account (as though such Sub-shareholder Account were a
Shareholder Account other than an Omnibus Account); provided, that until the
Sub-transfer Agent in respect of the ML Omnibus Account develops the data
processing capability to conform to the foregoing requirements, such
Sub-transfer Agent shall not be required to conform to the foregoing rules
relating to Free Shares (and the Sub-transfer Agent shall account for such Free
Shares as provided in (3) above) and shall apply a first-in-first-out procedure
(based upon the Date of Original Purchase) to determine which Commission Shares
(or portions thereof) of a Redeeming Fund were redeemed in connection with an
exchange.
(8) IDENTIFICATION OF CONVERTED SHARES. The Transfer Agent records
maintained for each Shareholder Account (other than an Omnibus Account) will
treat each Commission Share of a Fund as though it were redeemed at its Net
Asset Value on the date such Commission Share converts into a class A share of
such Fund in accordance with an applicable Conversion Feature applied with
reference to its Month of Original Purchase and will treat each Free Share of
such Fund with a given Month of Original Purchase as though it were redeemed at
its Net Asset Value when it is simultaneously converted to a class A share at
the time the Commission Shares of such Fund with such Month of Original Purchase
are so converted.
The Transfer Agent shall require that each record owner of an
Omnibus Account maintain records relating to each Sub-shareholder Account in
such Omnibus Account sufficient to apply the foregoing rules to each such
Sub-shareholder Account (as though such Sub-shareholder Account were a
Shareholder Account other than an Omnibus Account) ; provided, that until the
Sub-transfer Agent in respect of the ML Omnibus Account develops the data
processing capability to conform to the foregoing requirements, such
Sub-transfer Agent shall apply the foregoing rules to Commission Shares with
reference to the Date of Original Issue of each Commission Share (as though each
such date were a separate Month of Original Issue) and shall not be required to
apply the foregoing rules to Free Shares (and the Sub-transfer Agent shall
account for such Free Shares as provided in (3) above).
(C) ALLOCATIONS OF ASSET BASED SALE CHARGES AND CDSCS AMONG DISTRIBUTOR
SHARES AND POST-DISTRIBUTOR SHARES:
The Transfer Agent shall use the following rules to allocate the amounts of
Asset Based Sales Charges and CDSCs payable by each Fund in respect of Shares
between Distributor Shares and Post-distributor Shares:
(1) RECEIVABLES CONSTITUTING CDSCS: CDSCs will be treated as relating to
Distributor Shares or Post-distributor Shares depending upon the Month of
Original Purchase of the Commission Share the redemption of which gives rise to
the payment of a CDSC by a Shareholder Account.
The Transfer Agent shall cause each Sub-transfer Agent to apply the
foregoing rule to each Sub-shareholder Account based on the records maintained
by such Sub-transfer Agent; provided, that until the Sub-transfer Agent in
respect of the ML Omnibus Account develops the data processing capability to
conform to the foregoing requirements, such Sub-transfer Agent shall apply the
foregoing rules to each Sub-shareholder Account with respect to the Date of
Original Purchase of any Commission Share as though each such date were a
separate Month of Original Purchase.
(2) RECEIVABLES CONSTITUTING ASSET BASED SALES CHARGES:
The Asset Based Sales Charges accruing in respect of each Shareholder
Account (other than an Omnibus Account) shall be allocated to each Share
reflected in such Shareholder Account as of the close of business on such day on
an equal per share basis. For example, the Asset Based Sales Charges
attributable to Distributor Shares on any day shall be computed and allocated as
follows:
A X (B/C)
where:
A. = Total amount of Asset Based Sales Charge accrued in respect of such
Shareholder Account (other than an Omnibus Account) on such day.
B. = Number of Distributor Shares reflected in such Shareholder Account
(other than an Omnibus Account) on the close of business on such day
C. = Total number of Distributor Shares and Post-Distributor Shares
reflected in such Shareholder Account (other than an Omnibus Account)
and outstanding as of the close of business on such day.
The Portion of the Asset Based Sales Charges of such Fund accruing in respect of
such Shareholder Account for such day allocated to Post-distributor Shares will
be obtained using the same formula but substituting for "B" the number of
Post-distributor Shares, as the case may be, reflected in such Shareholder
Account and outstanding on the close of business on such day. The foregoing
allocation formula may be adjusted from time to time by notice to the Fund and
the transfer agent for the Fund from the Seller and the Program Agent pursuant
to Section 8.18 of the Purchase Agreement.
The Transfer Agent shall, based on the records maintained by the record
owner of such Omnibus Account, allocate the Asset Based Sales Charge accruing in
respect of each Omnibus Account on each day among all Sub-shareholder Accounts
reflected in such Omnibus Account on an equal per share basis based upon the
total number of Distributor Shares and Post-distributor Shares reflected in each
such Sub-shareholder Account as of the close of business on such day. In
addition, the Transfer Agent shall apply the foregoing rules to each
Sub-shareholder Account (as though it were a Shareholder Account other than an
Omnibus Account), based on the records maintained by the record owner, to
allocate the Asset Based Sales Charge so allocated to any Sub-shareholder
Account among the Distributor Shares and Post-distributor Shares reflected in
each such Sub-shareholder Account in accordance with the rules set forth in the
preceding paragraph; provided, that until the Sub-transfer Agent in respect of
the ML Omnibus Account develops the data processing capacity to apply the rules
of this Schedule I as applicable to Sub-shareholder Accounts other than ML
Omnibus Accounts, the Transfer Agent shall allocate the Asset Based Sales Charge
accruing in respect of Shares of any Fund in the ML Omnibus Account during any
calendar month (or portion thereof) among Distributor Shares and
Post-distributor Shares as follows:
(a) The portion of such Asset Based Sales Charge allocable to Distributor
Shares shall be computed as follows:
A X ((B + C)/2)
((D + E)/2)
where:
A = Total amount of Asset Based Sales Charge accrued during such
calendar month (or portion thereof) in respect of Shares of such
Fund in the ML Omnibus Account
B = Shares of such Fund in the ML Omnibus Account and identified as
Distributor Shares and outstanding as of the close of business on
the last day of the immediately preceding calendar month (or
portion thereof), times Net Asset Value per Share as of such time
C = Shares of such Fund in the ML Omnibus Account and identified as
Distributor Shares and outstanding as of the close of business on
the last day of such calendar month (or portion thereof), times
Net Asset Value per Share as of such time
D = Total number of Shares of such Fund in the ML Omnibus Account
and outstanding as of the close of business on the last day of
the immediately preceding calendar month (or portion thereof),
times Net Asset Value per Share as of such time.
E = Total number of Shares of such Fund in the ML Omnibus Account
and outstanding as of the close of business on the last day of
such calendar month (or portion thereof), times Net Asset Value
per Share as of such time.
(b) The portion of such Asset Based Sales Charge allocable to
Post-distributor Shares shall be computed s follows:
A X ((B + C)/2)
-----------
((D + E)/2)
where:
A = Total amount of Asset Based Sales Charge accrued during such
calendar month (or portion thereof) in respect of Shares of such
Fund in the ML Omnibus Account
B = Shares of such Fund in the ML Omnibus Account and identified as
Post-distributor Shares and outstanding as of the close of
business on the last day of the immediately preceding calendar
month (or portion thereof), times Net Asset Value per Share as of
such time
C = Shares of such Fund in the ML Omnibus Account and identified as
Post-distributor Shares and outstanding as of the close of
business on the last day of such calendar month (or portion
thereof), times Net Asset Value per Share as of such time
D = Total number of Shares of such Fund in the ML Omnibus Account
and outstanding as of the close of business on the last day of
the immediately preceding calendar month (or portion thereof),
times Net Asset Value per Share as of such time.
E = Total number of Shares of such Fund in the ML Omnibus Account
outstanding as of the close of business on the last day of such
calendar month, times Net Asset Value per Share as of such time.
(3) PAYMENTS ON BEHALF OF EACH FUND.
On the close of business on each day the Transfer Agent shall cause payment to
be made of the amount of the Asset Based Sales Charge and CDSCs accruing on such
day in respect of the Shares of such Fund owned of record by Shareholder
Accounts (other than Omnibus Accounts) by two separate wire transfers, directly
from accounts of such Fund as follows:
1. The Asset Based Sales Charge and CDSCs accruing in respect of
Shareholder Accounts other than Omnibus Accounts and allocable to
Distributor Shares in accordance with the preceding rules shall be paid to
the Distributor's Account, unless the Distributor otherwise instructs the
Fund in any irrevocable payment instruction; and
2. The Asset Based Sales Charges and CDSCs accruing in respect of
Shareholder Accounts other than Omnibus Accounts and allocable to
Post-distributor Shares in accordance with the preceding rules shall be
paid in accordance with direction received from any future distributor of
Shares of the Instant Fund.
On each Omnibus CDSC Settlement Date, the Transfer Agent for each Fund
shall cause the applicable Sub-transfer Agent to cause payment to be made of the
amount of the CDSCs accruing during the period to which such Omnibus CDSC
Settlement Date relates in respect of the Shares of such Fund owned of record by
each Omnibus Account by two separate wire transfers directly from the account of
such Fund maintained by such Transfer Agent, as follows:
1. The CDSCs accruing in respect of such Omnibus Account and allocable to
Distributor Shares in accordance with the preceding rules shall be paid to
the Distributor's Account, unless the Distributor otherwise instructs the
Fund in any irrevocable payment instruction; and
2. The CDSCs accruing in respect of such Omnibus Account and allocable to
Post-distributor Shares in accordance with the preceding rules shall be
paid in accordance with direction received from any future distributor of
Shares of the Instant Fund.
On each Omnibus Asset Based Sales Charge Settlement Date the Transfer Agent
for each Fund shall cause payment to be made of the amount of the Asset Based
Sales Charge accruing for the period to which such Omnibus Asset Based Sales
Charge Settlement Date relates in respect of the Shares of such Fund owned of
record by each Omnibus Account by two separate wire transfers directly from
accounts of such Fund as follows:
1. The Asset Based Sales Charge accruing in respect of such Omnibus Account
and allocable to Distributor Shares shall be paid to the Distributor's
Collection Account, unless the Distributor otherwise instructs the Fund in
any irrevocable payment instruction; and
2. The Asset Based Sales Charge accruing in respect of such Omnibus Account
and allocable to Post-Distributor Shares shall be paid in accordance with
direction received from any future distributor of Shares of the Instant
Fund.
<PAGE>
[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>
CUSTODIAN, FUND ACCOUNTING AND RECORDKEEPING AGREEMENT
BY AND BETWEEN
KEYSTONE CAPITAL PRESERVATION AND INCOME FUND - II
AND
STATE STREET BANK AND TRUST COMPANY
Agreement made as of this 27th day of February 1991 by and between KEYSTONE
CAPITAL PRESERVATION AND INCOME FUND - II, 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.
In consideration of the mutual agreements herein contained, the Fund and
State Street agree as follows:
1. The Fund appoints State Street as its Custodian, subject to the
provisions hereof. State Street hereby accepts such appointment as Custodian. As
such Custodian, State Street shall retain all securities, cash and other assets
now owned or hereafter acquired by the Fund, and the Fund shall deliver and pay
or cause to be delivered and paid to State Street, as Custodian, all securities,
cash and other assets now owned or hereafter acquired by the Fund during the
period of this Agreement.
2. All securities delivered to State Street (other than in bearer form)
shall be properly endorsed and in proper form for transfer into or in the name
of the Fund, of a nominee of State Street for the exclusive use of the Fund or
of such other nominee as may be mutually agreed upon by State Street and the
Fund.
2.1. 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.
3. As Custodian, State Street shall promptly:
A. Safekeeping. Keep safely in a separate account the securities and
other assets of the Fund, including without limitation all securities in bearer
form, other than (a) securities which are maintained pursuant to paragraph 3(B)
in a Securities System (as defined in paragraph 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 the
Fund, receive delivery of certificates, including without limitation all
securities in bearer form, for safekeeping and keep such certificates physically
segregated at all times from those of any other person. State Street shall
maintain records of all receipts, deliveries and locations of such securities,
together with a current inventory thereof and shall conduct periodic physical
inspections of certificates representing bonds and other securities held by it
under this Agreement at least annually in such manner as State Street shall
determine from time to time to be advisable in order to verify the accuracy of
such inventory. State Street shall provide the Fund with copies of any reports
of its internal count or other verification of the securities of the Fund held
in its custody, including reports on its own system of internal accounting
control. In addition, if and when independent certified public accountants
retained by State Street shall count or otherwise verify the securities of the
Fund held in State Street's custody, State Street shall provide the Fund with a
copy of the report of such accountants. With respect to securities held by any
agent or Subcustodian appointed pursuant to paragraph 6(C) hereof, State Street
may rely upon certificates from such agent or Subcustodian as to the holdings of
such agent or Subcustodian, it being understood that such reliance in no way
releases State Street of its responsibilities or liabilities under this
Agreement. State Street shall promptly report to the Fund the results of such
inspections, indicating any shortages or discrepancies uncovered thereby, and
take appropriate action to remedy any such shortages or discrepancies.
