<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON FEBRUARY 23, 1996.
File Nos. 33-
and 811-
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-1A
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 X
Pre-Effective Amendment No. --- ---
Post-Effective Amendment No --- ---
and
REGISTRATION STATEMENT UNDER THE
INVESTMENT COMPANY ACT OF 1940 X
Amendment No. --- ---
KEYSTONE EMERGING MARKETS FUND
(Exact Name of Registrant as Specified in Charter)
200 Berkeley Street, Boston, Massachusetts 02116-5034
(Address of Principal Executive Offices) (Zip Code)
Registrant's Telephone Number, including Area Code: (617) 338-3200
Rosemary D. Van Antwerp, Esq., 200 Berkeley Street,
Boston, MA 02116-5034
(Name and Address of Agent for Service)
Registrant declares that it hereby elects pursuant to Rule 24f-2 promulgated
under the Investment Company Act of 1940 to register by this Registration
Statement an indefinite number or amount of its securities under the Securities
Act of 1933, as amended.
Approximate Date of Proposed Public Offering:
As soon as practicable after the effective date of
The Registration Statement.
It is proposed that this filing will become effective:
- --- immediately upon filing pursuant to paragraph (b)
- --- on (date) pursuant to paragraph (b)
- --- 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
The Registrant hereby amends this Registration Statement on such date
or dates as may be necessary to delay its effective date until the Registrant
shall file a further amendment that specifically states that this Registration
Statement shall thereafter become effective in accordance with Section 8(a) of
the Securities Act of 1933 or until this Registration Statement shall become
effective on such date as the Commission, acting pursuant to said Section 8(a),
may determine.
<PAGE>
KEYSTONE EMERGING MARKETS FUND
CONTENTS OF
REGISTRATION STATEMENT
This Registration Statement consists of the
following pages, items of information and documents:
The Facing Sheet
The Contents Page
The Cross-Reference Sheet
PART A
Prospectus
PART B
Statement of Additional Information
PART C
PART C - OTHER INFORMATION - ITEMS 24 (a) and (b)
Financial Statements
Report of Independent Auditors
Exhibit Listing
PART C - OTHER INFORMATION - ITEMS 25-32- AND SIGNATURE PAGES
Number of Holders of Securities
Indemnification
Business and Other Connections
Principal Underwriter
Location of Accounts and Records
Undertakings
Signatures
Exhibits (including Powers of Attorney)
<PAGE>
KEYSTONE EMERGING MARKETS FUND
Cross-Reference Sheet pursuant to Rule 495 under the Securities Act of 1933.
Items in
Part A of
Form N-1A Prospectus Caption
- --------- ------------------
1 Cover Page
2 Fee Table
3 Performance Data
4 Cover Page
The Fund
Investment Objective and Strategies
Investment Restrictions
Risk Factors
5 Fund Management and Expenses
5A Not Applicable
6 The Fund
Dividends and Taxes
Fund Shares
Shareholder Services
Pricing Shares
7 How to Buy Shares
Pricing Shares
Shareholder Services
8 How to Redeem Shares
9 Not Applicable
<PAGE>
KEYSTONE EMERGING MARKETS FUND
Cross-Reference Sheet continued.
Items in
Part B of
Form N-1A Statement of Additional Information Caption
- --------- -------------------------------------------
10 Cover Page
11 Table of Contents
12 Not applicable
13 The Fund
Investment Restrictions
Valuation of Securities
Appendix
14 Trustees and Officers
15 Additional Information
16 Investment Adviser
Principal Underwriter
Additional Information
17 Brokerage
18 Declaration of Trust
19 Valuation of Securities
20 Distributions and Taxes
21 Principal Underwriter
22 Standardized Total Return and Yield Quotations
23 Audited Balance Sheet
<PAGE>
KEYSTONE EMERGING MARKETS FUND
PART A
PROSPECTUS
<PAGE>
KEYSTONE EMERGING MARKETS FUND
PROSPECTUS , 1996
Keystone Emerging Markets Fund (the "Fund") is a mutual fund that seeks
capital appreciation by investing primarily in equity securities of issuers
located in emerging market countries.
The Fund currently offers three classes of shares. Information on share
classes and their fee and sales charge structures may be found in the "Fee
Table," "Alternative Sales Options," "Contingent Deferred Sales Charge and
Waiver of Sales Charges," "Distribution Plans" and "Fund Shares."
This prospectus contains information about the Fund that you should know
before investing. Please read it and retain it for future reference.
Additional information about the Fund is contained in a statement of
additional information dated , 1996, which has been filed with the
Securities and Exchange Commission and is incorporated by reference into this
prospectus. For a free copy, or for other information about the Fund, write to
the address or call the telephone number listed below.
SHARES OF THE FUND ARE NOT DEPOSITS OR OBLIGATIONS OF, OR GUARANTEED OR
ENDORSED BY, ANY BANK, AND SHARES ARE NOT FEDERALLY INSURED BY THE FEDERAL
DEPOSIT INSURANCE CORPORATION, THE FEDERAL RESERVE BOARD OR ANY OTHER AGENCY.
KEYSTONE EMERGING MARKETS FUND
200 BERKELEY STREET
BOSTON, MASSACHUSETTS 02116-5034
CALL TOLL FREE 1-800-343-2898
TABLE OF CONTENTS
Page
Fee Table 2
The Fund 3
Investment Objective and Strategies 3
Investment Restrictions 5
Risk Factors 6
Pricing Shares 7
Dividends and Taxes 8
Fund Management and Expenses 9
How to Buy Shares 11
Alternative Sales Options 11
Contingent Deferred Sales Charge
and Waiver of Sales Charges 15
Distribution Plans 16
How to Redeem Shares 17
Shareholder Services 19
Performance Data 21
Fund Shares 21
Additional Information 22
Additional Investment Information (i)
Exhibit A A-1
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
<PAGE>
FEE TABLE
KEYSTONE EMERGING MARKETS FUND
The purpose of this fee table is to assist investors in understanding the
costs and expenses that an investor in each class will bear directly or
indirectly. For more complete descriptions of the various costs and expenses,
see the following sections of this prospectus: "Fund Management and Expenses";
"How to Buy Shares"; "Distribution Plans"; and "Shareholder Services."
<TABLE>
<CAPTION>
CLASS A SHARES CLASS B SHARES CLASS C SHARES
FRONT END BACK END LEVEL LOAD
SHAREHOLDER TRANSACTION EXPENSES LOAD OPTION LOAD OPTION <F1> OPTION <F2>
-------------- -------------- --------------
<S> <C> <C> <C>
Sales Charge .................................................. 5.75% <F3> None None
(as a percentage of offering price)
Contingent Deferred Sales Charge .............................. 0.00% <F4> 5.00% in the first year 1.00% in the first
(as a percentage of the lesser of cost or market value of declining to 1.00% in year and 0.00%
shares redeemed) the sixth year and thereafter
0.00% thereafter
Exchange Fee (per exchange) <F5> .............................. $10.00 $10.00 $10.00
ANNUAL FUND OPERATING EXPENSES <F6>
After Expense Reimbursements
(as a percentage of average net assets)
Management Fees ............................................... 0.00% 0.00% 0.00%
12b-1 Fees .................................................... 0.00% 0.00% <F7> 0.00% <F7>
Other Expenses ................................................ 0.00% 0.00% 0.00%
---- ---- ----
Total Fund Operating Expenses ................................. 0.00% 0.00% 0.00%
==== ==== ====
EXAMPLES <F8> 1 YEAR 3 YEARS
------ -------
You would pay the following expenses on a $1,000 investment, assuming
(1) 5% annual return and (2) redemption at the end of each period:
Class A ...................................................................... $ 58.00 $ 58.00
Class B ...................................................................... $ 50.00 $ 30.00
Class C ...................................................................... $ 10.00 $ 0.00
You would pay the following expenses on a $1,000 investment, assuming
no redemption at the end of each period:
Class A ...................................................................... $ 58.00 $ 58.00
Class B ...................................................................... $ 0.00 $ 0.00
Class C ...................................................................... $ 0.00 $ 0.00
AMOUNTS SHOWN IN THE EXAMPLE SHOULD NOT BE CONSIDERED A REPRESENTATION OF PAST
OR FUTURE EXPENSES. ACTUAL EXPENSES MAY BE GREATER OR LESS THAN THOSE SHOWN.
<FN>
- ----------
<F1> Class B shares convert tax free to Class A shares after eight years. See
"Class B Shares" for more information.
<F2> Class C shares are available only through dealers who have entered into
special distribution agreements with Keystone Investment Distributors
Company, the Fund's principal underwriter.
<F3> The sales charge applied to purchases of Class A shares declines as the
amount invested increases. See "Class A Shares."
<F4> Purchases of Class A shares in the amount of $1,000,000 or more and/or
purchases made by certain qualifying retirement or other plans are not
subject to a sales charge, but may be subject to a contingent deferred
sales charge. See the "Class A Shares" and "Contingent Deferred Sales
Charge and Waiver of Sales Charges" sections of this prospectus for an
explanation of the charge.
<F5> There is no fee for exchange orders received by the Fund directly from a
shareholder over the Keystone Automated Response Line ("KARL"). (For a
description of KARL, see "Shareholder Services.")
<F6> Expense ratios are estimated for the Fund's fiscal period ending October
31, 1996 after giving effect to the reimbursement by Keystone Investment
Management Company ("Keystone") of all of the Fund's operating expenses.
Currently, Keystone has voluntarily agreed to reimburse all of the expenses
of each of the Fund's Class A, B, and C shares. Keystone intends to
continue such expense reimbursements on a calendar month by month basis and
may modify or terminate the reimbursements in the future. The estimated
expense ratios above assume the extension of the expense reimbursements
until October 31, 1996, which Keystone is under no obligation to do. Prior
to reimbursement, expense ratios for the fiscal period ending October 31,
1996 for the Fund's Class A, B and C shares are estimated to be 3.65%,
4.40% and 4.40% for each class, respectively. Total Fund Operating Expenses
will include indirectly paid expenses.
<F7> Long term shareholders may pay more than the equivalent of the maximum
front end sales charges permitted by the National Association of Securities
Dealers, Inc. ("NASD").
<F8> The Securities and Exchange Commission requires use of a 5% annual return
figure for purposes of this example. Actual return for the Fund may be
greater or less than 5%.
</TABLE>
<PAGE>
THE FUND
The Fund is an open-end, diversified management investment company commonly
known as a mutual fund. The Fund was formed as a Massachusetts business trust on
January 12, 1996. The Fund is one of more than thirty funds managed or advised
by Keystone Investment Management Company ("Keystone"), the Fund's investment
adviser.
INVESTMENT OBJECTIVE AND STRATEGIES
INVESTMENT OBJECTIVE
The Fund seeks capital appreciation by investing primarily in equity
securities of issuers located in emerging market countries.
The investment objective of the Fund is fundamental and may not be changed
without the vote of a majority of the Fund's outstanding shares (as defined in
the Investment Company Act of 1940 ("1940 Act") (which means the lesser of (1)
67% of the shares represented at a meeting at which more than 50% of the
outstanding shares are represented or (2) more than 50% of the outstanding
shares)).
There is no assurance that the Fund will achieve its investment objective
since there is uncertainty in every investment.
INVESTMENT STRATEGIES
Under normal market conditions, the Fund will invest at least 65% of its total
assets in equity securities of issuers located in emerging market countries. In
addition, under normal market conditions, the Fund will maintain investments in
at least three different emerging market countries.
As a general matter, the Fund deems an emerging market country to be any
country that is considered to be an emerging or developing country by the
International Finance Corporation at the time of the Fund's investment.
The countries that will not be considered emerging markets include Australia,
Austria, Belgium, Canada, Denmark, Finland, France, Germany, Ireland, Italy,
Japan, Luxembourg, Netherlands, New Zealand, Spain, Norway, Switzerland, United
Kingdom and the United States.
For example, the Fund currently expects to invest in issuers located in some
or all of the following emerging or developing market countries: Argentina,
Brazil, Czech Republic, China, Greece, Hungary, India, Indonesia, Korea,
Malaysia, Mexico, Peru, Philippines, Poland, Portugal, Singapore, South Africa,
Taiwan, Thailand and Turkey as well as in Hong Kong.
The Fund considers any particular issuer to be located in an emerging market
country if (1) such issuer is organized under the laws of that country; (2) the
issuer's principal securities trading market is located in that country; or (3)
the issuer derives at least 50% of its revenues or profits from goods produced
or sold, investments made, or services performed in that country or has at least
50% of its assets situated in that country. The Fund may also consider other
criteria when assessing whether an issuer is located in a particular country.
When selecting equity securities, the Fund uses both a "growth" and a "value"
approach; i.e., the Fund looks to acquire securities issued by companies that
exhibit strong prospects for increased revenues and earnings and continued
revenue growth as well as securities that Keystone considers to be undervalued
by the market.
PRINCIPAL INVESTMENTS AND OTHER POLICIES
EQUITY SECURITIES. The Fund may invest in the following types of equity
securities: common stock, preferred stock (convertible or non-convertible),
warrants or rights convertible into common or preferred stock, partly paid stock
and structured equity based securities. The Fund deems debt securities
convertible into equity securities to be equity securities.
FOREIGN SECURITIES -- IMPORTANT INVESTMENT POLICIES. Keystone follows a number
of significant policies when investing in foreign countries. When allocating the
Fund's investments among issuers located in different countries, Keystone
considers such countries' interest rate environments and general economic
conditions. Keystone evaluates the relative values of different currencies on
the basis of technical and political data and such fundamental economic criteria
as relative inflation rates and trends, projected growth rates, balance of
payments status, and economic policies. With respect to foreign corporate
issuers, Keystone considers the financial condition of the issuer and market and
economic conditions relevant to its operations. In addition, Keystone considers
liquidity when selecting foreign investments.
OTHER ELIGIBLE INVESTMENTS
The Fund may invest up to 35% of its total assets under normal market
conditions in the following types of U.S. dollar or foreign currency denominated
debt obligations:
(1) short term debt obligations issued by foreign issuers, including foreign
corporations, partnerships, governments or any of their political
subdivisions, agencies or instrumentalities; and
(2) variable and fixed rate debt obligations (including zero coupon and
payment-in-kind securities ("PIKs")), such as bonds, debentures, notes, loans,
commercial paper, certificates of deposit, warrants, mortgage-backed
securities, debt securities convertible into common stock, and structured
notes; such debt obligations may be issued or guaranteed by U.S. or foreign
issuers, including U.S. or foreign corporations or partnerships, U.S. or
foreign governments or any of their political subdivisions, agencies or
instrumentalities.
The Fund has the authority to invest up to (but less than) 35% of its total
assets in debt obligations with a rating below investment grade (i.e., BBB or
lower by Standard & Poor's Corporation ("S&P") or Baa or lower by Moody's
Investor Service ("Moody's") or which, if unrated, are, in Keystone's judgment,
determined to be below investment grade.
The Fund intends to invest in debt obligations when Keystone determines that
such investment is consistent with the Fund's investment objective of capital
appreciation. For example, the Fund might invest in certain debt securities when
an anticipated decline in interest rates would be expected to lead to an
appreciation in value of such securities. Alternatively, the Fund might invest
in debt obligations issued in exchange for restructured debt of certain
countries or other issuers that it expects to appreciate in value.
The Fund may invest up to 100% of its assets for temporary defensive purposes
(when Keystone determines market conditions so warrant) in the following types
of securities:
(1) commercial paper of U.S. issuers, including master demand notes, that at
the date of investment is rated A-1 (the highest grade given by S&P), Prime-1
(the highest grade given by Moody's ) or, if not rated by such services,
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 with 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 of U.S. issuers that at the date of investment
are rated A or better by S&P or Moody's;
(4) obligations issued or guaranteed by the U.S. government or by any
agency or instrumentality of the U.S. government; or
(5) repurchase agreements and reverse repurchase agreements for instruments
described in (1), (2), (3), and (4).
When the Fund invests its assets for temporary defensive purposes, it may not
be pursuing its investment objective.
The Fund intends to follow policies of the Securities and Exchange Commission
as they are adopted from time to time with respect to illiquid securities,
including, at this time, (1) treating as illiquid securities that may not be
sold or disposed of in the ordinary course of business within seven days at
approximately the value at which the Fund has valued such securities on its
books and (2) limiting its holdings of such securities to 15% of net assets.
The Fund may invest in restricted securities, including securities eligible
for resale pursuant to Rule 144A under the Securities Act of 1933, as amended
(the "1933 Act"). Generally, Rule 144A establishes a safe harbor from the
registration requirements of the 1933 Act for resales by large institutional
investors of securities not publicly traded in the U.S. The Fund may purchase
Rule 144A securities when such securities present an attractive investment
opportunity and otherwise meet the Fund's selection criteria. Keystone
determines the liquidity of the Fund's Rule 144A securities in accordance with
guidelines adopted by the Fund's Board of Trustees.
At the present time, the Fund cannot accurately predict exactly how the market
for Rule 144A securities will develop. A Rule 144A security that was readily
marketable upon purchase may subsequently become illiquid. In such an event, the
Fund's Board of Trustees will consider what action, if any, is appropriate.
In addition to the securities described above, when it deems it appropriate,
the Fund may invest in the securities of other investment companies, including
closed-end "country funds." For example, the Fund might invest in another
investment company to obtain immediate access to a diversified portfolio of
foreign securities. Alternatively, the Fund might invest in a closed-end country
fund if such a fund were trading at a significant discount to its net asset
value. See "Investment Restrictions" in the Fund's statement of additional
information for more information.
INVESTMENT TECHNIQUES
The Fund may purchase or sell foreign currency, purchase options on currency
and purchase or sell forward foreign currency exchange contracts to manage
currency exposure. In addition, the Fund may write covered call and put options
on any security in which the Fund may invest. The Fund may, for hedging
purposes, purchase and sell futures contracts and put and call options on
futures contracts. (Options and futures contracts are considered "derivative
instruments.") The Fund may purchase securities on a when-issued, partly paid,
or forward commitment basis and may engage in the lending of portfolio
securities.
For further information about the types of investments and investment
techniques available to the Fund, including the associated risks, see the
section of this prospectus entitled "Additional Investment Information" and the
statement of additional information.
INVESTMENT RESTRICTIONS
The Fund has adopted the fundamental restrictions set forth below, which may
not be changed without the vote of a 1940 Act majority of the Fund's outstanding
shares. These restrictions and certain other fundamental and non- fundamental
restrictions are set forth in the statement of additional information.
Generally, the Fund may not do the following: (1) invest more than 5% of its
total assets in the securities of any one issuer (other than U.S. government
securities), except that up to 25% of its total assets may be invested without
regard to this limit; (2) borrow money except from any bank, provided that
immediately after any such borrowing there is asset coverage of at least 300%
for all borrowings, and enter into reverse repurchase agreements; and (3)
concentrate its investments in any particular industry.
RISK FACTORS
Like any investment, your investment in the Fund involves an element of risk.
Before you buy shares of the Fund, you should carefully evaluate your ability to
assume the risks your investment in the Fund poses. YOU CAN LOSE MONEY BY
INVESTING IN THE FUND. YOUR INVESTMENT IS NOT GUARANTEED. A DECREASE IN THE
VALUE OF THE FUND'S PORTFOLIO SECURITIES CAN RESULT IN A DECREASE IN THE VALUE
OF YOUR INVESTMENT.
By itself, the Fund does not constitute a balanced investment program. The
Fund is best suited for investors who can afford to maintain their investment
over a relatively long period of time, and who are seeking a fund that is growth
oriented and has the potential for capital appreciation. The Fund involves a
relatively high degree of risk and is not an appropriate investment for
conservative investors who are seeking preservation of capital and/or income.
Should the Fund need to raise cash to meet a large number of redemptions it
may have to sell portfolio securities at a time when it would be disadvantageous
to do so.
Certain risks related to the Fund are discussed below. To the extent not
discussed in this section, specific risks attendant to individual securities or
investment practices are discussed in "Additional Investment Information" and
the statement of additional information.
LONG TERM NATURE OF THE FUND. The Fund is designed for long-term investors who
can accept the risks entailed in seeking long-term growth of capital through
investment primarily in equity securities. The Fund is not meant to provide a
vehicle for playing short-term swings in the stock market. Although the Fund
seeks to reduce risk by investing in a diversified portfolio of securities, such
diversification does not eliminate all risks. The value of the Fund's securities
will fluctuate based on market conditions. Consistent with a long-term
investment approach, investors in the Fund should be prepared and able to
maintain or add to their investment during periods of adverse market conditions
and should not rely on an investment in the Fund for their short-term financial
needs.
FOREIGN RISK IN GENERAL. Investing in securities of foreign issuers generally
involves more risk than investing in securities of domestic issuers for the
following reasons:
(1) there may be less public information available about foreign companies
than is available about U.S. companies;
(2) foreign companies are not generally subject to the uniform accounting,
auditing and financial reporting standards and practices applicable to
U.S. companies;
(3) foreign stock markets have less volume than the U.S. market, and the
securities of some foreign companies are much less liquid and much more
volatile than the securities of comparable U.S. companies;
(4) foreign securities transactions may involve higher brokerage
commissions;
(5) there may be less government regulation of stock markets, brokers, listed
companies and banks in foreign countries than in the U.S.;
(6) the Fund may incur fees on currency exchanges when it changes
investments from one country to another;
(7) the Fund's foreign investments could be affected by expropriation,
confiscatory taxation, nationalization, establishment of currency
exchange controls, political or social instability or diplomatic
developments;
(8) fluctuations in foreign exchange rates will affect the value of the
Fund's investments, the value of dividends and interest earned, gains and
losses realized on the sale of securities, net investment income and
unrealized appreciation or depreciation of investments; and
(9) interest and dividends on foreign securities may be subject to
withholding taxes in a foreign country that could result in a reduction
of net investment income available for distribution.
EMERGING MARKETS. Investing in securities of issuers located in emerging
market countries involves exposure to economic systems that are generally less
mature and political systems that are generally less stable than those of
developed countries. In addition, investing in companies in emerging market
countries may also involve exposure to national policies that may restrict
investment by foreigners and undeveloped legal systems governing private and
foreign investments and private property. The typically small size of the
markets for securities issued by companies in emerging markets countries and the
possibility of a low or nonexistent volume of trading in those securities may
also result in a lack of liquidity and in price volatility of those securities.
Furthermore, investing in securities of companies in the People's Republic of
China and the formerly communist countries of Eastern Europe involves additional
risks. Specifically, those countries could convert back to a single economic
system, and the claims of property owners prior to the expropriation by the
communist regime could be settled in favor of the former property owners, in
which case the Fund could lose its entire investment in those countries.
BELOW-INVESTMENT GRADE BONDS. The Fund may invest up to (but less than) 35% of
its assets in below-investment grade bonds. See "Other Eligible Investments."
Lower rated debt securities (sometimes called "junk bonds") are often
considered to be speculative. Investment in such bonds involves risks that are
greater than the risks of investing in higher quality debt securities. These
risks include risks from interest rate fluctuations; changes in credit status,
including weaker overall credit condition of issuers and risks of default;
industry, market and economic risk; volatility of price resulting from broad and
rapid changes in the value of these securities; and greater price variability
and credit risks of certain high yield securities, such as zero coupon bonds and
PIKs. For further discussion of below investment grade bonds, see the statement
of additional information.
PRICING SHARES
The net asset value of a share of the Fund is computed each day on which the
New York Stock Exchange (the "Exchange") is open as of the close of trading on
the Exchange (currently 4:00 p.m. eastern time for the purpose of pricing Fund
shares) except on days when changes in the value of the Fund's securities do not
affect the current net asset value of its shares. The Exchange currently is
closed on weekends, New Year's Day, Presidents' Day, Good Friday, Memorial Day,
Independence Day, Labor Day, Thanksgiving Day and Christmas Day. The net asset
value per share of the Fund is arrived at by determining the value of the Fund's
assets, subtracting its liabilities and dividing the result by the number of its
shares outstanding.
Current values for the Fund's securities are generally determined as follows:
1. securities that are traded on a national securities exchange or on the
over-the-counter National Market System ("NMS") are valued on the basis of the
last sales price on the exchange where primarily traded or NMS prior to the
time of the valuation, provided that a sale has occurred and that this price
reflects current market value according to procedures established by the
Fund's Board of Trustees;
2. securities traded in the over-the-counter market, other than NMS, for
which market quotations are readily available, are valued at the mean of the
bid and asked prices at the time of valuation;
3. short-term instruments having maturities of more than sixty days for
which market quotations are readily available are valued at current market
value; where market quotations are not available, such instruments are valued
at fair value as determined by the Fund's Board of Trustees;
4. short-term instruments purchased with maturities of sixty days or less
(including all master demand notes) are valued at amortized cost (original
purchase cost as adjusted for amortization of premium or accretion of
discount), which, when combined with accrued interest, approximates market;
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 Fund's
Board of Trustees; and
5. the following securities are valued at prices deemed in good faith to be
fair under procedures established by the Fund's Board of Trustees: (a)
securities, including restricted securities, for which complete quotations are
not readily available; (b) listed securities or those on NMS if, in the Fund's
opinion, the last sales price does not reflect a current market value or if no
sale occurred; and (c) other assets.
Foreign securities for which market quotations are not readily available are
valued on the basis of valuations provided by a pricing service, approved by the
Fund's Board of Trustees, which uses information with respect to transactions in
such securities, quotations from broker-dealers, market transactions in
comparable securities and various relationships between securities and yield to
maturity in determining value.
DIVIDENDS AND TAXES
The Fund has qualified and intends to qualify in the future as a regulated
investment company under the Internal Revenue Code (the "Code"). The Fund
qualifies if, among other things, it distributes to its shareholders at least
90% of its net investment income for its fiscal year. The Fund also intends to
make timely distributions, if necessary, sufficient in amount to avoid the
nondeductible 4% excise tax imposed on a regulated investment company to the
extent that it fails to distribute, with respect to each calendar year, at least
98% of its ordinary income for such calendar year and 98% of its net capital
gains for the one-year period ending October 31 of such calendar year.
Any taxable dividend declared in October, November, or December to
shareholders of record in such month and paid by the following January 31 will
be includable in the taxable income of the shareholder as if paid on December 31
of the year in which the dividend was declared.
If the Fund qualifies and if it distributes all of its net investment income
and net capital gains, if any, to shareholders, it will be relieved of any
federal income tax liability.
The Fund will make distributions from its net investment income annually and
net capital gains, if any, at least annually. It is not expected that any
material portion of such distributions will qualify for corporate dividends
received deduction.
Because Class A shares bear most of the costs of distribution of such shares
through payment of a front end sales charge, while Class B and Class C shares
bear such expenses through a higher annual distribution fee, expenses
attributable to Class B shares and Class C shares will generally be higher, and
income distributions paid by the Fund with respect to Class A shares will
generally be greater than those paid with respect to Class B and Class C shares.
Shareholders receive Fund distributions in the form of additional shares of
that class of shares upon which the distribution is based or, at the
shareholder's option, in cash. Fund distributions in the form of additional
shares are made at net asset value without the imposition of a sales charge.
Dividends and distributions are taxable whether they are received in cash or
in shares. Income dividends and net short-term gains dividends are taxable as
ordinary income, and net long-term gains dividends are taxable as capital gains
regardless of how long the Fund's shares are held. If Fund shares held for less
than six months are sold at a loss, however, such loss will be treated for tax
purposes as a long-term capital loss to the extent of any long-term capital
gains dividends received. The Fund advises its shareholders annually as to the
federal tax status of all distributions made during the year.
If more than 50% of the value of the Fund's total assets at the end of a
fiscal year is represented by securities of foreign corporations and the Fund
elects to make foreign tax credits available to its shareholders, a shareholder
will be required to include in his gross income both actual dividends and the
amount the Fund advises him is his pro rata portion of income taxes withheld by
foreign governments from interest and dividends paid on the Fund's investments.
The shareholder will be entitled, however, to take the amount of such foreign
taxes withheld as a credit against his U.S. income tax or to treat the foreign
tax withheld as an itemized deduction from his gross income if that should be to
his advantage. In substance, this policy enables the shareholder to benefit from
the same foreign tax credit or deduction that he would have received if he had
been the individual owner of foreign securities and had paid foreign income tax
on the income therefrom. As in the case of individuals receiving income directly
from foreign sources, the above described tax credit and deductions are subject
to certain limitations.
FUND MANAGEMENT AND EXPENSES
BOARD OF TRUSTEES
Under Massachusetts law, the Fund's Board of Trustees has absolute and
exclusive control over the management and disposition of all assets of the Fund.
Subject to the authority of the Fund's Board of Trustees, Keystone, the Fund's
investment adviser, provides investment advice, management and administrative
services to the Fund.
INVESTMENT ADVISER
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, Inc. ("Keystone Investments"), located at
200 Berkeley Street, Boston, Massachusetts 02116- 5034.
Keystone Investments is a private corporation predominantly owned by current
and former members of management of Keystone and its affiliates. The shares of
Keystone Investments common stock beneficially owned by management are held in a
number of voting trusts, the trustees of which are George S. Bissell, Albert H.
Elfner, III, Edward F. Godfrey 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.
Under its Investment Advisory and Management Agreement with the Fund (the
"Advisory Agreement"), Keystone manages the investment and reinvestment of the
Fund's assets, supervises the operation of the Fund, provides all necessary
office space, facilities, equipment and personnel and arranges, at the request
of the Fund, for its employees to serve as officers or agents of the Fund.
Under the Advisory Agreement, the Fund pays Keystone a fee for its services at
the annual rate of 1.25% of the first $250,000,000 of the aggregate net asset
value of shares of the Fund, plus 1.00% of the aggregate net asset value of
shares of the Fund in excess of $250,000,000. Currently, Keystone has
voluntarily agreed to reimburse all of the Fund's expenses, including management
fees. See "Fund Expenses" below.
A management fee of 1.25% is higher than that paid by most other investment
companies. The Fund's fee structure is comparable, however, to that of other
global and international funds subject to the higher costs involved in managing
a portfolio of predominantly international securities.
The Advisory Agreement continues in effect until 1998, and thereafter from
year to year only so long as such continuance is specifically approved at least
annually by the Fund's Board of Trustees or by vote of a majority of the
outstanding shares of the Fund. In either case, the terms of the Advisory
Agreement and continuance thereof must be approved by the vote of a majority of
the Fund's disinterested Trustees, as defined in the 1940 Act (the "Independent
Trustees"), in person at a meeting called for the purpose of voting on such
approval. The Advisory Agreement may be terminated, without penalty, on 60 days'
written notice by the Fund or Keystone. 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.
PORTFOLIO MANAGERS
The Fund is managed by the following team of investment professionals:
Gilman C. Gunn. Mr. Gunn is responsible for asset allocation and the Fund's
overall investment strategies. Mr. Gunn is a Keystone Senior Vice President and
Senior Portfolio Manager and the head of Keystone's International Group. He has
over 23 years of investment experience.
John C. Madden, Jr. Mr. Madden is responsible for the Fund's investments in
South Africa. Mr. Madden is a Keystone Vice President with over 30 years of
investment experience.
Francis X. Claro and Antonio T. Docal. Mr. Claro and Mr. Docal are
responsible for the Fund's investments in Latin America. Mr. Claro is a
Keystone Vice President with over 5 years of investment experience. Mr. Docal
is a Keystone Vice President with over 7 years of investment experience.
