<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JANUARY 31, 1996
File Nos. 33-73730
and 811-8254
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. 3 X
and
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940
Amendment No. 4 X
KEYSTONE STATE TAX FREE FUND - SERIES II
(formerly known as Keystone America
State Tax Free Fund - Series II)
(Exact name of Registrant as specified in Charter)
200 Berkeley Street, Boston, Massachusetts 02116
(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
(Name and Address of Agent for Service)
It is proposed that this filing will become effective:
___ immediately upon filing pursuant to paragraph (b)
___ on (date) pursuant to paragraph (b)(1)
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>
KEYSTONE STATE TAX FREE FUND - SERIES II
CONTENTS OF
POST-EFFECTIVE AMENDMENT NO. 3 to REGISTRATION STATEMENT
This Post-Effective Amendment No. 3 to Registration
Statement No. 33-73730/811-8254 consists of
the following pages, items of information and documents:
The Facing Sheet
The Contents Page
The Cross-Reference Sheet
PART A
Prospectus
PART B
Statement of Additional Information
PART C
PART C - OTHER INFORMATION - ITEM 24(a) and (b)
Financial Statements
Independent Auditors' Report
Listing of Exhibits
PART C - OTHER INFORMATION - ITEMS 25-32 - AND SIGNATURE PAGES
Number of Holders of Securities
Indemnification
Business and Other Connections
Principal Underwriter
Location of Accounts and Records
Signatures
Exhibits (including Powers of Attorney)
<PAGE>
KEYSTONE STATE TAX FREE FUND - SERIES II
Cross-Reference Sheet pursuant to Rules 404 and 495 under the Securities 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 and Its Funds
Investment Objectives and Policies
Investment Restrictions
Risk Factors
Exhibit A
Additional Investment Information
5 FUND Management and Expenses
5A Not applicable
6 The FUND and Its Funds
Dividends and Taxes
FUND Shares
7 Pricing Shares
How to Buy Shares
Alternative Sales Options
Contingent Deferred Sales Charge and
Waiver of Sales Charges
Distribution Plans
Shareholder Services
Exhibit B
8 How to Redeem Shares
How to Buy Shares
9 Not applicable
Items in
Part B of
Form N-1A Statement of Additional Information Caption
- --------- -------------------------------------------
10 Cover Page
11 Table of Contents
12 The FUND
13 The FUND
Investment Policies
Investment Restrictions
Appendix B
14 Trustees and Officers
15 Additional Information
16 Investment Adviser
Principal Underwriter
Distribution Plans
Additional Information
17 Brokerage
18 The FUND
Declaration of Trust
19 Valuation and Redemption of Securities
Sales Charges
20 Not applicable
21 Principal Underwriter
22 Standardized Total Return and Yield Quotations
23 Financial Statements
<PAGE>
KEYSTONE STATE TAX FREE FUND - SERIES II
PART A
PROSPECTUS
<PAGE>
KEYSTONE STATE TAX FREE FUND --
SERIES II
Keystone California Insured Tax Free Fund
Keystone Missouri Tax Free Fund
PROSPECTUS MARCH , 1996
Keystone State Tax Free Fund -- Series II (formerly named Keystone America
State Tax Free Fund -- Series II) (the "FUND") is a mutual fund that currently
consists of two separate non-diversified series of shares evidencing interests
in different portfolios of securities ("Funds"): the Keystone California Insured
Tax Free Fund ("California Insured Fund") and the Keystone Missouri Tax Free
Fund ("Missouri Tax Free Fund").
Each of the Funds seeks the highest possible current income exempt from
federal income taxes, while preserving capital. In addition, each Fund also
seeks to provide a maximum level of income to its shareholders that is exempt
from the personal income taxes of the state for which the Fund is named.
Each Fund invests principally in municipal obligations exempt from federal
income tax and municipal obligations issued by the state for which it is named
and its political subdivisions, agencies and instrumentalities. The Missouri Tax
Free Fund also seeks to hold securities exempt from Missouri personal property
taxes. At least 80% of the municipal securities in the California Insured Fund's
portfolio will be insured as to timely payment of both principal and interest.
All securities not insured by the issuer will be insured by a qualified
municipal bond insurer. Each Fund's net asset value per share will fluctuate in
response to changes in the market value of its portfolio securities.
Generally, each Fund offers three classes of shares. Information on share
classes and their fee and sales charge structures may be found in each 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 and its Funds that
you should know before investing. Please read it and retain it for future
reference.
Additional information about the FUND and its Funds is contained in a
statement of additional information dated March , 1996, which has been filed
with the Securities and Exchange Commission and is incorporated by reference
into this prospectus. For a free copy, or for other information about the FUND
and its Funds, write to the address or call the telephone number listed below.
SHARES OF THE FUNDS ARE NOT DEPOSITS OR OBLIGATIONS OF, OR GUARANTEED OR
ENDORSED BY, ANY BANK, AND SHARES ARE NOT FEDERALLY INSURED BY THE FEDERAL
DEPOSIT INSURANCE CORPORATION, THE FEDERAL RESERVE BOARD, OR ANY OTHER AGENCY.
TABLE OF CONTENTS
Page
Fee Table 2
Financial Highlights 4
The FUND and Its Funds 10
Investment Objectives and Policies 10
Investment Restrictions 13
Risk Factors 14
Pricing Shares 17
Dividends and Taxes 17
FUND Management and Expenses 19
How to Buy Shares 22
Alternative Sales Options 22
Contingent Deferred Sales Charge and
Waiver of Sales Charges 26
Distribution Plans 28
How to Redeem Shares 29
Shareholder Services 30
Performance Data 33
FUND Shares 33
Additional Information 34
Additional Investment Information (i)
Exhibit A A-1
Exhibit B B-1
KEYSTONE STATE TAX FREE FUND -
SERIES II
200 BERKELEY STREET
BOSTON, MASSACHUSETTS 02116-5034
CALL TOLL FREE 1-800-343-2898
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED
UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE
CONTRARY IS A CRIMINAL OFFENSE.
<PAGE>
FEE TABLE
KEYSTONE CALIFORNIA INSURED TAX FREE FUND
The purpose of this fee table is to assist investors in understanding the
costs and expenses that an investor in each class of the California Insured
Fund will bear directly or indirectly. For more complete descriptions of the
various cost 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 LOAD BACK END LEVEL LOAD
SHAREHOLDER TRANSACTION EXPENSES OPTION LOAD OPTION(1) OPTION(2)
--------- --------- ---------
<S> <C> <C> <C>
Sales Charge (as a percentage of offering price) .. 4.75%(3) None None
Contingent Deferred Sales Charge (as a percentage 0.00%(4) 5.00% in the first year 1.00% in the first
of the lesser of cost or market value of shares declining to 1.00% in the year and 0.00%
redeemed) ....................................... sixth year and 0.00% thereafter
thereafter
Exchange Fee (per exchange)(5) .................... $10.00 $10.00 $10.00
ANNUAL FUND OPERATING EXPENSES(6)
(after expense reimbursements)
(as a percentage of average net assets)
Management Fees ................................... 0.55% 0.55% 0.55%
12b-1 Fees ........................................ 0.15% 0.90%(7) 0.90%(7)
Other Expenses .................................... 0.02% 0.03% 0.04%
---- ---- ----
Total Fund Operating Expenses ..................... 0.72% 1.48% 1.49%
==== ==== ====
<CAPTION>
EXAMPLES(8) 1 YEAR 3 YEARS 5 YEARS 10 YEARS
------ ------- ------- --------
You would pay the following expenses on a $1,000 investment, assuming
(1) 5% annual return and (2) redemption at the end of each period:
<S> <C> <C> <C> <C>
Class A .................................................................. $55 $69 $ 86 $133
Class B .................................................................. $65 $77 $101 N/A
Class C .................................................................. $25 $47 $ 81 $178
You would pay the following expenses on a $1,000 investment, assuming no
redemption at the end of each period:
Class A .................................................................. $55 $69 $ 86 $133
Class B .................................................................. $15 $47 $ 81 N/A
Class C .................................................................. $15 $47 $ 81 $178
AMOUNTS SHOWN IN THE EXAMPLE SHOULD NOT BE CONSIDERED A REPRESENTATION OF PAST OR FUTURE EXPENSES. ACTUAL EXPENSES MAY BE
GREATER OR LESS THAN THOSE SHOWN.
- ----------
(1) Class B shares purchased on or after June 1, 1995 convert tax free to Class A shares after eight years. See "Class B
Shares" for more information.
(2) Class C shares are available only through dealers who have entered into special distribution agreements with Keystone
Investment Distributors Company, the Funds' principal underwriter.
(3) The sales charge applied to purchases of Class A shares declines as the amount invested increases. See "Alternative Sales
Options."
(4) Purchases of Class A shares in the amount of $1,000,000 or more and/or purchases made by certain qualifying retirement or
other plans are not subject to a sales charge, but may be subject to a contingent deferred sales charge. See "Class A
Shares" and "Contingent Deferred Sales Charge and Waiver of Sales Charges" for an explanation of the charge.
(5) There is no fee for 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.")
(6) Expense ratios are for the fiscal year ended November 30, 1995 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 0.75%, 1.50% and
1.50% of average net class assets, respectively. Keystone intends to continue the foregoing expense limitations on a
calendar month-by-month basis. Keystone is under no obligation to maintain these limits. Absent voluntary expense
limitations, expense ratios for the California Insured Fund's fiscal year ended November 30, 1995 for Class A, B and C
shares would have been 1.31%, 2.07% and 2.07%, respectively. Total Fund Operating Expenses for the fiscal year ended
November 30, 1995 include indirectly paid expenses.
(7) The Class B and Class C Distribution Plans provide for payments at an annual rate of up to 1.00% of the average daily net
asset value of Class B and Class C shares; however, such payments, in connection with certain voluntary expense
limitations, are currently limited to 0.90% of the average daily net asset value of each respective class. 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.
(8) The Securities and Exchange Commission requires use of a 5% annual return figure for purposes of this example. Actual
returns for the Fund may be greater or less than 5%.
</TABLE>
<PAGE>
FEE TABLE
KEYSTONE MISSOURI TAX FREE FUND
The purpose of this fee table is to assist investors in understanding the
costs and expenses that an investor in each class of the Missouri Tax Free
Fund will bear directly or indirectly. For more complete descriptions of the
various cost 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(1) OPTION(2)
--------- --------- ---------
<S> <C> <C> <C>
Sales Charge (as a percentage of offering price) .. 4.75%(3) None None
Contingent Deferred Sales Charge (as a percentage 0.00%(4) 5.00% in the first year 1.00% in the first
of the lesser of cost or market value of shares declining to 1.00% in the year and 0.00%
redeemed) ....................................... sixth year and 0.00% thereafter
thereafter
Exchange Fee (per exchange)(5) .................... $10.00 $10.00 $10.00
ANNUAL FUND OPERATING EXPENSES(6)
(after expense reimbursements)
(as a percentage of average net assets)
Management Fees ................................... 0.55% 0.55% 0.55%
12b-1 Fees ........................................ 0.15% 0.90%(7) 0.90%(7)
Other Expenses .................................... 0.02% 0.02% 0.01%
---- ---- ----
Total Fund Operating Expenses ..................... 0.72% 1.47% 1.46%
==== ==== ====
<CAPTION>
EXAMPLES(8) 1 YEAR 3 YEARS 5 YEARS 10 YEARS
------ ------- ------- --------
<S> <C> <C> <C> <C>
You would pay the following expenses on a $1,000 investment, assuming
(1) 5% annual return and (2) redemption at the end of each period:
Class A .................................................................. $55 $69 $ 86 $133
Class B .................................................................. $65 $77 $101 N/A
Class C .................................................................. $25 $47 $ 81 $178
You would pay the following expenses on a $1,000 investment, assuming no
redemption at the end of each period:
Class A .................................................................. $55 $69 $ 86 $133
Class B .................................................................. $15 $47 $ 81 N/A
Class C .................................................................. $15 $47 $ 81 $178
AMOUNTS SHOWN IN THE EXAMPLE SHOULD NOT BE CONSIDERED A REPRESENTATION OF PAST OR FUTURE EXPENSES. ACTUAL EXPENSES MAY BE GREATER
OR LESS THAN THOSE SHOWN.
- ----------
(1) Class B shares purchased on or after June 1, 1995 convert tax free to Class A shares after eight years. See "Class B
Shares" for more information.
(2) Class C shares are available only through dealers who have entered into special distribution agreements with Keystone
Investment Distributors Company, the Funds' principal underwriter.
(3) The sales charge applied to purchases of Class A shares declines as the amount invested increases. See "Alternative Sales
Options."
(4) Purchases of Class A shares in the amount of $1,000,000 or more and/or purchases made by certain qualifying retirement or
other plans are not subject to a sales charge, but may be subject to a contingent deferred sales charge. See "Class A
Shares" and "Contingent Deferred Sales Charge and Waiver of Sales Charges" for an explanation of the charge.
(5) There is no fee for 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.")
(6) Expense ratios are for the fiscal year ended November 30, 1995 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 0.75%, 1.50% and
1.50% of average net class assets, respectively. Keystone intends to continue the foregoing expense limitations on a
calendar month-by-month basis. Keystone is under no obligation to maintain these limits. Absent voluntary expense
limitations, expense ratios for the Missouri Tax Free Fund's fiscal year ended November 30, 1995 for Class A, B and C
shares would have been 1.32%, 2.08% and 2.07%, respectively. Total Fund Operating Expenses for the fiscal year ended
November 30, 1995 included indirectly paid expenses.
(7) The Class B and Class C Distribution Plans provide for payments at an annual rate of up to 1.00% of the average daily net
asset value of Class B and Class C shares; however, such payments, in connection with certain voluntary expense
limitations, are currently limited to 0.90% of the average daily net asset value of each respective class. 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.
(8) The Securities and Exchange Commission requires use of a 5% annual return figure for purposes of this example. Actual
returns for the Fund may be greater or less than 5%.
</TABLE>
<PAGE>
FINANCIAL HIGHLIGHTS
KEYSTONE CALIFORNIA INSURED TAX FREE FUND
CLASS A SHARES
(For a share outstanding throughout the period)
The following table contains important financial information with respect
to the California Insured Fund and has been audited by KPMG Peat Marwick LLP,
the FUND's independent auditors. The table appears in the FUND's Annual Report
and should be read in conjunction with the FUND's financial statements and
related notes, which also appear, together with the independent auditors'
report, in the FUND's Annual Report. The FUND's financial statements, related
notes, and independent auditors' report are included in the statement of
additional information. Additional information about the FUND's performance is
contained in its Annual Report, which will be made available upon request and
without charge.
FEBRUARY 1, 1994
(COMMENCEMENT OF
YEAR ENDED OPERATIONS) TO
NOVEMBER 30, 1995 NOVEMBER 30, 1994
----------------- -----------------
NET ASSET VALUE, BEGINNING OF $ 8.70 $10.00
PERIOD ....................
Income from investment operations:
Net investment income ....... 0.49 0.44
Net realized and unrealized 1.17 (1.30)
gain (loss) on investments
and futures contracts .....
----- -----
Total from investment
operations ................ 1.66 (0.86)
----- -----
Less distributions from:
Net investment income ....... (0.47) (0.44)
In excess of net investment
income .................... (0.03) (0.00)
----- -----
Total distributions ......... (0.50) (0.44)
----- -----
NET ASSET VALUE, END OF $ 9.86 $ 8.70
PERIOD .................... ====== ======
TOTAL RETURN (a) ............ 19.63% (8.78%)(c)
RATIOS/SUPPLEMENTAL DATA
Ratios to average net assets:
Total expenses (b) ........ 0.72%(e) 0.41%(d)
Net investment income ..... 5.37% 5.53%(d)
Portfolio turnover rate ..... 119% 104%
----- -----
NET ASSETS, END OF PERIOD $4,555 $3,006
(THOUSANDS) ................ ====== ======
(a) Excluding applicable sales charges.
(b) Figures are net of the 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 1.31% and
1.66% (annualized) for the fiscal year ended November 30, 1995 and the
period February 1, 1994 (Commencement of Operations) to November 30, 1994,
respectively.
(c) Total return is calculated from February 1, 1994 (Commencement of
Operations) to November 30, 1994.
(d) Annualized.
(e) "Ratio of total expenses to average net assets" for the year ended November
30, 1995 includes indirectly paid expenses. Excluding indirectly paid
expenses, the expense ratio would have been 0.69%.
<PAGE>
FINANCIAL HIGHLIGHTS
KEYSTONE CALIFORNIA INSURED TAX FREE FUND
CLASS B SHARES
(For a share outstanding throughout the period)
The following table contains important financial information with respect
to the California Insured Fund and has been audited by KPMG Peat Marwick LLP,
the FUND's independent auditors. The table appears in the FUND's Annual Report
and should be read in conjunction with the FUND's financial statements and
related notes, which also appear, together with the independent auditors'
report, in the FUND's Annual Report. The FUND's financial statements, related
notes, and independent auditors' report are included in the statement of
additional information. Additional information about the FUND's performance is
contained in its Annual Report, which will be made available upon request and
without charge.
FEBRUARY 1, 1994
(COMMENCEMENT OF
YEAR ENDED OPERATIONS) TO
NOVEMBER 30, 1995 NOVEMBER 30, 1994
--------------------- --------------------
NET ASSET VALUE, BEGINNING OF
PERIOD ......................... $ 8.68 $10.00
----- -----
Income from investment operations:
Net investment income ........... 0.44 0.40
Net realized and unrealized gain
(loss) on investments and
futures contracts ............. 1.17 (1.28)
----- -----
Total from investment operations 1.61 (0.88)
----- -----
Less distributions from:
Net investment income ........... (0.44) (0.40)
In excess of net investment
income ........................ (0.03) (0.04)
----- -----
Total distributions ............. (0.47) (0.44)
----- -----
NET ASSET VALUE, END OF PERIOD .. $ 9.82 $ 8.68
====== ======
TOTAL RETURN (a) ................ 18.95% (9.00%)(c)
RATIOS/SUPPLEMENTAL DATA
Ratios to average net assets:
Total expenses (b) ............ 1.48%(e) 1.16%(d)
Net Investment income ......... 4.57% 4.83%(d)
Portfolio turnover rate ......... 119% 104%
------ ------
NET ASSETS, END OF PERIOD
(THOUSANDS) .................... $22,743 $11,415
======= =======
(a) Excluding applicable sales charges.
(b) Figures are net of the 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 2.07% and
2.36% (annualized) for the fiscal year ended November 30, 1995 and for the
period February 1, 1994 (Commencement of Operations) to November 30, 1994,
respectively.
(c) Total return is calculated from February 1, 1994 (Commencement of
Operations) to November 30, 1994.
(d) Annualized.
(e) "Ratio of total expenses to average net assets" for the year ended November
30, 1995 includes indirectly paid expenses. Excluding indirectly paid
expenses, the expense ratio would have been 1.45%.
<PAGE>
FINANCIAL HIGHLIGHTS
KEYSTONE CALIFORNIA INSURED TAX FREE FUND
CLASS C SHARES
(For a share outstanding throughout the period)
The following table contains important financial information with respect
to the California Insured Fund and has been audited by KPMG Peat Marwick LLP,
the FUND's independent auditors. The table appears in the FUND's Annual Report
and should be read in conjunction with the FUND's financial statements and
related notes, which also appear, together with the independent auditors'
report, in the FUND's Annual Report. The FUND's financial statements, related
notes, and independent auditors' report are included in the statement of
additional information. Additional information about the FUND's performance is
contained in its Annual Report, which will be made available upon request and
without charge.
FEBRUARY 1, 1994
(COMMENCEMENT OF
YEAR ENDED OPERATIONS) TO
NOVEMBER 30, 1995 NOVEMBER 30, 1994
--------------------- --------------------
NET ASSET VALUE, BEGINNING OF
PERIOD ........................ $ 8.68 $10.00
----- -----
Income from investment operations:
Net investment income ........... 0.43 0.39
Net realized and unrealized gain
(loss) on investments and
futures contracts ............. 1.15 (1.29)
----- -----
Total from investment operations 1.58 (0.90)
----- -----
Less distributions from:
Net investment income ........... (0.43) (0.39)
In excess of net investment
income ......................... (0.03) (0.03)
----- -----
Total distributions ............. (0.46) (0.42)
----- -----
NET ASSET VALUE, END OF PERIOD .. $ 9.80 $ 8.68
====== ======
TOTAL RETURN (a) ................ 18.69% (9.08%)(c)
RATIOS/SUPPLEMENTAL DATA
Ratios to average net assets:
Total expenses (b) ............ 1.49%(e) 1.16%(d)
Net investment income ......... 4.51% 4.96%(d)
Portfolio turnover rate ......... 119% 104%
----- -----
NET ASSETS, END OF PERIOD
(THOUSANDS) .................... $1,535 $ 624
====== ======
(a) Excluding applicable sales charges.
(b) Figures are net of the 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 2.07% and
2.38% (annualized) for the fiscal year ended November 30, 1995 and for the
period February 1, 1994 (Commencement of Operations) to November 30, 1994,
respectively.
(c) Total return is calculated from February 1, 1994 (Commencement of
Operations) to November 30, 1994.
(d) Annualized.
(e) "Ratio of total expenses to average net assets" for the year ended November
30, 1995 includes indirectly paid expenses. Excluding indirectly paid
expenses, the expense ratio would have been 1.46%.
<PAGE>
FINANCIAL HIGHLIGHTS
KEYSTONE MISSOURI TAX FREE FUND
CLASS A SHARES
(For a share outstanding throughout the period)
The following table contains important financial information with respect
to the Missouri Tax Free Fund and has been audited by KPMG Peat Marwick LLP,
the FUND's independent auditors. The table appears in the FUND's Annual Report
and should be read in conjunction with the FUND's financial statements and
related notes, which also appear, together with the independent auditors'
report, in the FUND's Annual Report. The FUND's financial statements, related
notes, and independent auditors' report are included in the statement of
additional information. Additional information about the FUND's performance is
contained in its Annual Report, which will be made available upon request and
without charge.
FEBRUARY 1, 1994
(COMMENCEMENT OF
YEAR ENDED OPERATIONS) TO
NOVEMBER 30, 1995 NOVEMBER 30, 1994
--------------------- --------------------
NET ASSET VALUE, BEGINNING OF
PERIOD ........................ $ 8.72 $10.00
----- -----
Income from investment operations:
Net investment income ........... 0.50 0.44
Net realized and unrealized gain
(loss) on investments and
futures contracts ............. 1.19 (1.28)
----- -----
Total from investment operations 1.69 (0.84)
----- -----
Less distributions from:
Net investment income ........... (0.47) (0.44)
In excess of net investment
income ......................... (0.03) 0.00(e)
----- -----
Total distributions ............. (0.50) (0.44)
----- -----
NET ASSET VALUE, END OF PERIOD .. $ 9.91 $ 8.72
====== ======
TOTAL RETURN (a) ................ 19.86% (8.55%)(c)
RATIOS/SUPPLEMENTAL DATA
Ratios to average net assets:
Total expenses (b) ............ 0.72%(f) 0.43%(d)
Net investment income ......... 5.26% 5.38%(d)
Portfolio turnover rate ......... 74% 25%
----- -----
NET ASSETS, END OF PERIOD
(THOUSANDS) .................... $4,848 $3,581
====== ======
(a) Excluding applicable sales charges.
(b) Figures are net of the 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 1.32% and
1.54% (annualized) for the fiscal year ended November 30, 1995 and for the
period February 1, 1994 (Commencement of Operations) to November 30, 1994,
respectively.
(c) Total return is calculated from February 1, 1994 (Commencement of
Operations) to November 30, 1994.
(d) Annualized.
(e) Amount represents less than $0.01 per share.
(f) "Ratio of total expenses to average net assets" for the year ended November
30, 1995 includes indirectly paid expenses. Excluding indirectly paid
expenses, the expense ratio would have been 0.69%.
<PAGE>
FINANCIAL HIGHLIGHTS
KEYSTONE MISSOURI TAX FREE FUND
CLASS B SHARES
(For a share outstanding throughout the period)
The following table contains important financial information with respect
to the Missouri Tax Free Fund and has been audited by KPMG Peat Marwick LLP,
the FUND's independent auditors. The table appears in the FUND's Annual Report
and should be read in conjunction with the FUND's financial statements and
related notes, which also appear, together with the independent auditors'
report, in the FUND's Annual Report. The FUND's financial statements, related
notes, and independent auditors' report are included in the statement of
additional information. Additional information about the FUND's performance is
contained in its Annual Report, which will be made available upon request and
without charge.
FEBRUARY 1, 1994
(COMMENCEMENT OF
YEAR ENDED OPERATIONS) TO
NOVEMBER 30, 1995 NOVEMBER 30, 1994
--------------------- --------------------
NET ASSET VALUE, BEGINNING OF
PERIOD ........................ $ 8.67 $10.00
----- -----
Income from investment operations:
Net investment income ........... 0.44 0.40
Net realized and unrealized gain
(loss) on investments and
futures contracts ............. 1.15 (1.29)
----- -----
Total from investment operations 1.59 (0.89)
----- -----
Less distributions from:
Net investment income ........... (0.43) (0.40)
In excess of net investment
income ........................ (0.03) (0.04)
----- -----
Total distributions ............. (0.46) (0.44)
----- -----
NET ASSET VALUE, END OF PERIOD .. $ 9.80 $ 8.67
====== ======
TOTAL RETURN (a) ................ 18.79% (9.06%)(c)
RATIOS/SUPPLEMENTAL DATA
Ratios to average net assets:
Total expenses (b) ............ 1.47%(e) 1.16%(d)
Net investment income ......... 4.56% 4.70%(d)
Portfolio turnover rate ......... 74% 25%
------ ------
NET ASSETS, END OF PERIOD
(THOUSANDS) .................... $21,231 $12,906
======= =======
(a) Excluding applicable sales charges.
(b) Figures are net of the 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% and
2.49% (annualized) for the fiscal year ended November 30, 1995 and for the
period February 1, 1994 (Commencement of Operations) to November 30, 1994,
respectively.
(c) Total return is calculated from February 1, 1994 (Commencement of
Operations) to November 30, 1994.
(d) Annualized.
(e) "Ratio of total expenses to average net assets" for the year ended November
30, 1995 includes indirectly paid expenses. Excluding indirectly paid
expenses, the expense ratio would have been 1.44%.
<PAGE>
FINANCIAL HIGHLIGHTS
KEYSTONE MISSOURI TAX FREE FUND
CLASS C SHARES
(For a share outstanding throughout the period)
The following table contains important financial information with respect
to the Missouri Tax Free Fund and has been audited by KPMG Peat Marwick LLP,
the FUND's independent auditors. The table appears in the FUND's Annual Report
and should be read in conjunction with the FUND's financial statements and
related notes, which also appear, together with the independent auditors'
report, in the FUND's Annual Report. The FUND's financial statements, related
notes, and independent auditors' report are included in the statement of
additional information. Additional information about the FUND's performance is
contained in its Annual Report, which will be made available upon request and
without charge.
FEBRUARY 1, 1994
(COMMENCEMENT OF
YEAR ENDED OPERATIONS) TO
NOVEMBER 30, 1995 NOVEMBER 30, 1994
--------------------- --------------------
NET ASSET VALUE, BEGINNING OF
PERIOD ........................ $ 8.66 $10.00
----- -----
Income from investment operations:
Net investment income ........... 0.43 0.39
Net realized and unrealized gain
(loss) on investments and
futures contracts ............. 1.16 (1.29)
----- -----
Total from investment operations 1.59 (0.90)
----- -----
Less distributions from:
Net investment income ........... (0.43) (0.39)
In excess of net investment
income ........................ (0.03) (0.05)
----- -----
Total distributions ............. (0.46) (0.44)
----- -----
NET ASSET VALUE, END OF PERIOD .. $ 9.79 $ 8.66
====== ======
TOTAL RETURN (a) ................ 18.78% (9.25%)(c)
RATIOS/SUPPLEMENTAL DATA
Ratios to average net assets:
Total expenses (b) ............ 1.46%(e) 1.15%(d)
Net investment income ......... 4.56% 4.72%(d)
Portfolio turnover rate ......... 74% 25%
----- -----
NET ASSETS, END OF PERIOD
(THOUSANDS) .................... $1,788 $1,045
====== ======
(a) Excluding applicable sales charges.
(b) Figures are net of the 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 2.07% and
2.60% (annualized) for the fiscal year ended November 30, 1995 and the
period February 1, 1994 (Commencement of Operations) to November 30, 1994,
respectively.
(c) Total return is calculated from February 1, 1994 (Commencement of
Operations) to November 30, 1994.
(d) Annualized.
(e) "Ratio of total expenses to average net assets" for the year ended November
30, 1995 includes indirectly paid expenses. Excluding indirectly paid
expenses, the expense ratio would have been 1.44%.
<PAGE>
THE FUND AND ITS FUNDS
The FUND is an open-end management investment company commonly known as a
mutual fund. The FUND was formed as a Massachusetts business trust on December
15, 1993. The FUND is one of approximately thirty funds managed or advised by
Keystone Investment Management Company (formerly named Keystone Custodian Funds,
Inc.) ("Keystone"), the FUND's investment adviser. The FUND currently consists
of two separate non-diversified series evidencing interests in different
portfolios of securities: the California Insured Fund and Missouri Tax Free
Fund. The FUND may offer additional series in the future.
INVESTMENT OBJECTIVES AND POLICIES
INVESTMENT OBJECTIVES
Each of the Funds seeks the highest possible current income exempt from
federal income taxes, while preserving capital.
FUNDS' PRINCIPAL INVESTMENTS
Generally, under ordinary circumstances, each Fund invests substantially all
and at least 80% of its assets in federally tax-exempt obligations, including
municipal bonds and notes and municipal tax-exempt commercial paper obligations,
which are obligations issued by or on behalf of states, territories and
possessions of the United States ("U.S."), the District of Columbia and their
political subdivisions, agencies and instrumentalities, the interest from which
is exempt from federal income taxes, including the alternative minimum tax. Thus
it is possible that up to 20% of a Fund's assets could be invested in securities
subject to the alternative minimum tax and/or in taxable obligations.
Municipal bonds include fixed, variable or floating rate general obligation
and revenue bonds (including municipal lease obligations, resource recovery
bonds and zero coupon bonds). Municipal notes include tax anticipation notes,
bond anticipation notes, revenue anticipation notes and project notes. Municipal
commercial paper obligations are unsecured promisory notes issued by
municipalities to meet short-term credit needs.
CALIFORNIA INSURED TAX FREE FUND
Under ordinary circumstances, the California Insured Fund invests at least 80%
of its assets in securities, the interest from which is exempt from federal
taxes and California state income taxes. The California Insured Fund invests in
debt obligations of the State of California and its political subdivisions,
agencies, authorities and instrumentalities and debt obligations of other
qualifying issuers, such as U.S. territories.
The California Insured Fund invests only in investment grade municipal
obligations -- bonds rated at the date of investment within the four highest
grades by Standard & Poor's Corporation ("S&P") (AAA, AA, A and BBB), by Moody's
Investors Service ("Moody's") (Aaa, Aa, A and Baa), or by Fitch Investors
Service, Inc. -- Municipal Division ("Fitch") (AAA, AA, A and BBB) or, if not
rated or rated under a different system, are of comparable quality to
obligations so rated as determined by Keystone. Securities that are in the
lowest investment grade (BBB or Baa) may have speculative characteristics.
As more fully discussed below in the section entitled "Insurance," at least
80% of the municipal securities in the investment portfolio of the California
Insured Fund will be insured as to timely payment of both principal and
interest. The purpose of insuring these investments is to minimize credit risks
associated with defaults in municipal securities owned by the Fund. Such
insurance, however, does not insure against market risk and therefore will not
guarantee the market value of the securities in the Fund's portfolio upon which
the net asset value of the Fund's shares is based.
For a further discussion of California tax treatment and the factors affecting
investment in California municipal obligations, see Exhibit A.
MISSOURI TAX FREE FUND
Under ordinary circumstances, the Missouri Tax Free Fund invests at least 80%
of its assets in securities, the interest from which is exempt from federal
taxes and Missouri state income taxes, as well as being exempt from Missouri
personal property taxes. The Missouri Tax Free Fund invests in debt obligations
of the State of Missouri and its political subdivisions, agencies, authorities
and instrumentalities and debt obligations of other qualifying issuers, such as
U.S. territories.
The Missouri Tax Free Fund invests at least 80% of its assets in investment
grade municipal obligations -- bonds rated at the date of investment within the
four highest grades by S&P (AAA, AA, A and BBB), by Moody's (Aaa, Aa, A and
Baa), or by Fitch (AAA, AA, A and BBB) or, if not rated or rated under a
different system, are of comparable quality to obligations so rated as
determined by Keystone. The Fund may seek to maximize return with respect to a
portion (not to exceed 20%) of its assets. Such maximum return is ordinarily
associated with high yield, high risk municipal bonds in the lower rating
categories of the recognized rating agencies or that are unrated ("high yield
bonds"). Such high yield, high risk bonds generally involve greater volatility
of price and risk of principal and income than bonds in the higher rating
categories and are, on balance, considered predominantly speculative. High yield
bonds are also commonly known as "junk bonds."
For a further discussion of Missouri tax treatment and the factors affecting
investment in Missouri municipal obligations, see Exhibit A.
MUNICIPAL OBLIGATIONS
Municipal obligations include debt obligations issued by or on behalf of a
political subdivision of the U.S. or any agency or instrumentality thereof to
obtain funds for various public purposes. In addition, municipal obligations
include certain types of industrial development bonds that have been or may be
issued by or on behalf of public authorities to finance privately operated
facilities. General obligation bonds involve the credit of an issuer possessing
taxing power and are payable from the issuer's general unrestricted revenues.
Their payment may be dependent upon an appropriation by the issuer's legislative
body and may be subject to quantitative limitations on the issuer's taxing
power. Limited obligation or revenue bonds are payable only from the revenues of
a particular facility or class of facilities or, in some cases, from the
proceeds of a special excise or other specific revenue source, such as the user
of the facility.
Since each Fund considers preservation of capital as well as the level of
tax-exempt income, each Fund may realize less income than a mutual fund willing
to expose shareholders' capital to greater risk.
The Tax Reform Act of 1986 made significant changes in the federal tax status
of certain obligations that were previously fully federally tax-exempt. As a
result, three categories of such obligations issued after August 7, 1986 now
exist: (1) "public purpose" bonds, the income from which remains fully exempt
from federal income tax; (2) qualified "private activity" industrial development
bonds, the income from which, while exempt from federal income tax under Section
103 of the Internal Revenue Code (the "Code"), is includable in the calculation
of the federal alternative minimum tax; and (3) "private activity" (private
purpose) bonds, the income from which is not exempt from federal income tax. A
Fund will not invest in private purpose bonds and, except as described under
"Other Eligible Investments," will not invest in qualified "private activity"
industrial development bonds whose distributions are subject to the alternative
minimum tax.
While a Fund may invest in securities of any maturity, it is currently
expected that a Fund will not invest in securities with maturities of more than
30 years or less than 5 years (other than certain money market securities).
OTHER ELIGIBLE INVESTMENTS
A Fund may invest up to 20% of its assets under ordinary circumstances and up
to 100% of its assets for temporary defensive purposes in the following types of
instruments: (1) commercial paper, including master demand notes, that at the
date of investment is rated A-1 (the highest grade by S&P), PRIME- 1 (the
highest grade by Moody's) or, if not rated by such services, is issued by a
company that at the date of investment has an outstanding issue rated A or
better by S&P or Moody's; (2) obligations, including certificates of deposit and
bankers' acceptances, of banks or savings and loan associations that have at
least $1 billion in assets as of the date of their most recently published
financial statements and are members of the Federal Deposit Insurance
Corporation, including U.S. branches of foreign banks and foreign branches of
U.S. banks; (3) corporate obligations (maturing in 13 months or less) that at
the date of investment are rated A or better by S&P or Moody's; (4) obligations
issued or guaranteed by the U.S. government or by any agency or instrumentality
of the U.S.; (5) qualified "private activity" industrial development bonds, the
income from which, while exempt from federal income tax under Section 103 of the
Code, is includable in the calculation of the federal alternative minimum tax;
and (6) municipal obligations, the income from which is exempt from federal
income tax, but not exempt from income tax in California or income or personal
property tax in Missouri. Each Fund may assume a temporary defensive position
upon Keystone's determination that market conditions so warrant. If a Fund is
investing defensively, it is not pursuing its investment objective.
Each Fund may enter into repurchase and reverse repurchase agreements,
purchase and sell securities on a when issued and delayed delivery basis, write
covered call and put options and purchase call and put options, including
purchasing call and put options to close out existing positions, and may employ
new investment techniques with respect to such options. Each Fund may also
engage in financial futures contracts and related options transactions for
hedging purposes and not for speculation and may employ new investment
techniques with respect to such futures contracts and related options. In
addition, each Fund may invest in municipal obligations denominated in foreign
currencies and may use subsequently developed investment techniques that are
related to any of its investment policies. Neither Fund is expected to enter
into repurchase agreements in the ordinary course of its business.
In addition to the options and futures mentioned above, if consistent with its
investment objectives, each Fund may also invest in certain other types of
"derivative instruments," including structured securities.
For further information about the types of investments and investment
techniques available to the Funds, including the associated risks, see
"Additional Investment Information" located at the back of this prospectus and
the statement of additional information.
There can be no assurance that a Fund will achieve its investment objectives
since there is uncertainty in every investment.
INSURANCE
At least 80% of the municipal securities in the portfolio of the California
Insured Fund will consist of obligations that at all times are fully insured as
to the payment of all principal and interest when due ("Insured Securities").
Each Insured Security in the portfolio will be covered by either a "New Issue
Insurance Policy," a "Portfolio Insurance Policy" issued by a qualified
municipal bond insurer, or a "Secondary Insurance Policy." The insurance does
not insure against market risk and therefore does not guarantee the market value
of the securities in the California Insured Fund's portfolio. Similarly, because
the net asset value of the California Insured Fund's shares is based upon the
market value of the securities in the portfolio, such insurance does not cover
or guarantee the value of the California Insured Fund's shares.
NEW ISSUE INSURANCE POLICIES
New Issue Insurance Policies are obtained by the respective issuers of the
municipal securities and all premiums respecting such securities have been paid
in advance by such issuers. Such policies are noncancellable and will continue
in force so long as the municipal securities are outstanding and the respective
insurers remain in business. Since New Issue Insurance Policies remain in effect
as long as the securities are outstanding, the insurance may have an effect on
the resale value of the Insured Securities. Therefore, New Issue Insurance
Policies may be considered to represent an element of market value with regard
to the Insured Securities, but the exact effect, if any, of this insurance on
such market value cannot be estimated. The California Insured Fund will purchase
municipal securities subject to New Issue Insurance Policies only if the claims
paying ability of the insurer thereof is rated AAA by S&P or Aaa by Moody's.
PORTFOLIO INSURANCE POLICIES
Portfolio Insurance Policies are obtained by the California Insured Fund from
a qualified municipal bond insurer and are effective only so long as the Fund is
in existence, the insurer is still in business and meeting its obligations, and
the Insured Securities described in the policy are held by the California
Insured Fund. Premium rates for each issue of securities covered by the policy
are fixed for the life of the California Insured Fund and are periodically
adjusted to reflect purchases and sales of covered securities. The premium on
the Portfolio Insurance Policy is an item of expense and will be reflected in
the California Insured Fund's average annual expenses. Premiums are paid from
the California Insured Fund's assets and reduce the current yield on its
portfolio by the amount thereof. The insurer cannot cancel coverage already in
force with respect to Insured Securities owned by the California Insured Fund
and covered by the policy, except for nonpayment of premiums.
SECONDARY INSURANCE POLICIES
The California Insured Fund may at any time purchase Secondary Insurance on
any municipal security held by the Fund. Such insurance coverage will be
noncancellable and will ordinarily continue in force so long as the securities
so insured are outstanding. Secondary Insurance will likely be purchased by the
California Insured Fund if, in the opinion of Keystone, the market value or net
proceeds of the sale of a security by the Fund would exceed the current value of
such security (without insurance) plus the cost of such insurance. When the
California Insured Fund purchases Secondary Insurance, the single premium is
added to the cost basis of the security and is not considered an item of expense
of the Fund. One of the purposes of such insurance is to enable the securities
covered by such insurance to be sold as "AAA" or "Aaa" rated Insured Securities
at a market price higher than that which might otherwise be obtainable if the
securities were sold without the insurance coverage. Therefore, such insurance
may be considered to represent an element of market value of such Insured
Securities, although the exact effect, if any, on such market value cannot be
estimated. Any difference between the excess of such a security's market value
as an Aaa or AAA rated security over its market value without such rating,
including the single premium cost thereof, would inure to the California Insured
Fund in determining the net capital gain or loss realized by the Fund upon the
sale of such Insured Security.
FUNDAMENTAL NATURE OF INVESTMENT OBJECTIVES
The investment objectives of each Fund and the requirement that each Fund
invest, under ordinary circumstances, at least 80% of its assets in federally
tax-exempt municipal obligations that are also exempt from certain taxes in the
state for which it is named, as set forth above, are fundamental and may not be
changed without the vote of a majority, as defined in the Investment Company Act
of 1940 ("1940 Act"), of the affected Fund's outstanding shares (which means the
lesser of (1) 67% of the shares represented at a meeting at which more than 50%
of the outstanding shares are represented or (2) more than 50% of the
outstanding shares).
INVESTMENT RESTRICTIONS
Each Fund has adopted the fundamental restrictions summarized below, which may
not be changed without the vote of a 1940 Act majority of such Fund's
outstanding shares. These restrictions and certain other fundamental and non-
fundamental restrictions are contained in the statement of additional
information. Unless otherwise stated, all references to a Fund's assets are in
terms of current market value.
Generally, each Fund may not do the following:
(1) purchase any security of any issuer (other than issues of the U.S.
government, its agencies or instrumentalities) if as a result more than 25% of
its total assets would be invested in a single industry, including industrial
development bonds from the same facility or similar types of facilities;
governmental issuers of municipal bonds are not regarded as members of an
industry, and each Fund may invest more than 25% of its assets in industrial
development bonds; and
(2) borrow money or enter into reverse repurchase agreements, except that each
Fund may enter into reverse repurchase agreements or borrow money from banks for
temporary or emergency purposes in aggregate amounts up to one-third of the
value of the Fund's net assets; provided that while borrowings from banks (not
including reverse repurchase agreements) exceed 5% of the Fund's net assets, any
such borrowings will be repaid before additional investments are made.
The Funds are non-diversified under the 1940 Act securities laws. As
non-diversified funds, there is no restriction under the 1940 Act on the
percentage of assets that may be invested at any time in the securities of any
one issuer. The Funds intend to comply, however, with the Code's diversification
requirements and other requirements applicable to "regulated investment
companies" to ensure they will not be subject to U.S. federal income tax on
income and capital gain distributions to shareholders.
For this reason, each Fund has adopted the investment restriction set forth
below, which may not be changed without the approval of a majority of its
outstanding shares. Specifically, a Fund may not purchase a security if more
than 25% of the Fund's total assets would be invested in the securities of a
single issuer (other than the U.S. government, its agencies and
instrumentalities) or, with respect to 50% of the Fund's total assets, if more
than 5% of such assets would be invested in the securities of a single issuer
(other than the U.S. government, its agencies and instrumentalities).
As a matter of practice, a Fund treats reverse repurchase agreements as
borrowings for purposes of compliance with the limitations of the 1940 Act.
Reverse repurchase agreements will be taken into account along with borrowings
from banks for purposes of the 5% limit set forth in the second investment
restriction above.
The foregoing is only a summary of the Funds' investment restrictions and
policies. See the statement of additional information for details and the full
text of the Funds' investment restrictions and related policies.
RISK FACTORS
GENERAL
Like any investment, your investment in a Fund involves an element of risk.
Before you invest in a Fund, you should carefully evaluate your ability to
assume the risks your investment in the Fund poses.
Certain risks related to the Funds are discussed below. To the extent not
discussed in this section, specific risks attendant to individual securities or
investment practices are discussed in "Additional Investment Information."
By itself, a Fund does not constitute a balanced investment program and is not
designed for investors seeking capital appreciation or maximum tax-exempt income
irrespective of fluctuations in principal or marketability. Shares of a Fund
would not be suitable for tax-exempt institutions and may not be suitable for
certain retirement plans that are unable to benefit from the Fund's federally
tax-exempt dividends. In addition, the Funds may not be appropriate investments
for entities that are "substantial users" of facilities financed by industrial
development bonds or related persons thereof.
To the extent the Funds are not fully diversified, they may be more
susceptible to adverse economic, political or regulatory developments affecting
a single issuer than would be the case if the Funds were more broadly
diversified.
Should 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.
In addition, the market value of the fixed income securities in which a Fund
may invest may vary inversely to changes in prevailing interest rates.
MUNICIPAL OBLIGATIONS
A Fund's ability to achieve its objectives depends partially on the prompt
payment by issuers of the interest on and principal of the municipal obligations
held by the Fund. A moratorium, default or other nonpayment of interest or
principal when due on any municipal obligation, in addition to affecting the
market value and liquidity of that particular security, could affect the market
value and liquidity of other municipal obligations held by a Fund. In addition,
the market for municipal obligations is often thin and can be temporarily
affected by large purchases and sales, including those by a Fund.
From time to time, proposals have been introduced before the U.S. Congress for
the purpose of restricting or eliminating the federal income tax exemption for
interest on municipal obligations, and similar proposals may well be introduced
in the future. If such a proposal were enacted, the availability of municipal
obligations for investment by each Fund and the value of the Fund's securities
could be materially affected. In such an event, the FUND would reevaluate its
Funds' investment objectives and policies and consider changes in the structure
of the Funds or dissolution.
If and when a Fund invests in municipal lease obligations, the possibility
exists that a municipality may not appropriate the funds for lease payments. The
FUND's Board of Trustees will be responsible for determining, on an ongoing
basis, the credit quality of such leases, including an assessment of the
likelihood of cancellation of any such lease.
NONINVESTMENT GRADE BONDS
The Missouri Tax Free Fund's investment policy allows the Fund to invest a
portion (not to exceed 20%) of its assets in high yield, high risk municipal
bonds, also commonly known as "junk bonds." The degree to which the Fund will
hold such securities will, among other things, depend upon Keystone's economic
forecast and its judgment as to the comparative values offered by high yield,
high risk bonds and higher quality bonds. The Missouri Tax Free Fund seeks to
invest up to 20% of its assets aggressively and to maximize return over time
from a combination of many factors, including high current income and capital
appreciation from high yield, high risk bonds. Although the total amount
invested in high yield, high risk bonds will not exceed 20% of the Missouri Tax
Free Fund, the Fund may (as a non-diversified fund) invest as much as the entire
20% in the securities of a single issuer. To that extent the Missouri Tax Free
Fund may be more susceptible to adverse economic, political or regulatory
developments affecting a single issuer than would be the case if the Fund were
more broadly diversified.
Such aggressive investing involves risks that are greater than the risks of
investing in higher quality debt securities. These risks are discussed in
greater detail below and include risks from (1) interest rate fluctuation; (2)
changes in credit status, including weaker overall credit condition of issuers
and risks of default; (3) industry, market and economic risk; (4) volatility of
price resulting from broad and rapid changes in the value of underlying
securities; and (5) greater price variability and credit risks of such high
yield, high risk securities as zero coupon bonds and PIK securities.
Specifically, investors should be aware of the following:
(1) securities rated BB or lower by S&P or Ba or lower by Moody's are
considered predominantly speculative with respect to the ability of the issuer
to meet principal and interest payments;
(2) the value of high yield, high risk securities may be more susceptible to
real or perceived adverse economic, company or industry conditions than is the
case for higher quality securities;
(3) adverse market, credit or economic conditions could make it difficult at
certain times to sell certain high yield, high risk securities held by the Fund;
(4) the secondary market for high yield, high risk securities may be less
liquid than the secondary market for higher quality securities, which may affect
the value of certain high yield, high risk securities held by the Fund at
certain times; and
(5) high yield, high risk zero coupon securities may be subject to greater
changes in value due to market conditions, the absence of a cash interest
payment and the tendency of issuers of such securities to have weaker overall
credit conditions than other high yield, high risk securities.
These characteristics of high yield, high risk securities make them generally
more appropriate for long term investment.
If and when a Fund invests in zero coupon bonds, the Fund does not expect to
have enough zero coupon bonds to have a material effect on dividends. The 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 a Fund and distributed to its
shareholders. These distributions must be made from the Fund's cash assets or,
if necessary, from the proceeds of sales of portfolio securities. The Fund will
not be able to purchase additional income producing securities with cash used to
make such distributions, and its current income ultimately may be reduced as a
result.
These risks provide the opportunity for maximizing return over time on a
portion of the Missouri Tax Free Fund's assets, but may result in greater upward
and downward movement of the net asset value per share of the Fund. As a result,
they should be carefully considered by investors.
The maximum return sought by the Missouri Tax Free Fund with respect to up to
20% of its assets is ordinarily associated with securities in the lower rating
categories of the recognized rating agencies or with securities that are
unrated. Such high yield, high risk securities are generally rated BB or lower
by S&P or Ba or lower by Moody's. The Fund may invest in securities that are
rated as low as D by S&P and C- by Moody's. These rating categories are
described in the section of this prospectus entitled "Additional Investment
Information." The Fund intends to invest in D rated debt only in cases where, in
Keystone's judgment, there is a distinct prospect of improvement in the issuer's
financial position as a result of the completion of reorganization or otherwise.
The Fund may also invest in unrated securities that, in Keystone's judgment,
offer comparable yields and risks to those of securities that are rated, as well
as non-investment quality zero coupon and PIK securities.
Since the Fund takes an aggressive approach to investing a portion of its
assets, Keystone tries to maximize the return by controlling the risk associated
with those investments through diversification, credit analyses, review of
sector and industry trends, interest rate forecasts and economic analysis.
Keystone's analysis of securities focuses on values based on factors such as
asset values, earnings prospects and the quality of management of the company.
In making investment recommendations, Keystone also considers current income,
potential for capital appreciation, maturity structure, quality guidelines,
coupon structure, average yield, percentage of zeros and PIKs, percentage of
non-accruing items and yield to maturity.
Keystone also considers the ratings of Moody's and S&P assigned to various
securities, but does not rely solely on ratings assigned by Moody's and S&P
because (1) Moody's and S&P assigned ratings are based largely on historical
financial data and may not accurately reflect the current financial outlook of
municipalities; and (2) there can be large differences among the current
financial conditions of issuers within the same rating category.
TAX CONSIDERATIONS
For a discussion of the tax considerations for each state and special factors,
including the risks associated with investing in the municipal securities of a
single state, see Exhibit A to this prospectus and Appendix A to the statement
of additional information.
PRICING SHARES
The net asset value of a Fund share is computed each day on which the New York
Stock Exchange (the "Exchange") is open as of the close of trading on the
Exchange (currently 4:00 p.m. eastern time for the purpose of pricing Fund
shares) except on days when changes in the value of a Fund's portfolio
securities do not affect the current net asset value of its shares. The Exchange
currently is closed on weekends, New Year's Day, Presidents' Day, Good Friday,
Memorial Day, Independence Day, Labor Day, Thanksgiving Day and Christmas Day.
The net asset value per share of each Fund is arrived at by determining the
value of the Fund's assets, subtracting its liabilities and dividing the result
by the number of its shares outstanding. Net asset value per share is calculated
to two decimal places for purposes of purchases and redemptions of a Fund's
shares.
The Funds value municipal obligations on the basis of valuations provided by a
pricing service, approved by the FUND's Board of Trustees, which uses
information with respect to transactions in bonds, quotations from bond dealers,
market transactions in comparable securities and various relationships between
securities in determining value.
Each Fund values its short-term instruments as follows: money market
instruments with maturities of sixty days or less are valued at amortized cost
(original purchase cost as adjusted for amortization of premium or accretion of
discount), which, when combined with accrued interest, approximates market;
short-term instruments having maturities of more than sixty days for which
market quotations are readily available are valued at current market value; and
short-term instruments maturing in more than sixty days when purchased that are
held on the sixtieth day prior to maturity are valued at amortized cost (market
value on the sixtieth day adjusted for amortization of premium or accretion of
discount), which, when combined with accrued interest, approximates market; and
which, in either case, reflects fair value as determined by the Board of
Trustees. All other investments are valued at market value or, where market
quotations are not readily available, at fair value as determined in good faith
according to procedures established by the Board of Trustees.
DIVIDENDS AND TAXES
Each Fund intends to declare dividends from net investment income daily and
distribute to its shareholders such dividends monthly and to declare and
distribute all net realized long-term capital gains annually. Shareholders
receive Fund distributions in the form of additional shares of that class of
shares upon which the distribution is based or, at the shareholder's option, in
cash. Shareholders of a Fund who have not opted to receive cash prior to the
payable date for any dividend from net investment income or the record date for
any capital gains distribution will have the number of such shares determined on
the basis of the Fund's net asset value per share computed at the end of that
day after adjustment for the distribution. Net asset value is used in computing
the number of shares in both capital gains and income distribution
reinvestments. There is a possibility that shareholders may lose the tax-exempt
status on accrued income on municipal bonds if shares of the Funds are redeemed
before a dividend has been declared.
As of April 1, 1995, in compliance with a recent ruling issued by the Internal
Revenue Service, the Fund treats its 12b-1 fees for tax purposes as operating
expenses rather than as capital charges.
Differences in the operation of the Distribution Plan adopted by the Class A
shares of each Fund from that of the Class B and Class C Distribution Plans will
cause a variation in the net asset values and distribution rates of the
respective classes of shares.
Account statements and/or checks as appropriate will be mailed within seven
days after the Fund pays the distribution. Unless the FUND receives instructions
to the contrary before the record or payable date, as the case may be, it will
assume that a shareholder wishes to receive that distribution and future capital
gains and income distributions in shares. Instructions continue in effect until
changed in writing.
Each of the Funds intends to qualify in the future as a regulated investment
company under the Code. Each Fund is a separate taxable entity for purposes of
Code provisions applicable to regulated investment companies. Each of the Funds
qualifies if, among other things, it distributes to its shareholders at least
90% of its net investment income for its fiscal year. Each Fund also intends to
make timely distributions, if necessary, sufficient in amount to avoid the
nondeductible 4% excise tax imposed on a regulated investment company to the
extent that it fails to distribute, with respect to each calendar year, at least
98% of its ordinary income for such calendar year and 98% of its net capital
gains for the one-year period ending on October 31 of such calendar year. Any
taxable distribution declared in October, November or December to shareholders
of record in such a month and paid by the following January 31 would be
includable in the taxable income of shareholders on December 31 of the year in
which such distributions were declared. If a Fund qualifies and if it
distributes substantially all of its net investment income and net capital
gains, if any, to shareholders, it will be relieved of any federal income tax
liability.
Each Fund expects that substantially all of its dividends will be "exempt
interest dividends," which should be treated as excludable from federal gross
income. In order to pay exempt interest dividends, at least 50% of the value of
the Fund's assets must consist of federally tax-exempt obligations at the close
of each quarter. An exempt interest dividend is any dividend or part thereof
(other than a capital gain dividend) paid by the Fund with respect to its net
federally excludable municipal obligation interest and designated as an exempt
interest dividend in a written notice mailed to each shareholder not later than
60 days after the close of its taxable year. The percentage of the total
dividends paid by a Fund with respect to any taxable year that qualifies as
exempt interest dividends will be the same for all shareholders of the Fund
receiving dividends with respect to such year. If a shareholder receives an
exempt interest dividend with respect to any share and such share has been held
for six months or less, any loss on the sale or exchange of such share will be
disallowed to the extent of the exempt interest dividend amount.
Any shareholder of a Fund who may be a "substantial user" of a facility
financed with an issue of tax-exempt obligations or a "related person" to such a
user should consult his tax adviser concerning his qualification to receive
exempt interest dividends should the Fund hold obligations financing such
facility.
Interest on certain "private activity bonds" issued after August 7, 1986,
although otherwise tax exempt, is treated as a tax preference item for
alternative minimum tax purposes. Under regulations to be promulgated, a Fund's
exempt interest dividends will be treated the same way to the extent
attributable to interest paid on such private activity bonds. Corporate
shareholders should also be aware that the receipt of exempt interest dividends
could subject them to alternative minimum tax under the provisions of Section
56(g) of the Code (relating to "adjusted current earnings").
Since none of a Fund's income will consist of corporate dividends, no
distributions will qualify for the corporate dividends received deduction.
Each Fund intends to distribute its net capital gains as capital gain
dividends; shareholders should treat such dividends as long-term capital gains.
Such distributions will be designated as capital gain dividends by a written
notice mailed to each shareholder no later than 60 days after the close of the
Fund's fiscal taxable year. If a shareholder receives a capital gain dividend
and holds his shares for six months or less, then any allowable loss on
disposition of such shares will be treated as a long-term capital loss to the
extent of such capital gain dividend.
Interest on indebtedness incurred or continued by shareholders to purchase or
carry shares of a Fund will not be deductible for federal income tax purposes to
the extent of the portion of the interest expense relating to exempt interest
dividends; that portion is determined by multiplying the total amount of
interest paid or accrued on the indebtedness by a fraction, the numerator of
which is the exempt interest dividends received by a shareholder in his taxable
year and the denominator of which is the sum of the exempt interest dividends
and the taxable distributions out of the Fund's investment income and long-term
capital gains received by the shareholder.
The Funds may acquire options to "put" specified securities to municipal bond
dealers or issuers from whom the securities are purchased. It is expected that
each Fund will be treated for federal income tax purposes as the owner of the
municipal bonds acquired subject to the put. The interest on the municipal bonds
will be tax-exempt to the Funds, and the purchase prices must be allocated
between such securities and the put based upon their respective fair market
values. The IRS has not issued a published ruling on this matter and could reach
a different conclusion.
STATE INCOME TAXES
The exemption of interest on municipal bonds for federal income tax purposes
does not necessarily result in exemption under the income, corporate or personal
property tax laws of any state or city. Generally, individual shareholders of
the Funds receive tax-exempt treatment at the state level for distributions
derived from municipal securities of their state of residency. Each Fund will
report to shareholders on a state by state basis the sources of its exempt
interest dividends. For a further discussion of state tax treatment relating to
each Fund see Exhibit A to this prospectus.
As mentioned above, at the end of each quarter, at least 50% of the value of a
Fund's assets must be invested in municipal obligations in order for
distributions to qualify as exempt interest dividends. Under particularly
unusual circumstances, such as when a Fund is in a prolonged defensive
investment position, it is possible that no portion of a Fund's distributions of
income to its shareholders for a fiscal year would be exempt from federal income
tax. The FUND does not presently anticipate, however, that such unusual
circumstances will occur.
The foregoing is only a summary of some of the important tax considerations
generally affecting the FUND, its Funds and their shareholders. No attempt is
made to present a detailed explanation of the federal or state income or other
tax treatment of the FUND, its Funds or their shareholders, and this discussion
is not intended as a substitute for careful tax planning. Accordingly,
shareholders are urged to consult their tax advisers with specific reference to
their tax situations.
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
and its Funds. Subject to the authority of the Board of Trustees, Keystone
serves as investment adviser to the FUND and its Funds 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"), 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 and each Fund.
Each Fund currently offered pays Keystone a fee for its services at the annual
rate set forth below:
Aggregate
Net Asset Value
Management of the Shares
Fee of the Fund
- -------------------------------------------------------------------------------
0.55% of the first $ 50,000,000, plus
0.50% of the next $ 50,000,000, plus
0.45% of the next $100,000,000, plus
0.40% of the next $100,000,000, plus
0.35% of the next $100,000,000, plus
0.30% of the next $100,000,000, plus
0.25% of amounts over $500,000,000
computed as of the close of business each business day and
paid daily.
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 each Fund. In
either case, the terms of the Advisory Agreement and continuance thereof must be
approved by the vote of a majority of Independent Trustees in person at a
meeting called for the purpose of voting on such approval. The Advisory
Agreement may be terminated as to any Fund, without penalty, on 60 days' written
notice by the FUND or Keystone, or may be terminated as to a Fund by the vote of
a majority of the shares of such Fund. The Advisory Agreement will terminate
automatically upon its assignment.
The FUND has adopted a Code of Ethics incorporating policies on personal
securities trading as recommended by the Investment Company Institute.
FUND EXPENSES
Each Fund will pay all of its expenses. In addition to the investment advisory
and management fees discussed above, the principal expenses that each Fund is
expected to pay include, but are not limited to, transfer, dividend disbursing
and shareholder servicing agent costs and expenses; custodian costs and
expenses; its pro rata portion of certain Trustees' fees, fees of its
independent auditors, fees of the FUND's legal counsel and legal counsel to the
FUND's Board of Trustees; fees payable to government agencies, including
registration and qualification fees of the FUND, the Funds and their shares
under federal and state securities laws; and certain extraordinary expenses. In
addition, each class of shares of a Fund will pay all of the expenses
attributable to it. Such expenses are currently limited to Distribution Plan
expenses. Each Fund also pays its brokerage commissions, interest charges and
taxes and certain extraordinary expenses. Total expenses for each Fund include
indirectly paid expenses.
For the fiscal year ended November 30, 1995, the California Insured Fund and
the Missouri Tax Free Fund paid or accrued to Keystone investment management and
administrative services fees of $113,353 and $120,166, respectively, which
represent 0.55% and 0.55% of the respective Fund's average net assets for the
fiscal year ended November 30, 1995.
For the fiscal year ended November 30, 1995, the California Insured Fund and
the Missouri Tax Free Fund paid or accrued to Keystone Investor Resource Center,
Inc. ("KIRC"), the FUND's transfer and dividend dispersing agent, $24,058 and
$33,338, respectively, for transfer agent fees. For the fiscal year ended
November 30, 1995, the California Insured Fund and the Missouri Tax Free Fund
paid or accrued to Keystone Investments $19,921, and $20,721, respectively, for
certain accounting services.
Keystone has voluntarily limited the expenses of Class A shares of each Fund
to 0.75% of the average daily net assets of such class and has voluntarily
limited expenses of Class B and C shares of each Fund to 1.50% of the average
daily net assets of each such class. Keystone currently intends to continue the
foregoing expense limitations on a calendar month-by-month basis. Keystone will
periodically evaluate the foregoing expense limitations and may modify or
terminate them in the future. Keystone will not be required to make such
reimbursement to the extent it would result in a Fund's inability to qualify as
a regulated investment company under the provisions of the Code. In accordance
with expense limitations in effect for the fiscal year ended November 30, 1995,
Keystone reimbursed the California Insured Fund and the Missouri Tax Free Fund
(i) $21,353 and $18,923, respectively, with respect to each Fund's Class A
shares; (ii) $94,978 and $104,097, respectively, with respect to each Fund's
Class B shares; and (iii) $5,946 and $9,601, respectively, with respect to each
Fund's Class C shares.
PORTFOLIO MANAGER
Betsy A. Blacher, a Keystone Senior Vice President, has been the FUND's
Portfolio Manager since the FUND's inception. Ms. Blacher has more than 16
years of investment experience.
Daniel A. Rabasco, a Keystone Vice President and Portfolio Manager, is
responsible for the day-to-day management of the Missouri Tax Free Fund. Mr.
Rabasco has more than 9 years of investment experience.
George J. Kimball, a Keystone Vice President and Portfolio Manager, is
responsible for the day-to-day management of the California Insured Fund. Mr.
Kimball has more than 10 years of investment experience.
SECURITIES TRANSACTIONS
Under policies established by the Board of Trustees, Keystone selects
broker-dealers to execute transactions subject to the receipt of best execution.
When selecting broker-dealers to execute portfolio transactions for a Fund,
Keystone may follow a policy of considering as a factor the number of shares of
the Fund sold by such broker-dealer. In addition, broker-dealers executing
portfolio transactions from time to time may be affiliated with the FUND,
Keystone, the FUND's principal underwriter or their affiliates.
A Fund may pay higher commissions to broker-dealers that provide research
services. Keystone may use these services in advising a Fund as well as in
advising its other clients.
PORTFOLIO TURNOVER
For the fiscal period ended November 30, 1994, and the fiscal year ended
November 30, 1995, the portfolio turnover rates for the California Insured Fund
were 104% and 119%, respectively. For the same periods the turnover rates for
the Missouri Tax Free Fund were 25% and 74%, respectively. High portfolio
turnover may involve correspondingly greater brokerage commissions and other
transaction costs, which would be borne directly by a Fund, as well as
additional gains and/or losses to shareholders. For additional information about
brokerage and distributions, see the statement of additional information.
HOW TO BUY SHARES
Shares of each Fund may be purchased from any broker-dealer that has a selling
agreement with Keystone Investment Distributors Company (formerly named Keystone
Distributors, Inc.) (the "Principal Underwriter"), the FUND's principal
underwriter. The Principal Underwriter, a wholly-owned subsidiary of Keystone,
is located at 200 Berkeley Street, Boston, Massachusetts 02116- 5034.
In addition, you may open an account for the purchase of shares of a Fund by
mailing to the FUND, c/o KIRC, P.O. Box 2121, Boston, Massachusetts 02106- 2121,
a completed account application and a check payable to the FUND. 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. Subsequent investments in a Fund's shares in any amount may be made
by check, by wiring federal funds or by an electronic funds transfer ("EFT").
Orders for the purchase of shares of a Fund will be confirmed at an offering
price equal to the net asset value per share next determined after receipt of
the order in proper form by the Principal Underwriter (generally as of the close
of the Exchange on that day) plus, in the case of Class A shares, the applicable
sales charge. Orders received by dealers or other firms prior to the close of
the Exchange and received by the Principal Underwriter prior to the close of its
business day will be confirmed at the offering price effective as of the close
of the Exchange on that day. The FUND reserves the right to determine the net
asset value more frequently than once a day if deemed desirable. Dealers and
other financial services firms are obligated to transmit orders promptly.
Orders for shares of a Fund received other than as stated above will receive
the offering price equal to the net asset value per share next determined
(generally the next business day's offering price) plus, in the case of Class A
shares, the applicable sales charge.
Your initial purchase must be at least $1,000. There is no minimum amount for
subsequent purchases.
Shares become entitled to income distributions declared on the first business
day following receipt by KIRC of payment for the shares. It is the investor's
responsibility to see that his dealer promptly forwards payment to the Principal
Underwriter for shares being purchased through the 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, each 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 deferred sales charge if they are
redeemed. Class B shares purchased on or after June 1, 1995 are subject to a
deferred sales charge upon redemption during the 72 month period from and
including the month of purchase. Class B shares purchased prior to June 1, 1995
are subject to a deferred sales charge upon redemption during the four calendar
years following purchase. Class B shares purchased on or after June 1, 1995 that
have been outstanding for eight years from and including the month of purchase
will automatically convert to Class A shares without imposition of a front-end
sales charge or exchange fee. Class B shares purchased prior to June 1, 1995
will retain their existing conversion rights.
CLASS C SHARES -- LEVEL LOAD OPTION
Class C shares are sold without a sales charge at the time of purchase, but
are subject to a deferred sales charge if they are redeemed within one year
after the date of purchase. Class C shares are available only through dealers
who have entered into special distribution agreements with the Principal
Underwriter.
Class A and B shares, pursuant to their Distribution Plans, currently pay an
annual service fee of up to 0.15% of the Fund's average daily net assets
attributable to their respective classes. Class C shares pay an annual service
fee of up to 0.25% of the Fund's average daily net assets attributable to Class
C. In addition to the service fee, the Class B and Class C Distribution Plans
provide for the payment of an annual distribution fee of up to 0.75% of the
average daily net assets attributable to their respective classes.
Investors who would rather pay the entire cost of distribution at the time of
investment, rather than spreading the cost over time, might consider Class A
shares. Other investors might consider Class B or Class C shares, in which case
100% of the purchase price is invested immediately, depending on the amount of
the purchase and the length of investment.
The Funds will not normally accept any purchase of Class B shares in the
amount of $250,000 or more and will not normally accept any purchase of Class C
shares in the amount of $1,000,000 or more.
--------------------------------------------
CLASS A SHARES
Class A shares are offered at net asset value plus an initial sales charge as
follows:
AS A % OF CONCESSION TO
AS A % OF NET AMOUNT DEALERS AS A % OF
AMOUNT OF PURCHASE OFFERING PRICE INVESTED* OFFERING PRICE
- -------------------------------------------------------------------------------
Less than $100,000 ......... 4.75% 4.99% 4.25%
$100,000 but less than
$250,000 ................. 3.75% 3.90% 3.25%
$250,000 but less than
$500,000 ................. 2.50% 2.56% 2.25%
$500,000 but less than
$1,000,000 ............... 1.50% 1.52% 1.50%
- ----------
*Rounded to the nearest one-hundredth percent.
----------------------------------------------
Purchases of a Fund's Class A shares in the amount of $1 million or more
and/or purchases of Class A shares made by a Qualifying Plan or a tax-sheltered
annuity plan sponsored by a public educational organization 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 in an NAV
Purchase, 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 0.15% 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 reduced or eliminated for persons or
organizations purchasing Class A shares of a Fund alone or in combination with
Class A shares of other Keystone America Funds. See Exhibit B to this
prospectus.
Initial sales charges may also be eliminated for persons purchasing Class A
shares that are included in a broker-dealer or investment adviser managed fee
based program (a "wrap account") through broker-dealers or investment advisers
who have entered into special agreements with the Principal Underwriter.
Until , 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.
In addition, upon prior notification to the Principal Underwriter, Class A
shares may be purchased at net asset value by clients of registered
representatives within six months after a change in the registered
representative's employment, where the amount invested represents redemption
proceeds from a registered open-end management investment company not
distributed or managed by Keystone or its affiliates; and the shareholder either
(1) paid a front end sales charge, or (2) was at some time subject to, but did
not actually pay, a contingent deferred sales charge with respect to the
redemption proceeds.
CLASS A DISTRIBUTION PLAN
Each Fund has adopted a Distribution Plan with respect to its Class A shares
(the "Class A Distribution Plan"), which provides for payments (currently
limited to 0.15% annually of the average daily net asset value of Class A
shares) to pay expenses associated with the distribution of Class A shares.
Amounts paid by each Fund to the Principal Underwriter under the Class A
Distribution Plan are currently used to pay others, such as dealers, service
fees at an annual rate of up to 0.15% of the average daily net asset value of
Class A shares maintained by such recipients on the books of a Fund for
specified periods.
CLASS B SHARES
Class B shares are offered at net asset value, without an initial sales
charge.
With respect to Class B shares purchased on or after June 1, 1995, each Fund,
with certain exceptions, imposes a deferred sales charge in accordance with the
following schedule:
DEFERRED
SALES
CHARGE
REDEMPTION TIMING IMPOSED
- ----------------- -------
First twelve month period .................... 5.00%
Second twelve month period ................... 4.00%
Third twelve month period .................... 3.00%
Fourth twelve month period ................... 3.00%
Fifth twelve month period .................... 2.00%
Sixth twelve month period .................... 1.00%
No deferred sales charge is imposed on amounts redeemed thereafter.
With respect to Class B shares purchased prior to June 1, 1995, each Fund,
with certain exceptions, imposes a deferred sales charge of 3.00% on shares
redeemed during the calendar year of purchase and the first calendar year after
the year of purchase; 2.00% on shares redeemed during the second calendar year
after the year of purchase; and 1.00% on shares redeemed during the third
calendar year after the year of purchase. No deferred sales charge is imposed on
amounts redeemed thereafter.
When imposed, the deferred sales charge is deducted from the redemption
proceeds otherwise payable to the shareholder. The deferred sales charge is
retained by the Principal Underwriter. Amounts received by the Principal
Underwriter under the Class B Distribution Plans are reduced by deferred sales
charges retained by the Principal Underwriter. See "Contingent Deferred Sales
Charges and Waiver of Sales Charges" below.
Class B shares purchased on or after June 1, 1995 that have been outstanding
for eight years from and including the month of purchase will automatically
convert to Class A shares (which are subject to a lower Distribution Plan
charge) without imposition of a front-end sales charge or exchange fee. Class B
shares purchased prior to June 1, 1995 will similarly convert to Class A shares
at the end of seven calendar years after the year of purchase. (Conversion of
Class B shares represented by stock certificates will require the return of the
stock certificates to KIRC.) The Class B shares so converted will no longer be
subject to the higher expenses borne by Class B shares. Because the net asset
value per share of the Class A shares may vary from that of the Class B shares
at the time of conversion, although the dollar value will be the same, a
shareholder may receive more or fewer Class A shares than the number of Class B
shares converted. Under current law, it is the FUND's opinion that such a
conversion will not constitute a taxable event under federal income tax law. In
the event that this ceases to be the case, the Board of Trustees will consider
what action, if any, is appropriate and in the best interests of the Class B
shareholders.
CLASS B DISTRIBUTION PLANS
Each 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
(currently limited to 0.90%) to pay expenses of the distribution of Class B
shares. Payments under the Class B Distribution Plans are currently made to the
Principal Underwriter (which may reallow all or part to others, such as dealers)
(1) as commissions for Class B shares sold and (2) as shareholder service fees.
Amounts paid or accrued to the Principal Underwriter under (1) and (2) in the
aggregate may not exceed the annual limitation referred to above.
The Principal Underwriter generally reallows to brokers or others a commission
equal to 4.00% of the price paid for each Class B share sold plus the first
year's service fee in advance in the amount of 0.15% of the price paid for each
Class B share sold. Beginning approximately 12 months after the purchase of a
Class B share, the broker or other party will receive service fees at an annual
rate of 0.15% of the average daily net asset value of such Class B share
maintained by the recipient outstanding on the books of such Fund for specified
periods. See "Distribution Plans" below.
CLASS C SHARES
Class C shares are offered only through dealers who have special distribution
agreements with the Principal Underwriter. Class C shares are offered at net
asset value, without an initial sales charge. With certain exceptions, each Fund
may impose a deferred sales charge of 1.00% on shares redeemed within one year
after the date of purchase. No deferred sales charge is imposed on amounts
redeemed thereafter. If imposed, the deferred sales charge is deducted from the
redemption proceeds otherwise payable to you. The deferred sales charge is
retained by the Principal Underwriter. See "Contingent Deferred Sales Charges
and Waiver of Sales Charges" below.
CLASS C DISTRIBUTION PLAN
Each Fund has adopted a Distribution Plan with respect to its Class C shares
(the "Class C Distribution Plan") that provides for expenditures at an annual
rate of up to 1.00% of the average daily net asset value of Class C shares
(currently limited to 0.90%) to pay expenses 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 the 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 time of purchase of
such shares. No contingent deferred sales charge is imposed when amounts
redeemed are derived from (1) increases in the value of an account above the net
cost of such shares due to increases in the net asset value per share of a Fund;
(2) certain shares with respect to which a Fund did not pay a commission on
issuance, including shares acquired through reinvestment of dividend income and
capital gains distributions; (3) certain Class A shares held for more than one
year or two years, as the case may be, from the date of purchase; (4) Class B
shares held during more than four consecutive calendar years or more than 72
months from and including the month of purchase, as the case may be; or (5)
Class C shares held for more than one year from 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.
Each Fund may also sell Class A, Class B or Class C shares at net asset value
without any initial sales charge or a contingent deferred sales charge to
certain Directors, Trustees, officers and employees of the Fund and Keystone and
certain of their affiliates; to registered representatives of firms with dealer
agreements with the Principal Underwriter; and to a bank or trust company acting
as a trustee for a single account.
With respect to Class A shares purchased by a Qualifying Plan at net asset
value or Class C shares purchased by a Qualifying Plan, no contingent deferred
sales charge will be imposed on any redemptions made specifically by an
individual participant in the Qualifying Plan. This waiver is not available in
the event a Qualifying Plan (as a whole) redeems substantially all of its
assets.
In addition, no contingent deferred sales charge is imposed on a redemption of
shares of a Fund in the event of (1) death or disability of the shareholder; (2)
a lump-sum distribution from a 401(k) plan or other benefit plan qualified under
the Employee Retirement Income Security Act of 1974 ("ERISA"); (3) automatic
withdrawals from ERISA plans if the shareholder is at least 59 1/2 years old;
(4) involuntary redemptions of accounts having an aggregate net asset value of
less than $1,000; (5) automatic withdrawals under an automatic withdrawal plan
of up to 1 1/2% per month of the shareholder's initial account balance; (6)
withdrawals consisting of loan proceeds to a retirement plan participant; (7)
financial hardship withdrawals made by a retirement plan participant; or (8)
withdrawals consisting of returns of excess contributions or excess deferral
amounts made to a retirement plan participant.
ARRANGEMENTS WITH BROKER-DEALERS AND OTHERS
From time to time, the Principal Underwriter may provide promotional
incentives, including reallowance of up to the entire sales charge, to certain
dealers whose representatives have sold or are expected to sell significant
amounts of a Fund. 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 National Association of Securities Dealers, Inc. ("NASD").
Dealers to whom substantially the entire sales charge on Class A shares is
reallowed may be deemed to be underwriters as that term is defined under the
Securities Act of 1933.
The Principal Underwriter may, at its own expense, pay concessions in addition
to those described above to dealers that satisfy certain criteria established
from time to time by the Principal Underwriter. These conditions relate to
increasing sales of shares of the Keystone funds over specified periods and
certain other factors. Such payments may, depending on the dealer's satisfaction
of the required conditions, be periodic and may be up to 0.25% of the value of
shares sold by such dealer.
The Principal Underwriter may also pay a transaction fee (up to the level of
payments allowed to dealers for the sale of shares, as described above) to banks
and other financial services firms that facilitate transactions in shares of a
Fund for their clients. The Glass-Steagall Act currently limits the ability of a
depository institution (such as a commercial bank or a savings and loan
association) to become an underwriter or distributor of securities. In the event
the Glass-Steagall Act is deemed to prohibit depository institutions from
accepting payments under the arrangement described above, or should Congress
relax current restrictions on depository institutions, the Board of Trustees
will consider what action, if any, is appropriate.
In addition, state securities laws on this issue may differ from the
interpretations of federal law expressed herein, and banks and financial
institutions may be required to register as dealers pursuant to state law.
DISTRIBUTION PLANS
As discussed above, each Fund bears some of the costs of selling its shares
under Distribution Plans adopted with respect to its Class A, Class B and Class
C shares pursuant to Rule 12b-1 under the 1940 Act.
The NASD currently limits the amount that a Fund may pay annually in
distribution costs for the sale of its shares and shareholder service fees. The
NASD limits annual expenditures to 1% of the aggregate average daily net asset
value of its shares, of which 0.75% may be used to pay such distribution costs
and 0.25% may be used to pay shareholder service fees. The NASD also limits the
aggregate amount that a Fund may pay for such distribution costs to 6.25% of
gross share sales since the inception of a 12b-1 Distribution Plan, plus
interest at the prime rate plus 1% on such amounts (less any contingent deferred
sales charges paid by shareholders to the Principal Underwriter) remaining
unpaid from time to time.
The Principal Underwriter intends, but is not obligated, to continue to pay or
accrue distribution charges incurred in connection with the Class B Distribution
Plans that exceed current annual payments permitted to be received by the
Principal Underwriter from a Fund. The Principal Underwriter intends to seek
full payment of such charges from a Fund (together with annual interest thereon
at the prime rate plus one percent) at such time in the future as, and to the
extent that, payment thereof by a Fund would be within permitted limits.
If the FUND's Independent Trustees authorize such payments, the effect would
be to extend the period of time during which the FUND incurs the maximum amount
of costs allowed by 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 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 November 30, 1995, the California Insured Fund paid
the Principal Underwriter $5,342, $144,008 ($123,756 with respect to Class B
shares sold prior to June 1, 1995 and $20,252 with respect to Class B shares
sold on or after June 1, 1995) and $9,218 pursuant to its Class A, Class B and
Class C Distribution Plans, respectively. These amounts were used to pay
commissions and services.
For the fiscal year ended November 30, 1995, the Missouri Tax Free Fund paid
the Principal Underwriter $4,684, $154,093 ($145,112 with respect to Class B
shares sold prior to June 1, 1995 and $8,981 with respect to Class B shares sold
on or after June 1, 1995) and $14,349 pursuant to its Class A, Class B and Class
C Distribution Plans, respectively. These amounts were used to pay commissions
and services.
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
Your shares of a Fund may be redeemed 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. The redemption value of a Fund's share is its net asset value
per share adjusted for fractions of a cent and may be more or less than your
cost depending upon changes in the value of a Fund's portfolio securities
between purchase and redemption. In order to redeem by telephone you must have
completed the authorization in your account application.
The redemption value equals the net asset value per share then determined and
may be more or less than your cost depending upon changes in the value of the
Fund's portfolio securities between purchase and redemption.
If imposed, the deferred sales charge is deducted from the redemption proceeds
otherwise payable to you.
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
process upon clearance of the purchase check, which may take up to 15 days or
more. Any delay may be avoided by purchasing shares either with a certified
check or by Federal Reserve or bank wire of funds or by EFT. Although the
mailing of a redemption check or the wiring or EFT of redemption proceeds may be
delayed, the redemption value will be determined and the redemption processed in
the ordinary course of business upon receipt of proper documentation. In such a
case, after the redemption and prior to the release of the proceeds, no
appreciation or depreciation will occur in the value of the redeemed shares, and
no interest will be paid on the redemption proceeds. If the payment of a
redemption has been delayed, the check will be mailed or the proceeds wired or
sent EFT promptly after good payment has been collected.
The FUND computes the amount due you at the close of the Exchange at the end
of the day on which it has received all proper documentation from you. Payment
of the amount due on redemption less any applicable contingent deferred sales
charge (as described above) will be made within seven days thereafter except as
discussed herein.
You may also redeem your shares through broker-dealers. The Principal
Underwriter, acting as agent for the FUND, stands ready to repurchase a 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. However, your
broker-dealer 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 ACT
OF 1934 AND KIRC'S POLICIES. The FUND and KIRC may waive this requirement, but
may also require additional documents in certain cases. Currently, the
requirement for a signature guarantee has been waived on redemptions of $50,000
or less where the account address of record has been the same for a minimum
period of 30 days. The FUND and KIRC reserve the right to withdraw this waiver
at any time.
If the FUND receives a redemption order, but you have not clearly indicated
the amount of money or number of shares of the Fund 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. However, you must complete the
Telephone Redemption section of the application to enjoy the 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 your account if its value has fallen below $1,000, the current
minimum investment level, as a result of your redemptions (but not as a result
of market action). You will be notified in writing and allowed 60 days to
increase the value of your account to the minimum investment level.
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 of a Fund 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, to the extent permitted by law, would 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 or change fees including fees for services in connection
with exchanges.
Except as otherwise noted, neither the FUND, KIRC nor the Principal
Underwriter assumes responsibility for the authenticity of any instructions
received by any of them from a shareholder in writing, over the Keystone
Automated Response Line ("KARL") or by telephone. KIRC will employ reasonable
procedures to confirm that instructions received over KARL or by telephone are
genuine. Neither the FUND, KIRC nor the Principal Underwriter will be liable
when following instructions received over KARL or by telephone that KIRC
reasonably believes to be genuine.
The FUND may temporarily suspend the right to redeem its shares when (1) the
Exchange is closed, other than customary weekend and holiday closings; (2)
trading on the Exchange is restricted; (3) an emergency exists and the FUND
cannot dispose of its investments or fairly determine their value; or (4) the
Securities and Exchange Commission so orders.
SHAREHOLDER SERVICES
Details on all shareholder services may be obtained from KIRC by writing or by
calling toll free 1-800-343-2898.
KEYSTONE AUTOMATED RESPONSE LINE
KARL offers you specific fund account information and price, total return and
yield quotations as well as the ability to do account transactions, including
investments, exchanges and redemptions. You may access KARL by dialing toll free
1-800-346-3858 on any touch-tone telephone, 24 hours a day, seven days a week.
EXCHANGES
If you have obtained the appropriate prospectus, you may exchange shares of a
Fund for shares of certain other Keystone America Funds and Keystone Liquid
Trust ("KLT") as follows:
Class A shares may be exchanged for Class A shares of other Keystone America
Funds and Class A shares of KLT;
Class B shares, except as noted below, may be exchanged for the same type of
Class B shares of other Keystone America Funds and the same type of Class B
shares of KLT; and
Class C shares may be exchanged for Class C shares of other Keystone America
Funds and Class C shares of KLT.
Class B shares purchased on or after June 1, 1995 cannot be exchanged for
Class B shares of Keystone Capital Preservation and Income Fund during the 24
month period commencing with and including month of purchase.
The exchange of Class B shares and Class C shares will not be subject to a
contingent deferred sales charge. However, if the shares being tendered for
exchange are
(1) Class A shares acquired in an NAV Purchase or otherwise without a front
end sales charge,
(2) Class B shares that have been held for less than 72 months or four years,
as the case may be, or
(3) Class C shares that have been held for less than one year,
and are still subject to a deferred sales charge, such charge will carry over to
the shares being acquired in the exchange transaction.
You may exchange shares by calling toll free
1-800-343-2898, by writing KIRC or by calling KARL. However, you must complete
the Telephone Exchanges section of the application to enjoy the telephone
exchange privileges. Shares purchased by check are eligible for exchange after
15 days. There is a $10.00 fee for each exchange; however, there is no exchange
fee for exchange orders received by the FUND directly from an individual
shareholder over KARL. The FUND reserves the right, after providing shareholders
with any required notice, to change the terms of or to terminate this exchange
offer, including the right to change the service charge for any exchange.
Orders to exchange a certain class of shares of a Fund for the corresponding
class of shares of KLT will be executed by redeeming the shares of the Fund and
purchasing the corresponding class of shares of KLT at the net asset value of
KLT shares next determined after the proceeds from such redemption become
available, which may be up to seven days after such redemption. In all other
cases, orders for exchanges received by the FUND prior to 4:00 p.m. eastern time
on any day the FUND is open for business will be executed at the respective net
asset values determined as of the close of business that day. Orders for
exchanges received after 4:00 p.m. eastern time on any business day will be
executed at the respective net asset values determined at the close of the next
business day.
An excessive number of exchanges may be disadvantageous to the FUND.
Therefore, the FUND, in addition to its right to reject any exchange, reserves
the right to terminate the exchange privilege of any shareholder who makes more
than five exchanges of shares of the Funds in a year or three in a calendar
quarter.
An exchange order must comply with the requirements for a redemption or
repurchase order and must specify the dollar value or number of shares to be
exchanged. Exchanges are subject to the minimum initial purchase requirements of
the fund being acquired. An exchange constitutes a sale for federal income tax
purposes.
The exchange privilege is available only in states where shares of the fund
being acquired may legally be sold.
KEYSTONE AMERICA MONEY LINE
Keystone America Money Line eliminates the delay of mailing a check or the
expense of wiring funds. You must request the service on your application.
Keystone America Money Line allows you to authorize electronic transfers of
money to purchase a Fund's shares in any amount and to redeem up to $50,000
worth of a Fund's shares. You can use Keystone America Money Line like an
"electronic check" to move money between your bank account and your account in
the FUND with one telephone call. You must allow two business days after the
call for the transfer to take place. For money recently invested, you must allow
normal check clearing time before redemption proceeds are sent to your bank.
You may also arrange for systematic monthly or quarterly investments in your
Keystone America account. Once proper authorization is given, your bank account
will be debited to purchase shares in the Fund specified in your account
application. You will receive confirmation from the Principal Underwriter for
every transaction.
To change the amount of or terminate a Keystone America Money Line service
(which could take up to 30 days), you must write to KIRC, P.O. Box 2121, Boston,
Massachusetts 02106-2121, and include your account number.
AUTOMATIC WITHDRAWAL PLAN
Under an Automatic Withdrawal Plan, if your account for a Fund's shares has a
value of at least $10,000, you may arrange for regular monthly or quarterly
fixed withdrawal payments. Each payment must be at least $100 and may be as much
as 1.5% per month or 4.5% per quarter of the total net asset value of the Fund
shares in your account when the Automatic Withdrawal Plan is opened. Excessive
withdrawals may decrease or deplete the value of your account. Because of the
effect of the applicable sales charge, a Class A investor should not make
continuous purchases of a Fund's shares while participating in an Automatic
Withdrawal Program.
DOLLAR COST AVERAGING
Through dollar cost averaging you can invest a fixed dollar amount each month
or each quarter in any Keystone America Fund. This results in more shares being
purchased when the selected fund's net asset value is relatively low and fewer
shares being purchased when the fund's net asset value is relatively high, which
may cause a lower average cost per share than a less systematic investment
approach.
Prior to participating in dollar cost averaging, you must have established an
account in a Keystone America Fund or a money market fund managed or advised by
Keystone. You should designate on the application the dollar amount of each
monthly or quarterly investment (minimum $100) you wish to make and the fund in
which the investment is to be made. Thereafter, on the first day of the
designated month an amount equal to the specified monthly or quarterly
investment will automatically be redeemed from your initial account and invested
in shares of the designated fund.
If you are a Class A investor and paid a sales charge on your initial
purchase, the shares purchased will be eligible for Rights of Accumulation and
the sales charge applicable to the purchase will be determined accordingly. In
addition, the value of shares purchased will be included in the total amount
required to fulfill a Letter of Intent. If a sales charge was not paid on the
initial purchase, a sales charge will be imposed at the time of subsequent
purchases and the value of shares purchased will become eligible for Rights of
Accumulation and Letters of Intent.
TWO DIMENSIONAL INVESTING
You may elect to have income and capital gains distributions from any class of
Keystone America Fund shares you may own automatically invested to purchase the
same class of shares of any other Keystone America Fund. You may select this
service on the application and indicate the Keystone America Fund (s) into which
distributions are to be invested. The value of shares purchased will be
ineligible for Rights of Accumulation and Letters of Intent.
OTHER SERVICES
Under certain circumstances you may, within 30 days after a redemption,
reinstate your account in the same class of shares that you redeemed at current
net asset value.
PERFORMANCE DATA
From time to time a Fund may advertise "total return," "current yield" and a
"tax equivalent yield." ALL FIGURES ARE BASED ON HISTORICAL EARNINGS AND ARE NOT
INTENDED TO INDICATE FUTURE PERFORMANCE. Total return and current yield are
computed separately for each class of shares of a Fund. Total return refers to a
Fund's average annual compounded rates of return over specified periods
determined by comparing the initial amount invested in a particular class to the
ending redeemable value of that amount. The resulting equation assumes
reinvestment of all dividends and distributions and deduction of the maximum
sales charge and all recurring charges, if any, applicable to all shareholder
accounts. The exchange fee is not included in the calculation.
Current yield quotations represent the yield on an investment for a stated
30-day period computed by dividing net investment income earned per share during
the base period by the maximum offering price per share on the last day of the
base period. Such yield will include income from sources other than municipal
obligations, if any.
Tax equivalent yield is, in general, the current yield divided by a factor
equal to one minus a stated income tax rate and reflects the yield a taxable
investment would have to achieve in order to equal on an after-tax basis a
tax-exempt yield.
Any given yield or total return quotation should not be considered
representative of a Fund's yield or total return for any future period.
The FUND may also include comparative performance information for each class
of shares when advertising or marketing the FUND's shares, such as data from
Lipper Analytical Services, Inc., Morningstar, Inc., CDS-Weisenberger and
Value Line or other industry publications.
FUND SHARES
The FUND currently issues shares of two separate series evidencing interests
in different portfolio securities. Generally, each Fund issues three classes of
shares. The FUND is authorized to issue additional series or classes of shares.