B. Deposit of Fund Assets in Securities Systems. Notwithstanding any
other provision of this Agreement, State Street may deposit and/or maintain
securities owned by the Fund in Depository Trust Company, a clearing agency
registered with the Securities and Exchange Commission ("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 the Fund in a Securities System
provided that such securities are deposited in an account ("Account") of
State Street in the Securities System which shall not include any assets of
State Street other than assets held as a fiduciary, custodian or otherwise
for customers;
2) The records of State Street with respect to securities of the Fund
which are maintained in a Securities System shall identify by book entry
those securities belonging to the Fund;
3) State Street shall pay for securities purchased for the account of
the Fund upon (i) receipt of advice from the Securities System that such
securities have been transferred to the Account, and (ii) the making of an
entry on the records of State Street to reflect such payment and transfer
for the account of the Fund. State Street shall transfer securities sold for
the account of the Fund upon (i) receipt of advice from the Securities
System that payment for such securities has been transferred to the Account,
and (ii) the making of an entry on the records of State Street to reflect
such transfer and payment for the account of the Fund. Copies of all advices
from the Securities System of transfers of securities for the account of the
Fund shall identify the Fund, be maintained for the Fund by State Street and
be provided to the Fund at its request. State Street shall furnish the Fund
confirmation of each transfer to or from the account of the Fund in the form
of a written advice or notice and shall furnish to the Fund copies of daily
transaction sheets reflecting each day's transactions in the Securities
System for the account of the Fund on the next business day;
4) State Street shall promptly provide the Fund with any report obtained
by State Street on the Securities System's accounting system, internal
accounting control and procedures for safeguarding securities deposited in
the Securities System. State Street shall promptly provide the Fund any
report on State Street's accounting system, internal accounting control and
procedures for safeguarding securities deposited with State Street which is
reasonably requested by the Fund;
5) Anything to the contrary in this Agreement notwithstanding, State
Street shall be liable to the Fund for any claim, loss, liability, damage or
expense to the Fund, including attorney's fees, resulting from use of a
Securities System by reason of any negligence, misfeasance or misconduct of
State Street, its agents or any of its or their employees or from failure of
State Street or any such agent to enforce effectively such rights as it may
have against a Securities System. At the election of the Fund, it shall be
entitled to be subrogated to the rights of State Street or its agents with
respect to any claim against the Securities System or any other person which
State Street or its agents may have as a consequence of any such claim,
loss, liability, damage or expense if and to the extent that the Fund has
not been made whole for any such loss or damage.
BB. Fund Assets Held in State Street's Direct Paper System. State Street
may deposit and/or maintain securities owned by 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 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 the Fund
which are maintained in the Direct Paper System shall identify by book-entry
those securities belonging to the Fund;
4) State Street shall pay for securities purchased for the account 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 the Fund.
State Street shall transfer securities sold for the account of the Fund upon
the making of an entry on the records of State Street to reflect such
transfer and receipt of payment for the account of the Fund;
5) State Street shall furnish the Fund confirmation of each transfer to
or from the account of the Fund, in the form of a written advice or notice,
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 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 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) hereof.
D. Registered Name, Nominee. Register securities of the Fund held by
State Street in the name of the Fund, of a nominee of State Street for the
exclusive use of the Fund, or of such other nominee as may be mutually agreed
upon, or of any mutually acceptable nominee of any agent or Subcustodian
appointed pursuant to paragraph 6(C) hereof.
E. Purchases. Upon receipt of proper instructions (as defined in
paragraph 5(A) of Section II hereof; hereafter "Proper Instructions") and
insofar as cash is available for the purpose, pay for and receive all securities
purchased for the account of the Fund, payment being made only upon receipt of
the securities by State Street (or any bank, banking firm, responsible
commercial agent or trust company doing business in the United States and
appointed pursuant to paragraph 6(C) of Section II hereof as State Street's
agent or Subcustodian for this purpose) registered as provided in paragraph 3(D)
of Section II hereof or in form for transfer satisfactory to State Street, or,
in the case of repurchase agreements entered into between the Fund and a bank or
a dealer, delivery of the securities either in certificate form or through an
entry crediting State Street's account at the Federal Reserve Bank with such
securities, or, upon receipt by State Street of a facsimile copy of a letter of
understanding with respect to a time deposit account of the Fund signed by any
bank, whether domestic or foreign, and pursuant to Proper Instructions from the
Fund, for transfer to the time deposit account of the Fund in such bank; such
transfer may be effected prior to receipt of a confirmation from a broker and/or
the applicable bank or in the case of a purchase involving the Direct Paper
System, in accordance with the conditions set forth in Paragraph 3(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 the Fund where payment is made by State Street in advance of receipt of the
securities purchased, State Street shall be absolutely liable to the Fund for
such securities to the same extent as if the securities had been received by
State Street, except that in the case of repurchase agreements entered into by
the Fund with a bank which is a member of the Federal Reserve System, State
Street may transfer funds to the account of such bank prior to the receipt of
written evidence that the securities subject to such repurchase agreement have
been transferred by book-entry into a segregated nonproprietary account of State
Street maintained with the Federal Reserve Bank of Boston, provided that such
securities have in fact been so transferred by book-entry; provided, further,
however, that State Street and the Fund agree to use their best efforts to
insure receipt by State Street of copies of documentation for each such
transaction as promptly as possible.
F. Exchanges. Upon receipt of Proper Instruction, exchange securities,
interim receipts or temporary securities held by it or by any agent or
Subcustodian appointed by it pursuant to paragraph 6(C) hereof for the account
of the Fund for other securities alone or for other securities and cash, and
expend cash insofar as cash is available in connection with any merger,
consolidation, reorganization, recapitalization, split-up of shares, changes of
par value, conversion or in connection with the exercise of warrants,
subscription or purchase rights, or otherwise, and deliver securities to the
designated depository or other receiving agent or Subcustodian in response to
tender offers or similar offers to purchase received in writing; provided that
in any such case the securities and/or cash to be received as a result of any
such exchange, expenditure or delivery are to be delivered to State Street (or
its agents or Subcustodians). State Street shall give notice as provided under
paragraph 14 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) 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) hereof, the Proper Instructions referred to in the
preceding sentence must be received by State Street in timely enough fashion
(which shall be presumed to be three business days unless State Street has
advised the Fund in writing of a different period) for State Street to notify
the agent or Subcustodian in sufficient time to permit such agent to act prior
to any expiration date.
G. Sales. Upon receipt of Proper Instructions and upon receipt of full
payment therefor, release and deliver securities which have been sold for the
account of the Fund. At the time of delivery all such payments are to be made in
cash, by a certified check upon or a treasurer's or cashier's check of a bank,
by effective bank wire transfer through the Federal Reserve Wire System or, if
appropriate, outside of the Federal Reserve Wire System and subsequent credit to
the Fund's custodian account, or, in case of delivery through a stock clearing
company, by book-entry credit by the stock clearing company in accordance with
the then current "street" custom.
H. Purchases by Issuer. Upon receipt of Proper Instructions, release
and deliver securities owned by the Fund to the issuer thereof or its agent when
such securities are called, redeemed, retired or otherwise become payable;
provided that in any such case, the cash or other consideration is to be
delivered to State Street.
I. Changes of Name and Denomination. Upon receipt of Proper
Instructions, release and deliver securities owned by the Fund to the issuer
thereof or its agent for transfer into the name of the Fund or of a nominee of
State Street or of the Fund for the exclusive use of the Fund or for exchange
for a different number of bonds, certificates or other evidence representing the
same aggregate face amount or number of units bearing the same interest rate,
maturity date and call provisions if any; provided that in any such case, the
new securities are to be delivered to State Street.
J. Street Delivery. In connection with delivery in New York City and
upon receipt of Proper Instructions, which in the case of registered securities
may be standing instructions, release securities owned by the Fund upon receipt
of a written receipt for such securities to the broker selling the same for
examination in accordance with the existing "street delivery" custom. In every
instance, either payment in full for such securities shall be made or such
securities shall be returned to State Street that same day. In the event
existing "street delivery" custom is modified, State Street shall obtain
authorization from the Board of 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 the Fund to any bank or trust company for the purpose of pledge,
mortgage or hypothecation to secure any loan incurred by the Fund; provided,
however, that securities shall be released only upon payment to State Street of
the monies borrowed, except that in cases where additional collateral is
required to secure a borrowing already made, subject to proper prior
authorization from the Fund, further securities may be released for that
purpose. Upon receipt of Proper Instructions, pay such loan upon redelivery to
it of the securities pledged or hypothecated therefor 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 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 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 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 the Fund for any other purpose (in addition to those specified in
paragraphs 3(CC), 3(D), 3(E), 3(F), 3(G), 3(H), 3(I), 3(J), 3(K) and 3(L)
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) 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 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 the
Fund, (ii) for purposes of segregating cash or government securities in
connection with options purchased, sold or written by the Fund or commodity
futures contracts or options thereon purchased or sold by the Fund, (iii) for
the purposes of compliance by the Fund with the procedures required by
Investment Company Act Release No. 10666, or any subsequent release or releases
of the 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 the Fund, except as otherwise
directed by the Fund pursuant to Proper Instructions. State Street shall render
to the Fund daily a report of all monies received or paid on behalf of the Fund,
an itemized statement of the securities and cash for which it is accountable to
the Fund under this Agreement and itemized statement of security transactions
which settled the day before and shall render to the Fund weekly an itemized
statement of security transactions which failed to settle as scheduled. At the
end of each week State Street shall provide a list of all security transactions
that remain unsettled at such time.
4. Additionally, as Custodian, State Street shall promptly:
A. Bank Account. Retain safely all cash of the Fund, other than cash
maintained by the Fund in a bank account established and used in accordance with
Rule 17f-3 under the 1940 Act, in the banking department of State Street in a
separate account or accounts in the name of the Fund, subject only to draft or
order by State Street acting pursuant to the terms of this Agreement. If and
when authorized by Proper Instructions in accordance with a vote of the Board of
Trustees of the Fund, State Street may open and maintain an additional account
or accounts in such other bank or trust companies as may be designated by such
instructions, such account or accounts, however, to be solely in the name of
State Street in its capacity as Custodian and subject only to its draft or order
in accordance with the terms of this Agreement. State Street shall furnish the
Fund, not later than thirty (30) calendar days after the last business day of
each month, a statement reflecting the current status of its internal
reconciliation of the closing balance as of that day in all accounts described
in this paragraph to the balance shown on the daily cash report for that day
rendered to the Fund.
B. Collections. Unless otherwise instructed by receipt of Proper
Instructions, collect, receive and deposit in the bank account or accounts
maintained pursuant to paragraph 4(A) hereof all income and other payments with
respect to the securities held hereunder, execute ownership and other
certificates and affidavits for all federal and state tax purposes in connection
with the collection of bond and note coupons, do all other things necessary or
proper in connection with the collection of such income, and without waiving the
generality of the foregoing:
1) present for payment on the date of payment all coupons and other
income items requiring presentation;
2) present for payment all securities which may mature or be called,
redeemed, retired or otherwise become payable on the date such securities
become payable;
3) endorse and deposit for collection, in the name of the Fund, checks,
drafts or other negotiable instruments on the same day as received.
In any case in which State Street does not receive any such due and unpaid
income within a reasonable time after it has made proper demands for the same
(which shall be presumed to consist of at least three demand letters and at
least one telephonic demand), it shall so notify the Fund in writing, including
copies of all demand letters, any written responses thereto, and memoranda of
all oral responses thereto and to telephonic demands, and await proper
instruction; State Street shall not be obliged to take legal action for
collection unless and until reasonably indemnified to its satisfaction for the
reasonable costs of such legal action for collection. It shall also notify the
Fund as soon as reasonably practicable whenever income due on securities is not
collected in due course.
C. Sale of shares of the Fund. Make such arrangements with the Transfer
Agent of the Fund as will enable State Street to make certain it receives the
cash consideration due to the Fund for shares of common stock ("shares") of the
Fund as may be issued or sold from time to time by the Fund, all in accordance
with the Fund's Declaration of Trust and By-Laws, as amended.
D. Dividends and Distributions. Upon receipt of Proper Instructions,
release or otherwise apply cash insofar as cash is available for the purpose of
the payment of dividends or other distributions to shareholders of the Fund.
E. Redemption of Shares of the Fund. From such funds as may be
available for the purpose, but subject to the limitation of the Fund's
Declaration of Trust and By-Laws, as amended, and applicable resolutions of the
Board of Trustees of the Fund pursuant thereto, make funds available for payment
to shareholders who have delivered to the Transfer Agent a request for
redemption of their shares by the Fund pursuant to such Declaration of Trust, as
amended.
In connection with the redemption of shares of the Fund pursuant to the
Fund's Declaration of Trust and By-Laws, as amended, State Street is authorized
and directed upon receipt of Proper Instructions from the Transfer Agent for the
Fund to make funds available for transfer through the Federal Reserve Wire
System or by other bank wire to a commercial bank account designated by the
redeeming shareholder.
F. Stock Dividends, Rights, Etc. Receive and collect all stock
dividends, rights and other items of like nature; and deal with the same
pursuant to Proper Instructions relative thereto.
G. Disbursements. Upon receipt of Proper Instructions, make or cause to
be made, insofar as cash is available for the purpose, disbursements for the
payment on behalf of the Fund of its expenses, including without limitation,
interest, taxes and fees or reimbursement to State Street or to the Fund's
investment 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, 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 Schedule 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 for the Fund's portfolio. In addition, upon receipt of
Proper Instructions, which may be deemed to be continuing instructions, State
Street shall daily compute the net asset value of the shares of the Fund and the
total net asset value of the Fund. State Street shall, in addition, perform such
other services incidental to its duties hereunder as may be reasonably requested
from time to time by the Fund.
L. Services under Part I and Part II. In addition to the services
specified herein, State Street shall perform those services set forth in Parts I
and II, including without limitation general ledger accounting, daily Fund
portfolio pricing and custodian services to the extent such services relate to
the Fund; provided, however, that in the event that Parts I and II as they
relate to the Fund are in conflict with the terms of this Agreement, the terms
of this Agreement shall govern.
5. State Street and the Fund further agree as follows:
A. Proper Instructions. State Street shall be deemed to have received
Proper Instructions upon receipt of written instructions signed by the Fund's
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 Fund's assets. 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 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 the Fund on demand reimbursement for its cash disbursements, expenses and
charges, excluding salaries and usual overhead expenses, as set forth in
Schedule A.