Sami J. Karam. Mr. Karam is responsible for the Fund's investments in
Eastern Europe. Mr. Karam is a Keystone Vice President with over 5 years of
investment experience.
Eleanor H. Marsh. Ms. Marsh is responsible for the Fund's investments in
Asia. Ms. Marsh is a Keystone Vice President with over 6 years of investment
experience.
FUND EXPENSES
The Fund will pay all of its expenses. In addition to the investment advisory
and management fees discussed above, the principal expenses that the Fund is
expected to pay include, but are not limited to: expenses of certain of its
Trustees; transfer, dividend disbursing and shareholder servicing agent
expenses; custodian expenses; fees of its independent auditors and legal counsel
to its Independent Trustees; fees payable to government agencies, including
registration and qualification fees of the Fund and its shares under federal and
state securities laws; and certain extraordinary expenses. In addition, each
class will pay all of the expenses attributable to it. Such expenses are
currently limited to Distribution Plan expenses. The Fund also pays its
brokerage commissions, interest charges and taxes.
Keystone has voluntarily agreed to reimburse all expenses incurred by the
Fund's Class A, B and C shares, including management fees and any distribution
expenses. Keystone currently intends to continue the foregoing expense
reimbursements on a calendar month-by-month basis. Keystone, from time to time,
will make determinations whether to continue such reimbursements and, if so, at
what rates, and such reimbursements may be modified or terminated in the future.
Keystone will not reimburse the Fund for amounts in excess of an expense limit
if such reimbursement would result in the Fund's inability to qualify as a
regulated investment company under the provision of the Code.
SECURITIES TRANSACTIONS
Under policies established by the Fund's Board of Trustees, Keystone selects
broker-dealers to execute transactions subject to the receipt of best execution.
When selecting broker-dealers to execute portfolio transactions for the Fund,
Keystone may consider as a factor the number of shares of the Fund sold by such
broker-dealer. In addition, broker-dealers executing portfolio transactions may,
from time to time, be affiliated with the Fund, Keystone, the Fund's principal
underwriter or their affiliates.
The Fund may pay higher commissions to broker-dealers that provide research
services. Keystone may use these services in advising the Fund as well as in
advising its other clients.
PORTFOLIO TURNOVER
The Fund's anticipated portfolio turnover rate is 75%, which the Fund does not
generally expect to exceed. High portfolio turnover may involve correspondingly
greater brokerage commissions and other transaction costs, which will be borne
directly by the Fund as well as additional gains and/or losses to shareholders.
For further information about brokerage and distribution, see the statement of
additional information.
HOW TO BUY SHARES
You may purchase shares of the Fund from any broker-dealer that has a selling
agreement with Keystone Investment Distributors Company ("the Principal
Underwriter"), the Fund's principal underwriter. The Principal Underwriter, a
wholly-owned subsidiary of Keystone, is located at 200 Berkeley Street, Boston,
Massachusetts 02116-5034.
In addition, you may open an account for the purchase of shares of the Fund by
mailing to the Fund c/o Keystone Investor Resource Center, Inc., P.O. Box 2121,
Boston, Massachusetts 02106-2121, a completed account application and a check
payable to the Fund, 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 any amount may be
made by check, by wiring Federal funds or by an electronic funds transfer
("EFT").
Orders for the purchase of shares of the Fund will be confirmed at an offering
price equal to the net asset value per share next determined after receipt of
the order in proper form by the Principal Underwriter (generally as of the close
of the Exchange on that day) plus, in the case of Class A shares, the applicable
sales charge. Orders received by dealers or other firms prior to the close of
the Exchange and received by the Principal Underwriter prior to the close of its
business day will be confirmed at the offering price effective as of the close
of the Exchange on that day.
Orders for shares received other than as stated above will receive the
offering price equal to the net asset value per share next determined
(generally, the next business day's offering price) plus, in the case of Class A
shares, the applicable sales charge.
The Fund reserves the right to determine the net asset value more frequently
than once a day if deemed desirable. Dealers and other financial services firms
are obligated to transmit orders promptly.
The initial purchase amount must be at least $1,000. There is no minimum
amount for subsequent purchases.
The Fund reserves the right to withdraw all or any part of the offering made
by this prospectus and to reject any purchase order.
Shareholder inquiries should be directed to KIRC by calling toll free 1-800-
343-2898 or writing to KIRC or to the firm from which you received this
prospectus.
ALTERNATIVE SALES OPTIONS
The Fund offers three classes of shares:
CLASS A SHARES -- FRONT END LOAD OPTION
Class A shares are sold with a sales charge at the time of purchase. Class A
shares are not subject to a deferred sales charge when they are redeemed except
as follows: Class A shares purchased (1) in an amount equal to or exceeding
$1,000,000 or (2) by a corporate qualified retirement plan or a non-qualified
deferred compensation plan sponsored by a corporation having 100 or more
eligible employees (a "Qualifying Plan"), in either case, without a front end
sales charge, will be subject to a contingent deferred sales charge for the 24
month period following the date of purchase.
CLASS B SHARES -- BACK END LOAD OPTION
Class B shares are sold without a sales charge at the time of purchase, but
are, with certain exceptions, subject to a contingent deferred sales charge if
they are redeemed during the 72 month period from and including the month of
purchase. Class B shares that have been outstanding for eight years from and
including the month of purchase will automatically convert to Class A shares
without the imposition of a front-end sales charge or exchange fee.
CLASS C SHARES -- LEVEL LOAD OPTION
Class C shares are sold without a sales charge at the time of purchase, but
are subject to a deferred sales charge if they are redeemed within one year
after the date of purchase. Class C shares are available only through dealers
who have entered into special distribution agreements with the Principal
Underwriter.
Each class of shares, pursuant to its Distribution Plan or other plan, pays an
annual service fee of 0.25% of the Fund's average daily net assets attributable
to that class. In addition to the 0.25% service fee, the Class B and C
Distribution Plans provide for the payment of an annual distribution fee of up
to 0.75% of the average net assets attributable to their respective classes.
Investors who would rather pay the entire cost of distribution at the time of
investment, rather than spreading such cost over time, might consider Class A
shares. Other investors might consider Class B or Class C shares, in which case
100% of the purchase price is invested immediately, depending on the amount of
the purchase and the intended length of investment. The Fund will not normally
accept any purchase of Class B shares in the amount of $250,000 or more and will
not normally accept any purchase of Class C shares in the amount of $1,000,000
or more.
----------------------------------------------
CLASS A SHARES
Class A shares are offered at net asset value plus an initial sales charge as
follows:
<TABLE>
<CAPTION>
AS A % OF CONCESSION TO
AS A % OF NET AMOUNT DEALERS AS A % OF
AMOUNT OF PURCHASE OFFERING PRICE INVESTED<F1> OFFERING PRICE
- -------------------------------------------------------------------------------------- -----------------
<S> <C> <C> <C>
Less than $50,000 ............................... 5.75% 6.10% 5.25%
$50,000 but less than $100,000 .................. 4.75% 4.99% 4.25%
$100,000 but less than $250,000 ................. 3.75% 3.90% 3.25%
$250,000 but less than $500,000 ................. 2.50% 2.56% 2.25%
$500,000 but less than $1,000,000 ............... 1.50% 1.52% 1.50%
<FN>
- ----------
<F1> Rounded to the nearest one-hundredth percent.
</TABLE>
----------------------------------------------
Purchases of the Fund's Class A shares in the amount of $1 million or more
and/or purchases of Class A shares made by a Qualifying Plan or a tax sheltered
annuity plan sponsored by a public educational entity having 5,000 or more
eligible employees (a "TSA Plan") will be at net asset value without the
imposition of a front-end sales charge (each such purchase, an "NAV Purchase").
With respect to NAV Purchases, the Principal Underwriter will pay broker/
dealers or others concessions based on (1) the investor's cumulative purchases
during the one-year period beginning with the date of the initial NAV Purchase
and (2) the investor's cumulative purchases during each subsequent one-year
period beginning with the first NAV Purchase following the end of the prior
period. For such purchases, concessions will be paid at the following rate:
1.00% of the investment amount up to $2,999,999; plus 0.50% of the investment
amount between $3,000,000 and $4,999,999; plus 0.25% of the investment amount
over $4,999,999.
With the exception of Class A shares acquired by a TSA Plan as described
above, Class A shares acquired in an NAV Purchase are subject to a contingent
deferred sales charge of 1.00% upon redemption during the 24 month period
commencing on the date the shares were originally purchased. Class A shares
acquired by a TSA Plan in an NAV Purchase are not subject to a contingent
deferred sales charge.
The sales charge is paid to the Principal Underwriter, which in turn normally
reallows a portion to your broker-dealer. In addition, your broker-dealer
currently will be paid periodic service fees at an annual rate of up to 0.25% of
the average daily net asset value of Class A shares maintained by such recipient
on the books of the Fund for specified periods.
Upon written notice to dealers with whom it has dealer agreements, the
Principal Underwriter may reallow up to the full applicable sales charge.
Initial sales charges may be eliminated for persons purchasing Class A shares
that are included in a broker-dealer or investment adviser managed fee based
program (a "wrap account") with broker dealers or investment advisers who have
entered into special agreements with the Principal Underwriter. Initial sales
charges may be reduced or eliminated for persons or organizations purchasing
Class A shares of the Fund alone or in combination with Class A shares of other
Keystone America Funds. See Exhibit A to this prospectus.
Upon prior notification to the Principal Underwriter, Class A shares may be
purchased at net asset value by clients of registered representatives within six
months after a change in the registered representative's employment when the
amount invested represents redemption proceeds from a registered open-end
management investment company not distributed or managed by Keystone or its
affiliates and the shareholder either (1) paid a front end sales charge, or (2)
was at some time subject to, but did not actually pay, a contingent deferred
sales charge with respect to the redemption proceeds.
In addition, 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. This special net asset value purchase is currently offered only on a
calendar month-by-month basis and may be modified or terminated in the future.
CLASS A DISTRIBUTION PLAN
The Fund has adopted a Distribution Plan with respect to its Class A shares
(the "Class A Distribution Plan") that provides for expenditures by the Fund,
currently limited to 0.25% annually of the average daily net asset value of
Class A shares, in connection with the distribution of Class A shares. Payments
under the Class A Distribution Plan are currently made to the Principal
Underwriter (which may reallow all or part to others, such as dealers) as
service fees at an annual rate of up to 0.25% of the average daily net asset
value of Class A shares maintained by the recipients on the books of the Fund
for specified periods.
CLASS B SHARES
Class B shares are offered at net asset value, without an initial sales
charge.
The Fund, with certain exceptions, imposes a deferred sales charge on Class B
shares 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.
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 Plan are reduced by deferred sales charges retained by the
Principal Underwriter. See "Contingent Deferred Sales Charge and Waiver of Sales
Charges" below.
Class B shares that have been outstanding for eight years from and including
the month of purchase will automatically convert to Class A shares (which are
subject to a lower Distribution Plan charge) without imposition of a front-end
sales charge or exchange fee. (Conversion of Class B shares represented by stock
certificates will require the return of the stock certificates to KIRC.) 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 be higher or lower than that of the Class B shares at the time of
conversion, although the dollar value will be the same, a shareholder may
receive more or fewer Class A shares than the number of Class B shares
converted. 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 PLAN
The Fund has adopted a Distribution Plan with respect to its Class B shares
(the "Class B Distribution Plan") that provides for expenditures by the Fund at
an annual rate of up to 1.00% of the average daily net asset value of Class B
shares to pay expenses incurred in connection with the distribution of Class B
shares. Payments under the Class B 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 B shares sold and (2) as shareholder service fees.
Amounts paid or accrued to the Principal Underwriter under (1) and (2) in the
aggregate may not exceed the annual limitation referred to above.
The Principal Underwriter generally reallows to brokers or others a commission
equal to 4.00% of the price paid for each Class B share sold plus the first
year's service fee in advance in the amount of 0.25% of the price paid for each
Class B share sold. Beginning approximately 12 months after the purchase of a
Class B share, the broker or other party will receive service fees at an annual
rate of 0.25% of the average daily net asset value of such Class B share
maintained by the recipient on the books of the Fund for specified periods. See
"Distribution Plans" below.
CLASS C SHARES
Class C shares are offered only through dealers who have special distribution
agreements with the Principal Underwriter. Class C shares are offered at net
asset value, without an initial sales charge. With certain exceptions, the Fund
imposes a deferred sales charge of 1.00% on shares redeemed within one year
after the date of purchase. No deferred sales charge is imposed on amounts
redeemed thereafter. If imposed, the deferred sales charge is deducted from the
redemption proceeds otherwise payable to you. The deferred sales charge is
retained by the Principal Underwriter. See "Contingent Deferred Sales Charge and
Waiver of Sales Charges" below.
CLASS C DISTRIBUTION PLAN
The Fund has adopted a Distribution Plan with respect to its Class C shares
(the "Class C Distribution Plan") that provides for expenditures by the Fund at
an annual rate of up to 1.00% of the average daily net asset value of Class C
shares to pay expenses incurred in connection with the distribution of Class C
shares. Payments under the Class C Distribution Plan are currently made to the
Principal Underwriter (which may reallow all or part to others, such as 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 15 months after purchase, a
commission at an annual rate of 0.75% (subject to NASD rules -- see
"Distribution Plans") plus service fees, which are paid at the annual rate of
0.25%, respectively, of the average daily net asset value of each Class C share
maintained by the recipients on the books of the Fund for specified periods. See
"Distribution Plans" below.
CONTINGENT DEFERRED SALES CHARGE AND WAIVER OF SALES CHARGES
Any contingent deferred sales charge imposed upon the redemption of Class A,
Class B or Class C shares is a percentage of the lesser of (1) the net asset
value of the shares redeemed or (2) the net asset value at the time of purchase
of such shares. No contingent deferred sales charge is imposed when you redeem
amounts derived from (1) increases in the value of your account above the net
cost of such shares due to increases in the net asset value per share of such
shares; (2) certain shares with respect to which the Fund did not pay a
commission on issuance, including shares acquired through reinvestment of
dividend income and capital gains distributions; (3) certain Class A shares held
for more than 24 months; (4) Class B shares held more than 72 months; or (5)
Class C shares held for more than one year. Upon request for redemption, shares
not subject to the contingent deferred sales charge will be redeemed first.
Thereafter, shares held the longest will be the first to be redeemed.
The Fund may also sell Class A, Class B or Class C shares at net asset value
without any initial sales charge or a contingent deferred sales charge to
certain Directors, Trustees, officers and employees of the Fund and Keystone and
certain of their affiliates; to registered representatives of firms with dealer
agreements with the Principal Underwriter; and to a bank or trust company acting
as a trustee for a single account. See the Fund's statement of additional
information for more details.
With respect to Class A shares purchased by a Qualifying Plan at net asset
value or Class C shares purchased by a Qualifying Plan, no contingent deferred
sales charge will be imposed on any redemptions made specifically by an
individual participant in the Qualifying Plan. This waiver is not available in
the event a Qualifying Plan (as a whole) redeems substantially all of its
assets.
In addition, no contingent deferred sales charge is imposed on a redemption of
shares of the Fund in the event of (1) death or disability of the shareholder;
(2) a lump-sum distribution from a 401(k) plan or other benefit plan qualified
under the Employee Retirement Income Security Act of 1974 ("ERISA"); (3)
automatic withdrawals from ERISA plans if the shareholder is at least 59 1/2
years old; (4) involuntary redemptions of accounts having an aggregate net asset
value of less than $1,000; (5) automatic withdrawals under an automatic
withdrawal plan of up to 1 1/2% per month of the shareholder's initial account
balance; (6) withdrawals consisting of loan proceeds to a retirement plan
participant; (7) financial hardship withdrawals made by a retirement plan
participant; or (8) withdrawals consisting of returns of excess contributions or
excess deferral amounts made to a retirement plan participant.
ARRANGEMENTS WITH BROKER-DEALERS AND OTHERS
The Principal Underwriter may, from time to time, provide promotional
incentives, including reallowance of up to the entire sales charge, to certain
dealers whose representatives have sold or are expected to sell significant
amounts of Fund shares. In addition, dealers may, from time to time, receive
additional cash payments. The Principal Underwriter may also provide written
information to dealers with whom it has dealer agreements that relates to sales
incentive campaigns conducted by such dealers for their representatives as well
as financial assistance in connection with pre-approved seminars, conferences
and advertising. No such programs or additional compensation will be offered to
the extent they are prohibited by the laws of any state or any self-regulatory
agency such as the NASD. Dealers to whom substantially the entire sales charge
on Class A shares is reallowed may be deemed to be underwriters as that term is
defined under the 1933 Act.
The Principal Underwriter may, at its own expense, pay concessions in addition
to those described above to dealers 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 the
Fund for their clients.
The Glass-Steagall Act currently limits the ability of a depository
institution (such as a commercial bank or a savings and loan association) to
become an underwriter or distributor of securities. In the event the Glass-
Steagall Act is deemed to prohibit depository institutions from accepting
payments under the arrangement described above, or should Congress relax current
restrictions on depository institutions, the Board of Trustees will consider
what action, if any, is appropriate.
In addition, state securities laws on this issue may differ from the
interpretations of federal law expressed herein and banks and financial
institutions may be required to register as dealers pursuant to state law.
DISTRIBUTION PLANS
As discussed above, the Fund bears some of the costs of selling its shares
under Distribution Plans adopted with respect to its Class A, Class B and Class
C shares pursuant to Rule 12b-1 under the 1940 Act.
The NASD limits the amount that a Fund may pay annually in distribution costs
for the sale of its shares and shareholder service fees. The NASD limits annual
expenditures to 1% of the aggregate average daily net asset value of its shares,
of which 0.75% may be used to pay such distribution costs and 0.25% may be used
to pay shareholder service fees. The NASD also limits the aggregate amount that
the Fund may pay for such distribution costs to 6.25% of gross share sales since
the inception of the 12b-1 Distribution Plan, plus interest at the prime rate
plus 1% on such amounts (less any deferred sales charges paid by shareholders to
the Principal Underwriter) remaining unpaid from time to time.
The Principal Underwriter intends, but is not obligated, to continue to pay or
accrue distribution charges incurred in connection with the Class B Distribution
Plan that exceed current annual payments permitted to be received by the
Principal Underwriter from the Fund. The Principal Underwriter intends to seek
full payment of such charges from the Fund (together with annual interest
thereon at the prime rate plus one percent) at such time in the future as, and
to the extent that, payment thereof by the Fund would be within the permitted
limits.
If the Fund's Independent Trustees authorize such payments, the effect would
be to extend the period of time during which the Fund incurs the maximum amount
of costs allowed by the Distribution Plan. If the Distribution Plan is
terminated, the Principal Underwriter will ask the Independent Trustees to take
whatever action they deem appropriate under the circumstances with respect to
payment of such amounts.
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.
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. Distribution expenses are
currently being reimbursed. See "Fund Expenses."
HOW TO REDEEM SHARES
You may redeem Fund shares for cash at their net asset value upon written
order to the Fund c/o KIRC, and presentation to the Fund of a properly endorsed
share certificate (if certificates have been issued). Your signature (s) on the
written order and certificates must be guaranteed as described below. In order
to redeem by telephone or to engage in telephone transactions generally, you
must complete the authorization in your account application. Proceeds for shares
redeemed on telephonic order will be deposited by wire or EFT only to the bank
account designated in your account application.
The redemption value equals the net asset value per share then determined and
may be more or less than your cost depending upon changes in the value of the
Fund's portfolio securities between purchase and redemption.
If imposed, the deferred sales charge is deducted from the redemption proceeds
otherwise payable to you.
REDEMPTION OF SHARES IN GENERAL
At various times, the Fund may be requested to redeem shares for which it has
not yet received good payment. In such a case, the Fund will mail the redemption
proceeds upon clearance of the purchase check, which may take up to 15 days or
more. Any delay may be avoided by purchasing shares either with a certified
check or by Federal Reserve or bank wire of funds or by EFT. Although the
mailing of a redemption check or the wiring or EFT of redemption proceeds may be
delayed, the redemption value will be determined and the redemption processed in
the ordinary course of business upon receipt of proper documentation. In such a
case, after the redemption and prior to the release of the proceeds, no
appreciation or depreciation will occur in the value of the redeemed shares, and
no interest will be paid on the redemption proceeds. If the payment of a
redemption has been delayed, the check will be mailed or the proceeds wired or
sent EFT promptly after good payment has been collected.
The Fund computes the amount due you at the close of the Exchange at the end
of the day on which it has received all proper documentation from you. Payment
of the amount due on redemption, less any applicable contingent deferred sales
charge (as described above), will be made within seven days thereafter except as
discussed herein.
You may also redeem your shares through broker-dealers. The Principal
Underwriter, acting as agent for the Fund, stands ready to repurchase Fund
shares upon orders from dealers and will calculate the net asset value on the
same terms as those orders for the purchase of shares received from
broker-dealers and described under "How to Buy Shares." If the Principal
Underwriter has received proper documentation, it will pay the redemption
proceeds, less any applicable deferred sales charge, to the broker-dealer
placing the order within seven days thereafter. The Principal Underwriter
charges no fee for this service. Your broker-dealer, however, may charge a
service fee.
For your protection, SIGNATURES ON CERTIFICATES, STOCK POWERS AND ALL WRITTEN
ORDERS OR AUTHORIZATIONS MUST BE GUARANTEED BY A U.S. STOCK EXCHANGE MEMBER, A
BANK OR OTHER PERSONS ELIGIBLE TO GUARANTEE SIGNATURES UNDER THE SECURITIES
EXCHANGE ACT OF 1934 AND KIRC'S POLICIES. The Fund or KIRC may waive this
requirement, but also may require additional documents in certain cases.
Currently, the requirement for a signature guarantee has been waived on
redemptions of $50,000 or less when the account address of record has been the
same for a minimum period of 30 days. The Fund and KIRC reserve the right to
withdraw this waiver at any time.
If the Fund receives a redemption order, but you have not clearly indicated
the amount of money or number of shares involved, the Fund cannot execute the
order. In such cases, the Fund will request the missing information from you and
process the order on the day such information is received.
TELEPHONE REDEMPTIONS
Under ordinary circumstances, you may redeem up to $50,000 from your account
by telephone by calling toll free 1-800-343-2898. You must complete the
Telephone Redemptions section of the application to enjoy telephone redemption
privileges.
In order to insure that instructions received by KIRC are genuine when you
initiate a telephone transaction, you will be asked to verify certain criteria
specific to your account. At the conclusion of the transaction, you will be
given a transaction number confirming your request, and written confirmation of
your transaction will be mailed the next business day. Your telephone
instructions will be recorded. Redemptions by telephone are allowed only if the
address and bank account of record have been the same for a minimum period of 30
days.
If the redemption proceeds are less than $2,500, they will be mailed by check.
If they are $2,500 or more, they will be mailed, wired or sent by EFT to your
previously designated bank account as you direct. If you do not specify how you
wish your redemption proceeds to be sent, they will be mailed by check.
If you cannot reach the Fund by telephone, you should follow the procedures
for redeeming by mail or through a broker as set forth herein.
SMALL ACCOUNTS
Due to the high cost of maintaining small accounts, the Fund reserves the
right to redeem your account if its value has fallen below $1,000, the current
minimum investment level, as a result of your redemptions (but not as a result
of market action). You will be notified in writing and allowed 60 days to
increase the value of your account to the minimum investment level. No deferred
sales charges are applied to such redemptions.
REDEMPTIONS IN KIND
If conditions arise that would make it undesirable for the Fund to pay for all
redemptions in cash, the Fund may authorize payment to be made in portfolio
securities or other property. The Fund has obligated itself, however, under the
1940 Act to redeem for cash all shares presented for redemption by any one
shareholder up to the lesser of $250,000 or 1% of the Fund's net assets in any
90-day period. Securities delivered in payment of redemptions would be valued at
the same value assigned to them in computing the net asset value per share and
would, to the extent permitted by law, be readily marketable. Shareholders
receiving such securities would incur brokerage costs upon the securities' sale.
GENERAL
The Fund reserves the right at any time to terminate, suspend or change the
terms of any redemption method described in this prospectus, except redemption
by mail, and to impose fees.
Except as otherwise noted, neither the Fund, KIRC nor the Principal
Underwriter assumes responsibility for the authenticity of any instructions
received by any of them from a shareholder in writing, over the Keystone
Automated Response Line ("KARL") or by telephone. KIRC will employ reasonable
procedures to confirm that instructions received over KARL or by telephone are
genuine. Neither the Fund, KIRC nor the Principal Underwriter will be liable
when following instructions received over KARL or by telephone that KIRC
reasonably believes to be genuine.
The Fund may temporarily suspend the right to redeem its shares when (1) the
Exchange is closed, other than customary weekend and holiday closings; (2)
trading on the Exchange is restricted; (3) an emergency exists and the Fund
cannot dispose of its investments or fairly determine their value; or (4) the
Securities and Exchange Commission so orders.
SHAREHOLDER SERVICES
Details on all shareholder services may be obtained from KIRC by writing or by
calling toll free 1-800-343-2898.
KEYSTONE AUTOMATED RESPONSE LINE
KARL offers you specific fund account information and price and yield
quotations as well as the ability to do account transactions, including
investments, exchanges and redemptions. You may access KARL by dialing toll free
1-800-346-3858 on any touch-tone telephone, 24 hours a day, seven days a week.
EXCHANGES
A shareholder who has obtained the appropriate prospectus may exchange shares
of the Fund for shares of certain other Keystone America Funds and Keystone
Liquid Trust ("KLT") as follows:
Class A shares may be exchanged for Class A shares of other Keystone America
Funds and Class A shares of KLT;
Class B shares, excepted 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 cannot be exchanged for Class B shares of Keystone Capital
Preservation and Income Fund during the 24 month period commencing with and
including the month purchase.
The exchange of Class B shares and Class C shares will not be subject to a
contingent deferred sales charge. However, if the shares being tendered for
exchange are
(i) Class A shares acquired in an NAV Purchase or otherwise without a front
end sales charge,
(ii) Class B shares that have been held for less than 72 months, or
(iii) Class C shares that have been held for less than one year,
and are still subject to a deferred sales charge, such charge will carry over to
the shares being acquired in the exchange transaction.
You may exchange shares for another Keystone fund for a $10 fee by calling or
writing to Keystone. The exchange fee is waived for individual investors who
make an exchange using KARL. Shares purchased by check are eligible for exchange
after 15 days. If the shares being tendered for exchange are still subject to a
deferred sales charge, such charge will carry over to the shares being acquired
in the exchange transaction. The Fund reserves the right, after providing the
required notice to shareholders, to terminate this exchange offer or to change
its terms, including the right to change the fee for any exchange.
Orders to exchange a certain class of shares of the Fund for the corresponding
class of shares of KLT will be executed by redeeming the shares of the Fund and
purchasing the corresponding class of shares of KLT at the net asset value of
such shares next determined after the proceeds from such redemption become
available, which may be up to seven days after such redemption. In all other
cases, orders for exchanges received by the Fund prior to 4:00 p.m. 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 shares in any amount and to redeem up to $50,000 worth of
shares. You can use Keystone America Money Line like an "electronic check" to
move money between your bank account and your account in the Fund with one
telephone call. You must allow two business days after the call for the transfer
to take place. For money recently invested, you must allow normal check clearing
time before redemption proceeds are sent to your bank.
You may also arrange for systematic monthly or quarterly investments into your
Keystone America account. Once proper authorization is given, your bank account
will be debited to purchase shares in the Fund. You will receive confirmation
from the Principal Underwriter for every transaction.
To change the amount of a Keystone America Money Line or to terminate the
service (which could take up to 30 days), you must write to KIRC and include
account numbers.
RETIREMENT PLANS
The Fund has various pension and profit-sharing plans available to you,
including Individual Retirement Accounts ("IRAs"); Rollover IRAs; Simplified
Employee Pension Plans ("SEPs"), Tax Sheltered Annuity Plans ("TSAs"), 401(k)
Plans; Keogh Plans; Corporate Profit-Sharing Plans, Pension and Target Benefit
Plans; Money Purchase Plans and Salary-Reduction Plans. For details, including
fees and application forms, call toll free 1-800-247-4075 or write to KIRC.
AUTOMATIC WITHDRAWAL PLAN
Under an Automatic Withdrawal Plan, if your account has a value of at least
$10,000, you may arrange for regular monthly or quarterly fixed withdrawal
payments. Each payment must be at least $100 and may be as much as 1.5% per
month or 4.5% per quarter of the total net asset value of the Fund shares in
your account when the Automatic Withdrawal Plan is opened. Fixed withdrawal
payments are not subject to a deferred sales charge. Excessive withdrawals may
decrease or deplete the value of your account. Moreover, because of the effect
of the applicable sales charge, a Class A investor should not make continuous
purchases of the Fund's shares while participating in the Automatic Withdrawal
Plan.
DOLLAR COST AVERAGING
Through dollar cost averaging you can invest a fixed dollar amount each month
or each quarter in any Keystone America Fund. This results in more shares being
purchased when the selected fund's net asset value is relatively low and fewer
shares being purchased when the fund's net asset value is relatively high and
may result in a lower average cost per share than a less systematic investment
approach.
Prior to participating in dollar cost averaging, you must establish an account
in a Keystone America Fund or a money market fund managed or advised by
Keystone. You should designate on the application (1) the dollar amount of each
monthly or quarterly investment (minimum $100) you wish to make and (2) the fund
in which the investment is to be made. Thereafter, on the first day of the
designated month, an amount equal to the specified monthly or quarterly
investment will automatically be redeemed from your initial account and invested
in shares of the designated fund. If you are a Class A investor and paid a sales
charge on your initial purchase, the shares purchased will be eligible for
Rights of Accumulation and the sales charge applicable to the purchase will be
determined accordingly. In addition, the value of shares purchased will be
included in the total amount required to fulfill a Letter of Intent. If a sales
charge was not paid on the initial purchase, a sales charge will be imposed at
the time of subsequent purchases, and the value of shares purchased will become
eligible for Rights of Accumulation and Letters of Intent.
TWO DIMENSIONAL INVESTING
You may elect to have income and capital gains distributions from any class
Keystone America Fund shares you may own automatically invested to purchase the
same class of shares of any other Keystone America Fund. You may select this
service on your application and indicate the Keystone America Fund(s) into which
distributions are to be invested. The value of shares purchased will be
ineligible for Rights of Accumulation and Letters of Intent.
OTHER SERVICES
Under certain circumstances, you may, within 30 days after a redemption,
reinstate your account in the same class of shares that you redeemed at current
net asset value.
PERFORMANCE DATA
From time to time the Fund may advertise "total return" and "current yield."
ALL DATA IS BASED ON HISTORICAL EARNINGS AND IS NOT INTENDED TO INDICATE FUTURE
PERFORMANCE. Total return and current yield are computed separately for each
class of shares of the Fund. Total return refers to average annual compounded
rates of return over specified periods determined by comparing the initial
amount invested in a particular class to the ending redeemable value of that
amount. The resulting equation assumes reinvestment of all dividends and
distributions and deduction of the maximum sales charge or applicable contingent
deferred sales charge and all recurring charges, if any, applicable to all
shareholder accounts. The exchange fee is not included in the calculation.
Current yield quotations represent the yield on an investment for a stated
30-day period computed by dividing net investment income earned per share during
the base period by the maximum offering price per share on the last day of the
base period.