Shares of a Fund participate in dividends and distributions and have equal
voting, liquidation and other rights with other shares of the Fund except that
(1) expenses related to the distribution of each 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 of each Fund will be fully
paid and nonassessable by the FUND. Shares of each Fund may be exchanged as
explained under "Shareholder Services," but will have no other preference,
conversion, exchange or preemptive rights. Shares are redeemable, transferable
and freely assignable as collateral. There are no sinking fund provisions.
Shareholders of a Fund are entitled to one vote for each full share owned and
fractional votes for fractional shares on all matters subject to Fund vote.
Shares of a Fund vote together except when required by law to vote separately by
class. The FUND does not have annual meetings. The FUND will have special
meetings, from time to time, as required under its Declaration of Trust and
under the 1940 Act. As provided in the FUND's Declaration of Trust, shareholders
have the right to remove Trustees by an affirmative vote of two-thirds of the
outstanding shares. A special meeting of the shareholders will be held when
holders of 10% of the outstanding shares request a meeting for the purpose of
removing a Trustee. As prescribed by Section 16(c) of the 1940 Act, shareholders
may be eligible for shareholder communication assistance in connection with the
special meeting.
Under Massachusetts law, it is possible that a FUND shareholder may be held
personally liable for the FUND's obligations. The FUND's Declaration of Trust
provides, however, that shareholders shall not be subject to any personal
liability for the FUND's obligations and provides indemnification from FUND
assets for any shareholder held personally liable for the FUND's obligations.
ADDITIONAL INFORMATION
KIRC, located at 101 Main Street, Cambridge, Massachusetts 02142-1519, is a
wholly-owned subsidiary of Keystone. As previously mentioned, KIRC serves as the
FUND's transfer agent and dividend disbursing agent.
When the FUND determines from its records that more than one account in the
FUND is registered in the name of a shareholder or shareholders having the same
address, upon notice to those shareholders, the FUND intends, when an annual
report or a semi-annual report of the FUND is required to be furnished, to mail
one copy of such report to that address.
Except as otherwise stated in this prospectus or required by law, the FUND
reserves the right to change the terms of the offer stated in this prospectus
without shareholder approval, including the right to impose or change fees for
services provided.
<PAGE>
ADDITIONAL INVESTMENT INFORMATION
CORPORATE AND MUNICIPAL BOND RATINGS
S&P CORPORATE AND MUNICIPAL BOND RATINGS
A. MUNICIPAL NOTES
An S&P note rating reflects the liquidity concerns and market access risks
unique to notes. Notes due in three years or less will likely receive a note
rating. Notes maturing beyond three years will most likely receive a long-term
debt rating. The following criteria are used in making that assessment:
1. amortization schedule (the larger the final maturity relative to other
maturities the more likely it will be treated as a note); and
2. source of payment (the more dependent the issue is on the market for its
refinancing, the more likely it will be treated as a note).
Note ratings are as follows:
1. SP-1 -- Strong capacity to pay principal and interest. Those issues
determined to possess a very strong capacity to pay debt service is given a
plus (+) designation.
2. SP-2 -- Satisfactory capacity to pay principal and interest, with some
vulnerability to adverse financial and economic changes over the terms of
the notes.
3. SP-3 -- Speculative capacity to pay principal and interest.
B. TAX EXEMPT DEMAND BONDS
S&P assigns "dual" ratings to all long-term debt issues that have as part of
their provisions a demand or double feature.
The first rating addresses the likelihood of repayment of principal and
interest as due, and the second rating addresses only the demand feature. The
long-term debt rating symbols are used for bonds to denote the long-term
maturity and the commercial paper rating symbols are used to denote the put
option (for example, "AAA/A-1+"). For the newer "demand notes," S&P note rating
symbols, combined with the commercial paper symbols, are used (for example, "SP
- -- 1+/A-1+").
C. CORPORATE AND MUNICIPAL BOND RATINGS
An S&P corporate or municipal bond rating is a current assessment of the
creditworthiness of an obligor, including obligors outside the U.S., with
respect to a specific obligation. This assessment may take into consideration
obligors such as guarantors, insurers or lessees. Ratings of foreign obligors do
not take into account currency exchange and related uncertainties. The ratings
are based on current information furnished by the issuer or obtained by S&P from
other sources it considers reliable.
The ratings are based, in varying degrees, on the following considerations:
1. likelihood of default capacity and willingness of the obligor as to the
timely payment of interest and repayment of principal in accordance with the
terms of the obligation;
2. nature of and provisions of the obligation; and
3. protection afforded by and relative position of the obligation in the
event of bankruptcy reorganization or other arrangement under the laws of
bankruptcy and other laws affecting creditors' rights.
PLUS (+) OR MINUS (-): To provide more detailed indications of credit quality,
ratings from "AA" to "BBB" may be modified by the addition of a plus or minus
sign to show relative standing within the major rating categories.
A provisional rating is sometimes used by S&P. It assumes the successful
completion of the project being financed by the debt being rated and indicates
that payment of debt service requirements is largely or entirely dependent upon
the successful and timely completion of the project. This rating, however, while
addressing credit quality subsequent to completion of the project, makes no
comment on the likelihood of, or the risk of default upon failure of, such
completion.
D. BOND RATINGS ARE AS FOLLOWS:
1. AAA -- Debt rated AAA has the highest rating assigned by S&P. Capacity to
pay interest and repay principal is extremely strong.
2. AA -- Debt rated AA has a very strong capacity to pay interest and repay
principal and differs from the higher rated issues only in small degree.
3. A -- Debt rated A has a strong capacity to pay interest and repay principal
although it is somewhat more susceptible to the adverse effects of changes in
circumstances and economic conditions than debt in higher rated categories.
4. BBB -- Debt rated BBB is regarded as having an adequate capacity to pay
interest and repay principal. Whereas it normally exhibits adequate protection
parameters, adverse economic conditions or changing circumstances are more
likely to lead to a weakened capacity to pay interest and repay principal for
debt in this category than in higher rated categories.
MOODY'S CORPORATE AND MUNICIPAL BOND RATINGS
A. MUNICIPAL NOTES
A Moody's rating for municipal short-term obligations will be designated
Moody's Investment Grade or (MIG). These ratings recognize the difference
between short-term credit risk and long-term risk. Factors affecting the
liquidity of the borrower and the short-term cyclical elements are critical in
short-term ratings.
A short-term rating may also be assigned on issues with a demand feature --
variable rate demand obligation (VRDO). Such ratings will be designated as VMIG.
Short-term ratings on issues with demand features are differentiated by the use
of the VMIG symbol to reflect such characteristics as payment upon periodic
demand rather than fixed maturity dates and payment relying on the external
liquidity.
The note ratings are as follows:
1. MIG1/VMIG1 This designation denotes the best quality. There is present
strong protection by established cash flows, superior liquidity support or
demonstrated broadbased access to the market for refinancing.
2. MIG2/VMIG2 This designation denotes high quality. Margins of protection
are ample although not so large as in the preceding group.
3. MIG3/VMIG3 This designation denotes favorable quality. All security
elements are accounted for but there is lacking the undeniable strength of the
preceding grades. Liquidity and cash flow protection may be narrow and market
access for refinancing is likely to be less well established.
4. MIG4/VMIG4 This designation denotes adequate quality. Protection commonly
regarded as required of an investment security is present and although not
distinctly or predominantly speculative, there is specific risk.
B. CORPORATE AND MUNICIPAL BOND RATINGS
1. Aaa -- Bonds rated Aaa are judged to be of the best quality. They carry the
smallest degree of investment risk and are generally referred to as "gilt-
edge." Interest payments are protected by a large or by an exceptionally stable
margin and principal is secure. While the various protective elements are likely
to change, such changes as can be visualized are most unlikely to impair the
fundamentally strong position of such issues.
2. Aa -- Bonds rated Aa are judged to be of high quality by all standards.
Together with the Aaa group, they comprise what are generally known as high
grade bonds. They are rated lower than the best bonds because margins of
protection may not be as large as in Aaa securities or fluctuation of protective
elements may be of greater amplitude or there may be other elements present that
make the long term risks appear somewhat larger than in Aaa securities.
3. A -- Bonds rated A possess many favorable investment attributes and are to
be considered as upper medium grade obligations. Factors giving security to
principal and interest are considered adequate, but elements may be present that
suggest a susceptibility to impairment sometime in the future.
4. Baa -- Bonds rated Baa are considered to be medium grade obligations, i.e.,
they are neither highly protected nor poorly secured. Interest payments and
principal security appear adequate for the present, but certain protective
elements may be lacking or may be characteristically unreliable over any great
length of time. Such bonds lack outstanding investment characteristics and in
fact have speculative characteristics as well.
Moody's applies numerical modifiers, 1, 2 and 3 in each generic rating
classification from Aa through Baa in its corporate bond rating system. The
modifier 1 indicates that the security ranks in the higher end of its generic
rating category; the modifier 2 indicates a mid-range ranking; and the modifier
3 indicates that the issue ranks in the lower end of its generic rating
category.
CON. (--) -- Municipal bonds for which the security depends upon the
completion of some act or the fulfillment of some condition are rated
conditionally. These are bonds secured by (1) earnings of projects under
construction, (2) earnings of projects unseasoned in operation experience, (3)
rentals that begin when facilities are completed, or (4) payments to which some
other limiting condition attaches. Parenthetical rating denotes probable credit
stature upon completion of construction or elimination of basis of condition.
Those municipal bonds in the Aa, A, and Baa groups that Moody's believes
possess the strongest investment attributes are designated by the symbols Aa 1,
A 1, and Baa 1.
FITCH CORPORATE AND MUNICIPAL RATINGS
A. MUNICIPAL NOTES
Fitch's short-term ratings apply to debt obligations that are payable on
demand or have original maturities of generally three years or less. These
include commercial paper, certificates of deposit, medium-term notes, and
municipal and investment notes. The short-term rating places greater emphasis on
the existence of liquidity necessary to meet the issuer's obligations in a
timely manner.
The note ratings are as follows:
1. F-1+ Exceptionally Strong Credit Quality. Issues assigned this
rating are regarded as having the strongest degree of assurance for timely
payment.
2. F-1 Very Strong Credit Quality. Issues assigned this rating reflect an
assurance of timely payment only slightly less in degree than issues rated F-
1+.
3. F-2 Good Credit Quality. Issues assigned this rating have a satisfactory
degree of assurance for timely payment, but the margin of safety is not as
great as for issues assigned the two higher ratings.
4. F-3 Fair Credit Quality. Issues assigned this rating have characteristics
suggesting that the degree of assurance for timely payment is adequate, however,
near-term adverse changes could cause these securities to be rated below
investment grade.
B. CORPORATE AND MUNICIPAL BOND RATINGS
AAA -- Bonds considered to be investment grade and of the highest credit
quality. The obligor has an exceptionally strong ability to pay interest and
repay principal, which is unlikely to be affected by reasonably foreseeable
events.
AA -- Bonds considered to be investment grade and of very high credit quality.
The obligor's ability to pay interest and repay principal is very strong,
although not quite as strong as bonds rated AAA.
A -- Bonds considered to be investment grade and of high credit quality. The
obligor's ability to pay interest and repay principal is considered to be
strong, but may be more vulnerable to adverse changes in economic conditions and
circumstances than bonds with higher ratings.
BBB -- Bonds considered to be investment grade and of satisfactory credit
quality. The obligor's ability to pay interest and repay principal is considered
to be adequate. Adverse changes in economic conditions and circumstances,
however, are more likely to have adverse impact on these bonds, and therefore
impair timely payment. The likelihood that the ratings of these bonds will fall
below investment grade is higher than for bonds with higher ratings.
PLUS (+) OR MINUS (-) signs are used with a rating symbol to indicate the
relative position of a credit within the rating category. Plus and minus signs,
however, are not used in the AAA category.
A CONDITIONAL rating is premised on the successful completion of a project or
the occurrence of a specific event.
Debt rated BB, B, CCC, CC and C by S&P is regarded, on balance, as
predominantly speculative with respect to capacity to pay interest and repay
principal in accordance with the terms of the obligation. BB indicates the
lowest degree of speculation and C the highest degree of speculation. While such
debt will likely have some quality and protective characteristics, these are
outweighed by large uncertainties or major risk exposures to adverse conditions.
Debt rated C1 by S&P is debt (income bonds) on which no interest is being paid.
Debt rated D by S&P is in default and payment of interest and/ or repayment of
principal is in arrears. The Funds intend to invest in D-rated debt only in
cases where in Keystone's judgment there is a distinct prospect of improvement
in the issuer's financial position as a result of the completion of
reorganization or otherwise. Bonds that are rated CAA by Moody's are of poor
standing. Such issues may be in default or there may be present elements of
danger with respect to principal or interest. Bonds that are rated CA by Moody's
represent obligations that are speculative in a high degree. Such issues are
often in default or have other market shortcomings. Bonds that are rated C by
Moody's are the lowest rated bonds, and issues so rated can be regarded as
having extremely poor prospects of ever attaining any real investment standing.
Debt rated BB, B, CCC, CC, and C by Fitch is regarded as speculative with
respect to capacity to pay interest and repay principal in accordance with the
terms of the obligation. BB indicates the lowest degree of speculation and C
represents the highest degree of speculation. Debt rated DDD, DD, and D are in
default on interest and/or principal payments.
DESCRIPTIONS OF CERTAIN TYPES OF INVESTMENTS AND INVESTMENT TECHNIQUES
AVAILABLE TO THE FUNDS
Each Fund may engage in the following investment practices to the extent
described in the prospectus and statement of additional information.
OBLIGATIONS OF FOREIGN BRANCHES OF UNITED STATES BANKS
The obligations of foreign branches of U.S. banks may be general obligations
of the parent bank in addition to the issuing branch, or may be limited by the
terms of a specific obligation and by government regulation. Payment of interest
and principal upon these obligations may also be affected by governmental action
in the country of domicile of the branch (generally referred to as sovereign
risk). In addition, evidences of ownership of such securities may be held
outside the U.S. and a Fund may be subject to the risks associated with the
holding of such property overseas. Examples of governmental actions would be the
imposition of currency controls, interest limitations, withholding taxes,
seizure of assets or the declaration of a moratorium. Various provisions of
federal law governing domestic branches do not apply to foreign branches of
domestic banks.
OBLIGATIONS OF UNITED STATES BRANCHES OF FOREIGN BANKS
Obligations of U.S. branches of foreign banks may be general obligations of
the parent bank in addition to the issuing branch, or may be limited by the
terms of a specific obligation and by federal and state regulation as well as by
governmental action in the country in which the foreign bank has its head
office. In addition, there may be less publicly available information about a
U.S. branch of a foreign bank than about a domestic bank.
MASTER DEMAND NOTES
Master demand notes are unsecured obligations that permit the investment of
fluctuating amounts by a Fund at varying rates of interest pursuant to direct
arrangements between the Fund, as lender, and the issuer as borrower. Master
demand notes may permit daily fluctuations in the interest rate and daily
changes in the amounts borrowed. A Fund has the right to increase the amount
under the note at any time up to the full amount provided by the note agreement,
or to decrease the amount. The borrower may repay up to the full amount of the
note without penalty. Notes acquired by a Fund permit a Fund to demand payment
of principal and accrued interest at any time (on not more than seven days'
notice). Notes acquired by a Fund may have maturities of more than one year,
provided that (1) the Fund is entitled to payment of principal and accrued
interest upon not more than seven days notice, and (2) the rate of interest on
such notes is adjusted automatically at periodic intervals which normally will
not exceed 31 days, but may extend up to one year. The notes will be deemed to
have a maturity equal to the longer of the period remaining to the next interest
rate adjustment or the demand notice period. Because these types of notes are
direct lending arrangements between the lender and borrower, such instruments
are not normally traded and there is no secondary market for these notes,
although they are redeemable and thus repayable by the borrower at face value
plus accrued interest at any time. Accordingly, a Fund's right to redeem is
dependent on the ability of the borrower to pay principal and interest on
demand. In connection with master demand note arrangements, Keystone considers,
under standards established by the Board of Trustees, earning power, cash flow
and other liquidity ratios of the borrower and will monitor the ability of the
borrower to pay principal and interest on demand. These notes are not typically
rated by credit rating agencies. Unless rated, a Fund may invest in them only if
at the time of an investment the issuer meets the criteria established for
commercial paper discussed in the statement of additional information.
REPURCHASE AGREEMENTS
A Fund may enter into repurchase agreements with member banks of the Federal
Reserve System having at least $1 billion in assets, primary dealers in U.S.
government securities or other financial institutions believed by Keystone to be
creditworthy. Such persons must be registered as U.S. government securities
dealers with appropriate regulatory organizations. Under such agreements, the
bank, primary dealer or other financial institution agrees upon entering into
the contract to repurchase the security at a mutually agreed upon date and
price, thereby determining the yield during the term of the agreement. This
results in a fixed rate of return insulated from market fluctuations during such
period. Under a repurchase agreement, the seller must maintain the value of the
securities subject to the agreement at not less than the repurchase price, such
value being determined on a daily basis by marking the underlying securities to
their market value. Although the securities subject to the repurchase agreement
might bear maturities exceeding a year, the Funds only intend 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 Funds do
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, a Fund could
experience both delays in liquidating the underlying securities and losses,
including (1) possible declines in the value of the underlying securities during
the period while the Fund seeks to enforce its rights thereto; (2) possible
subnormal levels of income and lack of access to income during this period; and
(3) expenses of enforcing its rights. The Board of Trustees has established
procedures to evaluate the creditworthiness of each party with whom each 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, a Fund would sell securities and agree
to repurchase them at a mutually agreed upon date and price. Each 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 a Fund enters into a reverse repurchase agreement, it will establish a
segregated account with the FUND's custodian containing liquid assets such as
U.S. government securities or other high grade debt securities having a value
not less than the repurchase price (including accrued interest) and will
subsequently monitor the account to ensure such value is maintained. Reverse
repurchase agreements involve the risk that the market value of the securities
that a 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 a 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 a Fund's obligation to repurchase the securities and the Fund's use of
the proceeds of the reverse repurchase agreement may effectively be restricted
pending such determination. The staff of the Securities and Exchange Commission
("SEC") has taken the position that the 1940 Act treats reverse repurchase
agreements as being included in the percentage limit on borrowings imposed on a
Fund.
"WHEN ISSUED" SECURITIES
Each Fund may also purchase and sell securities and currencies on a when
issued and delayed delivery basis. When issued or delayed delivery transactions
arise when securities or currencies are purchased or sold by a Fund with payment
and delivery taking place in the future in order to secure what is considered to
be an advantageous price and yield to the Fund at the time of entering into the
transaction. When a Fund engages in when issued and delayed delivery
transactions, the Fund relies on the buyer or seller, as the case may be, to
consummate the sale. Failure to do so may result in a Fund missing the
opportunity to obtain a price or yield considered to be advantageous. When
issued and delayed delivery transactions may be expected to occur a month or
more before delivery is due. However, no payment or delivery is made by a Fund
until it receives payment or delivery from the other party to the transaction. A
separate account of liquid assets equal to the value of such purchase
commitments will be maintained until payment is made. When issued and delayed
delivery agreements are subject to risks from changes in value based upon
changes in the level of interest rates, currency rates and other market factors,
both before and after delivery. A Fund does not accrue any income on such
securities or currencies prior to their delivery. To the extent each Fund
engages in when issued and delayed delivery transactions, it will do so
consistent with its investment objective and policies and not for the purpose of
investment leverage.
LOANS OF SECURITIES TO BROKER-DEALERS
Each Fund may lend securities to brokers and dealers pursuant to agreements
requiring that the loans be continuously secured by cash or securities of the
U.S. government, its agencies or instrumentalities, or any combination of cash
and such securities, as collateral equal at all times in value to at least the
market value of the securities loaned. Such securities loans will not be made
with respect to a Fund if as a result the aggregate of all outstanding
securities loans exceeds 15% of the value of the Fund's total assets taken at
their current value. A Fund continues to receive interest or dividends on the
securities loaned and simultaneously earns interest on the investment of the
cash loan collateral in U.S. Treasury notes, certificates of deposit, other
high-grade, short-term obligations or interest bearing cash equivalents.
Although voting rights attendant to securities loaned pass to the borrower, such
loans may be called at any time and will be called so that the securities may be
voted by a Fund if, in the opinion of the Fund, a material event affecting the
investment is to occur. There may be risks of delay in receiving additional
collateral or in recovering the securities loaned or even loss of rights in the
collateral should the borrower of the securities fail financially. Loans may
only be made to borrowers deemed to be of good standing, under standards
approved by the Board of Trustees, when the income to be earned from the loan
justifies the attendant risks.
DERIVATIVES
Each Fund may use derivatives in furtherance of its investment objective.
Derivatives are financial contracts whose value depends on, or is derived from,
the value of an underlying asset, reference rate or index. These assets, rates,
and indices may include bonds, stocks, mortgages, commodities, interest rates,
currency exchange rates, bond indices and stock indices. Derivatives can be used
to earn income or protect against risk, or both. For example, one party with
unwanted risk may agree to pass that risk to another party who is willing to
accept the risk, the second party being motivated, for example, by the desire
either to earn income in the form of a fee or premium from the first party, or
to reduce its own unwanted risk by attempting to pass all or part of that risk
to the first party.
Derivatives can be used by investors such as the Funds to earn income and
enhance returns, to hedge or adjust the risk profile of the portfolio, and
either in place of more traditional direct investments or to obtain exposure to
otherwise inaccessible markets. Each Fund is permitted to use derivatives for
one or more of these purposes. Each of these uses entails greater risk than if
derivatives were used solely for hedging purposes. The Funds use futures
contracts and related options for hedging purposes. Derivatives are a valuable
tool which, when used properly, can provide significant benefit to a Fund's
shareholders. Keystone is not an aggressive user of derivatives with respect to
the Funds. However, a Fund may take positions in those derivatives that are
within its investment policies if, in Keystone's judgement, this represents an
effective response to current or anticipated market conditions. Keystone's use
of derivatives is subject to continuous risk assessment and control from the
standpoint of a Fund's investment objectives and policies.
Derivatives may be (1) standardized, exchange-traded contracts or (2)
customized, privately negotiated contracts. Exchange-traded derivatives tend to
be more liquid and subject to less credit risk than those that are privately
negotiated.
There are four principal types of derivative instruments -- options, futures,
forwards and swaps -- from which virtually any type of derivative transaction
can be created. Further information regarding options and futures, is provided
later in this section and is provided in the FUND's statement of additional
information.
Debt instruments that incorporate one or more of these building blocks for the
purpose of determining the principal amount of and/or rate of interest payable
on the debt instruments are often referred to as "structured securities." An
example of this type of structured security is indexed commercial paper. The
term is also used to describe certain securities issued in connection with the
restructuring of certain foreign obligations. See "Structured Securities" below.
The term "derivative" is also sometimes used to describe securities involving
rights to a portion of the cash flows from an underlying pool of mortgages or
other assets from which payments are passed through to the owner of, or that
collateralize, the securities.
While the judicious use of derivatives by experienced investment managers such
as Keystone can be beneficial, derivatives also involve risks different from,
and, in certain cases, greater than, the risks presented by more traditional
investments. Following is a general discussion of important risk factors and
issues concerning the use of derivatives that investors should understand before
investing in a Fund.
* Market Risk -- This is the general risk attendant to all investments that the
value of a particular investment will decline or otherwise change in a way
detrimental to a Fund's interest.
* Management Risk -- Derivative products are highly specialized instruments that
require investment techniques and risk analyses different from those
associated with stocks and bonds. The use of a derivative requires an
understanding not only of the underlying instrument, but also of the
derivative itself, without the benefit of observing the performance of the
derivative under all possible market conditions. In particular, the use and
complexity of derivatives require the maintenance of adequate controls to
monitor the transactions entered into, the ability to assess the risk that a
derivative adds to a Fund's portfolio and the ability to forecast price,
interest rate or currency exchange rate movements correctly.
* Credit Risk -- This is the risk that a loss may be sustained by a Fund as a
result of the failure of another party to a derivative (usually referred to as
a "counterparty") to comply with the terms of the derivative contract. The
credit risk for exchange traded derivatives is generally less than for
privately negotiated derivatives, since the clearing house, which is the
issuer or counterparty to each exchange-traded derivative, provides a
guarantee of performance. This guarantee is supported by a daily payment
system (i.e., margin requirements) operated by the clearing house in order to
reduce overall credit risk. For privately negotiated derivatives, there is no
similar clearing agency guarantee. Therefore, a Fund considers the
creditworthiness of each counterparty to a privately negotiated derivative in
evaluating potential credit risk.
* Liquidity Risk -- Liquidity risk exists when a particular instrument is
difficult to purchase or sell. If a derivative transaction is particularly
large or if the relevant market is illiquid (as is the case with many
privately negotiated derivatives), it may not be possible to initiate a
transaction or liquidate a position at an advantageous price.
* Leverage Risk -- Since many derivatives have a leverage component, adverse
changes in the value or level of the underlying asset, rate or index can
result in a loss substantially greater than the amount invested in the
derivative itself. In the case of swaps, the risk of loss generally is related
to a notional principal amount, even if the parties have not made any initial
investment. Certain derivatives have the potential for unlimited loss,
regardless of the size of the initial investment.
* Other Risks -- Other risks in using derivatives include the risk of mispricing
or improper valuation and the inability of derivatives to correlate perfectly
with underlying assets, rates and indices. Many derivatives, in particular
privately negotiated derivatives, are complex and often valued subjectively.
Improper valuations can result in increased cash payment requirements to
counterparties or a loss of value to a Fund. Derivatives do not always
perfectly or even highly correlate or track the value of the assets, rates or
indices they are designed to closely track. Consequently, a Fund's use of
derivatives may not always be an effective means of, and sometimes could be
counterproductive to, furthering the Fund's investment objective.
OPTIONS TRANSACTIONS
WRITING COVERED OPTIONS. Each Fund may write (i.e., sell) covered call and put
options. By writing a call option, the Fund becomes obligated during the term of
the option to deliver the securities underlying the option upon payment of the
exercise price. By writing a put option, a Fund becomes obligated during the
term of the option to purchase the securities underlying the option at the
exercise price if the option is exercised. Each Fund also may write straddles
(combinations of covered puts and calls on the same underlying security).
Each Fund may only write "covered" options. This means that so long as a Fund
is obligated as the writer of a call option, it will own the underlying
securities subject to the option or, in the case of call options on U.S.
Treasury bills, the Fund might own substantially similar U.S. Treasury bills. If
a Fund has written options against all of its securities which are available for
writing options, the Fund may be unable to write additional options unless it
sells a portion of its portfolio holdings to obtain new securities against which
it can write options. If this were to occur, higher portfolio turnover and
correspondingly greater brokerage commissions and other transaction costs may
result. However, the Funds do not expect that this will occur.
Each Fund will be considered "covered" with respect to a put option it writes
if, so long as it is obligated as the writer of the put option, it deposits and
maintains with its custodian in a segregated account liquid assets having a
value equal to or greater than the exercise price of the option.
The principal reason for writing call or put options is to obtain, through a
receipt of premiums, a greater current return than would be realized on the
underlying securities alone. A Fund receives a premium from writing a call or
put option, which it retains whether or not the option is exercised. By writing
a call option, a Fund might lose the potential for gain on the underlying
security while the option is open, and by writing a put option the Fund might
become obligated to purchase the underlying security for more than its current
market price upon exercise.
PURCHASING OPTIONS. Each Fund may purchase put or call options, including
purchasing put or call options for the purpose of offsetting previously
written put or call options of the same series.
If a Fund is unable to effect a closing purchase transaction with respect to
covered options it has written, the Fund will not be able to sell the underlying
security or dispose of assets held in a segregated account until the options
expire or are exercised.
An option position may be closed out only in a secondary market for an option
of the same series. Although a Fund generally will write only those options for
which there appears to be an active secondary market, there is no assurance that
a liquid secondary market will exist for any particular option at any particular
time, and for some options no secondary market may exist. In such event, it
might not be possible to effect a closing transaction in a particular option.
Options on some securities are relatively new, and it is impossible to predict
the amount of trading interest that will exist in such options. There can be no
assurance that viable markets will develop or continue. The failure of such
markets to develop or continue could significantly impair a Fund's ability to
use such options to achieve its investment objective.
OPTIONS TRADING MARKETS. Options in which each Fund will trade generally are
listed on national securities exchanges. Exchanges on which such options
currently are traded include the Chicago Board Options Exchange and the New
York, American, Pacific and Philadelphia Stock Exchanges. Options on some
securities may not be listed on any Exchange, but traded in the over-the-counter
market. Options traded in the over-the-counter market involve the additional
risk that securities dealers participating in such transactions could fail to
meet their obligations to a Fund. The use of options traded in the
over-the-counter market may be subject to limitations imposed by certain state
securities authorities. In addition to the limits on its use of options
discussed herein, each Fund is subject to the investment restrictions described
in this prospectus and in the statement of additional information.
The staff of the SEC is of the view that the premiums that a Fund pays for the
purchase of unlisted options, and the value of securities used to cover unlisted
options written by a Fund, are considered to be invested in illiquid securities
or assets for the purpose of calculating whether the Fund is in compliance with
its investment restriction relating to illiquid investments.
FUTURES TRANSACTIONS
Each Fund may enter into currency and other financial futures contracts and
write options on such contracts. Each Fund intends to enter into such contracts
and related options for hedging purposes. Each Fund will enter into futures on
securities or currencies or index-based futures contracts in order to hedge
against changes in interest or exchange rates or securities prices. A futures
contract on securities or currencies is an agreement to buy or sell securities
or currencies at a specified price during a designated month. A futures contract
on a securities index does not involve the actual delivery of securities, but
merely requires the payment of a cash settlement based on changes in the
securities index. A Fund does not make payment or deliver securities upon
entering into a futures contract. Instead, it puts down a margin deposit, which
is adjusted to reflect changes in the value of the contract and which continues
until the contract is terminated.
Each Fund may sell or purchase futures contracts. When a futures contract is
sold by a Fund, the value of the contract will tend to rise when the value of
the underlying securities or currencies declines and to fall when the value of
such securities or currencies increases. Thus, each Fund sells futures contracts
in order to offset a possible decline in the value of its securities or
currencies. If a futures contract is purchased by a Fund, the value of the
contract will tend to rise when the value of the underlying securities or
currencies increases and to fall when the value of such securities or currencies
declines. Each Fund intends to purchase futures contracts in order to establish
what is believed by Keystone to be a favorable price and rate of return for
securities or favorable exchange rate for currencies the Fund intends to
purchase.
Each Fund also intends to purchase put and call options on futures contracts
for hedging purposes. A put option purchased by a Fund would give it the right
to assume a position as the seller of a futures contract. A call option
purchased by a Fund would give it the right to assume a position as the
purchaser of a futures contract. The purchase of an option on a futures contract
requires a Fund to pay a premium. In exchange for the premium, a Fund becomes
entitled to exercise the benefits, if any, provided by the futures contract, but
is not required to take any action under the contract. If the option cannot be
exercised profitably before it expires, a Fund's loss will be limited to the
amount of the premium and any transaction costs.
Each Fund may enter into closing purchase and sale transactions in order to
terminate a futures contract and may sell put and call options for the purpose
of closing out its options positions. A Fund's ability to enter into closing
transactions depends on the development and maintenance of a liquid secondary
market. There is no assurance that a liquid secondary market will exist for any
particular contract or at any particular time. As a result, there can be no
assurance that a Fund will be able to enter into an offsetting transaction with
respect to a particular contract at a particular time. If a Fund is not able to
enter into an offsetting transaction, the Fund will continue to be required to
maintain the margin deposits on the contract and to complete the contract
according to its terms, in which case it would continue to bear market risk on
the transaction.
Although futures and options transactions are intended to enable a Fund to
manage market, interest rate or exchange rate risk, unanticipated changes in
interest rates, exchange rates or market prices could result in poorer
performance than if it had not entered into these transactions. Even if Keystone
correctly predicts interest or exchange rate movements, a hedge could be
unsuccessful if changes in the value of a Fund's futures position did not
correspond to changes in the value of its investments. This lack of correlation
between a Fund's futures and securities or currencies positions may be caused by
differences between the futures and securities or currencies markets or by
differences between the securities or currencies underlying a Fund's futures
position and the securities or currencies held by or to be purchased for a Fund.
Keystone will attempt to minimize these risks through careful selection and
monitoring of the Fund's futures and options positions.
The Funds do not intend to use futures transactions for speculation or
leverage. Each Fund has the ability to write options on futures, but intends to
write such options only to close out options purchased by a Fund. The Funds will
not change these policies without supplementing the information in the FUND's
prospectus and statement of additional information.
FOREIGN CURRENCY TRANSACTIONS
As discussed above, each Fund may invest in securities of foreign issuers.
When a Fund invests in foreign securities they usually will be denominated in
foreign currencies, and the Fund temporarily may hold funds in foreign
currencies. Thus, the value of Fund shares will be affected by changes in
exchange rates.
As one way of managing exchange rate risk, in addition to entering into
currency futures contracts, a Fund may enter into forward currency exchange
contracts (agreements to purchase or sell currencies at a specified price and
date). The exchange rate for the transaction (the amount of currency a Fund will
deliver or receive when the contract is completed) is fixed when a Fund enters
into the contract. A Fund usually will enter into these contracts to stabilize
the U.S. dollar value of a security it has agreed to buy or sell. Each Fund
intends to use these contracts to hedge the U.S. dollar value of a security it
already owns, particularly if a Fund expects a decrease in the value of the
currency in which the foreign security is denominated. Although a Fund will
attempt to benefit from using forward contracts, the success of its hedging
strategy will depend on Keystone's ability to predict accurately the future
exchange rates between foreign currencies and the U.S. dollar. The value of a
Fund's investments denominated in foreign currencies will depend on the relative
strength of those currencies and the U.S. dollar, and a Fund may be affected
favorably or unfavorably by changes in the exchange rates or exchange control
regulations between foreign currencies and the dollar. Changes in foreign
currency exchange rates also may affect the value of dividends and interest
earned, gains and losses realized on the sale of securities and net investment
income and gains, if any, to be distributed to shareholders by a Fund. Each Fund
may also purchase and sell options related to foreign currencies in connection
with hedging strategies.
INVERSE FLOATING RATE SECURITIES. If permitted by its investment policies, a
Fund may also invest in securities with rates that move inversely to market
rates ("inverse floaters"). An inverse floater bears an interest rate that
resets in the opposite direction of the change in a specified interest rate
index. As market interest rates rise, the interest rate on the inverse floater
goes down, and vice versa. Inverse floaters tend to exhibit greater price
volatility than fixed-rate bonds of similar maturity and credit quality. The
interest rates on inverse floaters may be significantly reduced, even to zero,
if interest rates rise. Moreover, the secondary market for inverse floaters may
be limited in rising interest rate environments.
VARIABLE, FLOATING AND LEVERAGED INVERSE FLOATING RATE INSTRUMENTS. Fixed-
income securities may have fixed, variable or floating rates of interest.
Variable and floating rate securities pay interest at rates that are adjusted
periodically, according to a specified formula. A "variable" interest rate
adjusts at predetermined intervals (e.g., daily, weekly or monthly), while a
"floating" interest rate adjusts whenever a specified benchmark rate (such as
the bank prime lending rate) changes.
The Fund may invest in fixed-income securities that pay interest at a coupon
rate equal to a base rate, plus additional interest for a certain period of time
if short-term interest rates rise above a predetermined level or "cap." The
amount of such an additional interest payment typically is calculated under a
formula based on a short-term interest rate index multiplied by a designated
factor.
An inverse floater may be considered to be leveraged to the extent that its
interest rate varies by a magnitude that exceeds the magnitude of the change in
the index rate of interest. The higher degree of leverage inherent in inverse
floaters is associated with greater volatility in market value.
STRUCTURED SECURITIES. Structured securities generally represent interests in
entities organized and operated solely for the purpose of restructuring the
investment characteristics of debt obligations. This type of restructuring
involves the deposit with or purchase by an entity, such as a corporation or
trust, of specified instruments (such as commercial bank loans) and the issuance
by that entity of one or more classes of structured securities backed by, or
representing interests in, the underlying instruments. The cash flow on the
underlying instruments may be apportioned among the newly issued structured
securities to create securities with different investment characteristics such
as varying maturities, payment priorities and interest rate provisions, and the
extent of the payments made with respect to structured securities is dependent
on the extent of the cash flow on the underlying instruments. Because structured
securities typically involve no credit enhancement, their credit risk generally
will be equivalent to that of the underlying instruments. Structured securities
of a given class may be either subordinated or unsubordinated to the right of
payment of another class. Subordinated structured securities typically have
higher yields and present greater risks than unsubordinated structured
securities.
<PAGE>
EXHIBIT A
R KEYSTONE CALIFORNIA INSURED TAX FREE FUND
DESCRIPTION OF STATE AND LOCAL TAX TREATMENT
In the opinion of Messrs. Orrick, Herrington & Sutcliffe, California tax
counsel to the California Insured Fund, dividends paid by the California Insured
Fund that are derived from interest on debt obligations that is exempt from
regular federal and California personal income tax will not be subject to either
federal or California personal income tax when received by the California Fund's
shareholders. The pass through of exempt- interest dividends is allowed only if
the California Insured Fund meets its federal and California requirements that
at least 50% of its total assets are invested in such exempt obligations at the
end of each quarter of its fiscal year. Distributions to individual shareholders
derived from interest on state or municipal obligations issued by governmental
authorities in states other than California, short term capital gains and other
taxable income will be taxed as dividends for purposes of California personal
income taxation. The Fund's long term capital gains distributed to shareholders
will be taxed as long term capital gains to individual shareholders of the
California Insured Fund for purposes of California personal income taxation.
Present California law taxes both long term and short term capital gains at the
rates applicable to ordinary income. Generally, for corporate taxpayers subject
to the California franchise tax, all distributions will be fully taxable.
SPECIAL FACTORS AFFECTING CALIFORNIA
Through popular initiative and legislative activity, the ability of the State
and its local governments to raise money through property taxes and to increase
spending has been the subject of considerable debate and change in recent years.
Various State Constitutional amendments, for example, have been adopted that
have the effect of limiting property tax and spending increases, while
legislation has sometimes added to these limitations and has at other times
sought to reduce their impact. It can be expected that similar types of State
legislation or Constitutional proposals will continue to be introduced. To date,
these developments do not appear to have severely decreased the ability of the
State and local governments to pay principal and interest on their obligations.
Because of the uncertain impact of the aforementioned efforts and legislation,
the possible inconsistencies in the terms of existing statutes, and the
impossibility of predicting the level of future appropriations and applicability
of related statutes to such questions, it is not currently possible to predict
the results of such legislation and policies on the long term ability of State
and municipal issuers to pay principal and interest on their obligations.
California's economy is large and diverse, accounting for about 12% of
national personal income. Growth was rapid in the 1980s and is expected to
continue, although more moderately. California's economy is one of the largest
in the world and the State ranks number one among the fifty states in
manufacturing, foreign trade, agriculture, construction and tourism. Through the
1980s, the rate of state population growth was more than twice that for the
nation, but it has slowed since 1990.
California suffered a severe economic recession between 1990-1993, largely as
a result of deep federal defense budget cuts, which resulted in broad-based
revenue shortfalls for the State and many local governments. Southern California
was particularly hard-hit. California's fiscal condition has improved as its
economy has been in a sustained recovery since 1994, which is expected to
continue. During the recession, the State substantially reduced local
assistance, and further reductions could adversely affect the financial
condition of cities, counties and other government agencies facing constraints
in their own revenue collections.
An expanded discussion is contained in the Statement of Additional
Information.
KEYSTONE MISSOURI TAX FREE FUND
DESCRIPTION OF STATE AND LOCAL TAX TREATMENT
In the opinion of Messrs. Bryan Cave LLP, Missouri tax counsel to the Missouri
Tax Free Fund, dividends paid by the Missouri Tax Free Fund that qualify as tax
exempt dividends under Section 852(b)(5) of the Code will be exempt from
Missouri income tax to the extent that such dividends are derived from interest
on obligations issued by the State of Missouri or any of its political
subdivisions, or interest on obligations of the U.S. and its territories and
possessions to the extent exempt from Missouri income taxes under the laws of
the U.S.
Dividends paid by the Missouri Tax Free Fund, if any, that do not qualify as
tax exempt dividends under Section 852(b)(5) of the Code, will be exempt from
Missouri income tax only to the extent that such dividends are derived from
interest on certain U.S. obligations that the State of Missouri is expressly
prohibited from taxing under the laws of the U.S. The portion of such dividends
that is not subject to taxation by the State of Missouri may be reduced by
interest, or other expenses, in excess of $500 paid or incurred by a shareholder
in any taxable year to purchase or carry shares of the Missouri Tax Free Fund or
other investments producing income that is includable in federal gross income,
but exempt from Missouri income tax.
Dividends and distributions derived from the Missouri Tax Free Fund's other
investment income and its capital gains, to the extent includable in Federal
adjusted gross income, will be subject to Missouri income tax. Dividends and
distributions paid by the Missouri Tax Free Fund, including dividends that are
exempt from Missouri income tax as described above, may be subject to state
taxes in states other than Missouri or to local taxes. Shares in the Missouri
Fund are not subject to Missouri personal property taxes.
SPECIAL FACTORS AFFECTING MISSOURI
Missouri's economic base is diversified and includes agriculture, commerce,
manufacturing, services, trade and mining. The State's proximity to the
geographical and population centers of the nation makes the State an attractive
location for business and industry. The State has experienced a significant
increase in tourism.
In recent years, Missouri's wealth indicators have grown at a rate below the
1980s. The State's per capita personal income has been growing at a somewhat
slower rate than the nation as a whole. Missouri's unemployment levels have
equaled or exceeded the national average in recent years. Defense contracts are
important to the State's economy and adverse changes in military appropriations
could contribute to the continuation of this pattern.
The State operates from a General Revenue Fund. The General Fund includes
funds received from tax revenues and federal grants. The Missouri Constitution
imposes a limit on the amount of taxes that may be imposed by the General
Assembly during any fiscal year. No assurances can be given that the amount of
revenue derived from taxes will remain at its current level or that the amount
of federal grants previously provided to the State will continue.
An expanded discussion is contained in the Statement of Additional
Information.
<PAGE>
EXHIBIT B
REDUCED SALES CHARGES
Initial sales charges may be reduced or eliminated for persons or
organizations purchasing Class A shares of either Fund alone or in combination
with Class A shares of other Keystone America Funds. Only Class A shares subject
to an initial or deferred sales charge are eligible for inclusion in the reduced
sales charge program.
For purposes of qualifying for reduced sales charges on purchases made
pursuant to Rights of Accumulation or Letters of Intent, the term "Purchaser"
includes the following persons: an individual; an individual, his or her spouse
and children under the age of 21; a trustee or other fiduciary of a single trust
estate or single fiduciary account established for their benefit; an
organization exempt from federal income tax under Section 501(c)(3) or (13) of
the Internal Revenue Code; a pension, profit-sharing or other employee benefit
plan whether or not qualified under Section 401 of the Internal Revenue Code; or
other organized groups of persons, whether incorporated or not, provided the
organization has been in existence for at least six months and has some purpose
other than the purchase of redeemable securities of a registered investment
company at a discount. In order to qualify for a lower sales charge, all orders
from an organized group will have to be placed through a single investment
dealer or other firm and identified as originating from a qualifying purchaser.
CONCURRENT PURCHASES
For purposes of qualifying for a reduced sales charge, a Purchaser may combine
concurrent direct purchases of Class A shares of two or more of the "Eligible
Funds," as defined under "Right of Accumulation." For example, if a Purchaser
concurrently invested $75,000 in one of the other "Eligible Funds" and $75,000
in either Fund, the sales charge would be that applicable to a $150,000
purchase, i.e., 3.75% of the offering price, as indicated in the sales charge
schedule in the prospectus.
RIGHT OF ACCUMULATION
In calculating the sales charge applicable to current purchases of a Fund's
Class A shares, a Purchaser is entitled to accumulate current purchases with the
current value of previously purchased Class A shares of the Fund and Class A
shares of certain other eligible funds that are still held in (or exchanged for
shares of and are still held in) the same or another eligible fund ("Eligible
Fund(s)") irrespective of class. The Eligible Funds are the Keystone America
Funds and Keystone Liquid Trust.
For example, if a Purchaser held shares valued at $99,999 and purchased an
additional $5,000, the sales charge for the $5,000 purchase would be at the next
lower sales charge of 3.75% of the offering price as indicated in the sales
charge schedule. KIRC must be notified at the time of purchase that the
Purchaser is entitled to a reduced sales charge, which reduction will be granted
subject to confirmation of the Purchaser's holdings. The Right of Accumulation
may be modified or discontinued at any time.
LETTER OF INTENT
A Purchaser may qualify for a reduced sales charge on a purchase of Class A
shares of either Fund alone or in combination with purchases of Class A shares
of any of the other Eligible Funds by completing the Letter of Intent section of
the application. By so doing, the Purchaser agrees to invest within a
thirteen-month period a specified amount that, if invested at one time, would
qualify for a reduced sales charge. Each purchase will be made at a public
offering price applicable to a single transaction of the dollar amount specified
on the application, as described in this prospectus. The Letter of Intent does
not obligate the Purchaser to purchase, nor a Fund to sell, the amount
indicated.
After the Letter of Intent is received by KIRC, each investment made will be
entitled to the sales charge applicable to the level of investment indicated on
the application. The Letter of Intent may be back-dated up to ninety days so
that any investments made in any of the Eligible Funds during the preceding
ninety-day period, valued at the Purchaser's cost, can be applied toward
fulfillment of the Letter of Intent. However, there will be no refund of sales
charges already paid during the ninety-day period. No retroactive adjustment
will be made if purchases exceed the amount specified in the Letter of Intent.
Income and capital gains distributions taken in additional shares will not apply
toward completion of the Letter of Intent.
If total purchases made pursuant to the Letter of Intent are less than the
amount specified, the Purchaser will be required to remit an amount equal to the
difference between the sales charge paid and the sales charge applicable to
purchases actually made. Out of the initial purchase (or subsequent purchases,
if necessary) 5% of the dollar amount specified on the application will be held
in escrow by KIRC in the form of shares registered in the Purchaser's name. The
escrowed shares will not be available for redemption, transfer or encumbrance by
the Purchaser until the Letter of Intent is completed or the higher sales charge
paid. All income and capital gains distributions on escrowed shares will be paid
to the Purchaser or his order.
When the minimum investment specified in the Letter of Intent is completed
(either prior to or by the end of the thirteen-month period), the Purchaser will
be notified and the escrowed shares will be released. If the intended investment
is not completed, the Purchaser will be asked to remit to the Principal
Underwriter any difference between the sales charge on the amount specified and
on the amount actually attained. If the Purchaser does not within 20 days after
written request by the Principal Underwriter or his dealer pay such difference
in sales charge, KIRC will redeem an appropriate number of the escrowed shares
in order to realize such difference. Shares remaining after any such redemption
will be released by KIRC. Any redemptions made by the Purchaser during the
thirteen-month period will be subtracted from the amount of the purchases for
purposes of determining whether the Letter of Intent has been completed. In the
event of a total redemption of the account prior to completion of the Letter of
Intent, the additional sales charge due will be deducted from the proceeds of
the redemption and the balance will be forwarded to the Purchaser.
By signing the application, the Purchaser irrevocably constitutes and appoints
KIRC his attorney to surrender for redemption any or all escrowed shares with
full power of substitution.
The Purchaser or his dealer must inform the Principal Underwriter or KIRC that
a Letter of Intent is in effect each time a purchase is made.
<PAGE>
KEYSTONE AMERICA
FUND FAMILY
Capital Preservation and Income Fund
Government Securities Fund
Intermediate Term Bond Fund
Strategic Income Fund
World Bond Fund
Tax Free Income Fund
California Insured Tax Free Fund
Florida Tax Free Fund
Massachusetts Tax Free Fund
Missouri Tax Free Fund
New York Insured Tax Free Fund
Pennsylvania Tax Free Fund
Texas Tax Free Fund
Fund for Total Return
Global Opportunities Fund
Hartwell Emerging Growth Fund, Inc.
Hartwell Growth Fund
Omega Fund
Fund of the Americas
Strategic Development Fund
[logo]
KEYSTONE
INVESTMENTS
Keystone Investment Distributors Company
200 Berkeley Street
Boston, Massachusetts 02116-5045
MOTF-P 3/96 [RECYCLE LOGO]
KEYSTONE
MISSOURI
TAX FREE FUND
[LOGO]
PROSPECTUS AND
APPLICATION
<PAGE>
KEYSTONE AMERICA
FUND FAMILY
Capital Preservation and Income Fund
Government Securities Fund
Intermediate Term Bond Fund
Strategic Income Fund
World Bond Fund
Tax Free Income Fund
California Insured Tax Free Fund
Florida Tax Free Fund
Massachusetts Tax Free Fund
Missouri Tax Free Fund
New York Insured Tax Free Fund
Pennsylvania Tax Free Fund
Texas Tax Free Fund
Fund for Total Return
Global Opportunities Fund
Hartwell Emerging Growth Fund, Inc.
Hartwell Growth Fund
Omega Fund
Fund of the Americas
Strategic Development Fund
[logo]
KEYSTONE
INVESTMENTS
Keystone Investment Distributors Company
200 Berkeley Street
Boston, Massachusetts 02116-5045
MOTF-P 3/96 [RECYCLE LOGO]
KEYSTONE
CALIFORNIA INSURED
TAX FREE FUND
[LOGO]
PROSPECTUS AND
APPLICATION
<PAGE>
KEYSTONE STATE TAX FREE FUND - SERIES II
PART B
STATEMENT OF ADDITIONAL INFORMATION
<PAGE>
KEYSTONE STATE TAX FREE FUND - SERIES II
STATEMENT OF ADDITIONAL INFORMATION
MARCH ___, 1996
This statement of additional information is not a prospectus, but
relates to, and should be read in conjunction with, the prospectus of Keystone
State Tax Free Fund - Series II (formerly named Keystone America State Tax Free
Fund - Series II) (the "FUND") dated March ___, 1996. A copy of the prospectus
may be obtained from Keystone Investment Distributors Company (formerly named
Keystone Distributors, Inc.) (the "Principal Underwriter"), the FUND's principal
underwriter, 200 Berkeley Street, Boston, Massachusetts 02116-5034, or your
broker-dealer.
TABLE OF CONTENTS
Page
The FUND 2
Investment Policies 2
Investment Restrictions 6
Valuation and Redemption of Securities 9
Shareholder Services 10
Sales Charges 11
Distribution Plans 14
Investment Adviser 18
Trustees and Officers 21
Principal Underwriter 25
Brokerage 26
Declaration of Trust 28
Standardized Total Return and Yield Quotations 30
Additional Information 31
Appendix A A-1
Appendix B B-1
Financial Statements F-1
Independent Auditors' Report F-21
#10270092
<PAGE>
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THE FUND
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The FUND is an open-end management investment company commonly known as
a mutual fund. The FUND was formed as a Massachusetts business trust on December
15, 1993. The FUND is one of approximately thirty funds managed or advised by
Keystone Investment Management Company (formerly named Keystone Custodian Funds,
Inc.) ("Keystone"), the FUND's investment adviser. The FUND currently consists
of the following two non-diversified separate series evidencing interests in
different portfolios of securities: Keystone California Insured Tax Free Fund
("California Insured Fund") and Keystone Missouri Tax Free Fund ("Missouri Tax
Free Fund") (each a "Fund" and collectively, the "Funds.") On or around May 1,
1995, the FUND changed its name from Keystone America State Tax Free Fund -
Series II to its present name.
The essential information about the FUND and its Funds is contained in
its prospectus. This statement of additional information provides additional
information about the FUND and its Funds that may be of interest to some
investors.
For special factors affecting each Fund, see Appendix A to this
statement of additional information.
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INVESTMENT POLICIES
- --------------------------------------------------------------------------------
Each Fund invests primarily in municipal obligations that are exempt
from federal income tax and also exempt from certain specified taxes in the
state for which it is named. In addition, the Funds invest in certain other
securities as described below.
MUNICIPAL OBLIGATIONS
Municipal obligations include debt obligations issued by or on behalf
of a state, a territory or a possession of the United States ("U.S."), the
District of Columbia or any political subdivision, agency or instrumentality
thereof (for example, counties, cities, towns, villages, districts, authorities)
to obtain funds for various public purposes, including the construction of a
wide range of public facilities such as airports, bridges, highways, housing,
hospitals, mass transportation, schools, streets and water and sewer works.
Other public purposes for which municipal obligations may be issued include the
refunding of outstanding obligations, obtaining funds for general operating
expenses and obtaining funds to lend to public or private institutions for the
construction of facilities, such as educational, hospital and housing
facilities. In addition, certain types of industrial development bonds have been
or may be issued by or on behalf of public authorities to finance certain
privately-operated facilities, and certain local facilities for water supply,
gas, electricity or sewage or solid waste disposal. Such obligations are
included within the term municipal obligations if the interest paid thereon
qualifies as fully exempt from federal income tax. The income of certain types
of industrial development bonds used to finance certain privately-operated
facilities (qualified private activity bonds) issued after August 7, 1986, while
exempt from federal income tax, is includable for the purposes of the
calculation of the alternative minimum tax. Other types of industrial
development bonds, the proceeds from which are used for the construction,
equipment, repair or improvement of privately operated industrial or commercial
facilities, may constitute municipal obligations, although the current federal
tax laws place substantial limitations on the size of such issues.
The two principal classifications of municipal obligations are "general
obligation" and limited obligation or "revenue" bonds. General obligation bonds
are obligations involving the credit of an issuer possessing taxing power and
are payable from the issuer's general unrestricted revenues and not from any
particular fund or revenue source. Their payment may be dependent upon an
appropriation by the issuer's legislative body and may be subject to
quantitative limitations on the issuer's taxing power. The characteristics and
methods of enforcement of general obligation bonds vary according to the law
applicable to the particular issuer. Limited obligation or revenue bonds are
payable only from the revenues derived from a particular facility or class of
facilities or, in some cases, from the proceeds of a special excise or other
specific revenue source, such as the user of the facility. Industrial
development bonds that are municipal obligations are, in most cases, revenue
bonds and generally are not payable from the unrestricted revenues of the
issuer. The credit quality of industrial development revenue bonds is usually
directly related to the credit standing of the owner or user of the facilities.
There are, of course, variations in the security of municipal obligations, both
within a particular classification and between classifications, depending on
numerous factors.
The yields on municipal obligations are dependent on a variety of
factors, including general money market conditions, the financial condition of
the issuer, general conditions of the municipal obligations market, the size of
a particular offering, and the maturity of the obligation and rating of the
issue. The ratings of Moody's Investors Service ("Moody's"), Standard & Poor's
Corporation ("S&P") and Fitch Investor Services, Inc. Municipal Division
("Fitch"), as described herein and in the prospectus, represent their opinions
as to the quality of the municipal obligations that they undertake to rate. It
should be emphasized, however, that ratings are general and not absolute
standards of quality. Consequently, municipal obligations with the same
maturity, interest rate and rating may have different yields while municipal
obligations of the same maturity and interest rate with different ratings may
have the same yield. It should also be noted that the standards of disclosure
applicable to and the amount of information relating to the financial condition
of issuers of municipal obligations are not generally as extensive as those
generally relating to corporations.
Subsequent to its purchase by a Fund, an issue of municipal obligations
or other investment may cease to be rated or its rating may be reduced below the
minimum rating required for purchase by the Fund. Neither event requires the
elimination of such obligation from the Fund's portfolio, but Keystone will
consider such an event in its determination of whether the Fund should continue
to hold such obligation in its portfolio.
The ability of each Fund to achieve its investment objectives is
dependent upon the continuing ability of issuers of municipal obligations to
meet their obligations to pay interest and principal when due. Obligations of
issuers of municipal obligations are subject to the provisions of bankruptcy,
insolvency and other laws affecting the rights and remedies of creditors, such
as the federal Bankruptcy Act, and laws, if any, that may be enacted by Congress
or state legislatures extending the time for payment of principal or interest,
or both, or imposing other constraints upon enforcement of such obligations.
There is also the possibility that as a result of litigation or other
conditions, the power or ability of any one or more issuers to pay, when due,
principal of and interest on its or their municipal obligations may be
materially affected. In addition, the market for municipal obligations is often
thin and can be temporarily affected by large purchases and sales, including
those by a Fund.
From time to time, proposals have been introduced before Congress for
the purpose of restricting or eliminating the federal income tax exemption for
interest on municipal obligations, and similar proposals may well be introduced
in the future. If such a proposal were enacted, the availability of municipal
obligations for investment by the Funds and the value of the Funds' portfolios
could be materially affected, in which event the FUND would reevaluate the
investment objectives and policies of its Funds and consider changes in the
structure of the Funds or dissolution.
The Tax Reform Act of 1986 made significant changes in the federal tax
status of certain obligations that were previously fully federally tax-exempt.
As a result, three categories of such obligations issued after August 7, 1986
now exist: (1) "public purpose" bonds, the income from which remains fully
exempt from federal income tax; (2) qualified "private activity" industrial
development bonds, the income from which, while exempt from federal income tax
under Section 103 of the Internal Revenue Code of 1986, as amended (the "Code")
is includable in the calculation of the federal alternative minimum tax; and (3)
"private activity" (private purpose) bonds, the income from which is not exempt
from federal income tax. A Fund will not invest in private purpose bonds and,
except as described under "Other Eligible Investments," will not invest in
qualified "private activity" industrial development bonds whose distributions
are subject to the alternative minimum tax.
OTHER ELIGIBLE INVESTMENTS
A Fund may invest up to 20% of its assets under ordinary circumstances
and up to 100% of its assets for temporary defensive purposes in the following
types of instruments: (1) commercial paper, including master demand notes, that
at the date of investment is rated A-1 (the highest grade by S&P), Prime-1 (the
highest grade by Moody's) or, if not rated by such services, is issued by a
company that at the date of investment has an outstanding issue rated A or
better by S&P or Moody's; (2) obligations, including certificates of deposit and
bankers' acceptances, of banks, or savings and loan associations that have at
least $1 billion in assets as of the date of their most recently published
financial statements that are members of the Federal Deposit Insurance
Corporation, including U.S. branches of foreign banks and foreign branches of
U.S. banks; (3) corporate obligations (maturing in 13 months or less) that at
the date of investment are rated A or better by S&P or Moody's; (4) obligations
issued or guaranteed by the U.S. government or by any agency or instrumentality
of the U.S.; (5) qualified "private activity" industrial development bonds, the
income from which, while exempt from federal income tax under Section 103 of the
Code, is includable in the calculation of the federal alternative minimum tax;
and (6) municipal obligations, the income of which is exempt from federal income
tax. Each Fund will assume a temporary defensive position when, for example,
Keystone determines that market conditions so warrant. If a Fund is investing
defensively, it is not pursuing its objective.
FUNDAMENTAL NATURE OF INVESTMENT OBJECTIVES
The investment objective of each Fund is fundamental and may not be
changed without approval of the holders of a majority (as defined in the
Investment Company Act of 1940 ("1940 Act")) of such Fund's outstanding voting
shares (which means the lesser of (1) 67% of the shares represented at a meeting
at which more than 50% of the outstanding shares are represented or (2) more
than 50% of the outstanding shares).
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INVESTMENT RESTRICTIONS
- --------------------------------------------------------------------------------
The investment restrictions set forth below are fundamental for each
Fund and may not be changed without the vote of a 1940 Act majority of such
Fund's outstanding voting shares. Unless otherwise stated, all references to the
assets of a Fund are in terms of current market value. Each Fund may not do the
following:
(1) purchase any security of any issuer (other than issues of the U.S.
government, its agencies or instrumentalities) if as a result more than 25% of
its total assets would be invested in a single industry, including in industrial
development bonds from the same facility or similar types of facilities;
governmental issuers of municipal bonds are not regarded as members of an
industry and a Fund may invest more than 25% of its assets in industrial
development bonds;
(2) invest more than 15% of its assets in securities which may not be
sold or disposed of in the ordinary course of business within seven days at
approximately the value at which a Fund has valued such securities on its books;
(3) 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;
(4) 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;
(5) 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;
(6) borrow money or enter into reverse repurchase agreements, except
that a Fund may enter into reverse repurchase agreements or borrow money from
banks for temporary or emergency purposes in aggregate amounts up to one-third
of the value of the Fund's net assets; provided that while borrowings from banks
(not including reverse repurchase agreements) exceed 5% of the Fund's net
assets, any such borrowings will be repaid before additional investments are
made;
(7) 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;
(8) 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;
(9) make loans, except that a Fund may purchase or hold debt securities
consistent with its investment objectives, lend portfolio securities valued at
not more than 15% of its total assets to broker-dealers and enter into
repurchase agreements;
(10) purchase securities of other investment companies, except as part
of a merger, consolidation, purchase of assets or similar transaction;
(11) purchase or sell commodities or commodity contracts or real
estate, except that it may purchase and sell securities secured by real estate
and securities of companies which invest in real estate, and may engage in
currency or other financial futures contracts and related options transactions;
(12) underwrite securities of other issuers, except that the Fund may
purchase securities from the issuer or others and dispose of such securities in
a manner consistent with its investment objective; or
(13) participate on a joint, or a joint and several, basis in any
trading account in securities; the "bunching" of orders for the sale or purchase
of portfolio securities with other funds advised by Keystone or its affiliates
to reduce brokerage commissions or otherwise to achieve best overall execution
is not considered participation in a trading account in securities.
The Funds are non-diversified under the federal securities laws. As
non-diversified Funds, there is no restriction under the 1940 Act on the
percentage of assets that may be invested at any time in the securities of any
one issuer. The Funds intend to comply, however, with the Code's diversification
requirements and other requirements applicable to "regulated investment
companies" so that they will not be subject to U.S. federal income tax on income
and capital gain distributions to shareholders. For this reason, each Fund has
adopted the additional investment restriction set forth below, which may not be
changed without the approval of shareholders. Specifically, a Fund may not
purchase a security if more than 25% of the Fund's total assets would be
invested in the securities of a single issuer (other than the U.S. government,
its agencies and instrumentalities) or, with respect to 50% of the Fund's total
assets, if more than 5% of such assets would be invested in the securities of a
single issuer (other than the U.S. government, its agencies and
instrumentalities).
As a matter of practice, each Fund treats reverse repurchase agreements
as borrowings for purposes of compliance with the limitations of the 1940 Act.
Reverse repurchase agreements will be taken into account along with borrowings
from banks for purposes of the 5% limit set forth in the sixth fundamental
investment restriction above.
To the extent the Funds are not fully diversified, they may be more
susceptible to adverse economic, political or regulatory developments affecting
a single issuer than would be the case if the Funds were more broadly
diversified.
Additional restrictions adopted for each Fund, which may be changed by
the Board of Trustees, provide that a Fund may not purchase or retain securities
of an issuer if, to the knowledge of the 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 a Fund may not be purchased from or sold or loaned to
Keystone or any affiliate thereof or any of their Directors, officers or
employees.
None of the Funds presently intends to invest more than 25% of its
total assets in municipal obligations the payment of which depends on revenues
derived from a single facility or similar types of facilities. Since certain
municipal obligations may be related in such a way that an economic, business or
political development or change affecting one such security could likewise
affect the other securities, a change in this policy could result in increased
investment risk, but no change is presently contemplated.
For the purposes of the first, third, and twelfth fundamental
investment restrictions set forth above, each Fund will treat (1) each state,
territory and possession of the U.S., the District of Columbia and, if its
assets and revenues are separate from those of the entity or entities creating
it, each political subdivision, agency and instrumentality of any one (or more,
as in the case of a multistate authority or agency) of the foregoing as an
issuer of all securities that are backed primarily by its assets or revenues;
(2) each company as an issuer of all securities that are backed primarily by its
assets or revenues; and (3) each of the foregoing entities as an issuer of all
securities that it guarantees; provided, however, that for the purpose of the
first fundamental investment restriction no entity shall be deemed to be an
issuer of a security that it guarantees so long as no more than 10% of a Fund's
total assets (taken at current value) are invested in securities guaranteed by
the entity and securities of which it is otherwise deemed to be an issuer.
The FUND has undertaken to a state securities authority that, so long
as the state authority requires and shares of the FUND are registered for sale
in that state, the FUND will (1) not invest in real estate limited partnerships
and (2) not invest in oil, gas or other mineral leases.
Further, the FUND has undertaken to a state securities authority that,
so long as the state authority requires and shares of the FUND are registered
for sale in that state, all loans of portfolio securities will be made in
accordance with fair, just and equitable practice and the collateral values of
portfolio securities loaned will be maintained at no less than 100% by "marking
to market" daily.
In order to permit the sale of a Fund's shares in certain states, the
FUND may make commitments more restrictive than the investment restrictions
described above. Should the FUND determine that any such commitment is no longer
in the best interests of the affected Fund, it will revoke the commitment by
terminating sales of its shares in the state involved.
If a percentage limit is satisfied at the time of investment or
borrowing, a later increase or decrease resulting from a change in asset value
is not a violation of the limit.
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VALUATION AND REDEMPTION OF SECURITIES
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Current values for each Fund's portfolio securities may be determined
in the following manner:
1. securities for which market quotations are readily available are
valued at the mean of the bid and asked prices at the time of valuation;
2. (a) instruments having maturities of sixty days or less when
purchased are valued at amortized cost (original purchase cost as adjusted for
amortization of premium or accretion of discount), which, when combined with
accrued interest, approximates market;
(b) investments maturing in more than sixty days when purchased that
are held on the sixtieth day prior to maturity are valued at amortized cost
(market value on the sixtieth day adjusted for amortization of premium or
accretion of discount), which, when combined with accrued interest, approximates
market; and which, in either case, reflects fair value as determined by the
FUND's Board of Trustees;
3. short-term instruments having maturities of more than sixty days for
which market quotations are readily available are valued at current market
value; and
4. the following securities are valued at prices deemed in good faith
to be fair under procedures established by the Board of Trustees: (a)
securities, including restricted securities, for which market quotations are not
readily available; and (b) other assets.
The FUND believes that reliable market quotations are generally not
readily available for purposes of valuing municipal obligations. As a result,
depending on the particular municipal obligations owned by a Fund, it is likely
that most of the valuations for such obligations will be based upon their fair
value determined under procedures approved by the Board of Trustees. The Board
of Trustees has authorized the use of a pricing service to determine the fair
value of each Fund's municipal obligations and certain other securities. Non
tax-exempt securities for which market quotations are readily available are
valued on a consistent basis at that price quoted that, in the opinion of the
Board of Trustees or the person designated by the Board of Trustees to make the
determination, most nearly represents the market value of the particular
security. Any securities for which market quotations are not readily available
or other assets are valued on a consistent basis at fair value as determined in
good faith using methods prescribed by the FUND's Board of Trustees.
The FUND has obligated itself 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 a Fund's assets.
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SHAREHOLDER SERVICES
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REINVESTMENT PRIVILEGE
A shareholder may elect to make a reinvestment purchase with any part
of the proceeds of a total or partial redemption of Fund shares. Upon making
such an election, the FUND will waive the applicable sales charge. Such an
election must be made within 30 days of the date of such redemption and the
purchase must be of shares of the same Fund. The number of shares credited upon
reinvesting will be based on the net asset value of the Fund's shares next
computed following receipt of the proceeds and request for reinvestment. If a
shareholder exercises this reinvestment privilege, any tax loss realized upon
the original sale of Fund shares will not be recognized for federal income tax
purposes. Any capital gains, however, would be recognized for federal income tax
purposes. This reinvestment privilege may be used only once with respect to any
shareholder. For tax reporting purposes, the FUND will treat a redemption and
subsequent reinvestment purchase as separate transactions.
OTHER SERVICES
Please refer to the prospectus for more information on shareholder
services.
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SALES CHARGES
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GENERAL
Generally, each Fund offers three classes of shares. Class A shares are
offered with a maximum sales charge of 4.75% payable at the time of purchase
("Front End Load Option"). Class B shares purchased on or after June 1, 1995 are
subject to a contingent deferred sales charge payable upon redemption during the
72 month period from and including the month of purchase. Class B shares
purchased prior to June 1, 1995 are subject to a contingent deferred sales
charge payable upon redemption during the calendar year of purchase and the
three calendar years following the calendar year of purchase ("Back End Load
Option"). Class B shares purchased on or after June 1, 1995 that have been
outstanding eight years from and including the month of purchase will
automatically convert to Class A shares without imposition of a front-end sales
charge or exchange fee. Class B shares purchased prior to June 1, 1995 that have
been outstanding during seven calendar years will similarly convert to Class A
shares. (Conversion of Class B shares represented by stock certificates will
require the return of the stock certificates to Keystone Investor Resource
Center, Inc. ("KIRC"), the FUND's transfer and dividend disbursing agent.) Class
C shares are sold subject to a contingent deferred sales charge payable upon
redemption within one year after purchase ("Level Load Option"). Class C shares
are available only through dealers who have entered into special distribution
agreements with the Principal Underwriter. The FUND's prospectus contains a
general description of how investors may buy shares of the FUND as well as a
table of applicable sales charges for Class A shares, a discussion of reduced
sales charges applicable to subsequent purchases, and a description of
applicable contingent deferred sales charges.
CONTINGENT DEFERRED SALES CHARGES
In order to reimburse a Fund for certain expenses relating to the sale
of its shares (see "Distribution Plan"), a contingent deferred sales charge is
imposed at the time of redemption of certain Fund shares as follows:
CLASS A SHARES
With certain exceptions, purchases of Class A shares made on or after
April 10, 1995 (1) in an amount equal to or exceeding $1,000,000 and/or (2) 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, each
Fund, with certain exceptions, will impose a deferred sales charge as a
percentage of the lesser of net asset value or net cost of such Class B shares
redeemed during succeeding twelve-month periods as follows: 5% during the first
period; 4% during the second period; 3% during the third period; 3% during the
fourth period; 2% during the fifth period, and 1% during the sixth period. No
deferred sales charge is imposed on amounts redeemed thereafter.
With respect to Class B shares purchased prior to June 1, 1995, each
Fund, with certain exceptions, will impose a deferred sales charge of 3.00% on
shares redeemed during the calendar year of purchase and during the first
calendar year after purchase; 2.00% on shares redeemed during the second
calendar year after purchase; and 1.00% on shares redeemed during the third
calendar year after the year of purchase. No deferred sales charge is imposed on
amounts redeemed thereafter. 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, each Fund will impose a deferred sales charge
of 1% on Class C shares redeemed within one year after the date of purchase. No
deferred sales charge is imposed on amounts redeemed thereafter. When imposed,
the deferred sales charge is deducted from the redemption proceeds otherwise
payable to you. The deferred sales charge is retained by the Principal
Underwriter. See "Calculation of Contingent Deferred Sales Charge" below.
CALCULATION OF CONTINGENT DEFERRED SALES CHARGE
Any contingent deferred sales charge imposed upon the redemption of
Class A, Class B or Class C shares is a percentage of the lesser of (1) the net
asset value of the shares redeemed or (2) the net cost of such shares.
No contingent deferred sales charge is imposed when you redeem amounts
derived from (1) increases in the value of your account above the net cost of
such shares due to increases in the net asset value per share of a Fund; (2)
certain shares with respect to which a Fund did not pay a commission on
issuance, including shares acquired through reinvestment of dividend income and
capital gains distributions; (3) certain Class A shares held for more than one
or two years, as the case may be, from the date of purchase; (4) Class B shares
held during more than four consecutive calendar years or more than 72 months, as
the case may be; or (5) Class C shares held for more than one year from the date
of purchase.
Upon request for redemption, shares not subject to the contingent
deferred sales charge will be redeemed first. Thereafter, shares held the
longest will be the first to be redeemed. There is no contingent deferred sales
charge when the shares of a class are exchanged for the shares of the same class
of another Keystone America Fund. Moreover, when shares of one such class of a
fund have been exchanged for shares of another such class of a fund, for
purposes of any future contingent deferred sales charge, the calendar year of
the purchase 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 to (1) certain 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., any one of their subsidiaries or the Principal
Underwriter, who have been such for not less than ninety days; (2) a pension and
profit-sharing plan established by such companies, their subsidiaries and
affiliates, for the benefit of their officers, Directors, Trustees, full-time
employees and sales representatives; or (3) a registered representative of a
firm with a dealer agreement with the Principal Underwriter, provided all such
sales are made upon the written assurance that the purchase is made for
investment purposes and that the securities will not be resold except through
redemption by the FUND.
No initial sales charge is charged on a purchase of shares of a Fund by
a bank or trust company in a single account in the name of such bank or trust
company as trustee if the initial investment in shares of one of the Funds or
any fund in the Keystone Investments Family of Funds is at least $500,000.
With respect to Class A shares purchased by a Qualifying Plan at net
asset value or Class C shares purchased by a Qualifying Plan, no Contingent
Deferred Sales Charge will be imposed on any redemptions made specifically by an
individual participant in the Qualifying Plan. This waiver is not available in
the event a Qualifying Plan, as a whole, redeems substantially all of its
assets.
In addition, no contingent deferred sales charge is imposed on a
redemption of shares of a Fund in the event of (1) death or disability of the
shareholder; (2) a lump-sum distribution from a benefit plan qualified under the
Employee Retirement Income Security Act of 1974 ("ERISA"); (3) automatic
withdrawals from ERISA plans if the shareholder is at least 59 1/2 years old;
(4) involuntary redemptions of an account having an aggregate net asset value of
less than $1,000; (5) automatic withdrawals under an automatic withdrawal plan
of up to 1 1/2% per month of the shareholder's initial account balance; (6)
withdrawals consisting of loan proceeds to a retirement plan participant; (7)
financial hardship withdrawals made by a retirement plan participant; or (8)
withdrawals consisting of returns of excess contributions or excess deferral
amounts made to a retirement plan participant.
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DISTRIBUTION PLANS
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Rule 12b-1 under the 1940 Act permits investment companies, such as the
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. Each Fund's Class A, B
and C Distribution Plans have been approved by the FUND's Board of Trustees,
including a majority of the Trustees who are not interested persons of the FUND,
as defined in the 1940 Act ("Independent Trustees"), and the Trustees who have
no direct or indirect financial interest in the Distribution Plan or any
agreement related thereto (the "Rule 12b-1 Trustees," who are the same as the
Independent Trustees).
The National Association of Securities Dealers, Inc. ("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 annual expenditures to
1% of the aggregate average daily net asset value of its shares, of which 0.75%
may be used to pay such distribution costs and 0.25% may be used to pay
shareholder service fees. The NASD also limits the aggregate amount that a Fund
may pay for such distribution costs to 6.25% of gross share sales since the
inception of a 12b-1 Plan, plus interest at the prime rate plus 1% on such
amounts (less any contingent deferred sales charges paid by shareholders to the
Principal Underwriter).
CLASS A DISTRIBUTION PLAN
The Class A Distribution Plan provides that a Fund may expend daily
amounts at an annual rate currently limited to 0.15% of the Fund's average daily
net asset value attributable to Class A shares to finance any activity that is
primarily intended to result in the sale of Class A shares, including, without
limitation, expenditures consisting of payments to a principal underwriter of a
Fund (currently the Principal Underwriter) to enable the Principal Underwriter
to pay or to have paid to others who sell Class A shares a service or other fee,
at such intervals as the Principal Underwriter may determine, in respect of
Class A shares maintained by such recipients on the books of the FUND for
specified periods.
Amounts paid by a Fund under its Class A Distribution Plan are
currently used to pay others, such as dealers, service fees at an annual rate of
up to 0.15% of the average net asset value of Class A shares maintained by such
recipients on the books of the FUND for specified periods.
CLASS B DISTRIBUTION PLANS
Each Fund has adopted Distribution Plans for its Class B shares. Each
Class B Distribution Plan provides that the Fund may expend daily amounts at an
annual rate of up to 1.00% of the Fund's average daily net asset value
attributable to Class B shares (currently limited to 0.90%) 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 4.00% of the price paid for each Class B share sold plus the
first year's service fee in advance in the amount of 0.15% of the price paid for
each Class B share sold. Beginning approximately 12 months after the purchase of
a Class B share, the broker or other party receives service fees at an annual
rate of 0.15% of the average daily net asset value of such Class B share
maintained by the recipient on the books of the Fund for specified periods.
The Principal Underwriter intends, but is not obligated, to continue to
pay or accrue distribution charges incurred in connection with each Class B
Distribution Plan that exceed current annual payments permitted to be received
by the Principal Underwriter from the Fund. The Principal Underwriter intends to
seek full payment of such charges from a Fund (together with annual interest
thereon at the prime rate plus 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 a Fund incurs the maximum
amount of costs allowed by a Class B Distribution Plan. If a Class B
Distribution Plan is terminated, the Principal Underwriter will ask the
Independent Trustees to take whatever action they deem appropriate under the
circumstances with respect to payment of such amounts.
In connection with financing its distribution costs, including
commission advances to dealers and others, the Principal Underwriter has sold to
a financial institution substantially all of its 12b-1 fee collection rights and
contingent deferred sales charge collection rights in respect of Class B shares
sold during the two-year period commencing approximately June 1, 1995. The FUND
has agreed not to reduce the rate of payment of 12b-1 fees in respect of such
Class B shares unless it terminated such shares' Distribution Plan completely.
If it terminated such Distribution Plan, the FUND may be subject to possible
adverse distribution consequences.
CLASS C DISTRIBUTION PLAN
The Class C Distribution Plan provides that a Fund may expend daily
amounts at an annual rate of up to 1.00% of the Fund's average daily net asset
value attributable to Class C shares (currently limited to 0.90%) to finance any
activity that is primarily intended to result in the sale of Class C shares,
including, without limitation, expenditures consisting of payments to the
principal underwriter of the Fund (currently the Principal Underwriter) (1) to
enable the Principal Underwriter to pay to others (dealers) commissions in
respect of Class C shares sold since inception of the Distribution Plan; and (2)
to enable the Principal Underwriter to pay or to have paid to others a service
fee, at such intervals as the Principal Underwriter may determine, in respect of
Class C shares maintained by any such recipients outstanding on the books of the
Fund for specified periods.
The Principal Underwriter generally reallows to brokers or others a
commission in the amount of 0.75% of the price paid for each Class C share sold
plus the first year's service fee in advance in the amount of 0.25% of the price
paid for each Class C share sold. Beginning approximately fifteen months after
purchase, brokers or others receive a commission at an annual rate of 0.75%
(subject to NASD rules) plus service fees at the annual rate of 0.25% of the
average daily net asset value of each Class C share maintained by the recipients
on the books of the Fund for specified periods.
DISTRIBUTION PLANS IN GENERAL
Each of the Distribution Plans may be terminated as to a Fund at any
time by vote of the Rule 12b-1 Trustees or by a vote of a majority of the
appropriate outstanding voting shares of the Fund.
For Class B shares sold prior to June 1, 1995, unreimbursed
distribution expenses at November 30, 1995 for the California Insured Fund and
the Missouri Tax Free Fund were $881,590 and $1,004,012, respectively (6.2% and
5.7% of the respective Fund's Class B net assets at November 30, 1995). For
Class B shares sold on or after June 1, 1995, unreimbursed distribution expenses
at November 30, 1995 for the California Insured Fund and the Missouri Tax Free
Fund were $503,630 and $226,290, respectively (5.9% and 6.0% of the respective
Fund's Class B net assets at November 30, 1995). Unreimbursed distribution
expenses at November 30, 1995 for Class C shares for the California Insured Fund
and the Missouri Tax Free Fund were $94,402 and $123,873, respectively (6.2% and
6.9% of the respective Fund's Class C net assets at November 30, 1995).
Any change in a Distribution Plan that would materially increase the
distribution expenses of the affected Fund provided for in a Distribution Plan
requires shareholder approval. Otherwise, the Distribution Plans may be amended
by the Trustees, including the Rule 12b-1 Trustees.
While the Distribution Plans are in effect, the FUND will be required
to commit the selection and nomination of candidates for Independent Trustees to
the discretion of the Independent Trustees.
The total amounts paid by a Fund under the foregoing arrangements may
not exceed the maximum Distribution Plan limits specified above, and the amounts
and purposes of expenditures under a Distribution Plan must be reported to the
Rule 12b-1 Trustees quarterly. The Rule 12b-1 Trustees may require or approve
changes in the implementation or operation of a Distribution Plan and may also
require that total expenditures by a Fund under a Distribution Plan be kept
within limits lower than the maximum amount permitted by a Distribution Plan as
stated above.
The Independent Trustees of the FUND have determined that the sales of
each Fund's shares resulting from payments under the Distribution Plans are
expected to benefit such Fund.
For the period February 1, 1994 (Commencement of Operations) to
November 30, 1994, the California Insured Fund and the Missouri Tax Free Fund
paid the Principal Underwriter (i) $2,813, and $1,634, respectively, pursuant to
each Fund's Class A Distribution Plan; (ii) $60,793, and $61,502, respectively,
pursuant to each Fund's Class B Distribution Plan; and (iii) $3,259, and $6,508,
respectively, pursuant to each Fund's Class C Distribution Plan.
For the fiscal year ended November 30, 1995, the California Insured
Fund paid the Principal Underwriter $5,342, $144,008 ($123,756 with respect to
Class B shares sold prior to June 1, 1995 and $20,252 with respect to Class B
shares sold on or after June 1, 1995) and $9,218 pursuant to its Class A, Class
B and Class C Distribution Plans, respectively. These amounts were used to pay
commissions and services.
For the fiscal year ended November 30, 1995, the Missouri Tax Free Fund
paid the Principal Underwriter $4,684, $154,093 ($145,112 with respect to Class
B shares sold prior to June 1, 1995 and $8,981 with respect to Class B shares
sold on or after June 1, 1995) and $14,349 pursuant to its Class A, Class B and
Class C Distribution Plans, respectively. These amounts were used to pay
commissions and services.
Presently, a Fund's class-specific expenses are limited to Distribution
Plan expenses incurred by a class of shares pursuant to its respective
Distribution Plan.
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INVESTMENT ADVISER
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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, a corporation
predominantly owned by former and current members of management of Keystone and
its affiliates, provides accounting, bookkeeping, legal, personnel and general
corporate services to Keystone, its affiliates and the Keystone Investments
Family of Funds. 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 Bissel, Albert H. Elfner, III, Edward F. Godfrey and Ralph J.
Spuehler, Jr.
Pursuant to its Investment Advisory and Management Agreement with the
FUND (the "Advisory Agreement") and subject to the supervision of the FUND's
Board of Trustees, Keystone manages and administers the operation of the FUND
and its Funds, and manages the investment and reinvestment of each Fund's assets
in conformity with such Fund's investment objectives and restrictions. The
Advisory Agreement stipulates that Keystone shall provide office space, all
necessary office facilities, equipment and personnel in connection with its
services as well as pay or reimburse the FUND for the compensation of FUND
officers and Trustees who are affiliated with the investment adviser. The
Advisory Agreement requires Keystone to pay all of its expenses incurred in
connection with its services. All charges and expenses other than those
specifically referred to as being borne by Keystone will be paid by the 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 costs of share certificates;
fees and expenses of the registration and qualification of the FUND and its
shares with the Securities and Exchange Commission (sometimes referred to herein
as the "SEC" or the "Commission") or under state or other securities laws;
expenses of preparing, printing and mailing prospectuses, statements of
additional information, notices, reports and proxy materials to shareholders of
the FUND; expenses of shareholders' and Trustees' meetings; charges and expenses
of legal counsel for the FUND and for the Trustees of the FUND on matters
relating to the FUND; charges and expenses of filing annual and other reports
with the SEC and other authorities; and all extraordinary charges and expenses
of the FUND.
Each Fund pays Keystone a fee for its services to the Fund at the
annual rate set forth below:
Management Aggregate Net Asset Value
Fee of the shares of the Fund
- --------------------------------------------------------------------------------
0.55% of the first $ 50,000,000, plus
0.50% of the next $ 50,000,000, plus
0.45% of the next $ 100,000,000, plus
0.40% of the next $ 100,000,000, plus
0.35% of the next $ 100,000,000, plus
0.30% of the next $ 100,000,000, plus
0.25% of amounts over $ 500,000,000
computed as of the close of business each business day and paid daily.
For the period February 1, 1994 (commencement of operations) to
November 30, 1994, the California Insured Fund and the Missouri Tax Free Fund
paid or accrued to Keystone investment management and administrative services
fees of $49,627 and $47,930, respectively.
For the fiscal year ended November 30, 1995, the California Insured
Fund and the Missouri Tax Free Fund paid or accrued to Keystone investment
management and administrative service fees of $113,353 and $120,166,
respectively. These amounts represented 0.55% and 0.55% of the respective Fund's
average net assets.
The Advisory Agreement continues in effect from year to year only if
approved at least annually by the FUND's Board of Trustees or by a vote of a
majority of the outstanding shares of each 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
each Fund. The Advisory Agreement will terminate automatically upon its
"assignment" as that term is defined in the 1940 Act.
Keystone has voluntarily limited the expenses of Class A shares of each
Fund to 0.75% of average daily net assets of such class and has voluntarily
limited the expenses of Class B and C shares of each Fund to 1.50% of average
daily net assets of such class. Keystone currently intends to continue the
foregoing expense limitations on a calendar month-by-month basis. Keystone will
periodically evaluate the expense limitations and may modify or terminate them
in the future. Keystone will not be required to make such reimbursement to the
extent it would result in a Fund's inability to qualify as a regulated
investment company under the provisions of the Code. In accordance with certain
expense limitations, for the fiscal period ended November 30, 1995, Keystone
reimbursed the California Insured Fund and the Missouri Tax Free Fund (i)
$21,353 and $18,923, respectively, with respect to each Fund's Class A shares;
(ii) $94,978 and $104,097, respectively, with respect to each Fund's Class B
shares; and (iii) $5,946 and $9,601, respectively, with respect to each Fund's
Class C shares.
Each Fund is subject to certain annual state expense limitations, the
most restrictive of which is as follows:
2.5% of the first $30 million of Fund average net assets;
2.0% of the next $70 million of Fund average net assets; and
1.5% of Fund average net assets over $100 million.
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TRUSTEES AND OFFICERS
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Trustees and officers of the FUND, their principal occupations and some
of their affiliations over the last five years are as follows:
*ALBERT H. ELFNER, III: President, Chief Executive Officer and Trustee of the
FUND; Chairman of the Board, President, Director and Chief Executive Officer
of Keystone Investments; President, Chief Executive Officer and Trustee or
Director of all 30 funds in the Keystone Investments Family of Funds;
Director and Chairman of the Board, Chief Executive Officer and Vice
Chairman of Keystone; Chairman of the Board and Director of Keystone
Institutional Company, Inc. ("Keystone Institutional") (formerly named
Keystone Investment Management Corporation), and Keystone Fixed Income
Advisors ("KFIA"); Director, Chairman of the Board, Chief Executive Officer
and President of Keystone Management, Keystone Software Inc. ("Keystone
Software"); Director and President of Keystone Asset Corporation, Keystone
Capital Corporation, and Keystone Trust Company; Director of the Principal
Underwriter, KIRC, and Fiduciary Investment Company, Inc. ("FICO"); Director
of Boston Children's Services Association; Trustee of Anatolia College,
Middlesex School, and Middlebury College; Member, Board of Governors, New
England Medical Center; former Director and President of Hartwell Keystone
Advisers, Inc. ("Hartwell Keystone"); former Director and Vice President of
Robert Van Partners, Inc.; and former Trustee of Neworld Bank.
FREDERICK AMLING: Trustee of the FUND; Trustee or Director of all other Keystone
Investments Funds; Professor, Finance Department, George Washington
University; President, Amling & Company (investment advice); Member, Board
of Advisers, Credito Emilano (banking); and former Economics and Financial
Consultant, Riggs National Bank.
CHARLES A. AUSTIN III: Trustee of the FUND; Trustee or Director of all other
Keystone Investments Funds; Investment Counselor to Appleton Partners, Inc.;
former Managing Director, Seaward Management Corporation (investment advice)
and former Director, Executive Vice President and Treasurer, State Street
Research & Management Company (investment advice).
*GEORGE S. BISSELL: Chairman of the Board and Trustee of the FUND; Director of
Keystone Investments; Chairman of the Board and Trustee or Director of all
other Keystone Investments Funds; 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; Vice
President and Treasurer of KFIA; and Director of KIRC; former Treasurer and
Director of Hartwell Keystone; former Treasurer of Robert Van Partners, Inc.
JAMES R. McCALL: Senior Vice President of the FUND; Senior Vice President of all
other Keystone Investments Funds; and President of Keystone.
J. KEVIN KENELY: Treasurer of the FUND; Treasurer of all other Keystone
Investments Funds; Vice President of Keystone Investments, Keystone, the
Principal Underwriter, FICO and Keystone Software; and Controller of
Keystone Asset Corporation and Keystone Capital Corporation.
CHRISTOPHER P. CONKEY: Vice President of the FUND; Vice President certain other
Keystone Investment Funds; and Senior Vice President of Keystone.
BETSY BLACHER: 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; Vice President and
Secretary of KFIA; Senior Vice President, General Counsel and Secretary of
Keystone Investments, Keystone Asset Corporation, Keystone Capital
Corporation and Keystone Trust Company; former Senior Vice President and
Secretary of Hartwell Keystone, and Robert Van Partners, Inc.
* This Trustee may be considered an "interested person" within the meaning of
the 1940 Act.
Mr. Elfner and Mr. Bissell are "interested persons" by virtue of their
positions as officers and/or Directors of Keystone Investments and several of
its affiliates including Keystone, the Principal Underwriter and KIRC. Mr.
Elfner and Mr. Bissell own shares of Keystone Investments. Mr. Elfner is
Chairman of the Board, Chief Executive Officer and Director of Keystone
Investments. Mr. Bissell is a Director of Keystone Investments.
During the fiscal year ended November 30, 1995, no Trustee affiliated
with Keystone nor any officer received any direct remuneration from the FUND.
During that same period, the nonaffiliated Trustees and officers of the FUND did
not receive any retainers or fees. For the year ending December 31, 1995,
aggregate compensation received by the Independent Trustees on a fund complex
wide basis was $450,716. On December 31, 1995, the FUND's Trustees and officers
did not beneficially own any of the FUND's then outstanding shares.
The address of all Trustees and officers of the FUND and the address of
the FUND is 200 Berkeley Street, Boston, Massachusetts 02116-5034.
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PRINCIPAL UNDERWRITER
- --------------------------------------------------------------------------------
The FUND has entered into Principal Underwriting Agreements (the
"Underwriting Agreements") with the Principal Underwriter, 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 each
Fund pursuant to such 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
FUND's Declaration of Trust, By-Laws, the current prospectus and statement of
additional information. All orders are subject to acceptance by the FUND and the
FUND reserves the right in its sole discretion to reject any order received.
Under the Underwriting Agreements, the FUND is not liable to anyone for failure
to accept any order.
The FUND has agreed under the Underwriting Agreements to pay all
expenses in connection with registration of the shares of its Funds with the
Commission as well as auditing and filing fees in connection with registration
of such shares under the various state "blue-sky" laws, and the Principal
Underwriter assumes the cost of sales literature and preparation of prospectuses
used by it and certain other expenses.