C. Appointment of Agents and Subcustodians. State Street, as Custodian,
may appoint (and may remove), only in compliance with the terms and conditions
of the Fund's Declaration of Trust and By-Laws, as amended, any other bank,
trust company or responsible commercial agent as its agent or Subcustodian 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
Subcustodian 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. Recordkeeping. State Street shall maintain such records as shall
enable the Fund to comply with the requirements of all federal and state laws
and regulations applicable to the Fund with respect to the matters covered by
this Agreement and shall comply with the representations of Parts I and II as
such representations relate to maintaining records of the Fund.
7. Lien on Assets. If the Fund requires State Street to advance cash or
securities for any purpose or in the event that State Street or its nominee
shall incur or be assessed any taxes, charges, expenses, assessments, claims or
liabilities in connection with the performance of this Agreement, except such as
may arise from its or its nominee's own negligent action, negligent failure to
act or willful misconduct, any property at any time held for the account of the
Fund shall be security therefor and should the Fund fail to repay State Street
promptly, State Street shall be entitled to utilize available cash and to
dispose of the Fund assets to the extent necessary to obtain reimbursement;
provided, however, that the total value of any property of the Fund which at any
time is security for any payment by State Street hereunder shall not exceed 15%
of the Fund's total net asset value.
8. The Fund shall pay State Street for its services as Custodian such
compensation as shall be specified in the attached Schedule A. Such compensation
shall remain fixed until December 31, 1992, unless this Agreement is terminated
as provided in paragraph 9.
9. 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 paragraphs 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 paragraph 3B.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) 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 shareholders shall have been delivered to
State Street on or before the date when such termination shall become effective,
then State Street shall have the right to deliver to a bank or trust company
doing business in Boston, Massachusetts of its own selection, having an
aggregate capital, surplus and undivided profits, as shown by its last published
report, of not less than $5,000,000, all securities, cash and other properties
held by State Street and all instruments held by it relative thereto and all
other property held by it under this Agreement. Thereafter, such bank or trust
company shall be the Successor of State Street under this Agreement and subject
to the restrictions, limitations and other requirements of the Fund's
Declaration of Trust and By-Laws, both as amended.
In the event that securities, funds, and other properties remain in the
possession of State Street after the date of termination hereof owing to failure
of the Fund to procure the certified copy above referred to, or of the Fund's
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 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.
10. 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.
11. In the event of a reorganization of the Fund through a merger,
consolidation, sale of assets or other reorganization, State Street, at the
request of the Fund, shall act as Custodian for shares of any investment company
or other company obtained in any such reorganization by the Fund for
distribution to those Fund shareholders whose shares are represented by
certificates. The Fund shall give notice to each such shareholder of his or her
right to exchange his or her Fund shares represented by certificates for shares
held by State Street upon surrender to State Street of his or her certificates
representing such Fund shares properly endorsed and in proper form for transfer.
Upon the surrender of such Fund certificates State Street will issue a
certificate or certificates to the surrendering shareholder for an approximate
number of shares held by State Street, unless such shareholder establishes an
Open Account Plan or other similar account at that time in which case such
shares will be credited to his or her account. State Street shall not be
required to issue certificates for any fractional shares held by it. Instead,
fractional interests in such shares shall be distributed to the shareholder in
cash at their then current market value or, if the fractional share represents
an interest in an investment company, it shall be redeemed by State Street at
the then current redemption price for such shares and the proceeds of such
redemption shall be distributed to such shareholder in cash. State Street shall
not release to any shareholder any such shares held by it until such shareholder
has properly surrendered for exchange his or her Fund shares represented by
certificates.
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 Capital Preservation and Income Fund II, 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 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 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.
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 CAPITAL PRESERVATION AND
INCOME FUND - II
/s/ [ illegible] By: /s/ George S. Bissell
- ----------------------------- -----------------------------
Chairman
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 AMERICA CAPITAL PRESERVATION AND INCOME FUND
I. Administration
Custodian, Portfolio and Fund Accounting Service - Maintain custody of Fund
assets. Settle portfolio purchases and sales. Report buy and sell fails.
Determine and collect portfolio income. Make cash disbursements and report cash
transactions. Maintain investment ledgers, provide selected portfolio
transactions, position and income reports. Maintain general ledger and capital
stock accounts. Prepare daily trial balance. Calculate net asset value daily.
Provide from Fund approved pricing sources or vendors daily pricing for Fund
portfolio securities. Provide selected general ledger reports. Securities yield
or market value quotations for short term Fund portfolio securities will be
provided to State Street from a source designated by the Fund.
The administration fee shown below is an annual charge, billed and payable
monthly, based on average net assets and calculated in the same manner as the
Fund advisory and management fee.
ANNUAL FEES PER PORTFOLIO
Fund Net Assets Annual Fee
--------------- ----------
First $35 million 1/30 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 Keystone Investor Resource
Center, Inc.
6) (31) Report to be supplied by Keystone Investor Resource
Center, Inc.
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>
November 30, 1995
Keystone Capital Preservation and Income Fund
200 Berkeley Street
Boston, Massachusetts 02116-5034
Gentlemen:
I am a Senior Vice President of and General Counsel to Keystone
Investment Management Company (formerly named Keystone Custodian Funds, Inc.)
investment adviser to Keystone Capital Preservation and Income Fund (the
"Fund"). You have asked for my opinion with respect to the proposed issuance of
7,325,939 additional shares of the Fund.
To my knowledge, a Prospectus is on file with the Securities and
Exchange Commission (the "Commission") as part of Post-Effective Amendment No.
7 to the Fund's Registration Statement, which covers 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 Restatemaent of Trust Agreement and ("Restatement of Trust") 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 Restatement of
Trust 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. 7 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
<PAGE>
CONSENT OF INDEPENDENT AUDITORS
The Trustees and Shareholders
Keystone Capital Preservation and Income Fund
(formerly Keystone America Capital Preservation and Income Fund-II)
We consent to the use of our report dated October 27, 1995, included
herein and to the references to our firm under the captions "FINANCIAL
HIGHLIGHTS" in the prospectus and "ADDITIONAL INFORMATION" in the statement of
additional information.
/s/ KPMG Peat Marwick LLP
KPMG Peat Marwick LLP
Boston, Massachusetts
December 1, 1995
<PAGE>
KEYSTONE AMERICA CAPITAL PRESERVATION AND INCOME FUND-II
CLASS A DISTRIBUTION PLAN
SECTION 1. Keystone America Capital Preservation and Income Fund-II (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 (the "Plan").
SECTION 2. The Fund may expend daily amounts at an annual rate of 0.75% of
the average daily net asset value of Class A shares of the Fund to finance any
activity that is principally intended to result in the sale of Class A shares of
the Fund, including, without limitation, expenditures consisting of payments to
a principal underwriter of the Fund (the "Principal Underwriter") in order (i)
to enable the Principal Underwriter to pay to others commissions in respect of
sales of Class A shares since inception of the Plan; (ii) to enable the
Principal Underwriter to pay or to have paid to others who sell Class A shares a
service or other fee, at such intervals as the Principal Underwriter may
determine, in respect of Class A shares previously sold by any such others and
remaining outstanding during the period in respect of which such fee is or has
been paid; and/or (iii) to compensate the Principal Underwriter for its efforts
in respect of sales of Class A shares since inception of the Plan.
SECTION 3. This Plan shall not take effect until it has been approved by a
vote of at least a majority (as defined in the 1940 Act) of the outstanding
Class A shares of the Fund.
SECTION 4. This Plan shall not take effect until it has been approved
together with any related agreements of the Fund by votes of a majority of both
(a) the Board of Trustees of the Fund and (b) those Trustees of the Fund who are
not "interested persons" of the Fund (as defined in the 1940 Act) and who have
no direct or indirect financial interest in the operation of this Plan or any
agreements of the Fund or any other person related to this Plan (Rule 12b-1
Trustees), cast in person at a meeting called for the purpose of voting on this
Plan or such agreements.
SECTION 5. Unless sooner terminated pursuant to Section 7, this Plan shall
continue in effect for a period of one year from the date it takes effect and
thereafter shall continue in effect so long as such continuance is specifically
approved at least annually in the manner provided for approval of this Plan in
Section 4.
SECTION 6. Any person authorized to direct the disposition of monies paid
or payable by the Fund pursuant to this Plan or any related agreement shall
provide to the Fund's Board and the Board shall review at least quarterly a
written report of the amounts so expended and the purposes for which such
expenditures were made.
SECTION 7. This Plan may be terminated at any time by vote of a majority
of the Rule 12b-1 Trustees, or by vote of a majority of the Fund's outstanding
Class A shares.
SECTION 8. Any agreement of the Fund related to this Plan shall be in
writing, and shall provide:
A. That such agreement may be terminated at any time, without payment of
any penalty, by vote of a majority of the Rule 12b-1 Trustees or by a
vote of a majority of the Fund's outstanding Class A shares on not
more than sixty days written notice to any other party to the
agreement; and
B. That such agreement shall terminate automatically in the event of its
assignment.
SECTION 9. This Plan may not be amended to increase materially the amount
of distribution expenses provided for in Section 2 hereof unless such amendment
is approved in the manner provided in Section 3 hereof, and no material
amendment to this Plan shall be made unless approved in the manner provided for
in Section 4 hereof.
#1001006B
<PAGE>
DISTRIBUTION PLAN
FOR
CLASS B-1 SHARES
OF
KEYSTONE CAPITAL PRESERVATION AND INCOME FUND
Section 1. Keystone Capital Preservation and Income Fund, individually
and/or on behalf of its series, if any, referred to above in the title of this
12b-1 Plan (the "Plan"), to which series this Plan shall then relate, as
applicable (the "Fund"), may act as the distributor of certain securities of
which it is the issuer pursuant to Rule 12b-1 under the Investment Company Act
of 1940 (the "1940 Act") according to the terms of this Distribution Plan.
Section 2. The Fund may expend daily amounts at an annual rate of up to
1.00% of the average daily net asset value of the Fund attributable to the
Fund's Class B-1 shares (the "Shares"). Such amounts may be expended to finance
any activity that is principally intended to result in the sale of Shares,
including, without limitation, expenditures consisting of payments to a
principal underwriter of the Fund or others as sales commissions or other
compensation for services provided or to be provided ("Distribution Fees") or as
reimbursement for expenses that are incurred or accrued at any time during which
this Plan is in effect, together with interest on any such amounts, at rates
approved by the Rule 12b-1 Directors (as defined below) in the manner referred
to below, all whether or not this Plan has been otherwise terminated, if such
payment of such expenditures is for services theretofore provided or for
reimbursement of expenses theretofore incurred or accrued prior to termination
of this Plan in other respects and if such payment is or has been so approved by
such Rule 12b-1 Directors, or agreed to by the Fund with such approval, all
subject to such specific implementation as such 12b-1 Directors may approve;
provided that, at the time any such payment is made, whether or not this Plan
has been otherwise terminated, the making of such payment will not cause the
limitation upon such payments set forth in the preceding sentence to be
exceeded. Without limiting the generality of the foregoing, the Fund may pay to,
or on the order of, any person who has served from time to time as principal
underwriter (a "Principal Underwriter") amounts for distribution services
pursuant to a principal underwriting agreement or otherwise. No principal
underwriting agreement or other agreement shall be an agreement related to this
Plan, as referred to in Rule 12b-1 of the Securities and Exchange Commission,
unless it specifically states that it is such a related agreement. Any such
principal underwriting agreement may, but need not, provide that such Principal
Underwriter may be paid for distribution services to Class B-1 Shares
and/or other specified classes of shares of the Fund (together the
"B-Class-of-Shares"), a fee which may be designated a Distribution Fee and may
be paid at a rate per annum up to .75% of the average daily net asset value of
such B-Class-of-Shares of the Fund and may, but need not, also provide: (I) that
a Principal Underwriter will be deemed to have fully earned its "Allocable
Portion" of the Distribution Fee upon the sale of the Commission Shares (as
defined in the Allocation Schedule) taken into account in determining its
Allocable Portion; (II) that the Fund's obligation to pay such Principal
Underwriter its Allocable Portion of the Distribution Fees shall be absolute and
unconditional and shall not be subject to dispute, offset, counterclaim or any
defense whatsoever (it being understood that such provision is not a waiver of
the Fund's right to pursue such Principal Underwriter and enforce such claims
against the assets of such Principal Underwriter other than its right to its
Allocable Portion of the Distribution Fees and CDSCs (as defined below) (III)
that the Fund's obligation to pay such Principal Underwriter its Allocable
Portion of the Distribution Fees shall not be changed or terminated except to
the extent required by any change in applicable law, including without
limitation, the Investment Company Act of 1940, the Rules promulgated thereunder
by the Securities and Exchange Commission and the Rules of Fair Practice of the
National Association of Securities Dealers, Inc., in each case enacted or
promulgated after June 1, 1995, or in connection with a "Complete Termination"
(as hereinafter defined); (IV) that the Fund will not waive or change any
contingent deferred sales charge ("CDSC") in respect of the Distributor's
Allocable Portion thereof, except as provided in the Fund's prospectus or
statement of additional information without the consent of the Principal
Underwriter or any assignee of such Principal Underwriter's rights to its
Allocable Portion; (V) that the termination of the Principal Underwriter, the
principal underwriting agreement or this Plan will not terminate such Principal
Underwriter's rights to its Allocable Portion of the CDSCs; and (VI) that any
Principal Underwriter may assign its rights to its Allocable Portion of the
Distribution Fees and CDSCs (but not such Principal Underwriter's obligations to
the Fund under its principal underwriting agreement) to raise funds to make
expenditures described in Section 2 above and in connection therewith, and upon
receipt of notice of such assignment, the Fund shall pay to the assignee such
portion of the Principal Underwriter's Allocable Portion of the Distribution
Fees and CDSCs so assigned. For purposes of such principal underwriting
agreement, the term Allocable Portion of Distribution Fees as applied to any
Principal Underwriter may mean the portion of the Distribution Fee allocable to
Distributor Shares in accordance with the "Allocation Schedule" attached to such
Principal Underwriter's principal underwriting agreement. For purposes of such
principal underwriting agreement, the term Allocable Portion of CDSCs as applied
to any Principal Underwriter may mean the portion of the CDSCs allocable to
Distributor Shares in accordance with the Allocation Schedule attached to such
Principal Underwriter's principal underwriting agreement. For purposes of such
principal underwriting agreement, the term "Complete Termination" may mean a
termination of this Plan involving the cessation of payments of the Distribution
Fees thereunder, the cessation of payments of distribution fees pursuant to
every other rule 12b-1 plan of the Fund for every existing or future
B-Class-of-Shares and the cessation of the offering by the Fund of existing or
future B-Class-of-Shares, which conditions shall be deemed to be satisfied when
they are first complied with and so long thereafter as they are complied with
prior to the earlier of (i) the date upon which all of the B-2 Shares which are
Distributor Shares pursuant to the Allocation Schedule shall have been redeemed
or converted or (ii) a specified date, after either of which times such
conditions need no longer be complied with. For purposes of such principal
underwriting agreement, the term "B-Class-of-Shares" may mean each of the B-1
Class of Shares of the Fund, the B-2 Class of Shares of the Fund and each other
class of shares of the Fund hereafter issued which would be treated as "Shares"
under such Allocation Schedule or which has economic characteristics
substantially similar to those of the B-1 or B-2 Classes of Shares taking into
account the total sales charge, CDSC or other similar charges borne directly or
indirectly by the holder of the shares of such classes. The parties may agree
that the existing C Class of Shares of the Fund does not have substantially
similar economic characteristics to the B-1 or B-2 Classes of Shares taking into
account the total sales charge, CDSC or other similar charges borne directly or
indirectly by the holder of such shares. For purposes of clarity the parties to
such principal underwriting agreement may state that they intend that a new
installment load class of shares which may be authorized by amendments to Rule
6(c)-10 under the 1940 Act will be considered to be a B-Class-of-Shares if it
has economic characteristics substantially similar to the economic
characteristics of the existing B-1 or B-2 Classes of Shares taking into account
the total sales charge, CDSC or other similar charges borne directly or
indirectly by the holder of such shares and will not be considered to be a
B-Class-of-Shares if it has economic characteristics substantially similar to
the economic characteristics of the existing C Class of shares of the Fund
taking into account the total sales charge, CDSC or other similar charges borne
directly or indirectly by the holder of such shares. For purposes of such
principal underwriting agreement, "Allocation Schedule" may mean a schedule
which shall be approved by Directors (as defined below) in connection with their
required approval of such principal underwriting agreement as assigning to each
Principal Underwriter of Shares the portion of the total Distribution Fees
payable by the Fund under such principal underwriting agreement which has been
earned by such Principal Underwriter to the extent necessary so that the
continued payments thereof if such Principal Underwriter ceases to serve in that
capacity does not penalize the Fund by requiring it to pay for services that
have not been earned.