The Fund may also include comparative performance data for each class of
shares in advertising or marketing the Fund's shares, such as data from Lipper
Analytical Services, Inc., Morningstar, Inc., Standard & Poor's Corporation,
Ibbotson Associates or other industry publications.
FUND SHARES
The Fund currently issues three classes of shares, which participate
proportionately based on their relative net asset values in dividends and
distributions and have equal voting, liquidation and other rights except that
(1) expenses related to the distribution of each series or class of shares or
other expenses that the Board of Trustees may designate as class expenses from
time to time, are borne solely by each series or class; (2) each series or class
of shares has exclusive voting rights with respect to its Distribution Plan; (3)
each series or class has different exchange privileges; and (4) each series or
class has a different designation. When issued and paid for, the shares will be
fully paid and nonassessable by the Fund. Shares may be exchanged as explained
under "Shareholder Services," but will have no other preference, conversion,
exchange or preemptive rights. Shares are redeemable, transferable and freely
assignable as collateral. The Fund is authorized to issue additional series or
classes of shares.
Shareholders of the Fund are entitled to one vote for each full share owned
and fractional votes for fractional shares. Shares of the Fund vote together
except when required by law to vote separately by series or class. The Fund does
not have annual meetings. The Fund will have special meetings, from time to
time, as required under its Declaration of Trust and under the 1940 Act. As
provided in the 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. The
Fund is prepared to assist shareholders in communications with one another for
the purpose of convening such a meeting as prescribed by Section 16(c) of the
1940 Act.
Under Massachusetts law, it is possible that a Fund shareholder may be held
personally liable for the Fund's obligations. The Fund's Declaration of Trust
provides, however, that shareholders shall not be subject to any personal
liability for the Fund's obligations and provides indemnification from Fund
assets for any shareholder held personally liable for the Fund's obligations.
Disclaimers of such liability are included in each Fund agreement.
ADDITIONAL INFORMATION
KIRC, located at 101 Main Street, Cambridge, Massachusetts 02142-1519, is a
wholly-owned subsidiary of Keystone and serves as the Fund's transfer agent and
dividend disbursing agent.
When the Fund determines from its records that more than one account in the
Fund is registered in the name of a shareholder or shareholders having the same
address, upon notice to those shareholders, the Fund intends, when an annual
report or 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
The Fund may engage in the following investment practices to the extent
described in the prospectus and the statement of additional information.
CORPORATE BOND RATINGS
Higher yields are usually available on securities that are lower rated or that
are unrated.
Bonds rated Baa by Moody's are considered as medium grade obligations that are
neither highly protected nor poorly secured. Debt rated BBB by S&P is regarded
as having an adequate capacity to pay interest and repay principal, although
adverse economic conditions are more likely to lead to a weakened capacity to
pay interest and repay principal for debt in this category than in higher rated
categories. Lower rated securities are usually defined as Baa or lower by
Moody's or BBB or lower by S&P.
The Fund may purchase unrated securities, which are not necessarily of lower
quality than rated securities, but may not be attractive to as many buyers.
Debt rated BB, B, CCC, CC and C by S&P is regarded, on balance, as
predominantly speculative with respect to capacity to pay interest and repay
principal in accordance with the terms of the obligation. BB indicates the
lowest degree of speculation and C the highest. While such debt will likely have
some quality and protective characteristics, these are outweighed by large
uncertainties or major risk exposure to adverse conditions. Debt rated C1 by S&P
is debt (income bonds) on which no interest is being paid.
Debt rated D by S&P is in default and payment of interest and/or repayment of
principal is in arrears. The Fund intends to invest in D-rated debt only in
cases where, in Keystone's judgment, there is a distinct prospect of improvement
in the issuer's financial position as a result of the completion of
reorganization or otherwise.
Bonds that are rated Caa by Moody's are of poor standing. Such issues may be
in default or there may be present elements of danger with respect to principal
or interest. Bonds that are rated Ca by Moody's represent obligations that are
speculative in a high degree. Such issues are often in default or have other
market shortcomings. Bonds that are rated C by Moody's are the lowest rated
class of bonds, and issues so rated can be regarded as having extremely poor
prospects of ever attaining any real investment standing.
ZERO COUPON BONDS
A zero coupon "stripped" bond represents ownership in serially maturing
interest or principal payments on specific underlying notes and bonds, including
coupons relating to such notes and bonds. The interest and principal payments
are direct obligations of the issuer. Coupon zero coupon bonds of any series
mature periodically from the date of issue of such series through the maturity
date of the securities related to such series. Principal zero coupon bonds
mature on the date specified therein, which is the final maturity date of the
related securities. Each zero coupon bond entitles the holder to receive a
single payment at maturity. There are no periodic interest payments on a zero
coupon bond. Zero coupon bonds are offered at discounts from their face amounts.
In general, owners of zero coupon bonds have substantially all the rights and
privileges of owners of the underlying coupon obligations or principal
obligations. Owners of zero coupon bonds have the right upon default on the
underlying coupon obligations or principal obligations to proceed directly and
individually against the issuer and are not required to act in concert with
other holders of zero coupon bonds.
For federal income tax purposes, a purchaser of principal zero coupon bonds or
coupon zero coupon bonds (either initially or in the secondary market) is
treated as if the buyer had purchased a corporate obligation issued on the
purchase date with an original issue discount equal to the excess of the amount
payable at maturity over the purchase price. The purchaser is required to take
into income each year as ordinary income an allocable portion of such discounts
determined on a "constant yield" method. Any such income increases the holder's
tax basis for the zero coupon bond, and any gain or loss on a sale of the zero
coupon bonds relative to the holder's basis, as so adjusted, is a capital gain
or loss. If the holder owns both principal zero coupon bonds and coupon zero
bonds representing interest in the same underlying issue of securities, a
special basis allocation rule (requiring the aggregate basis to be allocated
among the items sold and retained based on their relative fair market value at
the time of sale) may apply to determine the gain or loss on a sale of any such
zero coupon bonds.
PAYMENT-IN-KIND SECURITIES
PIK securities pay interest in either cash or additional securities, at the
issuer's option, for a specified period. The issuer's option to pay in
additional securities typically ranges from one to six years compared to an
average maturity for all PIK securities of eleven years. Call protection and
sinking fund features are comparable to those offered on traditional debt
issues.
PIKs, like zero coupon bonds, are designed to give the issuer flexibility in
managing cash flow. Several PIKs are senior debt. In other cases, where PIKs are
subordinated, most senior lenders view them as equity equivalents.
An advantage of PIKs for the issuer -- as with zero coupon securities -- is
that interest payments are automatically compounded (reinvested) at the stated
coupon rate, which is not the case with cash-paying securities. PIKs are gaining
popularity over zeros, however, since interest payments in additional securities
can be monetized and are more tangible than accretion of a discount.
As a group, PIK bonds trade flat (i.e., without accrued interest). Their price
is expected to reflect an amount representing accreted interest since the last
payment. PIKs generally trade at higher yields than comparable cash- paying
securities of the same issuer. Their premium yield is the result of the lesser
desirability of non-cash interest, the more limited audience for non-cash paying
securities, and the fact that many PIKs have been issued to equity investors who
do not normally own or hold such securities.
Calculating the true yield on a PIK security requires a discounted cash flow
analysis if the security (ex interest) is trading at a premium or a discount
because the realizable value of additional payments is equal to the current
market value of the underlying security, not par.
Regardless of whether PIK securities are senior or deeply subordinated,
issuers are highly motivated to retire them because they are usually their most
costly form of capital.
REPURCHASE AGREEMENTS
The Fund may enter into repurchase agreements; i.e., the Fund purchases a
security subject to the Fund's obligation to resell and the seller's obligation
to repurchase that security at an agreed upon price and date, such date usually
being not more than seven days from the date of purchase. The resale price is
based on the purchase price plus an agreed upon market rate of interest that is
unrelated to the coupon rate or maturity of the purchased security. A repurchase
agreement imposes an obligation on the seller to pay the agreed upon price,
which obligation is in effect secured by the value of the underlying security.
The value of the underlying security is at least equal to the amount of the
agreed upon resale price and marked to market daily. The Fund may enter into
such agreements only with respect to U.S. government and foreign government
securities, which may be denominated in U.S. or foreign currencies. The Fund may
enter into such repurchase agreements with foreign banks and securities dealers
approved in advance by the Fund's Trustees. Whether a repurchase agreement is
the purchase and sale of a security or a collateralized loan has not been
definitively established. This might become an issue in the event of the
bankruptcy of the other party to the transaction. It does not presently appear
possible to eliminate all risks involved in repurchase agreements. These risks
include the possibility of a decline in the market value of the underlying
securities, as well as delay and costs to the Fund in connection with bankruptcy
proceedings. Therefore, it is the policy of the Fund to enter into repurchase
agreements only with large, well-capitalized banks that are members of the
Federal Reserve System and with primary dealers in U.S. government securities
(as designated by the Federal Reserve Board) whose creditworthiness has been
reviewed and found satisfactory by the Fund. The Securities and Exchange
Commission deems a repurchase agreement to be, in effect, a loan by the Fund.
REVERSE REPURCHASE AGREEMENTS
Under a reverse repurchase agreement, the Fund would sell securities and agree
to repurchase them at a mutually agreed upon date and price. The Fund intends to
enter into reverse repurchase agreements to avoid otherwise having to sell
securities during unfavorable market conditions in order to meet redemptions. At
the time the Fund enters into a reverse repurchase agreement, it will establish
a segregated account with the Fund's custodian containing liquid assets such as
U.S. government securities or other high grade debt securities having a value
not less than the repurchase price (including accrued interest) and will
subsequently monitor the account to ensure such value is maintained. Reverse
repurchase agreements involve the risk that the market value of the securities
that the Fund is obligated to repurchase may decline below the repurchase price.
Borrowing and reverse repurchase agreements magnify the potential for gain or
loss on the portfolio securities of the Fund and, therefore, increase the
possibility of fluctuation in the Fund's net asset value. Such practices may
constitute leveraging. In the event the buyer of securities under a reverse
repurchase agreement files for bankruptcy or becomes insolvent, such buyer or
its trustee or receiver may receive an extension of time to determine whether to
enforce the Fund's obligation to repurchase the securities and the Fund's use of
the proceeds of the reverse repurchase agreement may effectively be restricted
pending such determination. The staff of the SEC has taken the position that
reverse repurchase agreements that are not fully secured or collateralized are a
form of leverage and, therefore, included in the percentage limit on borrowings
imposed under the 1940 Act. The Fund intends to only invest in fully secured or
collateralized reverse repurchase agreements.
CONVERTIBLE SECURITIES
The Fund may invest in convertible securities. These securities, which include
bonds, debentures, corporate notes, preferred stocks and other securities, are
securities that the holder can convert into common stock. Convertible securities
rank senior to common stock in a corporation's capital structure and, therefore,
entail less risk than that corporation's common stock. The value of a
convertible security is a function of its investment value (its market worth
without a conversion privilege) and its conversion value (its market worth if
exchanged). If a convertible security's investment value is greater than its
conversion value, its price primarily will reflect its investment value and will
tend to vary inversely with interest rates. (The issuer's creditworthiness and
other factors also may affect its value.) If a convertible security's conversion
value is greater than its investment value, its price will tend to be higher
than its conversion value, and it will tend to fluctuate directly with the price
of the underlying equity security.
SHORT SALES
The Fund may make short sales of securities "against the box." A short sale
involves the borrowing of a security, which must eventually be returned to the
lender. A short sale is "against the box" if, at all times when the short
position is open, the Fund owns the securities sold short or owns an equal
amount of securities convertible into, or exchangeable without further
consideration for, securities identical to the securities sold short. Short
sales against the box are used to defer recognition of gains or losses or in
order to receive a portion of the interest earned by the executing broker from
the proceeds of such sale. The proceeds of a short sale are held by the broker
until the settlement date when the Fund delivers the convertible security to
close out its short position. Although prior to such delivery the Fund will have
to pay an amount equal to any dividends paid on the securities sold short, the
Fund will receive the dividends from the securities convertible into the
securities sold short, plus a portion of the interest earned from the proceeds
of the short sale. The Fund will not make short sales of securities subject to
outstanding call options written by it. The Fund will segregate the securities
sold short or appropriate convertible securities in a special account with the
Fund's custodian in connection with its short sales "against the box."
DERIVATIVES -- GENERAL
The Fund may use derivatives in furtherance of its investment objective.
Derivatives are financial contracts whose value depends on, or is derived from,
the value of an underlying asset, reference rate or index. These assets, rates,
and indices may include bonds, stocks, mortgages, commodities, interest rates,
currency exchange rates, bond indices and stock indices. Derivatives can be used
to earn income or protect against risk, or both. For example, one party with
unwanted risk may agree to pass that risk to another party who is willing to
accept the risk, the second party being motivated, for example, by the desire
either to earn income in the form of a fee or premium from the first party, or
to reduce its own unwanted risk by attempting to pass all or part of that risk
to the first party.
Derivatives can be used by investors such as the Fund to earn income and
enhance returns, to hedge or adjust the risk profile of the portfolio, and
either in place of more traditional direct investments or to obtain exposure to
otherwise inaccessible markets. The Fund is permitted to use derivatives for one
or more of these purposes. The Fund uses futures contracts and related options
for hedging purposes. Derivatives are a valuable tool which, when used properly,
can provide significant benefit to Fund shareholders. Keystone is not an
aggressive user of derivatives with respect to the Fund. However, the Fund may
take positions in those derivatives that are within its investment policies if,
in Keystone's judgement, this represents an effective response to current or
anticipated market conditions. Keystone's use of derivatives is subject to
continuous risk assessment and control from the standpoint of the Fund's
investment objectives and policies.
Derivatives may be (1) standardized, exchange-traded contracts or (2)
customized, privately negotiated contracts. Exchange-traded derivatives tend to
be more liquid and subject to less credit risk than those that are privately
negotiated.
There are four principal types of derivative instruments -- options, futures,
forwards and swaps -- from which virtually any type of derivative transaction
can be created. Further information regarding options and futures, is provided
later in this section and is provided in the Fund's statement of additional
information. The Fund does not presently engage in the use of swaps.
While the judicious use of derivatives by experienced investment managers such
as Keystone can be beneficial, derivatives also involve risks different from,
and, in certain cases, greater than, the risks presented by more traditional
investments. Following is a general discussion of important risk factors and
issues concerning the use of derivatives that investors should understand before
investing in the Fund.
* Market Risk -- This is the general risk attendant to all investments that the
value of a particular investment will decline or otherwise change in a way
detrimental to the Fund's interest.
* Management Risk -- Derivative products are highly specialized instruments that
require investment techniques and risk analyses different from those
associated with stocks and bonds. The use of a derivative requires an
understanding not only of the underlying instrument, but also of the
derivative itself, without the benefit of observing the performance of the
derivative under all possible market conditions. In particular, the use and
complexity of derivatives require the maintenance of adequate controls to
monitor the transactions entered into, the ability to assess the risk that a
derivative adds to the Fund's portfolio and the ability to forecast price,
interest rate or currency exchange rate movements correctly.
* Credit Risk -- This is the risk that a loss may be sustained by the Fund as a
result of the failure of another party to a derivative (usually referred to as
a "counterparty") to comply with the terms of the derivative contract. The
credit risk for exchange traded derivatives is generally less than for
privately negotiated derivatives, since the clearing house, which is the
issuer or counterparty to each exchange-traded derivative, provides a
guarantee of performance. This guarantee is supported by a daily payment
system (i.e., margin requirements) operated by the clearing house in order to
reduce overall credit risk. For privately negotiated derivatives, there is no
similar clearing agency guarantee. Therefore, the Fund considers the
creditworthiness of each counterparty to a privately negotiated derivative in
evaluating potential credit risk.
* Liquidity Risk -- Liquidity risk exists when a particular instrument is
difficult to purchase or sell. If a derivative transaction is particularly
large or if the relevant market is illiquid (as is the case with many
privately negotiated derivatives), it may not be possible to initiate a
transaction or liquidate a position at an advantageous price.
OPTIONS TRANSACTIONS
WRITING COVERED OPTIONS. The Fund may write (i.e., sell) covered call and put
options for hedging purposes. By writing a call option, the Fund becomes
obligated during the term of the option to deliver the securities underlying the
option upon payment of the exercise price. By writing a put option, the Fund
becomes obligated during the term of the option to purchase the securities
underlying the option at the exercise price if the option is exercised.
The Fund may only write "covered" options. This means that so long as the Fund
is obligated as the writer of a call option it will own the underlying
securities subject to the option or, in the case of call options on U.S.
Treasury bills, the Fund might own substantially similar U.S. Treasury bills.
Such securities will be maintained in a segregated account with the Fund's
custodian. If the Fund has written options against all of its securities which
are eligible 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. The Fund does not expect, however, that this will
occur.
The Fund will be considered "covered" with respect to a put option it writes
if, so long as it is obligated as the writer of the put option, it deposits and
maintains liquid assets having a value equal to or greater than the exercise
price of the option with the Fund's custodian in a segregated account.
The principal reason for writing call or put options is to obtain, through a
receipt of premiums, a greater current return than would be realized on the
underlying securities alone. The Fund receives a premium from writing a call or
put option which it retains whether or not the option is exercised. By writing a
call option, the Fund might lose the potential for gain on the underlying
security while the option is open, and by writing a put option, the Fund might
become obligated to purchase the underlying security for more than its current
market price upon exercise.
PURCHASING OPTIONS. The Fund may purchase call and put options. The Fund would
normally purchase call options to hedge against an increase in the market value
of the Fund's securities. The purchase of a call option would entitle the Fund,
in return for the premium paid, to purchase specified securities at a specified
price, upon exercise of the option, during the option period. The Fund would
ordinarily realize a gain if, during the option period, the value of such
securities exceeds the sum of the exercise price, the premium paid and
transaction costs; otherwise the Fund would realize a loss on the purchase of
the call option.
The Fund may purchase put or call options; including purchasing put or call
options for the purpose of offsetting previously written put or call options of
the same series. If the Fund is unable to effect a closing purchase transaction
with respect to covered options it has written, the Fund will not be able to
sell the underlying securities until the options expire or are exercised.
The Fund would normally purchase put options to hedge against a decline in the
market value of securities in its portfolio (protective puts). The Fund will not
engage in such transactions for speculation. The purchase of a put option would
entitle the Fund, in exchange for the premium paid, to sell specified securities
at a specified price, upon exercise of the option, during the option period.
Gains and losses on the purchase of protective put options would tend to be
offset by countervailing changes in the value of underlying portfolio
securities. The Fund would ordinarily realize a gain if, during the option
period, the value of the underlying securities declined below the exercise price
sufficiently to cover the premium and transaction costs; otherwise the Fund
would realize a loss on the purchase of the put option.
The Fund may purchase put and call options on securities indices for the same
purposes as the purchase of options on securities. Currently, only options on
stock indices are traded and only on national exchanges. Options on securities
indices are similar to options on securities, except that the exercise of
securities index options requires cash payments and does not involve the actual
purchase or sale of securities. In addition, securities index options are
designed to reflect price fluctuations in a group of securities or segment of
the securities market rather than price fluctuations in a single security. The
Fund's purchases of securities index options is subject to the risk that the
value of its portfolio securities may not change as much as an index because the
Fund's investments generally cannot match exactly the composition of an index.
An option position may be closed out only in a secondary market for an option
of the same series. Although the Fund will generally write only those options
for which there appears to be an active secondary market, there is no assurance
that a liquid secondary market will exist for any particular option at any
particular time, and for some options no secondary market may exist. In such
event it might not be possible to effect a closing transaction in a particular
option.
Options on some securities are relatively new, and it is impossible to predict
the amount of trading interest that will exist in such options. There can be no
assurance that viable markets will develop or continue. The failure of such
markets to develop or continue could significantly impair the Fund's ability to
use such options to achieve its investment objective.
OPTIONS TRADING MARKETS. Options in which the Fund will trade are generally
listed on national securities exchanges. Exchanges on which such options
currently are traded include the Chicago Board Options Exchange and the New
York, American, Pacific and Philadelphia Stock Exchanges. Options on some
securities may not be listed on any Exchange, but traded in the over-the-counter
market. Options traded in the over-the-counter market involve the additional
risk that securities dealers participating in such transactions could fail to
meet their obligations to the Fund. The use of options traded in the
over-the-counter market may be subject to limitations imposed by certain state
securities authorities.
The Securities and Exchange Commission is of the view that the premiums that
the Fund pays for the purchase of unlisted options and the value of securities
used to cover unlisted options written by the Fund are considered to be invested
in illiquid securities or assets for the purpose of calculating whether the Fund
is in compliance with its investment policies pertaining to illiquid securities.
The Fund currently complies with the position taken by the Securities and
Exchange Commission that the premiums that the Fund pays for the purchase of
unlisted options and the value of securities used to cover unlisted options
written by the Fund are considered to be invested in illiquid securities or
assets.
FUTURES TRANSACTIONS
The Fund may enter into futures contracts for the purchase or sale of
securities or currencies or futures contracts based on securities indices and
may write options on such contracts. The Fund intends to enter into such
contracts and put and call options thereon for hedging purposes. The Fund may
enter into other types of futures contracts that may become available and relate
to the securities held by the Fund. A futures contract is an agreement to buy or
sell securities or currencies at a specified price during a designated month.
The Fund does not make payment or deliver securities upon entering into a
futures contract. Instead, it puts down a margin deposit, which is adjusted to
reflect changes in the value of the contract and which continues until the
contract is terminated. The Fund will "cover" its futures contract obligations
by maintaining in a segregated account with its custodian the securities or
currencies underlying the contract or liquid assets, such as cash, U.S.
Government securities or other appropriate high grade debt obligations,
sufficient in amount to satisfy the Fund's contract obligations.
The Fund may sell or purchase futures contracts. When a futures contract is
sold by the Fund, the value of the contract will tend to rise when the value of
the underlying securities or currencies declines and to fall when the value of
such securities or currencies increases. Thus, the Fund would sell futures
contracts in order to offset a possible decline in the value of its securities
or currencies. If a futures contract were purchased by the Fund, the value of
the contract would tend to rise when the value of the underlying securities or
currencies increased and to fall when the value of such securities or currencies
declined. The Fund intends to purchase futures contracts in order to fix what is
believed by its portfolio manager to be a favorable price and rate of return for
securities or favorable exchange rate for currencies the Fund intends to
purchase.
The Fund also may purchase put and call options on securities and currency
futures contracts for hedging purposes. A put option purchased by the Fund would
give it the right to assume a position as the seller of a futures contract. A
call option purchased by the Fund would give it the right to assume a position
as the purchaser of a futures contract. The purchase of an option on a futures
contract requires the Fund to pay a premium. In exchange for the premium, the
Fund becomes entitled to exercise the benefits, if any, provided by the futures
contract, but is not required to take any action under the contract. If the
option cannot be exercised profitably before it expires, the Fund's loss will be
limited to the amount of the premium and any transaction costs.
The Fund may write (sell) put and call options on futures contracts for
hedging purposes. The writing of a put option on a futures contract generates a
premium, which may partially offset an increase in the price of securities that
the Fund intends to purchase. However, the Fund becomes obligated to purchase a
futures contract, which may have a value lower than the exercise price.
Conversely, the writing of a call option on a futures contract generates a
premium which may partially offset a decline in the value of the Fund's assets.
By writing a call option, the Fund becomes obligated, in exchange for the
premium, to sell a futures contract, which may have a value higher than the
exercise price.
The Fund may enter into closing purchase and sale transactions in order to
terminate a futures contract and may sell put and call options for the purpose
of closing out its options positions. The Fund's ability to enter into closing
transactions depends on the development and maintenance of a liquid secondary
market. There is no assurance that a liquid secondary market will exist for any
particular contract or at any particular time. As a result, there can be no
assurance that the Fund will be able to enter into an offsetting transaction
with respect to a particular contract at a particular time. If the Fund is not
able to enter into an offsetting transaction, the Fund will continue to be
required to maintain the margin deposits on the contract and to complete the
contract according to its terms, in which case it would continue to bear market
risk on the transaction.
Although futures and options transactions are intended to enable the Fund to
manage market, interest rate or exchange rate risk, unanticipated changes in
interest rates, exchange rates or market prices could result in poorer
performance than if it had not entered into these transactions. Even if Keystone
correctly predicts interest or exchange rate movements, a hedge could be
unsuccessful if changes in the value of the Fund's futures position did not
correspond to changes in the value of its investments. This lack of correlation
between the Fund's futures and securities or currencies positions may be caused
by differences between the futures and securities or currencies markets or by
differences between the securities or currencies underlying the Fund's futures
position and the securities or currencies held by or to be purchased for the
Fund. In addition, futures contracts transactions involve the remote risk that a
party participating in a transaction will not be able to fulfill its obligations
and the amount of the obligation will exceed the ability of the clearing broker
to satisfy. Keystone will attempt to minimize these risks through careful
selection and monitoring of the Fund's futures and options positions.
The Fund does not intend to use futures transactions for speculation or
leverage.
"WHEN ISSUED" AND "FORWARD COMMITMENT" TRANSACTIONS
The Fund may purchase newly issued securities on a when issued and delayed
delivery basis and may purchase or sell securities on a forward commitment
basis. When issued or delayed delivery transactions arise when securities are
purchased by the Fund with payment and delivery taking place in the future in
order to secure what is considered to be an advantageous price and yield to the
Fund at the time of entering into the transaction. A forward commitment
transaction is an agreement by the Fund to purchase or sell securities at a
specified future date. When the Fund engages in these transactions, the Fund
relies on the buyer or seller, as the case may be, to consummate the sale.
Failure to do so may result in the Fund missing the opportunity to obtain a
price or yield considered to be advantageous. When issued and delayed delivery
transactions and forward commitment transactions may be expected to occur a
month or more before delivery is due. No payment or delivery is made by the
Fund, however, until it receives payment or delivery from the other party to the
transaction. A separate account of liquid assets equal to the value of purchase
commitments will be maintained until payment is made.
FOREIGN CURRENCY TRANSACTIONS
The Fund may invest in securities of foreign issuers. When the Fund invests in
foreign securities they usually will be denominated in foreign currencies, and
the Fund temporarily may hold funds in foreign currencies. Thus, the value of
Fund shares will be affected by changes in exchange rates.
As one way of managing exchange rate risk, in addition to entering into
currency futures contracts, the Fund may enter into forward currency exchange
contracts (agreements to purchase or sell currencies at a specified price and
date). The exchange rate for the transaction (the amount of currency the Fund
will deliver and receive when the contract is completed) is fixed when the Fund
enters into the contract. The Fund usually will enter into these contracts to
stabilize the U.S. dollar value of a security it has agreed to buy or sell. The
Fund intends to use these contracts to hedge the U.S. dollar value of a security
it already owns, particularly if the Fund expects a decrease in the value of the
currency in which the foreign security is denominated. Although the Fund will
attempt to benefit from using forward contracts, the success of its hedging
strategy will depend on Keystone's ability to predict accurately the future
exchange rates between foreign currencies and the U.S. dollar. The value of the
Fund's investments denominated in foreign currencies will depend on the relative
strength of those currencies and the U.S. dollar, and the Fund may be affected
favorably or unfavorably by changes in the exchange rates or exchange control
regulations between foreign currencies and the dollar. Changes in foreign
currency exchange rates also may affect the value of dividends and interest
earned, gains and losses realized on the sale of securities and net investment
income and gains, if any, to be distributed to shareholders by the Fund. The
Fund may also purchase and sell options related to foreign currencies in
connection with hedging strategies.
LOANS OF SECURITIES
The Fund may lend its securities to broker-dealers or other institutional
borrowers for use in connection with such borrowers' short sales, arbitrages or
other securities transactions. Such loan transactions afford the Fund an
opportunity to continue to earn income on the securities loaned and at the same
time to earn income on the collateral held by it to secure the loan. Loans of
portfolio securities will be made (if at all) in strict conformity with
applicable federal and state rules and regulations. There may be delays in
recovery of loaned securities or even a loss of rights in collateral should the
borrower fail financially and go into default. Therefore, loans will be made
only to firms deemed by the Fund to be of good standing and will not be made
unless, in the judgment of the Fund, the consideration to be earned from such
loans justifies the risk.
The Fund understands that it is the current view of the Securities and
Exchange Commission that the Fund is permitted to engage in loan transactions
only if it satisfies the following conditions: (1) the Fund must receive 100%
collateral in the form of cash or cash equivalents, e.g., U.S. Treasury bills or
notes, from the borrower; (2) the borrower must increase the collateral whenever
the market value of the securities (determined on a daily basis) exceeds the
value of the collateral; (3) the Fund must be able to terminate the loan, after
notice, at any time; (4) the Fund must receive reasonable interest on the loan
or a flat fee from the borrower, as well as amounts equivalent to any dividends,
interest or other distributions on the securities loaned and any increase in the
securities' market values, which could result from the return of loaned
securities; (5) the Fund may pay only reasonable custodian fees in connection
with the loan; and (6) voting rights on the securities loaned may pass to the
borrower; however, if a material event affecting the securities occurs, the Fund
must be able to terminate the loan and vote proxies or enter into an alternative
arrangement with the borrower to enable the Fund to vote proxies. Excluding
items (1) and (2), these procedures may be amended from time to time, as
regulatory policies may permit, by the Fund's Board of Trustees without
shareholder approval. The Fund does not presently intend to lend its securities
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.
<PAGE>
EXHIBIT A
REDUCED SALES CHARGES
Initial sales charges may be reduced or eliminated for persons or
organizations purchasing Class A shares of the Fund alone or in combination with
Class A shares of other Keystone America Funds. Only Class A shares subject to
an initial or deferred sales charge are eligible for inclusion in reduced sales
charge programs.
For purposes of qualifying for reduced sales charges on purchases made
pursuant to Rights of Accumulation or Letters of Intent, the term "Purchaser"
includes the following persons: an individual; an individual, his or her spouse
and children under the age of 21; a trustee or other fiduciary of a single trust
estate or single fiduciary account established for their benefit; an
organization exempt from federal income tax under Section 501 (c)(3) or (13) of
the Internal Revenue Code; a pension, profit-sharing or other employee benefit
plan whether or not qualified under Section 401 of the Internal Revenue Code; or
other organized groups of persons, whether incorporated or not, provided the
organization has been in existence for at least six months and has some purpose
other than the purchase of redeemable securities of a registered investment
company at a discount. In order to qualify for a lower sales charge, all orders
from an organized group will have to be placed through a single investment
dealer or other firm and identified as originating from a qualifying purchaser.
CONCURRENT PURCHASES
For purposes of qualifying for a reduced sales charge, a Purchaser may combine
concurrent direct purchases of Class A shares of two or more of the "Eligible
Funds" as defined below. For example, if a Purchaser concurrently invested
$75,000 in one of the other "Eligible Funds" and $75,000 in the Fund, the sales
charge would be that applicable to a $150,000 purchase, i.e., 3.75% of the
offering price, as indicated in the Sales Charge Schedule in the prospectus.
RIGHT OF ACCUMULATION
In calculating the sales charge applicable to current purchases of the Fund's
Class A shares, a Purchaser is entitled to accumulate current purchases with the
current value of previously purchased Class A shares of the Fund and Class A
shares of certain other eligible funds that are still held in (or exchanged for
shares of and are still held in) the same or another eligible fund ("Eligible
Fund(s)"). The Eligible Funds are the Keystone America Funds and Keystone Liquid
Trust.