From time to time, if in the Principal Underwriter's judgment it could
benefit the sales of a 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 shares and
will indemnify and hold harmless the FUND, and each person who has been, is or
may be a Trustee or officer of the FUND, against expenses reasonably incurred by
any of them in connection with any claim or in connection with any action, suit
or proceeding to which any of them may be a party, that arises out of or is
alleged to arise out of any misrepresentation or omission to state a material
fact on the part of the Principal Underwriter or any other person for whose acts
the Principal Underwriter is responsible or is alleged to be responsible, unless
such misrepresentation or omission was made in reliance upon written information
furnished by the FUND.
The Underwriting Agreements provide that they will remain in effect as
long as their terms and continuance are approved by a majority of the Trustees
of the FUND and a majority of the FUND's Rule 12b-1 Trustees at least annually
in accordance with the 1940 Act and rules and regulations thereunder.
The Underwriting Agreements may be terminated, without penalty, on 60
days' written notice by a majority of the FUND's Rule 12b-1 Trustees or the
Principal Underwriter or terminated as to any Fund by a vote of a majority of
outstanding shares of such Fund. The Underwriting Agreements will terminate
automatically upon their "assignment" as that term is defined in the 1940 Act.
- --------------------------------------------------------------------------------
BROKERAGE
- --------------------------------------------------------------------------------
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 a Fund,
involving both price paid or received and any commissions and other costs paid,
the efficiency with which the transaction is effected, the ability to effect the
transaction at all where a large block is involved, the availability of the
broker to stand ready to execute potentially difficult transactions in the
future and the financial strength and stability of the broker. Management weighs
such considerations in determining the overall reasonableness of brokerage
commissions paid.
Subject to the foregoing, a factor in the selection of brokers is the
receipt of research services, such as analyses and reports concerning issuers,
industries, securities, economic factors and trends and other statistical and
factual information. Any such research and other statistical and factual
information provided by brokers to a Fund or Keystone is considered to be in
addition to and not in lieu of services required to be performed by Keystone
under the Advisory Agreement. The cost, value and specific application of such
information are indeterminable and cannot be practically allocated among the
Funds and other clients of Keystone who may indirectly benefit from the
availability of such information. Similarly, a Fund may indirectly benefit from
information made available as a result of transactions effected for such other
clients. Under the Advisory Agreement, Keystone is permitted to pay higher
brokerage commissions for brokerage and research services in accordance with
Section 28(e) of the Securities Exchange Act of 1934. In the event Keystone does
follow such a practice, it will do so on a basis that is fair and equitable to
the Funds.
The FUND expects that purchases and sales of municipal obligations and
temporary instruments usually will be principal transactions. Municipal
obligations and temporary instruments are normally purchased directly from the
issuer or from an underwriter or market maker for the securities. There usually
will be no brokerage commissions paid by a Fund for such purchases. Purchases
from underwriters will include the underwriting commission or concession, and
purchases from dealers serving as market makers will include a dealer's mark up
or reflect a dealer's mark down. Where transactions are made in the
over-the-counter market, each Fund will deal with primary market makers unless
more favorable prices are otherwise obtainable.
Each Fund may participate, if and when practicable, in group bidding
for the purchase directly from an issuer of certain securities for the Fund's
portfolio in order to take advantage of the lower purchase price available to
members of such a group.
Neither Keystone nor the Funds intend to place securities transactions
with any particular broker-dealer or group thereof. The FUND's Board of Trustees
has determined, however, that the Funds may follow a policy of considering sales
of shares as a factor in the selection of broker-dealers to execute portfolio
transactions, subject to the requirements of best execution, including best
price, described above.
The policy of the 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 Funds are made independently by Keystone
from those of the other funds and investment accounts managed by Keystone. It
may frequently develop that the same investment decision is made for more than
one fund. Simultaneous transactions are inevitable when the same security is
suitable for the investment objective of more than one account. When two or more
funds or accounts are engaged in the purchase or sale of the same security, the
transactions are allocated as to amount in accordance with a formula that is
equitable to each fund or account. It is recognized that in some cases this
system could have a detrimental effect on the price or volume of the security as
far as the Funds are concerned. In other cases, however, it is believed that the
ability of a Fund to participate in volume transactions will produce better
executions for the Fund.
In no instance are portfolio securities purchased from or sold to
Keystone, the Principal Underwriter or any of their affiliated persons, as
defined in the 1940 Act and rules and regulations issued thereunder.
During the fiscal period ended November 30, 1994 and the fiscal year
ended November 30, 1995, the FUND did not pay any brokerage commissions.
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DECLARATION OF TRUST
- --------------------------------------------------------------------------------
MASSACHUSETTS BUSINESS TRUST
The FUND is a Massachusetts business trust established under a
Declaration of Trust dated September 13, 1990 ("Declaration of Trust"). The FUND
is similar in most respects to a business corporation. The principal distinction
between the FUND and a corporation relates to the shareholder liability
described below. A copy of the Declaration of Trust was filed as an exhibit to
the FUND's Registration Statement. This summary is qualified in its entirety by
reference to the Declaration of Trust.
DESCRIPTION OF SHARES
The Declaration of Trust authorizes the issuance of an unlimited number
of shares of beneficial interest of classes of shares. Each share of a Fund
represents an equal proportionate interest in such Fund with each other share of
the Fund. Generally, each Fund currently issues three classes of shares, but may
issue additional classes or series of shares. Upon liquidation, Fund 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.
SHAREHOLDER LIABILITY
Pursuant to certain decisions of the Supreme Judicial Court of
Massachusetts, shareholders of a Massachusetts business trust may, under certain
circumstances, be held personally liable as partners for the obligations of the
trust. If the FUND were held to be a partnership, the possibility of the
shareholders incurring financial loss for that reason appears remote because the
FUND's Declaration of Trust (1) contains an express disclaimer of shareholder
liability for obligations of the FUND; and (2) requires that notice of such
disclaimer be given in each agreement, obligation or instrument entered into or
executed by the FUND or the Trustees; and (3) provides for indemnification out
of FUND property for any shareholder held personally liable for the obligations
of the FUND.
VOTING RIGHTS
Under the Declaration of Trust the FUND does not hold annual meetings.
Shares of a Fund are entitled to one vote per share. Shares generally vote
together as one class on all matters, except that each Fund has exclusive voting
rights with respect to matters that affect only that Fund. Classes of shares of
a Fund have equal voting rights except that each class of shares has exclusive
voting rights with respect to its respective Distribution Plan. No amendment may
be made to the Declaration of Trust that adversely affects any class of shares
without the approval of a majority of the shares of that class. Shares have
non-cumulative voting rights, which means that the holders of more than 50% of
the shares voting for the election of Trustees can elect 100% of the Trustees to
be elected at a meeting and, in such event, the holders of the remaining 50% or
less of the shares voting will not be able to elect any Trustees.
After the initial meeting to elect Trustees no further meetings of
shareholders for the purpose of electing Trustees will be held, unless required
by law, unless and until such time as less than a majority of the Trustees
holding office have been elected by shareholders, at which time the Trustees
then in office will call a shareholders' meeting for election of Trustees.
Except as set forth above, the Trustees shall continue to hold office
indefinitely, unless otherwise required by law, and may appoint successor
Trustees. A Trustee may be removed from or cease to hold office (as the case may
be) (1) at any time by two-thirds vote of the remaining Trustees; (2) when such
Trustee becomes mentally or physically incapacitated; or (3) at a special
meeting of shareholders by a two-thirds vote of the outstanding shares. Any
Trustee may voluntarily resign from office.
LIMITATION OF TRUSTEES' LIABILITY
The Declaration of Trust provides that a Trustee shall be liable only
for his own willful defaults and, if reasonable care has been exercised in the
selection of officers, agents, employees or investment advisers, shall not be
liable for any neglect or wrongdoing of any such person; provided, however, that
nothing in the Declaration of Trust shall protect a Trustee against any
liability for his willful misfeasance, bad faith, gross negligence or reckless
disregard of his duties.
The Trustees have absolute and exclusive control over the management
and disposition of all assets of the Funds and may perform such acts as in their
sole judgment and discretion are necessary and proper for conducting the
business and affairs of the FUND or promoting the interests of the FUND and its
Funds and the shareholders.
- --------------------------------------------------------------------------------
STANDARDIZED TOTAL RETURN AND YIELD QUOTATIONS
- --------------------------------------------------------------------------------
Total return quotations for a class of shares of a Fund as they may
appear from time to time in advertisements are calculated by finding the average
annual compounded rates of return over one, five and ten year periods, or the
time periods for which such class of shares has been effective, whichever is
relevant, on a hypothetical $1,000 investment that would equate the initial
amount invested in the class to the ending redeemable value. To the initial
investment all dividends and distributions are added, and all recurring fees
charged to all shareholder accounts are deducted. The ending redeemable value
assumes a complete redemption at the end of the relevant periods.
The total returns for the Class A shares of the California Insured Fund
and the Missouri Tax Free Fund for the fiscal year ended November 30, 1995 were
13.95% and 14.16%, respectively, including applicable sales charges. The total
returns for the Class B shares of the California Insured Fund and the Missouri
Tax Free Fund for the fiscal year ended November 30, 1995 were 14.95% and
14.79%, respectively, including applicable sales charges. The total returns for
the Class C shares of the California Insured Fund and the Missouri Tax Free Fund
for the fiscal year ended November 30, 1995 were 18.69% and 18.78%,
respectively.
Current yield quotations as they may appear from time to time in
advertisements will consist of a quotation based on a 30-day period ended on the
date of the most recent balance sheet of a Fund, computed by dividing the net
investment income per share earned during the period by the maximum offering
price per share on the last day of the base period. Such yield will include
income from sources other than municipal obligations, if any.
The current yields for the Class A shares of the California Insured
Fund and the Missouri Tax Free Fund for the 30-day period ended November 30,
1995 were 4.70% and 4.77%, respectively. The current yields for the Class B
shares of the California Insured Fund and the Missouri Tax Free Fund for the
30-day period ended November 30, 1995 were 4.28% and 4.26%, respectively. The
current yields for the Class C shares of the California Insured Fund and the
Missouri Tax Free Fund for the 30-day period ended November 30, 1995 were 4.28%
and 4.25%, respectively.
Tax equivalent yield is, in general, the current yield divided by a
factor equal to one minus a stated income tax rate and reflects the yield a
taxable investment would have to achieve in order to equal on an after-tax basis
a tax-exempt yield.
The tax equivalent yields for the Class A shares of the California
Insured Fund and the Missouri Tax Free Fund for an investor in the 31% federal
tax bracket for the 30-day period ended November 30, 1995 were 6.81% and 6.91%,
respectively. The tax equivalent yields for the Class B shares of the California
Insured Fund and the Missouri Tax Free Fund for an investor in the 31% federal
tax bracket for the 30-day period ended November 30, 1995 were 6.20% and 6.17%,
respectively. The tax equivalent yields for the Class C shares of the California
Insured Fund and the Missouri Tax Free Fund for an investor in the 31% federal
tax bracket for the 30-day period ended November 30, 1995 were 6.20% and 6.16%,
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.
- --------------------------------------------------------------------------------
ADDITIONAL INFORMATION
- --------------------------------------------------------------------------------
As of January 1, 1996, the following shareholders of record owned 5% or
more of the California Insured Fund's outstanding Class A shares:
SHAREHOLDER OF RECORD % OF CLASS
Merrill Lynch Pierce Fenner & Pierce 13.404%
Attn: Book Entry
4800 Deer Lake Drive East, 3rd Floor
Jacksonville, FL 32246-6484
As of January 1, 1996, the following shareholders of record owned 5% or
more of the California Insured Fund's outstanding Class B shares:
SHAREHOLDER OF RECORD % OF CLASS
Merrill Lynch Pierce Fenner & Pierce 19.033%
Attn: Book Entry
4800 Deer Lake Drive East, 3rd Floor
Jacksonville, FL 32246-6484
As of January 1, 1996, the following shareholders of record owned 5% or
more of the California Insured Fund's outstanding Class C shares:
SHAREHOLDER OF RECORD % OF CLASS
Victor E. Rylander 12.811%
Lucille Rylander JT WROS
4102 Caflur Avenue
San Diego, CA 92117-4436
Alex Brown & Sons Inc. 6.994%
FBO 489-31533-14
PO Box 1346
Baltimore, MD 21203-1346
Prudential Securities FBO 6.862%
Rakesh C. Gupta
Neelam Gupta CO-TTEES
FBO Gupta Family Living Trust 12/22/94
Hemet, CA 92544
Prudential Securities FBO 6.622%
Betty Riback
13 Dartmouth Dr
Rancho Mirage, CA 92270-3151
Merrill Lynch Pierce Fenner & Smith 6.584%
ATTN: Book Entry
4800 Deer Lake Dr E 3rd Fl
Jacksonville, FL 32246-6484
Richard B Smith 6.153%
Doris M. Smith TTEE
U/A DTD 04-08-93
Smith Trust
4853 Mt. Royal Court
San Diego, CA 92117-2917
Kenneth E Everett 5.583%
FBO The Everett Family Trust
U/A DTD 05-18-77
3548 Herman Dr
Lafayette, CA 94549-4931
Prudential Securities FBO 5.269%
Ferne Rinnig TTEE
Ferne Rinning
Intervivos Trust U/A DTD
12955 Riverside Dr Apt 203
Sherman Oaks, CA 91423-2201
As of January 1, 1996, the following shareholders of record owned 5% or
more of the Missouri Tax Free Fund's outstanding Class A shares:
SHAREHOLDER OF RECORD % OF CLASS
Shoji Entertainment Inc. 60.522%
2709 State Highway 248
Branson, MO 65616-9226
Merrill Lynch Pierce Fenner & Pierce 5.292%
Attn: Book Entry
4800 Deer Lake Drive East, 3rd Floor
Jacksonville, FL 32246-6484
As of January 1, 1996, the following shareholder of record owned 5% or
more of the Missouri Tax Free Fund's outstanding Class B shares:
SHAREHOLDER OF RECORD % OF CLASS
Merrill Lynch Pierce Fenner & Pierce 24.325%
Attn: Book Entry
4800 Deer Lake Drive East, 3rd Floor
Jacksonville, FL 32246-6484
As of January 1, 1996, the following shareholders of record owned 5% or
more of the Missouri Tax Free Fund's outstanding Class C shares:
SHAREHOLDER OF RECORD % OF CLASS
Painewebber FBO 12.034%
Dorothy K. Pruett Trustee
Dorothy K. Pruett Revocable
Trust UAD 7-10-92
516 West 119th Terrace
Kansas City, MO 64145-1043
Painewebber FBO 10.369%
Lorraine Wilder TTEE
Lorraine Wilder Rev Tr
U/A DTD 7-26-88
444 1/2 Jackson
Chillicothe, MO 64601
Painewebber FBO 8.389%
Jeannette M. Holz Trust
Jeannette M. Holz TTEE
U/A DTD 10/15/83
Box 698
Lake Ozark, MO 65049-0698
Merrill Lynch Pierce Fenner & Pierce 7.728%
Attn: Book Entry
4800 Deer Lake Drive East, 3rd Floor
Jacksonville, FL 32246-6484
Kathy D. Reise 6.202%
6926 Broken Oak Drive
Saint Louis, MO 63129
Dorothy D. Atkins 5.849%
4 Palmetto Dunes Court
Ormond Beach, FL 32174
State Street Bank and Trust Company, 225 Franklin Street, Boston,
Massachusetts 02110, is the custodian of all securities and cash of the FUND
(the "Custodian"). The Custodian performs no investment management functions for
the FUND, but, in addition to its custodial services, is responsible for
accounting and related recordkeeping on behalf of the FUND.
KPMG Peat Marwick LLP, 99 High Street, Boston, Massachusetts 02110,
Certified Public Accountants, are the independent auditors for the FUND.
KIRC, located at 101 Main Street, Cambridge, Massachusetts 02142-1519,
is a wholly-owned subsidiary of Keystone and acts as transfer agent and dividend
disbursing agent for the FUND.
Except as otherwise stated in its prospectus or required by law, the
FUND reserves the right to change the terms of the offer stated in its
prospectus without shareholder approval, including the right to impose or change
fees for services provided.
No dealer, salesman or other person is authorized to give any
information or to make any representation not contained in the FUND's
prospectus, statement of additional information or in supplemental sales
literature issued by the FUND or the Principal Underwriter, and no person is
entitled to rely on any information or representation not contained therein.
The FUND's prospectus and statement of additional information omit
certain information contained in the registration statement filed with the
Commission, a copy of which may be obtained from the Commission's principal
office in Washington, D.C. upon payment of the fee prescribed by the rules and
regulations promulgated by the Commission.
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 CAPITAL PRESERVATION AND INCOME FUND - Seeks high level of current
income, consistent with low volatility of principal, by investing in adjustable
rate securities issued by the U.S. government, its agencies or
instrumentalities.
KEYSTONE FUND FOR TOTAL RETURN - Seeks total return from a combination of
capital growth and income from dividend paying quality common stocks, preferred
stocks, convertible bonds, other fixed-income securities and foreign securities
(up to 25%).
KEYSTONE GLOBAL OPPORTUNITIES FUND - Seeks long-term capital growth from foreign
and domestic securities.
KEYSTONE GOVERNMENT SECURITIES FUND - Seeks income and capital preservation from
U.S. government securities.
KEYSTONE AMERICA HARTWELL EMERGING GROWTH FUND, INC. - Seeks capital
appreciation by investment primarily in small and medium-sized companies in a
relatively early stage of development that are principally traded in the
over-the-counter market.
KEYSTONE HARTWELL GROWTH FUND - Seeks capital appreciation by investment in
securities selected for their long-term growth prospects.
KEYSTONE INTERMEDIATE TERM BOND FUND - Seeks income, capital preservation and
price appreciation potential from investment grade corporate bonds.
KEYSTONE OMEGA FUND - Seeks maximum capital growth from common stocks and
securities convertible into common stocks.
KEYSTONE STATE TAX FREE FUND - A mutual fund consisting of five separate series
of shares investing in different portfolio securities which seeks the highest
possible current income, exempt from federal income taxes and applicable state
taxes.
KEYSTONE STRATEGIC INCOME FUND - Seeks high yield and capital appreciation
potential from corporate bonds, discount bonds, convertible bonds, preferred
stock and foreign bonds (up to 25%).
KEYSTONE TAX FREE INCOME FUND - Seeks income exempt from federal income taxes
and capital preservation from the four highest grades of municipal bonds.
KEYSTONE WORLD BOND FUND - Seeks total return from interest income, capital
gains and losses and currency exchange gains and losses from investment in debt
securities denominated in U.S. and foreign currencies.
KEYSTONE FUND OF THE AMERICAS - Seeks long term growth of capital through
investments in equity and debt securities in North America (the United States
and Canada) and Latin America (Mexico and 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 A
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KEYSTONE CALIFORNIA INSURED TAX FREE FUND
GENERAL
California's economy is the largest among the 50 states and one of the
largest in the world. The State's population of over 32 million represents over
12% of the total U.S. population and grew by 27% in the 1980's. Total personal
income in the State, at an estimated $703 billion in 1994, accounts for more
than 12% of all personal income in the nation. Total employment is over 14
million, the majority of which is in the service, trade and manufacturing
sectors.
From mid-1990 to late 1993, the State suffered a recession with the
worst economic, fiscal and budget conditions since the 1930's. Construction,
manufacturing (especially aerospace), and financial services, among others, were
all severely affected, particularly in Southern California. Job losses were the
worst of any post-war recession. Employment levels stabilized by late 1993 and
steady growth has occurred since the start of 1994; pre-recession job levels are
expected to be reached in 1996. Unemployment, while higher than the national
average, has come down significantly from the January, 1994 peak of 10%.
Economic indicators show a steady recovery underway in California since the
start of 1994, although the residential housing sector has been weaker than in
previous recoveries. Any delay or reversal of the economic recovery may cause a
recurrence of revenue shortfalls for the State.
CONSTITUTIONAL AND STATUTORY LIMITATIONS ON TAXES AND APPROPRIATIONS
LIMITATION ON TAXES. Certain California municipal obligations may be
obligations of issuers that rely in whole or in part, directly or indirectly, on
ad valorem property taxes as a source of revenue. The taxing powers of
California local governments and districts are limited by Article XIIIA of the
California Constitution, enacted by the voters in 1978 and commonly known as
"Proposition 13." Briefly, Article XIIIA limits to 1% of full cash value the
rate of ad valorem property taxes on real property and generally restricts the
reassessment of property to 2% per year, except upon new construction or change
of ownership (subject to a number of exemptions). Taxing entities may, however,
raise ad valorem taxes above the 1% limit to pay debt service on voter-approved
bonded indebtedness.
Under Article XIIIA, the basic 1% ad valorem tax levy is applied
against the assessed value of property as of the owner's date of acquisition (or
as of March 1, 1975, if acquired earlier), subject to certain adjustments. This
system has resulted in widely varying amounts of tax on similarly situated
properties. Several lawsuits have been filed challenging the acquisition-based
assessment system of Proposition 13, and on June 18, 1992 the U.S. Supreme Court
announced a decision upholding Proposition 13.
Article XIIIA prohibits local governments from raising revenues through
ad valorem property taxes above the 1% limit; it also requires voters of any
governmental unit to give two-thirds approval to levy any "special tax." Court
decisions, however, allowed non-voter approved levy of "general taxes" that were
not dedicated to a specific use. In response to these decisions, the voters of
the State in 1986 adopted an initiative statute called "Proposition 62" that
imposed significant new limits on the ability of local entities to raise or levy
general taxes, except by receiving majority local voter approval. Court
decisions had struck down most of Proposition 62 and many local governments,
especially cities, had enacted or raised local "general taxes" without voter
approval. In September, 1995, the California Supreme Court overruled the prior
cases, and upheld the constitutionality of Proposition 62. Many aspects of this
decision remain unclear (such as its impact on charter (home rule) cities, and
whether it will have retroactive effect), but its future effect will be to
further limit the fiscal flexibility of many local governments.
APPROPRIATION LIMITS. The State and its local governments are subject
to an annual "appropriations limit" imposed by Article XIIIB of the California
Constitution, enacted by the voters in 1979 and significantly amended by
Propositions 98 and 111 in 1988 and 1990, respectively. Article XIIIB prohibits
the State or any covered local government from spending "appropriations subject
to limitation" in excess of the appropriations limit imposed. "Appropriations
subject to limitation" are authorizations to spend "proceeds of taxes," which
consist of tax revenues and certain other funds, including proceeds from
regulatory licenses, user charges or other fees, to the extent that such
proceeds exceed the cost of providing the product or service, but "proceeds of
taxes" excludes most State subventions to local governments. No limit is imposed
on appropriations of funds that are not "proceeds of taxes," such as reasonable
user charges or fees, and certain other non-tax funds, including bond proceeds.
Among the expenditures not included in the Article XIIIB appropriations
limit are (1) the debt service cost of bonds issued or authorized prior to
January 1, 1979, or subsequently authorized by the voters, (2) appropriations
arising from certain emergencies declared by the Governor, (3) appropriations
for certain capital outlay projects, (4) appropriations by the State of post
1989 increases in gasoline taxes and vehicle weight fees, and (5) appropriations
made in certain cases of emergency.
The appropriations limit for each year is adjusted annually to reflect
changes in cost of living and population and any transfers of service
responsibilities between governmental units. The definitions for such
adjustments were liberalized in 1990 to follow more closely growth in the
State's economy.
"Excess" revenues are measured over a two year cycle. Local governments
must return any excess to taxpayers by rate reductions. The State must refund
50% paid to schools and community colleges. With more liberal annual adjustment
factors since 1988, and depressed revenues since 1990 because of the recession,
few governments, including the State, are currently operating near their
spending limits, but this condition may change over time. Local governments may
by voter approval exceed their spending limits for up to four years.
Because of the complex nature of Articles XIIIA and XIIIB of the
California Constitution, the ambiguities and possible inconsistencies of their
terms, and the impossibility of predicting future appropriations or changes in
population and cost of living, and the probability of continuing legal
challenges, it is not currently possible to determine fully the impact of
Article XIIIA or Article XIIIB on California municipal obligations. It is not
presently possible to predict the outcome of any pending litigation with respect
to the ultimate scope, impact or constitutionality of either Article XIIIA or
Article XIIIB, or the impact of any such determinations upon State agencies or
local governments, or upon their ability to pay debt service on their
obligations. Future initiatives or legislative changes in laws or the California
Constitution may also affect the ability of the State or local issuers to repay
their obligations.
OBLIGATIONS OF THE STATE OF CALIFORNIA
As of December 31, 1995, the State had approximately $18.3 billion of
general obligation bonds outstanding, and $2.9 billion remained authorized but
unissued. In addition, at June 30, 1995, the State had lease-purchase
obligations, payable from the State's General Fund, of approximately $5.6
billion. State voters will have $5.0 billion of new bond authorizations on the
March 26 1996 ballot, and additional bonds may be placed on the November 5, 1996
ballot. In fiscal year 1994-1995, debt service on general obligation bonds and
lease-purchase debt was approximately 5.3% of General Fund revenues. The State
has paid the principal of and interest on its general obligation bonds,
lease-purchase debt and short-term obligations when due.
RECENT FINANCIAL RESULTS
The principal sources of General Fund revenues in 1994-1995 were the
California personal income tax (43% of total revenues), the sales tax (34%),
bank and corporation taxes (13%), and the gross premium tax on insurance (3%).
The State maintains a Special Fund for Economic Uncertainties," derived from
General Fund revenues, as a reserve to meet cash needs of the General Fund.
GENERAL. Throughout the 1980's, State spending increased rapidly as the
State population and economy also grew rapidly, including increased spending for
many assistance programs to local governments, which were constrained by
Proposition 13 and other laws. The largest State program is assistance to local
public school districts. In 1988, an initiative (Proposition 98) was enacted
which (subject to suspension by a two-thirds vote of the Legislature and the
Governor) guarantees local school districts and community college districts a
minimum share of State General Fund revenues (currently 35%).
Since the start of 1990-91 Fiscal Year, the State has faced adverse
economic, fiscal, and budget conditions. The economic recession seriously
affected State tax revenues. It also caused increased expenditures for health
and welfare programs. The State is also facing a structural imbalance in its
budget with the largest programs supported by the General Fund (education,
health, welfare and corrections) growing at rates higher than the growth rates
for the principal revenue sources of the General Fund. These structural concerns
will continue in future years with the expected need to increase capital and
operating costs of the correctional system in response to a "Three Strikes" law
enacted in 1994 which mandates life imprisonment for certain felony offenders.
RECENT BUDGETS. As a result of these factors, among others, from the
late 1980's until 1992-93, the State had a period of nearly chronic budget
imbalance, with expenditures exceeding revenues in four out of six years, and
the State accumulated and sustained a budget deficit in the budget reserve, the
SFEU approaching $2.8 billion at its peak at June 30, 1993. Starting in the
1990-91 Fiscal Year and for each year thereafter, each budget required
multibillion dollar actions to bring projected revenues and expenditures into
balance and to close large "budget gaps" which were identified. The Legislature
and Governor eventually agreed on a number of different steps to produce Budget
Acts in the Years 1991-92 to 1994-95, including:
* significant cuts in health and welfare program expenditures;
* transfers of program responsibilities and some funding sources from
the state to local governments, coupled with some reduction in mandates on local
government;
* transfer of about $3.6 billion in annual local property tax revenues
from cities, counties, redevelopment agencies and some other districts to local
school districts, thereby reducing state funding for schools;
* reduction in growth of support for higher education programs, coupled
with increases in student fees;
* revenue increases (particularly in the 1991-92 Fiscal Year budget),
most of which were for a short duration;
* increased reliance on aid from the federal government to offset the
costs of incarcerating, educating and providing health and welfare services to
undocumented aliens (although these efforts have produced much less federal aid
than the State Administration had requested); and
* various one-time adjustment and accounting changes.
Despite these budget actions, the effects of the recession led to large
unanticipated deficits in the SFEU, as compared to projected positive balances.
By the start of the 1993-94 Fiscal Year, the accumulated deficit was so large
(almost $2.8 billion) that it was impractical to budget to retire it in one
year, so a two-year program was implemented, using the issuance of revenue
anticipation warrants to carry a portion of the deficit over the end of the
fiscal year. When the economy failed to recover sufficiently in 1993-94, a
second two-year plan was implemented in 1994-95, to carry the final retirement
of the deficit into 1995-96.
The combination of stringent budget actions cutting State expenditures,
and the turnaround of the economy by late 1993, finally led to the restoration
of positive financial results. While General Fund revenues and expenditures were
essentially equal in FY 1992-93 (following two years of excess expenditures over
revenues), the General Fund had positive operating results in FY 1993-94 and
1994-95, which have reduced the accumulated budget deficit to around $600
million as of June 30, 1995. The 1996-97 Governor's Budget projects complete
elimination of the deficit by June 30, 1996.
A consequence of the accumulated budget deficits in the early 1990's,
together with other factors such as disbursement of funds to local school
districts "borrowed" from future fiscal years and hence not shown in the annual
budget, was to significantly reduce the state's cash resources available to pay
its ongoing obligations. When the Legislature and the Governor failed to adopt a
budget for the 1992-93 Fiscal Year by July 1, 1992, which would have allowed the
state to carry out its normal annual cash flow borrowing to replenish its cash
reserves, the State Controller was forced to issue approximately $3.8 billion of
registered warrants ("IOUs") over a 2-month period to pay a variety of
obligations representing prior years' or continuing appropriations, and mandates
from court orders. Available funds were used to make constitutionally-mandated
payments such as debt service on bonds and warrants.
The state's cash condition became so serious in late spring of 1992
that the State Controller was required to issue revenue anticipation warrants
maturing in the following fiscal year in order to pay the State's continuing
obligations. The State was forced to rely increasingly on external debt markets
to meet its cash needs, as a succession of notes and warrants (both forms of
short-term cash flow financing) were issued in the period from June 1992 to July
1994, often needed to pay previously-maturing notes or warrants. These
borrowings were used also in part to spread out the repayment of the accumulated
budget deficit over the accumulated budget over the end of the fiscal year.
The State issued $7.0 billion of short-term debt in July 1994 to meet
its cash flow needs and to finance the deferral of part of its accumulated
deficit to the 1995-96 fiscal year. In order to assure repayment of $4.0 billion
of this borrowing which matures on April 25, 1996, the State enacted legislation
(the "Trigger Law") which would lead to automatic, across-the-board budget cuts
in General Fund expenditures if cash flow projections made at certain times
deteriorated from estimates made in July 1994 when the borrowings were made. The
State's cash position remained favorable enough during the 1994-95 fiscal year
that the State Controller determined that no automatic budget cuts were needed
in that year.
CURRENT BUDGET. For the first time in four years, the State entered the
1995-96 fiscal year with strengthening revenues based on an improving economy.
The major feature of the Governor's proposed budget, a 15% phased cut in
personal income and business taxes, was rejected by the Legislature.
The 1995-96 Budget Act was signed by the Governor on August 3, 1995, 34
days after the start of the fiscal year. The Budget Act projected General Fund
revenues and transfers of $44.1 billion, a 3.5 percent increase from the prior
years. Expenditures were budgeted at $43.4 billion, a 4 percent increase. The
Department of Finance projected that, after repaying the last of the carryover
budget deficit, there would be a positive balance of less than $30 million in
the budget reserve, the Special Fund for Economic Uncertainties, at June 30,
1996.
The Department of Finance projected cash flow borrowings in the 1995-96
Fiscal Year would be the smallest in many years, comprising about $2 billion of
notes to be issued in April, 1996, and maturing by June 30, 1996. With full
payment of $4 billion of revenue anticipation warrants on April 25, 1996, the
Department saw no further need for borrowing over the end of the fiscal year.
The Department projected that available internal cash resources to pay State
obligations would be about $1.9 billion at June 30, 1996. On October 15, the
State Controller, in the last step in the trigger Law process, reported that
projected cash resources in the General Fund during fiscal year 1995-96 would be
large enough to again avoid the need for any automatic budget cuts. However, the
Controller estimated that the State's cash position on June 30, 1996 would be
about $500 million less than estimated by the Department of Finance.
The principal features of the 1995-96 Budget Act, in addition to those
noted above, were additional cuts in health and welfare expenditures (some of
which are subject to approvals or waivers by the federal government); assumed
further federal aid for illegal immigrant costs; and an increase in per-pupil
funding for public schools and community colleges, the first such significant
increase in four years.
The Governor's Proposed Budget for the 1996-97 Fiscal Year (the
Governor's Budget), released on January 10, 1996, updated financial projections
for the current year. With the improved economic conditions, the Department of
Finance projects $45.0 billion of General Fund revenues, and expenditures are
projected to increase to $44.2 billion for FY 1995-96. The net results are
projected to leave a budget reserve in the SFEU of about $40 million at June 30,
1996, thus finally repaying the accumulated deficits of the recession years.
The Governor's Budget proposed General Fund spending in 1996-97 of
$45.2 billion, with revenues of $45.6 billion, leaving a budget reserve in the
SFEU of about $400 billion. The Governor has again proposed a three-year phased
15% reduction of personal income and corporate tax rates. The Governor's Budget
also assumes implementation of certain previously-approved cuts in health and
welfare costs, adoption of further cuts in welfare payments, and receipt of new
federal aid for illegal immigrant costs. The Governor's Budget proposed
increased expenditures for K-12 school aid, higher education, and corrections.
The Governor's budget projects annual cash flow borrowing of about $3.2 billion.
The State's financial difficulties for the current and upcoming years
will result in continued pressure upon almost all local governments,
particularly school districts and counties which depend on State aid. Despite
efforts in recent years to increase taxes and reduce governmental expenditures,
there can be no assurance that the State will not face budget gaps in the
future.
BOND RATINGS
State general obligation bonds are currently rated "A1" by Moody's and
"A" by S&P. Both of these ratings were reduced from "AAA" levels which the State
held until late 1991. There can be no assurance that such ratings will be
maintained in the future. It should be noted that the creditworthiness of
obligations issued by local California issuers may be unrelated to the
creditworthiness of obligations issued by the State of California, and that
there is no obligation on the part of the State to make payment on such
obligations in the event of default.
LEGAL PROCEEDINGS
The State is involved in certain legal proceedings (described in the
State's recent financial statements) that, if decided against the State, may
require the State to make significant future expenditures or may substantially
impair revenues.
OBLIGATIONS OF OTHER ISSUERS
OTHER ISSUERS OF CALIFORNIA MUNICIPAL OBLIGATIONS. There are a number
of state agencies, instrumentalities and political subdivisions of the State
that issue municipal obligations, some of which may be conduit revenue
obligations payable from payments from private borrowers. These entities are
subject to various economic risks and uncertainties, and the credit quality of
the securities issued by them may vary considerably from the credit quality of
obligations backed by the full faith and credit of the State.
STATE ASSISTANCE. Property tax revenues received by local governments
declined more than 50% following passage of Proposition 13. Subsequently, the
California Legislature enacted measures to provide for the redistribution of the
State's General Fund surplus to local agencies, the reallocation of certain
State revenues to local agencies and the assumption of certain governmental
functions by the State to assist municipal issuers to raise revenues. Through
1990-91, local assistance (including public schools) accounted for around 75% of
General Fund spending. To reduce State General Fund support for school
districts, the 1992-93 and 1993-94 Budget Acts caused local governments to
transfer a total of $3.9 billion of property tax revenues to school districts,
representing loss of all the post-Proposition 13 "bailout" aid. The largest
share of these transfers came from counties, and the balance from cities,
special districts and redevelopment agencies. In order to make up part of this
shortfall, the Legislature proposed, and voters approved, dedicating 0.5% of the
sales tax to counties and cities for public safety purposes. In addition, the
Legislature has changed laws to relieve local governments of certain mandates,
allowing them to reduce costs.
To the extent the State should be constrained by its Article XIIIB
appropriations limit, or its obligation to conform to Proposition 98, or other
fiscal considerations, the absolute level, or the rate of growth, of State
assistance to local governments may continue to be reduced. Any such reductions
in State aid could compound the serious fiscal constraints already experienced
by many local governments, particularly counties. At least one rural county
(Butte) publicly announced that it might enter bankruptcy proceedings in August
1990, although such plans were put off after the Governor approved legislation
to provide additional funds for the county. Other counties have also indicated
that their budgetary condition is extremely grave. At the start of the 1995-96
fiscal year, Los Angeles County, the largest in the State, faced a nominal $1.2
billion gap in its $12 billion budget, half of which was in the County health
care system. The gaps were closed only with significant cuts in services and
personnel, particularly in the health care system, federal aid, and transfer of
some funds from other local governments to the County pursuant to special
legislation. The County's debt was downgraded by Moody's and S&P in the summer
of 1995. The Richmond Unified School District (Contra Cost County) entered
bankruptcy proceedings in May 1991, but the proceedings have been dismissed.
ORANGE COUNTY. On December 6, 1994, Orange County, California (the
"County"), together with its pooled investment funds (the "Pools") filed for
protection under Chapter 9 of the federal Bankruptcy Code, after reports that
the Pools had suffered significant market losses in their investments causing a
liquidity crisis for the Pools and the County. More than 200 other public
entities, most but not all located in the County, were also depositors in the
Pools. The County estimated the Pools' loss at about $1.7 billion, or 22% of its
initial deposits of around $7.5 billion. Many of the entities which kept money
in the Pools (Pool participants), including the County, faced cash flow
difficulties, suffered ratings adjustments, and implemented cuts in personnel
and programs. Some obligations of the County and certain other Pool participants
had technical defaults, or were rescheduled. The bankruptcy court has approved a
settlement agreement between the county and most of the other Pool participants
which provided about 80% (90% in the case of school districts) return of cash
invested, with the balance to be repaid over time, including from potential
recoveries in lawsuits. The County has implemented a financial recovery plan
which includes significant personnel cuts, and refinancing of current debts
using new funds transferred to the County from certain other local governments
pursuant to special legislation adopted in late 1995.
The State of California has no existing obligation with respect to any
obligations or securities of the County or any of the other Pool participants.
However, the State may be obligated to intervene to ensure that school districts
have sufficient funds to operate, or to maintain certain county-administered
state programs. As of January 1, 1996, no school districts which were Pool
participants had become insolvent.
ASSESSMENT BONDS. California municipal obligations that are assessment
bonds may be adversely affected by a general decline in real estate values or a
slowdown in real estate sales activity. In many cases, such bonds are secured by
land that is undeveloped at the time of issuance, but anticipated to be
developed within a few years after issuance. In the event of such reduction or
slowdown, such development may not occur or may be delayed, thereby increasing
the risk of a default on the bonds. Because the special assessments or taxes
securing these bonds are not the personal liability of the owners of the
property assessed, the lien on the property is the only security for the bonds.
Moreover, in most cases the issuer of these bonds is not required to make
payments on the bonds in the event of delinquency in the payment of assessments
or taxes, except from amounts, if any, in a reserve fund established for the
bonds.
CALIFORNIA LONG-TERM LEASE OBLIGATIONS. Certain California long-term
lease obligations, though typically payable from the general fund of the
municipality, are subject to "abatement" in the event the facility being leased
is unavailable for beneficial use and occupancy by the municipality during the
term of the lease. Abatement is not a default, and there may be no remedies
available to the holders of the certificates evidencing the lease obligation in
the event abatement occurs. The most common cases of abatement are failure to
complete construction of the facility before the end of the period during which
lease payments have been capitalized and uninsured casualty losses to the
facility (e.g. due to earthquake). In the event abatement occurs with respect to
a lease obligation, lease payments may be interrupted (if all available
insurance proceeds and reserves are exhausted) and the certificates may not be
paid when due.
Several years ago the Richmond Unified School District (the "District")
entered into a lease transaction in which certain existing properties of the
District were sold and leased back in order to obtain funds to cover operating
deficits. Following a fiscal crisis in which the District's finances were taken
over by a State receiver (including a brief period under bankruptcy court
protection), the District failed to make rental payments on this lease,
resulting in a lawsuit by the Trustee for the Certificate of Participation
holders, in which the State was a named defendant (on the grounds that it
controlled the District's finances). One of the defenses raised in answer to
this lawsuit was the invalidity of the District's lease. The trial court upheld
the validity of the lease, and the case has subsequently been settled. Any
judgment in a similar case against the position taken by the Trustee may have
adverse implications for lease transactions of a similar nature by other
California entities.
OTHER CONSIDERATIONS
The repayment of industrial development securities secured by real
property may be affected by California laws limiting foreclosure rights of
creditors. Securities backed by health care and hospital revenues may be
affected by changes in State regulations governing cost reimbursements to health
care providers under Medi-Cal (the State's Medicaid program), including risks
related to the policy of awarding exclusive contracts to certain hospitals.
Limitations on ad valorem property taxes may particularly affect "tax
allocation" bonds issued by California redevelopment agencies. Such bonds are
secured solely by the increase in assessed valuation of a redevelopment project
area after the start of redevelopment activity. In the event that assessed
values in the redevelopment project decline (e.g. because of major natural
disaster such as an earthquake), the tax increment revenue may be insufficient
to make principal and interest payments on these bonds. Both Moody's and S&P
suspended ratings on California tax allocation bonds after the enactment of
Articles XIIIA and XIIIB, and only resumed such ratings on a selective basis.
Proposition 87, approved by California voters in 1988, requires that
all revenues produced by a tax rate increase go directly to the taxing entity
that increased such tax rate to repay that entity's general obligation
indebtedness. As a result, redevelopment agencies (which typically are the
issuers of tax allocation securities) no longer receive an increase in tax
increment when taxes on property in the project area are increased to repay
voter-approved bonded indebtedness.
The effect of these various constitutional and statutory changes upon
the ability of California municipal securities issuers to pay interest and
principal on their obligations remains unclear. Furthermore, other measures
affecting the taxing or spending authority of California or its political
subdivisions may be approved or enacted in the future. Legislation has been or
may be introduced that would modify existing taxes or other revenue raising
measures or that either would further limit or, alternatively, would increase
the abilities of state and local governments to impose new taxes or increase
existing taxes. It is not presently possible to predict the extent to which any
such legislation will be enacted. Nor is it presently possible to determine the
impact of any such legislation on California municipal obligations in which the
Fund may invest, future allocations of state revenues to local governments or
the abilities of state or local governments to pay the interest on, or repay the
principal of, such California municipal obligations.
Substantially all of California is within an active geologic region
subject to major seismic activity. Northern California in 1989 and Southern
California in 1994 experienced major earthquakes causing billions of dollars in
damages. The federal government provided more than $13 billion in aid for both
earthquakes, and neither event is expected to have any long-term negative
economic impact. Any security in the California Insured Fund could be affected
by an interruption of revenues because of damaged facilities, or, consequently,
income tax deductions for casualty losses or property tax assessment reductions.
Compensatory financial assistance could be constrained by the inability of (i)
an issuer to have obtained earthquake insurance coverage at reasonable rates;
(ii) an insurer to perform on its contracts of insurance in the event of
widespread losses; or (iii) the federal or State governments to appropriate
sufficient funds within their respective budget limitations.
KEYSTONE MISSOURI TAX FREE FUND
GENERAL
Missouri's economy includes manufacturing, commerce, trade, services,
agriculture, tourism and mining. The State's economy is diversified and closely
resembles that of the nation's although growth prospects are less favorable than
in the past. It is the nation's fifteenth largest state. The State employment
sectors, services, trade and manufacturing, also account for the primary sources
of national employment. Recent growth in the manufacturing sector has outpaced
the nation as a whole. Labor force growth has remained steady, totaling 2.65
million in 1993, up from 2.3 million in 1980. Through the 1980's and early
1990's the State's unemployment rate essentially mirrored that of the nation;
however, adverse changes in military appropriations, which play an important
role in the State's economy, could contribute to a significant increase in
unemployment. In 1991, according to the Bureau of Labor Statistics, the State
ranked fifteenth among the states in unadjusted nonagricultural employment and
estimated the November 1992 adjusted unemployment rate to be 4.9%, below the
national rate of 7.2%. In August 1995, the State's unemployment rate was
estimated to be 5.0% as against the national rate of 5.6%. In recent years,
Missouri's wealth indicators have grown at a slower rate than national levels
and in 1994 the State's per capita personal income was approximately 96.5% of
the average for the nation as a whole.
Missouri displayed strong fiscal performance during most of the 1980's.
However, Missouri has recently experienced difficulties in balancing its budget
as a result of increased expenses and declining sources of revenues. Other
factors contributing to Missouri's weak fiscal position relate to the reduction
of large manufacturing companies, including those in aerospace and the auto
industry. The Missouri portions of the St. Louis and Kansas City metropolitan
areas together contain over 50% of Missouri's population. Economic reversals in
either of these two areas would have a major impact on the overall economic
condition of the State of Missouri. Additionally, the State of Missouri has a
significant agricultural sector, which may experience problems comparable to
those which are occurring in other states. To the extent that any such problems
intensify, there could possibly be an adverse impact on the overall economic
condition of the State.
Currently, general obligations of Missouri are rated "AAA," "Aaa" and
"AAA," by S&P, Moody's and Fitch, respectively. There can be no assurance that
the economic conditions on which these ratings are based will continue or that
particular bond issues may not be adversely affected by changes in economic,
political or other conditions.
REVENUE AND LIMITATIONS THEREON
Article X, Section 16-24 of the Constitution of Missouri (the "Hancock
Amendment"), imposes limitations on the amount of State taxes which may be
imposed by the General Assembly of Missouri (the "General Assembly") as well as
on the amount of local taxes, licenses and fees (including taxes, licenses and
fees used to meet debt service commitments on debt obligations) which may be
imposed by local governmental units (such as cities, counties, school districts,
fire protection districts and other similar bodies) in the State of Missouri in
any fiscal year.
The State limit on taxes is tied to total State revenues for fiscal
year 1980-81, as defined in the Hancock Amendment, adjusted annually in
accordance with the formula set forth in the amendment, which adjusts the limit
based on increases in the average personal income of Missouri for certain
designated periods. The details of the Amendment are complex and clarification
from subsequent legislation and further judicial decisions may be ncesessary.
Generally, if the total State revenues exceed the State revenue limit imposed by
Section 18 of Article X by more than one percent, the State is required to
refund the excess. The State revenue limitation imposed by the Hancock Amendment
does not apply to taxes imposed for the payment of principal and interest on
bonds, approved by the voters and authorized by the Missouri constitution. The
revenue limit also can be exceeded by a constitutional amendment authorizing new
or increased taxes or revenue adopted by the voters of the State of Missouri.
The Hancock Amendment also limits new taxes, licenses and fees and
increases in taxes, licenses and fees by local governmental units in Missouri.
It prohibits counties and other political subdivisions (essentially all local
governmental units) from levying new taxes, licenses and fees or increasing the
current levy of an existing tax, license or fee without the approval of the
required majority of the qualified voters of that county or other political
subdivision voting thereon.
When a local government unit's tax base with respect to certain fees or
taxes is broadened, the Hancock Amendment requires the tax levy or fees to be
reduced to yield the same estimated gross revenue as on the prior base. It also
effectively limits any percentage increase in property tax revenues to the
percentage increase in the general price level (plus the value of new
construction and improvements), even if the assessed valuation of property in
the local governmental unit, excluding the value of new construction and
improvements, increases at a rate exceeding the increase in the general price
level.
INDUSTRY AND EMPLOYMENT
While Missouri has a diverse economy with a distribution of earnings
and employment among manufacturing, trade and service sectors closely
approximating the average national distribution, the national economic recession
of the early 1980's had a disproportionately adverse impact on the economy of
Missouri. During the 1970's, Missouri characteristically had a pattern of
unemployment levels well below the national averages. However, since the 1980 to
1983 recession periods Missouri unemployment levels generally approximated or
slightly exceeded the national average. A return to a pattern of high
unemployment could adversely affect the Missouri debt obligations acquired by
the Missouri Fund and, consequently, the value of the shares of the Fund.
The Missouri portions of the St. Louis and Kansas City metropolitan
areas contain approximately 1,938,400 and 1,007,000 residents, respectively,
constituting over fifty percent of Missouri's 1995 population census of
approximately 5,237,820. St. Louis is an important site for banking and
manufacturing activity, as well as a distribution and transportation center,
with eight Fortune 500 industrial companies (as well as other major educational,
financial, insurance, retail, wholesale and transportation companies and
institutions) headquartered there. Kansas City is a major agribusiness center
and an important center for finance and industry. Economic reversals in either
of these two areas would have a major impact on the overall economic condition
of the State of Missouri. Additionally, the State of Missouri has a significant
agricultural sector which is experiencing farm-related problems comparable to
those which are occurring in other states. To the extent that these problems
were to intensify, there could possibly be an adverse impact on the overall
economic condition of the State of Missouri.
Defense related business plays an important role in Missouri's economy.
There are a large number of civilians employed at the various military
installations and training bases in the state and recent action of the Defense
Base Closure and Realignment Commission will result in the loss of a substantial
number of civilian jobs in the St. Louis Metropolitan area. Further, aircraft
and related businesses in Missouri are the recipients of substantial annual
dollar volumes of defense contract awards. The contractor receiving the largest
dollar volume of defense contracts in the United States in 1994 was McDonnell
Douglas Corporation. McDonnell Douglas Corporation is the State's largest
employer, currently employing approximately 24,000 employees in Missouri. Recent
changes in the levels of military appropriations and the cancellation of the
A-12 program has affected McDonnell Douglas Corporation in Missouri and over the
last four years it has reduced its Missouri work force by approximately 30%.
There can be no assurances that there will be further changes in the levels of
military appropriations, and, to the extent that further changes in military
appropriations are enacted by the United States Congress, Missouri could be
disproportionately affected.
OTHER FACTORS
Desegregation lawsuits in St. Louis and Kansas City continue to require
significant levels of state funding and are sources of uncertainty. Litigation
continues on many issues, court orders are unpredictable, and school district
spending patterns have proven difficult to predict. A recent Supreme Court
decision favorable to the State may decrease the level of State funding required
in the future, but the impact of this decision is uncertain. The State paid $282
million for desegregation costs in fiscal 1994 and for fiscal 1995 provided $315
million. This expense accounts for close to 7% of total state General Revenue
Fund spending.
#1027009c
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APPENDIX B
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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.
CORPORATE AND MUNICIPAL BOND RATINGS
S&P CORPORATE AND MUNICIPAL BOND RATINGS
A. MUNICIPAL NOTES
An S&P note rating reflects the liquidity concerns and market access
risks unique to notes. Notes due in three years or less will likely receive a
note rating. Notes maturing beyond three years will most likely receive a
long-term debt rating. The following criteria are used in making that
assessment:
a. Amortization schedule (the larger the final maturity relative to
other maturities the more likely it will be treated as a note), and
b. Source of payment (the more dependent the issue is on the market for
its refinancing, the more likely it will be treated as a note).
Note ratings are as follows:
1. SP-1 - Very strong or strong capacity to pay principal and interest.
Those issues determined to possess overwhelming safety characteristics will be
given a plus (+) designation.
2. SP-2 - Satisfactory capacity to pay principal and interest.
3. SP-3 - Speculative capacity to pay principal and interest.
B. TAX EXEMPT DEMAND BONDS
S&P assigns "dual" ratings to all long-term debt issues that have as
part of their provisions a demand or double feature.
The first rating addresses the likelihood of repayment of principal and
interest as due, and the second rating addresses only the demand feature. The
long-term debt rating symbols are used for bonds to denote the long-term
maturity and the commercial paper rating symbols are used to denote the put
option (for example, "AAA/A-1+"). For the newer "demand notes," S&P note rating
symbols, combined with the commercial paper symbols, are used (for example,
"SP-1+/A-1+").
C. CORPORATE AND MUNICIPAL BOND RATINGS
An S&P corporate or municipal bond rating is a current assessment of
the creditworthiness of an obligor, including obligors outside the U.S., with
respect to a specific obligation. This assessment may take into consideration
obligors such as guarantors, insurers or lessees. Ratings of foreign obligors do
not take into account currency exchange and related uncertainties. The ratings
are based on current information furnished by the issuer or obtained by S&P from
other sources it considers reliable.
The ratings are based, in varying degrees, on the following
considerations:
a. Likelihood of default and capacity and willingness of the obligor as
to the timely payment of interest and repayment of principal in accordance with
the terms of the obligation;
b. Nature of and provisions of the obligation; and
c. Protection afforded by and relative position of the obligation in
the event of bankruptcy reorganization or other arrangement under the laws of
bankruptcy and other laws affecting creditors' rights.
PLUS (+) OR MINUS (-): To provide more detailed indications of credit
quality, ratings from "AA" to "BBB" may be modified by the addition of a plus or
minus sign to show relative standing within the major rating categories.
A provisional rating is sometimes used by S&P. It assumes the
successful completion of the project being financed by the debt being rated and
indicates that payment of debt service requirements is largely or entirely
dependent upon the successful and timely completion of the project. This rating,
however, while addressing credit quality subsequent to completion of the
project, makes no comment on the likelihood of, or the risk of default upon
failure of, such completion.
Bond ratings are as follows:
1. AAA - Debt rated AAA has the highest rating assigned by S&P.
Capacity to pay interest and repay principal is extremely strong.
2. AA - Debt rated AA has a very strong capacity to pay interest and
repay principal and differs from the higher rated issues only in small degree.
3. A - Debt rated A has a strong capacity to pay interest and repay
principal although it is somewhat more susceptible to the adverse effects of
changes in circumstances and economic conditions than debt in higher rated
categories.
4. BBB - Debt rated BBB is regarded as having an adequate capacity to
pay interest and repay principal. Whereas it normally exhibits adequate
protection parameters, adverse economic conditions or changing circumstances are
more likely to lead to a weakened capacity to pay interest and repay principal
for debt in this category than in higher rated categories.
5. BB, B, CCC, CC AND C - Debt rated BB, B, CCC, CC AND C is regarded,
on balance, as predominantly speculative with respect to capacity to pay
interest and repay principal in accordance with the terms of the obligation. BB
indicates the lowest degree of speculation and C the highest degree of
speculation. While such debt will likely have some quality and protective
characteristics, these are outweighed by large uncertainties or major risk
exposures to adverse conditions.
D. MOODY'S CORPORATE AND MUNICIPAL BOND RATINGS
Moody's ratings are as follows:
1. Aaa - Bonds that are rated Aaa are judged to be of the best quality.
They carry the smallest degree of investment risk and are generally referred to
as "gilt-edge." Interest payments are protected by a large or by an
exceptionally stable margin and principal is secure. While the various
protective elements are likely to change, such changes as can be visualized are
most unlikely to impair the fundamentally strong position of such issues.
2. Aa - Bonds that are rated Aa are judged to be of high quality by all
standards. Together with the Aaa group they comprise what are generally known as
high grade bonds. They are rated lower than the best bonds because margins of
protection may not be as large as in Aaa securities or fluctuation of protective
elements may be of greater amplitude or there may be other elements present
which make the long term risks appear somewhat larger than in Aaa securities.
3. A - Bonds that are rated A possess many favorable investment
attributes and are to be considered as upper medium grade obligations. Factors
giving security to principal and interest are considered adequate but elements
may be present that suggest a susceptibility to impairment sometime in the
future.
4. Baa - Bonds that are rated Baa are considered as medium grade
obligations, i.e., they are neither highly protected nor poorly secured.
Interest payments and principal security appear adequate for the present but
certain protective elements may be lacking or may be characteristically
unreliable over any great length of time. Such bonds lack outstanding investment
characteristics and in fact have speculative characteristics as well.
5. Ba - Bonds that are rated Ba are judged to have speculative
elements. Their future cannot be considered as well assured. Often the
protection of interest and principal payments may be very moderate and thereby
not well safeguarded during both good and bad times over the future. Uncertainty
of position characterizes bonds in this class.
6. B - Bonds that are rated B generally lack characteristics of the
desirable investment. Assurance of interest and principal payments or of
maintenance of other terms of the contract over any long period of time may be
small.
Moody's applies numerical modifiers, 1, 2 and 3 in each generic rating
classification from AA through Baa in its corporate bond rating system. The
modifier 1 indicates that the security ranks in the higher end of its generic
rating category; the modifier 2 indicates a mid-range ranking; and the modifier
3 indicates that the issue ranks in the lower end of its generic rating
category.
CON. (---) - Municipal bonds for which the security depends upon the
completion of some act or the fulfillment of some condition are rated
conditionally. These are bonds secured by (a) earnings of projects under
construction, (b) earnings of projects unseasoned in operation experience, (c)
rentals that begin when facilities are completed, or (d) payments to which some
other limiting condition attaches. Parenthetical rating denotes probable credit
stature upon completion of construction or elimination of basis of condition.
Those municipal bonds in the Aa, A, and Baa groups which Moody's
believes possess the strongest investment attributes are designated by the
symbols Aa 1, A 1, and Baa 1.
MONEY MARKET INSTRUMENTS
Money market securities are instruments with remaining maturities of
one year or less such as bank certificates of deposit, bankers' acceptances,
commercial paper (including variable rate master demand notes), and obligations
issued or guaranteed by the U.S. government, its agencies or instrumentalities,
some of which may be subject to repurchase agreements.
COMMERCIAL PAPER
Commercial paper will consist of issues rated at the time of purchase
A-1, by Standard & Poor's Corporation (S&P), or PRIME-1 by Moody's Investors
Service, Inc., (Moody's) or F-1 by Fitch Investors Services, Inc. (Fitch's); or,
if not rated, will be issued by companies that have an outstanding debt issue
rated at the time of purchase Aaa, Aa or A by Moody's, or AAA, AA or A by S&P,
or will be determined by Keystone to be of comparable quality.
A. S&P RATINGS
An S&P commercial paper rating is a current assessment of the
likelihood of timely payment of debt having an original maturity of no more than
365 days. Ratings are graded into four categories, ranging from "A" for the
highest quality obligations to "D" for the lowest. The top category is as
follows:
1.A: Issues assigned this highest rating are regarded as having the
greatest capacity for timely payment. Issues in this category are delineated
with the numbers 1, 2 and 3 to indicate the relative degree of safety.
2.A-1: This designation indicates that the degree of safety regarding
timely payment is either overwhelming or very strong. Those issues determined to
possess overwhelming safety characteristics are denoted with a plus (+) sign
designation.
B. MOODY'S RATINGS
The term "commercial paper" as used by Moody's means promissory
obligations not having an original maturity in excess of nine months. Moody's
commercial paper ratings are opinions of the ability of issuers to repay
punctually promissory obligations not having an original maturity in excess of
nine months. Moody's employs the following designation, judged to be investment
grade, to indicate the relative repayment capacity of rated issuers.
1. The rating PRIME-1 is the highest commercial paper rating assigned
by Moody's. Issuers rated PRIME-1 (or related supporting institutions) are
deemed to have a superior capacity for repayment of short term promissory
obligations. Repayment capacity of PRIME-1 issuers is normally evidenced by the
following characteristics:
1) leading market positions in well-established industries;
2) high rates of return on funds employed;
3) conservative capitalization structures with moderate reliance on
debt and ample asset protection;
4) broad margins in earnings coverage of fixed financial charges and
high internal cash generation; and
5) well established access to a range of financial markets and assured
sources of alternate liquidity.
In assigning ratings to issuers whose commercial paper obligations are
supported by the credit of another entity or entities, Moody's evaluates the
financial strength of the affiliated corporations, commercial banks, insurance
companies, foreign governments or other entities, but only as one factor in the
total rating assessment.
CERTIFICATES OF DEPOSIT
Certificates of deposit are receipts issued by a bank in exchange for
the deposit of funds. The issuer agrees to pay the amount deposited plus
interest to the bearer of the receipt on the date specified on the certificate.
The certificate usually can be traded in the secondary market prior to maturity.
Certificates of deposit will be limited to U.S. dollar-denominated
certificates of U.S. banks or of savings and loan associations, including their
branches abroad, and of U.S. branches of foreign banks, which are members of the
Federal Reserve System or the Federal Deposit Insurance Corporation, and have at
least $1 billion in deposits as of the date of their most recently published
financial statements.
The Funds will not acquire time deposits or obligations issued by the
International Bank for Reconstruction and Development, the "World Bank", the
Asian Development Bank or the Inter-American Development Bank. Additionally, the
Funds do not currently intend to purchase foreign securities (except to the
extent that certifi-cates of deposit of foreign branches of U.S. banks may be
deemed foreign securities) or purchase certificates of deposit, bankers'
acceptances or other similar obligations issued by foreign banks.
BANKERS' ACCEPTANCES
Bankers' acceptances typically arise from short-term credit
arrangements designed to enable businesses to obtain funds to finance commercial
transactions. Generally, an acceptance is a time draft drawn on a bank by an
exporter or an importer to obtain a stated amount of funds to pay for specific
merchandise. The draft is then "accepted" by the bank that, in effect,
unconditionally guarantees to pay the face value of the instrument on its
maturity date. The acceptance may then be held by the accepting bank as an
earning asset or it may be sold in the secondary market at the going rate of
discount for a specific maturity. Although maturities for acceptances can be as
long as 270 days, most acceptances have maturities of six months or less.
Bankers' acceptances acquired by a Fund must have been accepted by U.S.
commercial banks, including foreign branches of U.S. commercial banks, having
total deposits at the time of purchase in excess of $1 billion and must be
payable in U.S. dollars.
U.S. GOVERNMENT SECURITIES
Securities issued or guaranteed by the U.S. government include a
variety of Treasury securities that differ only in their interest rates,
maturities and dates of issuance and securities issued by the Government
National Mortgage Association ("GNMA"). Treasury bills have maturities of one
year or less. Treasury notes have maturities of one to ten years and Treasury
bonds generally have maturities of greater than ten years at the date of
issuance. GNMA securities include GNMA mortgage pass-through certificates. Such
securities are supported by the full faith and credit of the U.S.
Securities issued or guaranteed by U.S. government agencies or
instrumentalities include securities issued or guaranteed by the Federal Housing
Administration, Farmers Home Administration, Export-Import Bank of the U.S.,
Small Business Administration, General Services Administration, Central Bank for
Cooperatives, Federal Home Loan Banks, Federal Loan Mortgage Corporation,
Federal Intermediate Credit Banks, Federal Land Banks, Maritime Administration,
The Tennessee Valley Authority, District of Columbia Armory Board and Federal
National Mortgage Association.
Some obligations of U.S. government agencies and instrumentalities,
such as securities of Federal Home Loan Banks, are supported by the right of the
issuer to borrow from the Treasury. Others, such as bonds issued by the Federal
National Mortgage Association, a private corporation, are supported only by the
credit of the instrumentality. Because the U.S. government is not obligated by
law to provide support to an instrumentality it sponsors, a Fund will invest in
the securities issued by such an instrumentality only when Keystone determines
under standards established by the Board of Trustees that the credit risk with
respect to the instrumentality does not make its securities unsuitable
investments. U.S. government securities do not include international agencies or
instrumentalities in which the U.S. government, its agencies or
instrumentalities participate, such as the World Bank, Asian Development Bank or
the Inter-American Development Bank, or issues insured by the Federal Deposit
Insurance Corporation.
MUNICIPAL LEASE OBLIGATIONS
Municipal lease obligations purchased primarily through Certificates of
Participation ("CPOs") are used by state and local governments to finance the
purchase of property, and function much like installment purchase obligations.
The payments made by the municipality under the lease are used to repay interest
and principal on the bonds issued to purchase the property. Once these lease
payments are completed, the municipality gains ownership of the property for a
nominal sum. The lessor is, in effect, a lender secured by the property being
leased. A feature that distinguishes CPOs from municipal debt is that the lease
that is the subject of the transaction must contain a "nonappropriation" or
"abatement" clause. A nonappropriation clause provides that provides that, while
the municipality will use its best efforts to make lease payments, the
municipality may terminate the lease without penalty if the municipality's
appropriating body does not allocate the necessary funds. Local administrations,
being faced with increasingly tight budgets, therefore have more discretion to
curtail payments under COPs than they do to curtail payments on traditionally
funded debt obligations. If the government lessee does not appropriate
sufficient monies to make lease payments, the lessor or its agent is typically
entitled to repossess the property. In most cases, however, the private sector
value of the property will be less than the amount the government lessee was
paying.
Criteria considered by the rating agencies and Keystone in assessing
the risk of appropriation include the issuing municipality's credit rating,
evaluation of how essential the leased property is to the municipality and term
of the lease compared to the useful life of the leased property. The Board of
Trustees reviews the COPs held in each Fund's portfolio to assure that they
constitute liquid investments based on various factors reviewed by Keystone and
monitored by the Board. Such factors include (a) the credit quality of such
securities and the extent to which they are rated or, if unrated, comply with
existing criteria and procedures followed to ensure that they are of quality
comparable to the ratings required for each Fund's investment, including an
assessment of the likelihood that the leases will not be cancelled; (b) the size
of the municipal securities market, both in general and with respect to COPs;
and (c) the extent to which the type of COPs held by each Fund trade on the same
basis and with the same degree of dealer participation as other municipal bonds
of comparable credit rating or quality.
FUTURES CONTRACTS AND RELATED OPTIONS TRANSACTIONS
The Funds intend to enter into financial futures contracts as a hedge
against changes in prevailing levels of interest rates to seek relative
stability of principal and to establish more definitely the effective return on
securities held or intended to be acquired by a Fund or as a hedge against
changes in the prices of securities held by a Fund or to be acquired by a Fund.
A Fund's hedging may include sales of futures as an offset against the effect of
expected increases in interest rates or securities prices and purchases of
futures as an offset against the effect of expected declines in interest rates.
For example, when a Fund anticipates a significant market or market
sector advance, it will purchase a stock index futures contract as a hedge
against not participating in such advance at a time when a Fund is not fully
invested. The purchase of a futures contract serves as a temporary substitute
for the purchase of individual securities which may then be purchased in an
orderly fashion. As such purchases are made, an equivalent amount of index based
futures contracts would be terminated by offsetting sales. In contrast, a Fund
would sell stock index futures contracts in anticipation of or in a general
market or market sector decline that may adversely affect the market value of
the Fund's portfolio. To the extent that the Fund's portfolio changes in value
in correlation with a given index, the sale of futures contracts on that index
would substantially reduce the risk to the portfolio of a market decline or
change in interest rates, and, by doing so, provide an alternative to the
liquidation of the Fund's securities positions and the resulting transaction
costs.
The Funds intend to engage in options transactions that are related to
financial futures contracts for hedging purposes and in connection with the
hedging strategies described above.
Although techniques other than sales and purchases of futures contracts
and related options transactions could be used to reduce the Funds' exposure to
interest rate and/or market fluctuations, the Funds may be able to hedge their
exposure more effectively and perhaps at a lower cost through using futures
contracts and related options transactions. While the Funds do not intend to
take delivery of the instruments underlying futures contracts they hold, the
Funds do not intend to engage in such futures contracts for speculation.
FUTURES CONTRACTS
Futures contracts are transactions in the commodities markets rather
than in the securities markets. A futures contract creates an obligation by the
seller to deliver to the buyer the commodity specified in the contract at a
specified future time for a specified price. The futures contract creates an
obligation by the buyer to accept delivery from the seller of the commodity
specified at the specified future time for the specified price. In contrast, a
spot transaction creates an immediate obligation for the seller to deliver and
the buyer to accept delivery of and pay for an identified commodity. In general,
futures contracts involve transactions in fungible goods such as wheat, coffee
and soybeans. However, in the last decade an increasing number of futures
contracts have been developed which specify financial instruments or financially
based indexes as the underlying commodity.
U.S. futures contracts are traded only on national futures exchanges
and are standardized as to maturity date and underlying financial instrument.
The principal financial futures exchanges in the United States are The Board of
Trade of the City of Chicago, the Chicago Mercantile Exchange, the International
Monetary Market (a division of the Chicago Mercantile Exchange), the New York
Futures Exchange and the Kansas City Board of Trade. Each exchange guarantees
performance under contract provisions through a clearing corporation, a
nonprofit organization managed by the exchange membership, which is also
responsible for handling daily accounting of deposits or withdrawals of margin.
A futures commission merchant ("Broker") effects each transaction in connection
with futures contracts for a commission. Futures exchanges and trading are
regulated under the Commodity Exchange Act by the Commodity Futures Trading
Commission ("CFTC") and National Futures Association ("NFA").
INTEREST RATE FUTURES CONTRACTS
The sale of an interest rate futures contract creates an obligation by
a Fund, as seller, to deliver the type of financial instrument specified in the
contract at a specified future time for a specified price. The purchase of an
interest rate futures contract creates an obligation by a Fund, as purchaser, to
accept delivery of the type of financial instrument specified at a specified
future time for a specified price. The specific securities delivered or
accepted, respectively, at settlement date, are not determined until at or near
that date. The determination is in accordance with the rules of the exchange on
which the futures contract sale or purchase was made.
Currently, interest rate futures contracts can be purchased or sold on
90-day U.S. Treasury bills, U.S. Treasury bonds, U.S. Treasury notes with
maturities between 6 1/2 and 10 years, GNMA certificates, 90-day domestic bank
certificates of deposit, 90-day commercial paper, and 90-day Eurodollar
certificates of deposit. It is expected that futures contracts trading in
additional financial instruments will be authorized. The standard contract size
is $100,000 for futures contracts in U.S. Treasury bonds, U.S. Treasury notes
and GNMA certificates, and $1,000,000 for the other designated contracts. While
U.S. Treasury bonds, U.S. Treasury bills and U.S. Treasury notes are backed by
the full faith and credit of the U.S. government and GNMA certificates are
guaranteed by a U.S. government agency, the futures contracts in U.S. government
securities are not obligations of the U.S. Treasury.
INDEX BASED FUTURES CONTRACTS, OTHER THAN STOCK INDEX BASED
It is expected that bond index and other financially based index
futures contracts will be developed in the future. It is anticipated that such
index based futures contracts will be structured in the same way as stock index
futures contracts but will be measured by changes in interest rates, related
indexes or other measures, such as the consumer price index. In the event that
such futures contracts are developed, the Funds will sell interest rate index
and other index based futures contracts to hedge against changes which are
expected to affect the Funds' portfolios.
The purchase or sale of a futures contract differs from the purchase or
sale of a security, in that no price or premium is paid or received. Instead, to
initiate trading an amount of cash, cash equivalents, money market instruments,
or U.S. Treasury bills equal to approximately 1 1/2% (up to 5%) of the contract
amount must be deposited by a Fund with the Broker. This amount is known as
initial margin. The nature of initial margin in futures transactions is
different from that of margin in security transactions. Futures contract margin
does not involve the borrowing of funds by the customer to finance the
transactions. Rather, the initial margin is in the nature of a performance bond
or good faith deposit on the contract which is returned to a Fund upon
termination of the futures contract assuming all contractual obligations have
been satisfied. The margin required for a particular futures contract is set by
the exchange on which the contract is traded and may be significantly modified
from time to time by the exchange during the term of the contract.
Subsequent payments, called variation margin, to the Broker and from
the Broker, are made on a daily basis as the value of the underlying instrument
or index fluctuates making the long and short positions in the futures contract
more or less valuable, a process known as mark-to-market. For example, when a
Fund has purchased a futures contract and the price of the underlying financial
instrument or index has risen, that position will have increased in value, and
the Fund will receive from the Broker a variation margin payment equal to that
increase in value. Conversely, where a Fund has purchased a futures contract and
the price of the underlying financial instrument or index has declined, the
position would be less valuable and the Fund would be required to make a
variation margin payment to the Broker. At any time prior to expiration of the
futures contract, a Fund may elect to close the position. A final determination
of variation margin is then made, additional cash is required to be paid to or
released by the Broker, and the Fund realizes a loss or gain.
The FUND intends to enter into arrangements with its custodian and with
Brokers to enable the initial margin of a Fund and any variation margin to be
held in a segregated account by its custodian on behalf of the Broker.
Although interest rate futures contracts by their terms call for actual
delivery or acceptance of financial instruments, and index based futures
contracts call for the delivery of cash equal to the difference between the
closing value of the index on the expiration date of the contract and the price
at which the futures contract is originally made, in most cases such futures
contracts are closed out before the settlement date without the making or taking
of delivery. Closing out a futures contract sale is effected by an offsetting
transaction in which a Fund enters into a futures contract purchase for the same
aggregate amount of the specific type of financial instrument or index and same
delivery date. If the price in the sale exceeds the price in the offsetting
purchase, the Fund is paid the difference and thus realizes a gain. If the
offsetting purchase price exceeds the sale price, the Fund pays the difference
and realizes a loss. Similarly, the closing out of a futures contract purchase
is effected by an offsetting transaction in which a Fund enters into a futures
contract sale. If the offsetting sale price exceeds the purchase price, the Fund
realizes a gain. If the purchase price exceeds the offsetting sale price the
Fund realizes a loss. The amount of the Fund's gain or loss on any transaction
is reduced or increased, respectively, by the amount of any transaction costs
incurred by the Fund.
As an example of an offsetting transaction, the contractual obligations
arising from the sale of one contract of September U.S. Treasury bills on an
exchange may be fulfilled at any time before delivery of the contract is
required (i.e. on a specified date in September, the "delivery month") by the
purchase of one contract of September U.S. Treasury bills on the same exchange.
In such instance the difference between the price at which the futures contract
was sold and the price paid for the offsetting purchase, after allowance for
transaction costs, represents the profit or loss to a Fund.
There can be no assurance, however, that a Fund will be able to enter
into an offsetting transaction with respect to a particular contract at a
particular time. If a Fund is not able to enter into an offsetting transaction,
the Fund will continue to be required to maintain the margin deposits on the
contract and to complete the contract according to its terms.
OPTIONS ON FINANCIAL FUTURES
The Funds intend to purchase call and put options on financial futures
contracts and sell such options to terminate an existing position. Options on
futures are similar to options on stocks except that an option on a futures
contract gives the purchaser the right, in return for the premium paid, to
assume a position in a futures contract (a long position if the option is a call
and a short position if the option is a put) rather than to purchase or sell
stock at a specified exercise price at any time during the period of the option.
Upon exercise of the option, the delivery of the futures position by the writer
of the option to the holder of the option will be accompanied by delivery of the
accumulated balance in the writer's futures margin account. This amount
represents the amount by which the market price of the futures contract at
exercise exceeds, in the case of a call, or is less than, in the case of a put,
the exercise price of the option on the futures contract. If an option is
exercised the last trading day prior to the expiration date of the option, the
settlement will be made entirely in cash equal to the difference between the
exercise price of the option and value of the futures contract.
The Funds intend to use options on financial futures contracts in
connection with hedging strategies. In the future the Funds may use such options
for other purposes.
PURCHASE OF PUT OPTIONS ON FUTURES CONTRACTS
The purchase of protective put options on financial futures contracts
is analogous to the purchase of protective puts on individual stocks, where an
absolute level of protection is sought below which no additional economic loss
would be incurred by a Fund. Put options may be purchased to hedge a portfolio
of stocks or debt instruments or a position in the futures contract upon which
the put option is based.
PURCHASE OF CALL OPTIONS ON FUTURES CONTRACTS
The purchase of call options on financial futures contracts represents
a means of obtaining temporary exposure to market appreciation at limited risk.
It is analogous to the purchase of a call option on an individual stock, which
can be used as a substitute for a position in the stock itself. Depending on the
pricing of the option compared to either the futures contract upon which it is
based, or upon the price of the underlying financial instrument or index itself,
purchase of a call option may be less risky than the ownership of the interest
rate or index based futures contract or the underlying securities. Call options
on commodity futures contracts may be purchased to hedge against an interest
rate increase or a market advance when a Fund is not fully invested.
USE OF NEW INVESTMENT TECHNIQUES INVOLVING FINANCIAL FUTURES CONTRACTS OR
RELATED OPTIONS
The Funds may employ new investment techniques involving financial
futures contracts and related options. The Funds intend to take advantage of new
techniques in these areas which may be developed from time to time and which are
consistent with the Fund's investment objective. The FUND believes that no
additional techniques have been identified for employment by the Funds in the
foreseeable future other than those described above.
LIMITATIONS ON PURCHASE AND SALE OF FUTURES CONTRACTS AND RELATED OPTIONS ON
SUCH FUTURES CONTRACTS
A Fund will not enter into a futures contract if, as a result thereof,
more than 5% of the Fund's total assets (taken at market value at the time of
entering into the contract) would be committed to margin deposits on such
futures contracts.
Each 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 a Fund owns, or futures contracts will be purchased to protect a
Fund against an increase in the price of securities it intends to purchase. The
Funds do not intend to enter into futures contracts for speculation.
In instances involving the purchase of futures contracts by a Fund, an
amount of cash and cash equivalents equal to the market value of the futures
contracts will be deposited in a segregated account with the 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, a Fund is required to recognize as
income for each taxable year its net unrealized gains and losses on futures
contracts as of the end of the year as well as those actually realized during
the year. Any gain or loss recognized with respect to a futures contract is
considered to be 60% long term and 40% short term, without regard to the holding
period of the contract. In the case of a futures transaction classified as a
"mixed straddle," the recognition of losses may be deferred to a later taxable
year. The federal income tax treatment of gains or losses from transactions in
options on futures is unclear.
In order for a Fund to continue to qualify for federal income tax
treatment as a regulated investment company, at least 90% of its gross income
for a taxable year must be derived from qualifying income. Any net gain realized
from the closing out of futures contracts, for purposes of the 90% requirement,
will be qualifying income. In addition, gains realized on the sale or other
disposition of securities held for less than three months must be limited to
less than 30% of a Fund's annual gross income. The 1986 Tax Act added a
provision which effectively treats both positions in certain hedging
transactions as a single transaction for the purpose of the 30% requirement. The
provision provides that, in the case of any "designated hedge," increases and
decreases in the value of positions of the hedge are to be netted for the
purposes of the 30% requirement. However, in certain situations, in order to
avoid realizing a gain within a three month period, a Fund may be required to
defer the closing out of a contract beyond the time when it would otherwise be
advantageous to do so.
RISKS OF FUTURES CONTRACTS
Financial futures contracts prices are volatile and are influenced,
among other things, by changes in stock prices, market conditions, prevailing
interest rates and anticipation of future stock prices, market movements or
interest rate changes, all of which in turn are affected by economic conditions,
such as government fiscal and monetary policies and actions, and national and
international political and economic events.
At best, the correlation between changes in prices of futures contracts
and of the securities being hedged can be only approximate. The degree of
imperfection of correlation depends upon circumstances, such as variations in
speculative market demand for futures contracts and for securities, including
technical influences in futures contracts trading; differences between the
securities being hedged and the financial instruments and indexes underlying the
standard futures contracts available for trading, in such respects as interest
rate levels, maturities and creditworthiness of issuers, or identities of
securities comprising the index and those in a Fund's portfolio. In addition,
futures contract transactions involve the remote risk that a party be unable to
fulfill its obligations and that the amount of the obligation will be beyond the
ability of the clearing broker to satisfy. A decision of whether, when and how
to hedge involves the exercise of skill and judgment, and even a well conceived
hedge may be unsuccessful to some degree because of market behavior or
unexpected interest rate trends.
Because of the low margin deposits required, futures trading involves
an extremely high degree of leverage. As a result, a relatively small price
movement in a futures contract may result in immediate and substantial loss, as
well as gain, to the investor. For example, if at the time of purchase, 10% of
the value of the futures contract is deposited as margin, a 10% decrease in the
value of the futures contract would result in a total loss of the margin
deposit, before any deduction for the transaction costs, if the account were
then closed out, and a 15% decrease would result in a loss equal to 150% of the
original margin deposit. Thus, a purchase or sale of a futures contract may
result in losses in excess of the amount invested in the futures contract.
However, a Fund would presumably have sustained comparable losses if, instead of
entering into the futures contract, it had invested in the underlying financial
instrument. Furthermore, in order to be certain that a Fund has sufficient
assets to satisfy its obligations under a futures contract, the Fund will
establish a segregated account in connection with its futures contracts which
will hold cash or cash equivalents equal in value to the current value of the
underlying instruments or indices less the margins on deposit.
Most U.S. futures exchanges limit the amount of fluctuation permitted
in futures contract prices during a single trading day. The daily limit
establishes the maximum amount that the price of a futures contract may vary
either up or down from the previous day's settlement price at the end of a
trading session. Once the daily limit has been reached in a particular type of
contract, no trades may be made on that day at a price beyond that limit. The
daily limit governs only price movement during a particular trading day and
therefore does not limit potential losses because the limit may prevent the
liquidation of unfavorable positions. Futures contract prices have occasionally
moved to the daily limit for several consecutive trading days with little or no
trading, thereby preventing prompt liquidation of futures positions and
subjecting some futures traders to substantial losses.
RISKS OF OPTIONS ON FUTURES CONTRACTS
In addition to the risks described above for financial futures
contracts, there are several special risks relating to options on futures
contracts. The ability to establish and close out positions on such options will
be subject to the development and maintenance of a liquid secondary market.
There is no assurance that a liquid secondary market will exist for any
particular contract or at any particular time. A Fund will not purchase options
on any futures contract unless and until it believes that the market for such
options has developed sufficiently that the risks in connection with such
options are not greater than the risks in connection with the futures contracts.
Compared to the use of futures contracts, the purchase of options on such
futures involves less potential risk to a Fund because the maximum amount at
risk is the premium paid for the options (plus transaction costs). However,
there may be circumstances when the use of an option on a futures contract would
result in a loss to a Fund, even though the use of a futures contract would not,
such as when there is no movement in the level of the futures contract.
#1027009d
<PAGE>
Keystone California Insured Tax Free Fund
SCHEDULE OF INVESTMENTS--November 30, 1995
Coupon Maturity Principal Market
Rate Date Amount Value
----------------------------------------------------------------------------
MUNICIPAL BONDS (100.6%)
Alameda County,
California,
Certificates of
Participation, Santa
Rita Jail Project
(MBIA) 5.700% 12/01/2014 $1,000,000 $1,011,650
Beverly Hills,
California, School
District (MBIA) 5.750 05/01/2020 500,000 508,135
California Housing
Finance Agency, Home
Mortgage, Series B 8.600 08/01/2019 250,000 263,727
California State Public
Works Board (AMBAC) 5.250 12/01/2013 40,000 39,582
California State
Universities and
Colleges, San Diego
State University
(AMBAC) 6.125 11/01/2024 1,000,000 1,051,110
California Statewide
Communities
Certificates (AMBAC) 5.500 10/01/2014 400,000 400,064
Corona, California,
Redevelopment Agency,
Tax Allocation,
Refunding
Redevelopment Project,
Area A, Series A
(FGIC) 6.250 09/01/2016 500,000 528,180
East Bay, California,
Municipal Utilities,
Water System (MBIA) 5.000 06/01/2021 300,000 279,969
La Canada, California,
Unified School
District (FGIC)
(effective yield
6.35%)(b) 0.000 08/01/2011 500,000 210,290
Los Angeles, California,
Community
Redevelopment Agency
Refunding, Tax
Allocation (FSA) 6.500 12/01/2016 750,000 807,300
Los Angeles, California,
Convention and
Exhibition Center
Authority, Lease
Refunding, Series A
(MBIA) 5.375 08/15/2018 240,000 236,429
Los Angeles, California,
Convention and
Exhibition Center
Authority, Lease
Refunding, Series A
(MBIA) 5.125 08/15/2013 400,000 385,704
Los Angeles, California,
Convention and
Exhibition Center
Authority, Lease
Refunding, Series A
(MBIA) 6.000 08/15/2010 1,000,000 1,052,740
Los Angeles, California,
Department of
Airports, Series A
(FGIC) 5.500 05/15/2010 120,000 121,064
Los Angeles, California,
Wastewater Systems
Revenue, Series B
(MBIA) 5.875 06/01/2024 680,000 694,906
Los Angeles County,
California,
Metropolitan
Transportation
Authority, Sales Tax
Revenue (AMBAC) 5.000 07/01/2025 350,000 327,512
Los Angeles County,
California,
Metropolitan
Transportation
Authority, Sales Tax
Revenue (AMBAC) 5.500 07/01/2017 1,000,000 1,000,400
MSR Public Power Agency,
California, San Juan
Project, Series B
(MBIA) 6.750 07/01/2011 400,000 434,540
Madera County,
California,
Certificates of
Participation, Valley
Children's Hospital
(MBIA) 6.250 03/15/2007 250,000 274,540
Oakland, California,
Redevelopment Agency,
Tax Allocation,
Central District
Redevelopment (MBIA) 5.000 09/01/2021 1,000,000 939,410
Oakland, California,
Pensions, Series A
(FGIC) 7.600 08/01/2021 3,750,000 4,116,112
Petaluma, California,
City Joint High School
District (MBIA)
(effective yield
5.70%)(b) 0.000 08/01/2011 1,375,000 587,208
Petaluma, California,
City Joint High School
District (MBIA)
(effective yield
5.75%)(b) 0.000 08/01/2012 1,555,000 623,866
Petaluma, California,
City Joint High School
District (MBIA)
(effective yield
5.80%)(b) 0.000 08/01/2013 1,755,000 660,828
Pleasant Hill,
California, Joint
Powers Financing,
Capital Improvement
Project, Series A
(MBIA) 5.250 12/01/2016 400,000 388,104
Rancho, California,
Water District
Financing Authority,
Series 1994 (MBIA) 5.000 08/15/2014 300,000 284,568
Rio Linda, California,
Unified School
District, Series A
(AMBAC) 7.400 08/01/2010 725,000 852,745
Sacramento, California,
Municipal Utility
District, Series D
(FGIC) 5.250 11/15/2012 650,000 636,305
See Notes to Schedule of Investments. (continued on next page)
<PAGE>
MUNICIPAL BONDS
(continued)
San Diego County,
California, Water
Authority, Water
Revenue Certificates
of Participation
(FGIC) 5.681% 04/23/2008 $1,100,000 $ 1,158,762
San Joaquin Hills,
California,
Transportation
Corridor Agency, Toll
Road Revenue 7.000 01/01/2030 400,000 422,344
San Jose, California,
Redevelopment Tax
Allocation (MBIA) 6.000 08/01/2015 980,000 1,058,067
San Jose-Santa Clara,
California, Water
Financing Authority,
Sewer Revenue, Series
A (FGIC) 5.375 11/15/2015 1,000,000 992,060
San Mateo, Foster City,
California, School
District Capital
Appreciation, Series C
(FGIC) (effective
yield 5.60%)(b) 0.000 09/01/2003 100,000 69,202
Santa Ana, California,
Financing Authority
(MBIA) 6.250 07/01/2015 300,000 332,895
Santa Ana, California,
Financing Authority
(MBIA) 6.250 07/01/2024 2,000,000 2,249,860
Southern California
Public Power
Authority,
Transmission Project
Revenue (FSA)
(effective yield
7.30%)(b) 0.000 07/01/2014 2,500,000 901,325
Vista, California,
Community Development
Commision, Tax
Allocation Revenue
(MBIA) 5.250 09/01/2015 2,000,000 1,942,240
Walnut Creek,
California,
Certificates of
Participation, John
Muir Medical Center
(MBIA) 5.000 02/15/2016 700,000 654,269
Walnut Valley,
California, Unified
School District,
Series A (MBIA) 6.000 08/01/2014 190,000 203,275
Yorba Linda, California,
Redevelopment Agency
Capital Appreciation
(MBIA) (effective
yield 5.80%)(b) 0.000 09/01/2016 1,000,000 305,500
---------------------------------------------------------------------------
TOTAL MUNICIPAL BONDS (Cost--$27,470,228) 29,006,787
---------------------------------------------------------------------------
TEMPORARY TAX-EXEMPT INVESTMENTS (1.5%)
Anaheim, California,
Certificates of
Participation (Cost
$430,000)(a) 3.800 08/01/2019 430,000 430,000
---------------------------------------------------------------------------
TOTAL INVESTMENTS (Cost $27,900,228)(c) 29,436,787
OTHER ASSETS AND LIABILITIES--NET (-2.1%) (604,208)
---------------------------------------------------------------------------
NET ASSETS (100.0%) $28,832,579
---------------------------------------------------------------------------
NOTE TO SCHEDULE OF INVESTMENTS:
(a) Variable or floating rate instruments with periodic demand features. The
Fund is entitled to full payment of principal and accrued interest upon
surrendering the security to the issuing agent according to the terms of
the demand features.
(b) Effective yield (calculated at the date of purchase) is the annual yield
at which the bond accretes until its maturity date.
(c) The cost of investments for federal income tax purposes amounted to
$27,913,350. Gross unrealized appreciation and depreciation of
investments, based on identified tax cost, at November 30, 1995 are as
follows:
Gross unrealized
appreciation $1,525,781
Gross unrealized
depreciation (2,344)
---------
Net unrealized appreciation $1,523,437
=========
LEGEND OF PORTFOLIO ABBREVIATIONS:
AMBAC--American Municipal Bond Assurance Corp.
FGIC--Financial Guaranty Insurance Corp.
FSA--Financial Security Assurance
MBIA--Municipal Bond Insurance Association
See Notes to Financial Statements.
<PAGE>
FINANCIAL HIGHLIGHTS--CLASS A SHARES
(For a share outstanding throughout the period)
February 1, 1994
Year (Commencement of
Ended Operations) to
November 30, November 30,
1995 1994
---------------------------------------------------------------
Net asset value, beginning
of period $ 8.70 $10.00
---------------------------------------------------------------
Income from investment
operations:
Net investment income 0.49 0.44
Net realized and
unrealized gain (loss)
on investments and
closed futures contracts 1.17 (1.30)
---------------------------------------------------------------
Total from investment
operations 1.66 (0.86)
---------------------------------------------------------------
Less distributions from:
Net investment income (0.47) (0.44)
In excess of net
investment income (0.03) 0.00
---------------------------------------------------------------
Total distributions (0.50) (0.44)
---------------------------------------------------------------
Net asset value, end of
period $ 9.86 $ 8.70
---------------------------------------------------------------
Total return (a) 19.63% (8.78%)(c)
Ratios/supplemental data
Ratios to average net
assets:
Total expenses (b) 0.72%(e) 0.41%(d)
Net investment income 5.37% 5.53%(d)
Portfolio turnover rate 119% 104%
---------------------------------------------------------------
Net assets, end of period
(thousands) $4,555 $3,006
---------------------------------------------------------------
(a) Excluding applicable sales charges.
(b) Figures are net of the 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 1.31%
and 1.66% (annualized) for the fiscal year ended November 30, 1995 and
the period February 1, 1994 (Commencement of Operations) to November 30,
1994, respectively.
(c) Total return is calculated from February 1, 1994 (Commencement of
Operations) to November 30, 1994.
(d) Annualized.
(e) "Ratio of total expenses to average net assets" for the year ended
November 30, 1995 includes indirectly paid expenses. Excluding indirectly
paid expenses, the expense ratio would have been 0.69%.
See Notes to Financial Statements.
<PAGE>
FINANCIAL HIGHLIGHTS--CLASS B SHARES
(For a share outstanding throughout the period)
February 1, 1994
Year (Commencement of
Ended Operations) to
November 30, November 30,
1995 1994
--------------------------------------------------------------------------
Net asset value, beginning of period $ 8.68 $10.00
--------------------------------------------------------------------------
Income from investment operations:
Net investment income 0.44 0.40
Net realized and unrealized
gain (loss) on investments and
closed futures contracts 1.17 (1.28)
--------------------------------------------------------------------------
Total from investment operations 1.61 (0.88)
--------------------------------------------------------------------------
Less distributions from:
Net investment income (0.44) (0.40)
In excess of net investment income (0.03) (0.04)
--------------------------------------------------------------------------
Total distributions (0.47) (0.44)
--------------------------------------------------------------------------
Net asset value, end of period $ 9.82 $ 8.68
--------------------------------------------------------------------------
Total return (a) 18.95% (9.00%)(c)
Ratios/supplemental data
Ratios to average net assets:
Total expenses (b) 1.48%(e) 1.16%(d)
Net investment income 4.57% 4.83%(d)
Portfolio turnover rate 119% 104%
--------------------------------------------------------------------------
Net assets, end of period (thousands) $22,743 $11,415
--------------------------------------------------------------------------
(a) Excluding applicable sales charges.