Section 3. This Plan shall not take effect until it has been approved by a
vote of at least a majority (as defined in the 1940 Act) of the outstanding
Shares.
Section 4. This Plan, and the specific implementation of expenditures
provided for under this Plan, shall not take effect until this Plan, and such
implementation, have been approved, together with any related agreements of the
Fund, by votes of both (a) a majority of the Board of Trustees or Directors
(together the "Directors") of the Fund and (b) a majority of those Directors of
the Fund who are not "interested persons" of the Fund (as said term is defined
in the 1940 Act) and who have no direct or indirect financial interest in the
operation of this Plan or any agreements of the Fund or any other person related
to this Plan (the "Rule 12b-1 Directors"), cast in person at a meeting called
for the purpose of voting on this Plan or such agreements.
Section 5. Unless sooner terminated pursuant to Section 7 hereof, this Plan
shall continue in effect for a period of one year from the date it takes effect
and thereafter shall continue in effect so long as such continuance is
specifically approved at least annually in the manner provided for approval of
this Plan in Section 4 hereof, except that, if terminated except for payments
provided to be made after termination of other aspects of this Plan, such
payments may be made pursuant to approvals made, and or agreements approved, as
provided above.
Section 6. Any person authorized to direct the disposition of monies paid
or payable by the Fund pursuant to this Plan or any related agreement shall
provide to the Fund's Board of Directors, and the Board shall review, at least
quarterly a written report of the amounts so expended and the purposes for which
such expenditures were made.
Section 7. This Plan may be terminated, in whole or in part, at any time by
vote of a majority of the Rule 12b-1 Directors or by vote of a majority of the
outstanding Shares, with the effects provided for in Section 2, as applicable.
Section 8. Any agreement of the Fund related to this Plan shall be in
writing, and shall provide as follows:
(a) That such agreement may be terminated at any time, without payment of
any penalty, by vote of a majority of the Rule 12b-1 Directors or by a
vote of a majority of the outstanding Shares on not more than sixty
days written notice to any other party to the agreement; and
(b) That such agreement shall terminate automatically in the event of its
assignment.
Section 9. This Plan may not be amended to increase materially the amount
of distribution expenses provided for in Section 2 hereof unless such amendment
is approved in the manner provided in Section 3 hereof, and no material
amendment to this Plan shall be made unless approved in the manner provided for
in Section 4 hereof.
<PAGE>
DISTRIBUTION PLAN
FOR
CLASS B-2 SHARES
OF
KEYSTONE CAPITAL PRESERVATION AND INCOME FUND
Section 1. Keystone Capital Preservation and Income Fund, individually
and/or on behalf of its series, if any, referred to above in the title of this
12b-1 Plan (the "Plan"), to which series this Plan shall then relate, as
applicable (the "Fund"), may act as the distributor of certain securities of
which it is the issuer pursuant to Rule 12b-1 under the Investment Company Act
of 1940 (the "1940 Act") according to the terms of this Distribution Plan.
Section 2. The Fund may expend daily amounts at an annual rate of up to
1.00% of the average daily net asset value of the Fund attributable to the
Fund's Class B-2 shares (the "Shares"). Such amounts may be expended to finance
any activity that is principally intended to result in the sale of Shares,
including, without limitation, expenditures consisting of payments to a
principal underwriter of the Fund or others as sales commissions or other
compensation for services provided or to be provided ("Distribution Fees") or as
reimbursement for expenses that are incurred or accrued at any time during which
this Plan is in effect, together with interest on any such amounts, at rates
approved by the Rule 12b-1 Directors (as defined below) in the manner referred
to below, all whether or not this Plan has been otherwise terminated, if such
payment of such expenditures is for services theretofore provided or for
reimbursement of expenses theretofore incurred or accrued prior to termination
of this Plan in other respects and if such payment is or has been so approved by
such Rule 12b-1 Directors, or agreed to by the Fund with such approval, all
subject to such specific implementation as such 12b-1 Directors may approve;
provided that, at the time any such payment is made, whether or not this Plan
has been otherwise terminated, the making of such payment will not cause the
limitation upon such payments set forth in the preceding sentence to be
exceeded. Without limiting the generality of the foregoing, the Fund may pay to,
or on the order of, any person who has served from time to time as principal
underwriter (a "Principal Underwriter") amounts for distribution services
pursuant to a principal underwriting agreement or otherwise. No principal
underwriting agreement or other agreement shall be an agreement related to this
Plan, as referred to in Rule 12b-1 of the Securities and Exchange Commission,
unless it specifically states that it is such a related agreement. Any such
principal underwriting agreement may, but need not, provide that such Principal
Underwriter may be paid for distribution services to Class B-2 Shares
and/or other specified classes of shares of the Fund (together the
"B-Class-of-Shares"), a fee which may be designated a Distribution Fee and may
be paid at a rate per annum up to .75% of the average daily net asset value of
such B-Class-of-Shares of the Fund and may, but need not, also provide: (I) that
a Principal Underwriter will be deemed to have fully earned its "Allocable
Portion" of the Distribution Fee upon the sale of the Commission Shares (as
defined in the Allocation Schedule) taken into account in determining its
Allocable Portion; (II) that the Fund's obligation to pay such Principal
Underwriter its Allocable Portion of the Distribution Fees shall be absolute and
unconditional and shall not be subject to dispute, offset, counterclaim or any
defense whatsoever (it being understood that such provision is not a waiver of
the Fund's right to pursue such Principal Underwriter and enforce such claims
against the assets of such Principal Underwriter other than its right to its
Allocable Portion of the Distribution Fees and CDSCs (as defined below); (III)
that the Fund's obligation to pay such Principal Underwriter its Allocable
Portion of the Distribution Fees shall not be changed or terminated except to
the extent required by any change in applicable law, including without
limitation, the Investment Company Act of 1940, the Rules promulgated thereunder
by the Securities and Exchange Commission and the Rules of Fair Practice of the
National Association of Securities Dealers, Inc., in each case enacted or
promulgated after June 1, 1995, or in connection with a "Complete Termination"
(as hereinafter defined); (IV) that the Fund will not waive or change any
contingent deferred sales charge ("CDSC") in respect of the Distributor's
Allocable Portion thereof, except as provided in the Fund's prospectus or
statement of additional information without the consent of the Principal
Underwriter or any assignee of such Principal Underwriter's rights to its
Allocable Portion; (V) that the termination of the Principal Underwriter, the
principal underwriting agreement or this Plan will not terminate such Principal
Underwriter's rights to its Allocable Portion of the CDSCs; and (VI) that any
Principal Underwriter may assign its rights to its Allocable Portion of the
Distribution Fees and CDSCs (but not such Principal Underwriter's obligations to
the Fund under its principal underwriting agreement) to raise funds to make
expenditures described in Section 2 above and in connection therewith, and upon
receipt of notice of such assignment, the Fund shall pay to the assignee such
portion of the Principal Underwriter's Allocable Portion of the Distribution
Fees and CDSCs so assigned. For purposes of such principal underwriting
agreement, the term Allocable Portion of Distribution Fees as applied to any
Principal Underwriter may mean the portion of the Distribution Fee allocable to
Distributor Shares in accordance with the "Allocation Schedule" attached to such
Principal Underwriter's principal underwriting agreement. For purposes of such
principal underwriting agreement, the term Allocable Portion of CDSCs as applied
to any Principal Underwriter may mean the portion of the CDSCs allocable to
Distributor Shares in accordance with the Allocation Schedule attached to such
Principal Underwriter's principal underwriting agreement. For purposes of such
principal underwriting agreement, the term "Complete Termination" may mean a
termination of this Plan involving the cessation of payments of the Distribution
Fees thereunder, the cessation of payments of distribution fees pursuant to
every other rule 12b-1 plan of the Fund for every existing or future
B-Class-of-Shares and the cessation of the offering by the Fund of existing or
future B-Class-of-Shares, which conditions shall be deemed to be satisfied when
they are first complied with and so long thereafter as they are complied with
prior to the earlier of (i) the date upon which all of the B-2 Shares which are
Distributor Shares pursuant to the Allocation Schedule shall have been redeemed
or converted or (ii) a specified date, after either of which times such
conditions need no longer be complied with. For purposes of such principal
underwriting agreement, the term "B-Class-of-Shares" may mean each of the B-1
Class of Shares of the Fund, the B-2 Class of Shares of the Fund and each other
class of shares of the Fund hereafter issued which would be treated as "Shares"
under such Allocation Schedule or which has economic characteristics
substantially similar to those of the B-1 or B-2 Classes of Shares taking into
account the total sales charge, CDSC or other similar charges borne directly or
indirectly by the holder of the shares of such classes. The parties may agree
that the existing C Class of Shares of the Fund does not have substantially
similar economic characteristics to the B-1 or B-2 Classes of Shares taking into
account the total sales charge, CDSC or other similar charges borne directly or
indirectly by the holder of such shares. For purposes of clarity the parties to
such principal underwriting agreement may state that they intend that a new
installment load class of shares which may be authorized by amendments to Rule
6(c)-10 under the 1940 Act will be considered to be a B-Class-of-Shares if it
has economic characteristics substantially similar to the economic
characteristics of the existing B-1 or B-2 Classes of Shares taking into account
the total sales charge, CDSC or other similar charges borne directly or
indirectly by the holder of such shares and will not be considered to be a
B-Class-of-Shares if it has economic characteristics substantially similar to
the economic characteristics of the existing C Class of shares of the Fund
taking into account the total sales charge, CDSC or other similar charges borne
directly or indirectly by the holder of such shares. For purposes of such
principal underwriting agreement, "Allocation Schedule" may mean a schedule
which shall be approved by Directors (as defined below) in connection with their
required approval of such principal underwriting agreement as assigning to each
Principal Underwriter of Shares the portion of the total Distribution Fees
payable by the Fund under such principal underwriting agreement which has been
earned by such Principal Underwriter to the extent necessary so that the
continued payments thereof if such Principal Underwriter ceases to serve in that
capacity does not penalize the Fund by requiring it to pay for services that
have not been earned.
Section 3. This Plan shall not take effect until it has been approved by a
vote of at least a majority (as defined in the 1940 Act) of the outstanding
Shares.
Section 4. This Plan, and the specific implementation of expenditures
provided for under this Plan, shall not take effect until this Plan, and such
implementation, have been approved, together with any related agreements of the
Fund, by votes of both (a) a majority of the Board of Trustees or Directors
(together the "Directors") of the Fund and (b) a majority of those Directors of
the Fund who are not "interested persons" of the Fund (as said term is defined
in the 1940 Act) and who have no direct or indirect financial interest in the
operation of this Plan or any agreements of the Fund or any other person related
to this Plan (the "Rule 12b-1 Directors"), cast in person at a meeting called
for the purpose of voting on this Plan or such agreements.
Section 5. Unless sooner terminated pursuant to Section 7 hereof, this Plan
shall continue in effect for a period of one year from the date it takes effect
and thereafter shall continue in effect so long as such continuance is
specifically approved at least annually in the manner provided for approval of
this Plan in Section 4 hereof, except that, if terminated except for payments
provided to be made after termination of other aspects of this Plan, such
payments may be made pursuant to approvals made, and or agreements approved, as
provided above.