For example, if a Purchaser held shares valued at $99,999 and purchased an
additional $5,000, the sales charge for the $5,000 purchase would be at the next
lower sales charge of 3.75% of the offering price as indicated in the Sales
Charge Schedule. KIRC must be notified at the time of purchase that the
Purchaser is entitled to a reduced sales charge, which reduction will be granted
subject to confirmation of the Purchaser's holdings. The Right of Accumulation
may be modified or discontinued at any time.
LETTER OF INTENT
A Purchaser may qualify for a reduced sales charge on a purchase of Class A
shares of the Fund alone or in combination with purchases of Class A shares of
any of the other Eligible Funds by completing the Letter of Intent section of
the application. By so doing, the Purchaser agrees to invest within a
thirteen-month period a specified amount which, if invested at one time, would
qualify for a reduced sales charge. Each purchase will be made at a public
offering price applicable to a single transaction of the dollar amount specified
on the application, as described in this prospectus. The Letter of Intent does
not obligate the Purchaser to purchase, nor the Fund to sell, the amount
indicated.
After the Letter of Intent is received by KIRC, each investment made will be
entitled to the sales charge applicable to the level of investment indicated on
the application. The Letter of Intent may be back-dated up to ninety days so
that any investments made in any of the Eligible Funds during the preceding
ninety-day period, valued at the Purchaser's cost, can be applied toward
fulfillment of the Letter of Intent. However, there will be no refund of sales
charges already paid during the ninety-day period. No retroactive adjustment
will be made if purchases exceed the amount specified in the Letter of Intent.
Income and capital gains distributions taken in additional shares will not apply
toward completion of the Letter of Intent.
If total purchases made pursuant to the Letter of Intent are less than the
amount specified, the Purchaser will be required to remit an amount equal to the
difference between the sales charge paid and the sales charge applicable to
purchases actually made. Out of the initial purchase (or subsequent purchases,
if necessary) 5% of the dollar amount specified on the application will be held
in escrow by KIRC in the form of shares registered in the Purchaser's name. The
escrowed shares will not be available for redemption, transfer or encumbrance by
the Purchaser until the Letter of Intent is completed or the higher sales charge
paid. All income and capital gains distributions on escrowed shares will be paid
to the Purchaser or his order.
When the minimum investment specified in the Letter of Intent is completed
(either prior to or by the end of the thirteen-month period), the Purchaser will
be notified and the escrowed shares will be released. If the intended investment
is not completed, the Purchaser will be asked to remit to the Principal
Underwriter any difference between the sales charge on the amount specified and
on the amount actually attained. If the Purchaser does not within 20 days after
written request by the Principal Underwriter or his dealer pay such difference
in sales charge, KIRC will redeem an appropriate number of the escrowed shares
in order to realize such difference. Shares remaining after any such redemption
will be released by KIRC. Any redemptions made by the Purchaser during the
thirteen-month period will be subtracted from the amount of the purchases for
purposes of determining whether the Letter of Intent has been completed. In the
event of a total redemption of the account prior to completion of the Letter of
Intent, the additional sales charge due will be deducted from the proceeds of
the redemption and the balance will be forwarded to the Purchaser.
By signing the application, the Purchaser irre vocably constitutes and
appoints KIRC his attorney to surrender for redemption any or all escrowed
shares with full power of substitution.
The Purchaser or his dealer must inform the Principal Underwriter or KIRC that
a Letter of Intent is in effect each time a purchase is made.
<PAGE>
- -------------------------------------
KEYSTONE AMERICA
FUND FAMILY
o
Capital Preservation and Income Fund
Government Securities Fund
Intermediate Term Bond Fund
Strategic Income Fund
World Bond Fund
Tax Free Income Fund
California Insured Tax Free Fund
Florida Tax Free Fund
Massachusetts Tax Free Fund
Missouri Tax Free Fund
New York Insured Tax Free Fund
Pennsylvania Tax Free Fund
Texas Tax Free Fund
Fund for Total Return
Global Opportunities Fund
Hartwell Emerging Growth Fund, Inc.
Hartwell Growth Fund
Omega Fund
Fund of the Americas
Strategic Development Fund
Small Company Growth Fund II
- -------------------------------------
[logo] KEYSTONE
INVESTMENTS
Keystone Investment Distributors Company
200 Berkeley Street
Boston, Massachusetts 02116-5034
[recycle logo]
- -------------------------------------
KEYSTONE
---------------------
---------------------
EMERGING
MARKETS FUND
- -------------------------------------
[logo]
PROSPECTUS AND
APPLICATION
<PAGE>
KEYSTONE EMERGING MARKETS FUND
PART B
STATEMENT OF ADDITIONAL INFORMATION
<PAGE>
KEYSTONE EMERGING MARKETS FUND
STATEMENT OF ADDITIONAL INFORMATION
________, 1996
This statement of additional information is not a prospectus, but
relates to, and should be read in conjunction with, the prospectus of Keystone
Emerging Markets Fund (the "Fund") dated ________, 1996. A copy of the
prospectus may be obtained from Keystone Investment Distributors Company (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 Restrictions 2
Distributions and Taxes 5
Valuation of Securities 6
Brokerage 7
Sales Charges 9
Distribution Plans 12
Trustees and Officers 16
Investment Adviser 19
Principal Underwriter 21
Declaration of Trust 23
Standardized Total Return
and Yield Quotations 24
Additional Information 25
Appendix A-1
Audited Balance Sheet F-1
Independent Auditors' Report F-2
<PAGE>
- --------------------------------------------------------------------------------
THE FUND
- --------------------------------------------------------------------------------
The Fund is an open-end, diversified management investment company
commonly known as a mutual fund. The Fund seeks capital appreciation by
investing primarily in equity securities of issuers located in emerging market
countries. Under normal market conditions, the Fund will invest at least 65% of
its total assets in equity securities of issuers located in emerging markets. In
addition, under normal market conditions, the Fund will maintain investments in
at least three different emerging market countries. As a general matter, the
Fund deems an emerging market to be any country that is considered to be an
emerging or developing country by the International Finance Corporation. For a
more detailed description of the Fund's investment strategies, principal
investments, and policies, see the Fund's prospectus.
The Fund was formed as a Massachusetts business trust on January 12,
1996. The Fund is one of more than 30 funds advised by Keystone Investment
Management Company ("Keystone").
Certain information about the Fund is contained in its prospectus. This
statement of additional information provides additional information about the
Fund that may be of interest to some investors.
- --------------------------------------------------------------------------------
INVESTMENT RESTRICTIONS
- --------------------------------------------------------------------------------
FUNDAMENTAL INVESTMENT RESTRICTIONS
The Fund has adopted the fundamental investment restrictions set forth
below, which may not be changed without the vote of a majority (as defined in
the Investment Company Act of 1940 ("1940 Act")) of the Fund's outstanding
voting shares. Unless otherwise stated, all references to Fund assets are in
terms of current market value.
The Fund may not do the following:
(1) with respect to 75% of its total assets, invest more than 5% of the
value of its total assets, determined at market or other fair value at the time
of purchase, in the securities of any one issuer, or invest in more than 10% of
the outstanding voting securities of any one issuer, all as determined
immediately after such investment; provided that these limitations do not apply
to investments in securities issued or guaranteed by the United States ("U.S.")
government or its agencies or instrumentalities;
(2) concentrate its investments in the securities of issuers in any one
industry other than securities issued or guaranteed by the U.S. government or
its agencies or instrumentalities;
(3) borrow money, except that the Fund may (a) borrow from any bank,
provided that, immediately after any such borrowing there is asset coverage of
at least 300% for all borrowings; and (b) enter into reverse repurchase
agreements;
(4) issue senior securities, except that the Fund may (a) make
permitted borrowings of money; (b) enter into firm commitment agreements and
collateral arrangements with respect to the writing of options on securities and
engage in permitted transactions in futures and options thereon and forward
contracts; and (c) issue shares of any additional permitted classes or series of
shares;
(5) engage in the business of underwriting securities issued by other
persons, except insofar as the Fund may be deemed to be an underwriter in
connection with the disposition of its portfolio investments;
(6) invest in real estate or commodities, except that the Fund may (a)
invest in securities directly or indirectly secured by real estate and interests
therein and securities of companies that invest in real estate and interests
therein, including mortgages and other liens; and (b) enter into financial
futures contracts and options thereon for hedging purposes and enter into
forward contracts; or
(7) make loans, except that the Fund may (a) make, purchase, or hold
publicly and nonpublicly offered debt securities (including convertible
securities) and other debt investments, including loans, consistent with its
investment objective; (b) lend its portfolio securities to broker-dealers; and
(c) enter into repurchase agreements.
It is the position of the staff of the Securities and Exchange
Commission ("Commission") that investment (including holdings of debt
securities) of 25% or more of the value of the Fund's assets in any one industry
or group of industries represents concentration; it being understood that
securities issued by the U.S. government or state governments or political
subdivisions thereof are excluded from the calculation because these issuers are
not considered by the staff of the Commission to be members of any industry.
OTHER FUNDAMENTAL POLICIES
Notwithstanding any other investment policy or restriction, the Fund
may invest all of its assets in the securities of a single open-end management
investment company with substantially the same fundamental investment
objectives, policies, and restrictions as the Fund.
NON-FUNDAMENTAL INVESTMENT RESTRICTIONS
The Fund has adopted the non-fundamental policies set forth below,
which may be changed without shareholder approval.
The Fund may not do the following:
(1) borrow money except for temporary or emergency purposes (not for
leveraging or investment), and it will not purchase any security while
borrowings representing more than 5% of its total assets are outstanding;
(2) (a) sell securities short (except by selling futures contracts or
writing covered options), unless it owns, or by virtue of ownership of other
securities, has the right to obtain, without additional consideration,
securities identical in kind and amount to the securities sold short; or (b)
purchase securities on margin, except for such short-term credits as are
necessary for the clearance of transactions, and provided that the Fund may make
initial and variation so-called "margin" payments in connection with purchases
or sales of futures contracts or of options on futures contracts or forwards or
other similar instruments;
(3) pledge, mortgage, or hypothecate its assets, except that the Fund
may pledge not more than one-third of its total assets (taken at current value)
to secure borrowings made in accordance with its investment restrictions on
borrowings, and provided that the Fund may make initial and variation margin
payments in connection with purchases or sales of futures contracts or of
options on futures contracts or forwards or other similar instruments;
(4) purchase the securities of any other investment company, except by
purchase in the open market subject only to customary broker's commissions and
provided that any such purchase will not result in duplication of sales charges
or management fees, and except in connection with any merger, consolidation, or
reorganization;
(5) invest in oil, gas, or other mineral leases or development programs
(except the Fund may invest in companies that own or invest in such interests);
(6) invest in real estate limited partnerships; or
(7) (a) write covered options, unless the securities underlying such
options are listed on a national securities exchange and the options are issued
by the Options Clearing Corporation; provided, however, that the securities
underlying such options may be traded on an automated quotations system
("NASDAQ") of the National Association of Securities Dealers, Inc. ("NASD") if
and to the extent permitted by applicable state regulations; or (b) purchase
warrants, valued at the lower of cost or market, in excess of 5% of the value of
the Fund's net assets; included within that amount, but not to exceed 2% of the
value of the Fund's net assets, may be warrants that are not listed on the New
York or American Stock Exchanges; warrants acquired by the Fund at any time in
units or attached to securities are not subject to this restriction.
OTHER NON-FUNDAMENTAL POLICIES
The Fund intends to follow the policies of the Commission as they are
adopted from time to time with respect to illiquid securities, including (1)
treating as illiquid securities that may not be disposed of in the ordinary
course of business within seven days at approximately the value at which the
Fund has valued the investment on its books; and (2) limiting its holdings of
such securities to 15% of its net assets. The purchase of restricted securities
is not to be deemed engaging in underwriting.
In order to permit the sale of Fund shares in certain states or foreign
countries, the Fund may make commitments more restrictive than the investment
restrictions described above. Should the Fund determine that any such commitment
is no longer in the best interests of the Fund, it may revoke the commitment by
terminating sales of its shares in the state or country involved.
- --------------------------------------------------------------------------------
DISTRIBUTIONS AND TAXES
- --------------------------------------------------------------------------------
The Fund annually distributes to its shareholders dividends from net
investment income and net realized capital gains in shares or, at the option of
the shareholder, in cash. Distributions are taxable whether received in cash or
additional shares. Shareholders who have not opted, prior to the record date for
any distribution, to receive cash will have the number of distributed shares
determined on the basis of the Fund's net asset value per share computed at the
end of the day on the record date after adjustment for the distribution. Net
asset value is used in computing the number of shares in both gains and income
distribution reinvestments. Account statements and/or checks as appropriate will
be mailed to shareholders within seven days after the Fund pays the
distribution. Unless the Fund receives instructions to the contrary from a
shareholder before the record date, it will assume that the shareholder wishes
to receive that distribution and future gains and income distributions in
shares. Instructions continue in effect until changed in writing.
Distributed long-term capital gains are taxable as such to the
shareholder regardless of the period of time Fund shares have been held by the
shareholder. However, if such shares are held less than six months and redeemed
at a loss, the shareholder will recognize a long term capital loss on such
shares to the extent of the long term capital gain distribution received in
connection with such shares. If the net asset value of the Fund's shares is
reduced below a shareholder's cost by a capital gains distribution, such
distribution, to the extent of the reduction, would be a return of investment
though taxable as stated above. Since distributions of capital gains depend upon
profits actually realized from the sale of securities by the Fund, they may or
may not occur. The foregoing comments relating to the taxation of dividends and
distributions paid on the Fund's shares relate solely to federal income
taxation. Such dividends and distributions may also be subject to state and
local taxes.
When the Fund makes a distribution, it intends to distribute only the
Fund's net capital gains and such income as has been pre-determined, to the best
of the Fund's ability, to be taxable as ordinary income. Shareholders of the
Fund will be advised annually of the federal income tax status of distributions.
If more than 50% of the value of the Fund's total assets at the end of
a fiscal year is represented by securities of foreign corporations and the Fund
elects to make foreign tax credits available to its shareholders, a shareholder
will be required to include in his gross income both actual dividends and the
amount the Fund advises him is his pro rata portion of income taxes withheld by
foreign governments from interest and dividends paid on the Fund's investments.
The shareholder will be entitled, however, to take the amount of such foreign
taxes withheld as a credit against his U.S. income tax, or to treat the foreign
tax withheld as an itemized deduction from his gross income, if that should be
to his advantage. In substance, this policy enables the shareholder to benefit
from the same foreign tax credit or deduction that he would have received if he
had been the individual owner of foreign securities and had paid foreign income
tax on the income therefrom. As in the case of individuals receiving income
directly from foreign sources, the above described tax credit and deductions are
subject to certain limitations.
- --------------------------------------------------------------------------------
VALUATION OF SECURITIES
- --------------------------------------------------------------------------------
Current values for the Fund's securities are generally determined as
follows:
(1) securities that are traded on a national securities exchange or the
over-the-counter National Market System ("NMS") are valued on the basis of the
last sales price on the exchange where primarily traded or NMS prior to the time
of the valuation, provided that a sale has occurred and that this price reflects
current market value according to procedures established by the Board of
Trustees;
(2) securities traded in the over-the-counter market, other than on
NMS, for which market quotations are readily available, are valued at the mean
of the bid and asked prices at the time of valuation;
(3) short-term instruments having maturities of more than sixty day,
for which market quotations are readily available, are valued at current market
value; where market quotations are not available, such instruments are valued at
fair value as determined by the Board of Trustees;
(4) short-term instruments purchased with maturities of sixty days or
less (including all master demand notes) are valued at amortized cost (original
purchase cost as adjusted for amortization of premium or accretion of discount),
which, when combined with accrued interest, approximates market; 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; and
(5) the following securities are valued at prices deemed in good faith
to be fair under procedures established by the Board of Trustees: (a)
securities, including restricted securities, for which complete quotations are
not readily available; (b) listed securities or those on NMS if, in the Fund's
opinion, the last sales price does not reflect a current market value or if no
sale occurred; and (c) other assets.
Foreign securities for which market quotations are not readily
available are valued on the basis of valuations provided by a pricing service,
approved by the Fund's Board of Trustees, which uses information with respect to
transactions in such securities, quotations from broker-dealers, market
transactions in comparable securities and various relationships between
securities and yield to maturity in determining value.
- --------------------------------------------------------------------------------
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 the
Fund, involving both price paid or received and any commissions and other costs
paid, the efficiency with which the transaction is effected, the ability to
effect the transaction at all where a large block is involved, the availability
of the broker to stand ready to execute potentially difficult transactions in
the future and the financial strength and stability of the broker. Such
considerations are weighed by management in determining the overall
reasonableness of brokerage commissions paid.
Subject to the foregoing, a factor in the selection of brokers is the
receipt of research services, such as analyses and reports concerning issuers,
industries, securities, economic factors and trends and other statistical and
factual information. Any such research and other statistical and factual
information provided by brokers to the Fund or Keystone are considered to be in
addition to, and not in lieu of, services required to be performed by Keystone
under its Investment Advisory and Management Agreement with the Fund. The cost,
value and specific application of such information are indeterminable and cannot
be practically allocated among the Fund and other clients of Keystone who may
indirectly benefit from the availability of such information. Similarly, the
Fund may indirectly benefit from information made available as a result of
transactions effected for such other clients. Under its Investment Advisory and
Management Agreement with the Fund, 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
follows such a practice, it will do so on a basis that is fair and equitable to
the Fund.
The Fund expects that purchases and sales of equity securities usually
will be effected through brokerage transactions for which commissions are
payable. Purchases from underwriters will include the underwriting commission or
concession. Purchases from dealers serving as market makers will include a
dealer's mark up or reflect a dealer's mark down. Where transactions are made in
the over-the-counter market, the Fund will deal with primary market makers
unless more favorable prices are otherwise obtainable.
The Fund may participate, if and when practicable, in group bidding for
the direct purchase from an issuer of certain securities, thereby taking
advantage of the lower purchase price available to such a group.
Neither Keystone nor the Fund intends to place securities transactions
with any particular broker-dealer or group thereof. The Fund's Board of Trustees
has determined, however, that the Fund may follow a policy of considering sales
of shares as a factor in the selection of broker-dealers to execute portfolio
transactions, subject to the requirements of best execution, including best
price, described above.
The policy of the Fund with respect to brokerage is and will be
reviewed by the Fund's Board of Trustees from time to time. Because of the
possibility of further regulatory developments affecting the securities
exchanges and brokerage practices generally, the foregoing practices may be
changed, modified or eliminated.
Investment decisions for the Fund are made independently by Keystone
from those of the other funds and investment accounts managed by Keystone. It
may frequently develop, however, that the same investment decision is made for
more than one fund. Simultaneous transactions are inevitable when the same
security is suitable for the investment objective of more than one account. When
two or more funds or accounts are engaged in the purchase or sale of the same
security, the transactions are allocated as to amount in accordance with a
formula that is equitable to each fund or account. It is recognized that, in
some cases, this system could have a detrimental effect on the price or volume
of the security as far as the Fund is concerned. In other cases, however, it is
believed that the ability of the Fund to participate in volume transactions will
produce better executions for the Fund.
In no instance are portfolio securities purchased from or sold to
Keystone, the Principal Underwriter, or any of their affiliated persons, as
defined in the 1940 Act and rules and regulations issued thereunder.
- --------------------------------------------------------------------------------
SALES CHARGES
- --------------------------------------------------------------------------------
GENERAL
The Fund offers three classes of shares. Class A shares are offered
with a maximum sales charge of 5.75% payable at the time of purchase ("Front End
Load Option"). Class B shares are subject to a contingent deferred sales charge
payable upon redemption during the 72 month period from and including the month
of purchase ("Back End Load Option"). Class B shares 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. (Conversion of Class B shares represented by stock certificates will
require the return of the stock certificates to Keystone Investor Resource
Center, Inc., the Fund's transfer and dividend disbursing agent ("KIRC").) Class
C shares are sold subject to a contingent deferred sales charge payable upon
redemption within one year after purchase ("Level Load Option"). Class C shares
are available only through dealers who have entered into special distribution
agreements with the Principal Underwriter. The prospectus contains a general
description of how investors may buy shares of the Fund as well as a table of
applicable sales charges for Class A shares; a discussion of reduced sales
charges that may apply to subsequent purchases; and a description of applicable
contingent deferred sales charges.
CONTINGENT DEFERRED SALES CHARGES
In order to reimburse the Fund for certain expenses relating to the
sale of its shares (See "Distribution Plans"), a contingent deferred sales
charge is imposed at the time of redemption of certain Fund shares, as follows:
CLASS A SHARES
With certain exceptions, purchases of Class A shares (1) in an amount
equal to or exceeding $1,000,000, and/or (2) made by a corporate qualified
retirement plan or a non-qualified deferred compensation plan having 100 or more
eligible employees (a "Qualifying Plan"), in either case without a front-end
sales charge, will be subject to a contingent deferred sales charge of 1.00%
during the 24 month period following the date of purchase. 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, the Fund, with certain exceptions, will
impose a deferred sales charge as a percentage of the lesser of net asset value
or net cost of such Class B shares redeemed during succeeding twelve-month
periods as follows: 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.
If imposed, the deferred sales charge is deducted from the redemption
proceeds otherwise payable to you. The deferred sales charge is retained by the
Principal Underwriter. Amounts received by the Principal Underwriter under the
Class B Distribution Plan are reduced by deferred sales charges retained by the
Principal Underwriter. See "Calculation of Contingent Deferred Sales Charge and
Waiver of Sales Charges" below.
CLASS C SHARES
With certain exceptions, the Fund may impose a deferred sales charge of
1% on Class C shares redeemed within one year after the date of purchase. No
deferred sales charge is imposed on amounts redeemed thereafter. If imposed, the
deferred sales charge is deducted from the redemption proceeds otherwise payable
to you. The deferred sales charge is retained by the Principal Underwriter. See
"Calculation of Contingent Deferred Sales Charge" below.
CALCULATION OF CONTINGENT DEFERRED SALES CHARGE
Any contingent deferred sales charge imposed upon the redemption of
Class A, Class B or Class C shares is a percentage of the lesser of (1) the net
asset value of the shares redeemed or (2) the net cost of such shares.
No contingent deferred sales charge is imposed when you redeem amounts
derived from (1) increases in the value of your account above the net cost of
such shares due to increases in the net asset value per share of such shares;
(2) certain shares with respect to which the Fund did not pay a commission on
issuance, including shares acquired through reinvestment of dividend income and
capital gains distributions; (3) certain Class A shares held for more than 24
months; (4) Class B shares held for more than 72 months; or (5) Class C shares
held for more than one year.
Upon request for redemption, shares not subject to the contingent
deferred sales charge will be redeemed first. Thereafter, shares held the
longest will be the first to be redeemed. 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, for the purpose of calculating a
contingent deferred sales charge, when shares of one such class of a fund have
been exchanged for shares of another such class of a fund, the calendar year of
purchase of the shares being exchanged is assumed to be the year of purchase of
the shares being acquired by exchange.
WAIVER OF SALES CHARGES
Shares of the Fund may also be sold, to the extent permitted by
applicable law, regulations, interpretations or exemptions, at net asset value
without the imposition of an initial sales charge to (1) certain Directors,
Trustees, officers, full-time employees or sales representatives of the Fund,
Keystone Management, Inc. ("Keystone Management"), Keystone, Keystone
Investments, Inc. ("Keystone Investments"), their subsidiaries and affiliates or
the Principal Underwriter who have been such for not less than ninety days; (2)
a pension and profit-sharing plan established by such companies, their
subsidiaries and affiliates for the benefit of their Directors, Trustees,
officers, full-time employees and sales representatives; or (3) a registered
representative of a firm with a dealer agreement with the Principal Underwriter;
provided, however, that all such sales are made upon the written assurance 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 imposed on purchases of shares of the Fund
by a bank or trust company in a single account in the name of such bank or trust
company as trustee if the initial investment in shares of the Fund or any fund
in the Keystone Investments Family of Funds purchased pursuant to this waiver is
at least $500,000 and any commission paid at the time of such purchase is not
more than 1% of the amount invested.
With respect to Class A shares purchased by a Qualifying Plan at net
asset value or Class C shares purchased by a Qualifying Plan, no contingent
deferred sales charge will be imposed on any redemptions made specifically by an
individual participant in the Qualifying Plan. This waiver is not available in
the event a Qualifying Plan, as a whole, redeems substantially all of its
assets.
In addition, no contingent deferred sales charge is imposed on a
redemption of shares of the Fund in the event of (1) death or disability of the
shareholder; (2) a lump-sum distribution from a benefit plan qualified under the
Employee Retirement Income Security Act of 1974 ("ERISA"); (3) automatic
withdrawals from ERISA plans if the shareholder is at least 59 1/2 years old;
(4) involuntary redemptions of an account having an aggregate net asset value of
less than $1,000; (5) automatic withdrawals under an Automatic Withdrawal Plan
of up to 1 1/2% per month of the shareholder's initial account balance; (6)
withdrawals consisting of loan proceeds to a retirement plan participant; (7)
financial hardship withdrawals made by a retirement plan participant; or (8)
withdrawals consisting of returns of excess contributions or excess deferral
amounts made to a retirement plan participant.
REDEMPTION OF SHARES
The Fund has obligated itself under the 1940 Act to redeem for cash all
shares presented for redemption by any one shareholder up to the lesser of
$250,000 or 1% of the Fund's assets in any 90 day period.
- --------------------------------------------------------------------------------
DISTRIBUTION PLANS
- --------------------------------------------------------------------------------
Rule 12b-1 under the 1940 Act permits investment companies, such as the
Fund, to use their assets to bear expenses of distributing their shares if they
comply with various conditions, including adoption of a distribution plan
containing certain provisions set forth in Rule 12b-1.
The NASD limits the amount that the Fund may pay annually in
distribution costs for sale of its shares and shareholder service fees. The NASD
limits annual expenditures to 1% of the aggregate average daily net asset value
of its shares, of which 0.75% may be used to pay such distribution costs and
0.25% may be used to pay shareholder service fees. The NASD also limits the
aggregate amount that the Fund may pay for such distribution costs to 6.25% of
gross share sales since the inception of the 12b-1 Plan, plus interest at the
prime rate plus 1% on such amounts (less any contingent deferred sales charges
paid by shareholders to the Principal Underwriter).
CLASS A DISTRIBUTION PLAN. The Class A Distribution Plan provides that the Fund
may expend daily amounts at an annual rate, which is currently limited to up to
0.25% of the Fund's average daily net asset value attributable to Class A
shares, to finance any activity that is primarily intended to result in the sale
of its shares, including, without limitation, expenditures consisting of
payments to the principal underwriter of the Fund (currently the Principal
Underwriter) to enable the Principal Underwriter to pay or to have paid to
others who sell Class A shares a service or other fee, at such intervals as the
Principal Underwriter may determine, in respect of Class A shares maintained by
any such recipients on the books of the Fund for specified periods.
Amounts paid by the Fund under the Class A Distribution Plan are
currently used to pay others, such as dealers, service fees at an annual rate of
up to 0.25% of the average net asset value of Class A shares maintained by such
others on the books of the Fund for specified periods.
CLASS B DISTRIBUTION PLAN The Fund has adopted a Distribution Plan for its Class
B shares. The 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 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 0.25% of the price paid
for each Class B share sold. Beginning approximately 12 months after the
purchase of a Class B share, the broker or other party receives service fees at
an annual rate of 0.25% of the average daily net asset value of such Class B
share maintained by the recipient 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 the Class B
Distribution Plan that exceed current annual payments permitted to be received
by the Principal Underwriter from the Fund. The Principal Underwriter intends to
seek full payment of such charges from the Fund (together with annual interest
thereon at the prime rate plus one percent) at such time in the future as, and
to the extent that, payment thereof by the Fund would be within the permitted
limits.
If the Fund's Independent Trustees authorize such payments, the effect
would be to extend the period of time during which the Fund incurs the maximum
amount of costs allowed by the Class B Distribution Plan. If the 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.
CLASS C DISTRIBUTION PLAN. The Class C Distribution Plan provides that the Fund
may expend daily amounts at an annual rate of up to 1.00% of the Fund's average
daily net asset value attributable to Class C shares to finance any activity
that is primarily intended to result in the sale of Class C shares, including,
without limitation, expenditures consisting of payments to the principal
underwriter of the Fund (currently the Principal Underwriter) (1) to enable the
Principal Underwriter to pay to others (dealers) commissions in respect of Class
C shares sold since inception of the Distribution Plan; and (2) to enable the
Principal Underwriter to pay or to have paid to others a service fee, at such
intervals as the Principal Underwriter may determine, in respect of Class C
shares maintained by any such recipients on the books of the Fund for specified
periods.
The Principal Underwriter generally reallows to brokers or others a
commission in the amount of 0.75% of the price paid for each Class C share sold
plus the first year's service fee in advance in the amount of 0.25% of the price
paid for each Class C share sold. Beginning approximately fifteen months after
purchase, brokers or others receive a commission at an annual rate of 0.75%
(subject to NASD rules) plus service fees at the annual rate of 0.25% of the
average daily net asset value of each Class C share maintained by the recipients
on the books of the Fund for specified periods.
DISTRIBUTION PLANS - GENERAL
Whether any expenditure under a Distribution Plan is subject to a state
expense limit will depend upon the nature of the expenditure and the terms of
the state law, regulation or order imposing the limit. A portion of the Fund's
Distribution Plan expenses may be includable in the Fund's total operating
expenses for purposes of determining compliance with state expense limits.
Each of the Distribution Plans may be terminated at any time by a vote
of the Fund's Rule 12b-1 Trustees (i.e., the Fund's Independent Trustees), or by
vote of a majority of the outstanding voting shares of the respective class of
Fund shares.
Any change in a Distribution Plan that would materially increase the
distribution expenses of the Fund provided for in a Distribution Plan requires
shareholder approval. Otherwise, a Distribution Plan may be amended by the
Trustees, including the Rule 12b-1 Trustees.
While a Distribution Plan is in effect, the Fund will be required to
commit the selection and nomination of candidates for Independent Trustees to
the discretion of the Independent Trustees.
The total amounts paid by the Fund under the foregoing arrangements may
not exceed the maximum Distribution Plan limits specified above. The amounts and
purposes of expenditures under a Distribution Plan must be reported to the Rule
12b-1 Trustees quarterly. The Rule 12b-1 Trustees may require or approve changes
in the implementation or operation of a Distribution Plan and may also require
that total expenditures by the Fund under a Distribution Plan be kept within
limits lower than the maximum amount permitted by a Distribution Plan as stated
above.
The Independent Trustees of the Fund have determined that the sales of
the Fund's shares resulting from payments under the Distribution Plans are
expected to benefit the Fund.
Keystone has currently voluntarily agreed to reimburse the Fund any
amounts payable under the Class A, B, and C Distribution Plans. Keystone
currently intends to continue such reimbursements on a calendar month-by-month
basis. Keystone will periodically evaluate such reimbursements and may modify or
terminate them in the future.