(b) Figures are net of the 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 2.07%
and 2.36% (annualized) for the fiscal year ended November 30, 1995 and
for the period February 1, 1994 (Commencement of Operations) to November
30, 1994, respectively.
(c) Total return is calculated from February 1, 1994 (Commencement of
Operations) to November 30, 1994.
(d) Annualized.
(e) "Ratio of total expenses to average net assets" for the year ended
November 30, 1995 includes indirectly paid expenses. Excluding indirectly
paid expenses, the expense ratio would have been 1.45%.
See Notes to Financial Statements.
<PAGE>
FINANCIAL HIGHLIGHTS--CLASS C SHARES
(For a share outstanding throughout the period)
February 1, 1994
Year (Commencement of
Ended Operations) to
November 30, November 30,
1995 1994
- ---------------------------------------------------------------------
Net asset value, beginning of
period $ 8.68 $10.00
- ---------------------------------------------------------------------
Income from investment
operations:
Net investment income 0.43 0.39
Net realized and unrealized
gain (loss) on investments
and closed futures contracts 1.15 (1.29)
- ---------------------------------------------------------------------
Total from investment
operations 1.58 (0.90)
- ---------------------------------------------------------------------
Less distributions from:
Net investment income (0.43) (0.39)
In excess of net investment
income (0.03) (0.03)
- ---------------------------------------------------------------------
Total distributions (0.46) (0.42)
- ---------------------------------------------------------------------
Net asset value, end of period $ 9.80 $ 8.68
- ---------------------------------------------------------------------
Total return (a) 18.69% (9.08%)(c)
Ratios/supplemental data
Ratios to average net assets:
Total expenses (b) 1.49%(e) 1.16%(d)
Net investment income 4.51% 4.96%(d)
Portfolio turnover rate 119% 104%
- ---------------------------------------------------------------------
Net assets, end of period
(thousands) $1,535 $624
- ---------------------------------------------------------------------
(a) Excluding applicable sales charges.
(b) Figures are net of the 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 2.07%
and 2.38% annualized for the fiscal year ended November 30, 1995 and for
the period February 1, 1994 (Commencement of Operations) to November 30,
1994, respectively.
(c) Total return is calculated from February 1, 1994 (Commencement of
Operations) to November 30, 1994.
(d) Annualized.
(e) "Ratio of total expenses to average net assets" for the year ended
November 30, 1995 includes indirectly paid expenses. Excluding indirectly
paid expenses, the expense ratio would have been 1.46%.
See Notes to Financial Statements.
<PAGE>
Keystone California Insured Tax Free Fund
STATEMENT OF ASSETS AND LIABILITIES
November 30, 1995
Assets (Notes 1 and 4):
Investments at market value (identified
cost--$27,900,228) $29,436,787
Cash 1,122
Receivable for:
Fund shares sold 30,261
Interest 471,665
Due from Investment Adviser 32,086
Unamortized organization expenses 4,291
Prepaid expenses 42
------------------------------------------------------------------
Total assets 29,976,254
------------------------------------------------------------------
Liabilities (Notes 1, 2 and 4):
Payable for:
Investments purchased 977,460
Fund shares redeemed 38,377
Distribution to shareholders 103,065
Commissions payable to Principal Underwriter 2,244
Accrued reimbursable expenses 3,200
Other accrued expenses 19,329
------------------------------------------------------------------
Total liabilities 1,143,675
------------------------------------------------------------------
Net assets $28,832,579
------------------------------------------------------------------
Net assets represented by (Note 1):
Paid-in capital $27,723,538
Accumulated distributions in excess of net
investment income (27,037)
Accumulated net realized gain (loss) on
investments and closed futures contract (400,481)
Net unrealized appreciation (depreciation)
on investments 1,536,559
------------------------------------------------------------------
Total net assets $28,832,579
------------------------------------------------------------------
Net asset value per share (Note 2):
Class A Shares
Net asset value of $4,554,679 / 462,058 shares
outstanding $9.86
Offering price per share ($9.86 / 0.9525)
(based on a sales charge of 4.75% of the
offering price on November 30, 1995) $10.35
Class B Shares
Net asset value of $22,743,281 / 2,317,182
shares outstanding $9.82
Class C Shares
Net asset value of $1,534,619 / 156,535 shares
outstanding $9.80
------------------------------------------------------------------
See Notes to Financial Statements.
STATEMENT OF OPERATIONS
Year Ended November 30, 1995
Investment Income (Note 1):
Interest $1,241,768
-------------------------------------------------------------------
Expenses (Notes 1, 2 and 4):
Management fee $ 113,353
Transfer agent fees 24,058
Custodian fees 34,925
Accounting 19,921
Auditing 5,342
Legal 14,222
Printing 19,075
Registration fees 5,582
Organization expenses 1,169
Distribution Plan expenses 158,568
Miscellaneous expenses 3,147
Reimbursement from Investment Adviser (122,277)
-------------------------------------------------------------------
Total expenses 277,085
Less: Expenses paid indirectly
(Note 4) (5,486)
-------------------------------------------------------------------
Net expenses 271,599
-------------------------------------------------------------------
Net investment income 970,169
-------------------------------------------------------------------
Net realized and unrealized gain (loss)
on investments and futures contracts
(Notes 1 and 3):
Realized gain (loss) on:
Investments sold 1,017,407
Closed futures contracts (346,168)
-------------------------------------------------------------------
Net realized gain (loss) on
investments and closed futures
contracts 671,239
-------------------------------------------------------------------
Net change in unrealized appreciation
(depreciation) on:
Investments 1,970,314
Futures contracts (87,875)
-------------------------------------------------------------------
Net change in unrealized appreciation
(depreciation) on investments 1,882,439
-------------------------------------------------------------------
Net realized and unrealized gain
(loss) on investments and futures
contracts 2,553,678
-------------------------------------------------------------------
Net increase (decrease) in net assets
resulting from operations $3,523,847
-------------------------------------------------------------------
<PAGE>
Keystone California Insured Tax Free Fund
STATEMENTS OF CHANGES IN NET ASSETS
February 1, 1994
(Commencement of
Year Ended Operations) to
November 30, November 30,
1995 1994
=========================================================================
Operations (Notes 1 and 3):
Net investment income $ 970,169 $ 449,809
Net realized gain (loss) on
investments and closed futures
contracts 671,239 (1,047,295)
Net change in unrealized
appreciation (depreciation) on
investments 1,882,439 (345,880)
- -------------------------------------------------------------------------
Net increase (decrease) in net
assets resulting from operations 3,523,847 (943,366)
- -------------------------------------------------------------------------
Distributions to shareholders from
(Note 1):
Net investment income
Class A Shares (180,675) (103,422)
Class B Shares (746,674) (327,857)
Class C Shares (47,288) (17,973)
In excess of net investment
income
Class A Shares (12,433) 0
Class B Shares (51,381) (47,642)
Class C Shares (3,254) (2,036)
- -------------------------------------------------------------------------
Total distributions to
shareholders (1,041,705) (498,930)
- -------------------------------------------------------------------------
Capital share transactions
(Note 2):
Proceeds from shares sold:
Class A Shares 1,987,577 3,653,153
Class B Shares 11,405,882 13,549,247
Class C Shares 1,005,793 942,116
Payment for shares redeemed:
Class A Shares (918,227) (364,506)
Class B Shares (2,323,287) (1,189,908)
Class C Shares (229,742) (265,039)
Net asset value of shares issued
in reinvestment of dividends and
distributions:
Class A Shares 45,806 19,906
Class B Shares 307,457 132,637
Class C Shares 24,916 8,952
- -------------------------------------------------------------------------
Net increase (decrease) in net
assets resulting from capital share
transactions 11,306,175 16,486,558
- -------------------------------------------------------------------------
Total increase (decrease) in
net assets 13,788,317 15,044,262
Net assets:
Beginning of period 15,044,262 0
- -------------------------------------------------------------------------
End of period [Including
undistributed net investment
income (accumulated
distributions in excess of net
investment income) as follows:
November 1995--($27,037) and
November 1994--$4,468] (Note 1) $28,832,579 $15,044,262
- -------------------------------------------------------------------------
See Notes to Financial Statements.
<PAGE>
FEDERAL TAX STATUS-FISCAL 1995 DISTRIBUTIONS
(Unaudited)
The per share distributions paid to you for fiscal 1995, whether taken in
shares or cash, are as follows:
Tax-Exempt Income
Dividends
------------------------
Class A $0.50
------------------------
Class B $0.47
------------------------
Class C $0.46
------------------------
In January 1996, we will send you complete information on distributions paid
during the calendar year 1995 to assist you in completing your federal tax
return.
<PAGE>
Keystone Missouri Tax Free Fund
SCHEDULE OF INVESTMENTS--November 30, 1995
Coupon Maturity Principal Market
Rate Date Amount Value
-----------------------------------------------------------------------------
MUNICIPAL BONDS (96.4%)
Butler County, Missouri,
Public Facilities
Authority 6.500% 12/01/2014 $1,105,000 $1,191,720
Cape Girardeau County,
Missouri, Industrial
Development Authority,
Southeast Missouri
Hospital Association 5.250 06/01/2016 1,750,000 1,667,540
Chesterfield, Missouri,
General Obligation 6.300 02/15/2013 830,000 889,511
Clay County, Missouri,
Public Building
Authority 7.000 05/15/2014 1,000,000 1,132,160
Greene County, Missouri,
Single Family Mortgage
(effective yield
6.53%)(b) 0.000 03/01/2016 1,000,000 305,240
Jackson County,
Missouri, Single
Family Mortgage
Revenue (effective
yield 11.25%)(b) 0.000 03/01/2015 3,750,000 1,243,575
Missouri Higher
Education, Loan
Authority, Student
Loan, Series D 6.750 02/15/2009 500,000 525,810
Missouri Higher
Education, Student
Loan, Series A 5.450 02/15/2009 600,000 567,078
Missouri State
Environmental
Improvement and Energy
Resource Authority,
Union Electric Co.
Project 5.450 10/01/2028 700,000 678,405
Missouri State Fourth
Building, Series A 5.500 04/01/2020 4,000,000 4,057,120
Missouri State Health
and Educational
Facilities Authority,
Barnes-Jewish Inc. 5.250 05/15/2012 500,000 485,845
Missouri State Health
and Educational
Facilities Authority,
BJC Health Systems,
Series A 6.500 05/15/2020 500,000 542,010
Missouri State Health
and Educational
Facilities Authority,
Bethesda Health Group,
Project A 7.500 08/15/2012 1,000,000 1,042,970
Missouri State Health
and Educational
Facilities Authority,
National Benevolent
Association 6.000 02/01/2024 750,000 717,608
Missouri State Health
and Educational
Facilities Authority,
Series AA 6.250 06/01/2016 1,500,000 1,584,015
Missouri State Housing
Development
Commission, Single
Family, GNMA, Series A 7.125 12/01/2014 500,000 543,265
Missouri State Regional
Convention and Sports
Project 5.500 08/15/2013 950,000 942,229
Missouri State
Environmental
Improvement and Energy
Resource Authority, Water
Pollution Control,
Capital Appreciation
Revolving Program, Series
D effective yield
6.25%)(b) 0.000 01/01/2017 975,000 294,041
Missouri State
Environmental
Improvement and Energy
Resource Authority, Water
Pollution Control,
Capital Appreciation
Revolving Program, Series
D (effective yield
6.25%)(b) 0.000 01/01/2016 985,000 314,451
Missouri State
Environmental
Improvement and Energy
Resource Authority, Water
Pollution Control,
State Revolving
Program, Series A 6.050 07/01/2015 250,000 261,910
Missouri State
Environmental
Improvement and Energy
Resource Authority, Water
Pollution Control,
State Revolving
Program, Series B 5.800 01/01/2015 500,000 518,610
Missouri State
Environmental
Improvement and Energy
Resource Authority, Water
Pollution Control,
State Revolving
Program, Series B 7.200 07/01/2016 600,000 696,984
Missouri State
Environmental
Improvement and Energy
Resource Authority, Water
Pollution Control,
State Revolving
Program, Series E 5.625 07/01/2016 500,000 504,345
Puerto Rico
Commonwealth,
Refunding (Capital
Guaranty) 6.450 07/01/2017 500,000 533,345
Puerto Rico
Commonwealth,
Telephone Authority 5.400 01/01/2008 600,000 611,292
See Notes to Schedule of Investments. (continued on next page)
<PAGE>
MUNICIPAL BONDS (continued)
Puerto Rico Electric
Power Authority,
Series Z 5.250% 07/01/2021 $1,000,000 $ 950,120
Puerto Rico Electric
Power Authority,
Series T 6.000 07/01/2016 300,000 307,641
Puerto Rico Electric
Power Authority,
Series U 6.000 07/01/2014 320,000 328,150
Puerto Rico Electric
Power Authority,
Series Y 6.500 07/01/2006 1,000,000 1,131,790
St. Louis County,
Missouri, Industrial
Development Authority,
Health Facilities
Revenue, GNMA, Mother
of Perpetual Help 6.400 08/01/2035 500,000 530,135
St. Louis County,
Missouri, Regional
Convention and Sports
Facility, Convention
and Sports Project 5.750 08/15/2021 500,000 495,380
St. Louis County,
Missouri, Series D 5.650 02/01/2015 250,000 249,665
St, Louis, Missouri,
Industrial Development
Authority, Sewer and
Solid Waste Disposal
Facilities 5.875 11/01/2026 1,000,000 1,009,820
-----------------------------------------------------------------------------
TOTAL MUNICIPAL BONDS (Cost--$25,009,224) 26,853,780
-----------------------------------------------------------------------------
TEMPORARY TAX-EXEMPT INVESTMENTS (2.4%)
Missouri State Health
and Educational
Facilities Authority
(a) 3.650 12/01/2019 595,000 595,000
Missouri Higher
Education, Student
Loan, Series A (a) 3.850 06/01/2017 75,000 75,000
-----------------------------------------------------------------------------
TOTAL TEMPORARY TAX-EXEMPT INVESTMENTS (COST $670,000) 670,000
-----------------------------------------------------------------------------
TOTAL INVESTMENTS (COST--$25,679,224)(c) 27,523,780
OTHER ASSETS AND LIABILITIES--NET (1.2%) 343,940
-----------------------------------------------------------------------------
NET ASSETS (100.0%) $27,867,720
-----------------------------------------------------------------------------
NOTE TO SCHEDULE OF INVESTMENTS:
(a) Variable or floating rate instruments with periodic demand features. The
Fund is entitled to full payment of principal and accrued interest upon
surrendering the security to the issuing agent according to the terms of the
demand features.
(b) Effective yield (calculated at the date of purchase) is the yield at
which the bond accretes on an annual basis until maturity date.
(c) The cost of investments for federal income tax purposes amounted to
$25,692,265. Gross unrealized appreciation and depreciation of investments,
based on identified tax cost, at November 30, 1995 are as follows:
Gross unrealized
appreciation $1,831,515
Gross unrealized
depreciation 0
---------
Net unrealized appreciation $1,831,515
=========
LEGEND OF PORTFOLIO ABBREVIATIONS
GNMA--Government National Mortgage Association
See Notes to Financial Statements.
<PAGE>
FINANCIAL HIGHLIGHTS--CLASS A SHARES
(For a share outstanding throughout the period)
February 1, 1994
(Commencement of
Year Ended Operations) to
November 30, November 30,
1995 1994
- -------------------------------------------------------------------------
Net asset value, beginning of
period $8.72 $10.00
- -------------------------------------------------------------------------
Income from investment operations:
Net investment income 0.50 0.44
Net realized and unrealized gain
(loss) on investments and closed
futures contracts 1.19 (1.28)
- -------------------------------------------------------------------------
Total from investment operations 1.69 (0.84)
- -------------------------------------------------------------------------
Less distributions from:
Net investment income (0.47) (0.44)
In excess of net investment income (0.03) 0.00(e)
- -------------------------------------------------------------------------
Total distributions (0.50) (0.44)
- -------------------------------------------------------------------------
Net asset value, end of period $9.91 $ 8.72
- -------------------------------------------------------------------------
Total return (a) 19.86% (8.55%)(c)
Ratios/supplemental data
Ratios to average net assets:
Total expenses (b) 0.72%(f) 0.43%(d)
Net investment income 5.26% 5.38%(d)
Portfolio turnover rate 74% 25%
- -------------------------------------------------------------------------
Net assets, end of period
(thousands) $4,848 $3,581
- -------------------------------------------------------------------------
(a) Excluding applicable sales charges.
(b) Figures are net of the expense reimbursement by Keystone in connection
with the voluntary expense limitation. Before expense reimbursement, the
"Ratio of total expenses to average net assets" would have been 1.32% and
1.54% (annualized) for the fiscal year ended November 30, 1995 and for
the period February 1, 1994 (Commencement of Operations) to November 30,
1994, respectively.
(c) Total return indicated is calculated from February 1, 1994 (Commencement
of Operations) to November 30, 1994.
(d) Annualized.
(e) Amount represents less than $0.01 per share.
(f) "Ratio of total expenses to average net assets" for the year ended
November 30, 1995 includes indirectly paid expenses. Excluding indirectly
paid expenses, the expense ratio would have been 0.69%.
See Notes to Financial Statements.
<PAGE>
FINANCIAL HIGHLIGHTS--CLASS B SHARES
(For a share outstanding throughout the period)
February 1, 1994
(Commencement of
Year Ended Operations) to
November 30, November 30,
1995 1994
- -------------------------------------------------------------------------
Net asset value, beginning of
period $8.67 $10.00
- -------------------------------------------------------------------------
Income from investment operations:
Net investment income 0.44 0.40
Net realized and unrealized gain
(loss) on investments and closed
futures contracts 1.15 (1.29)
- -------------------------------------------------------------------------
Total from investment operations 1.59 (0.89)
- -------------------------------------------------------------------------
Less distributions from:
Net investment income (0.43) (0.40)
In excess of net investment income (0.03) (0.04)
- -------------------------------------------------------------------------
Total distributions (0.46) (0.44)
- -------------------------------------------------------------------------
Net asset value, end of period $9.80 $ 8.67
- -------------------------------------------------------------------------
Total return (a) 18.79% (9.06)(c)
Ratios/supplemental data
Ratios to average net assets:
Total expenses (b) 1.47%(e) 1.16%(d)
Net investment income 4.56% 4.70%(d)
Portfolio turnover rate 74% 25%
- -------------------------------------------------------------------------
Net assets, end of period
(thousands) $21,231 $12,906
- -------------------------------------------------------------------------
(a) Excluding applicable sales charges.
(b) Figures are net of the expense reimbursement by Keystone in connection
with the voluntary expense limitation. Before expense reimbursement, the
"Ratio of total expenses to average net assets" would have been 2.08% and
2.49% (annualized) for year ended November 30, 1995 and for the period
February 1, 1994 (Commencement of Operations) to November 30, 1994,
respectively.
(c) Total return is calculated from February 1, 1994 (Commencement of
Operations) to November 30, 1994.
(d) Annualized.
(e) "Ratio of total expenses to average net assets" for the year ended
November 30, 1995 includes indirectly paid expenses. Excluding indirectly
paid expenses, the expense ratio would have been 1.44%.
See Notes to Financial Statements.
<PAGE>
FINANCIAL HIGHLIGHTS--CLASS C SHARES
(For a share outstanding throughout the period)
February 1, 1994
(Commencement of
Year Ended Operations) to
November 30, November 30,
1995 1994
- -------------------------------------------------------------------------
Net asset value, beginning of
period $ 8.66 $10.00
- -------------------------------------------------------------------------
Income from investment operations
Net investment income 0.43 0.39
Net realized and unrealized gain
(loss) on investments and closed
futures contracts 1.16 (1.29)
- -------------------------------------------------------------------------
Total from investment operations 1.59 (0.90)
- -------------------------------------------------------------------------
Less distributions from:
Net investment income (0.43) (0.39)
In excess of net investment income (0.03) (0.05)
- -------------------------------------------------------------------------
Total distributions (0.46) (0.44)
- -------------------------------------------------------------------------
Net asset value, end of period $9.79 $ 8.66
- -------------------------------------------------------------------------
Total return (a) 18.78% (9.25%)(c)
Ratios/supplemental data
Ratios to average net assets:
Total expenses (b) 1.46%(e) 1.15%(d)
Net investment income 4.56% 4.72%(d)
Portfolio turnover rate 74% 25%
- -------------------------------------------------------------------------
Net assets, end of period
(thousands) $1,788 $1,045
- -------------------------------------------------------------------------
(a) Excluding applicable sales charges.
(b) Figures are net of the expense reimbursement by Keystone in connection
with the voluntary expense limitation. Before expense reimbursement, the
"Ratio of total expenses to average net assets" would have been 2.07% and
2.60% (annualized) for the year ended November 30, 1995 and the period
February 1, 1994 (Commencement of Operations) to November 30, 1994,
respectively.
(c) Total return is calculated from February 1, 1994 (Commencement of
Operations) to November 30, 1994.
(d) Annualized.
(e) "Ratio of total expenses to average net assets" for the year ended
November 30, 1995 includes indirectly paid expenses. Excluding indirectly
paid expenses, the expense ratio would have been 1.44%.
See Notes to Financial Statements.
<PAGE>
Keystone Missouri Tax Free Fund
STATEMENT OF ASSETS AND LIABILITIES
November 30, 1995
Assets (Notes 1 and 4):
Investments at market value (identified
cost--$25,679,224) $27,523,780
Cash 128
Interest receivable 435,462
Due from Investment Adviser 34,400
Unamortized organization expenses 2,360
Prepaid expenses 44
------------------------------------------------------------------
Total assets 27,996,174
------------------------------------------------------------------
Liabilities (Notes 1, 2 and 4):
Income distribution payable 101,846
Commissions payable to Principal Underwriter 2,474
Accrued reimbursable expenses 3,200
Other accrued expenses 20,934
------------------------------------------------------------------
Total liabilities 128,454
------------------------------------------------------------------
Net assets $27,867,720
------------------------------------------------------------------
Net assets represented by (Note 1):
Paid-in capital $26,732,969
Accumulated distributions in excess of net
investment income (39,999)
Accumulated net realized gain (loss) on
investments and closed futures contracts (669,806)
Net unrealized appreciation on investments 1,844,556
------------------------------------------------------------------
Total net assets $27,867,720
------------------------------------------------------------------
Net asset value per share (Note 2)
Class A Shares
Net asset value of $4,848,325 / 489,023 shares
outstanding $ 9.91
Offering price per share ($9.91 / 0.9525)
(based on a sales charge of 4.75% of the
offering price November 30, 1995 $10.40
Class B Shares
Net asset value of $21,230,965 / 2,166,339
shares outstanding $ 9.80
Class C Shares
Net asset value of $1,788,430 / 182,615 shares
outstanding $ 9.79
------------------------------------------------------------------
See Notes to Financial Statements.
STATEMENT OF OPERATIONS
Year Ended November 30, 1995
-----------------------------------------------------------------
Investment Income (Note 1):
Interest $1,310,031
Expenses (Notes 1, 2 and 4):
Management fee $ 120,166
Transfer agent fees 33,338
Custodian fees 29,698
Accounting 20,721
Auditing 5,342
Legal 9,825
Printing 19,239
Registration fees 13,937
Organization expenses 592
Distribution Plan expenses 173,126
Miscellaneous expenses 3,782
Reimbursement from Investment Adviser (132,621)
-----------------------------------------------------------------
Total expenses 297,145
Less: Expenses paid indirectly
(Note 4) (5,258)
-----------------------------------------------------------------
Net expenses 291,887
-----------------------------------------------------------------
Net investment income 1,018,144
-----------------------------------------------------------------
Net realized and unrealized gain (loss)
on investments and futures contracts
(Notes 1 and 3)
Realized gain (loss) on:
Investments (50,881)
Closed futures contracts (354,300)
-----------------------------------------------------------------
Net realized gain (loss) on
investments and closed futures
contracts (405,181)
-----------------------------------------------------------------
Net change in unrealized appreciation
(depreciation) on:
Investments 3,182,450
Futures contracts (94,156)
-----------------------------------------------------------------
Net change in unrealized appreciation
(depreciation) on investments 3,088,294
-----------------------------------------------------------------
Net realized and unrealized gain
(loss) on investments and closed
futures contracts 2,683,113
-----------------------------------------------------------------
Net increase (decrease) in net assets
resulting from operations $3,701,257
-----------------------------------------------------------------
<PAGE>
Keystone Missouri Tax Free Fund
STATEMENTS OF CHANGES IN NET ASSETS
February 1, 1994
(Commencement of
Year Ended Operations) to
November 30, November 30,
1995 1994
=========================================================================
Operations (Notes 1 and 3):
Net investment income $ 1,018,144 $ 416,949
Net realized gain (loss) on
investments and closed futures
contracts (405,181) (253,329)
Net change in unrealized
appreciation (depreciation) on
investments 3,088,294 (1,243,738)
- -------------------------------------------------------------------------
Net increase (decrease) in net
assets resulting from operations 3,701,257 (1,080,118)
- -------------------------------------------------------------------------
Distributions to shareholders from
(Note 1):
Net investment income
Class A Shares (153,289) (58,702)
Class B Shares (791,351) (324,108)
Class C Shares (73,504) (34,139)
In excess of net investment
income
Class A Shares (11,167) (466)
Class B Shares (57,652) (58,892)
Class C Shares (5,355) (5,609)
- -------------------------------------------------------------------------
Total distributions to
shareholders (1,092,318) (481,916)
- -------------------------------------------------------------------------
Capital share transactions
(Note 2):
Proceeds from shares sold:
Class A Shares 4,076,405 4,347,894
Class B Shares 7,170,581 14,457,771
Class C Shares 931,369 1,600,310
Payment for shares redeemed-Class
A Shares
Class A Shares (3,330,599) (570,413)
Class B Shares (1,245,399) (479,634)
Class C Shares (414,529) (448,097)
Net asset value of shares issued
in reinvestment of dividends and
distributions:
Class A Shares 103,984 29,808
Class B Shares 392,566 144,139
Class C Shares 42,017 12,642
- -------------------------------------------------------------------------
Net increase (decrease) in net
assets resulting from capital
share transactions 7,726,395 19,094,420
- -------------------------------------------------------------------------
Total increase (decrease) in net
assets 10,335,334 17,532,386
Net assets:
Beginning of period 17,532,386 0
- -------------------------------------------------------------------------
End of period [Including
accumulated distributions in
excess of net investment income
as follows:
November 1995--($39,999) and
November 1994--($7,792)]
(Note 1) $27,867,720 $17,532,386
- -------------------------------------------------------------------------
See Notes to Financial Statements.
<PAGE>
FEDERAL TAX STATUS-FISCAL 1995 DISTRIBUTIONS
(Unaudited)
The per share distributions paid to you for fiscal 1995, whether taken in
shares or cash, are as follows:
Tax-Exempt Income
Dividends
------------------------
Class A $0.50
------------------------
Class B $0.46
------------------------
Class C $0.46
------------------------
In January 1996, we will send you complete information on distributions paid
during the calendar year 1995 to assist you in completing your federal tax
return.
<PAGE>
Keystone State Tax Free Fund-Series II
NOTES TO FINANCIAL STATEMENTS
(1.) Significant Accounting Policies
Keystone State Tax Free Fund-Series II ("FUND") (formerly Keystone America
State Tax Free Fund-Series II) was formed as a Massachusetts business trust
on December 15, 1993 and is registered under the Investment Company Act of
1940 (the "1940 Act") as an open-end management investment company. Keystone
Investment Management Company (formerly Keystone Custodian Funds, Inc.)
("Keystone") is the Investment Adviser. The FUND currently offers shares of
two separate non-diversified series evidencing interests in different
portfolios of securities (individually the "Fund", collectively the "FUNDS"):
Keystone California Insured Tax Free Fund ("California Fund") (formerly
Keystone America California Insured Tax Free Fund) and Keystone Missouri Tax
Free Fund ("Missouri Fund") (formerly Keystone America Missouri Tax Free
Fund). The Funds had no operations prior to February 1, 1994.
Each Fund currently issues three classes of shares. Class A shares are sold
subject to a maximum sales charge of 4.75% payable at the time of purchase.
Class B shares are sold subject to a contingent deferred sales charge which
varies depending on when shares were purchased and how long they are held.
Class C shares are sold subject to a contingent deferred sales charge payable
upon redemption within one year of purchase, and are available only through
dealers who have entered into special distribution agreements with Keystone
Investment Distributors Company (formerly Keystone Distributors, Inc.)
("KIDC"), the FUND's principal underwriter.
Keystone is a wholly-owned subsidiary of Keystone Investments, Inc. (formerly
Keystone Group, Inc.) ("KII"), a Delaware corporation. KII is privately owned
by an investor group consisting of members of current and former members of
management of Keystone and its affilates.
The following is a summary of significant accounting policies consistently
followed by the Funds in the preparation of their financial statements. The
policies are in conformity with generally accepted accounting principles.
A. Tax-exempt bonds are valued on the basis of valuations provided by a
pricing service, approved by the Board of Trustees, that uses information
with respect to transactions in bonds, quotations from bond dealers, market
transactions in comparable securities and various relationships between
securities in determining value. Non-tax-exempt securities for which market
quotations are readily available are valued at the price quoted which, in the
opinion of the Board of Trustees or their representative, most nearly
represents their market value. Short-term investments which are purchased
with maturities of sixty days or less are valued at amortized cost (original
purchase cost as adjusted for amortization of premium or accretion of
discount) which when combined with accrued interest approximates market.
Short-term investments maturing in more than sixty days for which market
quotations are readily available are valued at current market value.
Short-term investments maturing in more than sixty days when purchased which
are held on the sixtieth day prior to maturity are valued at amortized cost
(market value on the sixtieth day adjusted for amortization of premium or
accretion of discount) which when combined with accrued interest approximates
market. All other securities and other assets are valued at fair value as
determined in good faith using methods prescribed by the Board of Trustees.
B. When-issued or delayed-delivery transactions arise when securities or
currencies are purchased or sold by a Fund with payment and delivery taking
place in the
<PAGE>
future in order to secure what is considered to be an advantageous price and
yield to the Fund at the time of entering into the transaction. A separate
account of liquid assets equal to the value of such purchase commitments will
be maintained until payment is made. When issued and delayed delivery
agreements are subject to risks from changes in the value based upon changes
in the level of interest rates and other market factors, both before and
after delivery.
C. Each Fund may enter into currency and other financial futures contracts as
a hedge against changes in interest or currency exchange rates. A futures
contract is an agreement between two parties to buy and sell a specific
amount of a commodity, security, financial instrument, or, in the case of a
stock index, cash at a set price on a future date. Upon entering into a
futures contract, each Fund is required to deposit with a broker an amount
("initial margin") equal to a certain percentage of the purchase price
indicated in the futures contract. Subsequent payments ("variation margin")
are made or received by a Fund each day, as the value of the underlying
instrument or index fluctuates, and are recorded for book purposes as
unrealized gains or losses by the Fund. For federal tax purposes, any futures
contracts which remain open at fiscal year-end are marked-to-market and the
resultant net gain or loss is included in a Fund's federal taxable income. In
addition to market risk, the Funds are subject to the credit risk that the
other party will not complete the obligations of the contract.
D. Securities transactions are accounted for no later than one business day
after the trade date. Realized gains and losses are recorded on the
identified cost basis. Interest income is recorded on the accrual basis. All
premiums and original issue discounts are amortized/accreted for both
financial reporting and federal income tax purposes.
E. Each Fund has qualified and intends to qualify in the future as a
regulated investment company under the Internal Revenue Code of 1986, as
amended (the "Internal Revenue Code"). Thus, each Fund is relieved of any
federal income tax liability by distributing all of its net taxable
investment income and net taxable capital gains, if any, to its shareholders.
Each Fund intends to avoid excise tax liability by making the required
distributions under the Internal Revenue Code.
F. Organization expenses are being amortized to operations over a five-year
period on a straight-line basis. In the event any of the initial shares are
redeemed by any holder thereof during the five-year amortization period,
redemption proceeds will be reduced by any unamortized organization expenses
in the same proportion as the number of initial shares being redeemed bears
to the number of initial shares outstanding at the time of redemption.
G. Each Fund intends to declare dividends from net investment income daily
and distribute to its shareholders such dividends monthly and to declare and
distribute all net realized long-term capital gains, if any, at least
annually. Distributions are determined in accordance with income tax
regulations. The significant differences between financial statement amounts
available for distribution and distributions made in accordance with income
tax regulations are primarily due to differences in the treatment of 12b-1
Distribution Plan charges and market discount of investment securities.
(2.) Capital Share Transactions
The Declaration of Trust authorizes the issuance of an unlimited number of
shares of beneficial interest without par value. Transactions in shares of
the FUND were as follows:
<PAGE>
February 1,
1994
(Commencement
Year Ended of
November Operations) to
30, November 30,
1995 1994
--------------------------------------------------------------
California Fund
Class A Shares
Shares sold 210,863 382,583
Shares redeemed (99,402) (39,080)
Shares issued in reinvestment
of dividends and
distributions 4,943 2,151
--------------------------------------------------------------
Net increase (decrease) 116,404 345,654
--------------------------------------------------------------
Class B Shares
Shares sold 1,223,780 1,429,334
Shares redeemed (254,280) (129,251)
Shares issued in reinvestment
of dividends and
distributions 33,291 14,308
--------------------------------------------------------------
Net increase (decrease) 1,002,791 1,314,391
--------------------------------------------------------------
Class C Shares
Shares sold 107,136 99,167
Shares redeemed (25,172) (28,249)
Shares issued in reinvestment
of dividends and
distributions 2,687 966
--------------------------------------------------------------
Net increase (decrease) 84,651 71,884
--------------------------------------------------------------
Missouri Fund
Class A Shares
Shares sold 429,776 467,351
Shares redeemed (362,420) (60,027)
Shares issued in reinvestment
of dividends and
distributions 11,139 3,204
--------------------------------------------------------------
Net increase (decrease) 78,495 410,528
--------------------------------------------------------------
Class B Shares
Shares sold 769,123 1,523,789
Shares redeemed (134,192) (50,032)
Shares issued in reinvestment
of dividends and
distributions 42,162 15,489
--------------------------------------------------------------
Net increase (decrease) 677,093 1,489,246
--------------------------------------------------------------
Missouri Fund
Class C Shares
Shares sold 101,419 167,136
Shares redeemed (44,088) (47,712)
Shares issued in reinvestment
of dividends and
distributions 4,503 1,357
--------------------------------------------------------------
Net increase (decrease) 61,834 120,781
--------------------------------------------------------------
Each Fund bears some of the cost 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.
Each Class A Distribution Plan provides for payments at an annual rate of up
to 0.15% 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 each
Fund to KIDC under the Class A Distribution Plan are currently used to pay
others (such as dealers) service fees at an annual rate of up to 0.15% of the
average daily net asset value of Class A shares maintained by such others and
remaining outstanding on the books of the Fund for specified periods.
Each Class B Distribution Plan provides for payments at an annual rate of
0.90% of the average daily net asset value of Class B shares to pay expenses
for the distribution of Class B shares. Amounts paid by each Fund under the
Class B Distribution Plan are currently used to pay others (such as dealers)
a commission at the time of purchase normally equal to 4.00% of the price
paid for each Class B share sold plus the first year's service fee in advance
in the amount of 0.15% of the price paid for each Class B
<PAGE>
Keystone State Tax Free Fund-Series II
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 0.15% of the average daily net asset value of the Class B shares
maintained by such others and remaining outstanding on the Fund's books for
specified periods. A contingent deferred sales charge will be imposed, if
applicable, on Class B shares purchased on or after June 1, 1995 at rates
ranging from a maximum of 5.00% of amounts redeemed during the first twelve
months following the date of purchase to 1.00% of amounts redeemed during the
sixth twelve month period following the date of purchase. Class B shares
purchased on or after June 1, 1995 that have been outstanding for eight years
from the month of purchase will automatically convert to Class A shares
without a front end sales charge or exchange fee. Class B shares purchased
prior to June 1, 1995 will retain their existing conversion rights.
Each Class C Distribution Plan provides for payments at an annual rate of up to
0.90% of the average daily net asset value of Class C shares to pay expenses for
the distribution of Class C shares. Amounts paid by each Fund under the Class C
Distribution Plan are currently used to pay others (such as dealers) a
commission at the time of purchase normally equal to 0.75% of the price paid for
each share sold plus the first year's service fee in advance in the amount of
0.15% 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 a rule of the
National Association of Security Dealers, Inc. ("NASD Rule")) plus service fees
at the annual rate of 0.15%, respectively, of the average net asset value of
each Class C share sold by such others and remaining outstanding on the Fund's
books for specified periods.
Each of the Distribution Plans may be terminated at any time by vote of the
Independent Trustees or by a majority of the outstanding voting shares of the
respective class. However, after the termination of any Distribution Plan, at
the discretion of the Board of Trustees, payments to KIDC may continue as
compensation for its services which had been earned while the Distribution
Plan was in effect.
For the year ended November 30, 1995 the California Fund paid KIDC $5,342,
$144,008 and $9,218 and the Missouri Fund paid $4,684, $154,093 and $14,349,
pursuant to each Fund's respective Class A, Class B and C Class Distribution
Plans.
Under the NASD Rule, the maximum uncollected amounts for which KIDC may seek
payment from the FUND under its Class B Distribution Plans are $881,590 and
$1,004,012 for shares purchased prior to June 1, 1995 and $503,630 and
$226,290 for shares purchased on or after June 1, 1995, for the California
Fund and the Missouri Fund, respectively, as of November 30, 1995. The
maximum uncollected amounts for which KIDC may seek payment from the FUND
under its Class C Distribution Plans are $94,402 and $123,873, respectively,
for the California Fund and the Missouri Fund as of November 30, 1995.
Presently, the Fund's class-specific expenses are limited to Distribution
Plan expenses incurred by a class of shares pursuant to its respective
Distribution Plan.
(3.) Securities Transactions
As of November 30, 1995, the capital loss carryover for federal income
purposes for the California Fund was $387,000 which expires in 2002; and the
capital
<PAGE>
loss carryover for the Missouri Fund was $657,000 which expires as follows:
2002--$152,000 and 2003--$505,000.
Purchases and sales of investment securities, excluding short-term
securities, for the year ended November 30, 1995 were as follows:
Cost of Proceeds
Purchases From Sales
- ----------------------------------------------------
California Fund $35,705,748 $24,090,235
Missouri Fund $21,413,118 $15,927,734
(4.) Investment Management Agreement and Other Transactions
Under the terms of the Investment Advisory and Management Agreement between
Keystone and the FUND, dated December 15, 1993, Keystone provides investment
management and administative services to each Fund. In return, Keystone is
paid a management fee computed and paid daily. The management fee is
calculated by applying percentage rates, which start at 0.55% and declining
as net assets increase to 0.25% per annum, to the average daily net asset
value of each Fund.
During the year ended November 30, 1995, the California Fund and the Missouri
Fund paid or accrued to Keystone $113,353 and $120,166, respectively, for
investment management and administrative service fees.
Keystone Investor Resource Center, Inc. ("KIRC"), a wholly-owned subsidiary
of Keystone, is the FUND's transfer agent. During the year ended November 30,
1995, the California Fund and the Missouri Fund paid or accrued to KIRC
$24,058, and $33,338, respectively, for transfer agent fees.
During the year ended November 30, 1995, the California Fund and the Missouri
Fund paid or accrued to KII $19,921, and $20,721, respectively, for certain
accounting services.
Keystone had voluntarily limited the expenses of Class A Shares of each Fund
to 0.35% for the Fund's first six months, after which the expense limitation
was increased by 0.10% per quarter until May 15, 1995 when expenses were
limited to 0.75%; expenses for Class B and C shares were limited to 1.10% for
each Fund's first six months, after which the expense limitations were
similarly increased until May 15, 1995 when expenses were limited to 1.50%.
These expense limitations will continue until December 31, 1995. Keystone
will not be required to make such reimbursement to the extent it would result
in the Fund's inability to qualify as a regulated investment company under
the provisions of the Internal Revenue Code. In accordance with these expense
limitations, Keystone reimbursed the California Fund and the Missouri Fund
$122,277 and $132,621, respectively, for the year ended November 30, 1995.
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 November 30, 1995, the California Fund and the Missouri
Fund paid custody fees in the amount of $29,439 and $24,440, respectively,
and received a credit of $5,486 and $5,258, respectively, pursuant to the
expense offset arrangement, resulting in a total expense of $34,925 and
$29,698, respectively. 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.
<PAGE>
Keystone State Tax Free Fund-Series II
INDEPENDENT AUDITORS' REPORT
The Trustees and Shareholders
Keystone State Tax Free Fund--Series II
We have audited the financial statements of Keystone California Insured Tax
Free Fund and Keystone Missouri Tax Free Fund, portfolios of Keystone State
Tax Free Fund -- Series II (formerly Keystone America State Tax Free Fund --
Series II) ("FUND"), including the schedules of investments as of November
30, 1995 and the related statement of operations for the year then ended and
the statements of changes in net assets and financial highlights for the year
then ended and for the period from February 1, 1994 (Commencement of
Operations) to November 30, 1994. These financial statements and financial
highlights are the responsibility of the FUND's management. Our
responsibility is to express an opinion on these financial statements and
financial highlights based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements and
financial highlights are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures
in the financial statements. Our procedures included confirmation of
securities owned as of November 30, 1995 by correspondence with the custodian
and brokers. An audit also includes assessing the accounting principles used
and significant estimates made by management, as well as evaluating the
overall financial statement presentation. We believe that our audits provide
a reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of
Keystone California Insured Tax Free Fund and Keystone Missouri Tax Free
Fund, as of November 30, 1995, the results of their operations for the year
then ended and the changes in their net assets and financial highlights for
the year then ended and for the period from February 1, 1994 to November 30,
1994 in conformity with generally accepted accounting principles.
KPMG Peat Marwick LLP
Boston, Massachusetts
January 5, 1996
<PAGE>
KEYSTONE STATE TAX FREE FUND - SERIES II
PART C
OTHER INFORMATION
Item 24. Financial Statements and Exhibits
Item 24(a). Financial Statements
All financial statements listed below are included in the Registrant's Statement
of Additional Information.
KEYSTONE CALIFORNIA INSURED TAX FREE FUND
Schedule of Investments November 30, 1995
Financial Highlights February 1, 1994 (commencement of
operations) to November 30, 1995 and
fiscal year ended November 30, 1995 for
Class A, Class B and Class C shares,
individually
Statement of Assets and Liabilities November 30, 1995
Statement of Operations Fiscal year ended November 30, 1995
Statement of Changes in Net Assets February 1, 1994 (commencement of
operations) to November 30, 1994 and
fiscal year ended November 30, 1995
KEYSTONE MISSOURI TAX FREE FUND
Schedule of Investments November 30, 1995
Financial Highlights February 1, 1994 (commencement of
operations) to November 30, 1994 and
fiscal year ended November 30, 1995 for
Class A, Class B and Class C shares,
individually
Statement of Assets and Liabilities November 30, 1995
Statement of Operations Fiscal year ended November 30, 1995
Statement of Changes in Net Assets February 1, 1994 (commencement of
operations) to November 30, 1994 and
fiscal year ended November 30, 1995
KEYSTONE STATE TAX FREE FUND - SERIES II
Independent Auditors' Report January 5, 1996
<PAGE>
(24)(b) Exhibits
(1) A copy of Registrant's Declaration of Trust, and an amendment thereto, are
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 between
Registrant and Keystone Investment Management Company (formerly known as
Keystone Custodian Funds, Inc.) is filed herewith as Exhibit 24(b)(5).
(6) (A) Copies of the Principal Underwriting Agreements, and any amendments
thereto, between Registrant and Keystone Investment Distributors Company
(formerly known as 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 Custody Agreement between Registrant and State Street Bank
and Trust Company is filed herewith as Exhibit 24(b)(8).
(9) Not applicable.
(10) Opinion of counsel on the legality of the shares registered was filed with
Registrant's Rule 24f-2 Notice on January 26, 1996 and is incorporated by
reference herein.
(11) (A) Consent as to use of Independent Auditors' Report is filed herewith as
Exhibit 24(b)(11)(A).
(B) Consent of California counsel and consent and opinion of Missouri
counsel are filed herewith as Exhibit 24(b)(11)(B).
(12) Not applicable.
(13) A copy of the Subscription Agreement was filed with Registration Statement
No. 33-73730/811-8254 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 will offer its securities were filed
with Post-Effective Amendment No. 66 to the Registration Statement No.
2-10527 as Exhibit 24(b)(14) and are incorporated herein by reference.
(15) Copies of the Class A, Class B and Class C Distribution Plans are filed
herewith as Exhibit 24(b)(15).
(16) Performance data schedules for computation of total return and yield
figures are filed herewith as Exhibit 24(b)(16).
(17) Financial data schedules are filed herewith as Exhibit 27.
(18) A copy of Registrant's Multiple Class Plan adopted pursuant to Rule 18f-3
was filed with Post-Effecive Amendment No. 2 to Registration Statement No.
33-73780/811-8254 as Exhibit 24(b)(18) and is incorporated by reference
herein.
(19) Powers of Attorney are filed herewith as Exhibit 24(b)(19).
<PAGE>
Item 25. Persons Controlled by or Under Common Control With Registrant
Not applicable.
Item 26. Number of Holders of Securities
Number of Record
Title of Class Holders as of January 1, 1996
- -------------- -----------------------------
Keystone California Class A: 105
Insured Tax Free Fund Shares Class B: 431
of Beneficial Interest, Class C: 41
without par value
Keystone Missouri Class A: 71
Tax Free Fund Shares Class B: 633
of Beneficial Interest, Class C: 46
without par value
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 as Exhibit 24(b)(1) and is
incorporated by reference herein.
Provisions for the indemnification of Keystone Investment Distributors
Company, the Registrant's Principal Underwriter, are contained in
Section 9 of the Principal Underwriting Agreements between the
Registrant and Keystone Investment Distributors Company, copies of
which are filed herewith as Exhibit 24(b)(6)(B) and are incorporated
by reference herein.
Provisions for the indemnification of Keystone Investment Management
Company, Registrant's investment adviser, 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 as Exhibit 24(b)(5) and is 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. Senior Vice None
Dates 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. Director and None
McCall 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.
Robert K. Vice President None
Baumback
Betsy A. Senior Vice None
Blacher President
Francis X. Vice President None
Claro
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. Vice President None
Dlugos
Antonio T. Vice President None
Docal
Christopher R. Senior Vice None
Ely President
Robert L. Vice President None
Hockett
Sami J. Karam Vice President None
Donald M. Senior Vice None
Keller President
George J. Vice President None
Kimball
JoAnn L. Vice President None
Lyndon
John C. Vice President None
Madden, Jr.
Stephen A. Vice President None
Marks
Eleanor H. Vice President None
Marsh
Walter T. Senior Vice None
McCormick President
Barbara McCue Vice President None
Stanley M. Vice President None
Niksa
Robert E. Vice President None
O'Brien
Margery C. Vice President None
Parker
William H. Vice President None
Parsons
Daniel A. Vice President None
Rabasco
David L. Vice President None
Smith
Kathy K. Wang Vice President None
Judith A. Vice President None
Warners
J. Kevin Vice President Vice President:
Kenely Keystone Investments, Inc.
Keystone Investment
Distributors Company
Keystone Institutional
Company, Inc.
Keystone Software, Inc.
Fiduciary Investment
Company, Inc.
John D. Rogol Vice President Vice President and
and Controller Controller:
Keystone Investments, Inc.
Keystone Investment
Distributors Company
Keystone Institutional
Company, Inc.
Keystone Management, Inc.
Keystone Software, Inc.
Fiduciary Investment
Company, Inc.
Vice President and
Treasurer:
Keystone Investor Resource
Center, Inc.
Controller:
Keystone Asset Corporation
Keystone Capital
Corporation
Joseph J. Asst. Vice President None
Decristofaro
<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.
<PAGE>
Positions with
Keystone Investment Positions with
Name Distributors Company Registrant
- ---- -------------------- ----------
Ralph J. Spuehler* Director, President None
Edward F. Godfrey* Director, Senior Vice Senior Vice
President, Treasurer President
and Chief Financial
Officer
Rosemary D. Van Director, Senior Vice Senior Vice
Antwerp* President, General President
Counsel and Secretary and Secretary
Albert H. Director President
Elfner, III *
Charles W. Carr* Senior Vice President None
Peter M. Delehanty* Senior Vice President None
J. Kevin Kenely* Vice President Treasurer
John D. Rogol* Vice President and None
Controller
C. Kenneth Molander Divisional Vice None
8 King Edward Dr. 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 02110
Keystone Investor Resource Center, Inc.
101 Main Street
Cambridge, Massachusetts 02142-1519
Data Vault Inc.
3431 Sharp Slot Road
Swansea, Massachusetts 02277
State Street Bank and Trust Company
776 Heritage Drive
Quincy, Massachusetts 02171
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 31st day of January, 1996.
KEYSTONE STATE TAX FREE
FUND - SERIES II
By: /s/ Rosemary D. Van Antwerp
-------------------------------
Rosemary D. Van Antwerp
Senior Vice President and
Secretary
Pursuant to the requirements of the Securities Act of 1933, this Amendment to
the Registrant's Registration Statement has been signed below by the following
persons in the capacities indicated on the 31st day of January, 1996.
SIGNATURES TITLE
/s/ George S. Bissell Chairman of the Board and Trustee
- ------------------------------
George S. Bissell*
/s/ Albert H. Elfner, III Chief Executive Officer, President
- ------------------------------ and Trustee
Albert H. Elfner, III*
/s/ J. Kevin Kenely Treasurer (Principal Financial
- ------------------------ and Accounting Officer)
J. Kevin Kenely*
*By: /s/ James M. Wall
-------------------------------
James M. Wall**
Attorney-in-Fact
<PAGE>
SIGNATURES TITLE
/s/ Frederick Amling Trustee
- ------------------------------
Frederick Amling*
/s/ Charles A. Austin, III Trustee
- ------------------------------
Charles A. Austin, III*
/s/ Edwin D. Campbell Trustee
- ------------------------------
Edwin D. Campbell*
/s/ Charles F. Chapin Trustee
- ------------------------------
Charles F. Chapin*
/s/ K. Dun Gifford Trustee
- ------------------------------
K. Dun Gifford*
/s/ Leroy Keith, Jr. Trustee
- ------------------------------
Leroy Keith, Jr.*
/s/ F. Ray Keyser, Jr. Trustee
- ------------------------------
F. Ray Keyser, Jr.*
/s/ David M. Richardson Trustee
- ------------------------------
David M. Richardson*
/s/ Richard J. Shima Trustee
- ------------------------------
Richard J. Shima*
/s/ Andrew J. Simons Trustee
- ------------------------------
Andrew J. Simons*
*By: /s/ James M. Wall
-------------------------------
James M. Wall**
Attorney-in-Fact
**James M. Wall, by signing his name hereto, does hereby sign this document on
behalf of each of the above-named individuals pursuant to powers of attorney
duly executed by such persons and attached hereto as Exhibit 24(b)(19).
<PAGE>
INDEX TO EXHIBITS
Page Number
in Sequential
Exhibit Number Exhibit Numbering System
1 Declaration of Trust, as amended
2 By-Laws
5 Investment Advisory and
Management Agreement
6 (A) Principal Underwriting
Agreements, as amended
(B) Dealer Agreement
8 Custody Agreement
10 Opinion of Counsel(1)
11 (A) Consent of Independent Auditors
(B) Consents of Counsel
13 Subscription Agreement(2)
14 Model Retirement Plans(3)
15 Class A, B and C Distribution Plans
16 Performance Data Schedules
17 Financial Data Schedules (filed as Exhibit 27)
18 Multiple Class Plan(4)
19 Powers of Attorney
- ---------------------
(1) Incorporated herein by reference to Registrant's Rule 24f-2 Notice filed on
January 26, 1996.
(2) Incorporated herein by reference to Registration Statement
No. 33-73730/811-8254.
(3) Incorporated by reference herein to Post-Effective Amendment No. 66 to
Registration Statement No. 2-10527/811-96
(4) Incorporated herein by reference to Post-Effective Amendment No. 2 to
Registration Statement No. 33-73730/811-8254.
<PAGE>
EXHIBIT 99.1
KEYSTONE AMERICA STATE TAX FREE FUND - SERIES II
DECLARATION OF TRUST
Dated December 15, 1993
This DECLARATION OF TRUST of Keystone America State Tax Free Fund -
Series II, made at Boston, Massachusetts on December 15, 1993 by George S.
Bissell, Frederick Amling, Charles A. Austin III, Albert H. Elfner, III, Edwin
D. Campbell, Charles F. Chapin, Leroy Keith, Jr., K. Dun Gifford, F. Ray Keyser,
David M. Richardson, Richard J. Shima and Andrew J. Simons (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 America State
Tax Free Fund - Series 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.
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. Meetings. Meetings of Shareholders shall be held at such
times at the principal office of the Trust or such other place as the Trustees
may designate. Meetings of the Shareholders may be called by the Trustees or
such other person or persons as may be specified in the By-laws. 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. Constant Net Asset Value; Reduction of Outstanding Shares. The
Trustees shall have the power to determine the Net Income of each Series or
Class of the Trust, which is commonly known as a taxable or tax free money
market Series or Class, at least once on each business day and at each such
determination declare such Net Income as dividends of each Series or Class with
the result that the Net Asset Value per Share of each such Series or Class of
the Trust shall remain at a constant dollar value. Fluctuations in value will be
reflected in the number of outstanding Shares in each Shareholder's account. If
there is a net loss in such a Series or Class, the Trust will first offset such
amount against dividends of such Series or Class accrued during the month in
each Shareholder account. To the extent that such a net loss would exceed such
accrued dividends, the Trust will reduce the number of its outstanding Shares of
such Series or Class in an amount equal to the amount by which the net loss
exceeds accrued dividends by having each Shareholder of such Series or Class
contribute to the Trust's capital his pro rata portion of the total number of
Shares of such Series or Class required to be cancelled in order to permit the
Net Asset Value per Share of such Series or Class of the Trust to be maintained
at a constant dollar value. Each Shareholder of such Series or Class will be
deemed to have agreed to such contribution in these circumstances by his
investment in the Trust. The purpose of the foregoing procedure is to permit the
Net Asset Value per Share of each such Series or Class of the Trust to be
maintained at a constant dollar value per Share.
The Trustees, by resolution, may discontinue or amend the practice of
maintaining the Net Asset Value per Share of each Series or Class at a constant
dollar amount at any time and such modification shall be evidenced by
appropriate changes in the Prospectus.
Section 6. Determination of Net Income. The "Net Income" of each Series or
Class which is commonly known as a tax free or taxable money market fund shall
include all accrued and actual (but not previously accrued) interest income on
portfolio assets of that Series or Class as well as realized and unrealized
capital gains and losses, less all actual and accrued expenses and liabilities
chargeable against the income of that Series or Class determined in accordance
with generally accepted accounting practices or may be determined in any other
manner appropriate for a money market fund approved by the Trustees and
determined in accordance with generally accepted accounting practices. Such Net
Income shall be determined as of such time or times as the Trustees may
determine on each business day. All the Net Income of each such Series or Class
which is a positive amount since the last determination of Net Income of
thatSeries or Class, minus any direct charges to Shareholders approved by the
Trustees and of which the Shareholders are notified, so determined shall be
declared as a dividend. If, for any reason, the Net Income of such a Series or
Class determined at any time is a negative amount, the pro rata share of each
Shareholder of that Series or Class of such negative amount shall constitute a
liability of such Shareholder to the Trust which shall be paid at such times and
in such manner as the Trustees may determine out of the accrued dividend account
of such Shareholder by reducing the number of Shares of such Series or Class in
the account of such Shareholder or otherwise.
As of any time other than the time determined by the Trustees pursuant to
the preceding paragraph, the Trustees may cause the Net Income since the last
determination to be determined in a similar manner and the Trustees may fix the
time when such redetermined or adjusted Net Income shall become effective.
Section 7. 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 8. 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 reasonablebelief 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 Trusteees 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.
<PAGE>
IN WITNESS WHEREOF, the undersigned have hereunto set their hands and
seals in the City of Boston, Massachusetts, for themselves and their assigns, as
of the day and year first above written.
/s/ George S. Bissell
-----------------------------
George S. Bissell
/s/ Frederick Amling
-----------------------------
Frederick Amling
/s/ Charles A. Austin III
-----------------------------
Charles A. Austin III
/s/ Albert H. Elfner, III
-----------------------------
Albert H. Elfner, III
/s/ Edwin D. Campbell
-----------------------------
Edwin D. Campbell
/s/ Charles F. Chapin
-----------------------------
Charles F. Chapin
/s/ Leroy Keith, Jr.
-----------------------------
Leroy Keith, Jr.
/s/ K. Dun Gifford
-----------------------------
K. Dun Gifford
/s/ F. Ray Keyser, Jr.
-----------------------------
F. Ray Keyser, Jr.
/s/ David M. Richardson
-----------------------------
David M. Richardson
/s/ Richard J. Shima
-----------------------------
Richard J. Shima
/s/ Andrew J. Simons
-----------------------------
Andrew J. Simons
<PAGE>
KEYSTONE AMERICA STATE TAX FREE FUND - SERIES II
FIRST SUPPLEMENTAL DECLARATION OF TRUST
EFFECTIVE MAY 1, 1995
FIRST SUPPLEMENTAL DECLARATION OF TRUST dated March 15, 1995 made by
George S. Bissell, Albert H. Elfner, III, Frederick Amling, Charles A. Austin,
III, Edwin D. Campbell, Charles F. Chapin, K. Dun Gifford, Leroy Keith, Jr., F.
Ray Keyser, Jr., David M. Richardson, Richard J. Shima and Andrew J. Simons
(hereinafter with their successors referred to as the "Trustees") to DECLARATION
OF TRUST dated December 15, 1993.
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 State Tax Free Fund -
Series 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."
This Amendment shall become effective as of May 1, 1995.
All other provisions of the Declaration of Trust shall continue as
originally stated.
IN WITNESS WHEREOF, the undersigned, being all of the Trustees of the
Trust, have caused this First Supplemental Declaration of Trust to be executed
on the 15th day of March, 1995.
/s/ George S. Bissell
- -----------------------------------
George S. Bissell, Trustee
/s/ Albert H. Elfner, III
- -----------------------------------
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>
EXHIBIT 99.2
BY-LAWS
KEYSTONE STATE TAX FREE FUND - SERIES II
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 State Tax Free Fund - Series II ("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. Until such time
as the State of California no longer requires, or until the Fund's California
Insured Tax Free Portfolio no longer registers its shares for sale in the State
of California, whichever first occurs, special meetings of the Fund may be
called by the holders of 10% of the outstanding shares of the California Insured
Tax Free Portfolio. The portion of this Section 2.1 relating to special meetings
to be called by shareholders may be altered, amended or repealed by the Trustees
without action by the shareholders.
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
November 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 1991 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.
#10150436
<PAGE>
EXHIBIT 99.5
INVESTMENT ADVISORY AND MANAGEMENT AGREEMENT
Agreement made the 15th day of December 1993 by and between KEYSTONE
AMERICA STATE TAX FREE FUND SERIES 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's Florida Fund and its Pennsylvania Fund and each portfolio of
securities subsequently established (each singly "Portfolio" or collectively
"Portfolios").
THEREFORE, in consideration of the promises and the mutual agreements
hereinafter contained, the Fund and the Adviser agree as follows:
1. (a) The Fund hereby employs the Adviser to manage and administer the
operation of the Fund, to supervise the provision of services to the Fund and
each of its Portfolios by others, and to manage the investment and reinvestment
of the assets of each Portfolio of the Fund in conformity with such Portfolio's
investment objectives and restrictions as may be set forth from time to time in
the Fund's then current prospectus and statement of additional information, if
any, and other governing documents, all subject to the supervision of the Board
of Trustees of the Fund, for the period and on the terms set forth in this
Agreement. The Adviser hereby accepts such employment and agrees during such
period, at its own expense, to render the services and to assume the obligations
set forth herein, for the compensation provided herein. The Adviser shall for
all purposes herein be deemed to be an independent contractor and shall, unless
otherwise expressly provided or authorized, have no authority to act for or
represent the Fund in any way or otherwise be deemed and agent of the Fund.
(b) In the event that the Fund establishes one or more Portfolios, in
addition to the Florida Fund and the Pennsylvania Fund, for which it wishes the
Adviser to perform services hereunder, it shall notify the Adviser in writing.
If the Adviser is willing to render such services, it shall notify the Fund in
writing and such Portfolio shall become a Portfolio hereunder and the
compensation payable to the Adviser by the new Portfolio will be as agreed in
writing at the time.
2. The Adviser shall place all orders for the purchase and sale of
portfolio securities for the account of each Portfolio of the Fund with
broker-dealers selected by the Adviser. In executing portfolio transactions and
selecting broker-dealers, the Adviser will use its best efforts to seek best
execution on behalf of each Portfolio. In assessing the best execution available
for any transaction, the Adviser shall consider all factors it deems relevant,
including the breadth of the market in the security, the price of the security,
the financial condition and execution capability of the broker-dealer, and the
reasonableness of the commission, if any (all for the specific transaction and
on a continuing basis). In evaluating the best execution available, and in
selecting the broker-dealer to execute a particular transaction, the Adviser may
also consider the brokerage and research services (as those terms are used in
Section 28(e) of the Securities Exchange Act of 1934 (the "1934 Act")) provided
to each Portfolio and/or other accounts over which the Adviser or an affiliate
of the Adviser exercises investment discretion. The Adviser is authorized to pay
a broker-dealer who provides such brokerage and research services a commission
for executing a portfolio transaction for a Portfolio which is in excess of the
amount of commission another broker-dealer would have charged for effecting that
transaction if, but only if, the Adviser determines in good faith that such
commission was reasonable in relation to the value of the brokerage and research
services provided by such broker-dealer viewed in terms of that particular
transaction or in terms of all of the accounts over which investment discretion
is so exercised.
3. The Adviser, at its own expense, shall furnish to the Fund office
space in the offices of the Adviser or in such other place as may be agreed upon
by the parties from time to time, all necessary office facilities, equipment and
personnel in connection with its services hereunder, and shall arrange, if
desired by the Fund, for members of the Adviser's organization to serve without
salaries from the Fund as officers or, as may be agreed from time to time, as
agents of the Fund. The Adviser assumes and shall pay or reimburse the Fund for:
(1) the compensation (if any) of the Trustees of the Fund who are affiliated
with the Adviser or with its affiliates, or with any adviser retained by the
Adviser, and of all officers of the Fund as such, and (2) all expenses of the
Adviser incurred in connection with its services hereunder. The Fund assumes and
shall pay all other expenses of the Fund and its Portfolios, including, without
limitation: (1) all charges and expenses of any custodian or depository
appointed by the Fund for the safekeeping of its cash, securities and other
property; (2) all charges and expenses for bookkeeping and auditors; (3) all
charges and expenses of any transfer agents and registrars appointed by the
Fund; (4) all fees of all Trustees of the Fund who are not affiliated with the
Adviser or any of its affiliates, or with any adviser retained by the Adviser;
(5) all broker's fees, expenses and commissions and issue and transfer taxes
chargeable to the Fund in connection with transactions involving securities and
other property to which the Fund is a party; (6) all costs and expenses of
distribution of its shares incurred pursuant to a Plan of Distribution adopted
under Rule 12b-1 under the Investment Company Act of 1940 ("1940 Act"); (7) all
taxes and business trust fees payable by the Fund to Federal, state or other
governmental agencies; (8) all costs of certificates representing shares of the
Fund; (9) all fees and expenses involved in registering and maintaining
registrations of the Fund and of its shares with the Securities and Exchange
Commission (the "Commission") and registering or qualifying its shares under
state or other securities laws, including, without limitation, the preparation
and printing of registration statements, prospectuses and statements of
additional information for filing with the Commission and other authorities;
(10) expenses of preparing, printing and mailing prospectuses and statements of
additional information to shareholders of the fund; (11) all expenses of
shareholders' and Trustees' meetings and of preparing, printing and mailing
notices, reports and proxy materials to shareholders of the Fund; (12) all
charges and expenses of legal counsel for the Fund and for Trustees of the Fund
in connection with legal matters relating to the Fund, including, without
limitation, legal services rendered in connection with the Fund's existence,
business trust and financial structure and relations with its shareholders,
registrations and qualifications of securities under federal, state and other
laws, issues of securities, expenses which the Fund has herein assumed, whether
customary or not, and extraordinary matters, including, without limitation, any
litigation involving the Fund, its Trustees, officers, employees or agents; (13)
all charges and expenses of filing annual and other reports with the Commission
and other authorities; and (14) all extraordinary expenses and charges of the
Fund. In the event that the Adviser provides any of these services or pays any
of these expenses, the Fund will promptly reimburse the Adviser therefor.
The services of the Adviser to the Fund hereunder are not to be deemed
exclusive, and the Adviser shall be free to render similar services to others.
4. As compensation for the Adviser's services to the Fund during the
period of this Agreement, the Fund will pay to the Adviser a fee for each
Portfolio at the annual rate of:
Aggregate Net Asset
Management Value of the Shares
Fee of the Portfolio
- -------------------------------------------------------------------
0.55% of the first $ 50,000,000, plus
0.50% of the next $ 50,000,000, plus
0.45% of the next $ 100,000,000, plus
0.40% of the next $ 100,000,000, plus
0.35% of the next $ 100,000,000, plus
0.30% of the next $ 100,000,000, plus
0.25% of amounts over $ 500,000,000.
A pro rata portion of the fee shall be payable in arrears at the end of
each day or calendar month as the Adviser may from time to time specify to the
Fund. If and when this Agreement terminates with respect to a Portfolio, any
compensation payable hereunder for the period ending with the date of such
termination shall be payable upon such termination. Amounts payable hereunder
shall be promptly paid when due.
5. The Adviser may enter into an agreement to retain, at its own
expense, any other firm or firms ("Sub Adviser") to provide the Fund all of the
services to be provided by the Adviser hereunder, if such agreement is approved
as required by law. Such agreement may delegate to such Sub Adviser all of the
Adviser's rights, obligations and duties hereunder.
6. The Adviser shall not be liable for any error of judgment or mistake
of law or for any loss suffered by the Fund in connection with the performance
of this Agreement, except a loss resulting from the Adviser's willful
misfeasance, bad faith, gross negligence or from reckless disregard by it of its
obligations and duties under this Agreement. Any person, even though also an
officer, Director, partner, employee, or agent of the Adviser who may be or
become an officer, Trustee, employee or agent of the Fund, shall be deemed, when
rendering services to the Fund or acting on any business of the Fund (other than
services or business in connection with the Adviser's duties hereunder), to be
rendering such services to or acting solely for the Fund and not as an officer,
Director, partner, employee, or agent or one under the control or direction of
the Adviser even though paid by it. The Fund agrees to indemnify and hold the
Adviser harmless from all taxes, charges, expenses, assessments, claims and
liabilities (including, without limitation, liabilities arising under the
Securities Act of 1933, the 1934 Act, the 1940 Act, and any state and foreign
securities and blue sky laws, as amended from time to time) and expenses,
including (without limitation) attorneys' fees and disbursements, arising
directly or indirectly from any action or thing which the Adviser takes or does
or omits to take or do hereunder provided that the Manager shall not be
indemnified against any liability to the Fund or to its shareholders (or any
expenses incident to such liability) arising out of a breach of fiduciary duty
with respect to the receipt of compensation for services, willful misfeasance,
bad faith, or gross negligence on the part of the Adviser in the performance of
its duties, or from reckless disregard by it of its obligations and duties under
the Agreement.
7. The Fund shall cause its books and accounts to be audited at least
once each year by a reputable independent public account
ant 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 KAI Acquisition, Inc. or otherwise; that
Directors, officers and agents of the Adviser and its affiliates or stockholders
of KAI Acquisition, Inc. are or may be interested in the Fund or any Adviser as
Trustees, Directors, officers, shareholders or otherwise; that the Adviser (or
any such successor) is or may be interested in the Fund or any such Adviser as
shareholder, or otherwise; and that the effect of any such adverse interests
shall be governed by said Declaration of Trust of the Fund, Articles of
Incorporation of the Adviser and governing documents of any such Adviser.
9. This Agreement shall continue in effect after July 1, 1994 only so
long as (1) such continuance is specifically approved at least annually by the
Board of Trustees of the Fund or by a vote of a majority of the outstanding
voting securities of the Fund, and (2) such renewal has been approved by the
vote of a majority of Trustees of the Fund who are not interested persons, as
that term is defined in the 1940 Act, of the Adviser or of the Fund, cast in
person at a meeting called for the purpose of voting on such approval.
10. On sixty days' written notice to the Adviser, this Agreement may be
terminated at any time without the payment of any penalty by the Board of
Trustees of the Fund or by vote of the holders of a majority of the outstanding
voting securities of the affected Portfolio(s); and on sixty days' written
notice to the Fund, this Agreement may be terminated at any time without the
payment of any penalty by the Adviser. This Agreement shall automatically
terminate upon its assignment (as that term is defined in the 1940 Act). Any
notice under this Agreement shall be given in writing, addressed and delivered,
or mailed postage prepaid, to the other party at the main office of such party.
11. This Agreement may be amended at any time by an instrument in
writing executed by both parties hereto or their respective successors, provided
that with regard to amendments of substance such execution by the Fund shall
have been first approved by the vote of the holders of a majority of the
outstanding voting securities of the affected Portfolio(s) and by the vote of a
majority of Trustees of the Fund who are not interested persons (as that term is
defined in the 1940 Act) of the Adviser, any predecessor of the Adviser, or of
the Fund, cast in person at a meeting called for the purpose of voting on such
approval. A "majority of the outstanding voting securities of the Fund" shall
have, for all purposes of this Agreement, the meaning provided therefor in the
1940 Act.
12. Any compensation payable to the adviser hereunder for any period
other than a full year shall be proportionately adjusted.
13. The provisions of the Agreement shall be governed, construed and
enforced in accordance with the laws of The Commonwealth of Massachusetts.
14. A copy of the Declaration of Trust of the Fund is on file with the
Secretary of the Commonwealth of Massachusetts. This instrument is executed on
behalf of the Trustees of the Fund as trustees and not individually and the
obligations of this instrument are not binding upon the Trustees or holders of
shares of the Fund individually but are binding only upon the assets and
property of the Fund.
IN WITNESS WHEREOF, the parties hereto have duly executed this
Agreement on the day and year first above written.
KEYSTONE AMERICA STATE TAX FREE
FUND - SERIES II
By: /s/ Rosemary D. Van Antwerp
--------------------------------
Title: Vice President & Secretary
KEYSTONE CUSTODIAN FUNDS, INC.
By: /s/ Illegible
--------------------------------
Title:
#1015043D
<PAGE>
EXHIBIT 99.6(A)
PRINCIPAL UNDERWRITING AGREEMENT
KEYSTONE AMERICA STATE TAX FREE FUND - SERIES II
AGREEMENT made this 15th day of December 1993 by and between Keystone
America State Tax Free Fund - Series 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 the contingent
deferred sales charges, as set forth in the then current prospectus and/or
statement of additional information of the Fund. Principal Underwriter may
reallow all or a part of the 12b-1 payments to such brokers, dealers or other
persons as Principal Underwriter may determine.
5. Payment to the Fund for Shares shall be in New York or Boston
Clearing House funds received by Principal Underwriter within ten (10) business
days after notice of acceptance of the purchase order and the amount of the
applicable public offering price has been given to the purchaser. If such
payment is not received within such ten-day period, the Fund reserves the right,
without further notice, forthwith to cancel its acceptance of any such order.
The Fund shall pay such issue taxes as may be required by law in connection with
the issue of the Shares.
6. Principal Underwriter shall not make in connection with any sale or
solicitation of a sale of the Shares any representations concerning the Shares
except those contained in the then current prospectus and/or statement of
additional information covering the Shares and in printed information approved
by the Fund as information supplemental to such prospectus and statement of
additional information. Copies of the then current prospectus and statement of
additional information and any such printed supplemental information will be
supplied by the Fund to Principal Underwriter in reasonable quantities upon
request.
7. Principal Underwriter agrees to comply with the Rules of Fair
Practice of the National Association of Securities Dealers, Inc.
8. The Fund appoints Principal Underwriter as its agent to accept
orders for redemptions and repurchases of Shares at values and in the manner
determined in accordance with the then current prospectus and/or statement of
additional information of the Fund.
9. The Fund agrees to indemnify and hold harmless the Principal
Underwriter, its officers and Directors and each person, if any, who controls
the Principal Underwriter within the meaning of Section 15 of the Securities Act
of 1933 ("1933 Act"), against any losses, claims, damages, liabilities and
expenses (including the cost of any legal fees incurred in connection therewith)
which the Principal Underwriter, its officers, Directors or any such controlling
person may incur under the 1933 Act, under any other statute, at common law or
otherwise, arising out of or based upon
a) any untrue statement or alleged untrue statement of a
material fact contained in the Fund's registration statement,
prospectus or statement of additional information (including amendments
and supplements thereto), or
b) any omission or alleged omission to state a material fact
required to be stated in the Fund's registration statement, prospectus
or statement of additional information necessary to make the statements
therein not misleading, provided, however, that insofar as losses,
claims, damages, liabilities or expenses arise out of or are based upon
any such untrue statement or omission or alleged untrue statement or
omission made in reliance and in conformity with information furnished
to the Fund by the Principal Underwriter for use in the Fund's
registration statement, prospectus or statement of additional
information, such indemnification is not applicable. In no case shall
the Fund indemnify the Principal Underwriter or its controlling person
as to any amounts incurred for any liability arising out of or based
upon any action for which the Principal Underwriter, its officers and
Directors or any controlling person would otherwise be subject to
liability by reason of willful misfeasance, bad faith, or gross
negligence in the performance of its duties or by reason of the
reckless disregard of its obligations and duties under this Agreement.
10. The Principal Underwriter agrees to indemnify and hold harmless the
Fund, its officers, Directors 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 Principal
Underwriter for the purpose of qualifying the Shares for sale under the
so-called "blue sky" laws of any state or for registering Shares under the 1933
Act or the Fund under the Investment Company Act of 1940 ("1940 Act"). Principal
Underwriter shall bear the expense of preparing, printing and distributing
advertising, sales literature, prospectuses, and statements of additional
information. The Fund shall bear the expense of registering Shares under the
1933 Act and the Fund under the 1940 Act, qualifying Shares for sale under the
so-called "blue sky" laws of any state, the preparation and printing of
prospectuses, statements of additional information and reports required to be
filed with the Securities and Exchange Commission and other authorities, the
preparation, printing and mailing of prospectuses and statements of additional
information to shareholders of the Fund, and the direct expenses of the issue of
Shares.
12. To the extent required by any 12b-1 Plan of the Fund, Principal
Underwriter shall provide to the Board of Directors 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 Directors of the Fund
and a majority of the 12b-1 Directors referred to in any 12b-1 Plan of a
Portfolio of the Fund ("Rule 12b-1 Directors") 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 Directors 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.
IN WITNESS WHEREOF, the parties hereto have caused this agreement to be
executed by their respective officers thereunto duly authorized at Boston,
Massachusetts, on the day and year first written above.
KEYSTONE AMERICA STATE TAX FREE
FUND - SERIES II
By: /s/ Rosemary D. Van Antwerp
---------------------------------
Title: Vice President & Secretary
KEYSTONE DISTRIBUTORS, INC.
By: /s/ Illegible
---------------------------------
Title:
<PAGE>
FIRST AMENDMENT
TO
PRINCIPAL UNDERWRITING AGREEMENT
OF
KEYSTONE STATE TAX FREE FUND - SERIES II,
ON BEHALF OF
KEYSTONE CALIFORNIA INSURED TAX FREE FUND
KEYSTONE MISSOURI TAX FREE FUND
(ITS "SERIES")
FIRST AMENDMENT (the "Amendment") made as of the 31st day of May 1995
to AGREEMENT (the "Agreement") made the 15th day of December 1993 by and between
Keystone State Tax Free Fund - Series II, a Massachusetts business trust, on
behalf of its series, and Keystone Investment Distributors Company, a Delaware
corporation (the "Principal Underwriter").
1. This Amendment is made by the Fund, individually and/or on behalf of
its series if any, referred to above in the title of this Amendment, to
which series, if any, this Amendment shall relate, as applicable (the
"Fund"). The Fund and the Principal Underwriter mutually agree that
Section 1 of the
Agreement is amended as follows:
"1. The Fund hereby appoints the Principal Underwriter
a principal underwriter of the Class A and Class C shares of
beneficial interest of the Fund ("Shares") as an independent
contractor upon the terms and conditions hereinafter set
forth. Except as the Fund may from time to time agree, the
Principal Underwriter will act as agent for the Fund and not
as principal."
2. In all other respects the Agreement is unchanged.
IN WITNESS WHEREOF, the parties hereto have caused this agreement to be
executed by their respective officers thereunto duly authorized at Boston,
Massachusetts on the day and year first written above.
KEYSTONE STATE TAX FREE FUND - SERIES II,
on behalf of
Keystone California Insured Tax Free Fund
Keystone Missouri Tax Free Fund
By: /s/ Albert H. Elfner, III
---------------------------------
Title: President
KEYSTONE INVESTMENT DISTRIBUTORS
COMPANY
By: /s/ Ralph J. Spuehler, Jr.
---------------------------------
Title: President
<PAGE>
PRINCIPAL UNDERWRITING AGREEMENT
FOR CLASS B-1 SHARES
OF
KEYSTONE CALIFORNIA INSURED TAX FREE FUND,
A SERIES OF KEYSTONE STATE TAX FREE FUND - SERIES II
AGREEMENT made this 31st day of May 1995 by and between Keystone State
Tax Free Fund - Series II, a Massachusetts business trust, on behalf of Keystone
California Insured Tax Free Fund ("Fund"), and Keystone Investment Distributors
Company, a Delaware corporation (the "Principal Underwriter").
The Fund, individually and/or on behalf of its series, if any, referred to
above in the title of this Agreement, to which series, if any, this Agreement
shall relate, as applicable (the Fund ), may act as the distributor of certain
securities of which it is the issuer pursuant to Rule 12b-1 under the Investment
Company Act of 1940 (the 1940 Act ). Accordingly, it is hereby mutually agreed
as follows:
1. The Fund hereby appoints the Principal Underwriter a principal
underwriter of the Class B-1 shares of beneficial interest of the Fund ("B-1
Shares") as an independent contractor upon the terms and conditions hereinafter
set forth. The general term "Shares" as used herein has the same meaning as is
provided therefor in Schedule I hereto. Except as the Fund may from time to time
agree, the Principal Underwriter will act as agent for the Fund and not as
principal.
2. The Principal Underwriter will use its best efforts to find purchasers
for the B-1 Shares and to promote distribution of the B-1 Shares and may obtain
orders from brokers, dealers or other persons for sales of B-1 Shares to them.
No such dealer, broker or other person shall have any authority to act as agent
for the Fund; such dealer, broker or other person shall act only as principal in
the sale of B-1 Shares.
3. Sales of B-1 Shares by Principal Underwriter shall be at the public
offering price determined in the manner set forth in the prospectus and/or
statement of additional information of the Fund current at the time of the
Fund's acceptance of the order for B-2 Shares. All orders shall be subject to
acceptance by the Fund and the Fund reserves the right in its sole discretion to
reject any order received. The Fund shall not be liable to anyone for failure to
accept any order.
4. On all sales of B-1 Shares the Fund shall receive the current net asset
value. The Fund shall pay the Principal Underwriter Distribution Fees (as
defined in Section 14 hereof), as commissions for the sale of B-1 Shares and
other Shares, which shall be paid in conjunction with distribution fees paid to
the Principal Underwriter by other classes of Shares of the Fund to the extent
required in order to comply with Section 14 hereof, and shall pay over to the
Principal Underwriter CDSCs (as defined in Section 14 hereof) as set forth in
the Fund's current prospectus and statement of additional information, and as
required by Section 14 hereof. The Principal Underwriter shall also receive
payments consisting of shareholder service fees ("Service Fees") at the rate of
.25% per annum of the average daily net asset value of the Class B-1 Shares. The
Principal Underwriter may allow all or a part of said Distribution Fees and
CDSCs received by it (not paid to others as hereinafter provided) to such
brokers, dealers or other persons as Principal Underwriter may determine.
5. Payment to the Fund for B-1 Shares shall be in New York or Boston
Clearing House funds received by the Principal Underwriter within three business
days after notice of acceptance of the purchase order and the amount of the
applicable public offering price has been given to the purchaser. If such
payment is not received within such period, the Fund reserves the right, without
further notice, forthwith to cancel its acceptance of any such order. The Fund
shall pay such issue taxes as may be required by law in connection with the
issue of the B-1 Shares.
6. The Principal Underwriter shall not make in connection with any sale or
solicitation of a sale of the B-1 Shares any representations concerning the B-1
Shares except those contained in the then current prospectus and/or statement of
additional information covering the Shares and in printed information approved
by the Fund as information supplemental to such prospectus and statement of
additional information. Copies of the then current prospectus and statement of
additional information and any such printed supplemental information will be
supplied by the Fund to the Principal Underwriter in reasonable quantities upon
request.
7. The Principal Underwriter agrees to comply with the Rules of Fair
Practice of the National Association of Securities Dealers, Inc. (as defined in
the Purchase and Sale Agreement, dated as of May 31, 1995 (the Purchase
Agreement ), between the Principal Underwriter, Citibank, N.A. and Citicorp
North America, Inc., as agent (the "Rules of Fair Practice")).
8. The Fund appoints the Principal Underwriter as its agent to accept
orders for redemptions and repurchases of B-1 Shares at values and in the manner
determined in accordance with the then current prospectus and/or statement of
additional information of the Fund.
9. The Fund agrees to indemnify and hold harmless the Principal
Underwriter, its officers and Directors and each person, if any, who controls
the Principal Underwriter within the meaning of Section 15 of the Securities Act
of 1933 ("1933 Act"), against any losses, claims, damages, liabilities and
expenses (including the cost of any legal fees incurred in connection therewith)
which the Principal Underwriter, its officers, Directors or any such controlling
person may incur under the 1933 Act, under any other statute, at common law or
otherwise, arising out of or based upon
a. any untrue statement or alleged untrue statement of a material fact
contained in the Fund's registration statement, prospectus or
statement of additional information (including amendments and
supplements thereto) or
b. any omission or alleged omission to state a material fact required to
be stated in the Fund's registration statement, prospectus or
statement of additional information necessary to make the statements
therein not misleading, provided, however, that insofar as losses,
claims, damages, liabilities or expenses arise out of or are based
upon any such untrue statement or omission or alleged untrue statement
or omission made in reliance and in conformity with information
furnished to the Fund by the Principal Underwriter for use in the
Fund's registration statement, prospectus or statement of additional
information, such indemnification is not applicable. In no case shall
the Fund indemnify the Principal Underwriter or its controlling person
as to any amounts incurred for any liability arising out of or based
upon any action for which the Principal Underwriter, its officers and
Directors or any controlling person would otherwise be subject to
liability by reason of willful misfeasance, bad faith, or gross
negligence in the performance of its duties or by reason of the
reckless disregard of its obligations and duties under this Agreement.
10. The Principal Underwriter agrees to indemnify and hold harmless the
Fund, its officers and Trustees and each person, if any, who controls the Fund
within the meaning of Section 15 of the 1933 Act against any loss, claims,
damages, liabilities and expenses (including the cost of any legal fees incurred
in connection therewith) which the Fund, its officers, Directors or any such
controlling person may incur under the 1933 Act, under any other statute, at
common law or otherwise arising out of the acquisition of any Shares by any
person which
(a) may be based upon any wrongful act by the Principal Underwriter or any
of its employees or representatives, or
(b) may be based upon any untrue statement or alleged untrue statement of
a material fact contained in the Fund's registration statement,
prospectus or statement of additional information (including
amendments and supplements thereto), or any omission or alleged
omission to state a material fact required to be stated therein or
necessary to make the statements therein not misleading, if such
statement or omission was made in reliance upon information furnished
or confirmed in writing to the Fund by the Principal Underwriter.
11. The Fund agrees to execute such papers and to do such acts and things
as shall from time to time be reasonably requested by the Principal Underwriter
for the purpose of qualifying the B-1 Shares for sale under the so-called "blue
sky" laws of any state or for registering B-1 Shares under the 1933 Act or the
Fund under the Investment Company Act of 1940 ("1940 Act"). The Principal
Underwriter shall bear the expenses of preparing, printing and distributing
advertising, sales literature, prospectuses, and statements of additional
information. The Fund shall bear the expense of registering B-1 Shares under the
1933 Act and the Fund under the 1940 Act, qualifying B-1 Shares for sale under
the so-called "blue sky" laws of any state, the preparation and printing of
prospectuses, statements of additional information and reports required to be
filed with the Securities and Exchange Commission and other authorities, the
preparation, printing and mailing of prospectuses and statements of additional
information to holders of B-1 Shares, and the direct expenses of the issue of
B-1 Shares.
12. The Principal Underwriter shall, at the request of the Fund, provide to
the Board of Trustees or Directors (together herein called the Directors ) of
the Fund in connection with sales of B-1 Shares not less than quarterly a
written report of the amounts received from the Fund therefor and the purpose
for which such expenditures by the Fund were made.
13. The term of this Agreement shall begin on the date hereof and, unless
sooner terminated or continued as provided below, shall expire after one year.
This Agreement shall continue in effect after such term if its continuance is
specifically approved by a majority of the outstanding voting securities of
Class B-1 of the Fund or by a majority of the Directors of the Fund and a
majority of the Directors who are not parties to this Agreement or "interested
persons", as defined in the Investment Company Act of 1940 (the 1940 Act ), of
any such party and who have no direct or indirect financial interest in the
operation of the Fund's Rule 12b-1 plan for Class B-1 Shares or in any
agreements related to the plan at least annually in accordance with the 1940 Act
and the rules and regulations thereunder.
This Agreement may be terminated at any time, without payment of any
penalty, by vote of a majority of the Directors of the Fund, or a majority of
such Directors who are not parties to this Agreement or "interested persons", as
defined in the 1940 Act, of any such party and who have no direct or indirect
financial interest in the operation of the Fund's Rule 12b-1 plan for Class B-1
Shares or in any agreement related to the plan or by a vote of a majority of the
outstanding voting securities of Class B-1 on not more than sixty days written
notice to any other party to the agreement; and shall terminate automatically in
the event of its assignment (as defined in the 1940 Act), which shall not
include assignment of the Principal Underwriter's (as hereinafter defined)
provided for hereunder and/or rights related to such Allocable Portions.
14. The provisions of this Section 14 shall be applicable to the extent
necessary to enable the Fund to comply with the obligation of the Fund to pay
the Principal Underwriter its Allocable Portion of Distribution Fees paid in
respect of Shares while the Fund is required to do so pursuant the Principal
Underwriting Agreement, of even date herewith, in respect of Class B-2 Shares,
and shall remain in effect so long as any payments are required to be made by
the Fund pursuant to the irrevocable payment instruction (as defined in the
Purchase Agreement (the Irrevocable Payment Instruction )).
14.1 The Fund shall pay to the Principal Underwriter the Principal
Underwriter's Allocable Portion (as hereinafter defined) of a fee (the
"Distribution Fee") at the rate of .75% per annum of the average daily net asset
value of the Shares, subject to the limitation on the maximum aggregate amount
of such fees under the Rules of Fair Practice as applicable to such Distribution
Fee on the date hereof.
14.2 The Principal Underwriter's Allocable Portion of Distribution Fees
paid by the Fund in respect of Shares shall be equal to the portion of the Asset
Based Sales Charge allocable to Distributor Shares (as defined in Schedule I
hereto to this Agreement) in accordance with Schedule I hereto. The Fund agrees
to cause its transfer agent to maintain the records and arrange for the payments
on behalf of the Fund at the times and in the amounts and to the accounts
required by Schedule I hereto, as the same may be amended from time to time. It
is acknowledged and agreed that by virtue of the operation of Schedule I hereto
the Principal Underwriter's Allocable Portion of Distribution Fees paid by the
Fund in respect of Shares, may, to the extent provided in Schedule I hereto,
take into account Distribution Fees payable by the Fund in respect of other
existing and future classes and/or sub-classes of shares of the Fund which would
be treated as "Shares" under Schedule I hereto. The Fund will limit amounts paid
to any subsequent principal underwriters of Shares to the portion of the Asset
Based Sales Charge paid in respect of Shares which is allocable to
Post-distributor Shares (as defined in Schedule I hereto) in accordance with
Schedule I hereto. The Fund's payments to the Principal Underwriter in
consideration of its services in connection with the sale of B-1 Shares shall be
the Distribution Fees attributable to B-1 Shares which are Distributor Shares
(as defined in Schedule I hereto) and all other amounts constituting the
Principal Underwriter's Allocable Portion of Distribution Fees shall be the
Distribution Fees related to the sale of other Shares which are Distributor
Shares (as defined in Schedule I hereto).
The Fund shall cause its transfer agent and sub-transfer agents to withhold
from redemption proceeds payable to holders of Shares on redemption thereof the
contingent deferred sales charges payable upon redemption thereof as set forth
in the then current prospectus and/or statement of additional information of the
Fund ("CDSCs") and to pay over to the Principal Underwriter The Principal
Underwriter's Allocable Portion of said CDSCs paid in respect of Shares which
shall be equal to the portion thereof allocable to Distributor Shares (as
defined in Schedule I hereto) in accordance with Schedule I hereto.
14.3 The Principal Underwriter shall be considered to have completely
earned the right to the payment of its Allocable Portion of the Distribution Fee
and the right to payment over to it of its' Allocable Portion of the CDSC in
respect of Shares as provided for hereby upon the completion of the sale of each
Commission Share (as defined in Schedule I hereto) taken into account as a
Distributor Share in computing the Principal Underwriter's Allocable Portion in
accordance with Schedule I hereto.
14.4 Except as provided in Section 14.5 hereof in respect of Distribution
Fees only, the Fund's obligation to pay the Principal Underwriter the
Distribution Fees and to pay over to the Principal Underwriter CDSCs provided
for hereby shall be absolute and unconditional and shall not be subject to
dispute, offset, counterclaim or any defense whatsoever (it being understood
that nothing in this sentence shall be deemed a waiver by the Fund of its right
separately to pursue any claims it may have against the Principal Underwriter
and enforce such claims against any assets (other than the Principal
Underwriter's right to its Allocable Portion of the Distribution Fees and CDSCs
(the "Collection Rights") of the Principal Underwriter).