Section 6. Any person authorized to direct the disposition of monies paid
or payable by the Fund pursuant to this Plan or any related agreement shall
provide to the Fund's Board of Directors, and the Board shall review, at least
quarterly a written report of the amounts so expended and the purposes for which
such expenditures were made.
Section 7. This Plan may be terminated, in whole or in part, at any time by
vote of a majority of the Rule 12b-1 Directors or by vote of a majority of the
outstanding Shares, with the effects provided for in Section 2, as applicable.
Section 8. Any agreement of the Fund related to this Plan shall be in
writing, and shall provide as follows:
(a) That such agreement may be terminated at any time, without payment of
any penalty, by vote of a majority of the Rule 12b-1 Directors or by a
vote of a majority of the outstanding Shares on not more than sixty
days written notice to any other party to the agreement; and
(b) That such agreement shall terminate automatically in the event of its
assignment.
Section 9. This Plan may not be amended to increase materially the amount
of distribution expenses provided for in Section 2 hereof unless such amendment
is approved in the manner provided in Section 3 hereof, and no material
amendment to this Plan shall be made unless approved in the manner provided for
in Section 4 hereof.
<PAGE>
KEYSTONE CAPITAL PRESERVATION AND INCOME FUND
CLASS C DISTRIBUTION PLAN
SECTION 1. Keystone Capital Preservation and Income Fund (the "Fund") may
act as the distributor of securities of which it is the issuer pursuant to Rule
12b-1 under the Investment Company Act of 1940 (the "1940 Act") according to the
terms of this Distribution Plan ("Plan").
SECTION 2. The Fund may expend daily amounts at an annual rate of 1.00% of
the average daily net asset value of the Fund attributable to the Fund's Class C
shares to finance any activity that is principally intended to result in the
sale of Class C shares, including, without limitation, expenditures consisting
of payments to a principal underwriter of the Fund ("Principal Underwriter") or
others as sales commissions or other compensation for their services that have
been earned or as reimbursement for expenses that have been incurred or accrued
at any time during which this Plan has been in effect together with interest at
a rate approved from time to time by the Rule 12b-1 Trustees/Directors (as
defined below) on any such amounts.
SECTION 3. This Plan shall not take effect until it has been approved by a
vote of at least a majority (as defined in the 1940 Act) of the outstanding
Class C shares.
SECTION 4. This Plan shall not take effect until it has been approved
together with any related agreements of the Fund by votes of a majority of both
(a) the Board of Trustees/Directors of the Fund and (b) those Trustees/Directors
of the Fund who are not "interested persons" of the Fund (as said term is
defined in the 1940 Act) and who have no direct or indirect financial interest
in the operation of this Plan or any agreements of the Fund or any other person
related to this Plan (the "Rule 12b-1 Trustees/Directors"), cast in person at a
meeting called for the purpose of voting on this Plan or such agreements.
SECTION 5. Unless sooner terminated pursuant to Section 7 hereof, this Plan
shall continue in effect for a period of one year from the date it takes effect
and thereafter shall continue in effect so long as such continuance is
specifically approved at least annually in the manner provided for approval of
this Plan in Section 4 hereof.
SECTION 6. Any person authorized to direct the disposition of monies paid
or payable by the Fund pursuant to this Plan or any related agreement shall
provide to the Fund's Board of Trustees/Directors and the Board shall review at
least quarterly a written report of the amounts so expended and the purposes for
which such expenditures were made.
SECTION 7. This Plan may be terminated at any time by vote of a majority of
the Rule 12b-1 Trustees/Directors or by vote of a majority of the outstanding
Class C shares.
SECTION 8. Any agreement of the Fund related to this Plan shall be in
writing, and shall provide as follows:
(a) That such agreement may be terminated at any time, without payment of
any penalty, by vote of a majority of the Rule 12b-1 Trustees/Directors
or by a vote of a majority of the outstanding Class C shares on not
more than sixty days written notice to any other party to the
agreement; and
(b) That such agreement shall terminate automatically in the event of its
assignment.
SECTION 9. This Plan may not be amended to increase materially the amount
of distribution expenses provided for in Section 2 hereof unless such amendment
is approved in the manner provided in Section 3 hereof and no material amendment
to this Plan shall be made unless approved in the manner provided for in Section
4 hereof.
<PAGE>
<TABLE>
<CAPTION>
PRICING DATE 09/26/95
30 DAY YTM 5.62690%
- -----------------------------------------------------------------------------------------------------
PRICE ST VARIABLE LONG TERM GAIN/LOSS AMORT TOTAL DIV
DATE INCOME INCOME INCOME INCOME FACTOR
- -----------------------------------------------------------------------------------------------------
<C> <C> <C> <C> <C> <C> <C> <C>
08/28/95 0.00 14,999.55 14,999.55 22.80406070
08/29/95 0.00 17,914.08 17,914.08 22.83449580
08/30/95 0.00 17,892.83 17,892.83 22.76953830
08/31/95 0.00 17,892.83 17,892.83 22.79649790
09/01/95 0.00 17,822.37 17,822.37 22.82807800
09/02/95 0.00 17,822.37 17,822.37 22.82807800
09/03/95 0.00 17,822.37 17,822.37 22.82807800
09/04/95 0.00 17,822.37 17,822.37 22.82807800
09/05/95 0.00 17,827.89 17,827.89 22.80257630
09/06/95 0.00 17,828.14 17,828.14 22.80276290
09/07/95 0.00 17,828.55 17,828.55 22.79780440
09/08/95 0.00 17,818.45 17,818.45 22.78485520
09/09/95 0.00 17,818.45 17,818.45 22.78485520
09/10/95 0.00 17,818.45 17,818.45 22.78485520
09/11/95 0.00 17,801.85 17,801.85 22.78487210
09/12/95 0.00 17,315.20 17,315.20 22.78276980
09/13/95 0.00 17,738.45 17,738.45 22.78944956
09/14/95 0.00 17,698.59 17,698.59 22.80359068
09/15/95 0.00 17,821.28 17,821.28 22.84235728
09/16/95 0.00 17,821.28 17,821.28 22.84235728
09/17/95 0.00 17,821.28 17,821.28 22.84235728
09/18/95 0.00 17,884.27 17,884.27 22.84576820
09/19/95 0.00 17,808.11 17,808.11 22.86732332
09/20/95 0.00 19,278.95 19,278.95 22.83539730
09/21/95 0.00 17,872.26 17,872.26 22.82914030
09/22/95 0.00 16,714.45 16,714.45 22.82761834
09/23/95 0.00 16,714.45 16,714.45 22.82761834
09/24/95 0.00 16,714.45 16,714.45 22.82761834
09/25/95 0.00 14,651.91 14,651.91 22.83473022
09/26/95 0.00 17,748.69 -50,514.94 -32,766.25 22.79734870
09/27/95 0.00 0.00 0.00 0.00000000
0.00 526,334.17 -50,514.94 0.00 0.00 475,819.23 684.45493094
<PAGE>
<CAPTION>
TOTAL INCOME FOR PERIOD 108,567.70
TOTAL EXPENSES FOR PERIOD 14,548.82
AVERAGE SHARES OUTSTANDING 2,032,501.03
LAST PRICE DURING PERIOD 9.98
- --------------------------------------------------------------------------------------------------------
PRICE ADJUSTED DAILY DAILY DAILY ACCUMULATED ACCUMULATED ACCUMULATED
DATE INCOME EXPENSES SHARES PRICE INCOME EXPENSES SHARES
- --------------------------------------------------------------------------------------------------------
<C> <C> <C> <C> <C> <C> <C> <C>
08/28/95 3,420.51 488.02 2,048,118.816 9.97 3,420.51 488.02 2,048,118.816
08/29/95 4,090.59 488.16 2,047,880.112 9.96 7,511.10 976.18 4,095,998.928
08/30/95 4,074.11 510.55 2,038,296.073 9.97 11,585.21 1,486.73 6,134,295.001
08/31/95 4,078.94 462.67 2,037,218.933 9.97 15,664.15 1,949.40 8,171,513.934
09/01/95 4,068.50 485.36 2,042,165.110 9.98 19,732.65 2,434.76 10,213,679.044
09/02/95 4,068.50 485.36 2,042,165.110 9.98 23,801.15 2,920.11 12,255,844.154
09/03/95 4,068.50 485.36 2,042,165.110 9.99 27,869.65 3,405.47 14,298,009.264
09/04/95 4,068.50 485.36 2,042,165.110 9.98 31,938.15 3,890.82 16,340,174.374
09/05/95 4,065.22 487.33 2,039,335.407 9.99 36,003.37 4,378.15 18,379,509.781
09/06/95 4,065.31 487.04 2,039,189.791 9.98 40,068.68 4,865.19 20,418,699.572
09/07/95 4,064.52 486.52 2,038,795.221 9.98 44,133.20 5,351.71 22,457,494.793
09/08/95 4,059.91 485.87 2,036,692.957 9.98 48,193.11 5,837.58 24,494,187.750
09/09/95 4,059.91 485.87 2,036,692.957 9.98 52,253.02 6,323.45 26,530,880.707
09/10/95 4,059.91 485.87 2,036,692.957 9.98 56,312.93 6,809.32 28,567,573.664
09/11/95 4,056.13 485.47 2,034,276.383 9.98 60,369.06 7,294.79 30,601,850.047
09/12/95 3,944.88 485.28 2,031,360.998 9.98 64,313.94 7,780.07 32,633,211.045
09/13/95 4,042.50 485.01 2,031,051.326 9.98 68,356.44 8,265.08 34,664,262.371
09/14/95 4,035.91 484.94 2,029,544.460 9.99 72,392.35 8,750.02 36,693,806.831
09/15/95 4,070.80 484.88 2,029,573.388 9.99 76,463.15 9,234.90 38,723,380.219
09/16/95 4,070.80 484.88 2,029,573.388 9.99 80,533.95 9,719.78 40,752,953.607
09/17/95 4,070.80 484.88 2,029,573.388 9.99 84,604.75 10,204.66 42,782,526.995
09/18/95 4,085.80 484.48 2,028,087.319 9.99 88,690.55 10,689.14 44,810,614.314
09/19/95 4,072.24 484.08 2,025,886.583 9.99 92,762.79 11,173.22 46,836,500.897
09/20/95 4,402.42 483.85 2,021,985.344 9.99 97,165.21 11,657.07 48,858,486.241
09/21/95 4,080.08 482.54 2,021,276.181 9.98 101,245.29 12,139.61 50,879,762.422
09/22/95 3,815.51 482.01 2,019,452.261 9.98 105,060.80 12,621.62 52,899,214.683
09/23/95 3,815.51 482.01 2,019,452.261 9.98 108,876.31 13,103.63 54,918,666.944
09/24/95 3,815.51 482.01 2,019,452.261 9.98 112,691.82 13,585.64 56,938,119.205
09/25/95 3,345.72 481.67 2,018,890.175 9.98 116,037.54 14,067.31 58,957,009.380
09/26/95 -7,469.84 481.51 2,018,021.631 9.98 108,567.70 14,548.82 60,975,031.011
09/27/95 0.00 0.00 0.000 0.00 108,567.70 14,548.82 60,975,031.011
108,567.70 14,548.82 2,032,501.034
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
PRICING DATE 09/26/95
30 DAY YTM 5.19845%
- -----------------------------------------------------------------------------------------------
PRICE ST VARIABLE LONG TERM GAIN/LOSS TOTAL DIV
DATE INCOME INCOME INCOME FACTOR
- -----------------------------------------------------------------------------------------------
<C> <C> <C> <C> <C> <C> <C>
08/28/95 0.00 0.00 14,999.55 0.00 0.00 14,999.55 73.98015980
08/29/95 0.00 0.00 17,914.08 0.00 0.00 17,914.08 73.94159430
08/30/95 0.00 0.00 17,892.83 0.00 0.00 17,892.83 74.00061190
08/31/95 0.00 0.00 17,892.83 0.00 0.00 17,892.83 73.98391830
09/01/95 0.00 0.00 17,822.37 0.00 0.00 17,822.37 73.94524210
09/02/95 0.00 0.00 17,822.37 0.00 0.00 17,822.37 73.94524210
09/03/95 0.00 0.00 17,822.37 0.00 0.00 17,822.37 73.94524210
09/04/95 0.00 0.00 17,822.37 0.00 0.00 17,822.37 73.94524210
09/05/95 0.00 0.00 17,827.89 0.00 0.00 17,827.89 73.96822230
09/06/95 0.00 0.00 17,828.14 0.00 0.00 17,828.14 73.95853560
09/07/95 0.00 0.00 17,828.55 0.00 0.00 17,828.55 73.96357540
09/08/95 0.00 0.00 17,818.45 0.00 0.00 17,818.45 73.97023470
09/09/95 0.00 0.00 17,818.45 0.00 0.00 17,818.45 73.97023470
09/10/95 0.00 0.00 17,818.45 0.00 0.00 17,818.45 73.97023470
09/11/95 0.00 0.00 17,801.85 0.00 0.00 17,801.85 73.96636700
09/12/95 0.00 0.00 17,315.20 0.00 0.00 17,315.20 74.01624130
09/13/95 0.00 0.00 17,738.45 0.00 0.00 17,738.45 74.00813135
09/14/95 0.00 0.00 17,698.59 0.00 0.00 17,698.59 73.98993319
09/15/95 0.00 0.00 17,821.28 0.00 0.00 17,821.28 73.94576554