- --------------------------------------------------------------------------------
TRUSTEES AND OFFICERS
- --------------------------------------------------------------------------------
Trustees and officers of the Fund, their principal occupations and some
of their affiliations over the last five years are as follows:
*ALBERT H. ELFNER, III: President, Chief Executive Officer and Trustee of the
Fund; Chairman of the Board, President, Director and Chief Executive Officer
of Keystone Investments; President, Chief Executive Officer and Trustee or
Director of all 30 funds in the Keystone Investments Family of Funds;
Director and Chairman of the Board, Chief Executive Officer and Vice
Chairman of Keystone; Chairman of the Board and Director of Keystone
Institutional Company, Inc. ("Keystone Institutional") (formerly named
Keystone Investment Management Corporation), and Keystone Fixed Income
Advisors, Inc. ("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; Director and former Executive Vice President,
National Alliance of Business; former Vice President, Educational Testing
Services; former Dean, School of Business, Adelphi University and former
Executive Director, Coalition of Essential Schools, Brown 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).
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.
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.
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; former Vice President and Controller of Keystone
Investments, Keystone, the Principal Underwriter, FICO and Keystone
Software; and former Controller of Keystone Asset Corporation and Keystone
Capital Corporation.
DONALD C. DATES: Vice President of the Fund; Vice President ofcertain other
Keystone Investments Funds; and Senior Vice President of Keystone.
GILMAN C. GUNN, III: 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 both 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.
For the calendar year ended December 31, 1995, aggregate compensation
received by the Independent Trustees on a fund complex wide basis was $450,716.
As of February 9, 1996, the Fund's Trustees and officers beneficially owned less
than 1% of the Fund's then outstanding Class A, Class B or Class C shares.
The address of all the Fund's Trustees and officers and the address of
the Fund is 200 Berkeley Street, Boston, Massachusetts 02116-5034.
- --------------------------------------------------------------------------------
INVESTMENT ADVISER
- --------------------------------------------------------------------------------
INVESTMENT ADVISER
Subject to the general supervision of the Fund's Board of Trustees,
Keystone, located at 200 Berkeley Street, Boston, Massachusetts 02116-5034,
serves as investment adviser to the Fund and is responsible for the overall
management of the Fund's business and affairs. Keystone, organized in 1932, is a
wholly-owned subsidiary of Keystone Investments, located at 200 Berkeley Street,
Boston, Massachusetts 02116-5034.
Keystone Investments is a private corporation predominantly owned by
current and former members of management of Keystone and its affiliates. The
shares of Keystone Investments common stock beneficially owned by management are
held in a number of voting trusts, the trustees of which are George S. Bissell,
Albert H. Elfner, III, Edward F. Godfrey 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.
Except as otherwise noted below, pursuant to an Investment Advisory and
Management Agreement with the Fund (the "Advisory Agreement"), and subject to
the supervision of the Fund's Board of Trustees, Keystone furnishes to the Fund
investment advisory, management and administrative services, office facilities,
equipment and personnel in connection with its services for managing the
investment and reinvestment of the Fund's assets, and pays (or causes to be
paid) the compensation of all officers and employees of the Fund.
As compensation for its services to the Fund, Keystone is entitled to a
fee at the annual rate of 1.25% of the first $250,000,000 of aggregate net asset
value of shares of the Fund, plus 1.00% of the aggregate net asset value of
shares of the Fund in excess of $250,000,000.
Keystone has currently voluntarily agreed to reimburse the Fund with
respect to all expenses, including the management fees. Keystone currently
intends to continue such expense reimbursements on a calendar month-by-month
basis. Keystone will periodically evaluate the expense reimbursements and may
modify or terminate them in the future. Keystone will not be required to make
such reimbursements to the extent it would result in the Fund's inability to
qualify as a regulated investment company under the provisions of the Internal
Revenue Code.
All expenses (other than those specifically referred to as being borne
by Keystone) incurred in the operation of the Fund, and any public offering of
its shares, are borne by the Fund. To the extent that Keystone provides certain
of such services, the Fund promptly reimburses Keystone therefor. The fee
charged to the Fund is higher than that charged to most other investment
companies with different investment objectives and policies. The Fund's fee
structure is comparable, however, to that of other global and international
funds that are subject to the higher costs involved in managing a fund of
predominantly international securities.
Under the Advisory Agreement, any liability of Keystone in connection
with rendering services thereunder is limited to situations involving its
willful misfeasance, bad faith, gross negligence or reckless disregard of its
duties.
The Advisory Agreement continues in effect until ______, 1998 and
thereafter from year to year only so long as such continuance is specifically
approved at least annually by the Fund's Board of Trustees or by vote of a
majority of the outstanding shares. 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, without penalty, on 60
days' written notice by the Fund or Keystone or may be terminated by a vote of
the Fund's shareholders. The Advisory Agreement will terminate automatically
upon its assignment.
STATE EXPENSE LIMITATIONS
The Fund may be also subject to certain annual state expense
limitations, the most restrictive of which is anticipated to be as follows:
2.5% of the first $30 million of Fund average daily net assets; 2.0% of
the next $70 million of Fund average daily net assets; and 1.5% of Fund
average daily net assets over $100 million.
Capital charges and certain expenses, including a portion of the Fund's
Distribution Plan fees, are not included in the calculation of the state expense
limitation. This limitation may be modified or eliminated in the future.
- --------------------------------------------------------------------------------
PRINCIPAL UNDERWRITER
- --------------------------------------------------------------------------------
The Fund has entered into a Principal Underwriting Agreement (the
"Underwriting Agreement") with Keystone Investment Distributors Company, a
wholly-owned subsidiary of Keystone.
The Principal Underwriter, located at 200 Berkeley Street, Boston,
Massachusetts, 02116-5034, is a Delaware corporation. The Principal Underwriter,
as agent, currently has the right to obtain subscriptions for and to sell shares
of the Fund to the public. In so doing, the Principal Underwriter may retain and
employ representatives to promote distribution of the shares and may obtain
orders from brokers, dealers or others, acting as principals, for sales of
shares. No such representative, dealer or broker has any authority to act as
agent for the Fund. The Principal Underwriter has not undertaken to buy or to
find purchasers for any specific number of shares. The Principal Underwriter may
receive payments from the Fund pursuant to the Fund's Distribution Plans.
All subscriptions and sales of shares by the Principal Underwriter are
at the offering price of the shares, such price being in accordance with the
provisions of the Fund's Declaration of Trust, By-Laws, current prospectus and
statement of additional information. All orders are subject to acceptance by the
Fund, and the Fund reserves the right, in its sole discretion, to reject any
order received. Under the Underwriting Agreement, the Fund is not liable to
anyone for failure to accept any order.
The Fund has agreed under the Underwriting Agreement to pay all
expenses in connection with registration of its shares with the Commission as
well as auditing and filing fees in connection with registration of its shares
under the various state "blue-sky" laws.
From time to time, if in the Principal Underwriter's judgment it could
benefit the sales of Fund shares, the Principal Underwriter may use its
discretion in providing to selected dealers promotional materials and selling
aids, including, but not limited to, personal computers, related software and
Fund data files.
The Principal Underwriter has agreed that it will, in all respects,
duly conform with all state and federal laws applicable to the sale of the
shares and will indemnify and hold harmless the Fund, and each person who has
been, is or may be a Trustee or officer of the Fund, against expenses reasonably
incurred by any of them in connection with any claim or in connection with any
action, suit or proceeding to which any of them may be a party that arises out
of or is alleged to arise out of any misrepresentation or omission to state a
material fact on the part of the Principal Underwriter or any other person for
whose acts the Principal Underwriter is responsible or is alleged to be
responsible, unless such misrepresentation or omission was made in reliance upon
written information furnished by the Fund.
The Underwriting Agreement will remain in effect until _______, 1998
and thereafter only so long as its terms and continuance are approved by a
majority of the Fund's Independent Trustees at least annually at a meeting
called for that purpose, and if its continuance is approved annually by vote of
a majority of Trustees, or by vote of a majority of the outstanding shares.
The Underwriting Agreement may be terminated, without penalty, on 60
days' written notice by the Fund's Board of Trustees or by a vote of a majority
of outstanding shares. The Underwriting Agreement will terminate automatically
upon its "assignment" as that term is defined in the 1940 Act.
- --------------------------------------------------------------------------------
DECLARATION OF TRUST
- --------------------------------------------------------------------------------
MASSACHUSETTS BUSINESS TRUST
The Fund is a Massachusetts business trust established under a
Declaration of Trust dated January 12, 1996, as amended January 23, 1996. 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, as amended (the
"Declaration of Trust") is filed as an exhibit to the Registration Statement of
which this statement of additional information is a part. This summary is
qualified in its entirety by reference to the Declaration of Trust.
DESCRIPTION OF SHARES
The Declaration of Trust authorizes the issuance of an unlimited number
of shares of beneficial interest of classes of shares. Each share of the Fund
represents an equal proportionate interest with each other share of that class.
Upon liquidation, shares are entitled to a pro rata share of the Fund based on
the relative net assets of each class. Shareholders have no preemptive or
conversion rights. Shares are redeemable and transferable. The Fund is
authorized to issue additional classes or series of shares. The Fund currently
issues three classes of shares, but may issue additional classes or series of
shares.
SHAREHOLDER LIABILITY
Pursuant to certain decisions of the Supreme Judicial Court of
Massachusetts, shareholders of a Massachusetts business trust may, under certain
circumstances, be held personally liable as partners for the obligations of the
trust. If the Fund were held to be a partnership, the possibility of the
shareholders' incurring financial loss for that reason appears remote because
the Fund's Declaration of Trust (1) contains an express disclaimer of
shareholder liability for obligations of the Fund and requires that notice of
such disclaimer be given in each agreement, obligation or instrument entered
into or executed by the Fund or the Trustees; and (2) provides for
indemnification out of the Fund's property for any shareholder held personally
liable for the obligations of the Fund.
VOTING RIGHTS
Under the terms of the Declaration of Trust, the Fund does not hold
annual meetings. At meetings called for the initial election of Trustees or to
consider other matters, shares are entitled to one vote per share. Shares
generally vote together as one class on all matters. Classes of shares of the
Fund have equal voting rights except that each class of shares has exclusive
voting rights with respect to its respective Distribution Plan. No amendment may
be made to the Declaration of Trust 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 as described above, 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 the 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 will not be liable for
errors of judgment or mistakes of fact or law, but nothing in the Declaration of
Trust protects a Trustee against any liability to which he would otherwise be
subject by reason of willful misfeasance, bad faith, gross negligence or
reckless disregard of his duties involved in the conduct of his office.
- --------------------------------------------------------------------------------
STANDARDIZED TOTAL RETURN AND YIELD QUOTATIONS
- --------------------------------------------------------------------------------
Total return quotations for a class of shares of the Fund as they may
appear from time to time in advertisements are calculated by finding the average
annual compounded rates of return over one, five and ten year periods, or the
time periods for which such class of shares has been effective, whichever is
relevant, on a hypothetical $1,000 investment that would equate the initial
amount invested in the class to the ending redeemable value. To the initial
investment, all dividends and distributions are added and the maximum sales
charge deducted 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.
Current yield quotations as they may appear from time to time in
advertisements will consist of a quotation based on a 30-day period ended on the
date of the most recent balance sheet of the Fund, computed by dividing the net
investment income per share earned during the period by the maximum offering
price per share on the last day of the base period. The Fund does not presently
intend to advertise current yield.
- --------------------------------------------------------------------------------
ADDITIONAL INFORMATION
- --------------------------------------------------------------------------------
State Street Bank and Trust Company, 225 Franklin Street, Boston,
Massachusetts 02110, is the custodian (the "Custodian") of all securities and
cash of the Fund. 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, serves as the independent auditors for the Fund.
KIRC, 101 Main Street, Cambridge, Massachusetts 02142, a wholly-owned
subsidiary of Keystone, acts as transfer agent and dividend disbursing agent for
the Fund.
As of February 9, 1996, Keystone owned 100% of the Fund's outstanding
Class A, B, and C shares.
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 Fund's Registration Statement filed with
the Commission, which may be obtained from the Commission's principal office in
Washington, D.C. upon payment of the fee prescribed by the rules and regulations
promulgated by the Commission.
The Fund is one of 15 different investment companies in the Keystone
America Fund Family, which offers a range of choices to serve shareholder needs.
The Keystone America Fund Family consists of the following Funds having the
various investment objectives described below:
KEYSTONE CAPITAL PRESERVATION AND INCOME FUND - Seeks high current income,
consistent with low volatility of principal, by investing in adjustable rate
securities issued by the U.S. government, its agencies or instrumentalities.
KEYSTONE FUND FOR TOTAL RETURN - Seeks total return from a combination of
capital growth and income from dividend paying common stocks, preferred stocks,
convertible bonds, other fixed-income securities and foreign securities (up to
50%).
KEYSTONE GLOBAL OPPORTUNITIES FUND - Seeks long-term capital growth from foreign
and domestic securities.
KEYSTONE GOVERNMENT SECURITIES FUND - Seeks income and capital preservation from
U.S. government securities.
KEYSTONE AMERICA HARTWELL EMERGING GROWTH FUND, INC. - Seeks capital
appreciation by investment primarily in small and medium-sized companies in a
relatively early stage of development that are principally traded in the
over-the-counter market.
KEYSTONE HARTWELL GROWTH FUND - Seeks capital appreciation by investment in
securities selected for their long-term growth prospects.
KEYSTONE INTERMEDIATE TERM BOND FUND - Seeks income, capital preservation and
price appreciation potential from investment grade corporate bonds.
KEYSTONE OMEGA FUND - Seeks maximum capital growth from common stocks and
securities convertible into common stocks.
KEYSTONE STATE TAX FREE FUND - A mutual fund consisting of five separate series
of shares investing in different portfolio securities which seeks the highest
possible current income, exempt from federal income taxes and applicable state
taxes.
KEYSTONE STATE TAX FREE FUND - SERIES II - A mutual fund consisting of two
separate series of shares investing in different portfolio securities which
seeks the highest possible current income, exempt from federal income taxes and
applicable state taxes.
KEYSTONE STRATEGIC INCOME FUND - Seeks high yield and capital appreciation
potential from corporate bonds, discount bonds, convertible bonds, preferred
stock and foreign bonds (up to 25%).
KEYSTONE TAX FREE INCOME FUND - Seeks income exempt from federal income taxes
and capital preservation from the four highest grades of municipal bonds.
KEYSTONE WORLD BOND FUND - Seeks total return from interest income, capital
gains and losses and currency exchange gains and losses from investment in debt
securities denominated in U.S. and foreign currencies.
KEYSTONE FUND OF THE AMERICAS - Seeks long-term growth of capital through
investments in equity and debt securities in North America (the United States
and Canada) and Latin America (Mexico and countries in South and Central
America).
KEYSTONE STRATEGIC DEVELOPMENT FUND - Seeks long-term capital growth by
investing primarily in equity securities.
<PAGE>
APPENDIX
This Appendix provides additional information about the various
securities in which the Fund may invest and investment techniques that the Fund
may employ. Specifically, the Appendix provides a more detailed explanation of
(i) stock and corporate bond ratings, (ii) high yield, high risk bonds, (iii)
money market instruments, and (iv) derivative instruments.
COMMON AND PREFERRED STOCK RATINGS
S&P'S EARNINGS AND DIVIDEND RANKINGS FOR COMMON STOCKS
Because the investment process involves assessment of various factors,
such as product and industry position, corporate resources and financial policy,
with results that make some common stocks more highly esteemed than others,
Standard & Poor's Corporation ("S&P") believes that earnings and dividend
performance is the end result of the interplay of these factors and that, over
the long run, the record of this performance has a considerable bearing on
relative quality. S&P rankings, however, do not reflect all of the factors,
tangible or intangible, that bear on stock quality.
Growth and stability of earnings and dividends are deemed key elements
in establishing S&P earnings and dividend rankings for common stocks, which
capsulize the nature of this record in a single symbol.
S&P has established a computerized scoring system based on per-share
earnings and dividend records of the most recent ten years, a period deemed long
enough to measure a company's performance under varying economic conditions. S&P
measures growth, stability within the trend line and cyclicality. The ranking
system also makes allowances for company size, since large companies have
certain inherent advantages over small ones. From these scores for earnings and
dividends are determined.
The final score for each stock is measured against a scoring matrix
determined by analysis of the scores of a large and representative sample which
is reviewed and sometimes modified with the following ladder of rankings:
A+ Highest B+ Average C Lowest
A High B Below Average D In Reorganization
A Above Average B- Lower
S&P believes its rankings are not a forecast of future market price
performance, but are basically an appraisal of past performance of earnings and
dividends, and relative current standing.
MOODY'S COMMON STOCK RANKINGS
Moody's Investors Services, Inc. ("Moody's") presents a concise
statement of the important characteristics of a company and an evaluation of the
grade (quality) of its common stock. Data presented includes: (i) capsule stock
information which reveals short and long term growth and yield afforded by the
indicated dividend, based on a recent price; (ii) a long term price chart which
shows patterns of monthly stock price movements and monthly trading volumes;
(iii) a breakdown of a company's capital account which aids in determining the
degree of conservatism or financial leverage in a company's balance sheet; (iv)
interim earnings for the current year to date, plus three previous years; (v)
dividend information; (vi) company background; (vii) recent corporate
developments; (viii) prospects for a company in the immediate future and the
next few years; and (ix) a ten year comparative statistical analysis.
This information provides investors with information on what a company
does, how it has performed in the past, how it is performing currently and what
its future performance prospects appear to be.
These characteristics are then evaluated and result in a grading, or
indication of quality. The grade is based on an analysis of each company's
financial strength, stability of earnings and record of dividend payments. Other
considerations include conservativeness of capitalization, depth and caliber of
management, accounting practices, technological capabilities and industry
position. Evaluation is represented by the following grades:
1. High Grade
2. Investment Grade
3. Medium Grade
4. Speculative Grade
MOODY'S PREFERRED STOCK RATINGS
Preferred stock ratings and their definitions are as follows:
1. aaa: An issue that is rated "aaa" is considered to be a top-quality
preferred stock. This rating indicates good asset protection and the least risk
of dividend impairment within the universe of preferred stocks.
2. aa: An issue that is rated "aa" is considered a high-grade preferred
stock. This rating indicates that there is a reasonable assurance that earnings
and asset protection will remain relatively well maintained in the foreseeable
future.
3. a: An issue that is rated "a" is considered to be an upper-medium
grade preferred stock. While risks are judged to be somewhat greater then in the
"aaa" and "aa" classification, earnings and asset protection are, nevertheless,
expected to be maintained at adequate levels.
4. baa: An issue that is rated "baa" is considered to be a medium-grade
preferred stock, neither highly protected nor poorly secured. Earnings and asset
protection appear adequate at present but may be questionable over any great
length of time.
5. ba: An issue that is rated "ba" is considered to have speculative
elements and its future cannot be considered well assured. Earnings and asset
protection may be very moderate and not well safeguarded during adverse periods.
Uncertainty of position characterizes preferred stocks in this class.
6. b: An issue that is rated "b" generally lacks the characteristics of
a desirable investment. Assurance of dividend payments and maintenance of other
terms of the issue over any long period of time may be small.
7. caa: An issue that is rated "caa" is likely to be in arrears on
dividend payments. This rating designation does not purport to indicate the
future status of payments.
8. ca: An issue that is rated "ca" is speculative in a high degree and
is likely to be in arrears on dividends with little likelihood of eventual
payments.
9. c: This is the lowest rated class of preferred or preference stock.
Issues so rated can be regarded as having extremely poor prospects of ever
attaining any real investment standing.
Moody's applies numerical modifiers 1, 2 and 3 in each rating
classification: the modifier 1 indicates that the security ranks in the higher
end of its generic rating category, the modifier 2 indicates a mid-range ranking
and the modifier 3 indicates that the issue ranks in the lower end of its
generic rating category.
CORPORATE BOND RATINGS
S&P CORPORATE BOND RATINGS
An S&P corporate bond rating is a current assessment of the
creditworthiness of an obligor, including obligors outside the 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 "A" may be modified by the addition of a plus or
minus sign to show relative standing within the major rating categories.
Bond ratings are as follows:
1. AAA - Debt rated AAA has the highest rating assigned by S&P.
Capacity to pay interest and repay principal is extremely strong.
2. AA - Debt rated AA has a very strong capacity to pay interest and
repay principal and differs from the higher rated issues only in small degree.
3. A - Debt rated A has a strong capacity to pay interest and repay
principal although it is somewhat more susceptible to the adverse effects of
changes in circumstances and economic conditions than debt in higher rated
categories.
4. BBB - Debt rated BBB is regarded as having an adequate capacity to
pay interest and repay principal. Whereas it normally exhibits adequate
protection parameters, adverse economic conditions or changing circumstances are
more likely to lead to a weakened capacity to pay interest and repay principal
for debt in this category than in higher rated categories.
5. BB, B, CCC, CC AND C - Debt rated BB, B, CCC, CC AND C is regarded,
on balance, as predominantly speculative with respect to capacity to pay
interest and repay principal in accordance with the terms of the obligation. BB
indicates the lowest degree of speculation and C the highest degree of
speculation. While such debt will likely have some quality and protective
characteristics, these are outweighed by large uncertainties or major risk
exposures to adverse conditions.
MOODY'S CORPORATE 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 which 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 B in its corporate bond rating system. The
modifier 1 indicates that the security ranks in the higher end of its generic
rating category; the modifier 2 indicates a mid-range ranking; and the modifier
3 indicates that the issue ranks in the lower end of its generic rating
category.
Keystone 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 (i) Moody's and S&P assigned ratings are based largely on historical
financial data and may not accurately reflect the current financial outlook of
companies; and (ii) there can be large differences among the current financial
conditions of issuers within the same rating category.
BELOW INVESTMENT GRADE BONDS
Prior to the 1980's, corporate bonds were primarily issued to finance
growth and development. Below investment grade bonds were predominantly bonds
that often traded at discounts from par because the company's credit ratings had
been downgraded. The rapid growth of the noninvestment grade sector of the bond
market during the 1980s was largely attributable to the issuance of such bonds
to finance corporate reorganizations. This growth paralleled a long economic
expansion. An economic downturn could severely disrupt the market for high
yield, high risk bonds and adversely affect the value of outstanding bonds and
the ability of issuers to repay principal and interest.
In addition, investors should be aware of the following risks relating
to high yield, high risk debt securities:
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 lower ratings of certain securities held by the Fund reflect a
greater possibility that adverse changes in the financial condition of the
issuer, or in general economic conditions, or both, or an unanticipated rise in
interest rates, may impair the ability of the issuer to make payments of
interest and principal, especially if the issuer is highly leveraged. Such
issuer's ability to meet its debt obligations may also be adversely affected by
specific corporate developments, or the issuer's inability to meet specific
projected business forecasts, or the unavailability of additional financing.
Also, an economic downturn or an increase in interest rates may increase the
potential for default by the issuers of these securities.
3. The value of certain securities held by the Fund may be more
susceptible to real or perceived adverse economic, company or industry
conditions and publicity than is the case for higher quality securities.
4. The values of certain securities, like those of other fixed income
securities, fluctuate in response to changes in interest rates. When interest
rates decline, the value of a portfolio invested in bonds can be expected to
rise. Conversely, when interest rates rise, the value of a portfolio invested in
bonds can be expected to decline. However, the prices of these bonds are
generally less sensitive to interest rate changes than higher-rated bonds, but
more sensitive to adverse or positive economic changes or individual corporate
developments.
5. The secondary market for certain securities held by the Fund may be
less liquid at certain times than the secondary market for higher quality debt
securities, which may have an adverse effect on market price and the Fund's
ability to dispose of particular issues and may also make it more difficult for
the Fund to obtain accurate market quotations for purposes of valuing its
assets.
6. Zero coupon bonds and PIKs involve additional special
considerations. For example, Zero coupon bonds do not require the periodic
payment of interest. PIK bonds are debt obligations that provide that the issuer
may, at its option, pay interest on such bonds in cash or in the form of
additional debt obligations. Such investments may experience greater fluctuation
in value due to changes in interest rates than debt obligations that pay
interest currently. Even though these investments do not pay current interest in
cash, the Fund is, nonetheless, required by tax laws to accrue interest income
on such investments and to distribute such amounts at least annually to
shareholders. Thus, the Fund could be required at times to liquidate investments
in order to fulfill its intention to distribute substantially all of its net
income as dividends.
MONEY MARKET INSTRUMENTS
Money market securities are instruments with remaining maturities of
one year or less such as bank certificates of deposit, bankers' acceptances,
commercial paper (including variable rate master demand notes), and obligations
issued or guaranteed by the U.S. Government, its agencies or instrumentalities,
some of which may be subject to repurchase agreements.
COMMERCIAL PAPER
Commercial paper will consist of issues rated at the time of purchase
A-1 by S&P, or PRIME-1 by Moody's; or, if not rated, will be issued by companies
which have an outstanding debt issue rated at the time of purchase Aaa, Aa or A
by Moody's, or AAA, AA or A by S&P, or will be determined by Keystone to be of
comparable quality.
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:
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.
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.
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:
(a) leading market positions in well-established industries;
(b) high rates of return on funds employed;
(c) conservative capitalization structures with moderate
reliance on debt and ample asset protection;
(d) broad margins in earnings coverage of fixed financial
charges and high internal cash generation; and
(e) 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.
U.S. CERTIFICATES OF DEPOSIT
U.S. Certificates of deposit are receipts issued by a U.S. 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.
U.S. Certificates of deposit will be limited to U.S. dollar denominated
certificates of U.S. banks, including their branches abroad, which are members
of the Federal Reserve System or the Federal Deposit Insurance Corporation, and
of U.S. branches of foreign banks, each of which have total assets at the time
of purchase in excess of $1 billion.
UNITED STATES GOVERNMENT SECURITIES
Securities issued or guaranteed by the U.S. government include a
variety of Treasury securities that differ only in their interest rates,
maturities and dates of issuance and securities issued by the Government
National Mortgage Association ("GNMA"). Treasury bills have maturities of one
year or less. Treasury notes have maturities of one to ten years and Treasury
bonds generally have maturities of greater than ten years at the date of
issuance. GNMA securities include GNMA mortgage pass-through certificates. Such
securities are supported by the full faith and credit of the U.S.
Securities issued or guaranteed by U.S. government agencies or
instrumentalities include securities issued or guaranteed by the Federal Housing
Administration, Farmers Home Administration, Export-Import Bank of the United
States, Small Business Administration, General Services Administration, Central
Bank for Cooperatives, Federal Home Loan Banks, Federal Loan Mortgage
Corporation, Federal Intermediate Credit Banks, Federal Land Banks, Maritime
Administration, The Tennessee Valley Authority, District of Columbia Armory
Board and Federal National Mortgage Association.
Some obligations of U.S. government agencies and instrumentalities,
such as securities of Federal Home Loan Banks, are supported by the right of the
issuer to borrow from the Treasury. Others, such as bonds issued by the Federal
National Mortgage Association, a private corporation, are supported only by the
credit of the instrumentality. Because the U.S. government is not obligated by
law to provide support to an instrumentality it sponsors, the Fund will invest
in the securities issued by such an instrumentality only when Keystone
determines under standards established by the Board of Trustees that the credit
risk with respect to the instrumentality does not make its securities unsuitable
investments. While the Fund may invest in such instruments, 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 Interamerican Development Bank, or
issues insured by the Federal Deposit Insurance Corporation.
DERIVATIVE INSTRUMENTS
Derivatives have been variously defined to include forwards, futures,
options, mortgage-backed securities, other asset-backed securities and
structured securities, such as interest rate swaps, equity swaps, index swaps,
currency swaps and caps and floors. These basic vehicles can also be combined to
create more complex products, called hybrid derivatives. The following
discussion addresses options, futures, foreign currency transactions,
mortgage-backed and other asset-backed securities, structured securities, swaps,
caps, and floors.
OPTIONS TRANSACTIONS
WRITING COVERED OPTIONS
The Fund writes only covered options. Options written by the Fund will
normally have expiration dates of not more than nine months from the date
written. The exercise price of the options may be below, equal to, or above the
current market values of the underlying securities at the times the options are
written.
Unless the option has been exercised, the Fund may close out an option
it has written by effecting a closing purchase transaction, whereby it purchases
an option covering the same underlying security and having the same exercise
price and expiration date ("of the same series") as the one it has written. If
the Fund desires to sell a particular security on which it has written a call
option, it will effect a closing purchase transaction prior to or concurrently
with the sale of the security. If the Fund is able to enter into a closing
purchase transaction, the Fund will realize a profit (or loss) from such
transaction if the cost of such transaction is less (or more) than the premium
received from the writing of the option.
An option position may be closed out only in a secondary market for an
option of the same series. Although the Fund will generally write only those
options for which there appears to be an active secondary market, there is no
assurance that a liquid secondary market will exist for any particular option at
any particular time, and for some options no secondary market may exist. In such
event it might not be possible to effect a closing transaction in a particular
option. If the Fund as a covered call option writer is unable to effect a
closing purchase transaction, it will not be able to sell the underlying
securities until the option expires or it delivers the underlying securities
upon exercise.
Because the Fund intends to qualify as a regulated investment company
under the Internal Revenue Code, the extent to which the Fund may write covered
call options and enter into so-called "straddle" transactions involving put and
call options may be limited.
Many options are traded on registered securities exchanges. Options
traded on such exchanges are issued by the Options Clearing Corporation ("OCC"),
a clearing corporation which assumes responsibility for the completion of
options transactions.
OPTION WRITING AND RELATED RISKS
The Fund may write covered call and put options. A call option gives
the purchaser of the option the right to buy, and the writer the obligation to
sell, the underlying security at the exercise price during the option period.
Conversely, a put option gives the purchaser the right to sell, and the writer
the obligation to buy, the underlying security at the exercise price during the
option period.
So long as the obligation of the writer continues, the writer may be
assigned an exercise notice by the broker-dealer through whom the option was
sold. The exercise notice would require the writer to deliver, in the case of a
call, or take delivery of, in the case of a put, the underlying security against
payment of the exercise price. This obligation terminates upon expiration of the
option, or at such earlier time as the writer effects a closing purchase
transaction by purchasing an option of the same series as the one previously
sold. Once an option has been exercised, the writer may not execute a closing
purchase transaction. For options traded on national securities exchanges
("Exchanges"), to secure the obligation to deliver the underlying security in
the case of a call option, the writer of the option is required to deposit in
escrow the underlying security or other assets in accordance with the rules of
the OCC, an institution created to interpose itself between buyers and sellers
of options. Technically, the OCC assumes the order side of every purchase and
sale transaction on an Exchange and, by doing so, gives its guarantee to the
transaction.
The principal reason for writing options on a securities portfolio is
to attempt to realize, through the receipt of premiums, a greater return than
would be realized on the underlying securities alone. In return for the premium,
the covered call option writer has given up the opportunity for profit from a
price increase in the underlying security above the exercise price so long as
the option remains open, but retains the risk of loss should the price of the
security decline. Conversely, the put option writer gains a profit, in the form
of a premium, so long as the price of the underlying security remains above the
exercise price, but assumes an obligation to purchase the underlying security
from the buyer of the put option at the exercise price, even though the price of
the security may fall below the exercise price, at any time during the option
period. If an option expires, the writer realizes a gain in the amount of the
premium. Such a gain may, in the case of a covered call option, be offset by a
decline in the market value of the underlying security during the option period.