14.5 Notwithstanding anything in this Agreement to the contrary, the Fund
shall pay to the Principal Underwriter its Allocable Portion of Distribution
Fees provided for hereby notwithstanding its termination as Principal
Underwriter for the Shares or any termination of this Agreement and such payment
of such Distribution Fees, and that obligation and the method of computing such
payment, shall not be changed or terminated except to the extent required by any
change in applicable law, including, without limitation, the 1940 Act, the Rules
promulgated thereunder by the Securities and Exchange Commission and the Rules
of Fair Practice, in each case enacted or promulgated after June 1, 1995, or in
connection with a Complete Termination (as hereinafter defined). For the
purposes of this Section 14.5, "Complete Termination" means a termination of the
Fund's Rule 12b-1 plan for B-2 Shares involving the cessation of payments of the
Distribution Fees, and the cessation of payments of distribution fees pursuant
to every other Rule 12b-1 plan of the Fund for every existing or future
B-Class-of-Shares (as hereinafter defined) and the Fund's discontinuance of the
offering of every existing or future B-Class-of-Shares, which conditions shall
be deemed satisfied when they are first complied with hereafter and so long
thereafter as they are complied with prior to the earlier of (i) the date upon
which all of the B-2 Shares which are Distributor Shares pursuant to Schedule I
hereto shall have been redeemed or converted or (ii) June 1, 2005. For purposes
of this Section 14.5, the term B-Class-of-Shares means each of the B-1 Class of
Shares of the Fund, the B-2 Class of Shares of the Fund and each other class of
shares of the Fund hereafter issued which would be treated as Shares under
Schedule I hereto or which has substantially similar economic characteristics to
the B-1 or B-2 Classes of Shares taking into account the total sales charge,
CDSC or other similar charges borne directly or indirectly by the holder of the
shares of such class. The parties agree that the existing C Class of Shares of
the Fund does not have substantially similar economic characteristics to the B-1
or B-2 Classes of Shares taking into account the total sales charge, CDSC or
other similar charges borne directly or indirectly by the holder of such shares.
For purposes of clarity the parties to this agreement hereby state that they
intend that a new installment load class of shares which may be authorized by
amendments to Rule 6(c)-10 under the 1940 Act will be considered to be a
B-Class-of-Shares if it has economic characteristics substantially similar to
the economic characteristics of the existing B-1 or B-2 Classes of Shares taking
into account the total sale charge, CDSC or other similar charges borne directly
or indirectly by the holder of such shares and will not be considered to be a
B-Class-of-Shares if it has economic characteristics substantially similar to
the economic characteristics of the existing C Class of shares of the Fund
taking into account the total sales charge, CDSC or other similar charges borne
directly or indirectly by the holder of such shares.
14.6 The Principal Underwriter may assign any part of its Allocable
Portions and obligations of the Fund related thereto (but not the Principal
Underwriter's obligations to the Fund provided for in this Agreement) to any
person (an "Assignee") and any such assignment shall be effective as to the Fund
upon written notice to the Fund by the Principal Underwriter. In connection
therewith the Fund shall pay all or any amounts in respect of its Allocable
Portions directly to the Assignee thereof as directed in a writing by the
Principal Underwriter in the Irrevocable Payment Instruction, as the same may be
amended from time to time with the consent of the Fund, and the Fund shall be
without liability to any person if it pays such amounts when and as so directed,
except for underpayments of amounts actually due, without any amount payable as
consequential or other damages due to such underpayment and without interest
except to the extent that delay in payment of Distribution Fees and CDSCs
results in an increase in the maximum Sales Charge allowable under the Rules of
Fair Practice, which increases daily at a rate of prime plus one percent per
annum.
14.7 The Fund will not, to the extent it may otherwise be empowered to do
so, change or waive any CDSC with respect to B-1 Shares, except as provided in
the Fund's prospectus or statement of additional information without the
Principal Underwriter's or Assignee's consent, as applicable. Notwithstanding
anything to the contrary in this Agreement or any termination of this Agreement
or the Principal Underwriter as principal underwriter for the Shares of the
Fund, the Principal Underwriter shall be entitled to be paid its Allocable
Portion of the CDSCs whether or not the Fund's Rule 12b-1 plan for B-1 Shares is
terminated and whether or not any such termination is a Complete Termination, as
defined above.
15. This Agreement shall be construed in accordance with the laws of The
Commonwealth of Massachusetts. All sales hereunder are to be made, and title to
the Shares shall pass, in Boston, Massachusetts.
16. The Fund is a Massachusetts business trust established under a
Declaration of Trust, as it may be amended from time to time. The obligations of
the Fund are not personally binding upon, nor shall recourse be had against the
private property of any of the Trustees, shareholders, officers, employees or
agents of the Fund, but only the property of the Fund shall be bound.
IN WITNESS WHEREOF, the parties hereto have caused this agreement to be
executed by their respective officers thereunto duly authorized at Boston,
Massachusetts, on the day and year first written above.
KEYSTONE STATE TAX FREE FUND - SERIES II,
on behalf of
KEYSTONE CALIFORNIA INSURED TAX FREE FUND
By: /s/
----------------------------
Title:
KEYSTONE INVESTMENT DISTRIBUTORS COMPANY
By: /s/
----------------------------
Title:
<PAGE>
SCHEDULE I
TO
PRINCIPAL UNDERWRITING AGREEMENT
FOR CLASS B-1 SHARES
OF
KEYSTONE STATE TAX FREE FUND - SERIES II,
on behalf of
KEYSTONE CALIFORNIA INSURED TAX FREE FUND
TRANSFER AGENT PROCEDURES FOR DIFFERENTIATING
AMONG DISTRIBUTOR SHARES AND POST-DISTRIBUTOR SHARES
Amounts (in respect of Asset Based Sales Charges (as hereinafter defined)
and CDSCs (as hereinafter defined) in respect of Shares (as hereinafter defined)
of each Fund (as hereinafter defined) shall be allocated between Distributor
Shares (as hereinafter defined) and Post-distributor Shares (as hereinafter
defined) of such Fund in accordance with the rules set forth in clauses (B) and
(C). Clause (B) sets forth the rules to be followed by the Transfer Agent for
each Fund and the record owner of each Omnibus Account (as hereinafter defined)
in maintaining records relating to Distributor Shares and Post-distributor
Shares. Clause (C) sets forth the rules to be followed by the Transfer Agent for
each Fund and the record owner of each Omnibus Account in determining what
portion of the Asset Based Sales Charge (as hereinafter defined) payable in
respect of each class of Shares of such Fund and what portion of the CDSC (as
hereinafter defined) payable by the holders of Shares of such Fund is
attributable to Distributor Shares and Post-distributor Shares, respectively.
(A) DEFINITIONS:
Generally, for purposes of this Schedule I, defined terms shall be used
with the meaning assigned to them in the Agreement, except that for purposes of
the following rules the following definitions are also applicable:
"Agreement" shall mean the Principal Underwriting Agreement for Class B-1
Shares of the Instant Fund dated as of May 31, 1995 between the Instant Fund and
the Distributor.
"Asset Based Sales Charge" shall have the meaning set forth in Section
26(b)(8)(C) of the Rules of Fair Practice it being understood that for purposes
of this Exhibit I such term does not include the Service Fee.
"Business Day" shall mean any day on which the banks and the New York Stock
Exchange are not authorized or required to close in New York City.
"Capital Gain Dividend" shall mean, in respect of any Share of any Fund, a
Dividend in respect of such Share which is designated by such Fund as being a
"capital gain dividend" as such term is defined in Section 852 of the Internal
Revenue Code of 1986, as amended.
"CDSC" shall mean with respect to any Fund, the contingent deferred sales
charge payable, either directly or by withholding from the proceeds of the
redemption of the Shares of such Fund, by the shareholders of such Fund on any
redemption of Shares of such Fund in accordance with the Prospectus relating to
such Fund.
"Commission Share" shall mean, in respect of any Fund, a Share of such Fund
issued under circumstances where a CDSC would be payable upon the redemption of
such Share if such CDSC is not waived or shall have not otherwise expired.
"Date of Original Purchase" shall mean, in respect of any Commission Share
of any Fund, the date on which such Commission Share was first issued by such
Fund; provided, that if such Share is a Commission Share and such Fund issued
the Commission Share (or portion thereof) in question in connection with a Free
Exchange for a Commission Share (or portion thereof) of another Fund, the Date
of Original Purchase for the Commission Share (or portion thereof) in question
shall be the date on which the Commission Share (or portion thereof) of the
other Fund was first issued by such other Fund (unless such Commission Share (or
portion thereof) was also issued by such other Fund in a Free Exchange, in which
case this proviso shall apply to that Free Exchange and this application shall
be repeated until one reaches a Commission Share (or portion thereof) which was
issued by a Fund other than in a Free Exchange).
"Distributor" shall mean Keystone Investment Distributors Company, its
successors and assigns.
"Distributor's Account" shall mean the account of the Distributor, account
no. 9903-584-2, ABA No. 011 0000 28, entitled "General Account" maintained with
State Street Bank & Trust Company or such other account as the Distributor may
designate in a notice to the Transfer Agent.
"Distributor Inception Date" shall mean, in respect of any Fund, the date
identified as the date Shares of such Fund are first sold by the Distributor.
"Distributor Last Sale Cut-off Date" shall mean, in respect of any Fund,
the date identified as the last sale of a Commission Share during the period the
Distributor served as principal underwriter under the Agreement.
"Distributor Shares" shall mean, in respect of any Fund, all Shares of such
Fund the Month of Original Purchase of which occurs on or after the Inception
Date for such Fund and on or prior to the Distributor Last Sale Cut-off Date in
respect of such Fund.
"Dividend" shall mean, in respect of any Share of any Fund, any dividend or
other distribution by such Fund in respect of such Share.
"Free Exchange" shall mean any exchange of a Commission Share (or portion
thereof) of one Fund (the "Redeeming Fund") for a Share (or portion thereof) of
another Fund (the "Issuing Fund"), under any arrangement which defers the
exchanging Shareholder's obligation to pay the CDSC in respect of the Commission
Share (or portion thereof) of the Redeeming Fund so exchanged until the later
redemption of the Share (or portion thereof) of the Issuing Fund received in
such exchange.
"Free Share" shall mean, in respect of any Fund, each Share of such Fund
other than a Commission Share, including, without limitation: (i) Shares issued
in connection with the automatic reinvestment of Capital Gain Dividends or Other
Dividends by such Fund, (ii) Special Free Shares issued by such Fund and (iii)
Shares (or portion thereof) issued by such Fund in connection with an exchange
whereby a Free Share (or portion thereof) of another Fund is redeemed and the
Net Asset Value of such redeemed Free Share (or portion thereof) is invested in
such Shares (or portion thereof) of such Fund.
"Fund" shall mean each of the regulated investment companies or series or
portfolios of regulated investment companies identified in Schedule II to the
Irrevocable Payment Instruction, as the same may be amended from time to time in
accordance with the terms thereof.
"Instant Fund" shall mean Keystone State Tax Free Fund - Series II, on
behalf of Keystone California Insured Tax Free Fund.
"ML Omnibus Account" shall mean, in respect of any Fund, the Omnibus
Account maintained by Merrill Lynch, Pierce, Fenner & Smith as subtransfer
agent.
"Month of Original Purchase" shall mean, in respect of any Share of any
Fund, the calendar month in which such Share was first issued by such Fund;
provided, that if such Share is a Commission Share and such Fund issued the
Commission Share (or portion thereof) in question in connection with a Free
Exchange for a Commission Share (or portion thereof) of another Fund, the Month
of Original Purchase for the Commission Share (or portion thereof) in question
shall be the calendar month in which the Commission Share (or portion thereof)
of the other Fund was first issued by such other Fund (unless such Commission
Share (or portion thereof) was also issued by such other Fund in a Free
Exchange, in which case this proviso shall apply to that Free Exchange and this
application shall be repeated until one reaches a Commission Share (or portion
thereof) which was issued by a Fund other than in a Free Exchange); provided,
further, that if such Share is a Free Share and such Fund issued such Free Share
in connection with the automatic reinvestment of dividends in respect of other
Shares of such Fund, the Month of Original Purchase of such Free Share shall be
deemed to be the Month of Original Purchase of the Share in respect of which
such dividend was paid; provided, further, that if such Share is a Free Share
and such Fund issued such Free Share in connection with an exchange whereby a
Free Share (or portion thereof) of another Fund is redeemed and the Net Asset
Value of such redeemed Free Share (or portion thereof) is invested in a Free
Share (or portion thereof) of such Fund, the Month of Original Issue of such
Free Share shall be the Month of Original Issue of the Free Share of such other
Fund so redeemed (unless such Free Share of such other Fund was also issued by
such other Fund in such an exchange, in which case this proviso shall apply to
that exchange and this application shall be repeated until one reaches a Free
Share which was issued by a Fund other than in such an exchange); and provided,
finally, that for purposes of this Schedule I each of the following periods
shall be treated as one calendar month for purposes of applying the rules of
this Schedule I to any Fund: (i) the period of time from and including the
Distributor Inception Date for such Fund to and including the last day of the
calendar month in which such Distributor Inception Date occurs; (ii) the period
of time commencing with the first day of the calendar month in which the
Distributor Last Sale Cutoff Date in respect of such Fund occurs to and
including such Distributor Last Sale Cutoff Date; and (iii) the period of time
commencing on the day immediately following the Distributor Last Sale Cutoff
Date in respect of such Fund to and including the last day of the calendar month
in which such Distributor Last Sale Cut-off Date occurs.
"Omnibus Account" shall mean any Shareholder Account the record owner of
which is a registered broker-dealer which has agreed with the Transfer Agent to
provide sub-transfer agent functions relating to each Sub-shareholder Account
within such Shareholder Account as contemplated by this Schedule I in respect of
each of the Funds.
"Omnibus Asset Based Sales Charge Settlement Date" shall mean, in respect
of each Omnibus Account, the Business Day next following the twentieth day of
each calendar month for the calendar month immediately preceding such date so
long as the record owner is able to allocate the Asset Based Sales Charge
accruing in respect of Shares of any Fund as contemplated by this Schedule I no
more frequently than monthly; provided, that at such time as the record owner of
such Omnibus Account is able to provide information sufficient to allocate the
Asset Based Sales Charge accruing in respect of such Shares of such Fund owned
of record by such Omnibus Account as contemplated by this Schedule I on a weekly
or daily basis, the Omnibus Asset Based Sales Charge Settlement Date shall be a
weekly date as in the case of the Omnibus CDSC Settlement Date or a daily date
as in the case of Asset Based Sales Charges accruing in respect of Shareholder
Accounts other than Omnibus Accounts, as the case may be.
"Omnibus CDSC Settlement Date" shall mean, in respect of each Omnibus
Account, the third Business Day of each calendar week for the calendar week
immediately preceding such date so long as the record owner of such Omnibus
Account is able to allocate the CDSCs accruing in respect of any Shares of any
Fund as contemplated by this Schedule I for no more frequently than weekly;
provided, that at such time as the record owner of such Shares of such Fund
owned of record by such Omnibus Account is able to provide information
sufficient to allocate the CDSCs accruing in respect of such Omnibus Account as
contemplated by this Schedule I on a daily basis, the Omnibus CDSC Settlement
Date for such Omnibus Account shall be a daily date as in the case of CDSCs
accruing in respect of Shareholder Accounts other than Omnibus Accounts.
"Original Purchase Amount" shall mean, in respect of any Commission Share
of any Fund, the amount paid (i.e., the Net Asset Value thereof on such date),
on the Date of Original Purchase in respect of such Commission Share, by such
Shareholder Account or Sub-shareholder Account for such Commission Share;
provided, that if such Fund issued the Commission Share (or portion thereof) in
question in connection with a Free Exchange for a Commission Share (or portion
thereof) of another Fund, the Original Purchase Amount for the Commission Share
(or portion thereof) in question shall be the Original Purchase Amount in
respect of such Commission Share (or portion thereof) of such other Fund (unless
such Commission Share (or portion thereof) was also issued by such other Fund in
a Free Exchange, in which case this proviso shall apply to that Free Exchange
and this application shall be repeated until one reaches a Commission Share (or
portion thereof) which was issued by a Fund other than in a Free Exchange).
"Other Dividend" shall mean in respect of any Share, any Dividend paid in
respect of such Share other than a Capital Gain Dividend.
"Post-distributor Shares" shall mean, in respect of any Fund, all Shares of
such Fund the Month of Original Purchase of which occurs after the Distributor
Last Sale Cut-off Date for such Fund.
"Program Agent" shall mean Citicorp North America, Inc., as Program Agent
under the Purchase Agreement, and its successors and assigns in such capacity.
"Purchase Agreement" shall mean that certain Purchase and Sale Agreement
dated as of May 31, 1995, among Keystone Investment Distributors Company, as
Seller, Citibank, N.A., as Purchaser, and Citicorp North America, Inc., as
Program Agent.
"Share" shall mean in respect of any Fund any share of the classes of
shares specified in Schedule II to the Irrevocable Payment Instruction opposite
the name of such Fund, as the same may be amended from time to time by notice
from the Distributor and the Program Agent to the Fund and the Transfer Agent;
provided, that such term shall include, after the Distributor Last Sale Cut-off
Date, a share of a new class of shares of such Fund: (i) with respect to each
record owner of Shares which is not treated in the records of each Transfer
Agent and Sub-transfer Agent for such Fund as an entirely separate and distinct
class of shares from the classes of shares specified Schedule II to the
Irrevocable Payment Instruction or (ii) the shares of which class may be
exchanged for shares of another Fund of the classes of shares specified on
Schedule II to the Irrevocable Payment Instruction of any class existing on or
prior to the Distributor Last Sale Cut-off Date; or (iii) dividends on which can
be reinvested in shares of the classes specified on Schedule II to the
Irrevocable Payment Instruction under the automatic dividend reinvestment
options; or (iv) which is otherwise treated as though it were of the same class
as the class of shares specified on Schedule II to the Irrevocable Payment
Instruction.
"Shareholder Account" shall have the meaning set forth in clause (B)(1)
hereof.
"Special Free Share" shall mean, in respect of any Fund, a Share (other
than a Commission Share) issued by such Fund other than in connection with the
automatic reinvestment of Dividends and other than in connection with an
exchange whereby a Free Share (or portion thereof) of another Fund is redeemed
and the Net Asset Value of such redeemed Share (or portion thereof) is invested
in a Share (or portion thereof) of such Fund.
"Sub-shareholder Account" shall have the meaning set forth in clause (B)(1)
hereof.
"Sub-transfer Agent" shall mean, in respect of each Omnibus Account, the
record owner thereof.
(B) RECORDS TO BE MAINTAINED BY THE TRANSFER AGENT FOR EACH FUND AND THE
RECORD OWNER OF EACH OMNIBUS ACCOUNT:
The Transfer Agent shall maintain Shareholder Accounts, and shall cause
each record owner of each Omnibus Account to maintain Sub-shareholder Accounts,
each in accordance with the following rules:
(1) SHAREHOLDER ACCOUNTS AND SUB-SHAREHOLDER ACCOUNTS. The Transfer Agent
shall maintain a separate account (a "Shareholder Account") for each record
owner of Shares of each Fund. Each Shareholder Account (other than Omnibus
Accounts) will represent a record owner of Shares of such Fund, the records of
which will be kept in accordance with this Schedule I. In the case of an Omnibus
Account, the Transfer Agent shall require that the record owner of the Omnibus
Account maintain a separate account (a "Sub-shareholder Account") for each
record owner of Shares which are reflected in the Omnibus Account, the records
of which will be kept in accordance with this Schedule I. Each such Shareholder
Account and Sub-shareholder Account shall relate solely to Shares of such Fund
and shall not relate to any other class of shares of such Fund.
(2) COMMISSION SHARES. For each Shareholder Account (other than an Omnibus
Account), the Transfer Agent shall maintain daily records of each Commission
Share of such Fund which records shall identify each Commission Share of such
Fund reflected in such Shareholder Account by the Month of Original Purchase of
such Commission Share.
For each Omnibus Account, the Transfer Agent shall require that the
Sub-transfer Agent in respect thereof maintain daily records of such
Sub-shareholder Account which records shall identify each Commission Share of
such Fund reflected in such Sub-shareholder Account by the Month of Original
Purchase; provided, that until the Sub-transfer Agent in respect of the ML
Omnibus Account develops the data processing capability to conform to the
foregoing requirements, such Sub-transfer Agent shall maintain daily records of
Sub-shareholder Accounts which identify each Commission Share of such Fund
reflected in such Sub-shareholder Account by the Date of Original Purchase. Each
such Commission Share shall be identified as either a Distributor Share or a
Post-distributor Share based upon the Month of Original Purchase of such
Commission Share (or in the case of a Sub-shareholder Account within the ML
Omnibus Account, based upon the Date of Original Purchase).
(3) FREE SHARES. The Transfer Agent shall maintain daily records of each
Shareholder Account (other than an Omnibus Account) in respect of any Fund so as
to identify each Free Share (including each Special Free Share) reflected in
such Shareholder Account by the Month of Original Purchase of such Free Share.
In addition, the Transfer Agent shall require that each Shareholder Account
(other than an Omnibus Account) have in effect separate elections relating to
reinvestment of Capital Gain Dividends and relating to reinvestment of Other
Dividends in respect of any Fund. Either such Shareholder Account shall have
elected to reinvest all Capital Gain Dividends or such Shareholder Account shall
have elected to have all Capital Gain Dividends distributed. Similarly, either
such Shareholder Account shall have elected to reinvest all Other Dividends or
such Shareholder Account shall have elected to have all Other Dividends
distributed.
The Transfer Agent shall require that the Sub-transfer Agent in respect of
each Omnibus Account maintain daily records for each Sub-shareholder Account in
the manner described in the immediately preceding paragraph for Shareholder
Accounts (other than Omnibus Accounts); provided, that until the Sub-transfer
Agent in respect of the ML Omnibus Account develops the data processing
capability to conform to the foregoing requirements, such Sub-transfer Agent
shall not be obligated to conform to the foregoing requirements. Each
Sub-shareholder Account shall also have in effect Dividend reinvestment
elections as described in the immediately preceding paragraph.
The Transfer Agent and each Sub-transfer Agent in respect of an Omnibus
Account shall identify each Free Share as either a Distributor Share or a
Post-distributor Share based upon the Month of Original Purchase of such Free
Share; provided, that until the Sub-transfer Agent in respect of the ML Omnibus
Account develops the data processing capability to conform to the foregoing
requirements, the Transfer Agent shall require such Sub-transfer Agent to
identify each Free Share of a given Fund in the ML Omnibus Account as a
Distributor Share, or Post-distributor Share, as follows:
(a) Free Shares of such Fund which are outstanding on the Distributor Last
Sale Cut-off Date for such Fund shall be identified as Distributor
Shares.
(b) Free Shares of such Fund which are issued (whether or not in
connection with an exchange for a Free Share of another Fund) to the
ML Omnibus Account during any calendar month (or portion thereof)
after the Distributor Last Sale Cut-off Date for such Fund shall be
identified as Distributor Shares in a number computed as follows:
A X (B/C)
where:
A = Free Shares of such Fund issued to the ML Omnibus Account during
such calendar month (or portion thereof)
B = Number of Commission Shares and Free Shares of such Fund in the
ML Omnibus Account identified as Distributor Shares and
outstanding as of the close of business in the last day of the
immediately preceding calendar month (or portion thereof)
C = Total number of Commission Shares and Free Shares of such Fund
in the ML Omnibus Account and outstanding as of the close of
business on the last day of the immediately preceding calendar
month (or portion thereof).
(c) Free Shares of such Fund which are issued (whether or not in
connection with an exchange for a free share of another Fund) to the
ML Omnibus Account during any calendar month (or portion thereof)
after the Distributor Last Sale Cut-off Date for such Fund shall be
identified as Post-distributor Shares in a number computed as follows:
(A X (B/C)
where:
A = Free Shares of such Fund issued to the ML Omnibus Account during
such calendar month (or portion thereof)
B = Number of Commission Shares and Free Shares of such Fund in the
ML Omnibus Account identified as Post-distributor Shares and
outstanding as of the close of business in the last day of the
immediately preceding calendar month (or portion thereof)
C = Total number of Commission Shares and Free Shares of such Fund
in the ML Omnibus Account and outstanding as of the close of
business on the last day of the immediately preceding calendar
month (or portion thereof).
(d) Free Shares of such Fund which are redeemed (whether or not in
connection with an exchange for Free Shares of another Fund or in
connection with the conversion of such Shares into a Class A Share of
such Fund) from the ML Omnibus Account in any calendar month (or
portion thereof) after the Distributor Last Sale Cut-off Date for such
Fund shall be identified as Distributor Shares in a number computed as
follows:
A X (B/C)
Where:
A = Free Shares of such Fund which are redeemed (whether or not in
connection with an exchange for Free Shares of another Fund or in
connection with the conversion of such Shares into a class A share
of such Fund) from the ML Omnibus Account during such calendar
month (or portion thereof)
B = Free Shares of such Fund in the ML Omnibus Account identified as
Distributor Shares and outstanding as of the close of business on
the last day of the immediately preceding calendar month.
C = Total number of Free Shares of such Fund in the ML Omnibus
Account and outstanding as of the close of business on the last
day of the immediately preceding calendar month.
(e) Free Shares of such Fund which are redeemed (whether or not in
connection with an exchange for Free Shares of another Fund or in
connection with the conversion of such Shares into a class A share of
such Fund) from the ML Omnibus Account in any calendar month (or
portion thereof) after the Distributor Last Sale Cut-off Date for such
Fund shall be identified as Post-distributor Shares in a number
computed as follows:
A X (B/C)
where:
A = Free Shares of such Fund which are redeemed (whether or not in
connection with an exchange for Free Shares of another Fund or in
connection with the conversion of such Shares into a class A share
of such Fund) from the ML Omnibus Account during such calendar
month (or portion thereof)
B = Free Shares of such Fund in the ML Omnibus Account identified as
Post-distributor Shares and outstanding as of the close of
business on the last day of the immediately preceding calendar
month.
C = Total number of Free Shares of such Fund in the ML Omnibus
Account and outstanding as of the close of business on the last
day of the immediately preceding calendar month.
(4) APPRECIATION AMOUNT AND COST ACCUMULATION AMOUNT. The Transfer Agent
shall maintain on a daily basis in respect of each Shareholder Account (other
than Omnibus Accounts) a Cost Accumulation Amount representing the total of the
Original Purchase Amounts paid by such Shareholder Account for all Commission
Shares reflected in such Shareholder Account as of the close of business on each
day. In addition, the Transfer Agent shall maintain on a daily basis in respect
of each Shareholder Account (other than Omnibus Accounts) sufficient records to
enable it to compute, as of the date of any actual or deemed redemption or Free
Exchange of a Commission Share reflected in such Shareholder Account an amount
(such amount an "Appreciation Amount") equal to the excess, if any, of the Net
Asset Value as of the close of business on such day of the Commission Shares
reflected in such Shareholder Account minus the Cost Accumulation Amount as of
the close of business on such day. In the event that a Commission Share (or
portion thereof) reflected in a Shareholder Account is redeemed or under these
rules is deemed to have been redeemed (whether in a Free Exchange or otherwise),
the Appreciation Amount for such Shareholder Account shall be reduced, to the
extent thereof, by the Net Asset Value of the Commission Share (or portion
thereof) redeemed, and if the Net Asset Value of the Commission Share (or
portion thereof) being redeemed equals or exceeds the Appreciation Amount, the
Cost Accumulation Amount will be reduced to the extent thereof, by such excess.
If the Appreciation Amount for such Shareholder Account immediately prior to any
redemption of a Commission Share (or portion thereof) is equal to or greater
than the Net Asset Value of such Commission Share (or portion thereof) deemed to
have been tendered for redemption, no CDSCs will be payable in respect of such
Commission Share (or portion thereof).
The Transfer Agent shall require that the Sub-transfer Agent in respect of
each Omnibus Account maintain on a daily basis in respect of each
Sub-shareholder Account reflected in such Omnibus Account a Cost Accumulation
Amount and sufficient records to enable it to compute, as of the date of any
actual or deemed redemption or Free Exchange of a Commission Share reflected in
such Sub-shareholder Account an Appreciation Amount in accordance with the
preceding paragraph and to apply the same to determine whether a CDSC is payable
(as though such Sub-shareholder Account were a Shareholder Account other than an
Omnibus Account; provided, that until the Sub-transfer Agent in respect of the
ML Omnibus Account develops the data processing capability to conform to the
foregoing requirements, such Sub-transfer Agent shall maintain for each
Sub-shareholder Account a separate Cost Accumulation Amount and a separate
Appreciation Amount for each Date of Original Purchase of any Commission Share
which shall be applied as set forth in the preceding paragraph as if each Date
of Original Purchase were a separate Month of Original Purchase.
(5) NASD CAP. On the date the distribution fees paid in respect of any
class of Shares equals the maximum amount thereon under the Rules of Fair
Practice, in respect of such class, all outstanding Shares of such class of such
Fund shall be converted into Class A shares of such Fund and will be deemed to
have been redeemed for their Net Asset Value for purposes of this Schedule I.
(6) IDENTIFICATION OF REDEEMED SHARES. If a Shareholder Account (other than
an Omnibus Account) tenders a Share of a Fund for redemption (other than in
connection with an exchange of such Share for a Share of another Fund or in
connection with the conversion of such Share pursuant to a Conversion Feature),
such tendered Share will be deemed to be a Free Share if there are any Free
Shares reflected in such Shareholder Account immediately prior to such tender.
If there is more than one Free Share reflected in such Shareholder Account
immediately prior to such tender, such tendered Share will be deemed to be the
Free Share with the earliest Month of Original Purchase. If there are no Free
Shares reflected in such Shareholder Account immediately prior to such tender,
such tendered Share will be deemed to be the Commission Share with the earliest
Month of Original Purchase reflected in such Shareholder Account.
If a Sub-shareholder Account reflected in an Omnibus Account tenders a
Share for redemption (other than in connection with an Exchange of such Share
for a Share of another Fund or in connection with the conversion of such Share
pursuant to a Conversion Feature), the Transfer Agent shall require that the
record owner of each Omnibus Account supply the Transfer Agent sufficient
records to enable the Transfer Agent to apply the rules of the preceding
paragraph to such Sub-shareholder Account (as though such Sub-shareholder
Account were a Shareholder Account other than an Omnibus Account); provided,
that until the Sub-transfer Agent in respect of the ML Omnibus Account develops
the data processing capability to conform to the foregoing requirements, such
Sub-transfer Agent shall not be required to conform to the foregoing rules
regarding Free Shares (and the Transfer Agent shall account for such Free Shares
as provided in (3) above) but shall apply the foregoing rules to each Commission
Share with respect to the Date of Original Purchase of any Commission Share as
though each such Date were a separate Month of Original Purchase.
(7) IDENTIFICATION OF EXCHANGED SHARES. When a Shareholder Account (other
than an Omnibus Account) tenders Shares of one Fund (the "Redeeming Fund") for
redemption where the proceeds of such redemption are to be automatically
reinvested in shares of another Fund (the "Issuing Fund") to effect an exchange
(whether or not pursuant to a Free Exchange) into Shares of the Issuing Fund:
(1) such Shareholder Account will be deemed to have tendered Shares (or portions
thereof) of the Redeeming Fund with each Month of Original Purchase represented
by Shares of the Redeeming Fund reflected in such Shareholder Account
immediately prior to such tender in the same proportion that the number of
Shares of the redeeming Fund with such Month of Original Purchase reflected in
such Shareholder immediately prior to such tender bore to the total number of
Shares of the Redeeming Fund reflected in such Shareholder Account immediately
prior to such tender, and on that basis the tendered Shares of the Redeeming
Fund will be identified as Distributor Shares or Post-distributor Shares; (2)
such Shareholder Account will be deemed to have tendered Commission Shares (or
portions thereof) and Free Shares (or portions thereof) of the Redeeming Fund of
each category (i.e., Distributor Shares or Post-distributor Shares) in the same
proportion that the number of Commission Shares or Free Shares (as the case may
be) of the Redeeming Fund in such category reflected in such Shareholder Account
bore to the total number of Shares of the Redeeming Fund in such category
reflected in such Shareholder Account immediately prior to such tender, (3) the
Shares (or portions thereof) of the Issuing Fund issued in connection with such
exchange will be deemed to have the same Months of Original Purchase as the
Shares (or portions thereof) of the Redeeming Fund so tendered and will be
categorized as Distributor Shares and Post-distributor Shares accordingly, and
(4) the Shares (or portions thereof) of each Category of the Issuing Fund issued
in connection with such exchange will be deemed to be Commission Shares and Free
Shares in the same proportion that the Shares of such Category of the Redeeming
Fund were Commission Shares and Free Shares.
The Transfer Agent shall require that each record owner of an Omnibus
Account maintain records relating to each Sub-shareholder Account in such
Omnibus Account sufficient to apply the foregoing rules to each such
Sub-shareholder Account (as though such Sub-shareholder Account were a
Shareholder Account other than an Omnibus Account); provided, that until the
Sub-transfer Agent in respect of the ML Omnibus Account develops the data
processing capability to conform to the foregoing requirements, such
Sub-transfer Agent shall not be required to conform to the foregoing rules
relating to Free Shares (and the Sub-transfer Agent shall account for such Free
Shares as provided in (3) above) and shall apply a first-in-first-out procedure
(based upon the Date of Original Purchase) to determine which Commission Shares
(or portions thereof) of a Redeeming Fund were redeemed in connection with an
exchange.
(8) IDENTIFICATION OF CONVERTED SHARES. The Transfer Agent records
maintained for each Shareholder Account (other than an Omnibus Account) will
treat each Commission Share of a Fund as though it were redeemed at its Net
Asset Value on the date such Commission Share converts into a class A share of
such Fund in accordance with an applicable Conversion Feature applied with
reference to its Month of Original Purchase and will treat each Free Share of
such Fund with a given Month of Original Purchase as though it were redeemed at
its Net Asset Value when it is simultaneously converted to a class A share at
the time the Commission Shares of such Fund with such Month of Original Purchase
are so converted.
The Transfer Agent shall require that each record owner of an Omnibus
Account maintain records relating to each Sub-shareholder Account in such
Omnibus Account sufficient to apply the foregoing rules to each such
Sub-shareholder Account (as though such Sub-shareholder Account were a
Shareholder Account other than an Omnibus Account) ; provided, that until the
Sub-transfer Agent in respect of the ML Omnibus Account develops the data
processing capability to conform to the foregoing requirements, such
Sub-transfer Agent shall apply the foregoing rules to Commission Shares with
reference to the Date of Original Issue of each Commission Share (as though each
such date were a separate Month of Original Issue) and shall not be required to
apply the foregoing rules to Free Shares (and the Sub-transfer Agent shall
account for such Free Shares as provided in (3) above).
(C) ALLOCATIONS OF ASSET BASED SALE CHARGES AND CDSCS AMONG DISTRIBUTOR
SHARES AND POST-DISTRIBUTOR SHARES:
The Transfer Agent shall use the following rules to allocate the amounts of
Asset Based Sales Charges and CDSCs payable by each Fund in respect of Shares
between Distributor Shares and Post-distributor Shares:
(1) RECEIVABLES CONSTITUTING CDSCS: CDSCs will be treated as relating to
Distributor Shares or Post-distributor Shares depending upon the Month of
Original Purchase of the Commission Share the redemption of which gives rise to
the payment of a CDSC by a Shareholder Account.
The Transfer Agent shall cause each Sub-transfer Agent to apply the
foregoing rule to each Sub-shareholder Account based on the records maintained
by such Sub-transfer Agent; provided, that until the Sub-transfer Agent in
respect of the ML Omnibus Account develops the data processing capability to
conform to the foregoing requirements, such Sub-transfer Agent shall apply the
foregoing rules to each Sub-shareholder Account with respect to the Date of
Original Purchase of any Commission Share as though each such date were a
separate Month of Original Purchase.
(2) RECEIVABLES CONSTITUTING ASSET BASED SALES CHARGES:
The Asset Based Sales Charges accruing in respect of each Shareholder
Account (other than an Omnibus Account) shall be allocated to each Share
reflected in such Shareholder Account as of the close of business on such day on
an equal per share basis. For example, the Asset Based Sales Charges
attributable to Distributor Shares on any day shall be computed and allocated as
follows:
A X (B/C)
where:
A. = Total amount of Asset Based Sales Charge accrued in respect of such
Shareholder Account (other than an Omnibus Account) on such day.
B. = Number of Distributor Shares reflected in such Shareholder Account
(other than an Omnibus Account) on the close of business on such day
C. = Total number of Distributor Shares and Post-Distributor Shares
reflected in such Shareholder Account (other than an Omnibus Account)
and outstanding as of the close of business on such day.
The Portion of the Asset Based Sales Charges of such Fund accruing in respect of
such Shareholder Account for such day allocated to Post-distributor Shares will
be obtained using the same formula but substituting for "B" the number of
Post-distributor Shares, as the case may be, reflected in such Shareholder
Account and outstanding on the close of business on such day. The foregoing
allocation formula may be adjusted from time to time by notice to the Fund and
the transfer agent for the Fund from the Seller and the Program Agent pursuant
to Section 8.18 of the Purchase Agreement.
The Transfer Agent shall, based on the records maintained by the record
owner of such Omnibus Account, allocate the Asset Based Sales Charge accruing in
respect of each Omnibus Account on each day among all Sub-shareholder Accounts
reflected in such Omnibus Account on an equal per share basis based upon the
total number of Distributor Shares and Post-distributor Shares reflected in each
such Sub-shareholder Account as of the close of business on such day. In
addition, the Transfer Agent shall apply the foregoing rules to each
Sub-shareholder Account (as though it were a Shareholder Account other than an
Omnibus Account), based on the records maintained by the record owner, to
allocate the Asset Based Sales Charge so allocated to any Sub-shareholder
Account among the Distributor Shares and Post-distributor Shares reflected in
each such Sub-shareholder Account in accordance with the rules set forth in the
preceding paragraph; provided, that until the Sub-transfer Agent in respect of
the ML Omnibus Account develops the data processing capacity to apply the rules
of this Schedule I as applicable to Sub-shareholder Accounts other than ML
Omnibus Accounts, the Transfer Agent shall allocate the Asset Based Sales Charge
accruing in respect of Shares of any Fund in the ML Omnibus Account during any
calendar month (or portion thereof) among Distributor Shares and
Post-distributor Shares as follows:
(a) The portion of such Asset Based Sales Charge allocable to Distributor
Shares shall be computed as follows:
A X ((B + C)/2)
-----------
((D + E)/2)
where:
A = Total amount of Asset Based Sales Charge accrued during such
calendar month (or portion thereof) in respect of Shares of such
Fund in the ML Omnibus Account
B = Shares of such Fund in the ML Omnibus Account and identified as
Distributor Shares and outstanding as of the close of business on
the last day of the immediately preceding calendar month (or
portion thereof), times Net Asset Value per Share as of such time
C = Shares of such Fund in the ML Omnibus Account and identified as
Distributor Shares and outstanding as of the close of business on
the last day of such calendar month (or portion thereof), times
Net Asset Value per Share as of such time
D = Total number of Shares of such Fund in the ML Omnibus Account
and outstanding as of the close of business on the last day of
the immediately preceding calendar month (or portion thereof),
times Net Asset Value per Share as of such time.
E = Total number of Shares of such Fund in the ML Omnibus Account
and outstanding as of the close of business on the last day of
such calendar month (or portion thereof), times Net Asset Value
per Share as of such time.
(b) The portion of such Asset Based Sales Charge allocable to
Post-distributor Shares shall be computed s follows:
A X ((B + C)/2)
-----------
((D + E)/2)
where:
A = Total amount of Asset Based Sales Charge accrued during such
calendar month (or portion thereof) in respect of Shares of such
Fund in the ML Omnibus Account
B = Shares of such Fund in the ML Omnibus Account and identified as
Post-distributor Shares and outstanding as of the close of
business on the last day of the immediately preceding calendar
month (or portion thereof), times Net Asset Value per Share as of
such time
C = Shares of such Fund in the ML Omnibus Account and identified as
Post-distributor Shares and outstanding as of the close of
business on the last day of such calendar month (or portion
thereof), times Net Asset Value per Share as of such time
D = Total number of Shares of such Fund in the ML Omnibus Account
and outstanding as of the close of business on the last day of
the immediately preceding calendar month (or portion thereof),
times Net Asset Value per Share as of such time.
E = Total number of Shares of such Fund in the ML Omnibus Account
outstanding as of the close of business on the last day of such
calendar month, times Net Asset Value per Share as of such time.
(3) PAYMENTS ON BEHALF OF EACH FUND.
On the close of business on each day the Transfer Agent shall cause payment to
be made of the amount of the Asset Based Sales Charge and CDSCs accruing on such
day in respect of the Shares of such Fund owned of record by Shareholder
Accounts (other than Omnibus Accounts) by two separate wire transfers, directly
from accounts of such Fund as follows:
1. The Asset Based Sales Charge and CDSCs accruing in respect of
Shareholder Accounts other than Omnibus Accounts and allocable to
Distributor Shares in accordance with the preceding rules shall be paid to
the Distributor's Account, unless the Distributor otherwise instructs the
Fund in any irrevocable payment instruction; and
2. The Asset Based Sales Charges and CDSCs accruing in respect of
Shareholder Accounts other than Omnibus Accounts and allocable to
Post-distributor Shares in accordance with the preceding rules shall be
paid in accordance with direction received from any future distributor of
Shares of the Instant Fund.
On each Omnibus CDSC Settlement Date, the Transfer Agent for each Fund
shall cause the applicable Sub-transfer Agent to cause payment to be made of the
amount of the CDSCs accruing during the period to which such Omnibus CDSC
Settlement Date relates in respect of the Shares of such Fund owned of record by
each Omnibus Account by two separate wire transfers directly from the account of
such Fund maintained by such Transfer Agent, as follows:
1. The CDSCs accruing in respect of such Omnibus Account and allocable to
Distributor Shares in accordance with the preceding rules shall be paid to
the Distributor's Account, unless the Distributor otherwise instructs the
Fund in any irrevocable payment instruction; and
2. The CDSCs accruing in respect of such Omnibus Account and allocable to
Post-distributor Shares in accordance with the preceding rules shall be
paid in accordance with direction received from any future distributor of
Shares of the Instant Fund.
On each Omnibus Asset Based Sales Charge Settlement Date the Transfer Agent
for each Fund shall cause payment to be made of the amount of the Asset Based
Sales Charge accruing for the period to which such Omnibus Asset Based Sales
Charge Settlement Date relates in respect of the Shares of such Fund owned of
record by each Omnibus Account by two separate wire transfers directly from
accounts of such Fund as follows:
1. The Asset Based Sales Charge accruing in respect of such Omnibus Account
and allocable to Distributor Shares shall be paid to the Distributor's
Collection Account, unless the Distributor otherwise instructs the Fund in
any irrevocable payment instruction; and
2. The Asset Based Sales Charge accruing in respect of such Omnibus Account
and allocable to Post-Distributor Shares shall be paid in accordance with
direction received from any future distributor of Shares of the Instant
Fund.
<PAGE>
PRINCIPAL UNDERWRITING AGREEMENT
FOR CLASS B-1 SHARES
OF
KEYSTONE MISSOURI TAX FREE FUND,
A SERIES OF KEYSTONE STATE TAX FREE FUND - SERIES II
AGREEMENT made this 31st day of May 1995 by and between Keystone State
Tax Free Fund - Series II, a Massachusetts business trust, on behalf of Keystone
Missouri Tax Free Fund ("Fund"), and Keystone Investment Distributors Company, a
Delaware corporation (the "Principal Underwriter").
The Fund, individually and/or on behalf of its series, if any, referred to
above in the title of this Agreement, to which series, if any, this Agreement
shall relate, as applicable (the Fund ), may act as the distributor of certain
securities of which it is the issuer pursuant to Rule 12b-1 under the Investment
Company Act of 1940 (the 1940 Act ). Accordingly, it is hereby mutually agreed
as follows:
1. The Fund hereby appoints the Principal Underwriter a principal
underwriter of the Class B-1 shares of beneficial interest of the Fund ("B-1
Shares") as an independent contractor upon the terms and conditions hereinafter
set forth. The general term "Shares" as used herein has the same meaning as is
provided therefor in Schedule I hereto. Except as the Fund may from time to time
agree, the Principal Underwriter will act as agent for the Fund and not as
principal.
2. The Principal Underwriter will use its best efforts to find purchasers
for the B-1 Shares and to promote distribution of the B-1 Shares and may obtain
orders from brokers, dealers or other persons for sales of B-1 Shares to them.
No such dealer, broker or other person shall have any authority to act as agent
for the Fund; such dealer, broker or other person shall act only as principal in
the sale of B-1 Shares.
3. Sales of B-1 Shares by Principal Underwriter shall be at the public
offering price determined in the manner set forth in the prospectus and/or
statement of additional information of the Fund current at the time of the
Fund's acceptance of the order for B-2 Shares. All orders shall be subject to
acceptance by the Fund and the Fund reserves the right in its sole discretion to
reject any order received. The Fund shall not be liable to anyone for failure to
accept any order.
4. On all sales of B-1 Shares the Fund shall receive the current net asset
value. The Fund shall pay the Principal Underwriter Distribution Fees (as
defined in Section 14 hereof), as commissions for the sale of B-1 Shares and
other Shares, which shall be paid in conjunction with distribution fees paid to
the Principal Underwriter by other classes of Shares of the Fund to the extent
required in order to comply with Section 14 hereof, and shall pay over to the
Principal Underwriter CDSCs (as defined in Section 14 hereof) as set forth in
the Fund's current prospectus and statement of additional information, and as
required by Section 14 hereof. The Principal Underwriter shall also receive
payments consisting of shareholder service fees ("Service Fees") at the rate of
.25% per annum of the average daily net asset value of the Class B-1 Shares. The
Principal Underwriter may allow all or a part of said Distribution Fees and
CDSCs received by it (not paid to others as hereinafter provided) to such
brokers, dealers or other persons as Principal Underwriter may determine.
5. Payment to the Fund for B-1 Shares shall be in New York or Boston
Clearing House funds received by the Principal Underwriter within three business
days after notice of acceptance of the purchase order and the amount of the
applicable public offering price has been given to the purchaser. If such
payment is not received within such period, the Fund reserves the right, without
further notice, forthwith to cancel its acceptance of any such order. The Fund
shall pay such issue taxes as may be required by law in connection with the
issue of the B-1 Shares.
6. The Principal Underwriter shall not make in connection with any sale or
solicitation of a sale of the B-1 Shares any representations concerning the B-1
Shares except those contained in the then current prospectus and/or statement of
additional information covering the Shares and in printed information approved
by the Fund as information supplemental to such prospectus and statement of
additional information. Copies of the then current prospectus and statement of
additional information and any such printed supplemental information will be
supplied by the Fund to the Principal Underwriter in reasonable quantities upon
request.
7. The Principal Underwriter agrees to comply with the Rules of Fair
Practice of the National Association of Securities Dealers, Inc. (as defined in
the Purchase and Sale Agreement, dated as of May 31, 1995 (the Purchase
Agreement ), between the Principal Underwriter, Citibank, N.A. and Citicorp
North America, Inc., as agent (the "Rules of Fair Practice")).
8. The Fund appoints the Principal Underwriter as its agent to accept
orders for redemptions and repurchases of B-1 Shares at values and in the manner
determined in accordance with the then current prospectus and/or statement of
additional information of the Fund.
9. The Fund agrees to indemnify and hold harmless the Principal
Underwriter, its officers and Directors and each person, if any, who controls
the Principal Underwriter within the meaning of Section 15 of the Securities Act
of 1933 ("1933 Act"), against any losses, claims, damages, liabilities and
expenses (including the cost of any legal fees incurred in connection therewith)
which the Principal Underwriter, its officers, Directors or any such controlling
person may incur under the 1933 Act, under any other statute, at common law or
otherwise, arising out of or based upon
a. any untrue statement or alleged untrue statement of a material fact
contained in the Fund's registration statement, prospectus or
statement of additional information (including amendments and
supplements thereto) or
b. any omission or alleged omission to state a material fact required to
be stated in the Fund's registration statement, prospectus or
statement of additional information necessary to make the statements
therein not misleading, provided, however, that insofar as losses,
claims, damages, liabilities or expenses arise out of or are based
upon any such untrue statement or omission or alleged untrue statement
or omission made in reliance and in conformity with information
furnished to the Fund by the Principal Underwriter for use in the
Fund's registration statement, prospectus or statement of additional
information, such indemnification is not applicable. In no case shall
the Fund indemnify the Principal Underwriter or its controlling person
as to any amounts incurred for any liability arising out of or based
upon any action for which the Principal Underwriter, its officers and
Directors or any controlling person would otherwise be subject to
liability by reason of willful misfeasance, bad faith, or gross
negligence in the performance of its duties or by reason of the
reckless disregard of its obligations and duties under this Agreement.
10. The Principal Underwriter agrees to indemnify and hold harmless the
Fund, its officers and Trustees and each person, if any, who controls the Fund
within the meaning of Section 15 of the 1933 Act against any loss, claims,
damages, liabilities and expenses (including the cost of any legal fees incurred
in connection therewith) which the Fund, its officers, Directors or any such
controlling person may incur under the 1933 Act, under any other statute, at
common law or otherwise arising out of the acquisition of any Shares by any
person which
(a) may be based upon any wrongful act by the Principal Underwriter or any
of its employees or representatives, or
(b) may be based upon any untrue statement or alleged untrue statement of
a material fact contained in the Fund's registration statement,
prospectus or statement of additional information (including
amendments and supplements thereto), or any omission or alleged
omission to state a material fact required to be stated therein or
necessary to make the statements therein not misleading, if such
statement or omission was made in reliance upon information furnished
or confirmed in writing to the Fund by the Principal Underwriter.
11. The Fund agrees to execute such papers and to do such acts and things
as shall from time to time be reasonably requested by the Principal Underwriter
for the purpose of qualifying the B-1 Shares for sale under the so-called "blue
sky" laws of any state or for registering B-1 Shares under the 1933 Act or the
Fund under the Investment Company Act of 1940 ("1940 Act"). The Principal
Underwriter shall bear the expenses of preparing, printing and distributing
advertising, sales literature, prospectuses, and statements of additional
information. The Fund shall bear the expense of registering B-1 Shares under the
1933 Act and the Fund under the 1940 Act, qualifying B-1 Shares for sale under
the so-called "blue sky" laws of any state, the preparation and printing of
prospectuses, statements of additional information and reports required to be
filed with the Securities and Exchange Commission and other authorities, the
preparation, printing and mailing of prospectuses and statements of additional
information to holders of B-1 Shares, and the direct expenses of the issue of
B-1 Shares.
12. The Principal Underwriter shall, at the request of the Fund, provide to
the Board of Trustees or Directors (together herein called the Directors ) of
the Fund in connection with sales of B-1 Shares not less than quarterly a
written report of the amounts received from the Fund therefor and the purpose
for which such expenditures by the Fund were made.
13. The term of this Agreement shall begin on the date hereof and, unless
sooner terminated or continued as provided below, shall expire after one year.
This Agreement shall continue in effect after such term if its continuance is
specifically approved by a majority of the outstanding voting securities of
Class B-1 of the Fund or by a majority of the Directors of the Fund and a
majority of the Directors who are not parties to this Agreement or "interested
persons", as defined in the Investment Company Act of 1940 (the 1940 Act ), of
any such party and who have no direct or indirect financial interest in the
operation of the Fund's Rule 12b-1 plan for Class B-1 Shares or in any
agreements related to the plan at least annually in accordance with the 1940 Act
and the rules and regulations thereunder.
This Agreement may be terminated at any time, without payment of any
penalty, by vote of a majority of the Directors of the Fund, or a majority of
such Directors who are not parties to this Agreement or "interested persons", as
defined in the 1940 Act, of any such party and who have no direct or indirect
financial interest in the operation of the Fund's Rule 12b-1 plan for Class B-1
Shares or in any agreement related to the plan or by a vote of a majority of the
outstanding voting securities of Class B-1 on not more than sixty days written
notice to any other party to the agreement; and shall terminate automatically in
the event of its assignment (as defined in the 1940 Act), which shall not
include assignment of the Principal Underwriter's (as hereinafter defined)
provided for hereunder and/or rights related to such Allocable Portions.
14. The provisions of this Section 14 shall be applicable to the extent
necessary to enable the Fund to comply with the obligation of the Fund to pay
the Principal Underwriter its Allocable Portion of Distribution Fees paid in
respect of Shares while the Fund is required to do so pursuant the Principal
Underwriting Agreement, of even date herewith, in respect of Class B-2 Shares,
and shall remain in effect so long as any payments are required to be made by
the Fund pursuant to the irrevocable payment instruction (as defined in the
Purchase Agreement (the Irrevocable Payment Instruction )).
14.1 The Fund shall pay to the Principal Underwriter the Principal
Underwriter's Allocable Portion (as hereinafter defined) of a fee (the
"Distribution Fee") at the rate of .75% per annum of the average daily net asset
value of the Shares, subject to the limitation on the maximum aggregate amount
of such fees under the Rules of Fair Practice as applicable to such Distribution
Fee on the date hereof.
14.2 The Principal Underwriter's Allocable Portion of Distribution Fees
paid by the Fund in respect of Shares shall be equal to the portion of the Asset
Based Sales Charge allocable to Distributor Shares (as defined in Schedule I
hereto to this Agreement) in accordance with Schedule I hereto. The Fund agrees
to cause its transfer agent to maintain the records and arrange for the payments
on behalf of the Fund at the times and in the amounts and to the accounts
required by Schedule I hereto, as the same may be amended from time to time. It
is acknowledged and agreed that by virtue of the operation of Schedule I hereto
the Principal Underwriter's Allocable Portion of Distribution Fees paid by the
Fund in respect of Shares, may, to the extent provided in Schedule I hereto,
take into account Distribution Fees payable by the Fund in respect of other
existing and future classes and/or sub-classes of shares of the Fund which would
be treated as "Shares" under Schedule I hereto. The Fund will limit amounts paid
to any subsequent principal underwriters of Shares to the portion of the Asset
Based Sales Charge paid in respect of Shares which is allocable to
Post-distributor Shares (as defined in Schedule I hereto) in accordance with
Schedule I hereto. The Fund's payments to the Principal Underwriter in
consideration of its services in connection with the sale of B-1 Shares shall be
the Distribution Fees attributable to B-1 Shares which are Distributor Shares
(as defined in Schedule I hereto) and all other amounts constituting the
Principal Underwriter's Allocable Portion of Distribution Fees shall be the
Distribution Fees related to the sale of other Shares which are Distributor
Shares (as defined in Schedule I hereto).
The Fund shall cause its transfer agent and sub-transfer agents to withhold
from redemption proceeds payable to holders of Shares on redemption thereof the
contingent deferred sales charges payable upon redemption thereof as set forth
in the then current prospectus and/or statement of additional information of the
Fund ("CDSCs") and to pay over to the Principal Underwriter The Principal
Underwriter's Allocable Portion of said CDSCs paid in respect of Shares which
shall be equal to the portion thereof allocable to Distributor Shares (as
defined in Schedule I hereto) in accordance with Schedule I hereto.
14.3 The Principal Underwriter shall be considered to have completely
earned the right to the payment of its Allocable Portion of the Distribution Fee
and the right to payment over to it of its' Allocable Portion of the CDSC in
respect of Shares as provided for hereby upon the completion of the sale of each
Commission Share (as defined in Schedule I hereto) taken into account as a
Distributor Share in computing the Principal Underwriter's Allocable Portion in
accordance with Schedule I hereto.
14.4 Except as provided in Section 14.5 hereof in respect of Distribution
Fees only, the Fund's obligation to pay the Principal Underwriter the
Distribution Fees and to pay over to the Principal Underwriter CDSCs provided
for hereby shall be absolute and unconditional and shall not be subject to
dispute, offset, counterclaim or any defense whatsoever (it being understood
that nothing in this sentence shall be deemed a waiver by the Fund of its right
separately to pursue any claims it may have against the Principal Underwriter
and enforce such claims against any assets (other than the Principal
Underwriter's right to its Allocable Portion of the Distribution Fees and CDSCs
(the "Collection Rights") of the Principal Underwriter).
14.5 Notwithstanding anything in this Agreement to the contrary, the Fund
shall pay to the Principal Underwriter its Allocable Portion of Distribution
Fees provided for hereby notwithstanding its termination as Principal
Underwriter for the Shares or any termination of this Agreement and such payment
of such Distribution Fees, and that obligation and the method of computing such
payment, shall not be changed or terminated except to the extent required by any
change in applicable law, including, without limitation, the 1940 Act, the Rules
promulgated thereunder by the Securities and Exchange Commission and the Rules
of Fair Practice, in each case enacted or promulgated after June 1, 1995, or in
connection with a Complete Termination (as hereinafter defined). For the
purposes of this Section 14.5, "Complete Termination" means a termination of the
Fund's Rule 12b-1 plan for B-2 Shares involving the cessation of payments of the
Distribution Fees, and the cessation of payments of distribution fees pursuant
to every other Rule 12b-1 plan of the Fund for every existing or future
B-Class-of-Shares (as hereinafter defined) and the Fund's discontinuance of the
offering of every existing or future B-Class-of-Shares, which conditions shall
be deemed satisfied when they are first complied with hereafter and so long
thereafter as they are complied with prior to the earlier of (i) the date upon
which all of the B-2 Shares which are Distributor Shares pursuant to Schedule I
hereto shall have been redeemed or converted or (ii) June 1, 2005. For purposes
of this Section 14.5, the term B-Class-of-Shares means each of the B-1 Class of
Shares of the Fund, the B-2 Class of Shares of the Fund and each other class of
shares of the Fund hereafter issued which would be treated as Shares under
Schedule I hereto or which has substantially similar economic characteristics to
the B-1 or B-2 Classes of Shares taking into account the total sales charge,
CDSC or other similar charges borne directly or indirectly by the holder of the
shares of such class. The parties agree that the existing C Class of Shares of
the Fund does not have substantially similar economic characteristics to the B-1
or B-2 Classes of Shares taking into account the total sales charge, CDSC or
other similar charges borne directly or indirectly by the holder of such shares.
For purposes of clarity the parties to this agreement hereby state that they
intend that a new installment load class of shares which may be authorized by
amendments to Rule 6(c)-10 under the 1940 Act will be considered to be a
B-Class-of-Shares if it has economic characteristics substantially similar to
the economic characteristics of the existing B-1 or B-2 Classes of Shares taking
into account the total sale charge, CDSC or other similar charges borne directly
or indirectly by the holder of such shares and will not be considered to be a
B-Class-of-Shares if it has economic characteristics substantially similar to
the economic characteristics of the existing C Class of shares of the Fund
taking into account the total sales charge, CDSC or other similar charges borne
directly or indirectly by the holder of such shares.
14.6 The Principal Underwriter may assign any part of its Allocable
Portions and obligations of the Fund related thereto (but not the Principal
Underwriter's obligations to the Fund provided for in this Agreement) to any
person (an "Assignee") and any such assignment shall be effective as to the Fund
upon written notice to the Fund by the Principal Underwriter. In connection
therewith the Fund shall pay all or any amounts in respect of its Allocable
Portions directly to the Assignee thereof as directed in a writing by the
Principal Underwriter in the Irrevocable Payment Instruction, as the same may be
amended from time to time with the consent of the Fund, and the Fund shall be
without liability to any person if it pays such amounts when and as so directed,
except for underpayments of amounts actually due, without any amount payable as
consequential or other damages due to such underpayment and without interest
except to the extent that delay in payment of Distribution Fees and CDSCs
results in an increase in the maximum Sales Charge allowable under the Rules of
Fair Practice, which increases daily at a rate of prime plus one percent per
annum.
14.7 The Fund will not, to the extent it may otherwise be empowered to do
so, change or waive any CDSC with respect to B-1 Shares, except as provided in
the Fund's prospectus or statement of additional information without the
Principal Underwriter's or Assignee's consent, as applicable. Notwithstanding
anything to the contrary in this Agreement or any termination of this Agreement
or the Principal Underwriter as principal underwriter for the Shares of the
Fund, the Principal Underwriter shall be entitled to be paid its Allocable
Portion of the CDSCs whether or not the Fund's Rule 12b-1 plan for B-1 Shares is
terminated and whether or not any such termination is a Complete Termination, as
defined above.
15. This Agreement shall be construed in accordance with the laws of The
Commonwealth of Massachusetts. All sales hereunder are to be made, and title to
the Shares shall pass, in Boston, Massachusetts.
16. The Fund is a Massachusetts business trust established under a
Declaration of Trust, as it may be amended from time to time. The obligations of
the Fund are not personally binding upon, nor shall recourse be had against the
private property of any of the Trustees, shareholders, officers, employees or
agents of the Fund, but only the property of the Fund shall be bound.
IN WITNESS WHEREOF, the parties hereto have caused this agreement to be
executed by their respective officers thereunto duly authorized at Boston,
Massachusetts, on the day and year first written above.
KEYSTONE STATE TAX FREE FUND - SERIES II,
on behalf of
KEYSTONE MISSOURI TAX FREE FUND
By: /s/
----------------------------
Title:
KEYSTONE INVESTMENT DISTRIBUTORS COMPANY
By: /s/
----------------------------
Title:
<PAGE>
SCHEDULE I
TO
PRINCIPAL UNDERWRITING AGREEMENT
FOR CLASS B-1 SHARES
OF
KEYSTONE STATE TAX FREE FUND - SERIES II,
on behalf of
KEYSTONE MISSOURI TAX FREE FUND
TRANSFER AGENT PROCEDURES FOR DIFFERENTIATING
AMONG DISTRIBUTOR SHARES AND POST-DISTRIBUTOR SHARES
Amounts (in respect of Asset Based Sales Charges (as hereinafter defined)
and CDSCs (as hereinafter defined) in respect of Shares (as hereinafter defined)
of each Fund (as hereinafter defined) shall be allocated between Distributor
Shares (as hereinafter defined) and Post-distributor Shares (as hereinafter
defined) of such Fund in accordance with the rules set forth in clauses (B) and
(C). Clause (B) sets forth the rules to be followed by the Transfer Agent for
each Fund and the record owner of each Omnibus Account (as hereinafter defined)
in maintaining records relating to Distributor Shares and Post-distributor
Shares. Clause (C) sets forth the rules to be followed by the Transfer Agent for
each Fund and the record owner of each Omnibus Account in determining what
portion of the Asset Based Sales Charge (as hereinafter defined) payable in
respect of each class of Shares of such Fund and what portion of the CDSC (as
hereinafter defined) payable by the holders of Shares of such Fund is
attributable to Distributor Shares and Post-distributor Shares, respectively.
(A) DEFINITIONS:
Generally, for purposes of this Schedule I, defined terms shall be used
with the meaning assigned to them in the Agreement, except that for purposes of
the following rules the following definitions are also applicable:
"Agreement" shall mean the Principal Underwriting Agreement for Class B-1
Shares of the Instant Fund dated as of May 31, 1995 between the Instant Fund and
the Distributor.
"Asset Based Sales Charge" shall have the meaning set forth in Section
26(b)(8)(C) of the Rules of Fair Practice it being understood that for purposes
of this Exhibit I such term does not include the Service Fee.
"Business Day" shall mean any day on which the banks and the New York Stock
Exchange are not authorized or required to close in New York City.
"Capital Gain Dividend" shall mean, in respect of any Share of any Fund, a
Dividend in respect of such Share which is designated by such Fund as being a
"capital gain dividend" as such term is defined in Section 852 of the Internal
Revenue Code of 1986, as amended.
"CDSC" shall mean with respect to any Fund, the contingent deferred sales
charge payable, either directly or by withholding from the proceeds of the
redemption of the Shares of such Fund, by the shareholders of such Fund on any
redemption of Shares of such Fund in accordance with the Prospectus relating to
such Fund.
"Commission Share" shall mean, in respect of any Fund, a Share of such Fund
issued under circumstances where a CDSC would be payable upon the redemption of
such Share if such CDSC is not waived or shall have not otherwise expired.
"Date of Original Purchase" shall mean, in respect of any Commission Share
of any Fund, the date on which such Commission Share was first issued by such
Fund; provided, that if such Share is a Commission Share and such Fund issued
the Commission Share (or portion thereof) in question in connection with a Free
Exchange for a Commission Share (or portion thereof) of another Fund, the Date
of Original Purchase for the Commission Share (or portion thereof) in question
shall be the date on which the Commission Share (or portion thereof) of the
other Fund was first issued by such other Fund (unless such Commission Share (or
portion thereof) was also issued by such other Fund in a Free Exchange, in which
case this proviso shall apply to that Free Exchange and this application shall
be repeated until one reaches a Commission Share (or portion thereof) which was
issued by a Fund other than in a Free Exchange).
"Distributor" shall mean Keystone Investment Distributors Company, its
successors and assigns.
"Distributor's Account" shall mean the account of the Distributor, account
no. 9903-584-2, ABA No. 011 0000 28, entitled "General Account" maintained with
State Street Bank & Trust Company or such other account as the Distributor may
designate in a notice to the Transfer Agent.
"Distributor Inception Date" shall mean, in respect of any Fund, the date
identified as the date Shares of such Fund are first sold by the Distributor.
"Distributor Last Sale Cut-off Date" shall mean, in respect of any Fund,
the date identified as the last sale of a Commission Share during the period the
Distributor served as principal underwriter under the Agreement.
"Distributor Shares" shall mean, in respect of any Fund, all Shares of such
Fund the Month of Original Purchase of which occurs on or after the Inception
Date for such Fund and on or prior to the Distributor Last Sale Cut-off Date in
respect of such Fund.
"Dividend" shall mean, in respect of any Share of any Fund, any dividend or
other distribution by such Fund in respect of such Share.
"Free Exchange" shall mean any exchange of a Commission Share (or portion
thereof) of one Fund (the "Redeeming Fund") for a Share (or portion thereof) of
another Fund (the "Issuing Fund"), under any arrangement which defers the
exchanging Shareholder's obligation to pay the CDSC in respect of the Commission
Share (or portion thereof) of the Redeeming Fund so exchanged until the later
redemption of the Share (or portion thereof) of the Issuing Fund received in
such exchange.
"Free Share" shall mean, in respect of any Fund, each Share of such Fund
other than a Commission Share, including, without limitation: (i) Shares issued
in connection with the automatic reinvestment of Capital Gain Dividends or Other
Dividends by such Fund, (ii) Special Free Shares issued by such Fund and (iii)
Shares (or portion thereof) issued by such Fund in connection with an exchange
whereby a Free Share (or portion thereof) of another Fund is redeemed and the
Net Asset Value of such redeemed Free Share (or portion thereof) is invested in
such Shares (or portion thereof) of such Fund.
"Fund" shall mean each of the regulated investment companies or series or
portfolios of regulated investment companies identified in Schedule II to the
Irrevocable Payment Instruction, as the same may be amended from time to time in
accordance with the terms thereof.
"Instant Fund" shall mean Keystone State Tax Free Fund - Series II, on
behalf of Keystone Missouri Tax Free Fund
"ML Omnibus Account" shall mean, in respect of any Fund, the Omnibus
Account maintained by Merrill Lynch, Pierce, Fenner & Smith as subtransfer
agent.
"Month of Original Purchase" shall mean, in respect of any Share of any
Fund, the calendar month in which such Share was first issued by such Fund;
provided, that if such Share is a Commission Share and such Fund issued the
Commission Share (or portion thereof) in question in connection with a Free
Exchange for a Commission Share (or portion thereof) of another Fund, the Month
of Original Purchase for the Commission Share (or portion thereof) in question
shall be the calendar month in which the Commission Share (or portion thereof)
of the other Fund was first issued by such other Fund (unless such Commission
Share (or portion thereof) was also issued by such other Fund in a Free
Exchange, in which case this proviso shall apply to that Free Exchange and this
application shall be repeated until one reaches a Commission Share (or portion
thereof) which was issued by a Fund other than in a Free Exchange); provided,
further, that if such Share is a Free Share and such Fund issued such Free Share
in connection with the automatic reinvestment of dividends in respect of other
Shares of such Fund, the Month of Original Purchase of such Free Share shall be
deemed to be the Month of Original Purchase of the Share in respect of which
such dividend was paid; provided, further, that if such Share is a Free Share
and such Fund issued such Free Share in connection with an exchange whereby a
Free Share (or portion thereof) of another Fund is redeemed and the Net Asset
Value of such redeemed Free Share (or portion thereof) is invested in a Free
Share (or portion thereof) of such Fund, the Month of Original Issue of such
Free Share shall be the Month of Original Issue of the Free Share of such other
Fund so redeemed (unless such Free Share of such other Fund was also issued by
such other Fund in such an exchange, in which case this proviso shall apply to
that exchange and this application shall be repeated until one reaches a Free
Share which was issued by a Fund other than in such an exchange); and provided,
finally, that for purposes of this Schedule I each of the following periods
shall be treated as one calendar month for purposes of applying the rules of
this Schedule I to any Fund: (i) the period of time from and including the
Distributor Inception Date for such Fund to and including the last day of the
calendar month in which such Distributor Inception Date occurs; (ii) the period
of time commencing with the first day of the calendar month in which the
Distributor Last Sale Cutoff Date in respect of such Fund occurs to and
including such Distributor Last Sale Cutoff Date; and (iii) the period of time
commencing on the day immediately following the Distributor Last Sale Cutoff
Date in respect of such Fund to and including the last day of the calendar month
in which such Distributor Last Sale Cut-off Date occurs.
"Omnibus Account" shall mean any Shareholder Account the record owner of
which is a registered broker-dealer which has agreed with the Transfer Agent to
provide sub-transfer agent functions relating to each Sub-shareholder Account
within such Shareholder Account as contemplated by this Schedule I in respect of
each of the Funds.
"Omnibus Asset Based Sales Charge Settlement Date" shall mean, in respect
of each Omnibus Account, the Business Day next following the twentieth day of
each calendar month for the calendar month immediately preceding such date so
long as the record owner is able to allocate the Asset Based Sales Charge
accruing in respect of Shares of any Fund as contemplated by this Schedule I no
more frequently than monthly; provided, that at such time as the record owner of
such Omnibus Account is able to provide information sufficient to allocate the
Asset Based Sales Charge accruing in respect of such Shares of such Fund owned
of record by such Omnibus Account as contemplated by this Schedule I on a weekly
or daily basis, the Omnibus Asset Based Sales Charge Settlement Date shall be a
weekly date as in the case of the Omnibus CDSC Settlement Date or a daily date
as in the case of Asset Based Sales Charges accruing in respect of Shareholder
Accounts other than Omnibus Accounts, as the case may be.
"Omnibus CDSC Settlement Date" shall mean, in respect of each Omnibus
Account, the third Business Day of each calendar week for the calendar week
immediately preceding such date so long as the record owner of such Omnibus
Account is able to allocate the CDSCs accruing in respect of any Shares of any
Fund as contemplated by this Schedule I for no more frequently than weekly;
provided, that at such time as the record owner of such Shares of such Fund
owned of record by such Omnibus Account is able to provide information
sufficient to allocate the CDSCs accruing in respect of such Omnibus Account as
contemplated by this Schedule I on a daily basis, the Omnibus CDSC Settlement
Date for such Omnibus Account shall be a daily date as in the case of CDSCs
accruing in respect of Shareholder Accounts other than Omnibus Accounts.
"Original Purchase Amount" shall mean, in respect of any Commission Share
of any Fund, the amount paid (i.e., the Net Asset Value thereof on such date),
on the Date of Original Purchase in respect of such Commission Share, by such
Shareholder Account or Sub-shareholder Account for such Commission Share;
provided, that if such Fund issued the Commission Share (or portion thereof) in
question in connection with a Free Exchange for a Commission Share (or portion
thereof) of another Fund, the Original Purchase Amount for the Commission Share
(or portion thereof) in question shall be the Original Purchase Amount in
respect of such Commission Share (or portion thereof) of such other Fund (unless
such Commission Share (or portion thereof) was also issued by such other Fund in
a Free Exchange, in which case this proviso shall apply to that Free Exchange
and this application shall be repeated until one reaches a Commission Share (or
portion thereof) which was issued by a Fund other than in a Free Exchange).
"Other Dividend" shall mean in respect of any Share, any Dividend paid in
respect of such Share other than a Capital Gain Dividend.
"Post-distributor Shares" shall mean, in respect of any Fund, all Shares of
such Fund the Month of Original Purchase of which occurs after the Distributor
Last Sale Cut-off Date for such Fund.
"Program Agent" shall mean Citicorp North America, Inc., as Program Agent
under the Purchase Agreement, and its successors and assigns in such capacity.
"Purchase Agreement" shall mean that certain Purchase and Sale Agreement
dated as of May 31, 1995, among Keystone Investment Distributors Company, as
Seller, Citibank, N.A., as Purchaser, and Citicorp North America, Inc., as
Program Agent.
"Share" shall mean in respect of any Fund any share of the classes of
shares specified in Schedule II to the Irrevocable Payment Instruction opposite
the name of such Fund, as the same may be amended from time to time by notice
from the Distributor and the Program Agent to the Fund and the Transfer Agent;
provided, that such term shall include, after the Distributor Last Sale Cut-off
Date, a share of a new class of shares of such Fund: (i) with respect to each
record owner of Shares which is not treated in the records of each Transfer
Agent and Sub-transfer Agent for such Fund as an entirely separate and distinct
class of shares from the classes of shares specified Schedule II to the
Irrevocable Payment Instruction or (ii) the shares of which class may be
exchanged for shares of another Fund of the classes of shares specified on
Schedule II to the Irrevocable Payment Instruction of any class existing on or
prior to the Distributor Last Sale Cut-off Date; or (iii) dividends on which can
be reinvested in shares of the classes specified on Schedule II to the
Irrevocable Payment Instruction under the automatic dividend reinvestment
options; or (iv) which is otherwise treated as though it were of the same class
as the class of shares specified on Schedule II to the Irrevocable Payment
Instruction.
"Shareholder Account" shall have the meaning set forth in clause (B)(1)
hereof.
"Special Free Share" shall mean, in respect of any Fund, a Share (other
than a Commission Share) issued by such Fund other than in connection with the
automatic reinvestment of Dividends and other than in connection with an
exchange whereby a Free Share (or portion thereof) of another Fund is redeemed
and the Net Asset Value of such redeemed Share (or portion thereof) is invested
in a Share (or portion thereof) of such Fund.
"Sub-shareholder Account" shall have the meaning set forth in clause (B)(1)
hereof.
"Sub-transfer Agent" shall mean, in respect of each Omnibus Account, the
record owner thereof.
(B) RECORDS TO BE MAINTAINED BY THE TRANSFER AGENT FOR EACH FUND AND THE
RECORD OWNER OF EACH OMNIBUS ACCOUNT:
The Transfer Agent shall maintain Shareholder Accounts, and shall cause
each record owner of each Omnibus Account to maintain Sub-shareholder Accounts,
each in accordance with the following rules:
(1) SHAREHOLDER ACCOUNTS AND SUB-SHAREHOLDER ACCOUNTS. The Transfer Agent
shall maintain a separate account (a "Shareholder Account") for each record
owner of Shares of each Fund. Each Shareholder Account (other than Omnibus
Accounts) will represent a record owner of Shares of such Fund, the records of
which will be kept in accordance with this Schedule I. In the case of an Omnibus
Account, the Transfer Agent shall require that the record owner of the Omnibus
Account maintain a separate account (a "Sub-shareholder Account") for each
record owner of Shares which are reflected in the Omnibus Account, the records
of which will be kept in accordance with this Schedule I. Each such Shareholder
Account and Sub-shareholder Account shall relate solely to Shares of such Fund
and shall not relate to any other class of shares of such Fund.
(2) COMMISSION SHARES. For each Shareholder Account (other than an Omnibus
Account), the Transfer Agent shall maintain daily records of each Commission
Share of such Fund which records shall identify each Commission Share of such
Fund reflected in such Shareholder Account by the Month of Original Purchase of
such Commission Share.
For each Omnibus Account, the Transfer Agent shall require that the
Sub-transfer Agent in respect thereof maintain daily records of such
Sub-shareholder Account which records shall identify each Commission Share of
such Fund reflected in such Sub-shareholder Account by the Month of Original
Purchase; provided, that until the Sub-transfer Agent in respect of the ML
Omnibus Account develops the data processing capability to conform to the
foregoing requirements, such Sub-transfer Agent shall maintain daily records of
Sub-shareholder Accounts which identify each Commission Share of such Fund
reflected in such Sub-shareholder Account by the Date of Original Purchase. Each
such Commission Share shall be identified as either a Distributor Share or a
Post-distributor Share based upon the Month of Original Purchase of such
Commission Share (or in the case of a Sub-shareholder Account within the ML
Omnibus Account, based upon the Date of Original Purchase).
(3) FREE SHARES. The Transfer Agent shall maintain daily records of each
Shareholder Account (other than an Omnibus Account) in respect of any Fund so as
to identify each Free Share (including each Special Free Share) reflected in
such Shareholder Account by the Month of Original Purchase of such Free Share.
In addition, the Transfer Agent shall require that each Shareholder Account
(other than an Omnibus Account) have in effect separate elections relating to
reinvestment of Capital Gain Dividends and relating to reinvestment of Other
Dividends in respect of any Fund. Either such Shareholder Account shall have
elected to reinvest all Capital Gain Dividends or such Shareholder Account shall
have elected to have all Capital Gain Dividends distributed. Similarly, either
such Shareholder Account shall have elected to reinvest all Other Dividends or
such Shareholder Account shall have elected to have all Other Dividends
distributed.
The Transfer Agent shall require that the Sub-transfer Agent in respect of
each Omnibus Account maintain daily records for each Sub-shareholder Account in
the manner described in the immediately preceding paragraph for Shareholder
Accounts (other than Omnibus Accounts); provided, that until the Sub-transfer
Agent in respect of the ML Omnibus Account develops the data processing
capability to conform to the foregoing requirements, such Sub-transfer Agent
shall not be obligated to conform to the foregoing requirements. Each
Sub-shareholder Account shall also have in effect Dividend reinvestment
elections as described in the immediately preceding paragraph.
The Transfer Agent and each Sub-transfer Agent in respect of an Omnibus
Account shall identify each Free Share as either a Distributor Share or a
Post-distributor Share based upon the Month of Original Purchase of such Free
Share; provided, that until the Sub-transfer Agent in respect of the ML Omnibus
Account develops the data processing capability to conform to the foregoing
requirements, the Transfer Agent shall require such Sub-transfer Agent to
identify each Free Share of a given Fund in the ML Omnibus Account as a
Distributor Share, or Post-distributor Share, as follows:
(a) Free Shares of such Fund which are outstanding on the Distributor Last
Sale Cut-off Date for such Fund shall be identified as Distributor
Shares.
(b) Free Shares of such Fund which are issued (whether or not in
connection with an exchange for a Free Share of another Fund) to the
ML Omnibus Account during any calendar month (or portion thereof)
after the Distributor Last Sale Cut-off Date for such Fund shall be
identified as Distributor Shares in a number computed as follows:
A X (B/C)
where:
A = Free Shares of such Fund issued to the ML Omnibus Account during
such calendar month (or portion thereof)
B = Number of Commission Shares and Free Shares of such Fund in the
ML Omnibus Account identified as Distributor Shares and
outstanding as of the close of business in the last day of the
immediately preceding calendar month (or portion thereof)
C = Total number of Commission Shares and Free Shares of such Fund
in the ML Omnibus Account and outstanding as of the close of
business on the last day of the immediately preceding calendar
month (or portion thereof).
(c) Free Shares of such Fund which are issued (whether or not in
connection with an exchange for a free share of another Fund) to the
ML Omnibus Account during any calendar month (or portion thereof)
after the Distributor Last Sale Cut-off Date for such Fund shall be
identified as Post-distributor Shares in a number computed as follows:
(A X (B/C)
where:
A = Free Shares of such Fund issued to the ML Omnibus Account during
such calendar month (or portion thereof)
B = Number of Commission Shares and Free Shares of such Fund in the
ML Omnibus Account identified as Post-distributor Shares and
outstanding as of the close of business in the last day of the
immediately preceding calendar month (or portion thereof)
C = Total number of Commission Shares and Free Shares of such Fund
in the ML Omnibus Account and outstanding as of the close of
business on the last day of the immediately preceding calendar
month (or portion thereof).
(d) Free Shares of such Fund which are redeemed (whether or not in
connection with an exchange for Free Shares of another Fund or in
connection with the conversion of such Shares into a Class A Share of
such Fund) from the ML Omnibus Account in any calendar month (or
portion thereof) after the Distributor Last Sale Cut-off Date for such
Fund shall be identified as Distributor Shares in a number computed as
follows:
A X (B/C)
Where:
A = Free Shares of such Fund which are redeemed (whether or not in
connection with an exchange for Free Shares of another Fund or in
connection with the conversion of such Shares into a class A share
of such Fund) from the ML Omnibus Account during such calendar
month (or portion thereof)
B = Free Shares of such Fund in the ML Omnibus Account identified as
Distributor Shares and outstanding as of the close of business on
the last day of the immediately preceding calendar month.
C = Total number of Free Shares of such Fund in the ML Omnibus
Account and outstanding as of the close of business on the last
day of the immediately preceding calendar month.
(e) Free Shares of such Fund which are redeemed (whether or not in
connection with an exchange for Free Shares of another Fund or in
connection with the conversion of such Shares into a class A share of
such Fund) from the ML Omnibus Account in any calendar month (or
portion thereof) after the Distributor Last Sale Cut-off Date for such
Fund shall be identified as Post-distributor Shares in a number
computed as follows:
A X (B/C)
where:
A = Free Shares of such Fund which are redeemed (whether or not in
connection with an exchange for Free Shares of another Fund or in
connection with the conversion of such Shares into a class A share
of such Fund) from the ML Omnibus Account during such calendar
month (or portion thereof)
B = Free Shares of such Fund in the ML Omnibus Account identified as
Post-distributor Shares and outstanding as of the close of
business on the last day of the immediately preceding calendar
month.
C = Total number of Free Shares of such Fund in the ML Omnibus
Account and outstanding as of the close of business on the last
day of the immediately preceding calendar month.
(4) APPRECIATION AMOUNT AND COST ACCUMULATION AMOUNT. The Transfer Agent
shall maintain on a daily basis in respect of each Shareholder Account (other
than Omnibus Accounts) a Cost Accumulation Amount representing the total of the
Original Purchase Amounts paid by such Shareholder Account for all Commission
Shares reflected in such Shareholder Account as of the close of business on each
day. In addition, the Transfer Agent shall maintain on a daily basis in respect
of each Shareholder Account (other than Omnibus Accounts) sufficient records to
enable it to compute, as of the date of any actual or deemed redemption or Free
Exchange of a Commission Share reflected in such Shareholder Account an amount
(such amount an "Appreciation Amount") equal to the excess, if any, of the Net
Asset Value as of the close of business on such day of the Commission Shares
reflected in such Shareholder Account minus the Cost Accumulation Amount as of
the close of business on such day. In the event that a Commission Share (or
portion thereof) reflected in a Shareholder Account is redeemed or under these
rules is deemed to have been redeemed (whether in a Free Exchange or otherwise),
the Appreciation Amount for such Shareholder Account shall be reduced, to the
extent thereof, by the Net Asset Value of the Commission Share (or portion
thereof) redeemed, and if the Net Asset Value of the Commission Share (or
portion thereof) being redeemed equals or exceeds the Appreciation Amount, the
Cost Accumulation Amount will be reduced to the extent thereof, by such excess.
If the Appreciation Amount for such Shareholder Account immediately prior to any
redemption of a Commission Share (or portion thereof) is equal to or greater
than the Net Asset Value of such Commission Share (or portion thereof) deemed to
have been tendered for redemption, no CDSCs will be payable in respect of such
Commission Share (or portion thereof).
The Transfer Agent shall require that the Sub-transfer Agent in respect of
each Omnibus Account maintain on a daily basis in respect of each
Sub-shareholder Account reflected in such Omnibus Account a Cost Accumulation
Amount and sufficient records to enable it to compute, as of the date of any
actual or deemed redemption or Free Exchange of a Commission Share reflected in
such Sub-shareholder Account an Appreciation Amount in accordance with the
preceding paragraph and to apply the same to determine whether a CDSC is payable
(as though such Sub-shareholder Account were a Shareholder Account other than an
Omnibus Account; provided, that until the Sub-transfer Agent in respect of the
ML Omnibus Account develops the data processing capability to conform to the
foregoing requirements, such Sub-transfer Agent shall maintain for each
Sub-shareholder Account a separate Cost Accumulation Amount and a separate
Appreciation Amount for each Date of Original Purchase of any Commission Share
which shall be applied as set forth in the preceding paragraph as if each Date
of Original Purchase were a separate Month of Original Purchase.
(5) NASD CAP. On the date the distribution fees paid in respect of any
class of Shares equals the maximum amount thereon under the Rules of Fair
Practice, in respect of such class, all outstanding Shares of such class of such
Fund shall be converted into Class A shares of such Fund and will be deemed to
have been redeemed for their Net Asset Value for purposes of this Schedule I.
(6) IDENTIFICATION OF REDEEMED SHARES. If a Shareholder Account (other than
an Omnibus Account) tenders a Share of a Fund for redemption (other than in
connection with an exchange of such Share for a Share of another Fund or in
connection with the conversion of such Share pursuant to a Conversion Feature),
such tendered Share will be deemed to be a Free Share if there are any Free
Shares reflected in such Shareholder Account immediately prior to such tender.
If there is more than one Free Share reflected in such Shareholder Account
immediately prior to such tender, such tendered Share will be deemed to be the
Free Share with the earliest Month of Original Purchase. If there are no Free
Shares reflected in such Shareholder Account immediately prior to such tender,
such tendered Share will be deemed to be the Commission Share with the earliest
Month of Original Purchase reflected in such Shareholder Account.
If a Sub-shareholder Account reflected in an Omnibus Account tenders a
Share for redemption (other than in connection with an Exchange of such Share
for a Share of another Fund or in connection with the conversion of such Share
pursuant to a Conversion Feature), the Transfer Agent shall require that the
record owner of each Omnibus Account supply the Transfer Agent sufficient
records to enable the Transfer Agent to apply the rules of the preceding
paragraph to such Sub-shareholder Account (as though such Sub-shareholder
Account were a Shareholder Account other than an Omnibus Account); provided,
that until the Sub-transfer Agent in respect of the ML Omnibus Account develops
the data processing capability to conform to the foregoing requirements, such
Sub-transfer Agent shall not be required to conform to the foregoing rules
regarding Free Shares (and the Transfer Agent shall account for such Free Shares
as provided in (3) above) but shall apply the foregoing rules to each Commission
Share with respect to the Date of Original Purchase of any Commission Share as
though each such Date were a separate Month of Original Purchase.
(7) IDENTIFICATION OF EXCHANGED SHARES. When a Shareholder Account (other
than an Omnibus Account) tenders Shares of one Fund (the "Redeeming Fund") for
redemption where the proceeds of such redemption are to be automatically
reinvested in shares of another Fund (the "Issuing Fund") to effect an exchange
(whether or not pursuant to a Free Exchange) into Shares of the Issuing Fund:
(1) such Shareholder Account will be deemed to have tendered Shares (or portions
thereof) of the Redeeming Fund with each Month of Original Purchase represented
by Shares of the Redeeming Fund reflected in such Shareholder Account
immediately prior to such tender in the same proportion that the number of
Shares of the redeeming Fund with such Month of Original Purchase reflected in
such Shareholder immediately prior to such tender bore to the total number of
Shares of the Redeeming Fund reflected in such Shareholder Account immediately
prior to such tender, and on that basis the tendered Shares of the Redeeming
Fund will be identified as Distributor Shares or Post-distributor Shares; (2)
such Shareholder Account will be deemed to have tendered Commission Shares (or
portions thereof) and Free Shares (or portions thereof) of the Redeeming Fund of
each category (i.e., Distributor Shares or Post-distributor Shares) in the same
proportion that the number of Commission Shares or Free Shares (as the case may
be) of the Redeeming Fund in such category reflected in such Shareholder Account
bore to the total number of Shares of the Redeeming Fund in such category
reflected in such Shareholder Account immediately prior to such tender, (3) the
Shares (or portions thereof) of the Issuing Fund issued in connection with such
exchange will be deemed to have the same Months of Original Purchase as the
Shares (or portions thereof) of the Redeeming Fund so tendered and will be
categorized as Distributor Shares and Post-distributor Shares accordingly, and
(4) the Shares (or portions thereof) of each Category of the Issuing Fund issued
in connection with such exchange will be deemed to be Commission Shares and Free
Shares in the same proportion that the Shares of such Category of the Redeeming
Fund were Commission Shares and Free Shares.
The Transfer Agent shall require that each record owner of an Omnibus
Account maintain records relating to each Sub-shareholder Account in such
Omnibus Account sufficient to apply the foregoing rules to each such
Sub-shareholder Account (as though such Sub-shareholder Account were a
Shareholder Account other than an Omnibus Account); provided, that until the
Sub-transfer Agent in respect of the ML Omnibus Account develops the data
processing capability to conform to the foregoing requirements, such
Sub-transfer Agent shall not be required to conform to the foregoing rules
relating to Free Shares (and the Sub-transfer Agent shall account for such Free
Shares as provided in (3) above) and shall apply a first-in-first-out procedure
(based upon the Date of Original Purchase) to determine which Commission Shares
(or portions thereof) of a Redeeming Fund were redeemed in connection with an
exchange.
(8) IDENTIFICATION OF CONVERTED SHARES. The Transfer Agent records
maintained for each Shareholder Account (other than an Omnibus Account) will
treat each Commission Share of a Fund as though it were redeemed at its Net
Asset Value on the date such Commission Share converts into a class A share of
such Fund in accordance with an applicable Conversion Feature applied with
reference to its Month of Original Purchase and will treat each Free Share of
such Fund with a given Month of Original Purchase as though it were redeemed at
its Net Asset Value when it is simultaneously converted to a class A share at
the time the Commission Shares of such Fund with such Month of Original Purchase
are so converted.
The Transfer Agent shall require that each record owner of an Omnibus
Account maintain records relating to each Sub-shareholder Account in such
Omnibus Account sufficient to apply the foregoing rules to each such
Sub-shareholder Account (as though such Sub-shareholder Account were a
Shareholder Account other than an Omnibus Account) ; provided, that until the
Sub-transfer Agent in respect of the ML Omnibus Account develops the data
processing capability to conform to the foregoing requirements, such
Sub-transfer Agent shall apply the foregoing rules to Commission Shares with
reference to the Date of Original Issue of each Commission Share (as though each
such date were a separate Month of Original Issue) and shall not be required to
apply the foregoing rules to Free Shares (and the Sub-transfer Agent shall
account for such Free Shares as provided in (3) above).
(C) ALLOCATIONS OF ASSET BASED SALE CHARGES AND CDSCS AMONG DISTRIBUTOR
SHARES AND POST-DISTRIBUTOR SHARES:
The Transfer Agent shall use the following rules to allocate the amounts of
Asset Based Sales Charges and CDSCs payable by each Fund in respect of Shares
between Distributor Shares and Post-distributor Shares:
(1) RECEIVABLES CONSTITUTING CDSCS: CDSCs will be treated as relating to
Distributor Shares or Post-distributor Shares depending upon the Month of
Original Purchase of the Commission Share the redemption of which gives rise to
the payment of a CDSC by a Shareholder Account.