09/16/95 0.00 0.00 17,821.28 0.00 0.00 17,821.28 73.94576554
09/17/95 0.00 0.00 17,821.28 0.00 0.00 17,821.28 73.94576554
09/18/95 0.00 0.00 17,884.27 0.00 0.00 17,884.27 73.93952780
09/19/95 0.00 0.00 17,808.11 0.00 0.00 17,808.11 73.91144128
09/20/95 0.00 0.00 19,278.95 0.00 0.00 19,278.95 73.94166440
09/21/95 0.00 0.00 17,872.26 0.00 0.00 17,872.26 73.94767370
09/22/95 0.00 0.00 16,714.45 0.00 0.00 16,714.45 73.94650258
09/23/95 0.00 0.00 16,714.45 0.00 0.00 16,714.45 73.94650258
09/24/95 0.00 0.00 16,714.45 0.00 0.00 16,714.45 73.94650258
09/25/95 0.00 0.00 14,651.91 0.00 0.00 14,651.91 73.93749158
09/26/95 0.00 0.00 17,748.69 -50,514.94 0.00 -32,766.25 73.97877480
09/27/95 0.00 0.00 0.00 0.00 0.00 0.00 73.94524205
0.00 0.00 526,334.17 -50,514.94 0.00 475,819.23 2292.7475829
<PAGE>
<CAPTION>
TOTAL INCOME FOR PERIOD 351,906.76
TOTAL EXPENSES FOR PERIOD 78,597.87
AVERAGE SHARES OUTSTANDING 6,587,798.97
LAST PRICE DURING PERIOD 9.68
- -------------------------------------------------------------------------------------------------------------
PRICE ADJUSTED DAILY DAILY DAILY ACCUMULATED ACCUMULATED ACCUMULATED
DATE INCOME EXPENSES SHARES PRICE INCOME EXPENSES SHARES
- -------------------------------------------------------------------------------------------------------------
<C> <C> <C> <C> <C> <C> <C> <C>
08/28/95 11,096.69 2,637.74 6,643,392.680 9.67 11,096.69 2,637.74 6,643,392.680
08/29/95 13,245.96 2,638.22 6,630,306.805 9.66 24,342.65 5,275.96 13,273,699.485
08/30/95 13,240.80 2,631.11 6,623,392.522 9.67 37,583.45 7,907.07 19,897,092.007
08/31/95 13,237.82 2,626.84 6,610,566.070 9.67 50,821.27 10,533.91 26,507,658.077
09/01/95 13,178.79 2,623.45 6,613,996.015 9.68 64,000.06 13,157.36 33,121,654.092
09/02/95 13,178.79 2,623.45 6,613,996.015 9.68 77,178.85 15,780.81 39,735,650.107
09/03/95 13,178.79 2,623.45 6,613,996.015 9.68 90,357.64 18,404.26 46,349,646.122
09/04/95 13,178.79 2,623.45 6,613,996.015 9.68 103,536.43 21,027.71 52,963,642.137
09/05/95 13,186.97 2,630.48 6,614,287.467 9.69 116,723.40 23,658.19 59,577,929.604
09/06/95 13,185.43 2,630.84 6,612,895.710 9.69 129,908.83 26,289.03 66,190,825.314
09/07/95 13,186.63 2,630.52 6,613,504.746 9.69 143,095.46 28,919.55 72,804,330.060
09/08/95 13,180.35 2,629.51 6,611,048.841 9.69 156,275.81 31,549.06 79,415,378.901
09/09/95 13,180.35 2,629.51 6,611,048.841 9.69 169,456.16 34,178.57 86,026,427.742
09/10/95 13,180.35 2,629.51 6,611,048.841 9.69 182,636.51 36,808.08 92,637,476.583
09/11/95 13,167.38 2,628.78 6,602,881.925 9.68 195,803.89 39,436.86 99,240,358.508
09/12/95 12,816.06 2,629.08 6,598,473.561 9.68 208,619.95 42,065.94 105,838,832.069
09/13/95 13,127.90 2,621.94 6,594,804.435 9.68 221,747.85 44,687.88 112,433,636.504
09/14/95 13,095.17 2,616.07 6,584,205.663 9.69 234,843.02 47,303.95 119,017,842.167
09/15/95 13,178.08 2,614.62 6,569,201.898 9.69 248,021.10 49,918.57 125,587,044.065
09/16/95 13,178.08 2,614.62 6,569,201.898 9.69 261,199.18 52,533.18 132,156,245.963
09/17/95 13,178.08 2,614.62 6,569,201.898 9.69 274,377.26 55,147.80 138,725,447.861
09/18/95 13,223.54 2,608.36 6,562,864.918 9.69 287,600.80 57,756.16 145,288,312.779
09/19/95 13,162.23 2,608.60 6,547,075.787 9.69 300,763.03 60,364.76 151,835,388.566
09/20/95 14,255.18 2,606.04 6,546,286.507 9.69 315,018.21 62,970.80 158,381,675.073
09/21/95 13,216.12 2,604.77 6,546,309.495 9.67 328,234.33 65,575.57 164,927,984.568
09/22/95 12,359.75 2,603.88 6,540,740.816 9.68 340,594.08 68,179.45 171,468,725.384
09/23/95 12,359.75 2,603.88 6,540,740.816 9.68 352,953.83 70,783.34 178,009,466.200
09/24/95 12,359.75 2,603.88 6,540,740.816 9.68 365,313.58 73,387.22 184,550,207.016
09/25/95 10,833.25 2,602.93 6,536,100.436 9.68 376,146.83 75,990.15 191,086,307.452
09/26/95 -24,240.07 2,607.72 6,547,661.688 9.68 351,906.76 78,597.87 197,633,969.140
09/27/95 0.00 2,623.45 6,613,996.015 9.68 351,906.76 81,221.32 204,247,965.155
351,906.76 81,221.32 6,587,798.971
</TABLE>
<PAGE>
<TABLE>
PRICING DATE 09/26/95
30 DAY YTM 5.19302%
- ----------------------------------------------------------------------------------------------------
PRICE ST FIXED LONG TERM GAIN/LOSS TOTAL DIV
DATE INCOME INCOME INCOME FACTOR
- ----------------------------------------------------------------------------------------------------
<C> <C> <C> <C> <C> <C> <C> <C>
08/28/95 0.00 0.00 14,999.55 0.00 0.00 0.00 14,999.55 3.21577950
08/29/95 0.00 0.00 17,914.08 0.00 0.00 0.00 17,914.08 3.22390990
08/30/95 0.00 0.00 17,892.83 0.00 0.00 0.00 17,892.83 3.22984980
08/31/95 0.00 0.00 17,892.83 0.00 0.00 0.00 17,892.83 3.21958380
09/01/95 0.00 0.00 17,822.37 0.00 0.00 0.00 17,822.37 3.22668000
09/02/95 0.00 0.00 17,822.37 0.00 0.00 0.00 17,822.37 3.22668000
09/03/95 0.00 0.00 17,822.37 0.00 0.00 0.00 17,822.37 3.22668000
09/04/95 0.00 0.00 17,822.37 0.00 0.00 0.00 17,822.37 3.22668000
09/05/95 0.00 0.00 17,827.89 0.00 0.00 0.00 17,827.89 3.22920140
09/06/95 0.00 0.00 17,828.14 0.00 0.00 0.00 17,828.14 3.23870150
09/07/95 0.00 0.00 17,828.55 0.00 0.00 0.00 17,828.55 3.23862020
09/08/95 0.00 0.00 17,818.45 0.00 0.00 0.00 17,818.45 3.24491010
09/09/95 0.00 0.00 17,818.45 0.00 0.00 0.00 17,818.45 3.24491010
09/10/95 0.00 0.00 17,818.45 0.00 0.00 0.00 17,818.45 3.20098890
09/11/95 0.00 0.00 17,801.85 0.00 0.00 0.00 17,801.85 3.24876090
09/12/95 0.00 0.00 17,315.20 0.00 0.00 0.00 17,315.20 3.20098890
09/13/95 0.00 0.00 17,738.45 0.00 0.00 0.00 17,738.45 3.20241908
09/14/95 0.00 0.00 17,698.59 0.00 0.00 0.00 17,698.59 3.20647613
09/15/95 0.00 0.00 17,821.28 0.00 0.00 0.00 17,821.28 3.21187719
09/16/95 0.00 0.00 17,821.28 0.00 0.00 0.00 17,821.28 3.21187719
09/17/95 0.00 0.00 17,821.28 0.00 0.00 0.00 17,821.28 3.21187719
09/18/95 0.00 0.00 17,884.27 0.00 0.00 0.00 17,884.27 3.21470400
09/19/95 0.00 0.00 17,808.11 0.00 0.00 0.00 17,808.11 3.22123540
09/20/95 0.00 0.00 19,278.95 0.00 0.00 0.00 19,278.95 3.22293820
09/21/95 0.00 0.00 17,872.26 0.00 0.00 0.00 17,872.26 3.22318610
09/22/95 0.00 0.00 16,714.45 0.00 0.00 0.00 16,714.45 3.22587909
09/23/95 0.00 0.00 16,714.45 0.00 0.00 0.00 16,714.45 3.22587909
09/24/95 0.00 0.00 16,714.45 0.00 0.00 0.00 16,714.45 3.22587909
09/25/95 0.00 0.00 14,651.91 0.00 0.00 0.00 14,651.91 3.22777820
09/26/95 0.00 0.00 17,748.69 -50,514.94 0.00 0.00 -32,766.25 3.22387650
09/27/95 0.00 0.00 0.00 0.00 0.00 0.00 0.00 3.22667996
0.00 0.00 526,334.17 -50,514.94 0.00 0.00 475,819.23 99.9254874
<PAGE>
<CAPTION>
TOTAL INCOME FOR PERIOD 15,336.89
TOTAL EXPENSES FOR PERIOD 3,428.32
AVERAGE SHARES OUTSTANDING 287,636.66
LAST PRICE DURING PERIOD 9.67
- -------------------------------------------------------------------------------------------------------
PRICE ADJUSTED DAILY DAILY DAILY ACCUMULATED ACCUMULATED ACCUMULATED
DATE INCOME EXPENSES SHARES PRICE INCOME EXPENSES SHARES
- -------------------------------------------------------------------------------------------------------
<C> <C> <C> <C> <C> <C> <C> <C>
08/28/95 482.35 114.62 289,161.204 9.67 482.35 114.62 289,161.204
08/29/95 577.53 114.65 289,472.085 9.67 1,059.88 229.27 578,633.289
08/30/95 577.91 114.83 289,472.085 9.67 1,637.79 344.10 868,105.374
08/31/95 576.07 114.92 288,059.042 9.67 2,213.86 459.02 1,156,164.416
09/01/95 575.07 114.35 288,994.571 9.67 2,788.93 573.37 1,445,158.987
09/02/95 575.07 114.35 288,994.571 9.67 3,364.00 687.72 1,734,153.558
09/03/95 575.07 114.35 288,994.571 9.67 3,939.07 802.06 2,023,148.129
09/04/95 575.07 114.35 288,994.571 9.67 4,514.14 916.41 2,312,142.700
09/05/95 575.70 114.80 289,143.571 9.67 5,089.84 1,031.21 2,601,286.271
09/06/95 577.40 114.94 290,400.034 9.67 5,667.24 1,146.15 2,891,686.305
09/07/95 577.40 115.26 289,970.872 9.67 6,244.64 1,261.41 3,181,657.177
09/08/95 578.19 115.26 290,400.034 9.67 6,822.83 1,376.67 3,472,057.211
09/09/95 578.19 115.26 290,400.034 9.67 7,401.02 1,491.93 3,762,457.245
09/10/95 570.37 115.26 290,400.034 9.67 7,971.39 1,607.19 4,052,857.279
09/11/95 578.34 115.44 290,400.034 9.67 8,549.73 1,722.63 4,343,257.313
09/12/95 554.26 115.42 285,746.466 9.67 9,103.99 1,838.05 4,629,003.779
09/13/95 568.06 113.57 285,746.466 9.67 9,672.05 1,951.62 4,914,750.245
09/14/95 567.50 113.57 285,719.204 9.67 10,239.55 2,065.19 5,200,469.449
09/15/95 572.40 113.63 285,719.204 9.67 10,811.95 2,178.82 5,486,188.653
09/16/95 572.40 113.63 285,719.204 9.67 11,384.35 2,292.45 5,771,907.857
09/17/95 572.40 113.63 285,719.204 9.67 11,956.75 2,406.08 6,057,627.061
09/18/95 574.93 113.63 285,719.204 9.67 12,531.68 2,519.71 6,343,346.265
09/19/95 573.64 113.63 285,719.204 9.67 13,105.32 2,633.34 6,629,065.469
09/20/95 621.35 113.63 285,719.204 9.67 13,726.67 2,746.97 6,914,784.673
09/21/95 576.06 113.65 285,719.204 9.67 14,302.73 2,860.62 7,200,503.877
09/22/95 539.19 113.56 285,719.204 9.67 14,841.92 2,974.18 7,486,223.081
09/23/95 539.19 113.56 285,719.204 9.67 15,381.11 3,087.75 7,771,942.285
09/24/95 539.19 113.56 285,719.204 9.67 15,920.30 3,201.31 8,057,661.489
09/25/95 472.93 113.52 285,719.204 9.67 16,393.23 3,314.83 8,343,380.693
09/26/95 -1,056.34 113.49 285,719.204 9.67 15,336.89 3,428.32 8,629,099.897
09/27/95 0.00 114.35 288,994.571 9.67 15,336.89 3,542.67 8,918,094.468
15,336.89 3,542.67 287,636.663
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
KACPI CLASS A MTD YTD ONE YEAR THREE YEAR THREE YEAR
29-Sep-95 TOTAL RETURN COMPOUNDED
<S> <C> <C> <C> <C> <C>
3.00% LOAD 3.17% 3.17% 3.17% 4.24%
no load 0.60% 6.36% 6.36% 6.36% 8.56%
Beg dates 31-Aug-95 30-Dec-94 30-Dec-94 30-Dec-94 30-Dec-94
Beg Value (LOAD) 10,899 10,309 10,309 10,309 10,309
Beg Value (no load) 10,572 10,000 10,000 10,000 10,000
End Value 10,636 10,636 10,636 10,636 10,636
0.75
<CAPTION>
FIVE YEAR FIVE YEAR TEN YEAR TEN YEAR
TOTAL RETURN COMPOUNDED TOTAL RETURN COMPOUNDED
<S> <C> <C> <C> <C>
3.00% LOAD 3.17% 4.24% 3.17% 4.24%
no load 6.36% 8.56% 6.36% 8.56%
Beg dates 30-Dec-94 30-Dec-94 30-Dec-94 30-Dec-94
Beg Value (LOAD) 10,309 10,309 10,309 10,309
Beg Value (no load) 10,000 10,000 10,000 10,000
End Value 10,636 10,636 10,636 10,636
0.75 0.75
<CAPTION>
TIME
INCEPTION DATE 30-Dec-94
Compound Total Return Time Period: begining 12/30/94
Through 09/29/95
# Months # Years
1995 9
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
KACPI2-B MTD YTD ONE YEAR THREE YEAR THREE YEAR
29-Sep-95 TOTAL RETURN COMPOUNDED
<S> <C> <C> <C> <C> <C>
with cdsc N/A 2.86% 2.81% 9.87% 3.19%
W/O CDSC 0.55% 5.86% 5.81% 10.85% 3.49%
Beg dates 31-Aug-95 30-Dec-94 30-Sep-94 30-Sep-92 30-Sep-92
Beg Value (no load) 11,711 11,124 11,129 10,623 10,623
End Value (W/O CDSC) 11,776 11,776 11,776 11,776 11,776
End Value (with cdsc) 11,442 11,442 11,672 11,672
beg nav 9.67 9.51 9.62 9.88 9.88
end nav 9.68 9.68 9.68 9.68 9.68
shares originally purchased 1,211.06 1,169.76 1,156.83 1,075.21 1,075.21
<CAPTION>
3% cdsc thru date=> 30-Jun-92
TIME 3% cdsc thru date=> 30-Jun-93 3
INCEPTION DATE 01-Jul-91 2% cdsc effect. date=> 30-Jun-94
1% cdsc effect. date=> 30-Jun-95
Compound Return Time Period: BEGINNING Dec-94
Through Sep-95
# Months # Years
1993 *(6/91-12/93) 30
1994 12
1995 9
FIVE YEAR FIVE YEAR TEN YEAR TEN YEAR
TOTAL RETURN COMPOUNDED TOTAL RETURN COMPOUNDED
<S> <C> <C> <C> <C>
with cdsc 17.76% 3.92% NA NA
W/O CDSC 17.76% 3.92% NA NA
Beg dates 01-Jul-91 01-Jul-91 01-Jul-91 01-Jul-91
Beg Value (no load) 10,000 10,000 10,000 10,000
End Value (W/O CDSC) 11,776 11,776 11,776 11,776