If a call option is exercised, the writer realizes a gain or loss from the sale
of the underlying security. If a put option is exercised, the writer must
fulfill his obligation to purchase the underlying security at the exercise
price, which will usually exceed the then market value of the underlying
security. In addition, the premium paid for the put effectively increases the
cost of the underlying security, thus reducing the yield otherwise available
from such securities.
Because the Fund can write only covered options, it may at times be
unable to write additional options unless it sells a portion of its portfolio
holdings to obtain new securities against which it can write options. This may
result in higher portfolio turnover and correspondingly greater brokerage
commissions and other transaction costs.
To the extent that a secondary market is available the covered option
writer may close out options it has written prior to the assignment of an
exercise notice by purchasing, on a closing purchase transaction, an option of
the same series as the option previously written. If the cost of such a closing
purchase, plus transaction costs, is greater than the premium received upon
writing the original option, the writer will incur a loss in the transaction.
PURCHASING PUT AND CALL OPTIONS
The Fund can close out a put option it has purchased by effecting a
closing sale transaction; for example, the Fund may close out a put option it
has purchased by selling a put option. If, however, a secondary market does not
exist at a time the Fund wishes to effect a closing sale transaction, the Fund
will have to exercise the option to realize any profit. In addition, in a
transaction in which the Fund does not own the security underlying a put option
it has purchased, the Fund would be required, in the absence of a secondary
market, to purchase the underlying security before it could exercise the option.
In each such instance, the Fund would incur additional transaction costs. The
Fund may also purchase call options for the purpose of offsetting previously
written call options of the same series.
The Fund would normally purchase call options in anticipation of an
increase in the market value of securities of the type in which the Fund may
invest. The purchase of a call option would entitle the Fund, in return for the
premium paid, to purchase specified securities at a specified price during the
option period. The Fund would ordinarily realize a gain if, during the option
period, the value of such securities exceeded the sum of the exercise price, the
premium paid and transaction costs; otherwise the Fund would realize a loss on
the purchase of the call option.
The Fund would normally purchase put options in anticipation of a
decline in the market value of securities in its portfolio (protective puts) or
securities of the type in which it is permitted to invest. The purchase of a put
option would entitle the Fund, in exchange for the premium paid, to sell
specified securities at a specified price during the option period. The purchase
of protective puts is designed merely to offset or hedge against a decline in
the market value of the Fund's securities. Gains and losses on the purchase of
protective put options would tend to be offset by countervailing changes in the
value of underlying portfolio securities. Put options may also be purchased by
the Fund for the purpose of affirmatively benefitting from a decline in the
price of securities which the Fund does not own. The Fund would ordinarily
realize a gain if, during the option period, the value of the underlying
securities decreased below the exercise price sufficiently to cover the premium
and transaction costs; otherwise the Fund would realize a loss on the purchase
of the put option.
The Fund may purchase put and call options on securities indices for
the same purposes as the purchase of options on securities. Options on
securities indices are similar to options on securities, except that the
exercise of securities index options requires cash payments and does not involve
the actual purchase or sale of securities. In addition, securities index options
are designed to reflect price fluctuations in a group of securities or segment
of the securities market rather than price fluctuations in a single security.
OPTIONS TRADING MARKETS
Options in which the Fund will trade are generally listed on Exchanges.
Exchanges on which such options currently are traded include the Chicago Board
Options Exchange and the New York, American, Pacific, and Philadelphia Stock
Exchanges. Options on some securities may not be listed on any Exchange, but
traded in the over-the-counter market. Options traded in the over-the-counter
market involve the additional risk that securities dealers participating in such
transactions would fail to meet their obligations to the Fund. The use of
options traded in the over-the-counter market may be subject to limitations
imposed by certain state securities authorities. In addition to the limits on
its use of options discussed herein, the Fund is subject to the investment
restrictions described in the prospectus and the statement of additional
information.
The staff of the Commission currently is of the view that the premiums
which the Fund pays for the purchase of unlisted options, and the value of
securities used to cover unlisted options written by the Fund are considered to
be invested in illiquid securities or assets for the purpose of the Fund's
compliance with its policies pertaining to illiquid securities.
SPECIAL CONSIDERATIONS APPLICABLE TO OPTIONS
ON TREASURY BONDS AND NOTES. Because trading interest in U.S. Treasury
bonds and notes tends to center on the most recently auctioned issues, new
series of options with expirations to replace expiring options on particular
issues will not be introduced indefinitely. Instead, the expirations introduced
at the commencement of options trading on a particular issue will be allowed to
run their course, with the possible addition of a limited number of new
expirations as the original ones expire. Options trading on each series of bonds
or notes will thus be phased out as new options are listed on the more recent
issues, and a full range of expiration dates will not ordinarily be available
for every series on which options are traded.
ON TREASURY BILLS. Because the deliverable U.S. Treasury bill changes
from week to week, writers of U.S. Treasury bill call options cannot provide in
advance for their potential exercise settlement obligations by acquiring and
holding the underlying security. However, if the Fund holds a long position in
U.S. Treasury bills with a principal amount corresponding to the option contract
size, the Fund may be hedged from a risk standpoint. In addition, the Fund will
maintain in a segregated account with the Fund's Custodian liquid assets
maturing no later than those which would be deliverable in the event of an
assignment of an exercise notice to ensure that it can meet its open option
obligations.
ON GNMA CERTIFICATES. Options on GNMA certificates are not currently
traded on any Exchange. However, the Fund may purchase and write such options in
the over the counter market or, should they commence trading, on any Exchange.
Since the remaining principal balance of GNMA certificates declines
each month as a result of mortgage payments, the Fund, as a writer of a covered
GNMA call holding GNMA certificates as "cover" to satisfy its delivery
obligation in the event of assignment of an exercise notice, may find that its
GNMA certificates no longer have a sufficient remaining principal balance for
this purpose. Should this occur, the Fund will enter into a closing purchase
transaction or will purchase additional GNMA certificates from the same pool (if
obtainable) or replacement GNMA certificates in the cash market in order to
remain covered.
A GNMA certificate held by the Fund to cover an option position in any
but the nearest expiration month may cease to present cover for the option in
the event of a decline in the GNMA coupon rate at which new pools are originated
under the FHA/VA loan ceiling in effect at any given time. Should this occur,
the Fund will no longer be covered, and the Fund will either enter into a
closing purchase transaction or replace the GNMA certificate with a certificate
which represents cover. When the Fund closes its position or replaces the GNMA
certificate, it may realize an unanticipated loss and incur transaction costs.
RISKS PERTAINING TO THE SECONDARY MARKET. An option position may be
closed out only in a secondary market for an option of the same series. Although
the Fund will generally purchase or write only those options for which there
appears to be an active secondary market, there is no assurance that a liquid
secondary market will exist for any particular option at any particular time,
and for some options no secondary market may exist. In such event, it might not
be possible to effect closing transactions in particular options, with the
result that the Fund would have to exercise its options in order to realize any
profit and might incur transaction costs in connection therewith. If the Fund as
a covered call option writer is unable to effect a closing purchase transaction
in a secondary market, it will not be able to sell the underlying security until
the option expires or it delivers the underlying security upon exercise.
Reasons for the absence of a liquid secondary market include the
following: (i) insufficient trading interest in certain options; (ii)
restrictions imposed on transactions (iii) trading halts, suspensions or other
restrictions imposed with respect to particular classes or series of options or
underlying securities; (iv) interruption of the normal operations on an Exchange
or by a broker; (v) inadequacy of the facilities of an Exchange, the OCC or a
broker to handle current trading volume; or (vi) a decision by one or more
Exchanges or a broker to discontinue the trading of options (or a particular
class or series of options), in which event the secondary market in that class
or series of options would cease to exist, although outstanding options that had
been issued as a result of trades would generally continue to be exercisable in
accordance with their terms.
The hours of trading for options on U.S. government securities may not
conform to the hours during which the underlying securities are traded. To the
extent that the option markets close before the markets for the underlying
securities, significant price and rate movements can take place in the
underlying markets that cannot be reflected in the option markets.
FUTURES CONTRACTS AND RELATED OPTIONS TRANSACTIONS
The Fund intends to enter into currency and other financial futures
contracts as a hedge against changes in prevailing levels of interest or
currency exchange rates to seek relative stability of principal and to establish
more definitely the effective return on securities held or intended to be
acquired by the Fund or as a hedge against changes in the prices of securities
or currencies held by the Fund or to be acquired by the Fund. The Fund's hedging
may include sales of futures as an offset against the effect of expected
increases in interest or currency exchange rates or securities prices and
purchases of futures as an offset against the effect of expected declines in
interest or currency exchange rates.
The Fund intends to engage in options transactions that are related to
currency and other financial futures contracts for hedging purposes and in
connection with the hedging strategies described above.
Although techniques other than sales and purchases of futures contracts
and related options transactions could be used to reduce the Fund's exposure to
interest rate and/or market fluctuations, the Fund may be able to hedge its
exposure more effectively and perhaps at a lower cost through using futures
contracts and related options transactions. While the Fund does not intend to
take delivery of the instruments underlying futures contracts it holds, the Fund
does not intend to enter into such futures contracts for speculation.
FUTURES CONTRACTS
Futures contracts are transactions in the commodities markets rather
than in the securities markets. A futures contract creates an obligation by the
seller to deliver to the buyer the commodity specified in the contract at a
specified future time for a specified price. The futures contract creates an
obligation by the buyer to accept delivery from the seller of the commodity
specified at the specified future time for the specified price. In contrast, a
spot transaction creates an immediate obligation for the seller to deliver and
the buyer to accept delivery of and pay for an identified commodity. In general,
futures contracts involve transactions in fungible goods such as wheat, coffee
and soybeans. However, in the last decade an increasing number of futures
contracts have been developed which specify currencies, financial instruments or
financially based indexes as the underlying commodity.
U.S. futures contracts are traded only on national futures exchanges
and are standardized as to maturity date and underlying financial instrument.
The principal financial futures exchanges in the U.S. 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").
OPTIONS ON CURRENCY AND OTHER FINANCIAL FUTURES
The Fund intends to purchase call and put options on currency and other
financial futures contracts and sell such options. Options on currency and other
financial futures contracts are similar to options on stocks except that an
option on a currency or other financial 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, currency or other
financial instruments at a specified exercise price at any time during the
period of the option. Upon exercise of the option, the delivery of the futures
position by the writer of the option to the holder of the option will be
accompanied by delivery of the accumulated balance in the writer's futures
margin account. This amount represents the amount by which the market price of
the futures contract at exercise exceeds, in the case of a call, or is less
than, in the case of a put, the exercise price of the option on the futures
contract. If an option is exercised the last trading day prior to the expiration
date of the option, the settlement will be made entirely in cash equal to the
difference between the exercise price of the option and value of the futures
contract.
The Fund intends to use options on currency and other financial futures
contracts in connection with hedging strategies. In the future the Fund may use
such options for other purposes.
PURCHASE OF PUT OPTIONS ON FUTURES CONTRACTS
The purchase of protective put options on financial futures contracts
is analogous to the purchase of protective puts on individual stocks, where an
absolute level of protection is sought below which no additional economic loss
would be incurred by the Fund. Put options may be purchased to hedge a portfolio
of stocks or debt instruments or a position in the futures contract upon which
the put option is based.
PURCHASE OF CALL OPTIONS ON FUTURES CONTRACTS
The purchase of call options on currency and other 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, the 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 currency or other financial futures
contracts may be purchased to hedge against an interest rate increase or a
market advance when the Fund is not fully invested.
USE OF NEW INVESTMENT TECHNIQUES INVOLVING CURRENCY AND OTHER FINANCIAL FUTURES
CONTRACTS OR RELATED OPTIONS
The Fund may employ new investment techniques involving currency and
other financial futures contracts and related options. The Fund intends to take
advantage of new techniques in these areas that may be developed from time to
time and which are consistent with the Fund's investment objective. The Fund
believes that no additional techniques have been identified for employment by
the Fund in the foreseeable future other than those described above.
LIMITATIONS ON PURCHASE AND SALE OF FUTURES CONTRACTS AND RELATED OPTIONS ON
SUCH FUTURES CONTRACTS
The Fund intends that its futures contracts and related options
transactions will be entered into for traditional hedging purposes. That is,
futures contracts will be sold to protect against a decline in the price of
securities that the Fund owns or futures contracts will be purchased to protect
the Fund against an increase in the price of securities it intends to purchase.
The Fund does not intend to enter into futures contracts for speculation.
In instances involving the purchase or sale of futures contracts by the
Fund, an amount of cash and cash equivalents or securities equal to the market
value of the futures contracts will be deposited in a segregated account with
the Fund's custodian. In addition, in the case of a purchase, the Fund may be
required to make a deposit to a margin account with a Broker to collateralize
the position, and in the case of a sale, the Fund may be required to make daily
deposits to the buyer's margin account. The Fund would make such deposits in
order to insure that the use of such futures is unleveraged.
RISKS OF FUTURES CONTRACTS
Currency and other financial futures contracts prices are volatile and
are influenced, among other things, by changes in stock prices, market
conditions, prevailing interest rates and anticipation of future stock prices,
market movements or interest rate changes, all of which in turn are affected by
economic conditions, such as government fiscal and monetary policies and
actions, and national and international political and economic events.
At best, the correlation between changes in prices of futures contracts
and of the securities being hedged can be only approximate. The degree of
imperfection of correlation depends upon circumstances, such as variations in
speculative market demand for futures contracts and for securities, including
technical influences in futures contracts trading; differences between the
securities being hedged and the financial instruments and indexes underlying the
standard futures contracts available for trading, in such respects as interest
rate levels, maturities and creditworthiness of issuers, or identities of
securities comprising the index and those in the Fund's portfolio. 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 normally
involves an extremely high degree of leverage. As a result, a relatively small
price movement in a futures contract may result in immediate and substantial
loss, as well as gain, to the investor. For example, if at the time of purchase,
10% of the value of the futures contract is deposited as margin, a 10% decrease
in the value of the futures contract would result in a total loss of the margin
deposit, before any deduction for the transaction costs, if the account were
then closed out, and a 15% decrease would result in a loss equal to 150% of the
original margin deposit. Thus, a purchase or sale of a futures contract may
result in losses in excess of the amount invested in the futures contract.
However, the Fund would presumably have sustained comparable losses if, instead
of entering into the futures contract, it had invested in the underlying
financial instrument. In order to be certain that the Fund has sufficient assets
to satisfy its obligations under a futures contract, the Fund will establish a
segregated account in connection with its futures contracts which will hold cash
or cash equivalents equal in value to the current value of the underlying
instruments or indices less the margins on deposit.
Most U.S. futures exchanges limit the amount of fluctuation permitted
in futures contract prices during a single trading day. The daily limit
establishes the maximum amount that the price of a futures contract may vary
either up or down from the previous day's settlement price at the end of a
trading session. Once the daily limit has been reached in a particular type of
contract, no trades may be made on that day at a price beyond that limit. The
daily limit governs only price movement during a particular trading day and
therefore does not limit potential losses because the limit may prevent the
liquidation of unfavorable positions. Futures contract prices have occasionally
moved to the daily limit for several consecutive trading days with little or no
trading, thereby preventing prompt liquidation of futures positions and
subjecting some futures traders to substantial losses.
RISKS OF OPTIONS ON FUTURES CONTRACTS
In addition to the risks described above for currency and other
financial futures contracts, there are several special risks relating to options
on futures contracts. The ability to establish and close out positions on such
options will be subject to the development and maintenance of a liquid secondary
market. There is no assurance that a liquid secondary market will exist for any
particular option or at any particular time. The Fund will not purchase options
on any futures contract unless and until it believes that the market for such
options has developed sufficiently that the risks in connection with such
options are not greater than the risks in connection with the futures contracts.
Compared to the use of futures contracts, the purchase of options on such
futures involves less potential risk to the Fund because the maximum amount at
risk is the premium paid for the options (plus transaction costs). However,
there may be circumstances when the use of an option on a futures contract would
result in a loss to the Fund, even though the use of a futures contract would
not, such as when there is no movement in the level of the futures contract.
FOREIGN CURRENCY TRANSACTIONS
The Fund may invest in securities of foreign issuers. When the Fund
invests in foreign securities they usually will be denominated in foreign
currencies and the Fund temporarily may hold funds in foreign currencies.
Thus, the Fund's share value will be affected by changes in exchange rates.
FORWARD CURRENCY CONTRACTS
As one way of managing exchange rate risk, the Fund may engage in
forward currency exchange contracts (agreements to purchase or sell currencies
at a specified price and date). Under the contract, the exchange rate for the
transaction (the amount of currency the Fund will deliver or receive when the
contract is completed) is fixed when the Fund enters into the contract. The Fund
usually will enter into these contracts to stabilize the U.S. dollar value of a
security it has agreed to buy or sell. The Fund also may use these contracts to
hedge the U.S. dollar value of a security it already owns, particularly if the
Fund expects a decrease in the value of the currency in which the foreign
security is denominated. Although the Fund will attempt to benefit from using
forward contracts, the success of its hedging strategy will depend on Keystone's
ability to predict accurately the future exchange rates between foreign
currencies and the U.S. dollar. The value of the Fund's investments denominated
in foreign currencies will depend on the relative strength of those currencies
and the U.S. dollar, and the Fund may be affected favorably or unfavorably by
changes in the exchange rates or exchange control regulations between foreign
currencies and the dollar. Changes in foreign currency exchange rates also may
affect the value of dividends and interest earned, gains and losses realized on
the sale of securities and net investment income and gains, if any, to be
distributed to shareholders by the Fund.
CURRENCY FUTURES CONTRACTS
Currency futures contracts are bilateral agreements under which two
parties agree to take or make delivery of a specified amount of a currency at a
specified future time for a specified price. Trading of currency futures
contracts in the U.S. is regulated under the Commodity Exchange Act by the CFTC
and NFA. Currently the only national futures exchange on which currency futures
are traded is the International Monetary Market of the Chicago Mercantile
Exchange. Foreign currency futures trading is conducted in the same manner and
subject to the same regulations as trading in interest rate and index based
futures. The Fund intends to only engage in currency futures contracts for
hedging purposes, and not for speculation. The Fund may engage in currency
futures contracts for other purposes if authorized to do so by the Board. The
hedging strategies that will be used by the Fund in connection with foreign
currency futures contracts are similar to those described above for forward
foreign currency exchange contracts.
FOREIGN CURRENCY OPTIONS TRANSACTIONS
Foreign currency options (as opposed to futures) are traded in a
variety of currencies in both the U.S. and Europe. On the Philadelphia Stock
Exchange, for example, contracts for half the size of the corresponding futures
contracts on the Chicago Board Options Exchange are traded with up to nine
months maturity in marks, sterling, yen, Swiss francs and Canadian dollars.
Options can be exercised at any time during the contract life and require a
deposit subject to normal margin requirements. Since a futures contract must be
exercised, the Fund must continually make up the margin balance. As a result, a
wrong price move could result in the Fund losing more than the original
investment as it cannot walk away from the futures contract as it can an option
contract.
The Fund will purchase call and put options and sell such options to
terminate an existing position. Options on foreign currency are similar to
options on stocks except that an option on an interest rate and/or index based
futures contract gives the purchaser the right, in return for the premium paid,
to purchase or sell foreign currency, rather than to purchase or sell stock, at
a specified exercise price at any time during the period of the option.
The Fund intends to use foreign currency option transactions in
connection with hedging strategies.
PURCHASE OF PUT OPTIONS ON FOREIGN CURRENCIES
The purchase of protective put options on a foreign currency is
analogous to the purchase of protective puts on individual stocks, where an
absolute level of protection is sought below which no additional economic loss
would be incurred by the Fund. Put options may be purchased to hedge a portfolio
of foreign stocks or foreign debt instruments or a position in the foreign
currency upon which the put option is based.
PURCHASE OF CALL OPTIONS ON FOREIGN CURRENCIES
The purchase of a call option on foreign currency represents a means of
obtaining temporary exposure to market appreciation at limited risk. It is
analogous to the purchase of a call option on an individual stock which can be
used as a substitute for a position in the stock itself. Depending on the
pricing of the option compared to either the foreign currency upon which it is
based, or upon the price of the foreign stock or foreign debt instruments, the
purchase of a call option may be less risky than the ownership of the foreign
currency or the foreign securities. The Fund would purchase a call option on a
foreign currency to hedge against an increase in the foreign currency or a
foreign market advance when the Fund is not fully invested.
The Fund may employ new investment techniques involving forward foreign
currency exchange contracts, foreign currency futures contracts and options on
foreign currencies in order to take advantage of new techniques in these areas
which may be developed from time to time and which are consistent with the
Fund's investment objective. The Fund believes that no additional techniques
have been identified for employment by the Fund in the foreseeable future other
than those described above.
CURRENCY TRADING RISKS
Currency exchange trading may involve significant risks. The four major
types of risk the Fund faces are exchange rate risk, interest rate risk, credit
risk and country risk.
EXCHANGE RATE RISK
Exchange rate risk results from the movement up and down of foreign
currency values in response to shifting market supply and demand. When the Fund
buys or sells a foreign currency, an exposure called an open position is
created. Until the time that position can be "covered" by selling or buying an
equivalent amount of the same currency, the Fund is exposed to the risk that the
exchange rate might move against it. Since exchange rate changes can readily
move in one direction, a position carried overnight or over a number of days
involves greater risk than one carried a few minutes or hours. Techniques such
as foreign currency forward and futures contracts and options on foreign
currency are intended to be used by the Fund to reduce exchange rate risk.
MATURITY GAPS AND INTEREST RATE RISK
Interest rate risk arises whenever there are mismatches or gaps in the
maturity structure of the Fund's foreign exchange currency holdings, which is
the total of its outstanding spot and forward or futures contracts.
Foreign currency transactions often involve borrowing short term and
lending longer term to benefit from the normal tendency of interest rates to be
higher for longer maturities. However in foreign exchange trading, while the
maturity pattern of interest rates for one currency is important, it is the
differential between interest rates for two currencies that is decisive.
CREDIT RISK
Whenever the Fund enters into a foreign exchange contract, it faces a
risk, however small, that the counterparty will not perform under the contract.
As a result there is a credit risk, although no extension of "credit" is
intended. To limit credit risk, the Fund intends to evaluate the
creditworthiness of each other party.
Credit risk exists because the Fund's counterparty may be unable or
unwilling to fulfill its contractual obligations as a result of bankruptcy or
insolvency or when foreign exchange controls prohibit payment. In any foreign
exchange transaction, each party agrees to deliver a certain amount of currency
to the other on a particular date. In establishing its hedges a Fund relies on
each contract being completed. If the contract is not performed, then the Fund's
hedge is eliminated, and the Fund is exposed to any changes in exchange rates
since the contract was originated. To put itself in the same position it would
have been in had the contract been performed, the Fund must arrange a new
transaction. However, the new transaction may have to be arranged at an adverse
exchange rate. The trustee for a bankrupt company may elect to perform those
contracts which are advantageous to the company but disclaim those contracts
which are disadvantageous, resulting in losses to the Fund.
Another form of credit risk stems from the time zone differences
between the U.S. and foreign nations. If the Fund sells sterling it generally
must pay pounds to a counterparty earlier in the day than it will be credited
with dollars in New York. In the intervening hours, the buyer can go into
bankruptcy or can be declared insolvent. Thus, the dollars may never be credited
to the Fund.
COUNTRY RISK
At one time or another, virtually every country has interfered with
international transactions in its currency. Interference has taken the form of
regulation of the local exchange market, restrictions on foreign investment by
residents or limits on inflows of investment funds from abroad. Governments take
such measures for example to improve control over the domestic banking system or
to influence the pattern of receipts and payments between residents and
foreigners. In those cases, restrictions on the exchange market or on
international transactions are intended to affect the level or movement of the
exchange rate. Occasionally a serious foreign exchange shortage may lead to
payment interruptions or debt servicing delays, as well as interference in the
exchange market. It has become increasingly difficult to distinguish foreign
exchange or credit risk from country risk.
Changes in regulations or restrictions usually do have an important
exchange market impact. Most disruptive are changes in rules that interfere with
the normal payments mechanism. If government regulations change and a
counterparty is either forbidden to perform or is required to do something
extra, then the Fund might be left with an unintended open position or an
unintended maturity mismatch. Dealing with such unintended long or short
positions could result in unanticipated costs to the Fund.
Other changes in official regulations influence international
investment transactions. If one of the factors affecting the buying or selling
of a currency changes, the exchange rate is likely to respond. Changes in such
controls often are unpredictable and can create a significant exchange rate
response.
Many major countries have moved toward liberalization of exchange and
payments restrictions in recent years or accepted the principle that
restrictions should be relaxed. A few industrial countries have moved in the
other direction. Important liberalizations were carried out by Switzerland, the
United Kingdom and Japan. They dismantled mechanisms for restricting either
foreign exchange inflows (Switzerland), outflows (Britain) or elements of both
(Japan). By contrast, France and Mexico have recently tightened foreign exchange
controls.
Overall, many exchange markets are still heavily restricted. Several
countries limit access to the forward market to companies financing documented
export or import transactions in an effort to insulate the market from purely
speculative activities. Some of these countries permit local traders to enter
into forward contracts with residents but prohibit certain forward transactions
with nonresidents. By comparison, other countries have strict controls on
exchange transactions by residents, but permit free exchange transactions
between local traders and non-residents. A few countries have established tiered
markets, funneling commercial transactions through one market and financial
transactions through another. Outside the major industrial countries, relatively
free foreign exchange markets are rare and controls on foreign currency
transactions are extensive.
Another aspect of country risk has to do with the possibility that the
Fund may be dealing with a foreign trader whose home country is facing a
payments problem. Even though the foreign trader intends to perform on its
foreign exchange contracts, the contracts are tied to other external liabilities
the country has incurred. As a result performance may be delayed, and can result
in unanticipated cost to the Fund. This aspect of country risk is a major
element in the Fund's credit judgment as to with whom it will deal and in what
amounts.
COLLATERALIZED MORTGAGE OBLIGATIONS
The Fund, if permitted by its investment policies, may also invest in
fixed rate and adjustable rate collateralized mortgage obligations ("CMOs"),
including CMOs with rates that move inversely to market rates that are issued by
and guaranteed as to principal and interest by the U.S. government, its agencies
or instrumentalities. The principal governmental issuer of CMOs is FNMA. In
addition, FHLMC issues a significant number of CMOs. The Fund, if permitted to
invest in CMOs, will not invest in CMOs that are issued by private issuers. CMOs
are debt obligations collateralized by Mortgage Securities in which the payment
of the principal and interest is supported by the credit of, or guaranteed by,
the U.S. government or an agency or instrumentality of the U.S. government. The
secondary market for CMOs is actively traded.
CMOs are structured by redirecting the total payment of principal and
interest on the underlying Mortgage Securities used as collateral to create
classes with different interest rates, maturities and payment schedules. Instead
of interest and principal payments on the underlying Mortgage Securities being
passed through or paid pro rata to each holder (e.g., the Fund), each class of a
CMO is paid from and secured by a separate priority payment of the cash flow
generated by the pledged Mortgage Securities.
Most CMO issues have at least four classes. Classes with an earlier
maturity receive priority on payments to assure the early maturity. After the
first class is redeemed, excess cash flow not necessary to pay interest on the
remaining classes is directed to the repayment of the next maturing class until
that class is fully redeemed. This process continues until all classes of the
CMO issue have been paid in full. Among the CMO classes available are floating
(adjustable) rate classes, which have characteristics similar to ARMS, and
inverse floating rate classes whose coupons vary inversely with the rate of some
market index. The Fund, if allowed to purchase CMOs, may purchase any class of
CMO other than the residual (final) class.
INTEREST-RATE SWAP CONTRACTS
Interest rate swaps are OTC agreements between parties and
counterparties to make periodic payments to each other for a stated time,
generally entered into for the purpose of changing the nature or amount of
interest being received on debt securities held by one or both parties. The
calculation of these payments is based on an agreed-upon amount called the
"notional amount." The notional amount is not typically exchanged in swaps
(except in currency swaps). The periodic payments may be fixed or floating.
Floating payments change (positively or inversely) with fluctuations in interest
or currency rates or equity or commodity prices, depending on the swap
contract's terms. Swaps may be used to hedge against adverse changes in interest
rates, for instance. Thus, if permitted by its investment policies, the Fund may
have a portfolio of debt instruments (ARM's, for instance) the floating interest
rates of which adjust frequently because they are tied positively to changes in
market interest rates. The Fund would then be exposed to interest rate risk
because a decline in interest rates would reduce the interest receipts on its
portfolio. If the investment adviser believed interest rates would decline, the
Fund, if permitted by its investment policies, could enter into an interest rate
swap with another financial institution to hedge the interest rate risk. In the
swap contract, the Fund would agree to make payments based on a floating
interest rate in exchange for receiving payments based on a fixed interest rate.
Thereafter, if interest rates declined, the Fund's fixed rate receipts on the
swap would offset the reduction in its portfolio receipts. If interest rates
rose, the higher rates the Fund could obtain from new portfolio investments
(assuming sale of existing investments) would offset the higher rates it paid
under the swap agreement.
EQUITY SWAP CONTRACTS
The counterparty to an equity swap contract would typically be a bank,
investment banking firm or broker/dealer. For example, the counterparty would
generally agree to pay the Fund the amount, if any, by which the notional amount
of the equity swap contract would have increased in value if such notional
amount had been invested in the stocks comprising the S&P 500 Index in
proportion to the composition of the Index, plus the dividends that would have
been received on those stocks. The Fund would agree to pay to the counterparty a
floating rate of interest (typically the London Inter Bank Offered Rate) on the
notional amount of the equity swap contract plus the amount, if any, by which
that notional amount would have decreased in value had it been invested in such
index stocks. Therefore, the return to the Fund on any equity swap contract
should be the gain or loss on the notional amount plus dividends on the stocks
comprising the S&P 500 Index less the interest paid by the Fund on the notional
amount. If permitted by its investment policies, the Fund will only enter into
equity swap contracts on a net basis, i.e., the two parties' obligations are
netted out, with the Fund paying or receiving, as the case may be, only the net
amount of any payments. Payments under equity swap contracts may be made at the
conclusion of the contract or periodically during its term.
If permitted by its investment policies, the Fund may also from time to
time enter into the opposite side of equity swap contracts (i.e., where the Fund
is obligated to pay the increase (net of interest) or received the decrease
(plus interest) on the contract) to reduce the amount of the Fund's equity
market exposure consistent with the Fund's investment objective(s) and policies.
These positions are sometimes referred to as "reverse equity swap contracts."
Equity swap contracts will not be used to leverage the Fund. Since the
Commission considers equity swap contracts and reverse equity swap contracts to
be illiquid securities, the Fund will not invest in equity swap contracts or
reverse equity swap contracts if the total value of such investments together
with that of all other illiquid securities that the Fund owns would exceed the
Fund's limitations on investments in illiquid securities.
The Fund does not believe that its obligations under equity swap
contracts or reverse equity swap contracts are senior securities and,
accordingly, the Fund will not treat them as being subject to its borrowing
restrictions. However, the net amount of the excess, if any, of the Fund's
obligations over its respective entitlement with respect to each equity swap
contract and each reverse equity swap contract will be accrued on a daily basis
and an amount of cash, U. S. Government Securities or other liquid high quality
debt securities having an aggregate market value at lease equal to the accrued
excess will be maintained in a segregated account by the Fund's Custodian.