The Transfer Agent shall cause each Sub-transfer Agent to apply the
foregoing rule to each Sub-shareholder Account based on the records maintained
by such Sub-transfer Agent; provided, that until the Sub-transfer Agent in
respect of the ML Omnibus Account develops the data processing capability to
conform to the foregoing requirements, such Sub-transfer Agent shall apply the
foregoing rules to each Sub-shareholder Account with respect to the Date of
Original Purchase of any Commission Share as though each such date were a
separate Month of Original Purchase.
(2) RECEIVABLES CONSTITUTING ASSET BASED SALES CHARGES:
The Asset Based Sales Charges accruing in respect of each Shareholder
Account (other than an Omnibus Account) shall be allocated to each Share
reflected in such Shareholder Account as of the close of business on such day on
an equal per share basis. For example, the Asset Based Sales Charges
attributable to Distributor Shares on any day shall be computed and allocated as
follows:
A X (B/C)
where:
A. = Total amount of Asset Based Sales Charge accrued in respect of such
Shareholder Account (other than an Omnibus Account) on such day.
B. = Number of Distributor Shares reflected in such Shareholder Account
(other than an Omnibus Account) on the close of business on such day
C. = Total number of Distributor Shares and Post-Distributor Shares
reflected in such Shareholder Account (other than an Omnibus Account)
and outstanding as of the close of business on such day.
The Portion of the Asset Based Sales Charges of such Fund accruing in respect of
such Shareholder Account for such day allocated to Post-distributor Shares will
be obtained using the same formula but substituting for "B" the number of
Post-distributor Shares, as the case may be, reflected in such Shareholder
Account and outstanding on the close of business on such day. The foregoing
allocation formula may be adjusted from time to time by notice to the Fund and
the transfer agent for the Fund from the Seller and the Program Agent pursuant
to Section 8.18 of the Purchase Agreement.
The Transfer Agent shall, based on the records maintained by the record
owner of such Omnibus Account, allocate the Asset Based Sales Charge accruing in
respect of each Omnibus Account on each day among all Sub-shareholder Accounts
reflected in such Omnibus Account on an equal per share basis based upon the
total number of Distributor Shares and Post-distributor Shares reflected in each
such Sub-shareholder Account as of the close of business on such day. In
addition, the Transfer Agent shall apply the foregoing rules to each
Sub-shareholder Account (as though it were a Shareholder Account other than an
Omnibus Account), based on the records maintained by the record owner, to
allocate the Asset Based Sales Charge so allocated to any Sub-shareholder
Account among the Distributor Shares and Post-distributor Shares reflected in
each such Sub-shareholder Account in accordance with the rules set forth in the
preceding paragraph; provided, that until the Sub-transfer Agent in respect of
the ML Omnibus Account develops the data processing capacity to apply the rules
of this Schedule I as applicable to Sub-shareholder Accounts other than ML
Omnibus Accounts, the Transfer Agent shall allocate the Asset Based Sales Charge
accruing in respect of Shares of any Fund in the ML Omnibus Account during any
calendar month (or portion thereof) among Distributor Shares and
Post-distributor Shares as follows:
(a) The portion of such Asset Based Sales Charge allocable to Distributor
Shares shall be computed as follows:
A X ((B + C)/2)
-----------
((D + E)/2)
where:
A = Total amount of Asset Based Sales Charge accrued during such
calendar month (or portion thereof) in respect of Shares of such
Fund in the ML Omnibus Account
B = Shares of such Fund in the ML Omnibus Account and identified as
Distributor Shares and outstanding as of the close of business on
the last day of the immediately preceding calendar month (or
portion thereof), times Net Asset Value per Share as of such time
C = Shares of such Fund in the ML Omnibus Account and identified as
Distributor Shares and outstanding as of the close of business on
the last day of such calendar month (or portion thereof), times
Net Asset Value per Share as of such time
D = Total number of Shares of such Fund in the ML Omnibus Account
and outstanding as of the close of business on the last day of
the immediately preceding calendar month (or portion thereof),
times Net Asset Value per Share as of such time.
E = Total number of Shares of such Fund in the ML Omnibus Account
and outstanding as of the close of business on the last day of
such calendar month (or portion thereof), times Net Asset Value
per Share as of such time.
(b) The portion of such Asset Based Sales Charge allocable to
Post-distributor Shares shall be computed s follows:
A X ((B + C)/2)
-----------
((D + E)/2)
where:
A = Total amount of Asset Based Sales Charge accrued during such
calendar month (or portion thereof) in respect of Shares of such
Fund in the ML Omnibus Account
B = Shares of such Fund in the ML Omnibus Account and identified as
Post-distributor Shares and outstanding as of the close of
business on the last day of the immediately preceding calendar
month (or portion thereof), times Net Asset Value per Share as of
such time
C = Shares of such Fund in the ML Omnibus Account and identified as
Post-distributor Shares and outstanding as of the close of
business on the last day of such calendar month (or portion
thereof), times Net Asset Value per Share as of such time
D = Total number of Shares of such Fund in the ML Omnibus Account
and outstanding as of the close of business on the last day of
the immediately preceding calendar month (or portion thereof),
times Net Asset Value per Share as of such time.
E = Total number of Shares of such Fund in the ML Omnibus Account
outstanding as of the close of business on the last day of such
calendar month, times Net Asset Value per Share as of such time.
(3) PAYMENTS ON BEHALF OF EACH FUND.
On the close of business on each day the Transfer Agent shall cause payment to
be made of the amount of the Asset Based Sales Charge and CDSCs accruing on such
day in respect of the Shares of such Fund owned of record by Shareholder
Accounts (other than Omnibus Accounts) by two separate wire transfers, directly
from accounts of such Fund as follows:
1. The Asset Based Sales Charge and CDSCs accruing in respect of
Shareholder Accounts other than Omnibus Accounts and allocable to
Distributor Shares in accordance with the preceding rules shall be paid to
the Distributor's Account, unless the Distributor otherwise instructs the
Fund in any irrevocable payment instruction; and
2. The Asset Based Sales Charges and CDSCs accruing in respect of
Shareholder Accounts other than Omnibus Accounts and allocable to
Post-distributor Shares in accordance with the preceding rules shall be
paid in accordance with direction received from any future distributor of
Shares of the Instant Fund.
On each Omnibus CDSC Settlement Date, the Transfer Agent for each Fund
shall cause the applicable Sub-transfer Agent to cause payment to be made of the
amount of the CDSCs accruing during the period to which such Omnibus CDSC
Settlement Date relates in respect of the Shares of such Fund owned of record by
each Omnibus Account by two separate wire transfers directly from the account of
such Fund maintained by such Transfer Agent, as follows:
1. The CDSCs accruing in respect of such Omnibus Account and allocable to
Distributor Shares in accordance with the preceding rules shall be paid to
the Distributor's Account, unless the Distributor otherwise instructs the
Fund in any irrevocable payment instruction; and
2. The CDSCs accruing in respect of such Omnibus Account and allocable to
Post-distributor Shares in accordance with the preceding rules shall be
paid in accordance with direction received from any future distributor of
Shares of the Instant Fund.
On each Omnibus Asset Based Sales Charge Settlement Date the Transfer Agent
for each Fund shall cause payment to be made of the amount of the Asset Based
Sales Charge accruing for the period to which such Omnibus Asset Based Sales
Charge Settlement Date relates in respect of the Shares of such Fund owned of
record by each Omnibus Account by two separate wire transfers directly from
accounts of such Fund as follows:
1. The Asset Based Sales Charge accruing in respect of such Omnibus Account
and allocable to Distributor Shares shall be paid to the Distributor's
Collection Account, unless the Distributor otherwise instructs the Fund in
any irrevocable payment instruction; and
2. The Asset Based Sales Charge accruing in respect of such Omnibus Account
and allocable to Post-Distributor Shares shall be paid in accordance with
direction received from any future distributor of Shares of the Instant
Fund.
<PAGE>
PRINCIPAL UNDERWRITING AGREEMENT
FOR CLASS B-2 SHARES
OF
KEYSTONE CALIFORNIA INSURED TAX FREE FUND,
A SERIES OF KEYSTONE STATE TAX FREE FUND - SERIES II
AGREEMENT made this 31st day of May 1995 by and between Keystone State Tax
Free Fund - Series II, a Massachusetts business trust, on behalf of Keystone
California Insured Tax Free Fund ("Fund"), and Keystone Investment Distributors
Company, a Delaware corporation (the "Principal Underwriter").
The Fund, individually and/or on behalf of its series, if any, referred to
above in the title of this Agreement, to which series, if any, this Agreement
shall relate, as applicable (the Fund ), may act as the distributor of certain
securities of which it is the issuer pursuant to Rule 12b-1 under the Investment
Company Act of 1940 (the 1940 Act ). Accordingly, it is hereby mutually agreed
as follows:
1. The Fund hereby appoints the Principal Underwriter a principal
underwriter of the Class B-2 shares of beneficial interest of the Fund ("B-2
Shares") as an independent contractor upon the terms and conditions hereinafter
set forth. The general term "Shares" as used herein has the same meaning as is
provided therefor in Schedule I hereto. Except as the Fund may from time to time
agree, the Principal Underwriter will act as agent for the Fund and not as
principal.
2. The Principal Underwriter will use its best efforts to find purchasers
for the B-2 Shares and to promote distribution of the B-2 Shares and may obtain
orders from brokers, dealers or other persons for sales of B-2 Shares to them.
No such dealer, broker or other person shall have any authority to act as agent
for the Fund; such dealer, broker or other person shall act only as principal in
the sale of B-2 Shares.
3. Sales of B-2 Shares by Principal Underwriter shall be at the public
offering price determined in the manner set forth in the prospectus and/or
statement of additional information of the Fund current at the time of the
Fund's acceptance of the order for B-2 Shares. All orders shall be subject to
acceptance by the Fund and the Fund reserves the right in its sole discretion to
reject any order received. The Fund shall not be liable to anyone for failure to
accept any order.
4. On all sales of B-2 Shares the Fund shall receive the current net asset
value. The Fund shall pay the Principal Underwriter Distribution Fees (as
defined in Section 14 hereof), as commissions for the sale of B-2 Shares and
other Shares, which shall be paid in conjunction with distribution fees paid to
the Principal Underwriter by other classes of Shares of the Fund to the extent
required in order to comply with Section 14 hereof, and shall pay over to the
Principal Underwriter CDSCs (as defined in Section 14 hereof) as set forth in
the Fund's current prospectus and statement of additional information, and as
required by Section 14 hereof. The Principal Underwriter shall also receive
payments consisting of shareholder service fees ("Service Fees") at the rate of
.25% per annum of the average daily net asset value of the Class B-2 Shares. The
Principal Underwriter may allow all or a part of said Distribution Fees and
CDSCs received by it (not paid to others as hereinafter provided) to such
brokers, dealers or other persons as Principal Underwriter may determine.
5. Payment to the Fund for B-2 Shares shall be in New York or Boston
Clearing House funds received by the Principal Underwriter within three business
days after notice of acceptance of the purchase order and the amount of the
applicable public offering price has been given to the purchaser. If such
payment is not received within such period, the Fund reserves the right, without
further notice, forthwith to cancel its acceptance of any such order. The Fund
shall pay such issue taxes as may be required by law in connection with the
issue of the B-2 Shares.
6. The Principal Underwriter shall not make in connection with any sale or
solicitation of a sale of the B-2 Shares any representations concerning the B-2
Shares except those contained in the then current prospectus and/or statement of
additional information covering the Shares and in printed information approved
by the Fund as information supplemental to such prospectus and statement of
additional information. Copies of the then current prospectus and statement of
additional information and any such printed supplemental information will be
supplied by the Fund to the Principal Underwriter in reasonable quantities upon
request.
7. The Principal Underwriter agrees to comply with the Rules of Fair
Practice of the National Association of Securities Dealers, Inc. (as defined in
the Purchase and Sale Agreement, dated as of May 31, 1995 (the Purchase
Agreement ), between the Principal Underwriter, Citibank, N.A. and Citicorp
North America, Inc., as agent (the "Rules of Fair Practice")).
8. The Fund appoints the Principal Underwriter as its agent to accept
orders for redemptions and repurchases of B-2 Shares at values and in the manner
determined in accordance with the then current prospectus and/or statement of
additional information of the Fund.
9. The Fund agrees to indemnify and hold harmless the Principal
Underwriter, its officers and Directors and each person, if any, who controls
the Principal Underwriter within the meaning of Section 15 of the Securities Act
of 1933 ("1933 Act"), against any losses, claims, damages, liabilities and
expenses (including the cost of any legal fees incurred in connection therewith)
which the Principal Underwriter, its officers, Directors or any such controlling
person may incur under the 1933 Act, under any other statute, at common law or
otherwise, arising out of or based upon
a. any untrue statement or alleged untrue statement of a material fact
contained in the Fund's registration statement, prospectus or
statement of additional information (including amendments and
supplements thereto) or
b. any omission or alleged omission to state a material fact required to
be stated in the Fund's registration statement, prospectus or
statement of additional information necessary to make the statements
therein not misleading, provided, however, that insofar as losses,
claims, damages, liabilities or expenses arise out of or are based
upon any such untrue statement or omission or alleged untrue statement
or omission made in reliance and in conformity with information
furnished to the Fund by the Principal Underwriter for use in the
Fund's registration statement, prospectus or statement of additional
information, such indemnification is not applicable. In no case shall
the Fund indemnify the Principal Underwriter or its controlling person
as to any amounts incurred for any liability arising out of or based
upon any action for which the Principal Underwriter, its officers and
Directors or any controlling person would otherwise be subject to
liability by reason of willful misfeasance, bad faith, or gross
negligence in the performance of its duties or by reason of the
reckless disregard of its obligations and duties under this Agreement.
10. The Principal Underwriter agrees to indemnify and hold harmless the
Fund, its officers and Trustees and each person, if any, who controls the Fund
within the meaning of Section 15 of the 1933 Act against any loss, claims,
damages, liabilities and expenses (including the cost of any legal fees incurred
in connection therewith) which the Fund, its officers, Directors or any such
controlling person may incur under the 1933 Act, under any other statute, at
common law or otherwise arising out of the acquisition of any Shares by any
person which
(a) may be based upon any wrongful act by the Principal Underwriter or any
of its employees or representatives, or
(b) may be based upon any untrue statement or alleged untrue statement of
a material fact contained in the Fund's registration statement,
prospectus or statement of additional information (including
amendments and supplements thereto), or any omission or alleged
omission to state a material fact required to be stated therein or
necessary to make the statements therein not misleading, if such
statement or omission was made in reliance upon information furnished
or confirmed in writing to the Fund by the Principal Underwriter.
11. The Fund agrees to execute such papers and to do such acts and things
as shall from time to time be reasonably requested by the Principal Underwriter
for the purpose of qualifying the B-2 Shares for sale under the so-called "blue
sky" laws of any state or for registering B-2 Shares under the 1933 Act or the
Fund under the Investment Company Act of 1940 ("1940 Act"). The Principal
Underwriter shall bear the expenses of preparing, printing and distributing
advertising, sales literature, prospectuses, and statements of additional
information. The Fund shall bear the expense of registering B-2 Shares under the
1933 Act and the Fund under the 1940 Act, qualifying B-2 Shares for sale under
the so-called "blue sky" laws of any state, the preparation and printing of
prospectuses, statements of additional information and reports required to be
filed with the Securities and Exchange Commission and other authorities, the
preparation, printing and mailing of prospectuses and statements of additional
information to holders of B-2 Shares, and the direct expenses of the issue of
B-2 Shares.
12. The Principal Underwriter shall, at the request of the Fund, provide to
the Board of Trustees or Directors (together herein called the Directors ) of
the Fund in connection with sales of B-2 Shares not less than quarterly a
written report of the amounts received from the Fund therefor and the purpose
for which such expenditures by the Fund were made.
13. The term of this Agreement shall begin on the date hereof and, unless
sooner terminated or continued as provided below, shall expire after one year.
This Agreement shall continue in effect after such term if its continuance is
specifically approved by a majority of the outstanding voting securities of
Class B-2 of the Fund or by a majority of the Directors of the Fund and a
majority of the Directors who are not parties to this Agreement or "interested
persons", as defined in the Investment Company Act of 1940 (the 1940 Act ), of
any such party and who have no direct or indirect financial interest in the
operation of the Fund's Rule 12b-1 plan for Class B-2 Shares or in any
agreements related to the plan at least annually in accordance with the 1940 Act
and the rules and regulations thereunder.
This Agreement may be terminated at any time, without payment of any
penalty, by vote of a majority of the Directors of the Fund, or a majority of
such Directors who are not parties to this Agreement or "interested persons", as
defined in the 1940 Act, of any such party and who have no direct or indirect
financial interest in the operation of the Fund's Rule 12b-1 plan for Class B-2
Shares or in any agreement related to the plan or by a vote of a majority of the
outstanding voting securities of Class B-2 on not more than sixty days written
notice to any other party to the agreement; and shall terminate automatically in
the event of its assignment (as defined in the 1940 Act), which shall not
include assignment of the Principal Underwriter's (as hereinafter defined)
provided for hereunder and/or rights related to such Allocable Portions.
14. The provisions of this Section 14 shall be applicable to the extent
necessary to enable the Fund to comply with the obligation of the Fund to pay
the Principal Underwriter its Allocable Portion of Distribution Fees paid in
respect of Shares while the Fund is required to do so pursuant the Principal
Underwriting Agreement, of even date herewith, in respect of Class B-2 Shares,
and shall remain in effect so long as any payments are required to be made by
the Fund pursuant to the irrevocable payment instruction (as defined in the
Purchase Agreement (the "Irrevocable Payment Instruction")).
14.1 The Fund shall pay to the Principal Underwriter the Principal
Underwriter's Allocable Portion (as hereinafter defined) of a fee (the
"Distribution Fee") at the rate of .75% per annum of the average daily net asset
value of the Shares, subject to the limitation on the maximum aggregate amount
of such fees under the Rules of Fair Practice as applicable to such Distribution
Fee on the date hereof.
14.2 The Principal Underwriter's Allocable Portion of Distribution Fees
paid by the Fund in respect of Shares shall be equal to the portion of the Asset
Based Sales Charge allocable to Distributor Shares (as defined in Schedule I
hereto to this Agreement) in accordance with Schedule I hereto. The Fund agrees
to cause its transfer agent to maintain the records and arrange for the payments
on behalf of the Fund at the times and in the amounts and to the accounts
required by Schedule I hereto, as the same may be amended from time to time. It
is acknowledged and agreed that by virtue of the operation of Schedule I hereto
the Principal Underwriter's Allocable Portion of Distribution Fees paid by the
Fund in respect of Shares, may, to the extent provided in Schedule I hereto,
take into account Distribution Fees payable by the Fund in respect of other
existing and future classes and/or sub-classes of shares of the Fund which would
be treated as "Shares" under Schedule I hereto. The Fund will limit amounts paid
to any subsequent principal underwriters of Shares to the portion of the Asset
Based Sales Charge paid in respect of Shares which is allocable to
Post-distributor Shares (as defined in Schedule I hereto) in accordance with
Schedule I hereto. The Fund's payments to the Principal Underwriter in
consideration of its services in connection with the sale of B-2 Shares shall be
the Distribution Fees attributable to B-2 Shares which are Distributor Shares
(as defined in Schedule I hereto) and all other amounts constituting the
Principal Underwriter's Allocable Portion of Distribution Fees shall be the
Distribution Fees related to the sale of other Shares which are Distributor
Shares (as defined in Schedule I hereto).
The Fund shall cause its transfer agent and sub-transfer agents to withhold
from redemption proceeds payable to holders of Shares on redemption thereof the
contingent deferred sales charges payable upon redemption thereof as set forth
in the then current prospectus and/or statement of additional information of the
Fund ("CDSCs") and to pay over to the Principal Underwriter The Principal
Underwriter's Allocable Portion of said CDSCs paid in respect of Shares which
shall be equal to the portion thereof allocable to Distributor Shares (as
defined in Schedule I hereto) in accordance with Schedule I hereto.
14.3 The Principal Underwriter shall be considered to have completely
earned the right to the payment of its Allocable Portion of the Distribution Fee
and the right to payment over to it of its' Allocable Portion of the CDSC in
respect of Shares as provided for hereby upon the completion of the sale of each
Commission Share (as defined in Schedule I hereto) taken into account as a
Distributor Share in computing the Principal Underwriter's Allocable Portion in
accordance with Schedule I hereto.
14.4 Except as provided in Section 14.5 hereof in respect of Distribution
Fees only, the Fund's obligation to pay the Principal Underwriter the
Distribution Fees and to pay over to the Principal Underwriter CDSCs provided
for hereby shall be absolute and unconditional and shall not be subject to
dispute, offset, counterclaim or any defense whatsoever (it being understood
that nothing in this sentence shall be deemed a waiver by the Fund of its right
separately to pursue any claims it may have against the Principal Underwriter
and enforce such claims against any assets (other than the Principal
Underwriter's right to its Allocable Portion of the Distribution Fees and CDSCs
(the "Collection Rights") of the Principal Underwriter).
14.5 Notwithstanding anything in this Agreement to the contrary, the Fund
shall pay to the Principal Underwriter its Allocable Portion of Distribution
Fees provided for hereby notwithstanding its termination as Principal
Underwriter for the Shares or any termination of this Agreement and such payment
of such Distribution Fees, and that obligation and the method of computing such
payment, shall not be changed or terminated except to the extent required by any
change in applicable law, including, without limitation, the 1940 Act, the Rules
promulgated thereunder by the Securities and Exchange Commission and the Rules
of Fair Practice, in each case enacted or promulgated after May 31, 1995, or in
connection with a Complete Termination (as hereinafter defined). For the
purposes of this Section 14.5, "Complete Termination" means a termination of the
Fund's Rule 12b-1 plan for B-2 Shares involving the cessation of payments of the
Distribution Fees, and the cessation of payments of distribution fees pursuant
to every other Rule 12b-1 plan of the Fund for every existing or future
B-Class-of-Shares (as hereinafter defined) and the Fund's discontinuance of the
offering of every existing or future B-Class-of-Shares, which conditions shall
be deemed satisfied when they are first complied with hereafter and so long
thereafter as they are complied with prior to the earlier of (i) the date upon
which all of the B-2 Shares which are Distributor Shares pursuant to Schedule I
hereto shall have been redeemed or converted or (ii) May 31, 2005. For purposes
of this Section 14.5, the term B-Class-of-Shares means each of the B-1 Class of
Shares of the Fund, the B-2 Class of Shares of the Fund and each other class of
shares of the Fund hereafter issued which would be treated as Shares under
Schedule I hereto or which has substantially similar economic characteristics to
the B-1 or B-2 Classes of Shares taking into account the total sales charge,
CDSC or other similar charges borne directly or indirectly by the holder of the
shares of such class. The parties agree that the existing C Class of Shares of
the Fund does not have substantially similar economic characteristics to the B-1
or B-2 Classes of Shares taking into account the total sales charge, CDSC or
other similar charges borne directly or indirectly by the holder of such shares.
For purposes of clarity the parties to this agreement hereby state that they
intend that a new installment load class of shares which may be authorized by
amendments to Rule 6(c)-10 under the 1940 Act will be considered to be a
B-Class-of-Shares if it has economic characteristics substantially similar to
the economic characteristics of the existing B-1 or B-2 Classes of Shares taking
into account the total sale charge, CDSC or other similar charges borne directly
or indirectly by the holder of such shares and will not be considered to be a
B-Class-of-Shares if it has economic characteristics substantially similar to
the economic characteristics of the existing C Class of shares of the Fund
taking into account the total sales charge, CDSC or other similar charges borne
directly or indirectly by the holder of such shares.
14.6 The Principal Underwriter may assign any part of its Allocable
Portions and obligations of the Fund related thereto (but not the Principal
Underwriter's obligations to the Fund provided for in this Agreement) to any
person (an "Assignee") and any such assignment shall be effective as to the Fund
upon written notice to the Fund by the Principal Underwriter. In connection
therewith the Fund shall pay all or any amounts in respect of its Allocable
Portions directly to the Assignee thereof as directed in a writing by the
Principal Underwriter in the Irrevocable Payment Instruction, as the same may be
amended from time to time with the consent of the Fund, and the Fund shall be
without liability to any person if it pays such amounts when and as so directed,
except for underpayments of amounts actually due, without any amount payable as
consequential or other damages due to such underpayment and without interest
except to the extent that delay in payment of Distribution Fees and CDSCs
results in an increase in the maximum Sales Charge allowable under the Rules of
Fair Practice, which increases daily at a rate of prime plus one percent per
annum.
14.7 The Fund will not, to the extent it may otherwise be empowered to do
so, change or waive any CDSC with respect to B-2 Shares, except as provided in
the Fund's prospectus or statement of additional information without the
Principal Underwriter's or Assignee's consent, as applicable. Notwithstanding
anything to the contrary in this Agreement or any termination of this Agreement
or the Principal Underwriter as principal underwriter for the Shares of the
Fund, the Principal Underwriter shall be entitled to be paid its Allocable
Portion of the CDSCs whether or not the Fund's Rule 12b-1 plan for B-2 Shares is
terminated and whether or not any such termination is a Complete Termination, as
defined above.
15. This Agreement shall be construed in accordance with the laws of The
Commonwealth of Massachusetts. All sales hereunder are to be made, and title to
the Shares shall pass, in Boston, Massachusetts.
16. The Fund is a Massachusetts business trust established under a
Declaration of Trust, as it may be amended from time to time. The obligations of
the Fund are not personally binding upon, nor shall recourse be had against the
private property of any of the Trustees, shareholders, officers, employees or
agents of the Fund, but only the property of the Fund shall be bound.
IN WITNESS WHEREOF, the parties hereto have caused this agreement to be
executed by their respective officers thereunto duly authorized at Boston,
Massachusetts, on the day and year first written above.
KEYSTONE STATE TAX FREE FUND - SERIES II,
on behalf of
KEYSTONE CALIFORNIA INSURED TAX FREE FUND
By: /s/
-------------------------------
Title:
KEYSTONE INVESTMENT DISTRIBUTORS COMPANY
By: /s/
-------------------------------
Title:
<PAGE>
SCHEDULE I
TO
PRINCIPAL UNDERWRITING AGREEMENT
FOR CLASS B-2SHARES
OF
KEYSTONE STATE TAX FREE FUND - SERIES II,
on behalf of
KEYSTONE CALIFORNIA INSURED TAX FREE FUND
TRANSFER AGENT PROCEDURES FOR DIFFERENTIATING
AMONG DISTRIBUTOR SHARES AND POST-DISTRIBUTOR SHARES
Amounts (in respect of Asset Based Sales Charges (as hereinafter defined)
and CDSCs (as hereinafter defined) in respect of Shares (as hereinafter defined)
of each Fund (as hereinafter defined) shall be allocated between Distributor
Shares (as hereinafter defined) and Post-distributor Shares (as hereinafter
defined) of such Fund in accordance with the rules set forth in clauses (B) and
(C). Clause (B) sets forth the rules to be followed by the Transfer Agent for
each Fund and the record owner of each Omnibus Account (as hereinafter defined)
in maintaining records relating to Distributor Shares and Post-distributor
Shares. Clause (C) sets forth the rules to be followed by the Transfer Agent for
each Fund and the record owner of each Omnibus Account in determining what
portion of the Asset Based Sales Charge (as hereinafter defined) payable in
respect of each class of Shares of such Fund and what portion of the CDSC (as
hereinafter defined) payable by the holders of Shares of such Fund is
attributable to Distributor Shares and Post-distributor Shares, respectively.
(A) DEFINITIONS:
Generally, for purposes of this Schedule I, defined terms shall be used
with the meaning assigned to them in the Agreement, except that for purposes of
the following rules the following definitions are also applicable:
"Agreement" shall mean the Principal Underwriting Agreement for Class B-2
Shares of the Instant Fund dated as of May 31, 1995 between the Instant Fund and
the Distributor.
"Asset Based Sales Charge" shall have the meaning set forth in Section
26(b)(8)(C) of the Rules of Fair Practice it being understood that for purposes
of this Exhibit I such term does not include the Service Fee.
"Business Day" shall mean any day on which the banks and the New York Stock
Exchange are not authorized or required to close in New York City.
"Capital Gain Dividend" shall mean, in respect of any Share of any Fund, a
Dividend in respect of such Share which is designated by such Fund as being a
"capital gain dividend" as such term is defined in Section 852 of the Internal
Revenue Code of 1986, as amended.
"CDSC" shall mean with respect to any Fund, the contingent deferred sales
charge payable, either directly or by withholding from the proceeds of the
redemption of the Shares of such Fund, by the shareholders of such Fund on any
redemption of Shares of such Fund in accordance with the Prospectus relating to
such Fund.
"Commission Share" shall mean, in respect of any Fund, a Share of such Fund
issued under circumstances where a CDSC would be payable upon the redemption of
such Share if such CDSC is not waived or shall have not otherwise expired.
"Date of Original Purchase" shall mean, in respect of any Commission Share
of any Fund, the date on which such Commission Share was first issued by such
Fund; provided, that if such Share is a Commission Share and such Fund issued
the Commission Share (or portion thereof) in question in connection with a Free
Exchange for a Commission Share (or portion thereof) of another Fund, the Date
of Original Purchase for the Commission Share (or portion thereof) in question
shall be the date on which the Commission Share (or portion thereof) of the
other Fund was first issued by such other Fund (unless such Commission Share (or
portion thereof) was also issued by such other Fund in a Free Exchange, in which
case this proviso shall apply to that Free Exchange and this application shall
be repeated until one reaches a Commission Share (or portion thereof) which was
issued by a Fund other than in a Free Exchange).
"Distributor" shall mean Keystone Investment Distributors Company, its
successors and assigns.
"Distributor's Account" shall mean the account of the Distributor, account
no. 9903-584-2, ABA No. 011 0000 28, entitled "General Account" maintained with
State Street Bank & Trust Company or such other account as the Distributor may
designate in a notice to the Transfer Agent.
"Distributor Inception Date" shall mean, in respect of any Fund, the date
identified as the date Shares of such Fund are first sold by the Distributor.
"Distributor Last Sale Cut-off Date" shall mean, in respect of any Fund,
the date identified as the last sale of a Commission Share during the period the
Distributor served as principal underwriter under the Agreement.
"Distributor Shares" shall mean, in respect of any Fund, all Shares of such
Fund the Month of Original Purchase of which occurs on or after the Inception
Date for such Fund and on or prior to the Distributor Last Sale Cut-off Date in
respect of such Fund.
"Dividend" shall mean, in respect of any Share of any Fund, any dividend or
other distribution by such Fund in respect of such Share.
"Free Exchange" shall mean any exchange of a Commission Share (or portion
thereof) of one Fund (the "Redeeming Fund") for a Share (or portion thereof) of
another Fund (the "Issuing Fund"), under any arrangement which defers the
exchanging Shareholder's obligation to pay the CDSC in respect of the Commission
Share (or portion thereof) of the Redeeming Fund so exchanged until the later
redemption of the Share (or portion thereof) of the Issuing Fund received in
such exchange.
"Free Share" shall mean, in respect of any Fund, each Share of such Fund
other than a Commission Share, including, without limitation: (i) Shares issued
in connection with the automatic reinvestment of Capital Gain Dividends or Other
Dividends by such Fund, (ii) Special Free Shares issued by such Fund and (iii)
Shares (or portion thereof) issued by such Fund in connection with an exchange
whereby a Free Share (or portion thereof) of another Fund is redeemed and the
Net Asset Value of such redeemed Free Share (or portion thereof) is invested in
such Shares (or portion thereof) of such Fund.
"Fund" shall mean each of the regulated investment companies or series or
portfolios of regulated investment companies identified in Schedule II to the
Irrevocable Payment Instruction, as the same may be amended from time to time in
accordance with the terms thereof.
"Instant Fund" shall mean Keystone State Tax Free Fund - Series II, on
behalf of Keystone California Insured Tax Free Fund.
"ML Omnibus Account" shall mean, in respect of any Fund, the Omnibus
Account maintained by Merrill Lynch, Pierce, Fenner & Smith as subtransfer
agent.
"Month of Original Purchase" shall mean, in respect of any Share of any
Fund, the calendar month in which such Share was first issued by such Fund;
provided, that if such Share is a Commission Share and such Fund issued the
Commission Share (or portion thereof) in question in connection with a Free
Exchange for a Commission Share (or portion thereof) of another Fund, the Month
of Original Purchase for the Commission Share (or portion thereof) in question
shall be the calendar month in which the Commission Share (or portion thereof)
of the other Fund was first issued by such other Fund (unless such Commission
Share (or portion thereof) was also issued by such other Fund in a Free
Exchange, in which case this proviso shall apply to that Free Exchange and this
application shall be repeated until one reaches a Commission Share (or portion
thereof) which was issued by a Fund other than in a Free Exchange); provided,
further, that if such Share is a Free Share and such Fund issued such Free Share
in connection with the automatic reinvestment of dividends in respect of other
Shares of such Fund, the Month of Original Purchase of such Free Share shall be
deemed to be the Month of Original Purchase of the Share in respect of which
such dividend was paid; provided, further, that if such Share is a Free Share
and such Fund issued such Free Share in connection with an exchange whereby a
Free Share (or portion thereof) of another Fund is redeemed and the Net Asset
Value of such redeemed Free Share (or portion thereof) is invested in a Free
Share (or portion thereof) of such Fund, the Month of Original Issue of such
Free Share shall be the Month of Original Issue of the Free Share of such other
Fund so redeemed (unless such Free Share of such other Fund was also issued by
such other Fund in such an exchange, in which case this proviso shall apply to
that exchange and this application shall be repeated until one reaches a Free
Share which was issued by a Fund other than in such an exchange); and provided,
finally, that for purposes of this Schedule I each of the following periods
shall be treated as one calendar month for purposes of applying the rules of
this Schedule I to any Fund: (i) the period of time from and including the
Distributor Inception Date for such Fund to and including the last day of the
calendar month in which such Distributor Inception Date occurs; (ii) the period
of time commencing with the first day of the calendar month in which the
Distributor Last Sale Cutoff Date in respect of such Fund occurs to and
including such Distributor Last Sale Cutoff Date; and (iii) the period of time
commencing on the day immediately following the Distributor Last Sale Cutoff
Date in respect of such Fund to and including the last day of the calendar month
in which such Distributor Last Sale Cut-off Date occurs.
"Omnibus Account" shall mean any Shareholder Account the record owner of
which is a registered broker-dealer which has agreed with the Transfer Agent to
provide sub-transfer agent functions relating to each Sub-shareholder Account
within such Shareholder Account as contemplated by this Schedule I in respect of
each of the Funds.
"Omnibus Asset Based Sales Charge Settlement Date" shall mean, in respect
of each Omnibus Account, the Business Day next following the twentieth day of
each calendar month for the calendar month immediately preceding such date so
long as the record owner is able to allocate the Asset Based Sales Charge
accruing in respect of Shares of any Fund as contemplated by this Schedule I no
more frequently than monthly; provided, that at such time as the record owner of
such Omnibus Account is able to provide information sufficient to allocate the
Asset Based Sales Charge accruing in respect of such Shares of such Fund owned
of record by such Omnibus Account as contemplated by this Schedule I on a weekly
or daily basis, the Omnibus Asset Based Sales Charge Settlement Date shall be a
weekly date as in the case of the Omnibus CDSC Settlement Date or a daily date
as in the case of Asset Based Sales Charges accruing in respect of Shareholder
Accounts other than Omnibus Accounts, as the case may be.
"Omnibus CDSC Settlement Date" shall mean, in respect of each Omnibus
Account, the third Business Day of each calendar week for the calendar week
immediately preceding such date so long as the record owner of such Omnibus
Account is able to allocate the CDSCs accruing in respect of any Shares of any
Fund as contemplated by this Schedule I for no more frequently than weekly;
provided, that at such time as the record owner of such Shares of such Fund
owned of record by such Omnibus Account is able to provide information
sufficient to allocate the CDSCs accruing in respect of such Omnibus Account as
contemplated by this Schedule I on a daily basis, the Omnibus CDSC Settlement
Date for such Omnibus Account shall be a daily date as in the case of CDSCs
accruing in respect of Shareholder Accounts other than Omnibus Accounts.
"Original Purchase Amount" shall mean, in respect of any Commission Share
of any Fund, the amount paid (i.e., the Net Asset Value thereof on such date),
on the Date of Original Purchase in respect of such Commission Share, by such
Shareholder Account or Sub-shareholder Account for such Commission Share;
provided, that if such Fund issued the Commission Share (or portion thereof) in
question in connection with a Free Exchange for a Commission Share (or portion
thereof) of another Fund, the Original Purchase Amount for the Commission Share
(or portion thereof) in question shall be the Original Purchase Amount in
respect of such Commission Share (or portion thereof) of such other Fund (unless
such Commission Share (or portion thereof) was also issued by such other Fund in
a Free Exchange, in which case this proviso shall apply to that Free Exchange
and this application shall be repeated until one reaches a Commission Share (or
portion thereof) which was issued by a Fund other than in a Free Exchange).
"Other Dividend" shall mean in respect of any Share, any Dividend paid in
respect of such Share other than a Capital Gain Dividend.
"Post-distributor Shares" shall mean, in respect of any Fund, all Shares of
such Fund the Month of Original Purchase of which occurs after the Distributor
Last Sale Cut-off Date for such Fund.
"Program Agent" shall mean Citicorp North America, Inc., as Program Agent
under the Purchase Agreement, and its successors and assigns in such capacity.
"Purchase Agreement" shall mean that certain Purchase and Sale Agreement
dated as of May 31, 1995, among Keystone Investment Distributors Company, as
Seller, Citibank, N.A., as Purchaser, and Citicorp North America, Inc., as
Program Agent.
"Share" shall mean in respect of any Fund any share of the classes of
shares specified in Schedule II to the Irrevocable Payment Instruction opposite
the name of such Fund, as the same may be amended from time to time by notice
from the Distributor and the Program Agent to the Fund and the Transfer Agent;
provided, that such term shall include, after the Distributor Last Sale Cut-off
Date, a share of a new class of shares of such Fund: (i) with respect to each
record owner of Shares which is not treated in the records of each Transfer
Agent and Sub-transfer Agent for such Fund as an entirely separate and distinct
class of shares from the classes of shares specified Schedule II to the
Irrevocable Payment Instruction or (ii) the shares of which class may be
exchanged for shares of another Fund of the classes of shares specified on
Schedule II to the Irrevocable Payment Instruction of any class existing on or
prior to the Distributor Last Sale Cut-off Date; or (iii) dividends on which can
be reinvested in shares of the classes specified on Schedule II to the
Irrevocable Payment Instruction under the automatic dividend reinvestment
options; or (iv) which is otherwise treated as though it were of the same class
as the class of shares specified on Schedule II to the Irrevocable Payment
Instruction.
"Shareholder Account" shall have the meaning set forth in clause (B)(1)
hereof.
"Special Free Share" shall mean, in respect of any Fund, a Share (other
than a Commission Share) issued by such Fund other than in connection with the
automatic reinvestment of Dividends and other than in connection with an
exchange whereby a Free Share (or portion thereof) of another Fund is redeemed
and the Net Asset Value of such redeemed Share (or portion thereof) is invested
in a Share (or portion thereof) of such Fund.
"Sub-shareholder Account" shall have the meaning set forth in clause (B)(1)
hereof.
"Sub-transfer Agent" shall mean, in respect of each Omnibus Account, the
record owner thereof.
(B) RECORDS TO BE MAINTAINED BY THE TRANSFER AGENT FOR EACH FUND AND THE
RECORD OWNER OF EACH OMNIBUS ACCOUNT:
The Transfer Agent shall maintain Shareholder Accounts, and shall cause
each record owner of each Omnibus Account to maintain Sub-shareholder Accounts,
each in accordance with the following rules:
(1) SHAREHOLDER ACCOUNTS AND SUB-SHAREHOLDER ACCOUNTS. The Transfer Agent
shall maintain a separate account (a "Shareholder Account") for each record
owner of Shares of each Fund. Each Shareholder Account (other than Omnibus
Accounts) will represent a record owner of Shares of such Fund, the records of
which will be kept in accordance with this Schedule I. In the case of an Omnibus
Account, the Transfer Agent shall require that the record owner of the Omnibus
Account maintain a separate account (a "Sub-shareholder Account") for each
record owner of Shares which are reflected in the Omnibus Account, the records
of which will be kept in accordance with this Schedule I. Each such Shareholder
Account and Sub-shareholder Account shall relate solely to Shares of such Fund
and shall not relate to any other class of shares of such Fund.
(2) COMMISSION SHARES. For each Shareholder Account (other than an Omnibus
Account), the Transfer Agent shall maintain daily records of each Commission
Share of such Fund which records shall identify each Commission Share of such
Fund reflected in such Shareholder Account by the Month of Original Purchase of
such Commission Share.
For each Omnibus Account, the Transfer Agent shall require that the
Sub-transfer Agent in respect thereof maintain daily records of such
Sub-shareholder Account which records shall identify each Commission Share of
such Fund reflected in such Sub-shareholder Account by the Month of Original
Purchase; provided, that until the Sub-transfer Agent in respect of the ML
Omnibus Account develops the data processing capability to conform to the
foregoing requirements, such Sub-transfer Agent shall maintain daily records of
Sub-shareholder Accounts which identify each Commission Share of such Fund
reflected in such Sub-shareholder Account by the Date of Original Purchase. Each
such Commission Share shall be identified as either a Distributor Share or a
Post-distributor Share based upon the Month of Original Purchase of such
Commission Share (or in the case of a Sub-shareholder Account within the ML
Omnibus Account, based upon the Date of Original Purchase).
(3) FREE SHARES. The Transfer Agent shall maintain daily records of each
Shareholder Account (other than an Omnibus Account) in respect of any Fund so as
to identify each Free Share (including each Special Free Share) reflected in
such Shareholder Account by the Month of Original Purchase of such Free Share.
In addition, the Transfer Agent shall require that each Shareholder Account
(other than an Omnibus Account) have in effect separate elections relating to
reinvestment of Capital Gain Dividends and relating to reinvestment of Other
Dividends in respect of any Fund. Either such Shareholder Account shall have
elected to reinvest all Capital Gain Dividends or such Shareholder Account shall
have elected to have all Capital Gain Dividends distributed. Similarly, either
such Shareholder Account shall have elected to reinvest all Other Dividends or
such Shareholder Account shall have elected to have all Other Dividends
distributed.
The Transfer Agent shall require that the Sub-transfer Agent in respect of
each Omnibus Account maintain daily records for each Sub-shareholder Account in
the manner described in the immediately preceding paragraph for Shareholder
Accounts (other than Omnibus Accounts); provided, that until the Sub-transfer
Agent in respect of the ML Omnibus Account develops the data processing
capability to conform to the foregoing requirements, such Sub-transfer Agent
shall not be obligated to conform to the foregoing requirements. Each
Sub-shareholder Account shall also have in effect Dividend reinvestment
elections as described in the immediately preceding paragraph.
The Transfer Agent and each Sub-transfer Agent in respect of an Omnibus
Account shall identify each Free Share as either a Distributor Share or a
Post-distributor Share based upon the Month of Original Purchase of such Free
Share; provided, that until the Sub-transfer Agent in respect of the ML Omnibus
Account develops the data processing capability to conform to the foregoing
requirements, the Transfer Agent shall require such Sub-transfer Agent to
identify each Free Share of a given Fund in the ML Omnibus Account as a
Distributor Share, or Post-distributor Share, as follows:
(a) Free Shares of such Fund which are outstanding on the Distributor Last
Sale Cut-off Date for such Fund shall be identified as Distributor
Shares.
(b) Free Shares of such Fund which are issued (whether or not in
connection with an exchange for a Free Share of another Fund) to the
ML Omnibus Account during any calendar month (or portion thereof)
after the Distributor Last Sale Cut-off Date for such Fund shall be
identified as Distributor Shares in a number computed as follows:
A X (B/C)
where:
A = Free Shares of such Fund issued to the ML Omnibus Account
during such calendar month (or portion thereof)
B = Number of Commission Shares and Free Shares of such Fund in the
ML Omnibus Account identified as Distributor Shares and
outstanding as of the close of business in the last day of the
immediately preceding calendar month (or portion thereof)
C = Total number of Commission Shares and Free Shares of such Fund
in the ML Omnibus Account and outstanding as of the close of
business on the last day of the immediately preceding calendar
month (or portion thereof).
(c) Free Shares of such Fund which are issued (whether or not in
connection with an exchange for a free share of another Fund) to the
ML Omnibus Account during any calendar month (or portion thereof)
after the Distributor Last Sale Cut-off Date for such Fund shall be
identified as Post-distributor Shares in a number computed as follows:
(A X (B/C)
where:
A = Free Shares of such Fund issued to the ML Omnibus Account
during such calendar month (or portion thereof)
B = Number of Commission Shares and Free Shares of such Fund in the
ML Omnibus Account identified as Post-distributor Shares and
outstanding as of the close of business in the last day of the
immediately preceding calendar month (or portion thereof)
C = Total number of Commission Shares and Free Shares of such Fund
in the ML Omnibus Account and outstanding as of the close of
business on the last day of the immediately preceding calendar
month (or portion thereof).
(d) Free Shares of such Fund which are redeemed (whether or not in
connection with an exchange for Free Shares of another Fund or in
connection with the conversion of such Shares into a Class A Share of
such Fund) from the ML Omnibus Account in any calendar month (or
portion thereof) after the Distributor Last Sale Cut-off Date for such
Fund shall be identified as Distributor Shares in a number computed as
follows:
A X (B/C)
Where:
A = Free Shares of such Fund which are redeemed (whether or not in
connection with an exchange for Free Shares of another Fund or in
connection with the conversion of such Shares into a class A
share of such Fund) from the ML Omnibus Account during such
calendar month (or portion thereof)
B = Free Shares of such Fund in the ML Omnibus Account identified
as Distributor Shares and outstanding as of the close of business
on the last day of the immediately preceding calendar month.
C = Total number of Free Shares of such Fund in the ML Omnibus
Account and outstanding as of the close of business on the last
day of the immediately preceding calendar month.
(e) Free Shares of such Fund which are redeemed (whether or not in
connection with an exchange for Free Shares of another Fund or in
connection with the conversion of such Shares into a class A share of
such Fund) from the ML Omnibus Account in any calendar month (or
portion thereof) after the Distributor Last Sale Cut-off Date for such
Fund shall be identified as Post-distributor Shares in a number
computed as follows:
A X (B/C)
where:
A = Free Shares of such Fund which are redeemed (whether or not in
connection with an exchange for Free Shares of another Fund or in
connection with the conversion of such Shares into a class A
share of such Fund) from the ML Omnibus Account during such
calendar month (or portion thereof)
B = Free Shares of such Fund in the ML Omnibus Account identified
as Post-distributor Shares and outstanding as of the close of
business on the last day of the immediately preceding calendar
month.
C = Total number of Free Shares of such Fund in the ML Omnibus
Account and outstanding as of the close of business on the last
day of the immediately preceding calendar month.
(4) APPRECIATION AMOUNT AND COST ACCUMULATION AMOUNT. The Transfer Agent
shall maintain on a daily basis in respect of each Shareholder Account (other
than Omnibus Accounts) a Cost Accumulation Amount representing the total of the
Original Purchase Amounts paid by such Shareholder Account for all Commission
Shares reflected in such Shareholder Account as of the close of business on each
day. In addition, the Transfer Agent shall maintain on a daily basis in respect
of each Shareholder Account (other than Omnibus Accounts) sufficient records to
enable it to compute, as of the date of any actual or deemed redemption or Free
Exchange of a Commission Share reflected in such Shareholder Account an amount
(such amount an "Appreciation Amount") equal to the excess, if any, of the Net
Asset Value as of the close of business on such day of the Commission Shares
reflected in such Shareholder Account minus the Cost Accumulation Amount as of
the close of business on such day. In the event that a Commission Share (or
portion thereof) reflected in a Shareholder Account is redeemed or under these
rules is deemed to have been redeemed (whether in a Free Exchange or otherwise),
the Appreciation Amount for such Shareholder Account shall be reduced, to the
extent thereof, by the Net Asset Value of the Commission Share (or portion
thereof) redeemed, and if the Net Asset Value of the Commission Share (or
portion thereof) being redeemed equals or exceeds the Appreciation Amount, the
Cost Accumulation Amount will be reduced to the extent thereof, by such excess.
If the Appreciation Amount for such Shareholder Account immediately prior to any
redemption of a Commission Share (or portion thereof) is equal to or greater
than the Net Asset Value of such Commission Share (or portion thereof) deemed to
have been tendered for redemption, no CDSCs will be payable in respect of such
Commission Share (or portion thereof).
The Transfer Agent shall require that the Sub-transfer Agent in respect of
each Omnibus Account maintain on a daily basis in respect of each
Sub-shareholder Account reflected in such Omnibus Account a Cost Accumulation
Amount and sufficient records to enable it to compute, as of the date of any
actual or deemed redemption or Free Exchange of a Commission Share reflected in
such Sub-shareholder Account an Appreciation Amount in accordance with the
preceding paragraph and to apply the same to determine whether a CDSC is payable
(as though such Sub-shareholder Account were a Shareholder Account other than an
Omnibus Account; provided, that until the Sub-transfer Agent in respect of the
ML Omnibus Account develops the data processing capability to conform to the
foregoing requirements, such Sub-transfer Agent shall maintain for each
Sub-shareholder Account a separate Cost Accumulation Amount and a separate
Appreciation Amount for each Date of Original Purchase of any Commission Share
which shall be applied as set forth in the preceding paragraph as if each Date
of Original Purchase were a separate Month of Original Purchase.
(5) NASD CAP. On the date the distribution fees paid in respect of any
class of Shares equals the maximum amount thereon under the Rules of Fair
Practice, in respect of such class, all outstanding Shares of such class of such
Fund shall be converted into Class A shares of such Fund and will be deemed to
have been redeemed for their Net Asset Value for purposes of this Schedule I.
(6) IDENTIFICATION OF REDEEMED SHARES. If a Shareholder Account (other than
an Omnibus Account) tenders a Share of a Fund for redemption (other than in
connection with an exchange of such Share for a Share of another Fund or in
connection with the conversion of such Share pursuant to a Conversion Feature),
such tendered Share will be deemed to be a Free Share if there are any Free
Shares reflected in such Shareholder Account immediately prior to such tender.
If there is more than one Free Share reflected in such Shareholder Account
immediately prior to such tender, such tendered Share will be deemed to be the
Free Share with the earliest Month of Original Purchase. If there are no Free
Shares reflected in such Shareholder Account immediately prior to such tender,
such tendered Share will be deemed to be the Commission Share with the earliest
Month of Original Purchase reflected in such Shareholder Account.
If a Sub-shareholder Account reflected in an Omnibus Account tenders a
Share for redemption (other than in connection with an Exchange of such Share
for a Share of another Fund or in connection with the conversion of such Share
pursuant to a Conversion Feature), the Transfer Agent shall require that the
record owner of each Omnibus Account supply the Transfer Agent sufficient
records to enable the Transfer Agent to apply the rules of the preceding
paragraph to such Sub-shareholder Account (as though such Sub-shareholder
Account were a Shareholder Account other than an Omnibus Account); provided,
that until the Sub-transfer Agent in respect of the ML Omnibus Account develops
the data processing capability to conform to the foregoing requirements, such
Sub-transfer Agent shall not be required to conform to the foregoing rules
regarding Free Shares (and the Transfer Agent shall account for such Free Shares
as provided in (3) above) but shall apply the foregoing rules to each Commission
Share with respect to the Date of Original Purchase of any Commission Share as
though each such Date were a separate Month of Original Purchase.
(7) IDENTIFICATION OF EXCHANGED SHARES. When a Shareholder Account (other
than an Omnibus Account) tenders Shares of one Fund (the "Redeeming Fund") for
redemption where the proceeds of such redemption are to be automatically
reinvested in shares of another Fund (the "Issuing Fund") to effect an exchange
(whether or not pursuant to a Free Exchange) into Shares of the Issuing Fund:
(1) such Shareholder Account will be deemed to have tendered Shares (or portions
thereof) of the Redeeming Fund with each Month of Original Purchase represented
by Shares of the Redeeming Fund reflected in such Shareholder Account
immediately prior to such tender in the same proportion that the number of
Shares of the redeeming Fund with such Month of Original Purchase reflected in
such Shareholder immediately prior to such tender bore to the total number of
Shares of the Redeeming Fund reflected in such Shareholder Account immediately
prior to such tender, and on that basis the tendered Shares of the Redeeming
Fund will be identified as Distributor Shares or Post-distributor Shares; (2)
such Shareholder Account will be deemed to have tendered Commission Shares (or
portions thereof) and Free Shares (or portions thereof) of the Redeeming Fund of
each category (i.e., Distributor Shares or Post-distributor Shares) in the same
proportion that the number of Commission Shares or Free Shares (as the case may
be) of the Redeeming Fund in such category reflected in such Shareholder Account
bore to the total number of Shares of the Redeeming Fund in such category
reflected in such Shareholder Account immediately prior to such tender, (3) the
Shares (or portions thereof) of the Issuing Fund issued in connection with such
exchange will be deemed to have the same Months of Original Purchase as the
Shares (or portions thereof) of the Redeeming Fund so tendered and will be
categorized as Distributor Shares and Post-distributor Shares accordingly, and
(4) the Shares (or portions thereof) of each Category of the Issuing Fund issued
in connection with such exchange will be deemed to be Commission Shares and Free
Shares in the same proportion that the Shares of such Category of the Redeeming
Fund were Commission Shares and Free Shares.
The Transfer Agent shall require that each record owner of an Omnibus
Account maintain records relating to each Sub-shareholder Account in such
Omnibus Account sufficient to apply the foregoing rules to each such
Sub-shareholder Account (as though such Sub-shareholder Account were a
Shareholder Account other than an Omnibus Account); provided, that until the
Sub-transfer Agent in respect of the ML Omnibus Account develops the data
processing capability to conform to the foregoing requirements, such
Sub-transfer Agent shall not be required to conform to the foregoing rules
relating to Free Shares (and the Sub-transfer Agent shall account for such Free
Shares as provided in (3) above) and shall apply a first-in-first-out procedure
(based upon the Date of Original Purchase) to determine which Commission Shares
(or portions thereof) of a Redeeming Fund were redeemed in connection with an
exchange.
(8) IDENTIFICATION OF CONVERTED SHARES. The Transfer Agent records
maintained for each Shareholder Account (other than an Omnibus Account) will
treat each Commission Share of a Fund as though it were redeemed at its Net
Asset Value on the date such Commission Share converts into a class A share of
such Fund in accordance with an applicable Conversion Feature applied with
reference to its Month of Original Purchase and will treat each Free Share of
such Fund with a given Month of Original Purchase as though it were redeemed at
its Net Asset Value when it is simultaneously converted to a class A share at
the time the Commission Shares of such Fund with such Month of Original Purchase
are so converted.
The Transfer Agent shall require that each record owner of an
Omnibus Account maintain records relating to each Sub-shareholder Account in
such Omnibus Account sufficient to apply the foregoing rules to each such
Sub-shareholder Account (as though such Sub-shareholder Account were a
Shareholder Account other than an Omnibus Account) ; provided, that until the
Sub-transfer Agent in respect of the ML Omnibus Account develops the data
processing capability to conform to the foregoing requirements, such
Sub-transfer Agent shall apply the foregoing rules to Commission Shares with
reference to the Date of Original Issue of each Commission Share (as though each
such date were a separate Month of Original Issue) and shall not be required to
apply the foregoing rules to Free Shares (and the Sub-transfer Agent shall
account for such Free Shares as provided in (3) above).
(C) ALLOCATIONS OF ASSET BASED SALE CHARGES AND CDSCS AMONG DISTRIBUTOR
SHARES AND POST-DISTRIBUTOR SHARES:
The Transfer Agent shall use the following rules to allocate the amounts of
Asset Based Sales Charges and CDSCs payable by each Fund in respect of Shares
between Distributor Shares and Post-distributor Shares:
(1) RECEIVABLES CONSTITUTING CDSCS: CDSCs will be treated as relating to
Distributor Shares or Post-distributor Shares depending upon the Month of
Original Purchase of the Commission Share the redemption of which gives rise to
the payment of a CDSC by a Shareholder Account.
The Transfer Agent shall cause each Sub-transfer Agent to apply the
foregoing rule to each Sub-shareholder Account based on the records maintained
by such Sub-transfer Agent; provided, that until the Sub-transfer Agent in
respect of the ML Omnibus Account develops the data processing capability to
conform to the foregoing requirements, such Sub-transfer Agent shall apply the
foregoing rules to each Sub-shareholder Account with respect to the Date of
Original Purchase of any Commission Share as though each such date were a
separate Month of Original Purchase.
(2) RECEIVABLES CONSTITUTING ASSET BASED SALES CHARGES:
The Asset Based Sales Charges accruing in respect of each Shareholder
Account (other than an Omnibus Account) shall be allocated to each Share
reflected in such Shareholder Account as of the close of business on such day on
an equal per share basis. For example, the Asset Based Sales Charges
attributable to Distributor Shares on any day shall be computed and allocated as
follows:
A X (B/C)
where:
A. = Total amount of Asset Based Sales Charge accrued in respect of such
Shareholder Account (other than an Omnibus Account) on such day.
B. = Number of Distributor Shares reflected in such Shareholder Account
(other than an Omnibus Account) on the close of business on such day
C. = Total number of Distributor Shares and Post-Distributor Shares
reflected in such Shareholder Account (other than an Omnibus Account)
and outstanding as of the close of business on such day.
The Portion of the Asset Based Sales Charges of such Fund accruing in respect of
such Shareholder Account for such day allocated to Post-distributor Shares will
be obtained using the same formula but substituting for "B" the number of
Post-distributor Shares, as the case may be, reflected in such Shareholder
Account and outstanding on the close of business on such day. The foregoing
allocation formula may be adjusted from time to time by notice to the Fund and
the transfer agent for the Fund from the Seller and the Program Agent pursuant
to Section 8.18 of the Purchase Agreement.
The Transfer Agent shall, based on the records maintained by the record
owner of such Omnibus Account, allocate the Asset Based Sales Charge accruing in
respect of each Omnibus Account on each day among all Sub-shareholder Accounts
reflected in such Omnibus Account on an equal per share basis based upon the
total number of Distributor Shares and Post-distributor Shares reflected in each
such Sub-shareholder Account as of the close of business on such day. In
addition, the Transfer Agent shall apply the foregoing rules to each
Sub-shareholder Account (as though it were a Shareholder Account other than an
Omnibus Account), based on the records maintained by the record owner, to
allocate the Asset Based Sales Charge so allocated to any Sub-shareholder
Account among the Distributor Shares and Post-distributor Shares reflected in
each such Sub-shareholder Account in accordance with the rules set forth in the
preceding paragraph; provided, that until the Sub-transfer Agent in respect of
the ML Omnibus Account develops the data processing capacity to apply the rules
of this Schedule I as applicable to Sub-shareholder Accounts other than ML
Omnibus Accounts, the Transfer Agent shall allocate the Asset Based Sales Charge
accruing in respect of Shares of any Fund in the ML Omnibus Account during any
calendar month (or portion thereof) among Distributor Shares and
Post-distributor Shares as follows:
(a) The portion of such Asset Based Sales Charge allocable to Distributor
Shares shall be computed as follows:
A X ((B + C)/2)
((D + E)/2)
where:
A = Total amount of Asset Based Sales Charge accrued during such
calendar month (or portion thereof) in respect of Shares of such
Fund in the ML Omnibus Account
B = Shares of such Fund in the ML Omnibus Account and identified as
Distributor Shares and outstanding as of the close of business on
the last day of the immediately preceding calendar month (or
portion thereof), times Net Asset Value per Share as of such time
C = Shares of such Fund in the ML Omnibus Account and identified as
Distributor Shares and outstanding as of the close of business on
the last day of such calendar month (or portion thereof), times
Net Asset Value per Share as of such time
D = Total number of Shares of such Fund in the ML Omnibus Account
and outstanding as of the close of business on the last day of
the immediately preceding calendar month (or portion thereof),
times Net Asset Value per Share as of such time.
E = Total number of Shares of such Fund in the ML Omnibus Account
and outstanding as of the close of business on the last day of
such calendar month (or portion thereof), times Net Asset Value
per Share as of such time.
(b) The portion of such Asset Based Sales Charge allocable to
Post-distributor Shares shall be computed s follows:
A X ((B + C)/2)
-----------
((D + E)/2)
where:
A = Total amount of Asset Based Sales Charge accrued during such
calendar month (or portion thereof) in respect of Shares of such
Fund in the ML Omnibus Account
B = Shares of such Fund in the ML Omnibus Account and identified as
Post-distributor Shares and outstanding as of the close of
business on the last day of the immediately preceding calendar
month (or portion thereof), times Net Asset Value per Share as of
such time
C = Shares of such Fund in the ML Omnibus Account and identified as
Post-distributor Shares and outstanding as of the close of
business on the last day of such calendar month (or portion
thereof), times Net Asset Value per Share as of such time
D = Total number of Shares of such Fund in the ML Omnibus Account
and outstanding as of the close of business on the last day of
the immediately preceding calendar month (or portion thereof),
times Net Asset Value per Share as of such time.
E = Total number of Shares of such Fund in the ML Omnibus Account
outstanding as of the close of business on the last day of such
calendar month, times Net Asset Value per Share as of such time.
(3) PAYMENTS ON BEHALF OF EACH FUND.
On the close of business on each day the Transfer Agent shall cause payment to
be made of the amount of the Asset Based Sales Charge and CDSCs accruing on such
day in respect of the Shares of such Fund owned of record by Shareholder
Accounts (other than Omnibus Accounts) by two separate wire transfers, directly
from accounts of such Fund as follows:
1. The Asset Based Sales Charge and CDSCs accruing in respect of
Shareholder Accounts other than Omnibus Accounts and allocable to
Distributor Shares in accordance with the preceding rules shall be paid to
the Distributor's Account, unless the Distributor otherwise instructs the
Fund in any irrevocable payment instruction; and
2. The Asset Based Sales Charges and CDSCs accruing in respect of
Shareholder Accounts other than Omnibus Accounts and allocable to
Post-distributor Shares in accordance with the preceding rules shall be
paid in accordance with direction received from any future distributor of
Shares of the Instant Fund.
On each Omnibus CDSC Settlement Date, the Transfer Agent for each Fund
shall cause the applicable Sub-transfer Agent to cause payment to be made of the
amount of the CDSCs accruing during the period to which such Omnibus CDSC
Settlement Date relates in respect of the Shares of such Fund owned of record by
each Omnibus Account by two separate wire transfers directly from the account of
such Fund maintained by such Transfer Agent, as follows:
1. The CDSCs accruing in respect of such Omnibus Account and allocable to
Distributor Shares in accordance with the preceding rules shall be paid to
the Distributor's Account, unless the Distributor otherwise instructs the
Fund in any irrevocable payment instruction; and
2. The CDSCs accruing in respect of such Omnibus Account and allocable to
Post-distributor Shares in accordance with the preceding rules shall be
paid in accordance with direction received from any future distributor of
Shares of the Instant Fund.
On each Omnibus Asset Based Sales Charge Settlement Date the Transfer Agent
for each Fund shall cause payment to be made of the amount of the Asset Based
Sales Charge accruing for the period to which such Omnibus Asset Based Sales
Charge Settlement Date relates in respect of the Shares of such Fund owned of
record by each Omnibus Account by two separate wire transfers directly from
accounts of such Fund as follows:
1. The Asset Based Sales Charge accruing in respect of such Omnibus Account
and allocable to Distributor Shares shall be paid to the Distributor's
Collection Account, unless the Distributor otherwise instructs the Fund in
any irrevocable payment instruction; and
2. The Asset Based Sales Charge accruing in respect of such Omnibus Account
and allocable to Post-Distributor Shares shall be paid in accordance with
direction received from any future distributor of Shares of the Instant
Fund.
<PAGE>
PRINCIPAL UNDERWRITING AGREEMENT
FOR CLASS B-2 SHARES
OF
KEYSTONE MISSOURI TAX FREE FUND,
A SERIES OF KEYSTONE STATE TAX FREE FUND - SERIES II
AGREEMENT made this 31st day of May 1995 by and between Keystone State
Tax Free Fund - Series II, a Massachusetts business trust, on behalf of Keystone
Missouri Tax Free Fund ("Fund"), and Keystone Investment Distributors Company, a
Delaware corporation (the "Principal Underwriter").
The Fund, individually and/or on behalf of its series, if any, referred to
above in the title of this Agreement, to which series, if any, this Agreement
shall relate, as applicable (the Fund ), may act as the distributor of certain
securities of which it is the issuer pursuant to Rule 12b-1 under the Investment
Company Act of 1940 (the 1940 Act ). Accordingly, it is hereby mutually agreed
as follows:
1. The Fund hereby appoints the Principal Underwriter a principal
underwriter of the Class B-2 shares of beneficial interest of the Fund ("B-2
Shares") as an independent contractor upon the terms and conditions hereinafter
set forth. The general term "Shares" as used herein has the same meaning as is
provided therefor in Schedule I hereto. Except as the Fund may from time to time
agree, the Principal Underwriter will act as agent for the Fund and not as
principal.
2. The Principal Underwriter will use its best efforts to find purchasers
for the B-2 Shares and to promote distribution of the B-2 Shares and may obtain
orders from brokers, dealers or other persons for sales of B-2 Shares to them.
No such dealer, broker or other person shall have any authority to act as agent
for the Fund; such dealer, broker or other person shall act only as principal in
the sale of B-2 Shares.
3. Sales of B-2 Shares by Principal Underwriter shall be at the public
offering price determined in the manner set forth in the prospectus and/or
statement of additional information of the Fund current at the time of the
Fund's acceptance of the order for B-2 Shares. All orders shall be subject to
acceptance by the Fund and the Fund reserves the right in its sole discretion to
reject any order received. The Fund shall not be liable to anyone for failure to
accept any order.
4. On all sales of B-2 Shares the Fund shall receive the current net asset
value. The Fund shall pay the Principal Underwriter Distribution Fees (as
defined in Section 14 hereof), as commissions for the sale of B-2 Shares and
other Shares, which shall be paid in conjunction with distribution fees paid to
the Principal Underwriter by other classes of Shares of the Fund to the extent
required in order to comply with Section 14 hereof, and shall pay over to the
Principal Underwriter CDSCs (as defined in Section 14 hereof) as set forth in
the Fund's current prospectus and statement of additional information, and as
required by Section 14 hereof. The Principal Underwriter shall also receive
payments consisting of shareholder service fees ("Service Fees") at the rate of
.25% per annum of the average daily net asset value of the Class B-2 Shares. The
Principal Underwriter may allow all or a part of said Distribution Fees and
CDSCs received by it (not paid to others as hereinafter provided) to such
brokers, dealers or other persons as Principal Underwriter may determine.
5. Payment to the Fund for B-2 Shares shall be in New York or Boston
Clearing House funds received by the Principal Underwriter within three business
days after notice of acceptance of the purchase order and the amount of the
applicable public offering price has been given to the purchaser. If such
payment is not received within such period, the Fund reserves the right, without
further notice, forthwith to cancel its acceptance of any such order. The Fund
shall pay such issue taxes as may be required by law in connection with the
issue of the B-2 Shares.
6. The Principal Underwriter shall not make in connection with any sale or
solicitation of a sale of the B-2 Shares any representations concerning the B-2
Shares except those contained in the then current prospectus and/or statement of
additional information covering the Shares and in printed information approved
by the Fund as information supplemental to such prospectus and statement of
additional information. Copies of the then current prospectus and statement of
additional information and any such printed supplemental information will be
supplied by the Fund to the Principal Underwriter in reasonable quantities upon
request.
7. The Principal Underwriter agrees to comply with the Rules of Fair
Practice of the National Association of Securities Dealers, Inc. (as defined in
the Purchase and Sale Agreement, dated as of May 31, 1995 (the Purchase
Agreement ), between the Principal Underwriter, Citibank, N.A. and Citicorp
North America, Inc., as agent (the "Rules of Fair Practice")).
8. The Fund appoints the Principal Underwriter as its agent to accept
orders for redemptions and repurchases of B-2 Shares at values and in the manner
determined in accordance with the then current prospectus and/or statement of
additional information of the Fund.
9. The Fund agrees to indemnify and hold harmless the Principal
Underwriter, its officers and Directors and each person, if any, who controls
the Principal Underwriter within the meaning of Section 15 of the Securities Act
of 1933 ("1933 Act"), against any losses, claims, damages, liabilities and
expenses (including the cost of any legal fees incurred in connection therewith)
which the Principal Underwriter, its officers, Directors or any such controlling
person may incur under the 1933 Act, under any other statute, at common law or
otherwise, arising out of or based upon
a. any untrue statement or alleged untrue statement of a material fact
contained in the Fund's registration statement, prospectus or
statement of additional information (including amendments and
supplements thereto) or
b. any omission or alleged omission to state a material fact required to
be stated in the Fund's registration statement, prospectus or
statement of additional information necessary to make the statements
therein not misleading, provided, however, that insofar as losses,
claims, damages, liabilities or expenses arise out of or are based
upon any such untrue statement or omission or alleged untrue statement
or omission made in reliance and in conformity with information
furnished to the Fund by the Principal Underwriter for use in the
Fund's registration statement, prospectus or statement of additional
information, such indemnification is not applicable. In no case shall
the Fund indemnify the Principal Underwriter or its controlling person
as to any amounts incurred for any liability arising out of or based
upon any action for which the Principal Underwriter, its officers and
Directors or any controlling person would otherwise be subject to
liability by reason of willful misfeasance, bad faith, or gross
negligence in the performance of its duties or by reason of the
reckless disregard of its obligations and duties under this Agreement.
10. The Principal Underwriter agrees to indemnify and hold harmless the
Fund, its officers and Trustees and each person, if any, who controls the Fund
within the meaning of Section 15 of the 1933 Act against any loss, claims,
damages, liabilities and expenses (including the cost of any legal fees incurred
in connection therewith) which the Fund, its officers, Directors or any such
controlling person may incur under the 1933 Act, under any other statute, at
common law or otherwise arising out of the acquisition of any Shares by any
person which
(a) may be based upon any wrongful act by the Principal Underwriter or any
of its employees or representatives, or
(b) may be based upon any untrue statement or alleged untrue statement of
a material fact contained in the Fund's registration statement,
prospectus or statement of additional information (including
amendments and supplements thereto), or any omission or alleged
omission to state a material fact required to be stated therein or
necessary to make the statements therein not misleading, if such
statement or omission was made in reliance upon information furnished
or confirmed in writing to the Fund by the Principal Underwriter.
11. The Fund agrees to execute such papers and to do such acts and things
as shall from time to time be reasonably requested by the Principal Underwriter
for the purpose of qualifying the B-2 Shares for sale under the so-called "blue
sky" laws of any state or for registering B-2 Shares under the 1933 Act or the
Fund under the Investment Company Act of 1940 ("1940 Act"). The Principal
Underwriter shall bear the expenses of preparing, printing and distributing
advertising, sales literature, prospectuses, and statements of additional
information. The Fund shall bear the expense of registering B-2 Shares under the
1933 Act and the Fund under the 1940 Act, qualifying B-2 Shares for sale under
the so-called "blue sky" laws of any state, the preparation and printing of
prospectuses, statements of additional information and reports required to be
filed with the Securities and Exchange Commission and other authorities, the
preparation, printing and mailing of prospectuses and statements of additional
information to holders of B-2 Shares, and the direct expenses of the issue of
B-2 Shares.
12. The Principal Underwriter shall, at the request of the Fund, provide to
the Board of Trustees or Directors (together herein called the Directors ) of
the Fund in connection with sales of B-2 Shares not less than quarterly a
written report of the amounts received from the Fund therefor and the purpose
for which such expenditures by the Fund were made.
13. The term of this Agreement shall begin on the date hereof and, unless
sooner terminated or continued as provided below, shall expire after one year.
This Agreement shall continue in effect after such term if its continuance is
specifically approved by a majority of the outstanding voting securities of
Class B-2 of the Fund or by a majority of the Directors of the Fund and a
majority of the Directors who are not parties to this Agreement or "interested
persons", as defined in the Investment Company Act of 1940 (the 1940 Act ), of
any such party and who have no direct or indirect financial interest in the
operation of the Fund's Rule 12b-1 plan for Class B-2 Shares or in any
agreements related to the plan at least annually in accordance with the 1940 Act
and the rules and regulations thereunder.
This Agreement may be terminated at any time, without payment of any
penalty, by vote of a majority of the Directors of the Fund, or a majority of
such Directors who are not parties to this Agreement or "interested persons", as
defined in the 1940 Act, of any such party and who have no direct or indirect
financial interest in the operation of the Fund's Rule 12b-1 plan for Class B-2
Shares or in any agreement related to the plan or by a vote of a majority of the
outstanding voting securities of Class B-2 on not more than sixty days written
notice to any other party to the agreement; and shall terminate automatically in
the event of its assignment (as defined in the 1940 Act), which shall not
include assignment of the Principal Underwriter's (as hereinafter defined)
provided for hereunder and/or rights related to such Allocable Portions.
14. The provisions of this Section 14 shall be applicable to the extent
necessary to enable the Fund to comply with the obligation of the Fund to pay
the Principal Underwriter its Allocable Portion of Distribution Fees paid in
respect of Shares while the Fund is required to do so pursuant the Principal
Underwriting Agreement, of even date herewith, in respect of Class B-2 Shares,
and shall remain in effect so long as any payments are required to be made by
the Fund pursuant to the irrevocable payment instruction (as defined in the
Purchase Agreement (the "Irrevocable Payment Instruction")).
14.1 The Fund shall pay to the Principal Underwriter the Principal
Underwriter's Allocable Portion (as hereinafter defined) of a fee (the
"Distribution Fee") at the rate of .75% per annum of the average daily net asset
value of the Shares, subject to the limitation on the maximum aggregate amount
of such fees under the Rules of Fair Practice as applicable to such Distribution
Fee on the date hereof.
14.2 The Principal Underwriter's Allocable Portion of Distribution Fees
paid by the Fund in respect of Shares shall be equal to the portion of the Asset
Based Sales Charge allocable to Distributor Shares (as defined in Schedule I
hereto to this Agreement) in accordance with Schedule I hereto. The Fund agrees
to cause its transfer agent to maintain the records and arrange for the payments
on behalf of the Fund at the times and in the amounts and to the accounts
required by Schedule I hereto, as the same may be amended from time to time. It
is acknowledged and agreed that by virtue of the operation of Schedule I hereto
the Principal Underwriter's Allocable Portion of Distribution Fees paid by the
Fund in respect of Shares, may, to the extent provided in Schedule I hereto,
take into account Distribution Fees payable by the Fund in respect of other
existing and future classes and/or sub-classes of shares of the Fund which would
be treated as "Shares" under Schedule I hereto. The Fund will limit amounts paid
to any subsequent principal underwriters of Shares to the portion of the Asset
Based Sales Charge paid in respect of Shares which is allocable to
Post-distributor Shares (as defined in Schedule I hereto) in accordance with
Schedule I hereto. The Fund's payments to the Principal Underwriter in
consideration of its services in connection with the sale of B-2 Shares shall be
the Distribution Fees attributable to B-2 Shares which are Distributor Shares
(as defined in Schedule I hereto) and all other amounts constituting the
Principal Underwriter's Allocable Portion of Distribution Fees shall be the
Distribution Fees related to the sale of other Shares which are Distributor
Shares (as defined in Schedule I hereto).
The Fund shall cause its transfer agent and sub-transfer agents to withhold
from redemption proceeds payable to holders of Shares on redemption thereof the
contingent deferred sales charges payable upon redemption thereof as set forth
in the then current prospectus and/or statement of additional information of the
Fund ("CDSCs") and to pay over to the Principal Underwriter The Principal
Underwriter's Allocable Portion of said CDSCs paid in respect of Shares which
shall be equal to the portion thereof allocable to Distributor Shares (as
defined in Schedule I hereto) in accordance with Schedule I hereto.
14.3 The Principal Underwriter shall be considered to have completely
earned the right to the payment of its Allocable Portion of the Distribution Fee
and the right to payment over to it of its' Allocable Portion of the CDSC in
respect of Shares as provided for hereby upon the completion of the sale of each
Commission Share (as defined in Schedule I hereto) taken into account as a
Distributor Share in computing the Principal Underwriter's Allocable Portion in
accordance with Schedule I hereto.
14.4 Except as provided in Section 14.5 hereof in respect of Distribution
Fees only, the Fund's obligation to pay the Principal Underwriter the
Distribution Fees and to pay over to the Principal Underwriter CDSCs provided
for hereby shall be absolute and unconditional and shall not be subject to
dispute, offset, counterclaim or any defense whatsoever (it being understood
that nothing in this sentence shall be deemed a waiver by the Fund of its right
separately to pursue any claims it may have against the Principal Underwriter
and enforce such claims against any assets (other than the Principal
Underwriter's right to its Allocable Portion of the Distribution Fees and CDSCs
(the "Collection Rights") of the Principal Underwriter).
14.5 Notwithstanding anything in this Agreement to the contrary, the Fund
shall pay to the Principal Underwriter its Allocable Portion of Distribution
Fees provided for hereby notwithstanding its termination as Principal
Underwriter for the Shares or any termination of this Agreement and such payment
of such Distribution Fees, and that obligation and the method of computing such
payment, shall not be changed or terminated except to the extent required by any
change in applicable law, including, without limitation, the 1940 Act, the Rules
promulgated thereunder by the Securities and Exchange Commission and the Rules
of Fair Practice, in each case enacted or promulgated after May 31, 1995, or in
connection with a Complete Termination (as hereinafter defined). For the
purposes of this Section 14.5, "Complete Termination" means a termination of the
Fund's Rule 12b-1 plan for B-2 Shares involving the cessation of payments of the
Distribution Fees, and the cessation of payments of distribution fees pursuant
to every other Rule 12b-1 plan of the Fund for every existing or future
B-Class-of-Shares (as hereinafter defined) and the Fund's discontinuance of the
offering of every existing or future B-Class-of-Shares, which conditions shall
be deemed satisfied when they are first complied with hereafter and so long
thereafter as they are complied with prior to the earlier of (i) the date upon
which all of the B-2 Shares which are Distributor Shares pursuant to Schedule I
hereto shall have been redeemed or converted or (ii) May 31, 2005. For purposes
of this Section 14.5, the term B-Class-of-Shares means each of the B-1 Class of
Shares of the Fund, the B-2 Class of Shares of the Fund and each other class of
shares of the Fund hereafter issued which would be treated as Shares under
Schedule I hereto or which has substantially similar economic characteristics to
the B-1 or B-2 Classes of Shares taking into account the total sales charge,
CDSC or other similar charges borne directly or indirectly by the holder of the
shares of such class. The parties agree that the existing C Class of Shares of
the Fund does not have substantially similar economic characteristics to the B-1
or B-2 Classes of Shares taking into account the total sales charge, CDSC or
other similar charges borne directly or indirectly by the holder of such shares.
For purposes of clarity the parties to this agreement hereby state that they
intend that a new installment load class of shares which may be authorized by
amendments to Rule 6(c)-10 under the 1940 Act will be considered to be a
B-Class-of-Shares if it has economic characteristics substantially similar to
the economic characteristics of the existing B-1 or B-2 Classes of Shares taking
into account the total sale charge, CDSC or other similar charges borne directly
or indirectly by the holder of such shares and will not be considered to be a
B-Class-of-Shares if it has economic characteristics substantially similar to
the economic characteristics of the existing C Class of shares of the Fund
taking into account the total sales charge, CDSC or other similar charges borne
directly or indirectly by the holder of such shares.
14.6 The Principal Underwriter may assign any part of its Allocable
Portions and obligations of the Fund related thereto (but not the Principal
Underwriter's obligations to the Fund provided for in this Agreement) to any
person (an "Assignee") and any such assignment shall be effective as to the Fund
upon written notice to the Fund by the Principal Underwriter. In connection
therewith the Fund shall pay all or any amounts in respect of its Allocable
Portions directly to the Assignee thereof as directed in a writing by the
Principal Underwriter in the Irrevocable Payment Instruction, as the same may be
amended from time to time with the consent of the Fund, and the Fund shall be
without liability to any person if it pays such amounts when and as so directed,
except for underpayments of amounts actually due, without any amount payable as
consequential or other damages due to such underpayment and without interest
except to the extent that delay in payment of Distribution Fees and CDSCs
results in an increase in the maximum Sales Charge allowable under the Rules of
Fair Practice, which increases daily at a rate of prime plus one percent per
annum.
14.7 The Fund will not, to the extent it may otherwise be empowered to do
so, change or waive any CDSC with respect to B-2 Shares, except as provided in
the Fund's prospectus or statement of additional information without the
Principal Underwriter's or Assignee's consent, as applicable. Notwithstanding
anything to the contrary in this Agreement or any termination of this Agreement
or the Principal Underwriter as principal underwriter for the Shares of the
Fund, the Principal Underwriter shall be entitled to be paid its Allocable
Portion of the CDSCs whether or not the Fund's Rule 12b-1 plan for B-2 Shares is
terminated and whether or not any such termination is a Complete Termination, as
defined above.
15. This Agreement shall be construed in accordance with the laws of The
Commonwealth of Massachusetts. All sales hereunder are to be made, and title to
the Shares shall pass, in Boston, Massachusetts.
16. The Fund is a Massachusetts business trust established under a
Declaration of Trust, as it may be amended from time to time. The obligations of
the Fund are not personally binding upon, nor shall recourse be had against the
private property of any of the Trustees, shareholders, officers, employees or
agents of the Fund, but only the property of the Fund shall be bound.
IN WITNESS WHEREOF, the parties hereto have caused this agreement to be
executed by their respective officers thereunto duly authorized at Boston,
Massachusetts, on the day and year first written above.
KEYSTONE STATE TAX FREE FUND - SERIES II,
on behalf of
KEYSTONE MISSOURI TAX FREE FUND
By: /s/
-------------------------------
Title:
KEYSTONE INVESTMENT DISTRIBUTORS COMPANY
By: /s/
-------------------------------
Title:
<PAGE>
SCHEDULE I
TO
PRINCIPAL UNDERWRITING AGREEMENT
FOR CLASS B-2SHARES
OF
KEYSTONE STATE TAX FREE FUND - SERIES II,
on behalf of
KEYSTONE MISSOURI TAX FREE FUND
TRANSFER AGENT PROCEDURES FOR DIFFERENTIATING
AMONG DISTRIBUTOR SHARES AND POST-DISTRIBUTOR SHARES
Amounts (in respect of Asset Based Sales Charges (as hereinafter defined)
and CDSCs (as hereinafter defined) in respect of Shares (as hereinafter defined)
of each Fund (as hereinafter defined) shall be allocated between Distributor
Shares (as hereinafter defined) and Post-distributor Shares (as hereinafter
defined) of such Fund in accordance with the rules set forth in clauses (B) and
(C). Clause (B) sets forth the rules to be followed by the Transfer Agent for
each Fund and the record owner of each Omnibus Account (as hereinafter defined)
in maintaining records relating to Distributor Shares and Post-distributor
Shares. Clause (C) sets forth the rules to be followed by the Transfer Agent for
each Fund and the record owner of each Omnibus Account in determining what
portion of the Asset Based Sales Charge (as hereinafter defined) payable in
respect of each class of Shares of such Fund and what portion of the CDSC (as
hereinafter defined) payable by the holders of Shares of such Fund is
attributable to Distributor Shares and Post-distributor Shares, respectively.
(A) DEFINITIONS:
Generally, for purposes of this Schedule I, defined terms shall be used
with the meaning assigned to them in the Agreement, except that for purposes of
the following rules the following definitions are also applicable:
"Agreement" shall mean the Principal Underwriting Agreement for Class B-2
Shares of the Instant Fund dated as of May 31, 1995 between the Instant Fund and
the Distributor.
"Asset Based Sales Charge" shall have the meaning set forth in Section
26(b)(8)(C) of the Rules of Fair Practice it being understood that for purposes
of this Exhibit I such term does not include the Service Fee.
"Business Day" shall mean any day on which the banks and the New York Stock
Exchange are not authorized or required to close in New York City.
"Capital Gain Dividend" shall mean, in respect of any Share of any Fund, a
Dividend in respect of such Share which is designated by such Fund as being a
"capital gain dividend" as such term is defined in Section 852 of the Internal
Revenue Code of 1986, as amended.
"CDSC" shall mean with respect to any Fund, the contingent deferred sales
charge payable, either directly or by withholding from the proceeds of the
redemption of the Shares of such Fund, by the shareholders of such Fund on any
redemption of Shares of such Fund in accordance with the Prospectus relating to
such Fund.
"Commission Share" shall mean, in respect of any Fund, a Share of such Fund
issued under circumstances where a CDSC would be payable upon the redemption of
such Share if such CDSC is not waived or shall have not otherwise expired.
"Date of Original Purchase" shall mean, in respect of any Commission Share
of any Fund, the date on which such Commission Share was first issued by such
Fund; provided, that if such Share is a Commission Share and such Fund issued
the Commission Share (or portion thereof) in question in connection with a Free
Exchange for a Commission Share (or portion thereof) of another Fund, the Date
of Original Purchase for the Commission Share (or portion thereof) in question
shall be the date on which the Commission Share (or portion thereof) of the
other Fund was first issued by such other Fund (unless such Commission Share (or
portion thereof) was also issued by such other Fund in a Free Exchange, in which
case this proviso shall apply to that Free Exchange and this application shall
be repeated until one reaches a Commission Share (or portion thereof) which was
issued by a Fund other than in a Free Exchange).
"Distributor" shall mean Keystone Investment Distributors Company, its
successors and assigns.
"Distributor's Account" shall mean the account of the Distributor, account
no. 9903-584-2, ABA No. 011 0000 28, entitled "General Account" maintained with
State Street Bank & Trust Company or such other account as the Distributor may
designate in a notice to the Transfer Agent.
"Distributor Inception Date" shall mean, in respect of any Fund, the date
identified as the date Shares of such Fund are first sold by the Distributor.
"Distributor Last Sale Cut-off Date" shall mean, in respect of any Fund,
the date identified as the last sale of a Commission Share during the period the
Distributor served as principal underwriter under the Agreement.
"Distributor Shares" shall mean, in respect of any Fund, all Shares of such
Fund the Month of Original Purchase of which occurs on or after the Inception
Date for such Fund and on or prior to the Distributor Last Sale Cut-off Date in
respect of such Fund.
"Dividend" shall mean, in respect of any Share of any Fund, any dividend or
other distribution by such Fund in respect of such Share.
"Free Exchange" shall mean any exchange of a Commission Share (or portion
thereof) of one Fund (the "Redeeming Fund") for a Share (or portion thereof) of
another Fund (the "Issuing Fund"), under any arrangement which defers the
exchanging Shareholder's obligation to pay the CDSC in respect of the Commission
Share (or portion thereof) of the Redeeming Fund so exchanged until the later
redemption of the Share (or portion thereof) of the Issuing Fund received in
such exchange.
"Free Share" shall mean, in respect of any Fund, each Share of such Fund
other than a Commission Share, including, without limitation: (i) Shares issued
in connection with the automatic reinvestment of Capital Gain Dividends or Other
Dividends by such Fund, (ii) Special Free Shares issued by such Fund and (iii)
Shares (or portion thereof) issued by such Fund in connection with an exchange
whereby a Free Share (or portion thereof) of another Fund is redeemed and the
Net Asset Value of such redeemed Free Share (or portion thereof) is invested in
such Shares (or portion thereof) of such Fund.
"Fund" shall mean each of the regulated investment companies or series or
portfolios of regulated investment companies identified in Schedule II to the
Irrevocable Payment Instruction, as the same may be amended from time to time in
accordance with the terms thereof.
"Instant Fund" shall mean Keystone State Tax Free Fund - Series II, on
behalf of Keystone Missouri Tax Free Fund
"ML Omnibus Account" shall mean, in respect of any Fund, the Omnibus
Account maintained by Merrill Lynch, Pierce, Fenner & Smith as subtransfer
agent.
"Month of Original Purchase" shall mean, in respect of any Share of any
Fund, the calendar month in which such Share was first issued by such Fund;
provided, that if such Share is a Commission Share and such Fund issued the
Commission Share (or portion thereof) in question in connection with a Free
Exchange for a Commission Share (or portion thereof) of another Fund, the Month
of Original Purchase for the Commission Share (or portion thereof) in question
shall be the calendar month in which the Commission Share (or portion thereof)
of the other Fund was first issued by such other Fund (unless such Commission
Share (or portion thereof) was also issued by such other Fund in a Free
Exchange, in which case this proviso shall apply to that Free Exchange and this
application shall be repeated until one reaches a Commission Share (or portion
thereof) which was issued by a Fund other than in a Free Exchange); provided,
further, that if such Share is a Free Share and such Fund issued such Free Share
in connection with the automatic reinvestment of dividends in respect of other
Shares of such Fund, the Month of Original Purchase of such Free Share shall be
deemed to be the Month of Original Purchase of the Share in respect of which
such dividend was paid; provided, further, that if such Share is a Free Share
and such Fund issued such Free Share in connection with an exchange whereby a
Free Share (or portion thereof) of another Fund is redeemed and the Net Asset
Value of such redeemed Free Share (or portion thereof) is invested in a Free
Share (or portion thereof) of such Fund, the Month of Original Issue of such
Free Share shall be the Month of Original Issue of the Free Share of such other
Fund so redeemed (unless such Free Share of such other Fund was also issued by
such other Fund in such an exchange, in which case this proviso shall apply to
that exchange and this application shall be repeated until one reaches a Free
Share which was issued by a Fund other than in such an exchange); and provided,
finally, that for purposes of this Schedule I each of the following periods
shall be treated as one calendar month for purposes of applying the rules of
this Schedule I to any Fund: (i) the period of time from and including the
Distributor Inception Date for such Fund to and including the last day of the
calendar month in which such Distributor Inception Date occurs; (ii) the period
of time commencing with the first day of the calendar month in which the
Distributor Last Sale Cutoff Date in respect of such Fund occurs to and
including such Distributor Last Sale Cutoff Date; and (iii) the period of time
commencing on the day immediately following the Distributor Last Sale Cutoff
Date in respect of such Fund to and including the last day of the calendar month
in which such Distributor Last Sale Cut-off Date occurs.
"Omnibus Account" shall mean any Shareholder Account the record owner of
which is a registered broker-dealer which has agreed with the Transfer Agent to
provide sub-transfer agent functions relating to each Sub-shareholder Account
within such Shareholder Account as contemplated by this Schedule I in respect of
each of the Funds.
"Omnibus Asset Based Sales Charge Settlement Date" shall mean, in respect
of each Omnibus Account, the Business Day next following the twentieth day of
each calendar month for the calendar month immediately preceding such date so
long as the record owner is able to allocate the Asset Based Sales Charge
accruing in respect of Shares of any Fund as contemplated by this Schedule I no
more frequently than monthly; provided, that at such time as the record owner of
such Omnibus Account is able to provide information sufficient to allocate the
Asset Based Sales Charge accruing in respect of such Shares of such Fund owned
of record by such Omnibus Account as contemplated by this Schedule I on a weekly
or daily basis, the Omnibus Asset Based Sales Charge Settlement Date shall be a
weekly date as in the case of the Omnibus CDSC Settlement Date or a daily date
as in the case of Asset Based Sales Charges accruing in respect of Shareholder
Accounts other than Omnibus Accounts, as the case may be.