End Value (with cdsc) 11,776 11775.7815974 11,776 11775.7815974
beg nav 10.00 10 10.00 10
end nav 9.68 9.68 9.68 9.68
shares originally purchased 1,000.00 1,000.00 1,000.00 1,000.00
TIME 4.25 4.25
INCEPTION DATE 31-Dec-94
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
KACPI-C MTD YTD ONE YEAR THREE YEAR THREE YEAR
29-Sep-95 TOTAL RETURN COMPOUNDED
<S> <C> <C> <C> <C> <C>
with cdsc N/A 4.86% 5.93% 9.93% 3.61%
W/O CDSC 0.55% 5.86% 5.93% 9.93% 3.61%
Beg dates 31-Aug-95 30-Dec-94 30-Sep-94 01-Feb-93 01-Feb-93
Beg Value (no load) 10,932 10,384 10,378 10,000 10,000
End Value (W/O CDSC) 10,993 10,993 10,993 10,993 10,993
End Value (with cdsc) 10,889 10,993 10,993 10,993
beg nav 9.66 9.50 9.60 9.82 9.82
end nav 9.67 9.67 9.67 9.67 9.67
shares originally purchased 1,131.72 1,093.10 1,081.01 1,018.33 1,018.33
<CAPTION>
TIME 2.6666666667
<S> <C> <C> <C>
INCEPTION DATE 01-Feb-93 1% cdsc effect. date=> 01-Jan-96
<CAPTION>
<S> <C> <C> <C> <C> <C>
Compound Return Time Period: BEGINNING Dec-94
Through Sep-95
# Months # Years
1993 11
1994 12
1995 9
<CAPTION>
FIVE YEAR FIVE YEAR TEN YEAR TEN YEAR
TOTAL RETURN COMPOUNDED TOTAL RETURN COMPOUNDED
<S> <C> <C> <C> <C>
with cdsc NA NA NA NA
W/O CDSC NA NA NA NA
Beg dates 01-Feb-93 01-Feb-93 01-Feb-93 01-Feb-93
Beg Value (no load) 10,000 10,000 10,000 10,000
End Value (W/O CDSC) 10,993 10,993 10,993 10,993
End Value (with cdsc) 10,993 10992.9234345 10,993 10992.9234345
beg nav 9.82 9.82 9.82 9.82
end nav 9.67 9.67 9.67 9.67
shares originally purchased 1,018.33 1,018.33 1,018.33 1,018.33
2.6666666667 2.6666666667
<CAPTION>
TIME
INCEPTION DATE 31-Dec-96
1% cdsc thru date^
</TABLE>
<PAGE>
Exhibit 99.19
POWER OF ATTORNEY
I, the undersigned, hereby constitute Roger T. Wickers, Rosemary D. Van
Antwerp, Jean S. Loewenberg, Dorothy E. Bourassa, James M. Wall and Melina M. T.
Murphy, each of them singly, my true and lawful attorneys, with full power to
them and each of them to sign for me and in my name in the capacity indicated
below any and all registration statements, including, but not limited to, Forms
N-8A, N-8B-1, S-5, N-1 and N-1A, as amended from time to time, and any and all
amendments thereto to be filed with the Securities and Exchange Commission for
the purpose of registering from time to time all investment companies of which I
am now or hereafter a Director or Trustee and/or Chairman of the Board and Chief
Executive Officer and for which Keystone Custodian Funds, Inc. serves as Adviser
or Manager and registering from time to time the shares of such companies, and
generally to do all such things in my name and in my behalf to enable such
investment companies to comply with the provisions of the Securities Act of
1933, as amended, the Investment Company Act of 1940, as amended, and all
requirements and regulations of the Securities and Exchange Commission
thereunder, hereby ratifying and confirming my signature as it may be signed by
my said attorneys to any and all registration statements and amendments thereto.
/s/ George S. Bissell
George S. Bissell
Director/Trustee,
Chairman of the Board
Dated: December 14, 1994
<PAGE>
POWER OF ATTORNEY
I, the undersigned, hereby constitute Roger T. Wickers, Rosemary D. Van
Antwerp, Jean S. Loewenberg, Dorothy E. Bourassa, James M. Wall and Melina M. T.
Murphy, each of them singly, my true and lawful attorneys, with full power to
them and each of them to sign for me and in my name in the capacity indicated
below any and all registration statements, including, but not limited to, Forms
N-8A, N-8B-1, S-5, N-1 and N-1A, as amended from time to time, and any and all
amendments thereto to be filed with the Securities and Exchange Commission for
the purpose of registering from time to time all investment companies of which I
am now or hereafter a Director or Trustee and/or Chief Executive Officer and for
which Keystone Custodian Funds, Inc. serves as Adviser or Manager and
registering from time to time the shares of such companies, and generally to do
all such things in my name and in my behalf to enable such investment companies
to comply with the provisions of the Securities Act of 1933, as amended, the
Investment Company Act of 1940, as amended, and all requirements and regulations
of the Securities and Exchange Commission thereunder, hereby ratifying and
confirming my signature as it may be signed by my said attorneys to any and all
registration statements and amendments thereto.
/s/ Albert H. Elfner, III
Albert H. Elfner, III
Director/Trustee,
President and Chief
Executive Officer
Dated: December 14, 1994
<PAGE>
POWER OF ATTORNEY
I, the undersigned, hereby constitute Roger T. Wickers, Rosemary D. Van
Antwerp, Jean S. Loewenberg, Dorothy E. Bourassa, James M. Wall and Melina M. T.
Murphy, each of them singly, my true and lawful attorneys, with full power to
them and each of them to sign for me and in my name in the capacity indicated
below any and all registration statements, including, but not limited to, Forms
N-8A, N-8B-1, S-5, N-1 and N-1A, as amended from time to time, and any and all
amendments thereto to be filed with the Securities and Exchange Commission for
the purpose of registering from time to time all investment companies of which I
am now or hereafter a Director, Trustee or officer and for which Keystone
Custodian Funds, Inc. serves as Adviser or Manager and registering from time to
time the shares of such companies, and generally to do all such things in my
name and in my behalf to enable such investment companies to comply with the
provisions of the Securities Act of 1933, as amended, the Investment Company Act
of 1940, as amended, and all requirements and regulations of the Securities and
Exchange Commission thereunder, hereby ratifying and confirming my signature as
it may be signed by my said attorneys to any and all registration statements and
amendments thereto.
/s/ Kevin J. Morrissey
Kevin J. Morrissey
Treasurer
Dated: December 14, 1994
<PAGE>
POWER OF ATTORNEY
I, the undersigned, hereby constitute Roger T. Wickers, Rosemary D. Van
Antwerp, Jean S. Loewenberg, Dorothy E. Bourassa, James M. Wall and Melina M. T.
Murphy, each of them singly, my true and lawful attorneys, with full power to
them and each of them to sign for me and in my name in the capacity indicated
below any and all registration statements, including, but not limited to, Forms
N-8A, N-8B-1, S-5, N-1 and N-1A, as amended from time to time, and any and all
amendments thereto to be filed with the Securities and Exchange Commission for
the purpose of registering from time to time all investment companies of which I
am now or hereafter a Director or Trustee and for which Keystone Custodian
Funds, Inc. serves as Adviser or Manager and registering from time to time the
shares of such companies, and generally to do all such things in my name and in
my behalf to enable such investment companies to comply with the provisions of
the Securities Act of 1933, as amended, the Investment Company Act of 1940, as
amended, and all requirements and regulations of the Securities and Exchange
Commission thereunder, hereby ratifying and confirming my signature as it may be
signed by my said attorneys to any and all registration statements and
amendments thereto.
/s/ Frederick Amling
Frederick Amling
Director/Trustee
Dated: December 14, 1994
<PAGE>
POWER OF ATTORNEY
I, the undersigned, hereby constitute Roger T. Wickers, Rosemary D. Van
Antwerp, Jean S. Loewenberg, Dorothy E. Bourassa, James M. Wall and Melina M. T.
Murphy, each of them singly, my true and lawful attorneys, with full power to
them and each of them to sign for me and in my name in the capacity indicated
below any and all registration statements, including, but not limited to, Forms
N-8A, N-8B-1, S-5, N-1 and N-1A, as amended from time to time, and any and all
amendments thereto to be filed with the Securities and Exchange Commission for
the purpose of registering from time to time all investment companies of which I
am now or hereafter a Director or Trustee and for which Keystone Custodian
Funds, Inc. serves as Adviser or Manager and registering from time to time the
shares of such companies, and generally to do all such things in my name and in
my behalf to enable such investment companies to comply with the provisions of
the Securities Act of 1933, as amended, the Investment Company Act of 1940, as
amended, and all requirements and regulations of the Securities and Exchange
Commission thereunder, hereby ratifying and confirming my signature as it may be
signed by my said attorneys to any and all registration statements and
amendments thereto.
/s/ Charles A. Austin III
Charles A. Austin III
Director/Trustee
Dated: December 14, 1994
<PAGE>
POWER OF ATTORNEY
I, the undersigned, hereby constitute Roger T. Wickers, Rosemary D. Van
Antwerp, Jean S. Loewenberg, Dorothy E. Bourassa, James M. Wall and Melina M. T.
Murphy, each of them singly, my true and lawful attorneys, with full power to
them and each of them to sign for me and in my name in the capacity indicated
below any and all registration statements, including, but not limited to, Forms
N-8A, N-8B-1, S-5, N-1 and N-1A, as amended from time to time, and any and all
amendments thereto to be filed with the Securities and Exchange Commission for
the purpose of registering from time to time all investment companies of which I
am now or hereafter a Director or Trustee and for which Keystone Custodian
Funds, Inc. serves as Adviser or Manager and registering from time to time the
shares of such companies, and generally to do all such things in my name and in
my behalf to enable such investment companies to comply with the provisions of
the Securities Act of 1933, as amended, the Investment Company Act of 1940, as
amended, and all requirements and regulations of the Securities and Exchange
Commission thereunder, hereby ratifying and confirming my signature as it may be
signed by my said attorneys to any and all registration statements and
amendments thereto.
/s/ Edwin D. Campbell
Edwin D. Campbell
Director/Trustee
Dated: December 14, 1994
<PAGE>
POWER OF ATTORNEY
I, the undersigned, hereby constitute Roger T. Wickers, Rosemary D. Van
Antwerp, Jean S. Loewenberg, Dorothy E. Bourassa, James M. Wall and Melina M. T.
Murphy, each of them singly, my true and lawful attorneys, with full power to
them and each of them to sign for me and in my name in the capacity indicated
below any and all registration statements, including, but not limited to, Forms
N-8A, N-8B-1, S-5, N-1 and N-1A, as amended from time to time, and any and all
amendments thereto to be filed with the Securities and Exchange Commission for
the purpose of registering from time to time all investment companies of which I
am now or hereafter a Director or Trustee and for which Keystone Custodian
Funds, Inc. serves as Adviser or Manager and registering from time to time the
shares of such companies, and generally to do all such things in my name and in
my behalf to enable such investment companies to comply with the provisions of
the Securities Act of 1933, as amended, the Investment Company Act of 1940, as
amended, and all requirements and regulations of the Securities and Exchange
Commission thereunder, hereby ratifying and confirming my signature as it may be
signed by my said attorneys to any and all registration statements and
amendments thereto.