CURRENCY SWAPS, INDEX SWAPS AND CAPS AND FLOORS
A currency swap is an agreement to exchange cash flows on a notional
amount of two or more currencies based on the relative value differential among
them. An index swap is an agreement to swap cash flows on a notional amount
based on changes in the values of reference indices. The purchase of an interest
rate cap entitles the purchaser, to the extent that a specified index exceeds an
agree-upon interest rate, to receive payments of interest on a notional
principal amount from the party selling such interest rate cap. The purchase of
an interest rate floor entitles the purchaser to receive payments of interest on
a notional principal amount from the party selling such interest rate floor. If
permitted by the Fund's investment policies, the investment adviser expects to
enter into these types of transactions on behalf of the Fund primarily to
preserve a return or spread on a particular investment or portion of its
portfolio or to protect against any increase in the price of securities the Fund
anticipates purchasing at a later date rather than for speculative purposes.
Accordingly, if permitted by the Fund's investment policies, the Fund intends to
use these transactions as hedges and not as speculative investments and will not
sell interest rate caps or floors unless it owns securities or other instruments
providing the income stream the Fund may be obligated to pay. Caps and floors
require segregation of assets with a value equal to the Fund's net obligation,
if any.
SPECIAL RISKS OF SWAPS, CAPS AND FLOORS
As with futures, options, forward contracts, and mortgage backed and
other asset-backed securities, the use of swap, cap and floor contracts exposes
the Fund to additional investment risk and transaction costs. These risks
include operational risk, market risk and credit risk.
Operational risk includes, among others, the risks that the investment
adviser will incorrectly analyze market conditions or will not employ
appropriate strategies and monitoring with respect to these instruments or will
be forced to defer closing out certain hedged positions to avoid adverse tax
consequences.
Market risk includes, among others, the risks of imperfect correlations
between the expected values of the contracts, or their underlying bases, and
movements in the prices of the securities or currencies being hedged, and the
possible absence of a liquid secondary market for any particular instrument at
any time. The swap market has grown substantially in recent years with a large
number of banks and investment banking firms acting both as principals and as
agents utilizing standardized swap documentation. As a result, the swap market
has become relatively more illiquid. Nevertheless, a secondary market for swaps
is never assured, and caps and floors, which are more recent innovations for
which standardized documentation has not yet been fully developed, are much less
liquid than swaps.
Credit risk is primarily the risk that counterparties may be
financially unable to fulfill their contracts on a timely basis, if at all. If
there is a default by the counterparty to any such contract, the Fund will be
limited to contractual remedies pursuant to the agreements related to the
transaction. There is no assurance that contract counterparties will be able to
meet contract obligations or that, in the event of default, the Fund will
succeed in pursuing contractual remedies. The Fund thus assumes the risk that it
may be delayed in or prevented from obtaining payments owed to it pursuant to
such contracts. The Fund will closely monitor the credit of swap counterparties
in order to minimize this risk. The Fund will not enter into any equity swap
contract or reverse equity swap contract unless, at the time of entering into
such transaction, the unsecured senior debt of the counterparty is rated at
least A by Moody's or S&P.
10160766
<PAGE>
KEYSTONE EMERGING MARKETS FUND
STATEMENT OF NET ASSETS
FEBRUARY 2, 1996
ASSETS:
Cash $100,000
Organizational expenses (Note 2) 6,300
--------
Total assets 106,300
LIABILITIES:
Accrued expenses 6,300
--------
NET ASSETS $100,000
========
Net assets represented by: (Note 3)
Class A Shares: Net assets equivalent to $10.00
per share for 8,000 shares $ 80,000
Class B Shares: Net assets equivalent to $10.00
per share for 1,000 shares 10,000
Class C Shares: Net assets equivalent to $10.00
per share for 1,000 shares 10,000
--------
Total net assets $100,000
========
Net asset value and redemption price per share:
Class A $10.00
======
Class B $10.00
======
Class C $10.00
======
Offering price per share:
Class A (Including 5.75% sales charge) $10.61
======
Class B $10.00
======
Class C $10.00
======
See Notes to Statement of Net Assets
F-1
<PAGE>
KEYSTONE EMERGING MARKETS FUND
NOTES TO STATEMENT OF NET ASSETS
FEBRUARY 2, 1996
1. Keystone Emerging Markets Fund ("Fund") was organized on January 12,
1996, and had no operations prior to February 2, 1996 other than organizational
matters and activities in connection with the purchase of 10,000 shares of the
Fund by Keystone Investment Management Company ("KIMCO"). The Fund is a mutual
fund that seeks capital appreciation by investing primarily in equity securities
of issuers located in emerging markets.
KIMCO is a wholly-owned subsidiary of Keystone Investments, Inc.
("Keystone Investments"), a corporation privately owned by current and former
members of management and certain employees of Keystone Investments and its
affiliates.
The Fund currently offers three classes of shares. Class A shares are
subject to a maximum sales charge of 5.75% payable at the time of purchase.
Class B shares are sold subject to a contingent deferred sales charge payable
upon redemption which varies depending on when shares were purchased and how
long they have been held. Class C shares are sold subject to a contingent
deferred sales charge payable upon redemption within the year of purchase. Class
C shares are available only through dealers who have entered into special
distribution agreements with Keystone Investment Distributors Company, the
Fund's principal underwriter.
2. 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 organizational expenses in the same proportion as the
number of initial shares of the Fund being redeemed bears to the number of
initial shares of the Fund outstanding at the time of the redemption.
3. The Fund is authorized to issue an unlimited number of shares of
beneficial interest, without par value.
4. Pursuant to its Investment Management and Advisory Agreement with
the Fund, Keystone provides investment advisory and management services to the
Fund. Keystone manages the investment and reinvestment of the Fund's assets,
supervises the operation of the Fund, provides all necessary office space,
facilities, equipment and personnel and arranges, at the request of the Fund,
for its employees to serve as officers or agents of the Fund.
The management fee is determined by applying percentage rates, that
start at 1.25% and decline as net assets increase to 1.00% per annum, to the net
asset value of the Fund.
5. The Fund bears some of the costs of selling its shares under
Distribution Plans adopted with respect to its Class A, Class B and Class C
shares pursuant to Rule 12b-1 under the Investment Company Act of 1940.
The Class A Distribution Plan provides for payments which are currently
limited to 0.25% annually of the average daily net asset value of Class A shares
to pay expenses of the distribution of Class A shares.
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 or
Class C shares, of which 0.75% may be used to pay such distribution expenses and
0.25% may be used to pay shareholder service fees.
F-2
<PAGE>
INDEPENDENT AUDITORS' REPORT
The Trustees and Shareholder
Keystone Emerging Markets Fund
We have audited the accompanying statement of net assets of Keystone Emerging
Markets Fund as of February 2, 1996. This financial statement is the
responsibility of the Fund's management. Our responsibility is to express an
opinion on this financial statement based on our audit.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the statement of net assets is free of material
misstatement. An audit of a statement of net assets includes examining, on a
test basis, evidence supporting the amounts and disclosures in that statement of
net assets. An audit of a statement of net assets also includes assessing the
accounting principles used and significant estimates made by management, as well
as evaluating the overall statement of net assets presentation. We believe that
our audit of the statement of net assets provides a reasonable basis for our
opinion.
In our opinion, the statement of net assets referred to above presents fairly,
in all material respects, the financial position of Keystone Emerging Markets
Fund at February 2, 1996, in conformity with generally accepted accounting
principles.
/s/ KPMG Peat Marwick LLP
KPMG Peat Marwick LLP
Boston, Massachusetts
February 6, 1996
F-3
<PAGE>
KEYSTONE EMERGING MARKETS FUND
PART C
OTHER INFORMATION
Item 24. Financial Statements and Exhibits
The following financial statements are filed as part of the Statement of
Additional Information.
Item 24(a). Financial Statements:
Financial Highlights Not Applicable
Statement of Investments Not Applicable
Statement of Assets and Liabilities February 2, 1996
Statement of Operations Not Applicable
Statement of Change in Net Assets Not Applicable
Notes to Financial Statements February 2, 1996
Report of Independent Auditors
dated February 6, 1996
SUPPORTING SCHEDULES
All schedules are omitted as the required information is inapplicable.
Item (24)(b) Exhibits
(1) A copy of the Registrant's Declaration of Trust, as amended, is filed with
this Registration Statement as Exhibit 24(b)(1).
(2) A copy of the Registrant's By-Laws is filed with this Registration
Statement as Exhibit 24(b)(2).
(3) Not applicable.
(4) (A) Registrant's Declaration of Trust, as amended, Articles III, V, and VI,
as filed herewith as Exhibit 24(b)(1) and incorporated by reference herein.
(B) Registrant's By-Laws, Article 2, Section 2.5, as filed herewith as
Exhibit 24(b)(2) and incorporated by reference herein.
(5) A copy of the form of Investment Advisory and Management Agreement between
Registrant and Keystone Investment Management Company is filed with this
Registration Statement as Exhibit 24(b)(5).
(6) (A) A copy of the form of Principal Underwriting Agreement between
Registrant and Keystone Investment Distributors Company is filed with this
Registration Statement as Exhibit 24(b)(6)(A).
(B) Copies of the forms of Dealer Agreements for Class A, B and C shares
are filed herewith as Exhibit 24(b)(6)(B).
(7) Not applicable.
(8) A copy of the form of Custodian, Fund Accounting and Recordkeeping
Agreement between Registrant and State Street Bank and Trust Company is
filed with this Registration Statement as Exhibit 24(b)(8).
(9) Not applicable.
(10) Opinion of counsel as to the legality of the shares being registered is
filed with this Registration Statement as Exhibit 24(b)(10).
(11) Consent as to use of Report of Registrant's independent auditors is filed
with this Registration Statement as Exhibit 24(b)(11).
(12) Not applicable.
(13) A copy of the Subscription Agreement between Registrant and Keystone
Investment Management Company is filed with this Registration Statement as
Exhibit 24(b)(13).
(14) Not applicable.
(15) Copies of the forms of Registrant's Distribution Plans for its Class A,
Class B and Class C shares are filed herewith as Exhibit 24(b)(15).
(16) Not applicable.
(17) Financial Data Schedules are filed with this Registration Statement as
Exhibit 24(b)(17).
(18) A copy of Registrant's Multiple Class Plan adopted pursuant to Rule 18f-3
is filed herewith as Exhibit 24(b)(18).
(19) Powers of Attorney are filed herewith as Exhibit 24(b)(19).
Item 25. Persons Controlled by or Under Common Control With Registrant
Not applicable.
Item 26. Number of Holders of Securities
Number of Record Holders
Title of Class as of February 6, 1996
-------------- -----------------------
Shares of Beneficial Class A 1
Interest Class B 1
Class C 1
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 with this Registration Statement as Exhibit 24(b)(1) and
is incorporated by reference herein.
Provisions for the indemnification of Keystone Investment Distributors
Company, the Registrant's Principal Underwriter, are contained in Section 9 of
the Principal Underwriting Agreement between the Registrant and Keystone
Investment Distributors Company, a copy of the form of which is filed with this
Registration Statement as Exhibit 24(b)(6) and is 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 the form of which is filed with this
Registration Statement 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, the Registrant's
investment adviser, and their respective positions. For each named
individual, the table lists, for at least the past two fiscal years,
(i) any other organizations (excluding investment advisory clients)
with which the officer and/or director has had or has substantial
involvement; and (ii) positions held with such organizations.
<PAGE>
LIST OF OFFICERS AND DIRECTORS OF
KEYSTONE INVESTMENT MANAGEMENT COMPANY
Position with
Keystone Other
Investment Business
Name Management Company Affiliations
- ---- ------------------ ------------
Albert H. Chairman of Chairman of the Board,
Elfner, III the Board, Chief Executive Officer,
Chief Executive President and Director:
Officer,and KeystoneInvestments,Inc.
Director Keystone Management,Inc.
Keystone Software, Inc.
Keystone Asset Corporation
Keystone Capital Corporation
Chairman of the Board and
Director:
Keystone Fixed Income
Advisers, Inc.
Keystone Institutional
Company, Inc.
President and Director:
Keystone Trust Company
Director or Trustee:
Fiduciary Investment
Company, Inc.
Keystone Investment
Distributors Company
Keystone Investor
Resource Center, Inc.
Boston Children's
Services Associates
Middlesex School
Middlebury College
Former Trustee or Director:
Neworld Bank
Robert Van Partners, Inc.
Philip M. Byrne Director President and Director:
Keystone Institutional
Company, Inc.
Senior Vice President:
Keystone Investments, Inc.
Herbert L. Senior Vice None
Bishop, Jr. President
Donald C. Dates Senior Vice None
President
<PAGE>
Position with
Keystone Other
Investment Business
Name Management Company Affiliations
- ---- ------------------ ------------
Gilman Gunn Senior Vice None
President
Edward F. Director, Director, Senior Vice
Godfrey Senior Vice President
President, Chief Financial Officer and
Treasurer and Treasurer:
Chief Financial Keystone Investments, Inc.
Officer Keystone Investment
Distributors Company
Treasurer:
Keystone Institutional
Company, Inc.
Keystone Management, Inc.
Keystone Software, Inc.
Fiduciary Investment
Company, Inc.
Former Treasurer and
Director:
Hartwell Keystone
Advisers, Inc.
James R. McCall Director and None
President
Ralph J. Director President and Director:
Spuehler, Jr. Keystone Investment
Distributors Company
Senior Vice President and
Director:
Keystone Investments, Inc.
Chairman and Director:
Keystone Investor
Resource Center, Inc.
Keystone Management, Inc.
Formerly President:
Keystone Management, Inc.
Formerly Treasurer:
The Kent Funds
Keystone Investments, Inc.
Keystone Investment
Management Company
<PAGE>
Position with
Keystone Other
Investment Business
Name Management Company Affiliations
- ---- ------------------ ------------
Rosemary D. Senior Vice General Counsel, Senior
Van Antwerp President, Vice President and
General Counsel Secretary:
and Secretary Keystone Investments, Inc.
Senior Vice President and
General Counsel:
Keystone Institutional
Company, Inc.
Senior Vice President,
General Counsel and
Director:
Keystone Investor
Resource Center, Inc.
Fiduciary Investment
Company, Inc.
Keystone Investment
Distributors Company
Senior Vice President,
General Counsel, Director
and Secretary:
Keystone Management, Inc.
Keystone Software, Inc.
Former Senior Vice
President and Secretary:
Hartwell Keystone
Advisers, Inc.
Vice President and Secretary:
Keystone Fixed Income
Advisers, Inc.
J. Kevin Kenely Vice President Vice President:
Keystone Investments, Inc.
Keystone Investment
Distributors Company
Keystone Institutional
Company, Inc.
Keystone Management, Inc.
Keystone Institutional
Company, Inc.
Keystone Software, Inc.
Fiduciary Investment
Company, Inc.
Formerly Controller:
Keystone Investments, Inc.
Keystone Investment
Management Company
Keystone Investment
Distributors Company
Keystone Institutional
Company, Inc.
Keystone Management, Inc.
Keystone Software, Inc.
Fiduciary Investment
Company, Inc.
John D. Rogol Vice President Vice President and
and Controller Controller:
Keystone Investments, Inc.
Keystone Invesmtent
Distributors Company
Keystone Institutional
Company, Inc.
Keystone Management, Inc.
<PAGE>
Position with
Keystone Other
Investment Business
Name Management Company Affiliations
- ---- ------------------ ------------
John D. Rogol (con't) Keystone Software, Inc.
Fiduciary Investment
Company, Inc.
Controller:
Keystone Asset Corporation
Keystone Capital Corporation
Robert K. Vice President None
Baumback
Betsy A. Blacher Senior Vice None
President
Francis X. Claro Vice President None
Kristine R. Vice President None
Cloyes
Christopher P. Senior Vice None
Conkey President
Richard Cryan Senior Vice None
President
Maureen E. Senior Vice None
Cullinane President
George E. Dlugos Vice President None
Antonio T. Docal Vice President None
Christopher R. Senior Vice None
Ely President
Robert L. Hockett Vice President None
Sami J. Karam Vice President None
George J. Kimball Vice President None
JoAnn L. Lyndon Vice President None
<PAGE>
Position with
Keystone Other
Investment Business
Name Management Company Affiliations
- ---- ------------------ ------------
John C. Vice President None
Madden, Jr.
Stephen A. Marks Vice President None
Eleanor H. Marsh Vice President None
Walter T. Senior Vice None
McCormick President
Barbara McCue Vice President None
Stanley M. Niksa Vice President None
Robert E. O'Brien Vice President None
Margery C. Parker Vice President None
William H. Vice President None
Parsons
Daniel A. Rabasco Vice President None
David L. Smith Vice President None
Kathy K. Wang Vice President None
Judith A. Warners Vice President None
Joseph J. Asst. Vice None
Decristofaro President
<PAGE>
Item 29. Principal Underwriter
(a) Keystone Investment Distributors Company, (formerly named Keystone
Distributors, Inc.), which acts as Registrant's principal underwriter,
also acts as principal underwriter for the following entities:
Keystone America Hartwell Emerging Growth Fund, Inc.
Keystone Hartwell Growth Fund
Keystone Quality Bond Fund (B-1)
Keystone Diversified Bond Fund (B-2)
Keystone High Income Bond Fund (B-4)
Keystone Balanced Fund (K-1)
Keystone Strategic Growth Fund (K-2)
Keystone Growth and Income Fund (S-1)
Keystone Mid-Cap Growth Fund (S-3)
Keystone Small Company Growth Fund (S-4)
Keystone Capital Preservation and Income Fund
Keystone Global Opportunities Fund
Keystone Government Securities Fund
Keystone Intermediate Term Bond Fund
Keystone America Omega Fund, Inc.
Keystone State Tax Free Fund
Keystone State Tax Free Fund - Series II
Keystone Strategic Income Fund
Keystone Tax Free Income Fund
Keystone World Bond Fund
Keystone Fund of the Americas
Keystone International Fund Inc.
Keystone Liquid Trust
Keystone Precious Metals Holdings, Inc.
Keystone Strategic Development Fund
Keystone Tax Exempt Trust
Keystone Tax Free Fund
Keystone Small Company Growth Fund II
(b) For information with respect to each director and officer of
Registrant's acting principal underwriter see the following pages.
<PAGE>
Name and Position and Offices with Position and
Principal Keystone Investment Offices with
Business Address Distributors Company the Fund
- ---------------- ------------------------- ------------
Ralph J. Spuehler* Director, President None
Edward F. Godfrey* Director, Senior Vice Senior Vice
President, Treasurer President
and Chief Financial
Officer
Rosemary D. Van Antwerp Director, Senior Vice Senior Vice
President, General Counsel
President and Secretary
Albert H. Elfner, III* Director President
Charles W. Carr* Senior Vice President None
Peter M. Delehanty* Senior Vice President None
J. Kevin Kenely* Vice President Treasurer
John D. Rogol* Vice President and None
Controller
Frank O. Gebhardt Divisional Vice None
2626 Hopeton President
San Antonio, TX 78230
C. Kenneth Molander Divisional Vice None
8 King Edward Drive President
Londenderry, NH 03053
David S. Ashe Regional Manager and None
32415 Beaconsfield Vice President
Birmingham, MI 48025
David E. Achzet Regional Vice President None
60 Lawn Avenue -
Greenway 27
Stamford, CT 06902
William L. Carey, Jr. Regional Manager and None
4 Treble Lane Vice President
Malvern, PA 19355
John W. Crites Regional Manager and None
2769 Oakland Circle W. Vice President
Aurora, CO 80014
Richard J. Fish Regional Vice President None
309 West 90th Street
New York, NY 10024
<PAGE>
Name and Position and Offices with Position and
Principal Keystone Investment Offices with
Business Address Distributors Company the Fund
- ---------------- ------------------------- ------------
Michael E. Gathings Regional Manager and None
245 Wicklawn Way Vice President
Roswell, GA 30076
Robert G. Holz, Jr. Regional Manager and None
313 Meadowcrest Drive Vice President
Richardson, Texas 75080
Todd L. Kobrin Regional Manager and None
20 Iron Gate Vice President
Metuchen, NJ 08840
Ralph H. Johnson Regional Manager and None
345 Masters Court, #2 Vice President
Walnut Creek, CA 94598
Paul J. McIntyre* Regional Manager and None
Vice President
Dale M. Pelletier Regional Manager and None
464 Winnetka Ave. Vice President
Winnetka, IL 60093
Juliana Perkins Regional Manager and None
2348 West Adrian Street Vice President
Newbury Park, CA 91320
Matthew D. Twomey Regional Manager and None
9627 Sparrow Court Vice President
Ellicott City, MD 21042
Mitchell I. Weiser Regional Manager and None
7031 Ventura Court Vice President
Parkland, FL 33067
Welden L. Evans Regional Banking Officer None
490 Huntcliff Green and Vice President
Atlanta, GA 30350
Russell A. Haskell* Vice President None
Robert J. Matson* Vice President None
John M. McAllister* Vice President None
<PAGE>
Name and Position and Offices with Position and
Principal Keystone Investment Offices with
Business Address Distributors Company the Fund
- ---------------- ------------------------- ------------
Gregg A. Mahalich Vice President None
14952 Richards Drive W.
Minnetonka, MN 55345
Burton Robbins Vice President None
1586 Folkstone Terrace
Westlake Village, CA
91361
Thomas E. Ryan, III* Vice President None
Peter Willis* Vice President None
Raymond P. Ajemian* Manager and Vice President None
Joan M. Balchunas* Assistant Vice President None
Thomas J. Gainey* Assistant Vice President None
Eric S. Jeppson* Assistant Vice President None
Julie A. Robinson* Assistant Vice President None
Peter M. Sullivan Assistant Vice President None
21445 Southeast 35th Way
Issaquah, WA 98027
Jean S. Loewenberg* Assistant Secretary Assistant
Secretary
Colleen L. Mette* Assistant Secretary Assistant
Secretary
Dorothy E. Bourassa* Assistant Secretary Assistant
Secretary
* Located at 200 Berkeley Street, Boston, Massachusetts 02116-5034
<PAGE>
Item 30. Location of Accounts and Records
200 Berkeley Street
Boston, Massachusetts 02116-5034
Keystone Investor Resource Center, Inc.
101 Main Street
Cambridge, Massachusetts 02142
State Street Bank and Fund Company
1776 Heritage Drive
Quincy, Massachusetts 02171
Data Vault Inc.
3431 Sharp Slot Road
Swansea, Massachusetts 02777
Item 31. Management Services
Not applicable.
Item 32. Undertakings
UNDERTAKING RE INDEMNIFICATION UNDER 1933 ACT
Insofar as indemnification for liability arising under the Securities
Act of 1933 may be permitted to Trustees, officers and controlling persons of
the Registrant, the Registrant has been advised that in the opinion of the
Securities and Exchange Commission such indemnification is against public policy
as expressed in the 1933 Act and is, therefore, unenforceable. In the event that
a claim for indemnification against such liabilities (other than the payment by
the Registrant of expenses incurred or paid by a Trustee, officer, or
controlling person of the registrant in the successful defense of any action,
suit or proceeding) is asserted by such Trustee, officer or controlling person
in connection with the securities being registered, the Registrant will, unless
in the opinion of its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question whether
such indemnification by it is against public policy as expressed in the Act and
will be governed by the final adjudication of such issue.
UNDERTAKING TO FILE REPORTS
Subject to the terms and conditions of Section 15(d) of the Securities
Exchange Act of 1934, the undersigned Registrant hereby undertakes to file with
the Securities and Exchange Commission such supplementary and periodic
information, documents, and reports as may be prescribed by any rule or
regulation of the Commission heretofore or thereafter duly adopted pursuant to
authority conferred in that section.
UNDERTAKING TO FILE POST-EFFECTIVE AMENDMENT
The undersigned, Registrant, hereby undertakes to file with the
Securities and Exchange Commission a Post-Effective Amendment to this
Registration Statement using financial statements, which need not be audited,
within four to six months from the effective date of Registrant's Registration
Statement.
UNDERTAKING TO COMPLY WITH SECTION 16(c) OF THE INVESTMENT COMPANY ACT OF 1940
APPLICABLE TO SHAREHOLDER COMMUNICATIONS
So long as Registrant is not required by its Declaration of Trust or
otherwise to hold annual meetings, Registrant hereby undertakes to comply with
the provisions of Section 16(c) of the Investment Company Act of 1940 applicable
to shareholder communications.
UNDERTAKING FOR DELIVERY OF ANNUAL REPORTS
Upon request and without charge, the Registrant hereby undertakes to
furnish each person to whom a copy of the Registrant's prospectus is delivered
with a copy of the Registrant's latest annual report to shareholders.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933 and the Investment
Company Act of 1940, the Registrant certifies that it has duly caused this
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 23rd day of February, 1996.
KEYSTONE EMERGING MARKETS FUND
By: /s/ Rosemary D. Van Antwerp
--------------------------
Rosemary D. Van Antwerp
Senior Vice President and
Secretary
Pursuant to the requirements of the Securities Act of 1933, this Registration
Statement has been signed below by the following persons in the capacities
indicated on the 23rd day of February, 1996.
SIGNATURES TITLE
- ---------- -----
/s/ George S. Bissell Chairman of the Board and Trustee
- --------------------------
George S. Bissell*
Chief Executive Officer, President
/s/ Albert H. Elfner,III and Trustee
- --------------------------
Albert H. Elfner, III*
Treasurer (Principal Financial
/s/ J. Kevin Kenely 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 Form of Investment Advisory
and Management Agreement
6 (A) Form of Principal Underwriting
Agreement
(B) Forms of Dealer Agreements
8 Custodian, Fund Accounting
and Recordkeeping Agreement
10 Opinion and Consent of Counsel
11 Consent of Independent Auditors
13 Subscription Agreement
15 Forms of Distributions Plans
for Class A, Class B and
Class C shares
17 Financial Data Schedules
18 Multiple Class Plan
19 Powers of Attorney
<PAGE>
Exhibit 24(B)(1)
KEYSTONE DEVELOPING MARKETS GROWTH FUND
DECLARATION OF TRUST
DATED: JANUARY 12, 1996
This DECLARATION OF TRUST of Keystone Developing Markets Growth Fund,
made at Boston, Massachusetts on January 12, 1996 by Albert H. Elfner, III,
Edward F. Godfrey and Rosemary D. Van Antwerp (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 that 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 (as hereinafter defined) in this Trust as hereinafter set
forth.
ARTICLE I
NAME AND DEFINITIONS
Section 1. Name. This Trust shall be known as Keystone Developing
Markets Growth Fund and the Trustees shall conduct the business of this Trust
under that name or any other name as they may from time to time determine.
Section 2. Definitions. Whenever used herein, unless otherwise required
by the context or specifically provided
(a) The terms "Affiliated Person," "Assignment," "Commission,"
"Interested Person" and "Principal Underwriter" shall have the meanings
given them in the 1940 Act;
(b) The "Trust" refers to the Massachusetts business trust
established by and under this Declaration of Trust;
(c) "Declaration of Trust" shall mean this Declaration of Trust as
amended or restated from time to time;
(d) "Net Asset Value Per Share" means the net asset value per share
of the Trust determined in the manner provided or authorized in Article
VI, Section 4;
(e) "Shareholder" means a record owner of Shares of the Trust;
(f) "Shares" means the equal proportionate units of interest into
which the beneficial interest in the Trust shall be divided from time to
time or, if more than one series ("Series") or more than one class
("Class") of Shares is authorized by the Trustees, the equal
proportionate units into which each such Series or Class of Shares shall
be divided from time to time, and includes where appropriate fractions
of a Share as well as a whole Share, unless the Trustees provide that
there shall be no fractions of any particular Shares;
(g) "Trustees" refers to the Trustee or Trustees of the Trust who
become such in accordance with Article IV and where appropriate means a
majority or other portion of them acting in accordance with this
Declaration of Trust or the By-laws of the Trust; and
(h) The "1940 Act" refers to the Investment Company Act of 1940 and
the Rules and Regulations thereunder, all as amended from time to time.
ARTICLE II
PURPOSE OF TRUST
The purpose of the Trust is to provide investors a continuous source of
managed investments.
ARTICLE III
BENEFICIAL INTEREST
Section 1. Shares of Beneficial Interest. The beneficial interest in the
Trust shall at all times be divided into transferable Shares, without par value,
each of which shall represent an equal proportionate interest in the Trust with
each other Share outstanding, none having priority or preference over another,
except to the extent modified by the Trustees under the provisions of this
Section. The number of Shares that 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 on 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 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, 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. Except as otherwise provided in Section 2
below, 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 and any other
trustees who shall be elected as initial trustees 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 the assets of the Trust shall be held uninvested and to take, on behalf of
the Trust, actions that 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 that 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. Automatic Redemption from Small Accounts. The Trustees shall
have the power to redeem shares at a redemption price determined in accordance
with Section 4 of this Article if at any time the total investment in an account
does not have a value of at least $1,000 or such other minimum amount as the
Trustees may from time to time determine. Before redeeming such Shares, the
Shareholder will be notified that the value of his account is less than the
required minimum amount and be allowed 60 days or such period as is permitted by
law to make an additional investment to bring the total value of such account to
such amount or more.
Section 6. Power to Modify Foregoing Procedures. Notwith- standing 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 willful misfeasance, bad faith, gross negligence or reckless disregard
of the duties involved in the conduct of his office.
Every note, bond, contract, instrument, certificate, share or
undertaking and every other act or thing whatsoever executed or done by or on
behalf of the Trust or the Trustees or any of them in connection with the Trust
shall be conclusively deemed to have been executed or done only in their or his
capacity as Trustees or Trustee, and such Trustees or Trustee shall not be
personally liable thereon.
The Trustees shall use their best efforts to ensure that every note,
bond, contract, instrument, certificate or undertaking made or issued by the
Trustees or by any officers shall give notice of the existence of this
Declaration of Trust and shall recite to the effect that the same was executed
or made by or on behalf of the Trust or by them as Trustees or officers, and not
individually, and is not binding upon any of them or the Shareholders
individually, but is binding only upon the Trust property, or the assets of the
particular Series or Class in question, as the case may be, but the omission
thereof shall not operate to bind any Trustee or officer or Shareholder
individually, or to subject the assets of any Series or Class to the obligations
of any other Series or Class.