"Omnibus CDSC Settlement Date" shall mean, in respect of each Omnibus
Account, the third Business Day of each calendar week for the calendar week
immediately preceding such date so long as the record owner of such Omnibus
Account is able to allocate the CDSCs accruing in respect of any Shares of any
Fund as contemplated by this Schedule I for no more frequently than weekly;
provided, that at such time as the record owner of such Shares of such Fund
owned of record by such Omnibus Account is able to provide information
sufficient to allocate the CDSCs accruing in respect of such Omnibus Account as
contemplated by this Schedule I on a daily basis, the Omnibus CDSC Settlement
Date for such Omnibus Account shall be a daily date as in the case of CDSCs
accruing in respect of Shareholder Accounts other than Omnibus Accounts.
"Original Purchase Amount" shall mean, in respect of any Commission Share
of any Fund, the amount paid (i.e., the Net Asset Value thereof on such date),
on the Date of Original Purchase in respect of such Commission Share, by such
Shareholder Account or Sub-shareholder Account for such Commission Share;
provided, that if such Fund issued the Commission Share (or portion thereof) in
question in connection with a Free Exchange for a Commission Share (or portion
thereof) of another Fund, the Original Purchase Amount for the Commission Share
(or portion thereof) in question shall be the Original Purchase Amount in
respect of such Commission Share (or portion thereof) of such other Fund (unless
such Commission Share (or portion thereof) was also issued by such other Fund in
a Free Exchange, in which case this proviso shall apply to that Free Exchange
and this application shall be repeated until one reaches a Commission Share (or
portion thereof) which was issued by a Fund other than in a Free Exchange).
"Other Dividend" shall mean in respect of any Share, any Dividend paid in
respect of such Share other than a Capital Gain Dividend.
"Post-distributor Shares" shall mean, in respect of any Fund, all Shares of
such Fund the Month of Original Purchase of which occurs after the Distributor
Last Sale Cut-off Date for such Fund.
"Program Agent" shall mean Citicorp North America, Inc., as Program Agent
under the Purchase Agreement, and its successors and assigns in such capacity.
"Purchase Agreement" shall mean that certain Purchase and Sale Agreement
dated as of May 31, 1995, among Keystone Investment Distributors Company, as
Seller, Citibank, N.A., as Purchaser, and Citicorp North America, Inc., as
Program Agent.
"Share" shall mean in respect of any Fund any share of the classes of
shares specified in Schedule II to the Irrevocable Payment Instruction opposite
the name of such Fund, as the same may be amended from time to time by notice
from the Distributor and the Program Agent to the Fund and the Transfer Agent;
provided, that such term shall include, after the Distributor Last Sale Cut-off
Date, a share of a new class of shares of such Fund: (i) with respect to each
record owner of Shares which is not treated in the records of each Transfer
Agent and Sub-transfer Agent for such Fund as an entirely separate and distinct
class of shares from the classes of shares specified Schedule II to the
Irrevocable Payment Instruction or (ii) the shares of which class may be
exchanged for shares of another Fund of the classes of shares specified on
Schedule II to the Irrevocable Payment Instruction of any class existing on or
prior to the Distributor Last Sale Cut-off Date; or (iii) dividends on which can
be reinvested in shares of the classes specified on Schedule II to the
Irrevocable Payment Instruction under the automatic dividend reinvestment
options; or (iv) which is otherwise treated as though it were of the same class
as the class of shares specified on Schedule II to the Irrevocable Payment
Instruction.
"Shareholder Account" shall have the meaning set forth in clause (B)(1)
hereof.
"Special Free Share" shall mean, in respect of any Fund, a Share (other
than a Commission Share) issued by such Fund other than in connection with the
automatic reinvestment of Dividends and other than in connection with an
exchange whereby a Free Share (or portion thereof) of another Fund is redeemed
and the Net Asset Value of such redeemed Share (or portion thereof) is invested
in a Share (or portion thereof) of such Fund.
"Sub-shareholder Account" shall have the meaning set forth in clause (B)(1)
hereof.
"Sub-transfer Agent" shall mean, in respect of each Omnibus Account, the
record owner thereof.
(B) RECORDS TO BE MAINTAINED BY THE TRANSFER AGENT FOR EACH FUND AND THE
RECORD OWNER OF EACH OMNIBUS ACCOUNT:
The Transfer Agent shall maintain Shareholder Accounts, and shall cause
each record owner of each Omnibus Account to maintain Sub-shareholder Accounts,
each in accordance with the following rules:
(1) SHAREHOLDER ACCOUNTS AND SUB-SHAREHOLDER ACCOUNTS. The Transfer Agent
shall maintain a separate account (a "Shareholder Account") for each record
owner of Shares of each Fund. Each Shareholder Account (other than Omnibus
Accounts) will represent a record owner of Shares of such Fund, the records of
which will be kept in accordance with this Schedule I. In the case of an Omnibus
Account, the Transfer Agent shall require that the record owner of the Omnibus
Account maintain a separate account (a "Sub-shareholder Account") for each
record owner of Shares which are reflected in the Omnibus Account, the records
of which will be kept in accordance with this Schedule I. Each such Shareholder
Account and Sub-shareholder Account shall relate solely to Shares of such Fund
and shall not relate to any other class of shares of such Fund.
(2) COMMISSION SHARES. For each Shareholder Account (other than an Omnibus
Account), the Transfer Agent shall maintain daily records of each Commission
Share of such Fund which records shall identify each Commission Share of such
Fund reflected in such Shareholder Account by the Month of Original Purchase of
such Commission Share.
For each Omnibus Account, the Transfer Agent shall require that the
Sub-transfer Agent in respect thereof maintain daily records of such
Sub-shareholder Account which records shall identify each Commission Share of
such Fund reflected in such Sub-shareholder Account by the Month of Original
Purchase; provided, that until the Sub-transfer Agent in respect of the ML
Omnibus Account develops the data processing capability to conform to the
foregoing requirements, such Sub-transfer Agent shall maintain daily records of
Sub-shareholder Accounts which identify each Commission Share of such Fund
reflected in such Sub-shareholder Account by the Date of Original Purchase. Each
such Commission Share shall be identified as either a Distributor Share or a
Post-distributor Share based upon the Month of Original Purchase of such
Commission Share (or in the case of a Sub-shareholder Account within the ML
Omnibus Account, based upon the Date of Original Purchase).
(3) FREE SHARES. The Transfer Agent shall maintain daily records of each
Shareholder Account (other than an Omnibus Account) in respect of any Fund so as
to identify each Free Share (including each Special Free Share) reflected in
such Shareholder Account by the Month of Original Purchase of such Free Share.
In addition, the Transfer Agent shall require that each Shareholder Account
(other than an Omnibus Account) have in effect separate elections relating to
reinvestment of Capital Gain Dividends and relating to reinvestment of Other
Dividends in respect of any Fund. Either such Shareholder Account shall have
elected to reinvest all Capital Gain Dividends or such Shareholder Account shall
have elected to have all Capital Gain Dividends distributed. Similarly, either
such Shareholder Account shall have elected to reinvest all Other Dividends or
such Shareholder Account shall have elected to have all Other Dividends
distributed.
The Transfer Agent shall require that the Sub-transfer Agent in respect of
each Omnibus Account maintain daily records for each Sub-shareholder Account in
the manner described in the immediately preceding paragraph for Shareholder
Accounts (other than Omnibus Accounts); provided, that until the Sub-transfer
Agent in respect of the ML Omnibus Account develops the data processing
capability to conform to the foregoing requirements, such Sub-transfer Agent
shall not be obligated to conform to the foregoing requirements. Each
Sub-shareholder Account shall also have in effect Dividend reinvestment
elections as described in the immediately preceding paragraph.
The Transfer Agent and each Sub-transfer Agent in respect of an Omnibus
Account shall identify each Free Share as either a Distributor Share or a
Post-distributor Share based upon the Month of Original Purchase of such Free
Share; provided, that until the Sub-transfer Agent in respect of the ML Omnibus
Account develops the data processing capability to conform to the foregoing
requirements, the Transfer Agent shall require such Sub-transfer Agent to
identify each Free Share of a given Fund in the ML Omnibus Account as a
Distributor Share, or Post-distributor Share, as follows:
(a) Free Shares of such Fund which are outstanding on the Distributor Last
Sale Cut-off Date for such Fund shall be identified as Distributor
Shares.
(b) Free Shares of such Fund which are issued (whether or not in
connection with an exchange for a Free Share of another Fund) to the
ML Omnibus Account during any calendar month (or portion thereof)
after the Distributor Last Sale Cut-off Date for such Fund shall be
identified as Distributor Shares in a number computed as follows:
A X (B/C)
where:
A = Free Shares of such Fund issued to the ML Omnibus Account
during such calendar month (or portion thereof)
B = Number of Commission Shares and Free Shares of such Fund in the
ML Omnibus Account identified as Distributor Shares and
outstanding as of the close of business in the last day of the
immediately preceding calendar month (or portion thereof)
C = Total number of Commission Shares and Free Shares of such Fund
in the ML Omnibus Account and outstanding as of the close of
business on the last day of the immediately preceding calendar
month (or portion thereof).
(c) Free Shares of such Fund which are issued (whether or not in
connection with an exchange for a free share of another Fund) to the
ML Omnibus Account during any calendar month (or portion thereof)
after the Distributor Last Sale Cut-off Date for such Fund shall be
identified as Post-distributor Shares in a number computed as follows:
(A X (B/C)
where:
A = Free Shares of such Fund issued to the ML Omnibus Account
during such calendar month (or portion thereof)
B = Number of Commission Shares and Free Shares of such Fund in the
ML Omnibus Account identified as Post-distributor Shares and
outstanding as of the close of business in the last day of the
immediately preceding calendar month (or portion thereof)
C = Total number of Commission Shares and Free Shares of such Fund
in the ML Omnibus Account and outstanding as of the close of
business on the last day of the immediately preceding calendar
month (or portion thereof).
(d) Free Shares of such Fund which are redeemed (whether or not in
connection with an exchange for Free Shares of another Fund or in
connection with the conversion of such Shares into a Class A Share of
such Fund) from the ML Omnibus Account in any calendar month (or
portion thereof) after the Distributor Last Sale Cut-off Date for such
Fund shall be identified as Distributor Shares in a number computed as
follows:
A X (B/C)
Where:
A = Free Shares of such Fund which are redeemed (whether or not in
connection with an exchange for Free Shares of another Fund or in
connection with the conversion of such Shares into a class A
share of such Fund) from the ML Omnibus Account during such
calendar month (or portion thereof)
B = Free Shares of such Fund in the ML Omnibus Account identified
as Distributor Shares and outstanding as of the close of business
on the last day of the immediately preceding calendar month.
C = Total number of Free Shares of such Fund in the ML Omnibus
Account and outstanding as of the close of business on the last
day of the immediately preceding calendar month.
(e) Free Shares of such Fund which are redeemed (whether or not in
connection with an exchange for Free Shares of another Fund or in
connection with the conversion of such Shares into a class A share of
such Fund) from the ML Omnibus Account in any calendar month (or
portion thereof) after the Distributor Last Sale Cut-off Date for such
Fund shall be identified as Post-distributor Shares in a number
computed as follows:
A X (B/C)
where:
A = Free Shares of such Fund which are redeemed (whether or not in
connection with an exchange for Free Shares of another Fund or in
connection with the conversion of such Shares into a class A
share of such Fund) from the ML Omnibus Account during such
calendar month (or portion thereof)
B = Free Shares of such Fund in the ML Omnibus Account identified
as Post-distributor Shares and outstanding as of the close of
business on the last day of the immediately preceding calendar
month.
C = Total number of Free Shares of such Fund in the ML Omnibus
Account and outstanding as of the close of business on the last
day of the immediately preceding calendar month.
(4) APPRECIATION AMOUNT AND COST ACCUMULATION AMOUNT. The Transfer Agent
shall maintain on a daily basis in respect of each Shareholder Account (other
than Omnibus Accounts) a Cost Accumulation Amount representing the total of the
Original Purchase Amounts paid by such Shareholder Account for all Commission
Shares reflected in such Shareholder Account as of the close of business on each
day. In addition, the Transfer Agent shall maintain on a daily basis in respect
of each Shareholder Account (other than Omnibus Accounts) sufficient records to
enable it to compute, as of the date of any actual or deemed redemption or Free
Exchange of a Commission Share reflected in such Shareholder Account an amount
(such amount an "Appreciation Amount") equal to the excess, if any, of the Net
Asset Value as of the close of business on such day of the Commission Shares
reflected in such Shareholder Account minus the Cost Accumulation Amount as of
the close of business on such day. In the event that a Commission Share (or
portion thereof) reflected in a Shareholder Account is redeemed or under these
rules is deemed to have been redeemed (whether in a Free Exchange or otherwise),
the Appreciation Amount for such Shareholder Account shall be reduced, to the
extent thereof, by the Net Asset Value of the Commission Share (or portion
thereof) redeemed, and if the Net Asset Value of the Commission Share (or
portion thereof) being redeemed equals or exceeds the Appreciation Amount, the
Cost Accumulation Amount will be reduced to the extent thereof, by such excess.
If the Appreciation Amount for such Shareholder Account immediately prior to any
redemption of a Commission Share (or portion thereof) is equal to or greater
than the Net Asset Value of such Commission Share (or portion thereof) deemed to
have been tendered for redemption, no CDSCs will be payable in respect of such
Commission Share (or portion thereof).
The Transfer Agent shall require that the Sub-transfer Agent in respect of
each Omnibus Account maintain on a daily basis in respect of each
Sub-shareholder Account reflected in such Omnibus Account a Cost Accumulation
Amount and sufficient records to enable it to compute, as of the date of any
actual or deemed redemption or Free Exchange of a Commission Share reflected in
such Sub-shareholder Account an Appreciation Amount in accordance with the
preceding paragraph and to apply the same to determine whether a CDSC is payable
(as though such Sub-shareholder Account were a Shareholder Account other than an
Omnibus Account; provided, that until the Sub-transfer Agent in respect of the
ML Omnibus Account develops the data processing capability to conform to the
foregoing requirements, such Sub-transfer Agent shall maintain for each
Sub-shareholder Account a separate Cost Accumulation Amount and a separate
Appreciation Amount for each Date of Original Purchase of any Commission Share
which shall be applied as set forth in the preceding paragraph as if each Date
of Original Purchase were a separate Month of Original Purchase.
(5) NASD CAP. On the date the distribution fees paid in respect of any
class of Shares equals the maximum amount thereon under the Rules of Fair
Practice, in respect of such class, all outstanding Shares of such class of such
Fund shall be converted into Class A shares of such Fund and will be deemed to
have been redeemed for their Net Asset Value for purposes of this Schedule I.
(6) IDENTIFICATION OF REDEEMED SHARES. If a Shareholder Account (other than
an Omnibus Account) tenders a Share of a Fund for redemption (other than in
connection with an exchange of such Share for a Share of another Fund or in
connection with the conversion of such Share pursuant to a Conversion Feature),
such tendered Share will be deemed to be a Free Share if there are any Free
Shares reflected in such Shareholder Account immediately prior to such tender.
If there is more than one Free Share reflected in such Shareholder Account
immediately prior to such tender, such tendered Share will be deemed to be the
Free Share with the earliest Month of Original Purchase. If there are no Free
Shares reflected in such Shareholder Account immediately prior to such tender,
such tendered Share will be deemed to be the Commission Share with the earliest
Month of Original Purchase reflected in such Shareholder Account.
If a Sub-shareholder Account reflected in an Omnibus Account tenders a
Share for redemption (other than in connection with an Exchange of such Share
for a Share of another Fund or in connection with the conversion of such Share
pursuant to a Conversion Feature), the Transfer Agent shall require that the
record owner of each Omnibus Account supply the Transfer Agent sufficient
records to enable the Transfer Agent to apply the rules of the preceding
paragraph to such Sub-shareholder Account (as though such Sub-shareholder
Account were a Shareholder Account other than an Omnibus Account); provided,
that until the Sub-transfer Agent in respect of the ML Omnibus Account develops
the data processing capability to conform to the foregoing requirements, such
Sub-transfer Agent shall not be required to conform to the foregoing rules
regarding Free Shares (and the Transfer Agent shall account for such Free Shares
as provided in (3) above) but shall apply the foregoing rules to each Commission
Share with respect to the Date of Original Purchase of any Commission Share as
though each such Date were a separate Month of Original Purchase.
(7) IDENTIFICATION OF EXCHANGED SHARES. When a Shareholder Account (other
than an Omnibus Account) tenders Shares of one Fund (the "Redeeming Fund") for
redemption where the proceeds of such redemption are to be automatically
reinvested in shares of another Fund (the "Issuing Fund") to effect an exchange
(whether or not pursuant to a Free Exchange) into Shares of the Issuing Fund:
(1) such Shareholder Account will be deemed to have tendered Shares (or portions
thereof) of the Redeeming Fund with each Month of Original Purchase represented
by Shares of the Redeeming Fund reflected in such Shareholder Account
immediately prior to such tender in the same proportion that the number of
Shares of the redeeming Fund with such Month of Original Purchase reflected in
such Shareholder immediately prior to such tender bore to the total number of
Shares of the Redeeming Fund reflected in such Shareholder Account immediately
prior to such tender, and on that basis the tendered Shares of the Redeeming
Fund will be identified as Distributor Shares or Post-distributor Shares; (2)
such Shareholder Account will be deemed to have tendered Commission Shares (or
portions thereof) and Free Shares (or portions thereof) of the Redeeming Fund of
each category (i.e., Distributor Shares or Post-distributor Shares) in the same
proportion that the number of Commission Shares or Free Shares (as the case may
be) of the Redeeming Fund in such category reflected in such Shareholder Account
bore to the total number of Shares of the Redeeming Fund in such category
reflected in such Shareholder Account immediately prior to such tender, (3) the
Shares (or portions thereof) of the Issuing Fund issued in connection with such
exchange will be deemed to have the same Months of Original Purchase as the
Shares (or portions thereof) of the Redeeming Fund so tendered and will be
categorized as Distributor Shares and Post-distributor Shares accordingly, and
(4) the Shares (or portions thereof) of each Category of the Issuing Fund issued
in connection with such exchange will be deemed to be Commission Shares and Free
Shares in the same proportion that the Shares of such Category of the Redeeming
Fund were Commission Shares and Free Shares.
The Transfer Agent shall require that each record owner of an Omnibus
Account maintain records relating to each Sub-shareholder Account in such
Omnibus Account sufficient to apply the foregoing rules to each such
Sub-shareholder Account (as though such Sub-shareholder Account were a
Shareholder Account other than an Omnibus Account); provided, that until the
Sub-transfer Agent in respect of the ML Omnibus Account develops the data
processing capability to conform to the foregoing requirements, such
Sub-transfer Agent shall not be required to conform to the foregoing rules
relating to Free Shares (and the Sub-transfer Agent shall account for such Free
Shares as provided in (3) above) and shall apply a first-in-first-out procedure
(based upon the Date of Original Purchase) to determine which Commission Shares
(or portions thereof) of a Redeeming Fund were redeemed in connection with an
exchange.
(8) IDENTIFICATION OF CONVERTED SHARES. The Transfer Agent records
maintained for each Shareholder Account (other than an Omnibus Account) will
treat each Commission Share of a Fund as though it were redeemed at its Net
Asset Value on the date such Commission Share converts into a class A share of
such Fund in accordance with an applicable Conversion Feature applied with
reference to its Month of Original Purchase and will treat each Free Share of
such Fund with a given Month of Original Purchase as though it were redeemed at
its Net Asset Value when it is simultaneously converted to a class A share at
the time the Commission Shares of such Fund with such Month of Original Purchase
are so converted.
The Transfer Agent shall require that each record owner of an
Omnibus Account maintain records relating to each Sub-shareholder Account in
such Omnibus Account sufficient to apply the foregoing rules to each such
Sub-shareholder Account (as though such Sub-shareholder Account were a
Shareholder Account other than an Omnibus Account) ; provided, that until the
Sub-transfer Agent in respect of the ML Omnibus Account develops the data
processing capability to conform to the foregoing requirements, such
Sub-transfer Agent shall apply the foregoing rules to Commission Shares with
reference to the Date of Original Issue of each Commission Share (as though each
such date were a separate Month of Original Issue) and shall not be required to
apply the foregoing rules to Free Shares (and the Sub-transfer Agent shall
account for such Free Shares as provided in (3) above).
(C) ALLOCATIONS OF ASSET BASED SALE CHARGES AND CDSCS AMONG DISTRIBUTOR
SHARES AND POST-DISTRIBUTOR SHARES:
The Transfer Agent shall use the following rules to allocate the amounts of
Asset Based Sales Charges and CDSCs payable by each Fund in respect of Shares
between Distributor Shares and Post-distributor Shares:
(1) RECEIVABLES CONSTITUTING CDSCS: CDSCs will be treated as relating to
Distributor Shares or Post-distributor Shares depending upon the Month of
Original Purchase of the Commission Share the redemption of which gives rise to
the payment of a CDSC by a Shareholder Account.
The Transfer Agent shall cause each Sub-transfer Agent to apply the
foregoing rule to each Sub-shareholder Account based on the records maintained
by such Sub-transfer Agent; provided, that until the Sub-transfer Agent in
respect of the ML Omnibus Account develops the data processing capability to
conform to the foregoing requirements, such Sub-transfer Agent shall apply the
foregoing rules to each Sub-shareholder Account with respect to the Date of
Original Purchase of any Commission Share as though each such date were a
separate Month of Original Purchase.
(2) RECEIVABLES CONSTITUTING ASSET BASED SALES CHARGES:
The Asset Based Sales Charges accruing in respect of each Shareholder
Account (other than an Omnibus Account) shall be allocated to each Share
reflected in such Shareholder Account as of the close of business on such day on
an equal per share basis. For example, the Asset Based Sales Charges
attributable to Distributor Shares on any day shall be computed and allocated as
follows:
A X (B/C)
where:
A. = Total amount of Asset Based Sales Charge accrued in respect of such
Shareholder Account (other than an Omnibus Account) on such day.
B. = Number of Distributor Shares reflected in such Shareholder Account
(other than an Omnibus Account) on the close of business on such day
C. = Total number of Distributor Shares and Post-Distributor Shares
reflected in such Shareholder Account (other than an Omnibus Account)
and outstanding as of the close of business on such day.
The Portion of the Asset Based Sales Charges of such Fund accruing in respect of
such Shareholder Account for such day allocated to Post-distributor Shares will
be obtained using the same formula but substituting for "B" the number of
Post-distributor Shares, as the case may be, reflected in such Shareholder
Account and outstanding on the close of business on such day. The foregoing
allocation formula may be adjusted from time to time by notice to the Fund and
the transfer agent for the Fund from the Seller and the Program Agent pursuant
to Section 8.18 of the Purchase Agreement.
The Transfer Agent shall, based on the records maintained by the record
owner of such Omnibus Account, allocate the Asset Based Sales Charge accruing in
respect of each Omnibus Account on each day among all Sub-shareholder Accounts
reflected in such Omnibus Account on an equal per share basis based upon the
total number of Distributor Shares and Post-distributor Shares reflected in each
such Sub-shareholder Account as of the close of business on such day. In
addition, the Transfer Agent shall apply the foregoing rules to each
Sub-shareholder Account (as though it were a Shareholder Account other than an
Omnibus Account), based on the records maintained by the record owner, to
allocate the Asset Based Sales Charge so allocated to any Sub-shareholder
Account among the Distributor Shares and Post-distributor Shares reflected in
each such Sub-shareholder Account in accordance with the rules set forth in the
preceding paragraph; provided, that until the Sub-transfer Agent in respect of
the ML Omnibus Account develops the data processing capacity to apply the rules
of this Schedule I as applicable to Sub-shareholder Accounts other than ML
Omnibus Accounts, the Transfer Agent shall allocate the Asset Based Sales Charge
accruing in respect of Shares of any Fund in the ML Omnibus Account during any
calendar month (or portion thereof) among Distributor Shares and
Post-distributor Shares as follows:
(a) The portion of such Asset Based Sales Charge allocable to Distributor
Shares shall be computed as follows:
A X ((B + C)/2)
((D + E)/2)
where:
A = Total amount of Asset Based Sales Charge accrued during such
calendar month (or portion thereof) in respect of Shares of such
Fund in the ML Omnibus Account
B = Shares of such Fund in the ML Omnibus Account and identified as
Distributor Shares and outstanding as of the close of business on
the last day of the immediately preceding calendar month (or
portion thereof), times Net Asset Value per Share as of such time
C = Shares of such Fund in the ML Omnibus Account and identified as
Distributor Shares and outstanding as of the close of business on
the last day of such calendar month (or portion thereof), times
Net Asset Value per Share as of such time
D = Total number of Shares of such Fund in the ML Omnibus Account
and outstanding as of the close of business on the last day of
the immediately preceding calendar month (or portion thereof),
times Net Asset Value per Share as of such time.
E = Total number of Shares of such Fund in the ML Omnibus Account
and outstanding as of the close of business on the last day of
such calendar month (or portion thereof), times Net Asset Value
per Share as of such time.
(b) The portion of such Asset Based Sales Charge allocable to
Post-distributor Shares shall be computed s follows:
A X ((B + C)/2)
-----------
((D + E)/2)
where:
A = Total amount of Asset Based Sales Charge accrued during such
calendar month (or portion thereof) in respect of Shares of such
Fund in the ML Omnibus Account
B = Shares of such Fund in the ML Omnibus Account and identified as
Post-distributor Shares and outstanding as of the close of
business on the last day of the immediately preceding calendar
month (or portion thereof), times Net Asset Value per Share as of
such time
C = Shares of such Fund in the ML Omnibus Account and identified as
Post-distributor Shares and outstanding as of the close of
business on the last day of such calendar month (or portion
thereof), times Net Asset Value per Share as of such time
D = Total number of Shares of such Fund in the ML Omnibus Account
and outstanding as of the close of business on the last day of
the immediately preceding calendar month (or portion thereof),
times Net Asset Value per Share as of such time.
E = Total number of Shares of such Fund in the ML Omnibus Account
outstanding as of the close of business on the last day of such
calendar month, times Net Asset Value per Share as of such time.
(3) PAYMENTS ON BEHALF OF EACH FUND.
On the close of business on each day the Transfer Agent shall cause payment to
be made of the amount of the Asset Based Sales Charge and CDSCs accruing on such
day in respect of the Shares of such Fund owned of record by Shareholder
Accounts (other than Omnibus Accounts) by two separate wire transfers, directly
from accounts of such Fund as follows:
1. The Asset Based Sales Charge and CDSCs accruing in respect of
Shareholder Accounts other than Omnibus Accounts and allocable to
Distributor Shares in accordance with the preceding rules shall be paid to
the Distributor's Account, unless the Distributor otherwise instructs the
Fund in any irrevocable payment instruction; and
2. The Asset Based Sales Charges and CDSCs accruing in respect of
Shareholder Accounts other than Omnibus Accounts and allocable to
Post-distributor Shares in accordance with the preceding rules shall be
paid in accordance with direction received from any future distributor of
Shares of the Instant Fund.
On each Omnibus CDSC Settlement Date, the Transfer Agent for each Fund
shall cause the applicable Sub-transfer Agent to cause payment to be made of the
amount of the CDSCs accruing during the period to which such Omnibus CDSC
Settlement Date relates in respect of the Shares of such Fund owned of record by
each Omnibus Account by two separate wire transfers directly from the account of
such Fund maintained by such Transfer Agent, as follows:
1. The CDSCs accruing in respect of such Omnibus Account and allocable to
Distributor Shares in accordance with the preceding rules shall be paid to
the Distributor's Account, unless the Distributor otherwise instructs the
Fund in any irrevocable payment instruction; and
2. The CDSCs accruing in respect of such Omnibus Account and allocable to
Post-distributor Shares in accordance with the preceding rules shall be
paid in accordance with direction received from any future distributor of
Shares of the Instant Fund.
On each Omnibus Asset Based Sales Charge Settlement Date the Transfer Agent
for each Fund shall cause payment to be made of the amount of the Asset Based
Sales Charge accruing for the period to which such Omnibus Asset Based Sales
Charge Settlement Date relates in respect of the Shares of such Fund owned of
record by each Omnibus Account by two separate wire transfers directly from
accounts of such Fund as follows:
1. The Asset Based Sales Charge accruing in respect of such Omnibus Account
and allocable to Distributor Shares shall be paid to the Distributor's
Collection Account, unless the Distributor otherwise instructs the Fund in
any irrevocable payment instruction; and
2. The Asset Based Sales Charge accruing in respect of such Omnibus Account
and allocable to Post-Distributor Shares shall be paid in accordance with
direction received from any future distributor of Shares of the Instant
Fund.
<PAGE>
EXHIBIT 99.6B
[LOGO] KEYSTONE
INVESTMENTS
200 Berkeley Street
Boston, Massachusetts 02116-5034
Dealer No._________________________________________________________
(Please indicate Exchange Membership(s), if any.)__________________
-------------------------------------------------------------------
Effective Date_____________________________________________________
CLASS A AND B SHARES
To Whom It May Concern:
Keystone Investment Distributors Company ("the Company"), principal
underwriter, invites you to participate in the distribution of shares of the
Keystone Fund Family, Classes A and B shares of the Keystone America Fund Family
and other Funds ("Funds") designated by us which are currently or hereafter
underwritten by the Company, subject to the following terms:
1. In the distribution and sale of shares, you shall not have authority to act
as agent for the issuer, the Company or any other dealer in any respect in such
transactions. All orders are subject to acceptance by us and become effective
only upon confirmation by us. The Company reserves the unqualified right not to
accept any specific order for the purchase or exchange of shares.
2. You will offer and sell shares of the Funds other than Class A shares of the
Keystone America Funds only at their respective net asset values in accordance
with the terms and conditions of a current prospectus of the Fund whose shares
you offer. With respect to Class A shares of the Keystone America Funds and
other Funds designated by us, you will offer and sell such shares at the public
offering price described in a current prospectus of the Fund whose shares you
offer. You will offer shares only on a forward pricing basis, i.e. orders for
the purchase or repurchase of shares accepted by you prior to the close of the
New York Stock Exchange and placed with us the same day prior to the close of
our business day, 5:00 p.m. Eastern Time, and orders to exchange shares of one
Fund for shares of another Fund eligible for exchange placed with us prior to
3:00 p.m. Eastern Time, shall be confirmed at the closing price for that
business day. You agree to place orders for shares only with us and at such
closing price. You further agree to confirm the transaction with your customer
at the price confirmed in writing by us. In the event of a difference between
verbal and written price confirmations, the written confirmations shall be
considered final. Prices of the Funds' shares are computed by and are subject to
withdrawal by the Funds in accordance with their current respective
prospectuses. You agree to place orders with us only through your central order
department unless we accept your written Power of Attorney authorizing others to
place orders on your behalf.
3. So long as this agreement remains in effect, we will pay you commissions on
sales of shares of the Funds and service fees, all in accordance with the
Schedule of Commissions and Service Fees ("Schedule") attached hereto and made a
part hereof, effective June 1, 1995, which Schedule may be modified from time to
time or rescinded by us, in either case without prior notice. You shall have no
vested right to receive any continuing service fees, other fees, or other
commissions which we may elect to pay to you from time to time on shares
previously sold by you. You agree not to share or rebate any portion of such
commissions or to otherwise grant any concessions, discounts or other allowances
to any person who is not a broker or dealer actually engaged in the investment
banking or securities business. You will receive commissions in accordance with
the attached Schedule on all purchase transactions in shareholder accounts
(excluding reinvestment of income dividends and capital gains distributions) for
which you are designated as Dealer of Record except where we determine that any
such purchase was made with the proceeds of a redemption or repurchase of shares
of the same Fund or another Fund whether or not the transaction constitutes the
exercise of the exchange privilege. Commissions will be paid to you twice a
month.
You hereby authorize us to act as your agent in connection with all
transactions in shareholder accounts in which you are designated as Dealer of
Record. All designations of Dealer of Record and all authorizations of the
Company to act as your Agent shall cease upon the termination of this Agreement,
or upon the shareholder's instruction to transfer his or her account to another
Dealer of Record.
4. Payment for all shares purchased from us shall be made to the Company and
shall be received by the Company within ten business days after the acceptance
of your order or such shorter time as may be required by law. If such payment is
not received by us, we reserve the right, without prior notice, forthwith to
cancel the sale, or, at our option, to sell the shares ordered by you back to
the Fund concerned in which latter case we may hold you responsible for any
loss, including loss of profit, suffered by us or by the Fund resulting from
your failure to make payment as aforesaid.
5. You agree to purchase shares of the Funds only from us or from your
customers. If you purchase shares from us, you agree that all such purchases
shall be made only to cover orders already received by you from your customers,
or for your own bonafide investment without a view to resale. If you purchase
shares from your customers, you agree to pay such customers the applicable net
asset value per share less any contingent deferred sales charge that would be
applicable if such shares were then tendered for redemption in accordance with
the then current applicable prospectus ("repurchase price").
6. You will sell shares only --
(a) to your clients at the prices described in paragraph 2 above; or
(b) to us as agent for the Funds at the repurchase price. In such a
sale to us, you may act either as principal for your own account or as
agent for your customer. If you act as principal for your own account
in purchasing shares for resale to us, you agree to pay your customer
not less than nor more than the repurchase price which you receive
from us. If you act as agent for your customer in selling shares to
us, you agree not to charge your customer more than a fair commission
for handling the transaction.
7. You shall not withhold placing with us orders received from your customers so
as to profit yourself as a result of such withholding.
8. We will not accept from you any conditional orders for shares.
9. If any shares sold to you under the terms of this agreement are repurchased
by a Fund, or are tendered for redemption, within seven business days after the
date of our confirmation of the original purchase by you, it is agreed that you
shall forfeit your right to any commissions on such sales even though the
shareholder may be charged a contingent deferred sales charge by the Fund.
We will notify you of any such repurchase or redemption within the next ten
business days after the date on which the certificate or written request for
redemption is delivered to us or to the Fund, and you shall forthwith refund to
us the full amount of any commission you received on such sale. We agree, in the
event of any such repurchase or redemption, to refund to the Fund any commission
we retained on such sale and, upon receipt from you of the commissions paid to
you, to pay such commissions forthwith to the Fund.
10. Shares sold to you hereunder shall not be issued in certificate form or
otherwise until payment has been received by the Fund concerned. If transfer
instructions are not received from you within 15 days after our acceptance of
your order, the Company reserves the right to instruct the transfer agent for
the Fund concerned to register a certificate for the shares sold to you in your
name and forward such certificate to you. You agree to hold harmless and
indemnify the Company, the Fund and its transfer agent for any loss or expense
resulting from such registration.
11. No person is authorized to make any representations concerning shares of the
Funds except those contained in the current applicable prospectuses and in sales
literature issued by us supplemental to such prospectuses. In purchasing shares
from us you shall rely solely on the representations contained in the
appropriate prospectus and in such sales literature. We will furnish additional
copies of the current prospectuses and such sales literature and other releases
and information issued by us in reasonable quantities upon request. You agree
that you will in all respects duly conform with all laws and regulations
applicable to the sale of shares of the Funds and will indemnify and hold
harmless the Funds, their directors and trustees and the Company from any damage
or expenses on account of any wrongful act by you, your representatives, agents
or sub-agents in connection with any orders or solicitation of orders of shares
of the Funds by you, your representatives, agents or sub-agents.
12. Each party hereto represents that it is a member of the National Association
of Securities Dealers, Inc., and agrees to notify the other should it cease to
be a member of such Association and agrees to the automatic termination of this
agreement at that time. It is further agreed that all rules or regulations of
said Association now in effect or hereafter adopted, which are binding upon
underwriters and dealers in the distribution of the securities of open-end
investment companies, shall be deemed to be a part of this agreement to the same
extent as if set forth in full herein.
13. You will not offer the Funds for sale in any State where they are not
qualified for sale under the Blue Sky Laws and regulations of such State or
where you are not qualified to act as a dealer, except for States in which they
are exempt from qualification.
14. This agreement supersedes and cancels any prior agreement with respect to
the sales of shares of any of the Funds underwritten by the Company and the
Company reserves the right to amend this agreement at any time and from time to
time.
15. This agreement shall be effective upon acceptance by us in Boston,
Massachusetts and all sales hereunder are to be made, and title to shares of the
Funds shall pass, in Boston. This agreement is made in the Commonwealth of
Massachusetts and shall be interpreted in accordance with the laws of
Massachusetts.
16. All communications to the Company should be sent to the above address. Any
notice to you shall be duly given if mailed or telegraphed to you at the address
specified by you below.
17. Either party may terminate this agreement at any time by written notice to
the other party.
Signed: Accepted:
- ---------------------------------- Boston, MA (USA) as of June 1, 1995
Dealer or Broker Name
- ---------------------------------- KEYSTONE INVESTMENT DISTRIBUTORS COMPANY
Address 200 Berkeley Street, Boston, MA 02116-5034
- ---------------------------------- -----------------------------------------
Authorized Signature Authorized Signature
<PAGE>
[LOGO] KEYSTONE
INVESTMENTS
200 Berkeley Street
Boston, Massachusetts 02116-5034
Dealer No._________________________________________________________
(Please indicate Exchange Membership(s), if any.)__________________
-------------------------------------------------------------------
Effective Date_____________________________________________________
CLASS C SHARES
To Whom It May Concern:
Keystone Investment Distributors Company ("the Company"), principal
underwriter, invites you to participate in the distribution of Class C shares of
the Keystone America Fund Family, Keystone Liquid Trust and other Funds
("Funds") designated by us which are currently or hereafter underwritten by the
Company, subject to the following terms:
1. In the distribution and sale of shares, you shall not have authority to act
as agent for the issuer, the Company or any other dealer in any respect in such
transactions. All orders are subject to acceptance by us and become effective
only upon confirmation by us. The Company reserves the unqualified right not to
accept any specific order for the purchase or exchange of shares.
2. You will offer and sell Class C shares of the Funds only at their respective
net asset values in accordance with the terms and conditions of a current
prospectus of the Fund whose shares you offer. You will offer shares only on a
forward pricing basis i.e. orders for the purchase or repurchase of shares
accepted by you prior to the close of the New York Stock Exchange and placed
with us the same day prior to the close of our business day, 5:00 p.m. Eastern
Time, and orders to exchange shares of one Fund for shares of another Fund
eligible for exchange placed with us prior to 3:00 p.m. Eastern Time, shall be
confirmed at the closing price for that business day. You agree to place orders
for shares only with us and at such closing price. You further agree to confirm
the transaction with your customer at the price confirmed in writing by us. In
the event of a difference between verbal and written price confirmations shall
be considered final. Prices of the Funds' shares are computed by and are subject
to withdrawal by the Funds in accordance with their current respective
prospectuses. You agree to place orders with us only through your central order
department unless we accept your written Power of Attorney authorizing others to
place orders on your behalf.
3. So long as this agreement remains in effect, we will pay you commissions on
sales of shares of the Funds and service fees, all in accordance with the
Schedule of Commissions and Service Fees ("Schedule") attached hereto and made a
part hereof, effective June 1, 1995, which Schedule may be modified from time to
time or rescinded by us, in either case without prior notice. You shall have no
vested right to receive any continuing service fees, other fees, or other
commissions which we may elect to pay to you from time to time on shares
previously sold by you. You agree not to share or rebate any portion of such
commissions or to otherwise grant any concessions, discounts or other allowances
to any person who is not a broker or dealer actually engaged in the investment
banking or securities business. You will receive commissions in accordance with
the attached Schedule on all purchase transactions in shareholder accounts
(excluding reinvestment of income dividends and capital gains distributions) for
which you are designated as Dealer of Record except where we determine that any
such purchase was made with the proceeds of a redemption or repurchase of shares
of the same Fund or another Fund whether or not the transaction constitutes the
exercise of the exchange privilege. Commissions will be paid to you twice a
month.
You hereby authorize us to act as your agent in connection with all
transaction in shareholder accounts in which you are designated as Dealer of
Record. All designations of Dealer of Record and all authorizations of the
Company to act as your Agent shall cease upon the termination of this Agreement,
or upon the shareholder's instruction to transfer his or her account to another
Dealer of Record.
4. Payment for all shares purchased from us shall be made to the Company and
shall be received by the Company within ten business days after the acceptance
of your order or such shorter time as may be required by law. If such payment is
not received by us, we reserve the right, without prior notice, forthwith to
cancel the sale, or, at our option, to sell the shares ordered by you back to
the Fund concerned in which latter case we may hold you responsible for any
loss, including loss of profit, suffered by us or by the Fund resulting from
your failure to make payment as aforesaid.
5. You agree to purchase shares of the Funds only from us or from your
customers. If you purchase shares from us, you agree that all such purchases
shall be made only to cover orders already received by you from your customers,
or for your own bonafide investment without a view to resale. If you purchase
shares from your customers, you agree to pay such customers the applicable net
asset value per share less any contingent deferred sales charge that would be
applicable if such shares were then tendered for redemption in accordance with
the then current applicable prospectus ("repurchase price").
6. You will sell share only --
(a) to your clients at the prices described in paragraph 2 above; or
(b) to us as agent for the Funds at the repurchase price. In such a
sale to us, you may act either as principal for your own account or as
agent for your customer. If you act as principal for your own account
in purchasing shares for resale to us, you agree to pay your customer
not less than nor more than the repurchase price which you receive
from us. If you act as agent for your customer in selling shares to
us, you agree not to charge your customer more than a fair commission
for handling the transaction.
7. You shall not withhold placing with us orders received from your customers so
as to profit yourself as a result of such withholding.
8. We will not accept from you any conditional orders for shares.
9. If any shares sold to you under the terms of this agreement are repurchased
by a Fund, or are tendered for redemption, within seven business days after the
date of our confirmation of the original purchase by you, it is agreed that you
shall forfeit your right to any commissions on such sales even though the
shareholder may be charged a contingent deferred sales charge by the Fund.
We will notify you of any such repurchase or redemption within the next ten
business days after the date on which the certificate or written request for
redemption is delivered to us or to the Fund, and you shall forthwith refund to
us the full amount of any commission you received on such sale. We agree, in the
event of any such repurchase or redemption, to refund to the Fund any commission
we retained on such sale and, upon receipt from you of the commissions paid to
you, to pay such commissions forthwith to the Fund.
10. Shares sold to you hereunder shall not be issued in certificate form or
otherwise until payment has been received by the Fund concerned. If transfer
instructions are not received from you within 15 days after our acceptance of
your order, the Company reserves the right to instruct the transfer agent for
the Fund concerned to register a certificate for the shares sold to you in your
name and forward such certificate to you. You agree to hold harmless and
indemnify the Company, the Fund and its transfer agent for any loss or expense
resulting from such registration.
11. No person is authorized to make any representations concerning shares of the
Funds except those contained in the current applicable prospectuses and in sales
literature issued by us supplemental to such prospectuses. In purchasing shares
from us you shall rely solely on the representations contained in the
appropriate prospectus and in such sales literature. We will furnish additional
copies of the current prospectuses and such sales literature and other releases
and information issued by us in reasonable quantities upon request. You agree
that you will in all respects duly conform with all laws and regulations
applicable to the sale of shares of the Funds and will indemnify and hold
harmless the Funds, their directors and trustees and the Company from any damage
or expenses on account of any wrongful act by you, your representatives, agents
or sub-agents in connection with any orders or solicitation of orders of shares
of the Funds by you, your representatives, agents or sub-agents.
12. Each party hereto represents that it is a member of the National Association
of Securities Dealers, Inc., and agrees to notify the other should it cease to
be a member of such Association and agrees to the automatic termination of this
agreement at that time. It is further agreed that all rules or regulations of
said Association now in effect or hereafter adopted, which are binding upon
underwriters and dealers in the distribution of the securities of open-end
investment companies, shall be deemed to be a part of this agreement to the same
extent as if set forth in full herein.
13. You will not offer the Funds for sale in any State where they are not
qualified for sale under the Blue Sky Laws and regulations of such State or
where you are not qualified to act as a dealer, except for States in which they
are exempt from qualification.
14. This agreement supersedes and cancels any prior agreement with respect to
the sales of shares of any of the Funds underwritten by the Company and the
Company reserves the right to amend this agreement at any time and from time to
time.
15. This agreement shall be effective upon acceptance by us in Boston,
Massachusetts and all sales hereunder are to be made, and title to shares of the
Funds shall pass, in Boston. This agreement is made in the Commonwealth of
Massachusetts and shall be interpreted in accordance with the laws of
Massachusetts.
16. All communications to the Company should be sent to the above address. Any
notice to you shall be duly given if mailed or telegraphed to you at the address
specified by you below.
17. Either party may terminate this agreement at any time by written notice to
the other party.
Signed: Accepted:
- ---------------------------------- Boston, MA (USA) as of June 1, 1995
Dealer or Broker Name
- ---------------------------------- KEYSTONE INVESTMENT DISTRIBUTORS COMPANY
Address 200 Berkeley Street, Boston, MA 02116-5034
- ---------------------------------- -----------------------------------------
Authorized Signature Authorized Signature
<PAGE>
EXHIBIT 99.8
CUSTODIAN, FUND ACCOUNTING AND RECORDKEEPING AGREEMENT
BY AND BETWEEN
KEYSTONE AMERICA STATE TAX FREE FUND - SERIES II
AND
STATE STREET BANK AND TRUST COMPANY
Agreement made as of this 15th day of December 1993 by and between
KEYSTONE AMERICA STATE TAX FREE FUND - SERIES II, a Massachusetts business
trust, ("Fund") having its principal place of business at 200 Berkeley Street,
Boston, Massachusetts, 02116-5034, 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 for-
ward 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 com- pliance
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 port- folio. 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, 1994, 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 America State Tax Free Fund - Series II, c/o Keystone Custodian Funds,
Inc., 200 Berkeley Street, 26th Floor, Boston, Massachusetts 02116-5034 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 AMERICA STATE TAX FREE
FUND - SERIES II
/s/ [Illegible] By: /s/ [Illegible]
- ------------------------------------- ---------------------------------
President
ATTEST: STATE STREET BANK AND TRUST COMPANY
/s/ [Illegible] By: /s/ [Illegible]
- ------------------------------------- ---------------------------------
Vice President
<PAGE>
SCHEDULE A
State Street BANK AND TRUST COMPANY
Custodian Fee Schedule
KEYSTONE AMERICA STATE TAX FREE FUND - SERIES II
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.
EXHIBIT 99.11(A)
CONSENT OF INDEPENDENT AUDITORS
The Trustees and Shareholders
Keystone State Tax Free Fund - Series II
(formerly Keystone America State Tax Free Fund - Series II)
We consent to the use of our report dated January 5, 1996, included
herein and to the references to our firm under the captions "FINANCIAL
HIGHLIGHTS" in the prospectus and "ADDITIONAL INFORMATION" in the statement of
additional information.
/s/ KPMG Peat Marwick LLP
KPMG Peat Marwick LLP
Boston, Massachusetts
January 30, 1996
ORRICK, HERRINGTON & SUTCLIFFE
(415) 773-5977
January 19, 1996
Keystone State Tax Free Fund - Series II
200 Berkeley Street
Boston, Massachusetts 02116-5034
RE: Keystone California Insured Tax-Free Fund
Ladies and Gentlemen:
We have acted as special California counsel for Keystone State Tax Free
Fund - Series II, a Massachusetts business trust (the "Fund"), concerning a
Registration Statement of the Fund on Form N-1A (Registration Nos. 33-73730 and
811-8254) with respect to Shares of Beneficial Interest, without par value, in
the series of the Fund designated as Keystone California Insured Tax-Free Fund,
as indicated in the Registration Statement. We hereby consent to the filing of
this letter as an exhibit to Amendment No. 3 to such Registration Statement and
to the reference to our firm under the caption "Keystone California Insured Tax
Free Fund Description of State and Local Tax Treatment" in Exhibit A to the
prospectus which is a part of such Registration Statement. In giving such
consent, we do not thereby admit that we are within the category of persons
whose consent is required by Section 7 of the Securities Act of 1933, as
amended, and the rules and regulations thereunder.
Very truly yours,
ORRICK, HERRINGTON & SUTCLIFFE
By: /s/Kenneth G. Whyburn
---------------------
#1016074d
<PAGE>
BRYAN CAVE LLP
January 29, 1996
Keystone State Trax Free Fund -- Series II
200 Berkeley Street
Boston, MA 02116
Re: Keystone State Tax Free Fund - Series II
----------------------------------------
Ladies and Gentlemen:
We have acted as special Missouri tax counsel to the Keystone State Tax
Free Fund - Series II. With respect to Post-Effective Amendment Number 3 to the
Registration Statement on Form N-1A of the Securities Act of 1933, as amended,
we have viewed the material relative to Missouri taxes in the Registration
Statement. Subject to such review, our opinion is delivered to you and as filed
with the Securities and Exchange Commission remains unchanged.
We consent to the filing of this consent as an exhibit to the Registration
Statement and to the reference to us under the heading "Description of State
and Local Tax Treatment." In giving such consent, we do not thereby admit we
are in the category of persons whose consent is required under Section 7 of the
Securities Act of 1933 as amended.
Very truly yours,
/S/ BRYAN CAVE
BRYAN CAVE LLP
JMS: cf
<PAGE>
EXHIBIT 99.15
KEYSTONE AMERICA CALIFORNIA INSURED TAX FREE FUND
CLASS A DISTRIBUTION PLAN
Section 1. Keystone America California Insured Tax Free Fund ("Fund"),
a portfolio of Keystone America State Tax Free Fund - Series II, may act as the
distributor of securities of which it is the issuer, pursuant to Rule 12b-1
under the Investment Company Act of 1940 ("Act") according to the terms of this
Distribution Plan ("Plan").
Section 2. Amounts not exceeding in the aggregate a maximum amount
equal to 0.35% of the average of the daily aggregate net asset value of Class A
shares of the Fund during each fiscal year of the Fund elapsed after the
inception of the Plan may be paid by the Fund to the Principal Underwriter at
any time after the inception of the Plan in order to pay to the Principal
Underwriter for efforts expended in respect of or in furtherance of sales of
Class A shares of the Fund and to enable to Principal Underwriter to pay or to
have paid to others who sell or have sold Class A shares, a maintenance or other
fee, at such intervals as the Principal Underwriter may determine, in respect of
Class A shares previously sold by any such others at any time and remaining
outstanding during the period in respect of which such fee is or has been paid.
Section 3. This Plan shall not take effect until it has been approved
by a vote of at least a majority (as defined in the Act) of the outstanding
Class A shares of the Fund.
Section 4. This Plan shall not take effect until it has been approved
together with any related agreements of the Fund by votes of a majority of both
(a) the Trustees of the Fund and (b) those Trustees who are not "interested
persons" of the Fund as defined in the 1940 Act and who have no direct or
indirect financial interest in the operation of this Plan or any agreements of
the Fund or any other person related to this Plan (the "Rule 12b-1 Directors"),
cast in person at a meeting called for the purpose of voting on this Plan or
such agreements.
Section 5. Unless sooner terminated pursuant to section 8, this Plan
shall continue in effect for a period of one year from the date it takes effect
and thereafter shall continue in effect so long as such continuance is
specifically approved at least annually in the manner provided for approval of
this Plan in Section 4.
Section 6. Any person authorized to direct the disposition of monies
paid or payable by the Fund pursuant to this Plan or any related agreement shall
provide to the Fund's Board and the Board shall review at least quarterly a
written report of the amounts so expended and the purposes for which such
expenditures were made.
Section 7. This Plan may be terminated at any time by vote of a
majority of the Rule 12b-1 Directors, or by vote of a majority of the Fund's
outstanding Class A shares.
Section 8. Any agreement of the Fund related to this Plan shall be in
writing, and shall provide:
A. That such agreement may be terminated at any time, without
payment of any penalty, by vote of a majority of the Rule 12b-1
Directors or by a vote of majority of the Fund's outstanding Class A
shares on not more than sixty days written notice to any other party to
the agreement; and
B. That such agreement shall terminate automatically in the
event of its assignment.
Section 9. This Plan may not be amended to increase materially the
amount of distribution expenses provided for in Section 2 hereof unless such
amendment is approved in the manner provided in Section 3 hereof and no material
amendment to the Plan shall be made unless approved in the manner provided for
in Section 4 hereof.
<PAGE>
KEYSTONE AMERICA MISSOURI TAX FREE FUND
CLASS A DISTRIBUTION PLAN
Section 1. Keystone America Missouri Tax Free Fund ("Fund") may act as
the distributor of securities of which it is the issuer, pursuant to Rule 12b-1
under the Investment Company Act of 1940 ("Act") according to the terms of this
Distribution Plan ("Plan").
Section 2. Amounts not exceeding in the aggregate a maximum amount
equal to 0.35% of the average of the daily aggregate net asset value of Class A
shares of the Fund during each fiscal year of the Fund elapsed after the
inception of the Plan may be paid by the Fund to the Principal Underwriter at
any time after the inception of the Plan in order to pay to the Principal
Underwriter for efforts expended in respect of or in furtherance of sales of
Class A shares of the Fund and to enable the Principal Underwriter to pay or to
have paid to others who sell or have sold Class A shares, a maintenance or other
fee, at such intervals as the Principal Underwriter may determine, in respect of
Class A shares previously sold by any such others at any time and remaining
outstanding during the period in respect of which such fee is or has been paid.
Section 3. This Plan shall not take effect until it has been approved
by a vote of at least a majority (as defined in the Act) of the outstanding
Class A shares of the Fund.
Section 4. This Plan shall not take effect until it has been approved
together with any related agreements of the Fund by votes of a majority of both
(a) the Trustees of the Fund and (b) those Trustees who are not "interested
persons" of the Fund as defined in the 1940 Act and who have no direct or
indirect financial interest in the operation of this Plan or any agreements of
the Fund or any other person related to this Plan (the "Rule 12b-1 Directors"),
cast in person at a meeting called for the purpose of voting on this Plan or
such agreements.
Section 5. Unless sooner terminated pursuant to section 8, this Plan
shall continue in effect for a period of one year from the date it takes effect
and thereafter shall continue in effect so long as such continuance is
specifically approved at least annually in the manner provided for approval of
this Plan in Section 4.
Section 6. Any person authorized to direct the disposition of monies
paid or payable by the Fund pursuant to this Plan or any related agreement shall
provide to the Fund's Board and the Board shall review at least quarterly a
written report of the amounts so expended and the purposes for which such
expenditures were made.
Section 7. This Plan may be terminated at any time by vote of a
majority of the Rule 12b-1 Directors, or by vote of a majority of the Fund's
outstanding Class A shares.
Section 8. Any agreement of the Fund related to this Plan shall be in
writing, and shall provide:
A. That such agreement may be terminated at any time, without
payment of any penalty, by vote of a majority of the Rule 12b-1
Directors or by a vote of majority of the Fund's outstanding Class A
shares on not more than sixty days written notice to any other party to
the agreement; and
B. That such agreement shall terminate automatically in the
event of its assignment.
Section 9. This Plan may not be amended to increase materially the
amount of distribution expenses provided for in Section 2 hereof unless such
amendment is approved in the manner provided in Section 3 hereof and no material
amendment to the Plan shall be made unless approved in the manner provided for
in Section 4 hereof.
<PAGE>
DISTRIBUTION PLAN
FOR
CLASS B-1 SHARES
OF
KEYSTONE CALIFORNIA INSURED TAX FREE FUND,
A SERIES OF KEYSTONE STATE TAX FREE FUND - SERIES II
Section 1. Keystone State Tax Free Fund - Series II, individually and/or on
behalf of its series, if any, referred to above in the title of this 12b-1 Plan
(the "Plan"), to which series this Plan shall then relate, as applicable (the
"Fund"), may act as the distributor of certain securities of which it is the
issuer pursuant to Rule 12b-1 under the Investment Company Act of 1940 (the
"1940 Act") according to the terms of this Distribution Plan.
Section 2. The Fund may expend daily amounts at an annual rate of up to
1.00% of the average daily net asset value of the Fund attributable to the
Fund's Class B-1 shares (the "Shares"). Such amounts may be expended to finance
any activity that is principally intended to result in the sale of Shares,
including, without limitation, expenditures consisting of payments to a
principal underwriter of the Fund or others as sales commissions or other
compensation for services provided or to be provided ("Distribution Fees") or as
reimbursement for expenses that are incurred or accrued at any time during which
this Plan is in effect, together with interest on any such amounts, at rates
approved by the Rule 12b-1 Directors (as defined below) in the manner referred
to below, all whether or not this Plan has been otherwise terminated, if such
payment of such expenditures is for services theretofore provided or for
reimbursement of expenses theretofore incurred or accrued prior to termination
of this Plan in other respects and if such payment is or has been so approved by
such Rule 12b-1 Directors, or agreed to by the Fund with such approval, all
subject to such specific implementation as such 12b-1 Directors may approve;
provided that, at the time any such payment is made, whether or not this Plan
has been otherwise terminated, the making of such payment will not cause the
limitation upon such payments set forth in the preceding sentence to be
exceeded. Without limiting the generality of the foregoing, the Fund may pay to,
or on the order of, any person who has served from time to time as principal
underwriter (a "Principal Underwriter") amounts for distribution services
pursuant to a principal underwriting agreement or otherwise. No principal
underwriting agreement or other agreement shall be an agreement related to this
Plan, as referred to in Rule 12b-1 of the Securities and Exchange Commission,
unless it specifically states that it is such a related agreement. Any such
principal underwriting agreement may, but need not, provide that such Principal
Underwriter may be paid for distribution services to Class B-1 Shares
and/or other specified classes of shares of the Fund (together the
"B-Class-of-Shares"), a fee which may be designated a Distribution Fee and may
be paid at a rate per annum up to .75% of the average daily net asset value of
such B-Class-of-Shares of the Fund and may, but need not, also provide: (I) that
a Principal Underwriter will be deemed to have fully earned its "Allocable
Portion" of the Distribution Fee upon the sale of the Commission Shares (as
defined in the Allocation Schedule) taken into account in determining its
Allocable Portion; (II) that the Fund's obligation to pay such Principal
Underwriter its Allocable Portion of the Distribution Fees shall be absolute and
unconditional and shall not be subject to dispute, offset, counterclaim or any
defense whatsoever (it being understood that such provision is not a waiver of
the Fund's right to pursue such Principal Underwriter and enforce such claims
against the assets of such Principal Underwriter other than its right to its
Allocable Portion of the Distribution Fees and CDSCs (as defined below) (III)
that the Fund's obligation to pay such Principal Underwriter its Allocable
Portion of the Distribution Fees shall not be changed or terminated except to
the extent required by any change in applicable law, including without
limitation, the Investment Company Act of 1940, the Rules promulgated thereunder
by the Securities and Exchange Commission and the Rules of Fair Practice of the
National Association of Securities Dealers, Inc., in each case enacted or
promulgated after June 1, 1995, or in connection with a "Complete Termination"
(as hereinafter defined); (IV) that the Fund will not waive or change any
contingent deferred sales charge ("CDSC") in respect of the Distributor's
Allocable Portion thereof, except as provided in the Fund's prospectus or
statement of additional information without the consent of the Principal
Underwriter or any assignee of such Principal Underwriter's rights to its
Allocable Portion; (V) that the termination of the Principal Underwriter, the
principal underwriting agreement or this Plan will not terminate such Principal
Underwriter's rights to its Allocable Portion of the CDSCs; and (VI) that any
Principal Underwriter may assign its rights to its Allocable Portion of the
Distribution Fees and CDSCs (but not such Principal Underwriter's obligations to
the Fund under its principal underwriting agreement) to raise funds to make
expenditures described in Section 2 above and in connection therewith, and upon
receipt of notice of such assignment, the Fund shall pay to the assignee such
portion of the Principal Underwriter's Allocable Portion of the Distribution
Fees and CDSCs so assigned. For purposes of such principal underwriting
agreement, the term Allocable Portion of Distribution Fees as applied to any
Principal Underwriter may mean the portion of the Distribution Fee allocable to
Distributor Shares in accordance with the "Allocation Schedule" attached to such
Principal Underwriter's principal underwriting agreement. For purposes of such
principal underwriting agreement, the term Allocable Portion of CDSCs as applied
to any Principal Underwriter may mean the portion of the CDSCs allocable to
Distributor Shares in accordance with the Allocation Schedule attached to such
Principal Underwriter's principal underwriting agreement. For purposes of such
principal underwriting agreement, the term "Complete Termination" may mean a
termination of this Plan involving the cessation of payments of the Distribution
Fees thereunder, the cessation of payments of distribution fees pursuant to
every other rule 12b-1 plan of the Fund for every existing or future
B-Class-of-Shares and the cessation of the offering by the Fund of existing or
future B-Class-of-Shares, which conditions shall be deemed to be satisfied when
they are first complied with and so long thereafter as they are complied with
prior to the earlier of (i) the date upon which all of the B-2 Shares which are
Distributor Shares pursuant to the Allocation Schedule shall have been redeemed
or converted or (ii) a specified date, after either of which times such
conditions need no longer be complied with. For purposes of such principal
underwriting agreement, the term "B-Class-of-Shares" may mean each of the B-1
Class of Shares of the Fund, the B-2 Class of Shares of the Fund and each other
class of shares of the Fund hereafter issued which would be treated as "Shares"
under such Allocation Schedule or which has economic characteristics
substantially similar to those of the B-1 or B-2 Classes of Shares taking into
account the total sales charge, CDSC or other similar charges borne directly or
indirectly by the holder of the shares of such classes. The parties may agree
that the existing C Class of Shares of the Fund does not have substantially
similar economic characteristics to the B-1 or B-2 Classes of Shares taking into
account the total sales charge, CDSC or other similar charges borne directly or
indirectly by the holder of such shares. For purposes of clarity the parties to
such principal underwriting agreement may state that they intend that a new
installment load class of shares which may be authorized by amendments to Rule
6(c)-10 under the 1940 Act will be considered to be a B-Class-of-Shares if it
has economic characteristics substantially similar to the economic
characteristics of the existing B-1 or B-2 Classes of Shares taking into account
the total sales charge, CDSC or other similar charges borne directly or
indirectly by the holder of such shares and will not be considered to be a
B-Class-of-Shares if it has economic characteristics substantially similar to
the economic characteristics of the existing C Class of shares of the Fund
taking into account the total sales charge, CDSC or other similar charges borne
directly or indirectly by the holder of such shares. For purposes of such
principal underwriting agreement, "Allocation Schedule" may mean a schedule
which shall be approved by Directors (as defined below) in connection with their
required approval of such principal underwriting agreement as assigning to each
Principal Underwriter of Shares the portion of the total Distribution Fees
payable by the Fund under such principal underwriting agreement which has been
earned by such Principal Underwriter to the extent necessary so that the
continued payments thereof if such Principal Underwriter ceases to serve in that
capacity does not penalize the Fund by requiring it to pay for services that
have not been earned.
Section 3. This Plan shall not take effect until it has been approved by a
vote of at least a majority (as defined in the 1940 Act) of the outstanding
Shares.
Section 4. This Plan, and the specific implementation of expenditures
provided for under this Plan, shall not take effect until this Plan, and such
implementation, have been approved, together with any related agreements of the
Fund, by votes of both (a) a majority of the Board of Trustees or Directors
(together the "Directors") of the Fund and (b) a majority of those Directors of
the Fund who are not "interested persons" of the Fund (as said term is defined
in the 1940 Act) and who have no direct or indirect financial interest in the
operation of this Plan or any agreements of the Fund or any other person related
to this Plan (the "Rule 12b-1 Directors"), cast in person at a meeting called
for the purpose of voting on this Plan or such agreements.
Section 5. Unless sooner terminated pursuant to Section 7 hereof, this Plan
shall continue in effect for a period of one year from the date it takes effect
and thereafter shall continue in effect so long as such continuance is
specifically approved at least annually in the manner provided for approval of
this Plan in Section 4 hereof, except that, if terminated except for payments
provided to be made after termination of other aspects of this Plan, such
payments may be made pursuant to approvals made, and or agreements approved, as
provided above.
Section 6. Any person authorized to direct the disposition of monies paid
or payable by the Fund pursuant to this Plan or any related agreement shall
provide to the Fund's Board of Directors, and the Board shall review, at least
quarterly a written report of the amounts so expended and the purposes for which
such expenditures were made.
Section 7. This Plan may be terminated, in whole or in part, at any time by
vote of a majority of the Rule 12b-1 Directors or by vote of a majority of the
outstanding Shares, with the effects provided for in Section 2, as applicable.
Section 8. Any agreement of the Fund related to this Plan shall be in
writing, and shall provide as follows:
(a) That such agreement may be terminated at any time, without payment of
any penalty, by vote of a majority of the Rule 12b-1 Directors or by a
vote of a majority of the outstanding Shares on not more than sixty
days written notice to any other party to the agreement; and
(b) That such agreement shall terminate automatically in the event of its
assignment.
Section 9. This Plan may not be amended to increase materially the amount
of distribution expenses provided for in Section 2 hereof unless such amendment
is approved in the manner provided in Section 3 hereof, and no material
amendment to this Plan shall be made unless approved in the manner provided for
in Section 4 hereof.
<PAGE>
DISTRIBUTION PLAN
FOR
CLASS B-1 SHARES
OF
KEYSTONE MISSOURI TAX FREE FUND,
A SERIES OF KEYSTONE STATE TAX FREE FUND - SERIES II
Section 1. Keystone State Tax Free Fund - Series II, individually and/or on
behalf of its series, if any, referred to above in the title of this 12b-1 Plan
(the "Plan"), to which series this Plan shall then relate, as applicable (the
"Fund"), may act as the distributor of certain securities of which it is the
issuer pursuant to Rule 12b-1 under the Investment Company Act of 1940 (the
"1940 Act") according to the terms of this Distribution Plan.
Section 2. The Fund may expend daily amounts at an annual rate of up to
1.00% of the average daily net asset value of the Fund attributable to the
Fund's Class B-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 MISSOURI TAX FREE FUND,
A SERIES OF KEYSTONE STATE TAX FREE FUND - SERIES II
Section 1. Keystone State Tax Free Fund - Series II, individually and/or on
behalf of its series, if any, referred to above in the title of this 12b-1 Plan
(the "Plan"), to which series this Plan shall then relate, as applicable (the
"Fund"), may act as the distributor of certain securities of which it is the
issuer pursuant to Rule 12b-1 under the Investment Company Act of 1940 (the
"1940 Act") according to the terms of this Distribution Plan.
Section 2. The Fund may expend daily amounts at an annual rate of up to
1.00% of the average daily net asset value of the Fund attributable to the
Fund's Class B-2 shares (the "Shares"). Such amounts may be expended to finance
any activity that is principally intended to result in the sale of Shares,
including, without limitation, expenditures consisting of payments to a
principal underwriter of the Fund or others as sales commissions or other
compensation for services provided or to be provided ("Distribution Fees") or as
reimbursement for expenses that are incurred or accrued at any time during which
this Plan is in effect, together with interest on any such amounts, at rates
approved by the Rule 12b-1 Directors (as defined below) in the manner referred
to below, all whether or not this Plan has been otherwise terminated, if such
payment of such expenditures is for services theretofore provided or for
reimbursement of expenses theretofore incurred or accrued prior to termination
of this Plan in other respects and if such payment is or has been so approved by
such Rule 12b-1 Directors, or agreed to by the Fund with such approval, all
subject to such specific implementation as such 12b-1 Directors may approve;
provided that, at the time any such payment is made, whether or not this Plan
has been otherwise terminated, the making of such payment will not cause the
limitation upon such payments set forth in the preceding sentence to be
exceeded. Without limiting the generality of the foregoing, the Fund may pay to,
or on the order of, any person who has served from time to time as principal
underwriter (a "Principal Underwriter") amounts for distribution services
pursuant to a principal underwriting agreement or otherwise. No principal
underwriting agreement or other agreement shall be an agreement related to this
Plan, as referred to in Rule 12b-1 of the Securities and Exchange Commission,
unless it specifically states that it is such a related agreement. Any such
principal underwriting agreement may, but need not, provide that such Principal
Underwriter may be paid for distribution services to Class B-2 Shares
and/or other specified classes of shares of the Fund (together the
"B-Class-of-Shares"), a fee which may be designated a Distribution Fee and may
be paid at a rate per annum up to .75% of the average daily net asset value of
such B-Class-of-Shares of the Fund and may, but need not, also provide: (I) that
a Principal Underwriter will be deemed to have fully earned its "Allocable
Portion" of the Distribution Fee upon the sale of the Commission Shares (as
defined in the Allocation Schedule) taken into account in determining its
Allocable Portion; (II) that the Fund's obligation to pay such Principal
Underwriter its Allocable Portion of the Distribution Fees shall be absolute and
unconditional and shall not be subject to dispute, offset, counterclaim or any
defense whatsoever (it being understood that such provision is not a waiver of
the Fund's right to pursue such Principal Underwriter and enforce such claims
against the assets of such Principal Underwriter other than its right to its
Allocable Portion of the Distribution Fees and CDSCs (as defined below); (III)
that the Fund's obligation to pay such Principal Underwriter its Allocable
Portion of the Distribution Fees shall not be changed or terminated except to
the extent required by any change in applicable law, including without
limitation, the Investment Company Act of 1940, the Rules promulgated thereunder
by the Securities and Exchange Commission and the Rules of Fair Practice of the
National Association of Securities Dealers, Inc., in each case enacted or
promulgated after June 1, 1995, or in connection with a "Complete Termination"
(as hereinafter defined); (IV) that the Fund will not waive or change any
contingent deferred sales charge ("CDSC") in respect of the Distributor's
Allocable Portion thereof, except as provided in the Fund's prospectus or
statement of additional information without the consent of the Principal
Underwriter or any assignee of such Principal Underwriter's rights to its
Allocable Portion; (V) that the termination of the Principal Underwriter, the
principal underwriting agreement or this Plan will not terminate such Principal
Underwriter's rights to its Allocable Portion of the CDSCs; and (VI) that any
Principal Underwriter may assign its rights to its Allocable Portion of the
Distribution Fees and CDSCs (but not such Principal Underwriter's obligations to
the Fund under its principal underwriting agreement) to raise funds to make
expenditures described in Section 2 above and in connection therewith, and upon
receipt of notice of such assignment, the Fund shall pay to the assignee such
portion of the Principal Underwriter's Allocable Portion of the Distribution
Fees and CDSCs so assigned. For purposes of such principal underwriting
agreement, the term Allocable Portion of Distribution Fees as applied to any
Principal Underwriter may mean the portion of the Distribution Fee allocable to
Distributor Shares in accordance with the "Allocation Schedule" attached to such
Principal Underwriter's principal underwriting agreement. For purposes of such
principal underwriting agreement, the term Allocable Portion of CDSCs as applied
to any Principal Underwriter may mean the portion of the CDSCs allocable to
Distributor Shares in accordance with the Allocation Schedule attached to such
Principal Underwriter's principal underwriting agreement. For purposes of such
principal underwriting agreement, the term "Complete Termination" may mean a
termination of this Plan involving the cessation of payments of the Distribution
Fees thereunder, the cessation of payments of distribution fees pursuant to
every other rule 12b-1 plan of the Fund for every existing or future
B-Class-of-Shares and the cessation of the offering by the Fund of existing or
future B-Class-of-Shares, which conditions shall be deemed to be satisfied when
they are first complied with and so long thereafter as they are complied with
prior to the earlier of (i) the date upon which all of the B-2 Shares which are
Distributor Shares pursuant to the Allocation Schedule shall have been redeemed
or converted or (ii) a specified date, after either of which times such
conditions need no longer be complied with. For purposes of such principal
underwriting agreement, the term "B-Class-of-Shares" may mean each of the B-1
Class of Shares of the Fund, the B-2 Class of Shares of the Fund and each other
class of shares of the Fund hereafter issued which would be treated as "Shares"
under such Allocation Schedule or which has economic characteristics
substantially similar to those of the B-1 or B-2 Classes of Shares taking into
account the total sales charge, CDSC or other similar charges borne directly or
indirectly by the holder of the shares of such classes. The parties may agree
that the existing C Class of Shares of the Fund does not have substantially
similar economic characteristics to the B-1 or B-2 Classes of Shares taking into
account the total sales charge, CDSC or other similar charges borne directly or
indirectly by the holder of such shares. For purposes of clarity the parties to
such principal underwriting agreement may state that they intend that a new
installment load class of shares which may be authorized by amendments to Rule
6(c)-10 under the 1940 Act will be considered to be a B-Class-of-Shares if it
has economic characteristics substantially similar to the economic
characteristics of the existing B-1 or B-2 Classes of Shares taking into account
the total sales charge, CDSC or other similar charges borne directly or
indirectly by the holder of such shares and will not be considered to be a
B-Class-of-Shares if it has economic characteristics substantially similar to
the economic characteristics of the existing C Class of shares of the Fund
taking into account the total sales charge, CDSC or other similar charges borne
directly or indirectly by the holder of such shares. For purposes of such
principal underwriting agreement, "Allocation Schedule" may mean a schedule
which shall be approved by Directors (as defined below) in connection with their
required approval of such principal underwriting agreement as assigning to each
Principal Underwriter of Shares the portion of the total Distribution Fees
payable by the Fund under such principal underwriting agreement which has been
earned by such Principal Underwriter to the extent necessary so that the
continued payments thereof if such Principal Underwriter ceases to serve in that
capacity does not penalize the Fund by requiring it to pay for services that
have not been earned.
Section 3. This Plan shall not take effect until it has been approved by a
vote of at least a majority (as defined in the 1940 Act) of the outstanding
Shares.
Section 4. This Plan, and the specific implementation of expenditures
provided for under this Plan, shall not take effect until this Plan, and such
implementation, have been approved, together with any related agreements of the
Fund, by votes of both (a) a majority of the Board of Trustees or Directors
(together the "Directors") of the Fund and (b) a majority of those Directors of
the Fund who are not "interested persons" of the Fund (as said term is defined
in the 1940 Act) and who have no direct or indirect financial interest in the
operation of this Plan or any agreements of the Fund or any other person related
to this Plan (the "Rule 12b-1 Directors"), cast in person at a meeting called
for the purpose of voting on this Plan or such agreements.
Section 5. Unless sooner terminated pursuant to Section 7 hereof, this Plan
shall continue in effect for a period of one year from the date it takes effect
and thereafter shall continue in effect so long as such continuance is
specifically approved at least annually in the manner provided for approval of
this Plan in Section 4 hereof, except that, if terminated except for payments
provided to be made after termination of other aspects of this Plan, such
payments may be made pursuant to approvals made, and or agreements approved, as
provided above.
Section 6. Any person authorized to direct the disposition of monies paid
or payable by the Fund pursuant to this Plan or any related agreement shall
provide to the Fund's Board of Directors, and the Board shall review, at least
quarterly a written report of the amounts so expended and the purposes for which
such expenditures were made.
Section 7. This Plan may be terminated, in whole or in part, at any time by
vote of a majority of the Rule 12b-1 Directors or by vote of a majority of the
outstanding Shares, with the effects provided for in Section 2, as applicable.
Section 8. Any agreement of the Fund related to this Plan shall be in
writing, and shall provide as follows:
(a) That such agreement may be terminated at any time, without payment of
any penalty, by vote of a majority of the Rule 12b-1 Directors or by a
vote of a majority of the outstanding Shares on not more than sixty
days written notice to any other party to the agreement; and
(b) That such agreement shall terminate automatically in the event of its
assignment.
Section 9. This Plan may not be amended to increase materially the amount
of distribution expenses provided for in Section 2 hereof unless such amendment
is approved in the manner provided in Section 3 hereof, and no material
amendment to this Plan shall be made unless approved in the manner provided for
in Section 4 hereof.
<PAGE>
DISTRIBUTION PLAN
FOR
CLASS B-2 SHARES
OF
KEYSTONE CALIFORNIA INSURED TAX FREE FUND,
A SERIES OF KEYSTONE STATE TAX FREE FUND - SERIES II
Section 1. Keystone State Tax Free Fund - Series II, individually and/or on
behalf of its series, if any, referred to above in the title of this 12b-1 Plan
(the "Plan"), to which series this Plan shall then relate, as applicable (the
"Fund"), may act as the distributor of certain securities of which it is the
issuer pursuant to Rule 12b-1 under the Investment Company Act of 1940 (the
"1940 Act") according to the terms of this Distribution Plan.
Section 2. The Fund may expend daily amounts at an annual rate of up to
1.00% of the average daily net asset value of the Fund attributable to the
Fund's Class B-2 shares (the "Shares"). Such amounts may be expended to finance
any activity that is principally intended to result in the sale of Shares,
including, without limitation, expenditures consisting of payments to a
principal underwriter of the Fund or others as sales commissions or other
compensation for services provided or to be provided ("Distribution Fees") or as
reimbursement for expenses that are incurred or accrued at any time during which
this Plan is in effect, together with interest on any such amounts, at rates
approved by the Rule 12b-1 Directors (as defined below) in the manner referred
to below, all whether or not this Plan has been otherwise terminated, if such
payment of such expenditures is for services theretofore provided or for
reimbursement of expenses theretofore incurred or accrued prior to termination
of this Plan in other respects and if such payment is or has been so approved by
such Rule 12b-1 Directors, or agreed to by the Fund with such approval, all
subject to such specific implementation as such 12b-1 Directors may approve;
provided that, at the time any such payment is made, whether or not this Plan
has been otherwise terminated, the making of such payment will not cause the
limitation upon such payments set forth in the preceding sentence to be
exceeded. Without limiting the generality of the foregoing, the Fund may pay to,
or on the order of, any person who has served from time to time as principal
underwriter (a "Principal Underwriter") amounts for distribution services
pursuant to a principal underwriting agreement or otherwise. No principal
underwriting agreement or other agreement shall be an agreement related to this
Plan, as referred to in Rule 12b-1 of the Securities and Exchange Commission,
unless it specifically states that it is such a related agreement. Any such
principal underwriting agreement may, but need not, provide that such Principal
Underwriter may be paid for distribution services to Class B-2 Shares
and/or other specified classes of shares of the Fund (together the
"B-Class-of-Shares"), a fee which may be designated a Distribution Fee and may
be paid at a rate per annum up to .75% of the average daily net asset value of
such B-Class-of-Shares of the Fund and may, but need not, also provide: (I) that
a Principal Underwriter will be deemed to have fully earned its "Allocable
Portion" of the Distribution Fee upon the sale of the Commission Shares (as
defined in the Allocation Schedule) taken into account in determining its
Allocable Portion; (II) that the Fund's obligation to pay such Principal
Underwriter its Allocable Portion of the Distribution Fees shall be absolute and
unconditional and shall not be subject to dispute, offset, counterclaim or any
defense whatsoever (it being understood that such provision is not a waiver of
the Fund's right to pursue such Principal Underwriter and enforce such claims
against the assets of such Principal Underwriter other than its right to its
Allocable Portion of the Distribution Fees and CDSCs (as defined below); (III)
that the Fund's obligation to pay such Principal Underwriter its Allocable
Portion of the Distribution Fees shall not be changed or terminated except to
the extent required by any change in applicable law, including without
limitation, the Investment Company Act of 1940, the Rules promulgated thereunder
by the Securities and Exchange Commission and the Rules of Fair Practice of the
National Association of Securities Dealers, Inc., in each case enacted or
promulgated after June 1, 1995, or in connection with a "Complete Termination"
(as hereinafter defined); (IV) that the Fund will not waive or change any
contingent deferred sales charge ("CDSC") in respect of the Distributor's
Allocable Portion thereof, except as provided in the Fund's prospectus or
statement of additional information without the consent of the Principal
Underwriter or any assignee of such Principal Underwriter's rights to its
Allocable Portion; (V) that the termination of the Principal Underwriter, the
principal underwriting agreement or this Plan will not terminate such Principal
Underwriter's rights to its Allocable Portion of the CDSCs; and (VI) that any
Principal Underwriter may assign its rights to its Allocable Portion of the
Distribution Fees and CDSCs (but not such Principal Underwriter's obligations to
the Fund under its principal underwriting agreement) to raise funds to make
expenditures described in Section 2 above and in connection therewith, and upon
receipt of notice of such assignment, the Fund shall pay to the assignee such
portion of the Principal Underwriter's Allocable Portion of the Distribution
Fees and CDSCs so assigned. For purposes of such principal underwriting
agreement, the term Allocable Portion of Distribution Fees as applied to any
Principal Underwriter may mean the portion of the Distribution Fee allocable to
Distributor Shares in accordance with the "Allocation Schedule" attached to such
Principal Underwriter's principal underwriting agreement. For purposes of such
principal underwriting agreement, the term Allocable Portion of CDSCs as applied
to any Principal Underwriter may mean the portion of the CDSCs allocable to
Distributor Shares in accordance with the Allocation Schedule attached to such
Principal Underwriter's principal underwriting agreement. For purposes of such
principal underwriting agreement, the term "Complete Termination" may mean a
termination of this Plan involving the cessation of payments of the Distribution
Fees thereunder, the cessation of payments of distribution fees pursuant to
every other rule 12b-1 plan of the Fund for every existing or future
B-Class-of-Shares and the cessation of the offering by the Fund of existing or
future B-Class-of-Shares, which conditions shall be deemed to be satisfied when
they are first complied with and so long thereafter as they are complied with
prior to the earlier of (i) the date upon which all of the B-2 Shares which are
Distributor Shares pursuant to the Allocation Schedule shall have been redeemed
or converted or (ii) a specified date, after either of which times such
conditions need no longer be complied with. For purposes of such principal
underwriting agreement, the term "B-Class-of-Shares" may mean each of the B-1
Class of Shares of the Fund, the B-2 Class of Shares of the Fund and each other
class of shares of the Fund hereafter issued which would be treated as "Shares"
under such Allocation Schedule or which has economic characteristics
substantially similar to those of the B-1 or B-2 Classes of Shares taking into
account the total sales charge, CDSC or other similar charges borne directly or
indirectly by the holder of the shares of such classes. The parties may agree
that the existing C Class of Shares of the Fund does not have substantially
similar economic characteristics to the B-1 or B-2 Classes of Shares taking into
account the total sales charge, CDSC or other similar charges borne directly or
indirectly by the holder of such shares. For purposes of clarity the parties to
such principal underwriting agreement may state that they intend that a new
installment load class of shares which may be authorized by amendments to Rule
6(c)-10 under the 1940 Act will be considered to be a B-Class-of-Shares if it
has economic characteristics substantially similar to the economic
characteristics of the existing B-1 or B-2 Classes of Shares taking into account
the total sales charge, CDSC or other similar charges borne directly or
indirectly by the holder of such shares and will not be considered to be a
B-Class-of-Shares if it has economic characteristics substantially similar to
the economic characteristics of the existing C Class of shares of the Fund
taking into account the total sales charge, CDSC or other similar charges borne
directly or indirectly by the holder of such shares. For purposes of such
principal underwriting agreement, "Allocation Schedule" may mean a schedule
which shall be approved by Directors (as defined below) in connection with their
required approval of such principal underwriting agreement as assigning to each
Principal Underwriter of Shares the portion of the total Distribution Fees
payable by the Fund under such principal underwriting agreement which has been
earned by such Principal Underwriter to the extent necessary so that the
continued payments thereof if such Principal Underwriter ceases to serve in that
capacity does not penalize the Fund by requiring it to pay for services that
have not been earned.
Section 3. This Plan shall not take effect until it has been approved by a
vote of at least a majority (as defined in the 1940 Act) of the outstanding
Shares.
Section 4. This Plan, and the specific implementation of expenditures
provided for under this Plan, shall not take effect until this Plan, and such
implementation, have been approved, together with any related agreements of the
Fund, by votes of both (a) a majority of the Board of Trustees or Directors
(together the "Directors") of the Fund and (b) a majority of those Directors of
the Fund who are not "interested persons" of the Fund (as said term is defined
in the 1940 Act) and who have no direct or indirect financial interest in the
operation of this Plan or any agreements of the Fund or any other person related
to this Plan (the "Rule 12b-1 Directors"), cast in person at a meeting called
for the purpose of voting on this Plan or such agreements.
Section 5. Unless sooner terminated pursuant to Section 7 hereof, this Plan
shall continue in effect for a period of one year from the date it takes effect
and thereafter shall continue in effect so long as such continuance is
specifically approved at least annually in the manner provided for approval of
this Plan in Section 4 hereof, except that, if terminated except for payments
provided to be made after termination of other aspects of this Plan, such
payments may be made pursuant to approvals made, and or agreements approved, as
provided above.
Section 6. Any person authorized to direct the disposition of monies paid
or payable by the Fund pursuant to this Plan or any related agreement shall
provide to the Fund's Board of Directors, and the Board shall review, at least
quarterly a written report of the amounts so expended and the purposes for which
such expenditures were made.
Section 7. This Plan may be terminated, in whole or in part, at any time by
vote of a majority of the Rule 12b-1 Directors or by vote of a majority of the
outstanding Shares, with the effects provided for in Section 2, as applicable.
Section 8. Any agreement of the Fund related to this Plan shall be in
writing, and shall provide as follows:
(a) That such agreement may be terminated at any time, without payment of
any penalty, by vote of a majority of the Rule 12b-1 Directors or by a
vote of a majority of the outstanding Shares on not more than sixty
days written notice to any other party to the agreement; and
(b) That such agreement shall terminate automatically in the event of its
assignment.
Section 9. This Plan may not be amended to increase materially the amount
of distribution expenses provided for in Section 2 hereof unless such amendment
is approved in the manner provided in Section 3 hereof, and no material
amendment to this Plan shall be made unless approved in the manner provided for
in Section 4 hereof.
<PAGE>
KEYSTONE AMERICA CALIFORNIA INSURED TAX FREE FUND
CLASS C DISTRIBUTION PLAN
SECTION 1. Keystone America California Insured Tax Free Fund (the
"Fund") may act as the distributor of securities of which it is the issuer
pursuant to Rule 12b-1 under the Investment Company Act of 1940 (the "1940 Act")
according to the terms of this Distribution Plan ("Plan").
SECTION 2. The Fund may expend daily amounts at an annual rate of 1.00%
of the average daily net asset value of the Fund attributable to the Fund's
Class C shares to finance any activity that is principally intended to result in
the sale of Class C shares, including, without limitation, expenditures
consisting of payments to a principal underwriter of the Fund ("Principal
Underwriter") or others as sales commissions or other compensation for their
services that have been earned or as reimbursement for expenses that have been
incurred or accrued at any time during which this Plan has been in effect
together with interest at a rate approved from time to time by the Rule 12b-1
Trustees (as defined below) on any such amounts.
SECTION 3. This Plan shall not take effect until it has been approved
by a vote of at least a majority (as defined in the 1940 Act) of the outstanding
Class C shares.
SECTION 4. This Plan shall not take effect until it has been approved
together with any related agreements of the Fund by votes of a majority of both
(a) the Board of Trustees of the Fund and (b) those Trustees of the Fund who are
not "interested persons" of the Fund (as said term is defined in the 1940 Act)
and who have no direct or indirect financial interest in the operation of this
Plan or any agreements of the Fund or any other person related to this Plan (the
"Rule 12b-1 Trustees"), cast in person at a meeting called for the purpose of
voting on this Plan or such agreements.
SECTION 5. Unless sooner terminated pursuant to Section 7 hereof, this
Plan shall continue in effect for a period of one year from the date it takes
effect and thereafter shall continue in effect so long as such continuance is
specifically approved at least annually in the manner provided for approval of
this Plan in Section 4 hereof.
SECTION 6. Any person authorized to direct the disposition of monies
paid or payable by the Fund pursuant to this Plan or any related agreement shall
provide to the Fund's Board of Trustees and the Board shall review at least
quarterly a written report of the amounts so expended and the purposes for which
such expenditures were made.
SECTION 7. This Plan may be terminated at any time by vote of a
majority of the Rule 12b-1 Trustees or by vote of a majority of the outstanding
Class C shares.
SECTION 8. Any agreement of the Fund related to this Plan shall be in
writing, and shall provide as follows:
(a) That such agreement may be terminated at any time, without
payment of any penalty, by vote of a majority of the Rule
12b-1 Trustees or by a vote of a majority of the outstanding
Class C shares on not more than sixty days written notice to
any other party to the agreement; and
(b) That such agreement shall terminate automatically in
the event of its assignment.
SECTION 9. This Plan may not be amended to increase materially the
amount of distribution expenses provided for in Section 2 hereof unless such
amendment is approved in the manner provided in Section 3 hereof and no material
amendment to this Plan shall be made unless approved in the manner provided for
in Section 4 hereof.
<PAGE>
KEYSTONE AMERICA MISSOURI TAX FREE FUND
CLASS C DISTRIBUTION PLAN
SECTION 1. Keystone America Missouri Tax Free Fund (the "Fund") may act
as the distributor of securities of which it is the issuer pursuant to Rule
12b-1 under the Investment Company Act of 1940 (the "1940 Act") according to the
terms of this Distribution Plan ("Plan").
SECTION 2. The Fund may expend daily amounts at an annual rate of 1.00%
of the average daily net asset value of the Fund attributable to the Fund's
Class C shares to finance any activity that is principally intended to result in
the sale of Class C shares, including, without limitation, expenditures
consisting of payments to a principal underwriter of the Fund ("Principal
Underwriter") or others as sales commissions or other compensation for their
services that have been earned or as reimbursement for expenses that have been
incurred or accrued at any time during which this Plan has been in effect
together with interest at a rate approved from time to time by the Rule 12b-1
Trustees (as defined below) on any such amounts.
SECTION 3. This Plan shall not take effect until it has been approved
by a vote of at least a majority (as defined in the 1940 Act) of the outstanding
Class C shares.
SECTION 4. This Plan shall not take effect until it has been approved
together with any related agreements of the Fund by votes of a majority of both
(a) the Board of Trustees of the Fund and (b) those Trustees of the Fund who are
not "interested persons" of the Fund (as said term is defined in the 1940 Act)
and who have no direct or indirect financial interest in the operation of this
Plan or any agreements of the Fund or any other person related to this Plan (the
"Rule 12b-1 Trustees"), cast in person at a meeting called for the purpose of
voting on this Plan or such agreements.
SECTION 5. Unless sooner terminated pursuant to Section 7 hereof, this
Plan shall continue in effect for a period of one year from the date it takes
effect and thereafter shall continue in effect so long as such continuance is
specifically approved at least annually in the manner provided for approval of
this Plan in Section 4 hereof.
SECTION 6. Any person authorized to direct the disposition of monies
paid or payable by the Fund pursuant to this Plan or any related agreement shall
provide to the Fund's Board of Trustees and the Board shall review at least
quarterly a written report of the amounts so expended and the purposes for which
such expenditures were made.
SECTION 7. This Plan may be terminated at any time by vote of a
majority of the Rule 12b-1 Trustees or by vote of a majority of the outstanding
Class C shares.
SECTION 8. Any agreement of the Fund related to this Plan shall be in
writing, and shall provide as follows:
(a) That such agreement may be terminated at any time, without
payment of any penalty, by vote of a majority of the Rule
12b-1 Trustees or by a vote of a majority of the outstanding
Class C shares on not more than sixty days written notice to
any other party to the agreement; and
(b) That such agreement shall terminate automatically in
the event of its assignment.
SECTION 9. This Plan may not be amended to increase materially the
amount of distribution expenses provided for in Section 2 hereof unless such
amendment is approved in the manner provided in Section 3 hereof and no material
amendment to this Plan shall be made unless approved in the manner provided for
in Section 4 hereof.