/s/ Charles F. Chapin
Charles F. Chapin
Director/Trustee
Dated: December 14, 1994
<PAGE>
POWER OF ATTORNEY
I, the undersigned, hereby constitute Roger T. Wickers, Rosemary D. Van
Antwerp, Jean S. Loewenberg, Dorothy E. Bourassa, James M. Wall and Melina M. T.
Murphy, each of them singly, my true and lawful attorneys, with full power to
them and each of them to sign for me and in my name in the capacity indicated
below any and all registration statements, including, but not limited to, Forms
N-8A, N-8B-1, S-5, N-1 and N-1A, as amended from time to time, and any and all
amendments thereto to be filed with the Securities and Exchange Commission for
the purpose of registering from time to time all investment companies of which I
am now or hereafter a Director or Trustee and for which Keystone Custodian
Funds, Inc. serves as Adviser or Manager and registering from time to time the
shares of such companies, and generally to do all such things in my name and in
my behalf to enable such investment companies to comply with the provisions of
the Securities Act of 1933, as amended, the Investment Company Act of 1940, as
amended, and all requirements and regulations of the Securities and Exchange
Commission thereunder, hereby ratifying and confirming my signature as it may be
signed by my said attorneys to any and all registration statements and
amendments thereto.
/s/ K. Dun Gifford
K. Dun Gifford
Director/Trustee
Dated: December 14, 1994
<PAGE>
POWER OF ATTORNEY
I, the undersigned, hereby constitute Roger T. Wickers, Rosemary D. Van
Antwerp, Jean S. Loewenberg, Dorothy E. Bourassa, James M. Wall and Melina M. T.
Murphy, each of them singly, my true and lawful attorneys, with full power to
them and each of them to sign for me and in my name in the capacity indicated
below any and all registration statements, including, but not limited to, Forms
N-8A, N-8B-1, S-5, N-1 and N-1A, as amended from time to time, and any and all
amendments thereto to be filed with the Securities and Exchange Commission for
the purpose of registering from time to time all investment companies of which I
am now or hereafter a Director or Trustee and for which Keystone Custodian
Funds, Inc. serves as Adviser or Manager and registering from time to time the
shares of such companies, and generally to do all such things in my name and in
my behalf to enable such investment companies to comply with the provisions of
the Securities Act of 1933, as amended, the Investment Company Act of 1940, as
amended, and all requirements and regulations of the Securities and Exchange
Commission thereunder, hereby ratifying and confirming my signature as it may be
signed by my said attorneys to any and all registration statements and
amendments thereto.
/s/ Leroy Keith, Jr.
Leroy Keith, Jr.
Director/Trustee
Dated: December 14, 1994
<PAGE>
POWER OF ATTORNEY
I, the undersigned, hereby constitute Roger T. Wickers, Rosemary D. Van
Antwerp, Jean S. Loewenberg, Dorothy E. Bourassa, James M. Wall and Melina M. T.
Murphy, each of them singly, my true and lawful attorneys, with full power to
them and each of them to sign for me and in my name in the capacity indicated
below any and all registration statements, including, but not limited to, Forms
N-8A, N-8B-1, S-5, N-1 and N-1A, as amended from time to time, and any and all
amendments thereto to be filed with the Securities and Exchange Commission for
the purpose of registering from time to time all investment companies of which I
am now or hereafter a Director or Trustee and for which Keystone Custodian
Funds, Inc. serves as Adviser or Manager and registering from time to time the
shares of such companies, and generally to do all such things in my name and in
my behalf to enable such investment companies to comply with the provisions of
the Securities Act of 1933, as amended, the Investment Company Act of 1940, as
amended, and all requirements and regulations of the Securities and Exchange
Commission thereunder, hereby ratifying and confirming my signature as it may be
signed by my said attorneys to any and all registration statements and
amendments thereto.
/s/ F. Ray Keyser,Jr.
F. Ray Keyser, Jr.
Director/Trustee
Dated: December 14, 1994
<PAGE>
POWER OF ATTORNEY
I, the undersigned, hereby constitute Roger T. Wickers, Rosemary D. Van
Antwerp, Jean S. Loewenberg, Dorothy E. Bourassa, James M. Wall and Melina M. T.
Murphy, each of them singly, my true and lawful attorneys, with full power to
them and each of them to sign for me and in my name in the capacity indicated
below any and all registration statements, including, but not limited to, Forms
N-8A, N-8B-1, S-5, N-1 and N-1A, as amended from time to time, and any and all
amendments thereto to be filed with the Securities and Exchange Commission for
the purpose of registering from time to time all investment companies of which I
am now or hereafter a Director or Trustee and for which Keystone Custodian
Funds, Inc. serves as Adviser or Manager and registering from time to time the
shares of such companies, and generally to do all such things in my name and in
my behalf to enable such investment companies to comply with the provisions of
the Securities Act of 1933, as amended, the Investment Company Act of 1940, as
amended, and all requirements and regulations of the Securities and Exchange
Commission thereunder, hereby ratifying and confirming my signature as it may be
signed by my said attorneys to any and all registration statements and
amendments thereto.
/s/ David M. Richardson
David M. Richardson
Director/Trustee
Dated: December 14, 1994
<PAGE>
POWER OF ATTORNEY
I, the undersigned, hereby constitute Roger T. Wickers, Rosemary D. Van
Antwerp, Jean S. Loewenberg, Dorothy E. Bourassa, James M. Wall and Melina M. T.
Murphy, each of them singly, my true and lawful attorneys, with full power to
them and each of them to sign for me and in my name in the capacity indicated
below any and all registration statements, including, but not limited to, Forms
N-8A, N-8B-1, S-5, N-1 and N-1A, as amended from time to time, and any and all
amendments thereto to be filed with the Securities and Exchange Commission for
the purpose of registering from time to time all investment companies of which I
am now or hereafter a Director or Trustee and for which Keystone Custodian
Funds, Inc. serves as Adviser or Manager and registering from time to time the
shares of such companies, and generally to do all such things in my name and in
my behalf to enable such investment companies to comply with the provisions of
the Securities Act of 1933, as amended, the Investment Company Act of 1940, as
amended, and all requirements and regulations of the Securities and Exchange
Commission thereunder, hereby ratifying and confirming my signature as it may be
signed by my said attorneys to any and all registration statements and
amendments thereto.
/s/ Richard J. Shima
Richard J. Shima
Director/Trustee
Dated: December 14, 1994
<PAGE>
POWER OF ATTORNEY
I, the undersigned, hereby constitute Roger T. Wickers, Rosemary D. Van
Antwerp, Jean S. Loewenberg, Dorothy E. Bourassa, James M. Wall and Melina M. T.
Murphy, each of them singly, my true and lawful attorneys, with full power to
them and each of them to sign for me and in my name in the capacity indicated
below any and all registration statements, including, but not limited to, Forms
N-8A, N-8B-1, S-5, N-1 and N-1A, as amended from time to time, and any and all
amendments thereto to be filed with the Securities and Exchange Commission for
the purpose of registering from time to time all investment companies of which I
am now or hereafter a Director or Trustee and for which Keystone Custodian
Funds, Inc. serves as Adviser or Manager and registering from time to time the
shares of such companies, and generally to do all such things in my name and in
my behalf to enable such investment companies to comply with the provisions of
the Securities Act of 1933, as amended, the Investment Company Act of 1940, as
amended, and all requirements and regulations of the Securities and Exchange
Commission thereunder, hereby ratifying and confirming my signature as it may be
signed by my said attorneys to any and all registration statements and
amendments thereto.
/s/ Andrew J. Simons
Andrew J. Simons
Director/Trustee
Dated: December 14, 1994
<TABLE> <S> <C>
<ARTICLE> 6
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM ACCOUNTING
RECORDS AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH ACCOUNTING
RECORDS.
</LEGEND>
<SERIES>
<NUMBER> 101
<NAME> KEYSTONE CAPITAL PRESERVATION AND INCOME FUND CLASS A
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> SEP-30-1995
<PERIOD-START> OCT-01-1994
<PERIOD-END> SEP-30-1995
<INVESTMENTS-AT-COST> 84,549,732
<INVESTMENTS-AT-VALUE> 84,164,310
<RECEIVABLES> 1,541,141
<ASSETS-OTHER> 8,481
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 85,713,932
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 667,748
<TOTAL-LIABILITIES> 667,748
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 19,713,703
<SHARES-COMMON-STOCK> 1,993,700
<SHARES-COMMON-PRIOR> 0
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> (34,741)
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> (539,299)
<ACCUM-APPREC-OR-DEPREC> 153,546
<NET-ASSETS> 19,293,209
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 1,135,885
<OTHER-INCOME> 0
<EXPENSES-NET> (129,257)
<NET-INVESTMENT-INCOME> 1,006,628
<REALIZED-GAINS-CURRENT> (131,945)
<APPREC-INCREASE-CURRENT> 247,434
<NET-CHANGE-FROM-OPS> 1,122,117
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (935,733)
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 2,578,501
<NUMBER-OF-SHARES-REDEEMED> (656,221)
<SHARES-REINVESTED> 71,420
<NET-CHANGE-IN-ASSETS> 19,377,238
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 9,861
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> (101,566)
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> (200,908)
<AVERAGE-NET-ASSETS> 21,207,320
<PER-SHARE-NAV-BEGIN> 9.51
<PER-SHARE-NII> 0.46
<PER-SHARE-GAIN-APPREC> 0.14
<PER-SHARE-DIVIDEND> (0.43)
<PER-SHARE-DISTRIBUTIONS> 0.00
<RETURNS-OF-CAPITAL> 0.00
<PER-SHARE-NAV-END> 9.68
<EXPENSE-RATIO> 0.86
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM ACCOUNTING
RECORDS AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH ACCOUNTING
RECORDS.
</LEGEND>
<SERIES>
<NUMBER> 102
<NAME> KEYSTONE CAPITAL PRESERVATION AND INCOME FUND CLASS B
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> SEP-30-1995
<PERIOD-START> OCT-01-1994
<PERIOD-END> SEP-30-1995
<INVESTMENTS-AT-COST> 84,549,732
<INVESTMENTS-AT-VALUE> 84,164,310
<RECEIVABLES> 1,541,141
<ASSETS-OTHER> 8,481
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 85,713,932
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 667,748
<TOTAL-LIABILITIES> 667,748
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 70,368,835
<SHARES-COMMON-STOCK> 6,509,082
<SHARES-COMMON-PRIOR> 9,957,006
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> (341,669)
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> (6,519,231)
<ACCUM-APPREC-OR-DEPREC> (510,015)
<NET-ASSETS> 62,997,920
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 5,279,928
<OTHER-INCOME> 0
<EXPENSES-NET> (1,138,473)
<NET-INVESTMENT-INCOME> 4,141,455
<REALIZED-GAINS-CURRENT> (993,832)
<APPREC-INCREASE-CURRENT> 887,960
<NET-CHANGE-FROM-OPS> 4,035,583
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (3,812,772)
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 2,758,618
<NUMBER-OF-SHARES-REDEEMED> (6,464,191)
<SHARES-REINVESTED> 257,649
<NET-CHANGE-IN-ASSETS> (32,832,452)
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> (291,267)
<OVERDIST-NET-GAINS-PRIOR> (4,028,142)
<GROSS-ADVISORY-FEES> (485,071)
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> (1,583,830)
<AVERAGE-NET-ASSETS> 76,106,316
<PER-SHARE-NAV-BEGIN> 9.62
<PER-SHARE-NII> 0.52
<PER-SHARE-GAIN-APPREC> 0.03
<PER-SHARE-DIVIDEND> (0.49)
<PER-SHARE-DISTRIBUTIONS> 0.00
<RETURNS-OF-CAPITAL> 0.00
<PER-SHARE-NAV-END> 9.68
<EXPENSE-RATIO> 1.53
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM ACCOUNTING
RECORDS AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH ACCOUNTING
RECORDS.
</LEGEND>
<SERIES>
<NUMBER> 103
<NAME> KEYSTONE CAPITAL PRESERVATION AND INCOME FUND CLASS C
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> SEP-30-1995
<PERIOD-START> OCT-01-1994
<PERIOD-END> SEP-30-1995
<INVESTMENTS-AT-COST> 84,549,732
<INVESTMENTS-AT-VALUE> 84,164,310
<RECEIVABLES> 1,541,141
<ASSETS-OTHER> 8,481
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 85,713,932
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 667,748
<TOTAL-LIABILITIES> 667,748
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 2,897,841
<SHARES-COMMON-STOCK> 285,040
<SHARES-COMMON-PRIOR> 299,200
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> (38,707)
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> (75,126)
<ACCUM-APPREC-OR-DEPREC> (28,953)
<NET-ASSETS> 2,755,055
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 203,560
<OTHER-INCOME> 0
<EXPENSES-NET> (43,575)
<NET-INVESTMENT-INCOME> 159,985
<REALIZED-GAINS-CURRENT> (36,423)
<APPREC-INCREASE-CURRENT> 33,988
<NET-CHANGE-FROM-OPS> 157,550
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (147,528)
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 150,700
<NUMBER-OF-SHARES-REDEEMED> (176,498)
<SHARES-REINVESTED> 11,638
<NET-CHANGE-IN-ASSETS> (133,431)
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 18,607
<OVERDISTRIB-NII-PRIOR> (36,655)
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> (18,610)
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> (60,344)
<AVERAGE-NET-ASSETS> 2,913,103
<PER-SHARE-NAV-BEGIN> 9.60
<PER-SHARE-NII> 0.52
<PER-SHARE-GAIN-APPREC> 0.04
<PER-SHARE-DIVIDEND> (0.49)
<PER-SHARE-DISTRIBUTIONS> 0.00
<RETURNS-OF-CAPITAL> 0.00
<PER-SHARE-NAV-END> 9.67
<EXPENSE-RATIO> 1.53
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