<PAGE>
EXHIBIT 99.16
<TABLE>
<CAPTION>
KACATF CLASS A MTD YTD ONE YEAR THREE YEAR THREE YEAR FIVE YEAR FIVE YEAR
30-Nov-95 TOTAL RETURN COMPOUNDED TOTAL RETURN COMPOUNDED
<C> <C> <C> <C> <C> <C> <C> <C>
4.75% LOAD 13.40% 13.95% 3.94% 2.13% 3.94% 2.13%
no load 3.04% 19.06% 19.63% 9.12% 4.88% 9.12% 4.88%
Beg dates 31-Oct-95 30-Dec-94 30-Nov-94 01-Feb-94 01-Feb-94 01-Feb-94 01-Feb-94
Beg Value (LOAD) 11,119 9,623 9,576 10,499 10,499 10,499 10,499
Beg Value (no load) 10,591 9,166 9,122 10,000 10,000 10,000 10,000
End Value 10,912 10,912 10,912 10,912 10,912 10,912 10,912
TIME 1.8333333333 1.8333333333
KACATF CLASS A TEN YEAR TEN YEAR
30-Nov-95 TOTAL RETURN COMPOUNDED
4.75% LOAD 3.94% 2.13%
no load 9.12% 4.88%
Beg dates 01-Feb-94 01-Feb-94
Beg Value (LOAD) 10,499 10,499
Beg Value (no load) 10,000 10,000
End Value 10,912 10,912
TIME 1.8333333333
INCEPTION DATE 01-Feb-94
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
KACATF-B MTD YTD ONE YEAR THREE YEAR THREE YEAR FIVE YEAR
30-Nov-95 TOTAL RETURN COMPOUNDED TOTAL RETURN
<S> <C> <C> <C> <C> <C> <C>
with cdsc N/A 13.28% 14.95% 4.32% 2.33% NA
W/O CDSC 2.99% 18.28% 18.95% 8.25% 4.42% NA
Beg dates 31-Oct-95 30-Dec-94 30-Nov-94 01-Feb-94 01-Feb-94 01-Feb-94
Beg Value (no load) 10,511 9,152 9,100 10,000 10,000 10,000
End Value (W/O CDSC) 10,825 10,825 10,825 10,825 10,825 10,825
End Value (with cdsc) 10,367 10,461 10,432 10,432 10,727
beg nav 9.57 8.69 8.68 10.00 10 10.00
end nav 9.82 9.82 9.82 9.82 9.82 9.82
shares originally purhased 1,098.29 1,053.12 1,048.41 1,000.00 1,000.00 1,000.00
5% cdsc thru date= 31-Jan-95
TIME 4% cdsc thru date= 31-Jan-96 1.8333333333333
<CAPTION>
KACATF-B FIVE YEAR TEN YEAR TEN YEAR
30-Nov-95 COMPOUNDED TOTAL RETURN COMPOUNDED
with cdsc NA NA NA
W/O CDSC NA NA NA
Beg dates 01-Feb-94 01-Feb-94 01-Feb-94
Beg Value (no load) 10,000 10,000 10,000
End Value (W/O CDSC) 10,825 10,825 10,825
End Value (with cdsc) 10726.5499932 10,825 10824.7499932
beg nav 10 10.00 10
end nav 9.82 9.82 9.82
shares originally purchased 1,000.00 1,000.00 1,000.00
5% cdsc thru date= 31-Jan-95
TIME 4% cdsc thru date= 31-Jan-96 1.8333333333 1.8333333333
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
KACATF-C MTD YTD ONE YEAR THREE YEAR THREE YEAR FIVE YEAR FIVE YEAR
30-Nov-95 TOTAL RETURN COMPOUNDED TOTAL RETURN COMPOUNDED
<S> <C> <C> <C> <C> <C> <C> <C>
with cdsc N/A 17.17% 18.69% 7.91% 4.24% NA NA
W/O CDSC 2.89% 18.17% 18.69% 7.91% 4.24% NA NA
Beg dates 31-Oct-95 30-Dec-94 30-Nov-94 01-Feb-94 01-Feb-94 01-Feb-94 01-Feb-94
Beg Value (no load) 10,488 9,132 9,092 10,000 10,000 10,000 10,000
End Value (W/O CDSC) 10,791 10,791 10,791 10,791 10,791 10,791 10,791
End Value (with cdsc) 10,700 10,791 10,791 10,791 10,791 10791.0083856
beg nav 9.56 8.68 8.68 10.00 10 10.00 10
end nav 9.80 9.80 9.8 9.8 9.8 9.8 9.8
shares originally purchased 1,097.09 1,052.05 1,047.46 1,000.00 1,000.00 1,000.00 1,000.00
TIME 1.8333333333 1.8333333333
<CAPTION>
KACATF-C TEN YEAR TEN YEAR
30-Nov-95 TOTAL RETURN COMPOUNDED
with cdsc NA NA
W/O CDSC NA NA
Beg dates 01-Feb-94 01-Feb-94
Beg Value (no load) 10,000 10,000
End Value (W/O CDSC) 10,791 10,791
End Value (with cdsc) 10,791 10791.0083856
beg nav 10.00 10
end nav 9.8 9.8
shares originally purchased 1,000.00 1,000.00
TIME 1.8333333333
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
KAMOTF CLASS A MTD YTD ONE YEAR THREE YEAR THREE YEAR FIVE YEAR FIVE YEAR
30-Nov-95 TOTAL RETURN COMPOUNDED TOTAL RETURN COMPOUNDED
<S> <C> <C> <C> <C> <C> <C> <C>
4.75% LOAD 10.96% 14.16% 4.40% 2.38% 4.40% 2.38%
no load 1.96% 16.49% 19.86% 9.61% 5.13% 9.61% 5.13%
Beg dates 31-Oct-95 30-Dec-94 30-Nov-94 01-Feb-94 01-Feb-94 01-Feb-94 01-Feb-94
Beg Value (LOAD) 11,287 9,878 9,601 10,499 10,499 10,499 10,499
Beg Value (no load) 10,751 9,409 9,145 10,000 10,000 10,000 10,000
End Value 10,961 10,961 10,961 10,961 10,961 10,961 10,961
TIME 1.8333333333 1.8333333333
<CAPTION>
KAMOTF CLASS A TEN YEAR TEN YEAR
30-Nov-95 TOTAL RETURN COMPOUNDED
4.75% LOAD 4.40% 2.38%
no load 9.61% 5.13%
Beg dates 01-Feb-94 01-Feb-94
Beg Value (LOAD) 10,499 10,499
Beg Value (no load) 10,000 10,000
End Value 10,961 10,961
TIME 1.8333333333
INCEPTION DATE 01-Feb-94
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
KAMOTF-B MTD YTD ONE YEAR THREE YEAR THREE YEAR FIVE YEAR
30-Nov-95 TOTAL RETURN COMPOUNDED TOTAL RETURN
<S> <C> <C> <C> <C> <C> <C>
with cdsc N/A 10.60% 14.79% 4.10% 2.22% NA
W/O CDSC 1.92% 15.60% 18.79% 8.02% 4.30% NA
Beg dates 31-Oct-95 30-Dec-94 30-Nov-94 01-Feb-94 01-Feb-94 01-Feb-94
Beg Value (no load) 10,599 9,345 9,094 10,000 10,000 10,000
End Value (W/O CDSC) 10,802 10,802 10,802 10,802 10,802 10,802
End Value (with cdsc) 10,335 10,439 10,410 10,410 10,704
beg nav 9.65 8.87 8.67 10.00 10 10.00
end nav 9.80 9.80 9.8 9.8 9.8 9.8
shares originally purchased 1,098.37 1,053.51 1,048.90 1,000.00 1,000.00 1,000.00
5% cdsc thru date= 31-Jan-95
TIME 4% cdsc thru date= 31-Jan-96 1.8333333333
KAMOTF-B FIVE YEAR TEN YEAR TEN YEAR
30-Nov-95 COMPOUNDED TOTAL RETURN COMPOUNDED
with cdsc NA NA NA
W/O CDSC NA NA NA
Beg dates 01-Feb-94 01-Feb-94 01-Feb-94
Beg Value (no load) 10,000 10,000 10,000
End Value (W/O CDSC) 10,802 10,802 10,802
End Value (with cdsc) 10704.4497942 10,802 10802.4497942
beg nav 10 10.00 10
end nav 9.8 9.8 9.8
shares originally purchased 1,000.00 1,000.00 1,000.00
5% cdsc thru date= 31-Jan-95
TIME 4% cdsc thru date= 31-Jan-96 1.8333333333 1.8333333333
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
KAMOTF-C MTD YTD ONE YEAR THREE YEAR THREE YEAR FIVE YEAR FIVE YEAR
30-Nov-95 TOTAL RETURN COMPOUNDED TOTAL RETURN COMPOUNDED
<S> <C> <C> <C> <C> <C> <C> <C>
with cdsc N/A 14.60% 18.78% 7.80% 4.18% NA NA
W/O CDSC 1.92% 15.60% 18.78% 7.80% 4.18% NA NA
Beg dates 31-Oct-95 30-Dec-94 30-Nov-94 01-Feb-94 01-Feb-94 01-Feb-94 01-Feb-94
Beg Value (no load) 10,577 9,325 9,075 10,000 10,000 10,000 10,000
End Value (W/O CDSC) 10,780 10,780 10,780 10,780 10,780 10,780 10,780
End Value (with cdsc) 10,687 10,780 10,780 10,780 10,780 10779.9626725
beg nav 9.64 8.86 8.66 10.00 10 10.00 10
end nav 9.79 9.79 9.79 9.79 9.79 9.79 9.79
shares originally purchased 1,097.20 1,052.47 1,047.97 1,000.00 1,000.00 1,000.00 1,000.00
TIME 1.8333333333 1.8333333333
KAMOTF-C TEN YEAR TEN YEAR
30-Nov-95 TOTAL RETURN COMPOUNDED
with cdsc NA NA
W/O CDSC NA NA
Beg dates 01-Feb-94 01-Feb-94
Beg Value (no load) 10,000 10,000
End Value (W/O CDSC) 10,780 10,780
End Value (with cdsc) 10,780 10779.9626725
beg nav 10.00 10
end nav 9.79 9.79
shares originally purchased 1,000.00 1,000.00
TIME 1.8333333333
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------------------
STATE STREET BANK & TRUST COMPANY SEC STANDARDIZED ADVERTISING YIELD
- ----------------------------------------------
42a5 California Tax Free Fund CLASS A #NAME? PHASE II-ROLLING
- -----------------------------------------------------------------------------------------------------------------------------------
A
PRICING DATE 11/27/95
............
TOTAL INCOME FOR PERIOD 20,048.45
TOTAL EXPENSES FOR PERIOD 2,712.09
30 DAY YTM 4.70000% AVERAGE SHARES OUTSTANDING 436,469.70
............
LAST PRICE DURING PERIOD 10.24
...................................................................................................................................
PRICE ST VARIABLE LONG TERM AMORTIATION TOTAL DIV ADJUSTED DAILY
DATE INCOME INCOME INCOME INCOME FACTOR INCOME EXPENSES
...................................................................................................................................
<S> <C> <C> <C> <C> <C> <C> <C> <C>
1 10/29/95 33.96 4,160.39 225.75 4,386.14 14.76344770 647.55 114.86
2 10/30/95 35.21 4,162.43 225.84 4,388.27 14.75837934 647.64 114.85
3 10/31/95 33.11 4,159.12 225.99 4,385.11 14.75917461 647.21 114.92
4 11/01/95 30.94 4,153.82 226.08 4,379.90 14.90887758 652.99 82.24
5 11/02/95 46.24 4,151.68 226.12 4,377.80 14.85911085 650.50 83.65
6 11/03/95 42.68 4,152.39 226.17 4,378.56 14.85912181 650.62 83.90
7 11/04/95 42.68 4,152.39 226.17 4,378.56 14.85912181 650.62 83.90
8 11/05/95 42.68 4,152.39 226.17 4,378.56 14.85912181 650.62 83.90
9 11/06/95 45.28 4,154.58 226.27 4,380.85 14.85394996 650.73 85.61
10 11/07/95 55.84 4,155.08 226.25 4,381.33 14.99668302 657.05 86.05
11 11/08/95 66.41 4,152.69 226.34 4,379.03 15.25431011 667.99 87.01
12 11/09/95 55.79 4,154.37 226.38 4,380.75 15.37578680 673.57 87.35
13 11/10/95 70.14 4,156.84 226.42 4,383.26 15.31214707 671.17 87.55
14 11/11/95 70.14 4,156.84 226.42 4,383.26 15.31214707 671.17 87.55
15 11/12/95 70.14 4,156.84 226.42 4,383.26 15.31214707 671.17 87.55
16 11/13/95 65.97 4,156.68 226.50 4,383.18 15.32650949 671.79 88.36
17 11/14/95 66.54 4,157.26 226.54 4,383.80 15.37101077 673.83 88.56
18 11/15/95 86.48 4,158.51 226.60 4,385.11 15.46613586 678.21 88.76
19 11/16/95 89.96 4,159.45 226.66 4,386.11 15.46167710 678.17 88.95
20 11/17/95 89.95 4,159.33 226.71 4,386.04 15.49037511 679.41 89.56
21 11/18/95 89.95 4,159.33 226.71 4,386.04 15.49037511 679.41 89.56
22 11/19/95 89.95 4,159.33 226.71 4,386.04 15.49037511 679.41 89.56
23 11/20/95 91.55 4,163.93 226.82 4,390.75 15.56043979 683.22 89.16
24 11/21/95 92.89 4,164.73 226.87 4,391.60 15.55147561 682.96 89.65
25 11/22/95 105.98 4,163.01 226.90 4,389.91 15.47673365 679.41 89.85
26 11/23/95 105.98 4,163.01 226.90 4,389.91 15.47673365 679.41 89.85
27 11/24/95 106.74 4,164.31 226.97 4,391.28 15.49826485 680.57 89.85
28 11/25/95 106.74 4,164.31 226.97 4,391.28 15.49826485 680.57 89.85
29 11/26/95 106.74 4,164.31 226.97 4,391.28 15.49826485 680.57 89.85
30 11/27/95 107.22 4,167.03 227.09 4,394.12 15.49594942 680.91 89.84
31 11/28/95 0.00 0.00 0.00
0.00 0.00
2,143.88 124,756.38 0.00 6,794.71 0.00 131,551.09 457.19611183 20,048.45 2,712.09
<CAPTION>
...................................................................................................
PRICE DAILY DAILY ACCUMULATED ACCUMULATED ACCUMULATED
DATE SHARES PRICE INCOME EXPENSES SHARES
...................................................................................................
<S> <C> <C> <C> <C> <C> <C>
1 10/29/95 416,411.864 10.06 647.55 114.86 416,411.864
2 10/30/95 416,411.864 10.06 1,295.19 229.71 832,823.728
3 10/31/95 416,411.864 10.09 1,942.40 344.63 1,249,235.592
4 11/01/95 421,862.950 10.13 2,595.39 426.87 1,671,098.542
5 11/02/95 421,964.950 10.16 3,245.89 510.52 2,093,063.492
6 11/03/95 421,964.950 10.15 3,896.51 594.42 2,515,028.442
7 11/04/95 421,964.950 10.15 4,547.13 678.33 2,936,993.392
8 11/05/95 421,964.950 10.15 5,197.75 762.23 3,358,958.342
9 11/06/95 421,964.950 10.15 5,848.48 847.84 3,780,923.292
10 11/07/95 427,383.669 10.14 6,505.53 933.89 4,208,306.961
11 11/08/95 436,045.669 10.17 7,173.52 1,020.90 4,644,352.630
12 11/09/95 438,509.669 10.16 7,847.09 1,108.25 5,082,862.299
13 11/10/95 438,509.669 10.14 8,518.26 1,195.80 5,521,371.968
14 11/11/95 438,509.669 10.14 9,189.43 1,283.34 5,959,881.637
15 11/12/95 438,509.669 10.14 9,860.60 1,370.89 6,398,391.306
16 11/13/95 438,509.669 10.17 10,532.39 1,459.25 6,836,900.975
17 11/14/95 440,014.094 10.17 11,206.22 1,547.81 7,276,915.069
18 11/15/95 444,935.354 10.17 11,884.43 1,636.57 7,721,850.423
19 11/16/95 444,936.354 10.22 12,562.60 1,725.52 8,166,786.777
20 11/17/95 445,913.354 10.22 13,242.01 1,815.08 8,612,700.131
21 11/18/95 445,913.354 10.22 13,921.42 1,904.65 9,058,613.485
22 11/19/95 445,913.354 10.22 14,600.83 1,994.21 9,504,526.839
23 11/20/95 448,214.354 10.22 15,284.05 2,083.37 9,952,741.193
24 11/21/95 448,214.354 10.22 15,967.01 2,173.02 10,400,955.547
25 11/22/95 448,214.354 10.22 16,646.42 2,262.87 10,849,169.901
26 11/23/95 448,214.354 10.22 17,325.83 2,352.71 11,297,384.255
27 11/24/95 449,193.354 10.22 18,006.40 2,442.56 11,746,577.609
28 11/25/95 449,193.354 10.22 18,686.97 2,532.40 12,195,770.963
29 11/26/95 449,193.354 10.22 19,367.54 2,622.25 12,644,964.317
30 11/27/95 449,126.762 10.24 20,048.45 2,712.09 13,094,091.079
31 11/28/95 20,048.45 2,712.09 13,094,091.079
436,469.703
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------------------
STATE STREET BANK & TRUST COMPANY SEC STANDARDIZED ADVERTISING YIELD
- ---------------------------------------------
42a5 California Tax Free Fund CLASS B #NAME? PHASE II-ROLLING
- -----------------------------------------------------------------------------------------------------------------------------------
B
PRICING DATE 11/27/95
..............
TOTAL INCOME FOR PERIOD 106,381.78
TOTAL EXPENSES FOR PERIOD 27,740.78
30 DAY YTM 4.28469% AVERAGE SHARES OUTSTANDING 2,288,416.71
..............
LAST PRICE DURING PERIOD 9.71
...............................................................................................................................
PRICE ST VARIABLE LONG TERM AMORT TOTAL DIV ADJUSTED DAILY
DATE INCOME INCOME INCOME INCOME FACTOR INCOME EXPENSES
...............................................................................................................................
<S> <C> <C> <C> <C> <C> <C> <C> <C>
1 10/29/95 33.96 4,160.39 225.75 4,420.10 80.12274620 3,541.51 1,068.52
2 10/30/95 35.21 4,162.43 225.84 4,423.48 80.12973434 3,544.52 1,068.42
3 10/31/95 33.11 4,159.12 225.99 4,418.22 80.13246297 3,540.43 1,069.33
4 11/01/95 30.94 4,153.82 226.08 4,410.84 79.98716410 3,528.11 896.88
5 11/02/95 46.24 4,151.68 226.12 4,424.04 80.05415945 3,541.63 901.36
6 11/03/95 42.68 4,152.39 226.17 4,421.24 80.05414988 3,539.39 904.46
7 11/04/95 42.68 4,152.39 226.17 4,421.24 80.05414988 3,539.39 904.46
8 11/05/95 42.68 4,152.39 226.17 4,421.24 80.05414988 3,539.39 904.46
9 11/06/95 45.28 4,154.58 226.27 4,426.13 80.06113478 3,543.61 905.30
10 11/07/95 55.84 4,155.08 226.25 4,437.17 79.93280696 3,546.75 905.81
11 11/08/95 66.41 4,152.69 226.34 4,445.44 79.69053966 3,542.60 900.37
12 11/09/95 55.79 4,154.37 226.38 4,436.54 79.55743860 3,529.60 903.79
13 11/10/95 70.14 4,156.84 226.42 4,453.40 79.64204512 3,546.78 901.74
14 11/11/95 70.14 4,156.84 226.42 4,453.40 79.64204512 3,546.78 901.74
15 11/12/95 70.14 4,156.84 226.42 4,453.40 79.64204512 3,546.78 901.74
16 11/13/95 65.97 4,156.68 226.50 4,449.15 79.62294116 3,542.54 904.67
17 11/14/95 66.54 4,157.26 226.54 4,450.34 79.58109666 3,541.63 907.10
18 11/15/95 86.48 4,158.51 226.60 4,471.59 79.20576398 3,541.76 907.11
19 11/16/95 89.96 4,159.45 226.66 4,476.07 79.21190500 3,545.58 907.06
20 11/17/95 89.95 4,159.33 226.71 4,475.99 79.18502230 3,544.31 911.02
21 11/18/95 89.95 4,159.33 226.71 4,475.99 79.18502230 3,544.31 911.02
22 11/19/95 89.95 4,159.33 226.71 4,475.99 79.18502230 3,544.31 911.02
23 11/20/95 91.55 4,163.93 226.82 4,482.30 79.11834316 3,546.32 917.45
24 11/21/95 92.89 4,164.73 226.87 4,484.49 79.08581565 3,546.60 917.70
25 11/22/95 105.98 4,163.01 226.90 4,495.89 79.18633168 3,560.13 917.84
26 11/23/95 105.98 4,163.01 226.90 4,495.89 79.18633168 3,560.13 917.84
27 11/24/95 106.74 4,164.31 226.97 4,498.02 79.16902972 3,561.04 917.18
28 11/25/95 106.74 4,164.31 226.97 4,498.02 79.16902972 3,561.04 917.18
29 11/26/95 106.74 4,164.31 226.97 4,498.02 79.16902972 3,561.04 917.18
30 11/27/95 107.22 4,167.03 227.09 4,501.34 79.17136322 3,563.77 921.03
31 11/28/95 0.00 0.00 0.00 0.00 0.00000000 0.00 0.00
2,143.88 124,756.38 6,794.71 133,694.97 2387.1888203 106,381.78 27,740.78
<CAPTION>
......................................................................................................
PRICE DAILY DAILY ACCUMULATED ACCUMULATED ACCUMULATED
DATE SHARES PRICE INCOME EXPENSES SHARES
......................................................................................................
<S> <C> <C> <C> <C> <C> <C>
1 10/29/95 2,269,585.601 9.54 3,541.51 1,068.52 2,269,585.601
2 10/30/95 2,270,635.601 9.53 7,086.03 2,136.94 4,540,221.202
3 10/31/95 2,270,614.615 9.57 10,626.46 3,206.27 6,810,835.817
4 11/01/95 2,273,137.055 9.61 14,154.57 4,103.15 9,083,972.872
5 11/02/95 2,283,205.055 9.63 17,696.20 5,004.51 11,367,177.927
6 11/03/95 2,283,205.055 9.63 21,235.59 5,908.97 13,650,382.982
7 11/04/95 2,283,205.055 9.63 24,774.98 6,813.42 15,933,588.037
8 11/05/95 2,283,205.055 9.63 28,314.37 7,717.88 18,216,793.092
9 11/06/95 2,284,217.904 9.63 31,857.98 8,623.18 20,501,010.996
10 11/07/95 2,287,854.904 9.61 35,404.73 9,528.99 22,788,865.900
11 11/08/95 2,287,854.904 9.65 38,947.33 10,429.36 25,076,720.804
12 11/09/95 2,278,793.618 9.64 42,476.93 11,333.15 27,355,514.422
13 11/10/95 2,290,696.040 9.62 46,023.71 12,234.89 29,646,210.462
14 11/11/95 2,290,696.040 9.62 49,570.49 13,136.62 31,936,906.502
15 11/12/95 2,290,696.040 9.62 53,117.27 14,038.36 34,227,602.542
16 11/13/95 2,287,993.940 9.65 56,659.81 14,943.03 36,515,596.482
17 11/14/95 2,287,993.940 9.65 60,201.44 15,850.13 38,803,590.422
18 11/15/95 2,288,513.940 9.64 63,743.20 16,757.24 41,092,104.362
19 11/16/95 2,289,359.437 9.68 67,288.78 17,664.30 43,381,463.799
20 11/17/95 2,289,361.248 9.69 70,833.09 18,575.32 45,670,825.047
21 11/18/95 2,289,361.248 9.69 74,377.40 19,486.35 47,960,186.295
22 11/19/95 2,289,361.248 9.69 77,921.71 20,397.37 50,249,547.543
23 11/20/95 2,288,891.248 9.69 81,468.03 21,314.82 52,538,438.791
24 11/21/95 2,289,272.395 9.69 85,014.63 22,232.52 54,827,711.186
25 11/22/95 2,303,249.395 9.69 88,574.76 23,150.36 57,130,960.581
26 11/23/95 2,303,249.395 9.69 92,134.89 24,068.20 59,434,209.976
27 11/24/95 2,304,572.337 9.69 95,695.93 24,985.38 61,738,782.313
28 11/25/95 2,304,572.337 9.69 99,256.97 25,902.57 64,043,354.650
29 11/26/95 2,304,572.337 9.69 102,818.01 26,819.75 66,347,926.987
30 11/27/95 2,304,574.271 9.70 106,381.78 27,740.78 68,652,501.258
31 11/28/95 0.000 0.00 106,381.78 27,740.78 68,652,501.258
2,288,416.709
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------------------
STATE STREET BANK & TRUST COMPANY SEC STANDARDIZED ADVERTISING YIELD
- ---------------------------------------------
42a5 California Tax Free Fund CLASS C #NAME? PHASE II-ROLLING
- -----------------------------------------------------------------------------------------------------------------------------------
C
PRICING DATE 11/27/95
..............
TOTAL INCOME FOR PERIOD 6,935.96
TOTAL EXPENSES FOR PERIOD 1,804.09
30 DAY YTM 4.28368% AVERAGE SHARES OUTSTANDING 149,524.16
..............
LAST PRICE DURING PERIOD 9.70
...............................................................................................................................
PRICE ST FIXED ZERO COUPON LONG TERM AMORT TOTAL DIV ADJUSTED DAILY
DATE INCOME AND DIV INC INCOME INCOME INCOME FACTOR INCOME EXPENSES
...............................................................................................................................
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1 10/29/95 33.96 4,160.39 0.00 225.75 0.00 4,420.10 5.11380610 226.04 68.18
2 10/30/95 35.21 4,162.43 0.00 225.84 0.00 4,423.48 5.11188632 226.12 68.16
3 10/31/95 33.11 4,159.12 0.00 225.99 0.00 4,418.22 5.10836242 225.70 68.15
4 11/01/95 30.94 4,153.82 0.00 226.08 0.00 4,410.84 5.10395831 225.13 56.94
5 11/02/95 46.24 4,151.68 0.00 226.12 0.00 4,424.04 5.08672970 225.04 57.28
6 11/03/95 42.68 4,152.39 0.00 226.17 0.00 4,421.24 5.08672831 224.90 57.44
7 11/04/95 42.68 4,152.39 0.00 226.17 0.00 4,421.24 5.08672831 224.90 57.44
8 11/05/95 42.68 4,152.39 0.00 226.17 0.00 4,421.24 5.08672831 224.90 57.44
9 11/06/95 45.28 4,154.58 0.00 226.27 0.00 4,426.13 5.08491525 225.06 57.43
10 11/07/95 55.84 4,155.08 0.00 226.25 0.00 4,437.17 5.07051002 224.99 57.41
11 11/08/95 66.41 4,152.69 0.00 226.34 0.00 4,445.44 5.05515023 224.72 57.34
12 11/09/95 55.79 4,154.37 0.00 226.38 0.00 4,436.54 5.06677460 224.79 57.57
13 11/10/95 70.14 4,156.84 0.00 226.42 0.00 4,453.40 5.04580781 224.71 57.50
14 11/11/95 70.14 4,156.84 0.00 226.42 0.00 4,453.40 5.04580781 224.71 57.50
15 11/12/95 70.14 4,156.84 0.00 226.42 0.00 4,453.40 5.04580781 224.71 57.50
16 11/13/95 65.97 4,156.68 0.00 226.50 0.00 4,449.15 5.05054935 224.71 57.39
17 11/14/95 66.54 4,157.26 0.00 226.54 0.00 4,450.34 5.04789257 224.65 57.52
18 11/15/95 86.48 4,158.51 0.00 226.60 0.00 4,471.59 5.32810016 238.25 57.53
19 11/16/95 89.96 4,159.45 0.00 226.66 0.00 4,476.07 5.32641790 238.41 61.02
20 11/17/95 89.95 4,159.33 0.00 226.71 0.00 4,475.99 5.32460259 238.33 61.26
21 11/18/95 89.95 4,159.33 0.00 226.71 0.00 4,475.99 5.32460259 238.33 61.26
22 11/19/95 89.95 4,159.33 0.00 226.71 0.00 4,475.99 5.32460259 238.33 61.26
23 11/20/95 91.55 4,163.93 0.00 226.82 0.00 4,482.30 5.32121705 238.51 61.33
24 11/21/95 92.89 4,164.73 0.00 226.87 0.00 4,484.49 5.36270874 240.49 61.31
25 11/22/95 105.98 4,163.01 0.00 226.90 0.00 4,495.89 5.33693467 239.94 61.83
26 11/23/95 105.98 4,163.01 0.00 226.90 0.00 4,495.89 5.33693467 239.94 61.83
27 11/24/95 106.74 4,164.31 0.00 226.97 0.00 4,498.02 5.33270543 239.87 61.82
28 11/25/95 106.74 4,164.31 0.00 226.97 0.00 4,498.02 5.33270543 239.87 61.82
29 11/26/95 106.74 4,164.31 0.00 226.97 0.00 4,498.02 5.33270543 239.87 61.82
30 11/27/95 107.22 4,167.03 0.00 227.09 0.00 4,501.34 5.33268736 240.04 61.81
31 11/28/95 0.00 0.00 0.00 0.00 0.00 0.00 0.00000000 0.00 0.00
2,143.88 124,756.38 0.00 6,794.71 0.00 133,694.97 155.6150678 6,935.96 1,804.09
<CAPTION>
......................................................................................
PRICE DAILY DAILY ACCUMULATED ACCUMULATED
DATE SHARES PRICE INCOME EXPENSES
......................................................................................
<S> <C> <C> <C> <C> <C>
1 10/29/95 145,016.083 9.52 226.04 68.18
2 10/30/95 145,016.083 9.52 452.16 136.34
3 10/31/95 144,909.999 9.56 677.86 204.49
4 11/01/95 145,209.040 9.60 902.99 261.43
5 11/02/95 145,238.040 9.62 1,128.03 318.71
6 11/03/95 145,238.040 9.62 1,352.93 376.15
7 11/04/95 145,238.040 9.62 1,577.83 433.59
8 11/05/95 145,238.040 9.62 1,802.73 491.03
9 11/06/95 145,238.040 9.62 2,027.79 548.46
10 11/07/95 145,290.015 9.60 2,252.78 605.87
11 11/08/95 145,290.015 9.64 2,477.50 663.21
12 11/09/95 145,290.015 9.63 2,702.29 720.78
13 11/10/95 145,290.015 9.61 2,927.00 778.28
14 11/11/95 145,290.015 9.61 3,151.71 835.79
15 11/12/95 145,290.015 9.61 3,376.42 893.29
16 11/13/95 145,290.015 9.63 3,601.13 950.68
17 11/14/95 145,290.015 9.63 3,825.78 1,008.20
18 11/15/95 154,116.599 9.63 4,064.03 1,065.73
19 11/16/95 154,116.599 9.67 4,302.44 1,126.75
20 11/17/95 154,116.599 9.68 4,540.77 1,188.01
21 11/18/95 154,116.599 9.68 4,779.10 1,249.27
22 11/19/95 154,116.599 9.68 5,017.43 1,310.53
23 11/20/95 154,116.599 9.68 5,255.94 1,371.86
24 11/21/95 155,407.921 9.68 5,496.43 1,433.17
25 11/22/95 155,407.921 9.68 5,736.37 1,495.00
26 11/23/95 155,407.921 9.68 5,976.31 1,556.83
27 11/24/95 155,407.921 9.68 6,216.18 1,618.65
28 11/25/95 155,407.921 9.68 6,456.05 1,680.46
29 11/26/95 155,407.921 9.68 6,695.92 1,742.28
30 11/27/95 155,407.921 9.70 6,935.96 1,804.09
0.000
149,524.155
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
FUND #: 42A6
FUND NAME: KEYSTONE AMERICA MO TAX FREE CLASS A
Input PRICING DATE 27-Nov-95
=========
30 DAY YTM 4.77225%
========
Fund Fund Ad Yd Rt
- -------------------------------------------------------------------------------------------------------------------------
PRICE ST FIXED OID AMORT. GAIN / LONG TERM
DATE INCOME INCOME INCOME LOSS ADJ INCOME
Input Input Input Input input
- -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
1.00 29-Oct-95 67.67 0.00 339.78 0.00 3,973.54
2.00 30-Oct-95 71.31 0.00 339.93 0.00 3,975.31
3.00 31-Oct-95 78.02 0.00 340.36 0.00 3,971.93
4.00 01-Nov-95 74.88 0.00 340.74 0.00 3,959.03
5.00 02-Nov-95 81.30 0.00 340.90 0.00 3,957.86
6.00 03-Nov-95 81.51 0.00 340.96 0.00 3,905.44
7.00 04-Nov-95 81.51 0.00 340.96 0.00 3,905.44
8.00 05-Nov-95 81.51 0.00 340.96 0.00 3,905.44
9.00 06-Nov-95 113.13 0.00 341.11 0.00 3,876.69
10.00 07-Nov-95 130.72 0.00 341.09 0.00 3,879.27
11.00 08-Nov-95 134.70 0.00 341.50 0.00 3,876.61
12.00 09-Nov-95 134.69 0.00 341.48 0.00 3,879.40
13.00 10-Nov-95 134.72 0.00 341.44 0.00 3,882.91
14.00 11-Nov-95 134.72 0.00 341.44 0.00 3,882.91
15.00 12-Nov-95 134.72 0.00 341.44 0.00 3,882.91
16.00 13-Nov-95 134.69 0.00 341.70 0.00 3,881.72
17.00 14-Nov-95 134.74 0.00 341.74 0.00 3,961.77
18.00 15-Nov-95 75.38 0.00 341.81 0.00 3,911.93
19.00 16-Nov-95 112.32 0.00 342.26 0.00 3,779.79
20.00 17-Nov-95 143.57 0.00 342.33 0.00 3,855.11
21.00 18-Nov-95 143.57 0.00 342.33 0.00 3,855.11
22.00 19-Nov-95 143.57 0.00 342.33 0.00 3,855.11
23.00 20-Nov-95 142.51 0.00 342.50 0.00 3,856.84
24.00 21-Nov-95 143.56 0.00 342.56 0.00 3,983.25
25.00 22-Nov-95 65.13 0.00 342.62 0.00 3,983.90
26.00 23-Nov-95 65.13 0.00 342.62 0.00 3,983.90
27.00 24-Nov-95 65.14 0.00 342.73 0.00 3,985.12
28.00 25-Nov-95 65.14 0.00 342.73 0.00 3,985.12
29.00 26-Nov-95 65.14 0.00 342.73 0.00 3,985.12
30.00 27-Nov-95 65.64 0.00 343.10 0.00 3,985.22
<CAPTION>
====================
SEC STANDARDIZED ADVERTISING YIELD
==================== AAA
PHASE II-ROLLING AAA AAA
AAA AAA
AAAAAAAAAAAAA
AA AA
TOTAL INCOME FOR PERIOD 22,604.70 AA AA
TOTAL EXPENSES FOR PERIOD 2,917.23 AA AA
AVERAGE SHARES OUTSTANDING 483,976.90 AA AA
LAST PRICE DURING PERIOD 10.33
Class Class
- -------------------------------------------------------------------------------------------------------------------------------
PRICE TOTAL DIV ADJUSTED DAILY FD &
DATE INCOME FACTOR INCOME CLASS EXPENSES
Input Input
- -------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
1.00 29-Oct-95 4,380.99 16.5699118 725.93 94.98
2.00 30-Oct-95 4,386.55 16.6502072 730.37 96.11
3.00 31-Oct-95 4,390.31 17.0294894 747.65 95.98
4.00 01-Nov-95 4,374.65 17.1846475 751.77 96.31
5.00 02-Nov-95 4,380.06 17.3278801 758.97 96.90
6.00 03-Nov-95 4,327.91 17.3265817 749.88 97.05
7.00 04-Nov-95 4,327.91 17.3265817 749.88 97.05
8.00 05-Nov-95 4,327.91 17.3265817 749.88 97.05
9.00 06-Nov-95 4,330.93 17.3695503 752.26 97.02
10.00 07-Nov-95 4,351.08 17.4066382 757.38 97.25
11.00 08-Nov-95 4,352.81 17.2618488 751.38 86.38
12.00 09-Nov-95 4,355.57 17.2617729 751.85 97.74
13.00 10-Nov-95 4,359.07 17.2618065 752.45 73.56
14.00 11-Nov-95 4,359.07 17.2618065 752.45 73.56
15.00 12-Nov-95 4,359.07 17.2618065 752.45 73.56
16.00 13-Nov-95 4,358.11 17.2612614 752.26 73.71
17.00 14-Nov-95 4,438.25 17.2607392 766.07 193.97
18.00 15-Nov-95 4,329.12 17.3395977 750.65 97.87
19.00 16-Nov-95 4,234.37 17.3391112 734.20 97.87
20.00 17-Nov-95 4,341.01 17.3138814 751.60 98.28
21.00 18-Nov-95 4,341.01 17.3138814 751.60 98.28
22.00 19-Nov-95 4,341.01 17.3138814 751.60 98.28
23.00 20-Nov-95 4,341.85 17.3531052 753.45 98.27
24.00 21-Nov-95 4,469.37 17.3467179 775.29 98.29
25.00 22-Nov-95 4,391.65 17.3437353 761.68 98.65
26.00 23-Nov-95 4,391.65 17.3437353 761.68 98.65
27.00 24-Nov-95 4,392.99 17.4107168 764.85 98.65
28.00 25-Nov-95 4,392.99 17.4107168 764.85 98.65
29.00 26-Nov-95 4,392.99 17.4107168 764.85 98.65
30.00 27-Nov-95 4,393.96 17.4221157 765.52 98.66
<CAPTION>
Class Class
- -----------------------------------------------------------------|| 30 DAY 30 DAY 30 DAY
PRICE DAILY DAILY || ACCUMULATED ACCUMULATED ACCUMULATED
DATE SHARES PRICE || INCOME EXPENSES SHARES
Input input
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
1.00 29-Oct-95 460,666.160 10.20 725.93 94.98 460,666.16
2.00 30-Oct-95 463,602.460 10.20 1,456.30 191.09 924,268.62
3.00 31-Oct-95 475,448.462 10.25 2,203.95 287.07 1,399,717.08
4.00 01-Nov-95 481,520.938 10.28 2,955.72 383.38 1,881,238.02
5.00 02-Nov-95 486,492.938 10.30 3,714.69 480.28 2,367,730.96
6.00 03-Nov-95 486,492.938 10.29 4,464.57 577.33 2,854,223.90
7.00 04-Nov-95 486,492.938 10.29 5,214.45 674.38 3,340,716.83
8.00 05-Nov-95 486,492.938 10.29 5,964.33 771.43 3,827,209.77
9.00 06-Nov-95 487,950.664 10.29 6,716.59 868.45 4,315,160.44
10.00 07-Nov-95 488,630.936 10.27 7,473.97 965.70 4,803,791.37
11.00 08-Nov-95 483,727.936 10.30 8,225.35 1,052.08 5,287,519.31
12.00 09-Nov-95 483,727.936 10.29 8,977.20 1,149.82 5,771,247.24
13.00 10-Nov-95 483,727.936 10.26 9,729.65 1,223.38 6,254,975.18
14.00 11-Nov-95 483,727.936 10.26 10,482.10 1,296.94 6,738,703.12
15.00 12-Nov-95 483,727.936 10.26 11,234.55 1,370.50 7,222,431.05
16.00 13-Nov-95 483,727.936 10.29 11,986.81 1,444.21 7,706,158.99
17.00 14-Nov-95 483,709.569 10.28 12,752.88 1,638.18 8,189,868.56
18.00 15-Nov-95 485,653.204 10.28 13,503.53 1,736.05 8,675,521.76
19.00 16-Nov-95 485,654.204 10.31 14,237.73 1,833.92 9,161,175.97
20.00 17-Nov-95 485,654.204 10.31 14,989.33 1,932.20 9,646,830.17
21.00 18-Nov-95 485,654.204 10.31 15,740.93 2,030.48 10,132,484.37
22.00 19-Nov-95 485,654.204 10.31 16,492.53 2,128.76 10,618,138.58
23.00 20-Nov-95 486,627.914 10.31 17,245.98 2,227.03 11,104,766.49
24.00 21-Nov-95 486,627.914 10.31 18,021.27 2,325.32 11,591,394.41
25.00 22-Nov-95 486,627.914 10.31 18,782.95 2,423.97 12,078,022.32
26.00 23-Nov-95 486,627.914 10.31 19,544.63 2,522.62 12,564,650.23
27.00 24-Nov-95 488,567.914 10.31 20,309.48 2,621.27 13,053,218.15
28.00 25-Nov-95 488,567.914 10.31 21,074.33 2,719.92 13,541,786.06
29.00 26-Nov-95 488,567.914 10.31 21,839.18 2,818.57 14,030,353.98
30.00 27-Nov-95 488,953.038 10.33 22,604.70 2,917.23 14,519,307.01
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
====================
FUND #: 42A6
====================
FUND NAME: KEYSTONE AMERICA MO TAX FREE CLASS B
PRICING DATE 27-Nov-95
=========
30 DAY YTM 4.26394%
========
- -------------------------------------------------------------------------------------------------------------------------
PRICE ST FIXED OID AMORT. GAIN / LONG TERM
DATE INCOME INCOME INCOME LOSS ADJ INCOME
- -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
1.00 29-Oct-95 67.67 0.00 339.78 0.00 3,973.54
2.00 30-Oct-95 71.31 0.00 339.93 0.00 3,975.31
3.00 31-Oct-95 78.02 0.00 340.36 0.00 3,971.93
4.00 01-Nov-95 74.88 0.00 340.74 0.00 3,959.03
5.00 02-Nov-95 81.30 0.00 340.90 0.00 3,957.86
6.00 03-Nov-95 81.51 0.00 340.96 0.00 3,905.44
7.00 04-Nov-95 81.51 0.00 340.96 0.00 3,905.44
8.00 05-Nov-95 81.51 0.00 340.96 0.00 3,905.44
9.00 06-Nov-95 113.13 0.00 341.11 0.00 3,876.69
10.00 07-Nov-95 130.72 0.00 341.09 0.00 3,879.27
11.00 08-Nov-95 134.70 0.00 341.50 0.00 3,876.61
12.00 09-Nov-95 134.69 0.00 341.48 0.00 3,879.40
13.00 10-Nov-95 134.72 0.00 341.44 0.00 3,882.91
14.00 11-Nov-95 134.72 0.00 341.44 0.00 3,882.91
15.00 12-Nov-95 134.72 0.00 341.44 0.00 3,882.91
16.00 13-Nov-95 134.69 0.00 341.70 0.00 3,881.72
17.00 14-Nov-95 134.74 0.00 341.74 0.00 3,961.77
18.00 15-Nov-95 75.38 0.00 341.81 0.00 3,911.93
19.00 16-Nov-95 112.32 0.00 342.26 0.00 3,779.79
20.00 17-Nov-95 143.57 0.00 342.33 0.00 3,855.11
21.00 18-Nov-95 143.57 0.00 342.33 0.00 3,855.11
22.00 19-Nov-95 143.57 0.00 342.33 0.00 3,855.11
23.00 20-Nov-95 142.51 0.00 342.50 0.00 3,856.84
24.00 21-Nov-95 143.56 0.00 342.56 0.00 3,983.25
25.00 22-Nov-95 65.13 0.00 342.62 0.00 3,983.90
26.00 23-Nov-95 65.13 0.00 342.62 0.00 3,983.90
27.00 24-Nov-95 65.14 0.00 342.73 0.00 3,985.12
28.00 25-Nov-95 65.14 0.00 342.73 0.00 3,985.12
29.00 26-Nov-95 65.14 0.00 342.73 0.00 3,985.12
30.00 27-Nov-95 65.64 0.00 343.10 0.00 3,985.22
<CAPTION>
SEC STANDARDIZED ADVERTISING YIELD BBBBBBB
PHASE II-ROLLING BB BB
BB BB
BBBBB
BB BB
TOTAL INCOME FOR PERIOD 99,882.16 BB BB
TOTAL EXPENSES FOR PERIOD 25,824.40 BBBBBBBB
AVERAGE SHARES OUTSTANDING 2,163,216.42
LAST PRICE DURING PERIOD 9.72
Class Class
- -------------------------------------------------------------------------------------------------------------------------------
PRICE TOTAL DIV ADJUSTED DAILY
DATE INCOME FACTOR INCOME EXPENSES
INPUT Input
- -------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
1.00 29-Oct-95 4,380.99 76.9400134 3,370.73 854.70
2.00 30-Oct-95 4,386.55 76.8697499 3,371.93 854.38
3.00 31-Oct-95 4,390.31 76.5080659 3,358.94 855.38
4.00 01-Nov-95 4,374.65 76.3616071 3,340.55 954.39
5.00 02-Nov-95 4,380.06 76.2294789 3,338.90 861.58
6.00 03-Nov-95 4,327.91 76.2491848 3,300.00 862.82
7.00 04-Nov-95 4,327.91 76.2491848 3,300.00 862.82
8.00 05-Nov-95 4,327.91 76.2491848 3,300.00 862.82
9.00 06-Nov-95 4,330.93 76.2095683 3,300.58 861.52
10.00 07-Nov-95 4,351.08 76.1670024 3,314.09 861.00
11.00 08-Nov-95 4,352.81 76.3006698 3,321.22 859.58
12.00 09-Nov-95 4,355.57 76.3008311 3,323.34 862.27
13.00 10-Nov-95 4,359.07 76.3007982 3,326.01 754.69
14.00 11-Nov-95 4,359.07 76.3007982 3,326.01 754.69
15.00 12-Nov-95 4,359.07 76.3007982 3,326.01 754.69
16.00 13-Nov-95 4,358.11 76.3015885 3,325.31 752.64
17.00 14-Nov-95 4,438.25 76.3020729 3,386.48 1186.04
18.00 15-Nov-95 4,329.12 76.2196954 3,299.64 858.65
19.00 16-Nov-95 4,234.37 76.2203794 3,227.45 860.32
20.00 17-Nov-95 4,341.01 76.2549901 3,310.24 862.61
21.00 18-Nov-95 4,341.01 76.2549901 3,310.24 862.61
22.00 19-Nov-95 4,341.01 76.2549901 3,310.24 862.61
23.00 20-Nov-95 4,341.85 76.2141272 3,309.10 863.14
24.00 21-Nov-95 4,469.37 76.2228986 3,406.68 863.18
25.00 22-Nov-95 4,391.65 76.2269959 3,347.62 862.32
26.00 23-Nov-95 4,391.65 76.2269959 3,347.62 862.32
27.00 24-Nov-95 4,392.99 76.1608267 3,345.74 862.41
28.00 25-Nov-95 4,392.99 76.1608267 3,345.74 862.41
29.00 26-Nov-95 4,392.99 76.1608267 3,345.74 862.41
30.00 27-Nov-95 4,393.96 76.1503213 3,346.01 863.40
<CAPTION>
Class Class
- ----------------------------------------------------------------------|| 30 DAY 30 DAY 30 DAY
PRICE DAILY DAILY || ACCUMULATED ACCUMULATED ACCUMULATED
DATE SHARES PRICE || INCOME EXPENSES SHARES
Input input
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
1.00 29-Oct-95 2,163,693.363 9.61 3,370.73 854.70 2,163,693.36
2.00 30-Oct-95 2,165,068.280 9.61 6,742.66 1,709.08 4,328,761.64
3.00 31-Oct-95 2,160,742.747 9.65 10,101.60 2,564.46 6,489,504.39
4.00 01-Nov-95 2,164,454.066 9.68 13,442.15 3,518.85 8,653,958.46
5.00 02-Nov-95 2,164,984.893 9.69 16,781.05 4,380.43 10,818,943.35
6.00 03-Nov-95 2,165,710.021 9.69 20,081.05 5,243.25 12,984,653.37
7.00 04-Nov-95 2,165,710.021 9.69 23,381.05 6,106.07 15,150,363.39
8.00 05-Nov-95 2,165,710.021 9.69 26,681.05 6,968.89 17,316,073.41
9.00 06-Nov-95 2,165,710.021 9.69 29,981.63 7,830.41 19,481,783.43
10.00 07-Nov-95 2,162,901.345 9.67 33,295.72 8,691.41 21,644,684.78
11.00 08-Nov-95 2,162,953.445 9.70 36,616.94 9,550.99 23,807,638.22
12.00 09-Nov-95 2,162,973.445 9.68 39,940.28 10,413.26 25,970,611.67
13.00 10-Nov-95 2,162,972.445 9.66 43,266.29 11,167.95 28,133,584.11
14.00 11-Nov-95 2,162,972.445 9.66 46,592.30 11,922.64 30,296,556.56
15.00 12-Nov-95 2,162,972.445 9.66 49,918.31 12,677.33 32,459,529.00
16.00 13-Nov-95 2,163,075.858 9.68 53,243.62 13,429.97 34,622,604.86
17.00 14-Nov-95 2,163,075.858 9.68 56,630.10 14,616.01 36,785,680.72
18.00 15-Nov-95 2,159,549.858 9.68 59,929.74 15,474.66 38,945,230.58
19.00 16-Nov-95 2,159,635.535 9.71 63,157.19 16,334.98 41,104,866.11
20.00 17-Nov-95 2,163,768.535 9.71 66,467.43 17,197.59 43,268,634.65
21.00 18-Nov-95 2,163,768.535 9.71 69,777.67 18,060.20 45,432,403.18
22.00 19-Nov-95 2,163,768.535 9.71 73,087.91 18,922.81 47,596,171.72
23.00 20-Nov-95 2,162,055.608 9.71 76,397.01 19,785.95 49,758,227.33
24.00 21-Nov-95 2,163,106.205 9.71 79,803.69 20,649.13 51,921,333.53
25.00 22-Nov-95 2,163,595.021 9.71 83,151.31 21,511.45 54,084,928.55
26.00 23-Nov-95 2,163,595.021 9.71 86,498.93 22,373.77 56,248,523.57
27.00 24-Nov-95 2,161,992.249 9.71 89,844.67 23,236.18 58,410,515.82
28.00 25-Nov-95 2,161,992.249 9.71 93,190.41 24,098.59 60,572,508.07
29.00 26-Nov-95 2,161,992.249 9.71 96,536.15 24,961.00 62,734,500.32
30.00 27-Nov-95 2,161,992.249 9.72 99,882.16 25,824.40 64,896,492.57
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
====================
FUND #: 42A6
====================
FUND NAME: KEYSTONE AMERICA MO TAX FREE CLASS C
PRICING DATE 27-Nov-95
=========
30 DAY YTM 4.25287%
=========
- -------------------------------------------------------------------------------------------------------------------------
PRICE ST FIXED OID AMORT. GAIN / LONG TERM
DATE INCOME INCOME INCOME LOSS ADJ INCOME
- -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
1.00 29-Oct-95 67.67 0.00 339.78 0.00 3973.54
2.00 30-Oct-95 71.31 0.00 339.93 0.00 3975.31
3.00 31-Oct-95 78.02 0.00 340.36 0.00 3971.93
4.00 01-Nov-95 74.88 0.00 340.74 0.00 3959.03
5.00 02-Nov-95 81.30 0.00 340.90 0.00 3957.86
6.00 03-Nov-95 81.51 0.00 340.96 0.00 3905.44
7.00 04-Nov-95 81.51 0.00 340.96 0.00 3905.44
8.00 05-Nov-95 81.51 0.00 340.96 0.00 3905.44
9.00 06-Nov-95 113.13 0.00 341.11 0.00 3876.69
10.00 07-Nov-95 130.72 0.00 341.09 0.00 3879.27
11.00 08-Nov-95 134.70 0.00 341.50 0.00 3876.61
12.00 09-Nov-95 134.69 0.00 341.48 0.00 3879.40
13.00 10-Nov-95 134.72 0.00 341.44 0.00 3882.91
14.00 11-Nov-95 134.72 0.00 341.44 0.00 3882.91
15.00 12-Nov-95 134.72 0.00 341.44 0.00 3882.91
16.00 13-Nov-95 134.69 0.00 341.70 0.00 3881.72
17.00 14-Nov-95 134.74 0.00 341.74 0.00 3961.77
18.00 15-Nov-95 75.38 0.00 341.81 0.00 3911.93
19.00 16-Nov-95 112.32 0.00 342.26 0.00 3779.79
20.00 17-Nov-95 143.57 0.00 342.33 0.00 3855.11
21.00 18-Nov-95 143.57 0.00 342.33 0.00 3855.11
22.00 19-Nov-95 143.57 0.00 342.33 0.00 3855.11
23.00 20-Nov-95 142.51 0.00 342.50 0.00 3856.84
24.00 21-Nov-95 143.56 0.00 342.56 0.00 3983.25
25.00 22-Nov-95 65.13 0.00 342.62 0.00 3983.90
26.00 23-Nov-95 65.13 0.00 342.62 0.00 3983.90
27.00 24-Nov-95 65.14 0.00 342.73 0.00 3985.12
28.00 25-Nov-95 65.14 0.00 342.73 0.00 3985.12
29.00 26-Nov-95 65.14 0.00 342.73 0.00 3985.12
30.00 27-Nov-95 65.64 0.00 343.10 0.00 3985.22
SEC STANDARDIZED ADVERTISING YIELD CCCCCCC
PHASE II-ROLLING CCC
CCC
CCC
CCC
TOTAL INCOME FOR PERIOD 8,427.41 CCC
TOTAL EXPENSES FOR PERIOD 2,189.49 CCCCCCC
AVERAGE SHARES OUTSTANDING 182,678.80
LAST PRICE DURING PERIOD 9.72
Class Class
- -------------------------------------------------------------------------------------------------------------------------------
PRICE TOTAL DIV ADJUSTED DAILY
DATE INCOME FACTOR INCOME EXPENSES
INPUT Input
- -------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
1.00 29-Oct-95 4380.99 6.4900748 284.33 71.73
2.00 30-Oct-95 4386.55 6.4800429 284.25 72.11
3.00 31-Oct-95 4390.31 6.4624447 283.72 72.11
4.00 01-Nov-95 4374.65 6.4537454 282.33 72.35
5.00 02-Nov-95 4380.06 6.4426410 282.19 72.78
6.00 03-Nov-95 4327.91 6.4242335 278.04 72.72
7.00 04-Nov-95 4327.91 6.4242335 278.04 72.72
8.00 05-Nov-95 4327.91 6.4242335 278.04 72.72
9.00 06-Nov-95 4330.93 6.4208814 278.08 72.68
10.00 07-Nov-95 4351.08 6.4263594 279.62 72.64
11.00 08-Nov-95 4352.81 6.4374814 280.21 83.38
12.00 09-Nov-95 4355.57 6.4373960 280.39 72.74
13.00 10-Nov-95 4359.07 6.4373953 280.61 63.67
14.00 11-Nov-95 4359.07 6.4373953 280.61 63.67
15.00 12-Nov-95 4359.07 6.4373953 280.61 63.67
16.00 13-Nov-95 4358.11 6.4371501 280.54 63.49
17.00 14-Nov-95 4438.25 6.4371879 285.70 108.43
18.00 15-Nov-95 4329.12 6.4407069 278.83 72.56
19.00 16-Nov-95 4234.37 6.4405094 272.71 72.56
20.00 17-Nov-95 4341.01 6.4311285 279.18 72.81
21.00 18-Nov-95 4341.01 6.4311285 279.18 72.81
22.00 19-Nov-95 4341.01 6.4311285 279.18 72.81
23.00 20-Nov-95 4341.85 6.4327676 279.30 72.80
24.00 21-Nov-95 4469.37 6.4303835 287.40 72.80
25.00 22-Nov-95 4391.65 6.4292688 282.35 72.79
26.00 23-Nov-95 4391.65 6.4292688 282.35 72.79
27.00 24-Nov-95 4392.99 6.4284565 282.40 72.79
28.00 25-Nov-95 4392.99 6.4284565 282.40 72.79
29.00 26-Nov-95 4392.99 6.4284565 282.40 72.79
30.00 27-Nov-95 4393.96 6.4275630 282.42 72.78
<CAPTION>
Class Class
- ----------------------------------------------------------------------|| 30 DAY 30 DAY 30 DAY
PRICE DAILY DAILY || ACCUMULATED ACCUMULATED ACCUMULATED
DATE SHARES PRICE || INCOME EXPENSES SHARES
Input input
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
1.00 29-Oct-95 182,639.251 9.61 284.33 71.73 182,639.25
2.00 30-Oct-95 183,639.251 9.61 568.58 143.84 366,278.50
3.00 31-Oct-95 182,639.251 9.64 852.30 215.95 548,917.75
4.00 01-Nov-95 183,057.235 9.68 1,134.63 288.30 731,974.99
5.00 02-Nov-95 183,103.235 9.69 1,416.82 361.08 915,078.22
6.00 03-Nov-95 182,594.070 9.69 1,694.86 433.80 1,097,672.29
7.00 04-Nov-95 182,594.070 9.69 1,972.90 506.52 1,280,266.36
8.00 05-Nov-95 182,594.070 9.69 2,250.94 579.24 1,462,860.43
9.00 06-Nov-95 182,594.070 9.68 2,529.02 651.92 1,645,454.50
10.00 07-Nov-95 182,614.731 9.66 2,808.64 724.56 1,828,069.23
11.00 08-Nov-95 182,614.731 9.69 3,088.85 807.94 2,010,683.97
12.00 09-Nov-95 182,614.731 9.68 3,369.24 880.68 2,193,298.70
13.00 10-Nov-95 182,614.731 9.65 3,649.85 944.35 2,375,913.43
14.00 11-Nov-95 182,614.731 9.65 3,930.46 1,008.02 2,558,528.16
15.00 12-Nov-95 182,614.731 9.65 4,211.07 1,071.69 2,741,142.89
16.00 13-Nov-95 182,614.731 9.68 4,491.61 1,135.18 2,923,757.62
17.00 14-Nov-95 182,614.731 9.67 4,777.31 1,243.61 3,106,372.35
18.00 15-Nov-95 182,614.731 9.67 5,056.14 1,316.17 3,288,987.08
19.00 16-Nov-95 182,614.731 9.70 5,328.85 1,388.73 3,471,601.81
20.00 17-Nov-95 182,614.731 9.70 5,608.03 1,461.54 3,654,216.54
21.00 18-Nov-95 182,614.731 9.70 5,887.21 1,534.35 3,836,831.28
22.00 19-Nov-95 182,614.731 9.70 6,166.39 1,607.16 4,019,446.01
23.00 20-Nov-95 182,614.731 9.70 6,445.69 1,679.96 4,202,060.74
24.00 21-Nov-95 182,614.731 9.70 6,733.09 1,752.76 4,384,675.47
25.00 22-Nov-95 182,614.731 9.70 7,015.44 1,825.55 4,567,290.20
26.00 23-Nov-95 182,614.731 9.70 7,297.79 1,898.34 4,749,904.93
27.00 24-Nov-95 182,614.731 9.70 7,580.19 1,971.13 4,932,519.66
28.00 25-Nov-95 182,614.731 9.70 7,862.59 2,043.92 5,115,134.39
29.00 26-Nov-95 182,614.731 9.70 8,144.99 2,116.71 5,297,749.12
30.00 27-Nov-95 182,614.731 9.72 8,427.41 2,189.49 5,480,363.85
</TABLE>
<PAGE>
CALCULATION OF FEDERAL TAX EQUIVALENT YIELD
Fund: Keystone California Insured Tax Free Fund/Class A
Calculation Period: 30 days ended November 30, 1995
Yield: 4.70%
The Keystone California Insured Tax Free Fund intends to advertise tax
equivalent yield based on the yield of the Fund over a 30-day period. The
calculation includes the tax equivalent yield from an investment which is exempt
from federal taxes.
Calculation below assumes:
Joint Return, 31% tax bracket
Method:
Subtract federal rate from 1 and divide yield by the result:
1.00
0.31
----
0.69
30 day yield 4.70% = 6.81% Federal Tax Equivalent Yield
-----
0.69
<PAGE>
CALCULATION OF FEDERAL TAX EQUIVALENT YIELD
Fund: Keystone California Insured Tax Free Fund/Class B
Calculation Period: 30 days ended November 30, 1995
Yield: 4.28%
The Keystone California Insured Tax Free Fund intends to advertise tax
equivalent yield based on the yield of the Fund over a 30-day period. The
calculation includes the tax equivalent yield from an investment which is exempt
from federal taxes.
Calculation below assumes:
Joint Return, 31% tax bracket
Method:
Subtract federal rate from 1 and divide yield by the result:
1.00
0.31
----
0.69
30 day yield 4.28% = 6.20% Federal Tax Equivalent Yield
-----
0.69
<PAGE>
CALCULATION OF FEDERAL TAX EQUIVALENT YIELD
Fund: Keystone California Insured Tax Free Fund/Class C
Calculation Period: 30 days ended November 30, 1995
Yield: 4.28%
The Keystone California Insured Tax Free Fund intends to advertise tax
equivalent yield based on the yield of the Fund over a 30-day period. The
calculation includes the tax equivalent yield from an investment which is exempt
from federal taxes.
Calculation below assumes:
Joint Return, 31% tax bracket
Method:
Subtract federal rate from 1 and divide yield by the result:
1.00
0.31
----
0.69
30 day yield 4.28% = 6.20% Federal Tax Equivalent Yield
-----
0.69
<PAGE>
CALCULATION OF FEDERAL TAX EQUIVALENT YIELD
Fund: Keystone Missouri Tax Free Fund/Class A
Calculation Period: 30 days ended November 30, 1995
Yield: 4.77%
The Keystone Missouri Tax Free Fund intends to advertise tax equivalent
yield based on the yield of the Fund over a 30-day period. The calculation
includes the tax equivalent yield from an investment which is exempt from
federal taxes.
Calculation below assumes:
Joint Return, 31% tax bracket
Method:
Subtract federal rate from 1 and divide yield by the result:
1.00
0.31
----
0.69
30 day yield 4.77% = 6.91% Federal Tax Equivalent Yield
-----
0.69
<PAGE>
CALCULATION OF FEDERAL TAX EQUIVALENT YIELD
Fund: Keystone Missouri Tax Free Fund/Class B
Calculation Period: 30 days ended November 30, 1995
Yield: 4.26%
The Keystone Missouri Tax Free Fund intends to advertise tax equivalent
yield based on the yield of the Fund over a 30-day period. The calculation
includes the tax equivalent yield from an investment which is exempt from
federal taxes.
Calculation below assumes:
Joint Return, 31% tax bracket
Method:
Subtract federal rate from 1 and divide yield by the result:
1.00
0.31
----
0.69
30 day yield 4.26% = 6.17% Federal Tax Equivalent Yield
-----
0.69
<PAGE>
CALCULATION OF FEDERAL TAX EQUIVALENT YIELD
Fund: Keystone Missouri Tax Free Fund/Class C
Calculation Period: 30 days ended November 30, 1995
Yield: 4.25%
The Keystone Missouri Tax Free Fund intends to advertise tax equivalent
yield based on the yield of the Fund over a 30-day period. The calculation
includes the tax equivalent yield from an investment which is exempt from
federal taxes.
Calculation below assumes:
Joint Return, 31% tax bracket
Method:
Subtract federal rate from 1 and divide yield by the result:
1.00
0.31
----
0.69
30 day yield 4.25% = 6.16% Federal Tax Equivalent Yield
-----
0.69
104701D0
<PAGE>
EXHIBIT 99.19
POWER OF ATTORNEY
I, the undersigned, hereby constitute Roger T. Wickers, Rosemary D. Van
Antwerp, Jean S. Loewenberg, Dorothy E. Bourassa, James M. Wall and Melina M. T.
Murphy, each of them singly, my true and lawful attorneys, with full power to
them and each of them to sign for me and in my name in the capacity indicated
below any and all registration statements, including, but not limited to, Forms
N-8A, N-8B-1, S-5, N-1 and N-1A, as amended from time to time, and any and all
amendments thereto to be filed with the Securities and Exchange Commission for
the purpose of registering from time to time all investment companies of which I
am now or hereafter a Director or Trustee and/or Chairman of the Board and Chief
Executive Officer and for which Keystone Custodian Funds, Inc. serves as Adviser
or Manager and registering from time to time the shares of such companies, and
generally to do all such things in my name and in my behalf to enable such
investment companies to comply with the provisions of the Securities Act of
1933, as amended, the Investment Company Act of 1940, as amended, and all
requirements and regulations of the Securities and Exchange Commission
thereunder, hereby ratifying and confirming my signature as it may be signed by
my said attorneys to any and all registration statements and amendments thereto.
/s/ George S. Bissell
George S. Bissell
Director/Trustee,
Chairman of the Board
Dated: December 14, 1994
<PAGE>
POWER OF ATTORNEY
I, the undersigned, hereby constitute Roger T. Wickers, Rosemary D. Van
Antwerp, Jean S. Loewenberg, Dorothy E. Bourassa, James M. Wall and Melina M. T.
Murphy, each of them singly, my true and lawful attorneys, with full power to
them and each of them to sign for me and in my name in the capacity indicated
below any and all registration statements, including, but not limited to, Forms
N-8A, N-8B-1, S-5, N-1 and N-1A, as amended from time to time, and any and all
amendments thereto to be filed with the Securities and Exchange Commission for
the purpose of registering from time to time all investment companies of which I
am now or hereafter a Director or Trustee and/or Chief Executive Officer and for
which Keystone Custodian Funds, Inc. serves as Adviser or Manager and
registering from time to time the shares of such companies, and generally to do
all such things in my name and in my behalf to enable such investment companies
to comply with the provisions of the Securities Act of 1933, as amended, the
Investment Company Act of 1940, as amended, and all requirements and regulations
of the Securities and Exchange Commission thereunder, hereby ratifying and
confirming my signature as it may be signed by my said attorneys to any and all
registration statements and amendments thereto.
/s/ Albert H. Elfner, III
Albert H. Elfner, III
Director/Trustee,
President and Chief
Executive Officer
Dated: December 14, 1994
<PAGE>
POWER OF ATTORNEY
I, the undersigned, hereby constitute Rosemary D. Van Antwerp, Jean S.
Loewenberg, Dorothy E. Bourassa, James M. Wall and Melina M. T. Murphy, each of
them singly, my true and lawful attorneys, with full power to them and each of
them to sign for me and in my name in the capacity indicated below any and all
registration statements, including, but not limited to, Forms N-8A, N-8B-1, S-5,
N-1 and N-1A, as amended from time to time, and any and all amendments thereto
to be filed with the Securities and Exchange Commission for the purpose of
registering from time to time all investment companies of which I am now or
hereafter a Director, Trustee or officer and for which Keystone Investment
Management Company serves as Adviser or Manager and registering from time to
time the shares of such companies, and generally to do all such things in my
name and in my behalf to enable such investment companies to comply with the
provisions of the Securities Act of 1933, as amended, the Investment Company Act
of 1940, as amended, and all requirements and regulations of the Securities and
Exchange Commission thereunder, hereby ratifying and confirming my signature as
it may be signed by my said attorneys to any and all registration statements and
amendments thereto.
/s/ J. Kevin Kenely
J. Kevin Kenely
Treasurer
Dated: December 15, 1995
<PAGE>
POWER OF ATTORNEY
I, the undersigned, hereby constitute Roger T. Wickers, Rosemary D. Van
Antwerp, Jean S. Loewenberg, Dorothy E. Bourassa, James M. Wall and Melina M. T.
Murphy, each of them singly, my true and lawful attorneys, with full power to
them and each of them to sign for me and in my name in the capacity indicated
below any and all registration statements, including, but not limited to, Forms
N-8A, N-8B-1, S-5, N-1 and N-1A, as amended from time to time, and any and all
amendments thereto to be filed with the Securities and Exchange Commission for
the purpose of registering from time to time all investment companies of which I
am now or hereafter a Director or Trustee and for which Keystone Custodian
Funds, Inc. serves as Adviser or Manager and registering from time to time the
shares of such companies, and generally to do all such things in my name and in
my behalf to enable such investment companies to comply with the provisions of
the Securities Act of 1933, as amended, the Investment Company Act of 1940, as
amended, and all requirements and regulations of the Securities and Exchange
Commission thereunder, hereby ratifying and confirming my signature as it may be
signed by my said attorneys to any and all registration statements and
amendments thereto.
/s/ Frederick Amling
Frederick Amling
Director/Trustee
Dated: December 14, 1994
<PAGE>
POWER OF ATTORNEY
I, the undersigned, hereby constitute Roger T. Wickers, Rosemary D. Van
Antwerp, Jean S. Loewenberg, Dorothy E. Bourassa, James M. Wall and Melina M. T.
Murphy, each of them singly, my true and lawful attorneys, with full power to
them and each of them to sign for me and in my name in the capacity indicated
below any and all registration statements, including, but not limited to, Forms
N-8A, N-8B-1, S-5, N-1 and N-1A, as amended from time to time, and any and all
amendments thereto to be filed with the Securities and Exchange Commission for
the purpose of registering from time to time all investment companies of which I
am now or hereafter a Director or Trustee and for which Keystone Custodian
Funds, Inc. serves as Adviser or Manager and registering from time to time the
shares of such companies, and generally to do all such things in my name and in
my behalf to enable such investment companies to comply with the provisions of
the Securities Act of 1933, as amended, the Investment Company Act of 1940, as
amended, and all requirements and regulations of the Securities and Exchange
Commission thereunder, hereby ratifying and confirming my signature as it may be
signed by my said attorneys to any and all registration statements and
amendments thereto.
/s/ Charles A. Austin III
Charles A. Austin III
Director/Trustee
Dated: December 14, 1994
<PAGE>
POWER OF ATTORNEY
I, the undersigned, hereby constitute Roger T. Wickers, Rosemary D. Van
Antwerp, Jean S. Loewenberg, Dorothy E. Bourassa, James M. Wall and Melina M. T.
Murphy, each of them singly, my true and lawful attorneys, with full power to
them and each of them to sign for me and in my name in the capacity indicated
below any and all registration statements, including, but not limited to, Forms
N-8A, N-8B-1, S-5, N-1 and N-1A, as amended from time to time, and any and all
amendments thereto to be filed with the Securities and Exchange Commission for
the purpose of registering from time to time all investment companies of which I
am now or hereafter a Director or Trustee and for which Keystone Custodian
Funds, Inc. serves as Adviser or Manager and registering from time to time the
shares of such companies, and generally to do all such things in my name and in
my behalf to enable such investment companies to comply with the provisions of
the Securities Act of 1933, as amended, the Investment Company Act of 1940, as
amended, and all requirements and regulations of the Securities and Exchange
Commission thereunder, hereby ratifying and confirming my signature as it may be
signed by my said attorneys to any and all registration statements and
amendments thereto.
/s/ Edwin D. Campbell
Edwin D. Campbell
Director/Trustee
Dated: December 14, 1994
<PAGE>
POWER OF ATTORNEY
I, the undersigned, hereby constitute Roger T. Wickers, Rosemary D. Van
Antwerp, Jean S. Loewenberg, Dorothy E. Bourassa, James M. Wall and Melina M. T.
Murphy, each of them singly, my true and lawful attorneys, with full power to
them and each of them to sign for me and in my name in the capacity indicated
below any and all registration statements, including, but not limited to, Forms
N-8A, N-8B-1, S-5, N-1 and N-1A, as amended from time to time, and any and all
amendments thereto to be filed with the Securities and Exchange Commission for
the purpose of registering from time to time all investment companies of which I
am now or hereafter a Director or Trustee and for which Keystone Custodian
Funds, Inc. serves as Adviser or Manager and registering from time to time the
shares of such companies, and generally to do all such things in my name and in
my behalf to enable such investment companies to comply with the provisions of
the Securities Act of 1933, as amended, the Investment Company Act of 1940, as
amended, and all requirements and regulations of the Securities and Exchange
Commission thereunder, hereby ratifying and confirming my signature as it may be
signed by my said attorneys to any and all registration statements and
amendments thereto.
/s/ Charles F. Chapin
Charles F. Chapin
Director/Trustee
Dated: December 14, 1994
<PAGE>
POWER OF ATTORNEY
I, the undersigned, hereby constitute Roger T. Wickers, Rosemary D. Van
Antwerp, Jean S. Loewenberg, Dorothy E. Bourassa, James M. Wall and Melina M. T.
Murphy, each of them singly, my true and lawful attorneys, with full power to
them and each of them to sign for me and in my name in the capacity indicated
below any and all registration statements, including, but not limited to, Forms
N-8A, N-8B-1, S-5, N-1 and N-1A, as amended from time to time, and any and all
amendments thereto to be filed with the Securities and Exchange Commission for
the purpose of registering from time to time all investment companies of which I
am now or hereafter a Director or Trustee and for which Keystone Custodian
Funds, Inc. serves as Adviser or Manager and registering from time to time the
shares of such companies, and generally to do all such things in my name and in
my behalf to enable such investment companies to comply with the provisions of
the Securities Act of 1933, as amended, the Investment Company Act of 1940, as
amended, and all requirements and regulations of the Securities and Exchange
Commission thereunder, hereby ratifying and confirming my signature as it may be
signed by my said attorneys to any and all registration statements and
amendments thereto.
/s/ K. Dun Gifford
K. Dun Gifford
Director/Trustee
Dated: December 14, 1994
<PAGE>
POWER OF ATTORNEY
I, the undersigned, hereby constitute Roger T. Wickers, Rosemary D. Van
Antwerp, Jean S. Loewenberg, Dorothy E. Bourassa, James M. Wall and Melina M. T.
Murphy, each of them singly, my true and lawful attorneys, with full power to
them and each of them to sign for me and in my name in the capacity indicated
below any and all registration statements, including, but not limited to, Forms
N-8A, N-8B-1, S-5, N-1 and N-1A, as amended from time to time, and any and all
amendments thereto to be filed with the Securities and Exchange Commission for
the purpose of registering from time to time all investment companies of which I
am now or hereafter a Director or Trustee and for which Keystone Custodian
Funds, Inc. serves as Adviser or Manager and registering from time to time the
shares of such companies, and generally to do all such things in my name and in
my behalf to enable such investment companies to comply with the provisions of
the Securities Act of 1933, as amended, the Investment Company Act of 1940, as
amended, and all requirements and regulations of the Securities and Exchange
Commission thereunder, hereby ratifying and confirming my signature as it may be
signed by my said attorneys to any and all registration statements and
amendments thereto.
/s/ Leroy Keith, Jr.
Leroy Keith, Jr.
Director/Trustee
Dated: December 14, 1994
<PAGE>
POWER OF ATTORNEY
I, the undersigned, hereby constitute Roger T. Wickers, Rosemary D. Van
Antwerp, Jean S. Loewenberg, Dorothy E. Bourassa, James M. Wall and Melina M. T.
Murphy, each of them singly, my true and lawful attorneys, with full power to
them and each of them to sign for me and in my name in the capacity indicated
below any and all registration statements, including, but not limited to, Forms
N-8A, N-8B-1, S-5, N-1 and N-1A, as amended from time to time, and any and all
amendments thereto to be filed with the Securities and Exchange Commission for
the purpose of registering from time to time all investment companies of which I
am now or hereafter a Director or Trustee and for which Keystone Custodian
Funds, Inc. serves as Adviser or Manager and registering from time to time the
shares of such companies, and generally to do all such things in my name and in
my behalf to enable such investment companies to comply with the provisions of
the Securities Act of 1933, as amended, the Investment Company Act of 1940, as
amended, and all requirements and regulations of the Securities and Exchange
Commission thereunder, hereby ratifying and confirming my signature as it may be
signed by my said attorneys to any and all registration statements and
amendments thereto.
/s/ F. Ray Keyser,Jr.
F. Ray Keyser, Jr.
Director/Trustee
Dated: December 14, 1994
<PAGE>
POWER OF ATTORNEY
I, the undersigned, hereby constitute Roger T. Wickers, Rosemary D. Van
Antwerp, Jean S. Loewenberg, Dorothy E. Bourassa, James M. Wall and Melina M. T.
Murphy, each of them singly, my true and lawful attorneys, with full power to
them and each of them to sign for me and in my name in the capacity indicated
below any and all registration statements, including, but not limited to, Forms
N-8A, N-8B-1, S-5, N-1 and N-1A, as amended from time to time, and any and all
amendments thereto to be filed with the Securities and Exchange Commission for
the purpose of registering from time to time all investment companies of which I
am now or hereafter a Director or Trustee and for which Keystone Custodian
Funds, Inc. serves as Adviser or Manager and registering from time to time the
shares of such companies, and generally to do all such things in my name and in
my behalf to enable such investment companies to comply with the provisions of
the Securities Act of 1933, as amended, the Investment Company Act of 1940, as
amended, and all requirements and regulations of the Securities and Exchange
Commission thereunder, hereby ratifying and confirming my signature as it may be
signed by my said attorneys to any and all registration statements and
amendments thereto.
/s/ David M. Richardson
David M. Richardson
Director/Trustee
Dated: December 14, 1994
<PAGE>
POWER OF ATTORNEY
I, the undersigned, hereby constitute Roger T. Wickers, Rosemary D. Van
Antwerp, Jean S. Loewenberg, Dorothy E. Bourassa, James M. Wall and Melina M. T.
Murphy, each of them singly, my true and lawful attorneys, with full power to
them and each of them to sign for me and in my name in the capacity indicated
below any and all registration statements, including, but not limited to, Forms
N-8A, N-8B-1, S-5, N-1 and N-1A, as amended from time to time, and any and all
amendments thereto to be filed with the Securities and Exchange Commission for
the purpose of registering from time to time all investment companies of which I
am now or hereafter a Director or Trustee and for which Keystone Custodian
Funds, Inc. serves as Adviser or Manager and registering from time to time the
shares of such companies, and generally to do all such things in my name and in
my behalf to enable such investment companies to comply with the provisions of
the Securities Act of 1933, as amended, the Investment Company Act of 1940, as
amended, and all requirements and regulations of the Securities and Exchange
Commission thereunder, hereby ratifying and confirming my signature as it may be
signed by my said attorneys to any and all registration statements and
amendments thereto.
/s/ Richard J. Shima
Richard J. Shima
Director/Trustee
Dated: December 14, 1994
<PAGE>
POWER OF ATTORNEY
I, the undersigned, hereby constitute Roger T. Wickers, Rosemary D. Van
Antwerp, Jean S. Loewenberg, Dorothy E. Bourassa, James M. Wall and Melina M. T.
Murphy, each of them singly, my true and lawful attorneys, with full power to
them and each of them to sign for me and in my name in the capacity indicated
below any and all registration statements, including, but not limited to, Forms
N-8A, N-8B-1, S-5, N-1 and N-1A, as amended from time to time, and any and all
amendments thereto to be filed with the Securities and Exchange Commission for
the purpose of registering from time to time all investment companies of which I
am now or hereafter a Director or Trustee and for which Keystone Custodian
Funds, Inc. serves as Adviser or Manager and registering from time to time the
shares of such companies, and generally to do all such things in my name and in
my behalf to enable such investment companies to comply with the provisions of
the Securities Act of 1933, as amended, the Investment Company Act of 1940, as
amended, and all requirements and regulations of the Securities and Exchange
Commission thereunder, hereby ratifying and confirming my signature as it may be
signed by my said attorneys to any and all registration statements and
amendments thereto.
/s/ Andrew J. Simons
Andrew J. Simons
Director/Trustee
Dated: December 14, 1994
<TABLE> <S> <C>
<ARTICLE> 6
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM ACCOUNTING
RECORDS AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH ACCOUNTING
RECORDS.
</LEGEND>
<SERIES>
<NUMBER> 101
<NAME> KEYSTONE CALIFORNIA INSURED TAX FREE FUND CLASS A
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> NOV-30-1995
<PERIOD-START> DEC-01-1994
<PERIOD-END> NOV-30-1995
<INVESTMENTS-AT-COST> 27,900,228
<INVESTMENTS-AT-VALUE> 29,436,787
<RECEIVABLES> 534,012
<ASSETS-OTHER> 5,455
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 29,976,254
<PAYABLE-FOR-SECURITIES> 977,460
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 166,215
<TOTAL-LIABILITIES> 1,143,675
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 4,410,303
<SHARES-COMMON-STOCK> 462,058
<SHARES-COMMON-PRIOR> 345,654
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 16,493
<ACCUMULATED-NET-GAINS> (103,643)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 231,526
<NET-ASSETS> 4,554,679
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 216,063
<OTHER-INCOME> 0
<EXPENSES-NET> (24,650)
<NET-INVESTMENT-INCOME> 191,413
<REALIZED-GAINS-CURRENT> 117,453
<APPREC-INCREASE-CURRENT> 317,963
<NET-CHANGE-FROM-OPS> 626,829
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (193,108)
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 210,863
<NUMBER-OF-SHARES-REDEEMED> (99,402)
<SHARES-REINVESTED> 4,943
<NET-CHANGE-IN-ASSETS> 1,548,877
<ACCUMULATED-NII-PRIOR> 11,264
<ACCUMULATED-GAINS-PRIOR> (216,871)
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> (19,651)
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> (46,869)
<AVERAGE-NET-ASSETS> 3,564,910
<PER-SHARE-NAV-BEGIN> 8.70
<PER-SHARE-NII> 0.49
<PER-SHARE-GAIN-APPREC> 1.17
<PER-SHARE-DIVIDEND> (0.50)
<PER-SHARE-DISTRIBUTIONS> 0.00
<RETURNS-OF-CAPITAL> 0.00
<PER-SHARE-NAV-END> 9.86
<EXPENSE-RATIO> 0.72
<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 CALIFORNIA INSURED TAX FREE FUND CLASS B
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> NOV-30-1995
<PERIOD-START> DEC-01-1994
<PERIOD-END> NOV-30-1995
<INVESTMENTS-AT-COST> 27,900,228
<INVESTMENTS-AT-VALUE> 29,436,787
<RECEIVABLES> 534,012
<ASSETS-OTHER> 5,455
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 29,976,254
<PAYABLE-FOR-SECURITIES> 977,460
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 166,215
<TOTAL-LIABILITIES> 1,143,675
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 21,829,235
<SHARES-COMMON-STOCK> 2,317,182
<SHARES-COMMON-PRIOR> 1,314,391
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> (41,332)
<ACCUMULATED-NET-GAINS> (287,040)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 1,242,418
<NET-ASSETS> 22,743,281
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 964,613
<OTHER-INCOME> 0
<EXPENSES-NET> (232,026)
<NET-INVESTMENT-INCOME> 732,587
<REALIZED-GAINS-CURRENT> 520,797
<APPREC-INCREASE-CURRENT> 1,483,058
<NET-CHANGE-FROM-OPS> 2,736,442
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (798,055)
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 1,223,780
<NUMBER-OF-SHARES-REDEEMED> (254,280)
<SHARES-REINVESTED> 33,291
<NET-CHANGE-IN-ASSETS> 11,328,439
<ACCUMULATED-NII-PRIOR> (6,981)
<ACCUMULATED-GAINS-PRIOR> (788,851)
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> (88,091)
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> (331,332)
<AVERAGE-NET-ASSETS> 16,020,604
<PER-SHARE-NAV-BEGIN> 8.68
<PER-SHARE-NII> 0.44
<PER-SHARE-GAIN-APPREC> 1.17
<PER-SHARE-DIVIDEND> (0.47)
<PER-SHARE-DISTRIBUTIONS> 0.00
<RETURNS-OF-CAPITAL> 0.00
<PER-SHARE-NAV-END> 9.82
<EXPENSE-RATIO> 1.48
<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 CALIFORNIA INSURED TAX FREE FUND CLASS C
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> NOV-30-1995
<PERIOD-START> DEC-01-1994
<PERIOD-END> NOV-30-1995
<INVESTMENTS-AT-COST> 27,900,228
<INVESTMENTS-AT-VALUE> 29,436,787
<RECEIVABLES> 534,012
<ASSETS-OTHER> 5,455
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 29,976,254
<PAYABLE-FOR-SECURITIES> 977,460
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 166,215
<TOTAL-LIABILITIES> 1,143,675
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 1,484,000
<SHARES-COMMON-STOCK> 156,535
<SHARES-COMMON-PRIOR> 71,884
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> (2,198)
<ACCUMULATED-NET-GAINS> (9,798)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 62,615
<NET-ASSETS> 1,534,619
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 61,092
<OTHER-INCOME> 0
<EXPENSES-NET> (14,923)
<NET-INVESTMENT-INCOME> 46,169
<REALIZED-GAINS-CURRENT> 32,989
<APPREC-INCREASE-CURRENT> 81,418
<NET-CHANGE-FROM-OPS> 160,576
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (50,542)
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 107,136
<NUMBER-OF-SHARES-REDEEMED> (25,172)
<SHARES-REINVESTED> 2,687
<NET-CHANGE-IN-ASSETS> 911,001
<ACCUMULATED-NII-PRIOR> 185
<ACCUMULATED-GAINS-PRIOR> (41,573)
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> (5,611)
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> (21,161)
<AVERAGE-NET-ASSETS> 1,024,226
<PER-SHARE-NAV-BEGIN> 8.68
<PER-SHARE-NII> 0.43
<PER-SHARE-GAIN-APPREC> 1.15
<PER-SHARE-DIVIDEND> (0.46)
<PER-SHARE-DISTRIBUTIONS> 0.00
<RETURNS-OF-CAPITAL> 0.00
<PER-SHARE-NAV-END> 9.80
<EXPENSE-RATIO> 1.49
<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> 201
<NAME> KEYSTONE MISSOURI TAX FREE FUND CLASS A
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> NOV-30-1995
<PERIOD-START> DEC-01-1994
<PERIOD-END> NOV-30-1995
<INVESTMENTS-AT-COST> 25,679,224
<INVESTMENTS-AT-VALUE> 27,523,780
<RECEIVABLES> 469,862
<ASSETS-OTHER> 2,532
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 27,996,174
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 128,454
<TOTAL-LIABILITIES> 128,454
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 4,641,011
<SHARES-COMMON-STOCK> 489,023
<SHARES-COMMON-PRIOR> 410,528
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 17,162
<ACCUMULATED-NET-GAINS> (124,133)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 314,284
<NET-ASSETS> 4,848,324
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 185,972
<OTHER-INCOME> 0
<EXPENSES-NET> (21,571)
<NET-INVESTMENT-INCOME> 164,401
<REALIZED-GAINS-CURRENT> (85,107)
<APPREC-INCREASE-CURRENT> 502,737
<NET-CHANGE-FROM-OPS> 582,031
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (164,456)
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 429,776
<NUMBER-OF-SHARES-REDEEMED> (362,420)
<SHARES-REINVESTED> 11,139
<NET-CHANGE-IN-ASSETS> 1,267,365
<ACCUMULATED-NII-PRIOR> 11,212
<ACCUMULATED-GAINS-PRIOR> (37,409)
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> (17,044)
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> (41,409)
<AVERAGE-NET-ASSETS> 3,126,444
<PER-SHARE-NAV-BEGIN> 8.72
<PER-SHARE-NII> 0.50
<PER-SHARE-GAIN-APPREC> 1.19
<PER-SHARE-DIVIDEND> (0.50)
<PER-SHARE-DISTRIBUTIONS> 0.00
<RETURNS-OF-CAPITAL> 0.00
<PER-SHARE-NAV-END> 9.91
<EXPENSE-RATIO> 0.72
<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> 202
<NAME> KEYSTONE MISSOURI TAX FREE FUND CLASS B
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> NOV-30-1995
<PERIOD-START> DEC-01-1994
<PERIOD-END> NOV-30-1995
<INVESTMENTS-AT-COST> 25,679,224
<INVESTMENTS-AT-VALUE> 27,523,780
<RECEIVABLES> 469,862
<ASSETS-OTHER> 2,532
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 27,996,174
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 128,454
<TOTAL-LIABILITIES> 128,454
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 20,373,893
<SHARES-COMMON-STOCK> 2,166,339
<SHARES-COMMON-PRIOR> 1,489,246
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> (51,813)
<ACCUMULATED-NET-GAINS> (497,665)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 1,406,551
<NET-ASSETS> 21,230,966
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 1,028,394
<OTHER-INCOME> 0
<EXPENSES-NET> (247,299)
<NET-INVESTMENT-INCOME> 781,095
<REALIZED-GAINS-CURRENT> (291,727)
<APPREC-INCREASE-CURRENT> 2,366,876
<NET-CHANGE-FROM-OPS> 2,856,244
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (849,003)
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 769,123
<NUMBER-OF-SHARES-REDEEMED> (134,192)
<SHARES-REINVESTED> 42,162
<NET-CHANGE-IN-ASSETS> 8,324,989
<ACCUMULATED-NII-PRIOR> (16,804)
<ACCUMULATED-GAINS-PRIOR> (197,083)
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> (94,351)
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> (355,401)
<AVERAGE-NET-ASSETS> 17,127,524
<PER-SHARE-NAV-BEGIN> 8.67
<PER-SHARE-NII> 0.44
<PER-SHARE-GAIN-APPREC> 1.15
<PER-SHARE-DIVIDEND> (0.46)
<PER-SHARE-DISTRIBUTIONS> 0.00
<RETURNS-OF-CAPITAL> 0.00
<PER-SHARE-NAV-END> 9.80
<EXPENSE-RATIO> 1.47
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM ACCOUNTING
RECORDS AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH ACCOUNTING
RECORDS.
</LEGEND>
<SERIES>
<NUMBER> 203
<NAME> KEYSTONE MISSOURI TAX FREE FUND CLASS C
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> NOV-30-1995
<PERIOD-START> DEC-01-1994
<PERIOD-END> NOV-30-1995
<INVESTMENTS-AT-COST> 25,679,224
<INVESTMENTS-AT-VALUE> 27,523,780
<RECEIVABLES> 469,862
<ASSETS-OTHER> 2,532
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 27,996,174
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 128,454
<TOTAL-LIABILITIES> 128,454
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 1,718,065
<SHARES-COMMON-STOCK> 182,615
<SHARES-COMMON-PRIOR> 120,781
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> (5,348)
<ACCUMULATED-NET-GAINS> (48,008)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 123,721
<NET-ASSETS> 1,788,430
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 95,665
<OTHER-INCOME> 0
<EXPENSES-NET> (23,017)
<NET-INVESTMENT-INCOME> 72,648
<REALIZED-GAINS-CURRENT> (28,347)
<APPREC-INCREASE-CURRENT> 218,681
<NET-CHANGE-FROM-OPS> 262,982
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (78,859)
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 101,419
<NUMBER-OF-SHARES-REDEEMED> (44,088)
<SHARES-REINVESTED> 4,503
<NET-CHANGE-IN-ASSETS> 742,980
<ACCUMULATED-NII-PRIOR> (2,200)
<ACCUMULATED-GAINS-PRIOR> (18,837)
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> (8,771)
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> (32,956)
<AVERAGE-NET-ASSETS> 1,594,380
<PER-SHARE-NAV-BEGIN> 8.66
<PER-SHARE-NII> 0.43
<PER-SHARE-GAIN-APPREC> 1.16
<PER-SHARE-DIVIDEND> (0.46)
<PER-SHARE-DISTRIBUTIONS> 0.00
<RETURNS-OF-CAPITAL> 0.00
<PER-SHARE-NAV-END> 9.79
<EXPENSE-RATIO> 1.46
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