ARTICLE VIII
INDEMNIFICATION
Section 1. Trustees, Officers, etc. The Trust shall indemnify each of
its present and former Trustees and officers and may indemnify any of its
present or former employees or agents, and shall indemnify any persons who serve
or have served at the Trust's request as Directors, officers or Trustees of
another organization, and may indemnify persons who serve or have served at the
Trust's request as employees or agents of another organization in which the
Trust has any interest as a shareholder, creditor or otherwise (hereinafter
referred to as a "Covered Person") against all liabilities and expenses,
including, but not limited to, amounts paid in satisfaction of judgments, in
compromise or as fines and penalties, and counsel fees reasonably incurred by
any such Covered Person in connection with the defense or disposition of any
action, suit or other proceeding, whether civil or criminal, before any court or
administrative or legislative body, in which such Covered Person may be or may
have been involved as a party or otherwise or with which such person may be or
may have been threatened, while in office, employed or acting as agent, or
thereafter, by reason of being or having been such a Trustee, officer, Director,
employee or agent, except with respect to any matter as to which such Covered
Person shall have been finally adjudicated in any such action, suit or other
proceeding not to have acted in good faith in the reasonable belief that such
Covered Person's action was in the best interest of the Trust and except that no
person shall be indemnified against any liability to the Trust or its
Shareholders to which such Covered Person shall otherwise be subject by reason
of willful 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 willful 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 willful 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 willful 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 cancelled 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 (and/or Classes thereof) may vote together
with Shares of other Series (and/or Classes thereof) and makes other provisions
with respect to such Series (and/or Class thereof) and its relation to existing
Series (and/or Classes thereof), shall not be deemed to adversely affect the
rights of any other Series of Shares or Class thereof. The Trustees may also
amend this Declaration of Trust without any Shareholder approval to change the
name of the Trust, to supply any omission, to cure, correct or supplement any
ambiguous, defective or inconsistent provision hereof, or, if they deem it
necessary, to conform this Declaration of Trust to the requirements of
applicable federal laws or regulations or the requirements of the Internal
Revenue Code, or to eliminate or reduce any federal, state or local taxes which
are or may be payable by the Trust or the Shareholders, but the Trustees shall
not be liable for failing to do so.
(b) Nothing contained in this Declaration of Trust shall permit the
amendment of this Declaration of Trust to impair the exemption from personal
liability of the Shareholders, Trustees, officers, employees and agents of the
Trust or to permit assessments upon Shareholders.
(c) A certificate signed by a majority of the Trustees or by the
Secretary or any Assistant Secretary of the Trust, setting forth an amendment by
reciting that it was duly adopted by the Shareholders or by the Trustees as
aforesaid, or a copy of the Declaration of Trust as amended, and executed by a
majority of the Trustees or certified by the Secretary or any Assistant
Secretary of the Trust, shall be conclusive evidence of such amendment when
lodged among the records of the Trust.
Section 8. Merger, Consolidation and Sale of Assets. The Trust may merge
into or consolidate with any other corporation, association, trust or other
organization or may sell, lease or exchange all or substantially all of the
Trust property, including its good will, upon such terms and conditions and for
such consideration when and as authorized by the Trustees.
Section 9. Incorporation. The Trustees may cause to be organized or
assist in organizing a corporation or corporations under the laws of any
jurisdiction or any other trust, partnership, association or other organization
to take over all the Trust property or to carry on any business in which the
Trust shall directly or indirectly have any interest, and to sell, convey and
transfer the Trust property to any such corporation, trust, partnership,
association or organization in exchange for the shares or securities thereof or
otherwise, and to lend money to, subscribe for the shares or securities of, and
enter into any contracts with any such corporation, trust, partnership,
association or organization in which the Trust holds or is about to acquire
shares or any other interest. The Trustees may also cause a merger or
consolidation between the Trust or any successor thereto and any corporation,
trust, partnership, association or other organization if and to the extent
permitted by law, as provided under the law then in effect. Nothing contained
herein shall be construed as requiring approval of Shareholders for the Trustees
to organize or assist in organizing one or more corporations, trusts,
partnerships, associations or other organizations and selling, conveying or
transferring the Trust property to such organizations or entities.
IN WITNESS WHEREOF, the undersigned have hereunto set their hands and
seals in the City of Boston, Massachusetts, for themselves and their assigns, as
of the day and year first above written.
/s/ Albert H. Elfner, III
--------------------------
Albert H. Elfner, III
/s/ Edward F. Godfrey
--------------------------
Edward F. Godfrey
/s/ Rosemary D. Van Antwerp
--------------------------
Rosemary D. Van Antwerp
<PAGE>
KEYSTONE DEVELOPING MARKETS GROWTH FUND (THE "TRUST")
FIRST SUPPLEMENTAL DECLARATION OF TRUST
FIRST SUPPLEMENTAL DECLARATION OF TRUST dated January 23, 1996, made by
Albert H. Elfner, III, Edward F. Godfrey and Rosemary D. Van Antwerp
(hereinafter with their successors referred to as the "Trustees"), to
DECLARATION OF TRUST dated January 12, 1996.
WHEREAS, the Trustees have determined to change the name of the Trust.
NOW, THEREFORE, the Trustees hereby declare that they will amend the
Declaration of Trust of this Trust as hereinafter set forth:
ARTICLE I. NAME AND DEFINITIONS.
Section 1. Name. is hereby amended to read as follows:
"This Trust shall be known as Keystone Emerging Markets Fund, and the
Trustees shall conduct the business of this Trust under that name or
any other name as they may from time to time determine."
All other provisions of the Declaration of Trust shall continue as
originally stated.
This First Supplemental Declaration of Trust may be executed
simultaneously in two or more counterparts, each of which shall be deemed an
original, but all of which together shall constitute one and the same First
Supplemental Declaration of Trust.
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 23rd day of January, 1996.
/s/ Albert H. Elfner, III
------------------------
Albert H. Elfner, III
/s/ Edward F. Godfrey
------------------------
Edward F. Godfrey
/s/ Rosemary D. Van Antwerp
------------------------
Rosemary D. Van Antwerp
Exhibit 99.24(B)(2)
BY-LAWS
KEYSTONE EMERGING MARKETS FUND
ARTICLE 1.
Trust Agreement and Principal Office
1.1 Trust Agreement. These By-laws are adopted pursuant to and are subject to
the terms of the Declaration of Trust (the "Declaration of Trust") of Keystone
Emerging Markets Fund (the "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. 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 or any Assistant Secretary of the Fund 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 Fund.
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, bankrupt, 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.
2.4 Voting. Shares may be voted in person by the shareholder or by proxy in form
reasonably acceptable to the Fund. 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.
2.5 Record Dates. For the purpose of determining the shareholders who are
entitled to vote or act at any meeting or any adjournment thereof, or who are
entitled to receive payment of any dividend or of any other distribution, the
Trustees may from time to time fix or authorize the fixing by others of a time
as the record date for determining the shareholders having the right to notice
of and to vote at such meeting and any adjournment thereof or the right to
receive such dividend or distribution, and, in such case, only shareholders of
record on such record date shall have such right, notwithstanding any transfer
of shares on the books of the Fund after the record date; or without fixing such
record date the Trustees may for any of such purposes close the register or
transfer books for all or any part of such period.
ARTICLE 3.
Meetings of Trustees
3.1 Regular Meetings. Regular meetings of the Trustees may be held without call
or notice at such places and at such times as the Trustees may from time to time
determine.
3.2 Special Meetings. Special meetings of the Trustees may be held at any time
and at any place designated in the call of the meeting when called by the
Chairman, the President or the Treasurer or by any other officer authorized by
the Trustees to do so or by two or more Trustees, sufficient notice thereof
being given to each Trustee by the Secretary or an Assistant Secretary or by the
officer or one of the Trustees calling the meeting.
3.3 Notice. It shall be sufficient notice to a Trustee of a special meeting to
send notice by mail at least forty-eight hours or by telegram at least
twenty-four hours before the meeting addressed to him at his usual or last known
business or residence address or to give notice to him in person or by telephone
at least twenty-four hours before the meeting. Notice of a meeting need not be
given to any Trustee if a written waiver of notice, executed by him before or
after the meeting, is filed with the records of the meeting, or to any Trustee
who attends the meeting without protesting prior thereto or at its commencement
the lack of notice to him. Neither notice of a meeting nor a waiver of a notice
need specify the purposes of the meeting.
3.4 Quorum. At any meeting of the Trustees a majority of the Trustees then in
office shall constitute a quorum. Any meeting may be adjourned from time to time
by a majority of the votes cast upon the question, whether or not a quorum is
present, and the meeting may be held as adjourned without further notice.
3.5 Action by Vote. When a quorum is present at any meeting, a majority of the
Trustees present may take any action, except when a larger vote is required by
the Declaration of Trust or any applicable law.
3.6 Participation by Conference Telephone. The Trustees may participate in a
meeting of the Trustees by means of conference telephone or similar
communications equipment. Participation by such means shall constitute presence
in person at a meeting.
3.7 Action by Writing. The Trustees may act without a meeting, and the action of
a majority of the Trustees then in office evidenced by a writing signed by such
a majority shall be valid and binding as the action of the Trustees.
ARTICLE 4.
Trustees
4.1 Term. A Trustee shall serve until his death, retirement, resignation or
removal from office or until his successor is elected and qualifies.
ARTICLE 5.
Officers
5.1 Election. The President, Treasurer and Secretary shall be elected annually
by the Trustees and shall serve until their successors are elected and qualified
or until their earlier deaths, resignations or removals. Other officers, if any,
including if desired, a Controller, may be elected or appointed by the Trustees
at any time. A Chairman of the Board may be elected or appointed by the Trustees
at any time. Vacancies in any office may be filled at any time by the Trustees.
5.2 Tenure. Each officer and each agent shall hold office at the pleasure of the
Trustees.
5.3 Powers. Subject to law and to the other provisions of these By-laws, each
officer shall have, in addition to any duties and powers set forth herein and in
the Declaration of Trust, such duties and powers as are commonly incident to the
office occupied by him as if the Fund were organized as a Massachusetts business
corporation and such other duties and powers as the Trustees may from time to
time designate.
5.4 President. Unless the Trustees otherwise provide, the President shall
preside at all meetings of shareholders and of the Trustees. The President shall
be the chief executive officer of the Fund.
5.5 Treasurer. The Treasurer shall be the chief financial officer of the Fund.
In the absence of the Treasurer, or if there is then no person serving in such
office, the Controller of the Fund shall be the chief financial officer of the
Fund. He shall, subject to the provisions of the Declaration of Trust and
subject to any arrangement made by the Trustees with a bank or other trust
company or organization as custodian, be in charge of valuable papers, books of
account and accounting records, and shall have such other duties and powers as
may be designated from time to time by the Trustees or by the President.
5.6 Secretary. The Secretary shall record all proceedings of the shareholders
and Trustees in books to be kept therefor. Such 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. Unless specified otherwise, such resignation shall be effective upon
receipt. 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; any action of such a
committee may be taken at a meeting by a vote of a majority of the members
present (a quorum being present) or evidenced by one or more writings signed by
such a majority. Members of a committee may participate in a meeting of such
committee by means of conference telephone or similar communications equipment.
Participation by such means shall constitute presence in person at a meeting.
ARTICLE 7.
Fiscal Year and Seal
7.1 Fiscal Year. The fiscal year of the Fund shall end on the last day of
October in each year.
7.2 Seal. The seal of the Fund shall consist of a flat-faced die with the name
of the Fund and 1996 cut or engraved thereon.
ARTICLE 8.
Amendments
8.1 Amendment by Trustees. These By-laws may be altered, amended or repealed by
the Trustees, except with respect to any provision which by law, the Declaration
of Trust or these By-laws requires action by the shareholders.
#10510271
<PAGE>
Exhibit 99.24(B)(5)
FORM OF
INVESTMENT ADVISORY AND MANAGEMENT AGREEMENT
Agreement made the ____ day of ____________, 1996 by and between
KEYSTONE EMERGING MARKETS FUND, a Massachusetts business trust (the "Fund"), and
KEYSTONE INVESTMENT MANAGEMENT COMPANY, 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.
NOW THEREFORE, in consideration of the promises and the mutual
agreements hereinafter contained, the Fund and the Adviser agree as follows:
1. The Fund hereby employs the Adviser to manage and administer the
operation of the Fund, to supervise the provision of services to the Fund by
others, and to manage the investment and reinvestment of the assets of the Fund
in conformity with its investment objectives and restrictions as may be set
forth from time to time in the Fund's then current prospectus and statement of
additional information, if any, and other governing documents, all subject to
the supervision of the Board of Trustees of the Fund, for the period and on the
terms set forth in this Agreement. The Adviser hereby accepts such employment
and agrees during such period, at its own expense, to render the services and to
assume the obligations set forth herein, for the compensation provided herein.
The Adviser shall for all purposes herein be deemed to be an independent
contractor and shall, unless otherwise expressly provided or authorized, have no
authority to act for or represent the Fund in any way or otherwise be deemed an
agent of the Fund.
2. The Adviser shall place all orders for the purchase and sale of
portfolio securities for the account of the Fund with broker-dealers selected by
the Adviser. In executing portfolio transactions and selecting broker-dealers,
the Adviser will use its best efforts to seek best execution on behalf of the
Fund. In assessing the best execution available for any transaction, the Adviser
shall consider all factors it deems relevant, including the breadth of the
market in the security, the price of the security, the financial condition and
execution capability of the broker-dealer, and the reasonableness of the
commission, if any (all for the specific transaction and on a continuing basis).
In evaluating the best execution available, and in selecting the
broker-dealer to execute a particular transaction, the Adviser may also consider
the brokerage and research services (as those terms are used in Section 28(e) of
the Securities Exchange Act of 1934 (the "1934 Act")) provided to the Fund
and/or other accounts over which the Adviser or an affiliate of the Adviser
exercises investment discretion. The Adviser is authorized to pay a
broker-dealer who provides such brokerage and research services a commission for
executing a portfolio transaction for the Fund that 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,
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 brokers' 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 or Plans of Distribution
adopted under Rule 12b-1 under the Investment Company Act of 1940, as amended,
("1940 Act"); (7) all taxes and business trust fees payable by the Fund to
federal, state or other governmental agencies; (8) all costs of certificates
representing shares of the Fund; (9) all fees and expenses involved in
registering and maintaining registrations of the Fund and of its shares with the
Securities and Exchange Commission (the "Commission") and registering or
qualifying its shares under state or other securities laws, including, without
limitation, the preparation and printing of registration statements,
prospectuses and statements of additional information for filing with the
Commission and other authorities; (10) expenses of preparing, printing and
mailing prospectuses and statements of additional information to shareholders of
the Fund; (11) all expenses of shareholders' and Trustees' meetings and of
preparing, printing and mailing notices, reports and proxy materials to
shareholders of the Fund; (12) all charges and expenses of legal counsel for the
Fund and for Trustees of the Fund in connection with legal matters relating to
the Fund, including, without limitation, legal services rendered in connection
with the Fund's existence, business trust and financial structure and relations
with its shareholders, registrations and qualifications of securities under
federal, state and other laws, issues of securities, expenses which the Fund has
herein assumed, whether customary or not, and extraordinary matters, including,
without limitation, any litigation involving the Fund, its Trustees, officers,
employees or agents; (13) all charges and expenses of filing annual and other
reports with the Commission and other authorities; and (14) all extraordinary
expenses and charges of the Fund. In the event that the Adviser provides any of
these services or pays any of these expenses, the Fund will promptly reimburse
the Adviser therefor.
The services of the Adviser to the Fund hereunder are not to be deemed
exclusive, and the Adviser shall be free to render similar services to others.
4. As compensation for the Adviser's services to the Fund during the
period of this Agreement, the Fund will pay to the Adviser a fee at the annual
rate of 1.25% of the first $250,000,000 of the aggregate net asset value of
shares of the Fund, plus 1.00% of the aggregate net asset value of shares of the
Fund in excess of $250,000,000. The Adviser's fee is computed as of the close of
business each business day and payable daily.
A pro rata portion of the fee shall be payable in arrears at the end of
each day or calendar month as the Adviser may from time to time specify to the
Fund. If and when this Agreement terminates, any compensation payable hereunder
for the period ending with the date of such termination shall be payable upon
such termination. Amounts payable hereunder shall be promptly paid when due.
5. The Adviser may enter into an agreement to retain, at its own
expense, any other firm or firms ("Sub-Adviser") to provide the Fund all of the
services to be provided by the Adviser hereunder, if such agreement is approved
as required by law. Such agreement may delegate to such Sub-Adviser all of the
Adviser's rights, obligations and duties hereunder.
6. The Adviser shall not be liable for any error of judgment or mistake
of law or for any loss suffered by the Fund in connection with the performance
of this Agreement, except a loss resulting from the Adviser's willful
misfeasance, bad faith, gross negligence or from reckless disregard by it of its
obligations and duties under this Agreement. Any person, even though also an
officer, Director, partner, employee or agent of the Adviser who may be or
become an officer, Trustee, employee or agent of the Fund, shall be deemed, when
rendering services to the Fund or acting on any business of the Fund (other than
services or business in connection with the Adviser's duties hereunder), to be
rendering such services to or acting solely for the Fund and not as an officer,
Director, partner, employee or agent or one under the control or direction of
the Adviser even though paid by it.
The Fund agrees to indemnify and hold the Adviser harmless from all
taxes, charges, expenses, assessments, claims and liabilities (including,
without limitation, liabilities arising under the Securities Act of 1933, the
1934 Act, the 1940 Act, and any state and foreign securities and blue sky laws,
as amended from time to time) and expenses, including (without limitation)
attorneys' fees and disbursements, arising directly or indirectly from any
action or thing that the Adviser takes or does or omits to take or do hereunder;
provided that the Adviser shall not be indemnified against any liability to the
Fund or to its shareholders (or any expenses incident to such liability) arising
out of a breach of fiduciary duty with respect to the receipt of compensation
for services, willful misfeasance, bad faith or gross negligence on the part of
the Adviser in the performance of its duties, or from reckless disregard by it
of its obligations and duties under this Agreement.
7. The Fund shall cause its books and accounts to be audited at least
once each year by a reputable independent public accountant or organization of
public accountants who shall render a report to the Fund.
8. Subject to and in accordance with the Declaration of Trust of the
Fund, the Certificate of Incorporation of the Adviser and the governing
documents of any Sub-Adviser, it is understood that Trustees, Directors,
officers, agents and shareholders of the Fund or any Sub-Adviser are or may be
interested in the Adviser (or any successor thereof) as Directors and officers
of the Adviser or its affiliates, that Directors, officers and agents of the
Adviser and its affiliates are or may be interested in the Fund or any
Sub-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 Sub-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,
Certificate of Incorporation of the Adviser and governing documents of any such
Sub-Adviser.
9. This Agreement shall continue in effect after ____________ __, 1998
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 (60) days' written notice to the Adviser, this Agreement
may be terminated at any time without the payment of any penalty by the Board of
Trustees of the Fund or by vote of the holders of a majority of the outstanding
voting securities of the Fund; and on sixty (60) days' written notice to Fund,
this Agreement may be terminated at any time without the payment of any penalty
by the Adviser. This Agreement shall automatically terminate upon its assignment
(as that term is defined in the 1940 Act). Any notice under this Agreement shall
be given in writing, addressed and delivered, or mailed postage prepaid, to the
other party at the main office of such party.
11. This Agreement may be amended at any time by an instrument in
writing executed by both parties hereto or their respective successors, provided
that with regard to amendments of substance such execution by the Fund shall
have been first approved by the vote of the holders of a majority of the
outstanding voting securities of the Fund and by the vote of a majority of
Trustees of the Fund who are not interested persons (as that term is defined in
the 1940 Act) of the Adviser, any predecessor of the Adviser, or of the Fund,
cast in person at a meeting called for the purpose of voting on such approval. A
"majority of the outstanding voting securities of the Fund" shall have, for all
purposes of this Agreement, the meaning provided therefor in the 1940 Act.
12. Any compensation payable to the Adviser hereunder for any period
other than a full year shall be proportionately adjusted.
13. The provisions of the Agreement shall be governed, construed and
enforced in accordance with the laws of The Commonwealth of Massachusetts.
14. A copy of the Declaration of Trust of the Fund is on file with the
Secretary of The Commonwealth of Massachusetts. This instrument is executed on
behalf of the Trustees of the Fund as trustees and not individually, and the
obligations of this instrument are not binding upon the Trustees or holders of
shares of the Fund individually but are binding only upon the assets and
property of the Fund.
<PAGE>
IN WITNESS WHEREOF, the parties hereto have duly executed this
Agreement on the day and year first above written.
KEYSTONE EMERGING MARKETS FUND
By:
-------------------------------
Albert H. Elfner, III
President
KEYSTONE INVESTMENT MANAGEMENT
COMPANY
By:
-------------------------------
James R. McCall
President
<PAGE>
Exhibit 99.24(b)(6)(A)
FORM OF
PRINCIPAL UNDERWRITING AGREEMENT
KEYSTONE EMERGING MARKETS FUND
AGREEMENT made this ____ day of ____________, 1996 by and between
Keystone Emerging Markets Fund, a Massachusetts business trust (the "Fund"), and
Keystone Investment Distributors Company, a Delaware corporation (the "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, the Principal Underwriter will
act as an agent for the Fund and not as a principal.
2. The Principal Underwriter will use its best efforts to find
purchasers for the Shares and to promote distribution of the Shares. The
Principal Underwriter also may obtain orders from brokers, dealers or other
persons for sales of Shares to them. No such brokers, dealers or other persons
shall have any authority to act as an agent for the Fund; such brokers, dealers
or other persons shall act only as a 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(s) 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. The Principal Underwriter may
reallow all or a part of the 12b-1 payments to such brokers, dealers or other
persons as the Principal Underwriter may determine.
5. Payment to the Fund for Shares shall be in New York or Boston
Clearing House funds. The Principal Underwriter must receive such payment 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 issuance of the Shares.
6. The 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 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.
8. The Fund appoints the 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)
that 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) that 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 that
(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"). The
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 issuance
of Shares.
12. To the extent required by any 12b-1 Plan of the Fund, Principal
Underwriter shall provide to the Board of Trustees of the Fund in connection
with the 12b-1 Plan, not less than quarterly, a written report of the amounts
expended pursuant to such 12b-1 Plan and the purposes for which such
expenditures were made.
13. The term of this Agreement shall begin on the date hereof and,
unless sooner terminated or continued as provided below, shall expire after two
years. This Agreement shall continue in effect after such term if its
continuance is specifically approved by a majority of the Trustees of the Fund
and a majority of the 12b-1 Trustees referred to in any 12b-1 Plan of the Fund
("Rule 12b-1 Trustees") at least annually in accordance with the 1940 Act and
the rules and regulations thereunder.
This Agreement may be terminated at any time, without payment of any
penalty, by vote of a majority of the Rule 12b-1 Trustees or by a vote of a
majority of the Fund's outstanding Shares on not more than sixty (60) 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.
<PAGE>
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 EMERGING MARKETS FUND
By:
------------------------------
Albert H. Elfner, III
Chief Executive Officer and
President
KEYSTONE INVESTMENT DISTRIBUTORS
COMPANY
By:
------------------------------
Ralph J. Spuehler, Jr.
President
102700B2
<PAGE>
Exhibit 24(b)(6)(B)
[Logo]
KEYSTONE Dealer No. _____________________________
I N V E S T M E N T S (Please indicate Exchange Membership(s),
if any.) _______________________________
200 Berkeley Street ________________________________________
Boston, Massachusetts 02116-5034
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 Dealer No. _____________________________
I N V E S T M E N T S (Please indicate Exchange Membership(s),
if any.) _______________________________
200 Berkeley Street
Boston, Massachusetts 02116-5034 ________________________________________
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, 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>
Exhibit 99.24(B)(8)
FORM OF
CUSTODIAN, FUND ACCOUNTING AND RECORDKEEPING AGREEMENT
BY AND BETWEEN
KEYSTONE EMERGING MARKETS FUND
AND
STATE STREET BANK AND TRUST COMPANY
Agreement made as of this ____ day of ____________, 1996 by and between
KEYSTONE EMERGING MARKETS FUND, a Massachusetts business trust, (the "Fund")
having its principal place of business at 200 Berkeley Street, Boston,
Massachusetts, 02116, 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 ("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 the name of the
Fund or a nominee of State Street for the exclusive use of the Fund or of such
other nominee as may be mutually agreed upon by State Street and the Fund.
3. 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.
4. As Custodian, State Street shall promptly do the following:
A. Safekeeping. State Street shall 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 4B in a Securities System (as defined in Paragraph 4B) and
(b) commercial paper of an issuer for which State Street Bank acts as issuing
and paying agent ("Direct Paper") that is deposited and/or maintained in the
Direct Paper System of State Street pursuant to Paragraph 4C, State Street, on
behalf of the Fund, shall 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 ("Subcustodian") appointed pursuant
to Paragraph 7C 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 (i) 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; (ii) any other clearing agency registered under
Section 17A of the Exchange Act that has been authorized by the Fund's Board of
Trustees; (iii) the book-entry system authorized by the U.S. Department of the
Treasury and certain federal agencies; or (iv) 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 that has been authorized
by the Fund's Board of Trustees (all such agencies and systems, 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 of State Street
in the Securities System that 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 that 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 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 with any report
on State Street's accounting system, internal accounting control and procedures
for safeguarding securities deposited with State Street that is reasonably
requested by the Fund; and
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 that 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.
C. 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 of State Street in
the Direct Paper System that 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 that 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; and
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.
D. 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.
E. 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 4F, 4G, 4H, 4I, 4J,
4K, 4L, 4M, 4N and 4O hereof.
F. Registered Name, Nominee. State Street shall register securities
of the Fund held by State Street in the name of the Fund or in the name 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 7C hereof.
G. Purchases. Upon receipt of proper instructions (as defined in
Paragraph 6A hereof; hereafter "Proper Instructions") and insofar as cash is
available for the purpose, State Street shall 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 7C hereof as State Street's agent or
Subcustodian for this purpose) registered as provided in Paragraph 4F 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 4C. 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 that 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.
H. Exchanges. Upon receipt of Proper Instructions, State Street
shall exchange securities, interim receipts or temporary securities held by it
or by any agent or Subcustodian appointed by it pursuant to Paragraph 7C 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 7C 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 7C 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.
I. Sales. Upon receipt of Proper Instructions and upon receipt of
full payment therefor, State Street shall 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.
J. Purchases by Issuer. Upon receipt of Proper Instructions, State
Street shall 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.
K. Changes of Name and Denomination. Upon receipt of Proper
Instructions, State Street shall release and deliver securities owned by the
Fund to the issuer thereof or its agent for transfer into the name of the Fund
or 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.
L. 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, State Street shall 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.
M. Release of Securities for Use as Collateral. Upon receipt of
Proper Instructions and subject to the Declaration of Trust, State Street shall
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, State Street shall 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.
N. Compliance with Applicable Rules and Regulations of The Options
Clearing Corporation and National Securities or Commodities Exchanges or
Commissions. Upon receipt of Proper Instructions, State Street shall deliver
securities of the Fund in accordance with the provisions of any agreement among
the Fund, State Street and a broker- dealer registered under the Exchange Act
and a member of the National Association of Securities Dealers, Inc. ("NASD")
relating to compliance with the rules of The Options Clearing Corporation and of
any registered national securities exchange, or of any similar organization or
organizations, regarding escrow or other arrangements in connection with
transactions by the Fund; or, upon receipt of Proper Instructions, State Street
shall 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.
O. Release or Delivery of Securities for Other Purposes. Upon
receipt of Proper Instructions, State Street shall 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 4E, 4F, 4G, 4H, 4I, 4J, 4K, 4L, 4M and
4N hereof) that the Fund declares is a proper corporate purpose pursuant to
Proper Instructions.
P. Proxies, Notices, Etc. State Street shall, upon receipt, promptly
forward 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 7C hereof to forward any such announcements and notices to State
Street upon receipt.
Q. 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 4B hereof, (i) in accordance with the provisions of any
agreement among the Fund, State Street and a broker-dealer registered under the
Exchange Act and a member of the NASD (or any futures commission merchant
registered under the Commodity Exchange Act), relating to compliance with the
rules of The Options Clearing Corporation and of any registered national
securities exchange (or the Commodity Futures Trading Commission or any
registered contract market), or of any similar organization or organizations,
regarding escrow or other arrangements in connection with transactions by the
Fund, (ii) for purposes of segregating cash or government securities in
connection with options purchased, sold or written by the Fund or commodity
futures contracts or options thereon purchased or sold by the Fund, (iii) for
the purposes of compliance by the Fund with the procedures required by
Investment Company Act Release No. 10666, or any subsequent release or releases
of the Commission relating to the maintenance of segregated accounts by
registered investment companies and (iv) for other proper corporate purposes,
but only, in the case of clause (iv), upon receipt of, in addition to Proper
Instructions, a certified copy of a resolution of the Board of Trustees signed
by an officer of the Fund and certified by the Secretary or an Assistant
Secretary, setting forth the purpose or purposes of such segregated account and
declaring such purposes to be proper corporate purposes.
R. Property of the Fund Held Outside of the United States.
(1) Appointment of Foreign Subcustodians. State Street is authorized
and instructed to employ as Subcustodians for the Fund's securities and other
assets maintained outside of the United States, the foreign banking institutions
and foreign securities depositories designated on Schedule B hereto as revised
from time to time ("Foreign Subcustodians"). Upon receipt of Proper
Instructions, together with a certified resolution of the Fund's Board of
Trustees, State Street and the Fund may agree to amend Schedule B hereto from
time to time to designate additional foreign banking institutions and foreign
securities depositories to act as Foreign Subcustodians. Upon receipt of Proper
Instructions, the Fund may instruct State Street to cease the employment of any
one or more of such Subcustodians for maintaining custody of the Fund's assets.
(2) Assets to be Held. State Street shall limit the securities and
other assets maintained in the custody of the Foreign Subcustodians to: (a)
"foreign securities," as defined in paragraph (c)(1) of Rule 17f-5 under the
Investment Company Act of 1940 ("1940 Act"), and (b) cash and cash equivalents
in such amounts as State Street or the Fund may determine to be reasonably
necessary to effect the Fund's foreign securities transactions.
(3) Foreign Securities Depositories. Except as may otherwise be
agreed upon in writing by State Street and the Fund, assets of the Fund shall be
maintained in foreign securities depositories only through arrangements
implemented by the foreign banking institutions serving as Foreign Subcustodians
pursuant to the terms hereof.
(4) Segregation of Securities. State Street shall identify on its
books as belonging to the Fund the foreign securities of the Fund held by each
Foreign Subcustodian. Each agreement pursuant to which State Street employs a
foreign banking institution shall require that such institution establish a
custody account for State Street on behalf of the Fund and physically segregate
in that account securities and other assets of the Fund, and, in the event that
such institution deposits the Fund's securities in a foreign securities
depository, that it shall identify on its books as belonging to State Street, as
agent for the Fund, the securities so deposited (all collectively referred to as
the "account").
(5) Agreements with Foreign Banking Institutions. Each agreement with
a foreign banking institution shall be substantially in the form set forth in
Schedule C hereto and shall provide that: (a) the Fund's assets will not be
subject to any right, charge, security interest, lien or claim of any kind in
favor of the foreign banking institution or its creditors or agent, except a
claim of payment for their safe custody or administration; (b) the Foreign
Subcustodian shall maintain insurance covering the Fund's assets; (c) beneficial
ownership of the Fund's assets will be freely transferable without the payment
of money or value other than for custody or administration; (d) adequate records
will be maintained identifying the assets as belonging to the Fund; (e) officers
or auditors employed by, or other representatives of State Street, including, to
the extent permitted under applicable law, the independent public accountants
for the Fund, will be given access to the books and records of the foreign
banking institution relating to its actions under its agreement with State
Street; (f) assets of the Fund held by the Foreign Subcustodian will be subject
only to the instructions of State Street or its agents; and (g) the Foreign
Subcustodian will provide periodic reports with respect to the safekeeping of
the Fund's assets, including notification of any transfer to or from the Fund's
account.
(6) Access of Independent Accountants of the Fund. Upon request of
the Fund, State Street will use its best efforts to arrange for the independent
accountants of the Fund to be afforded access to the books and records of any
foreign banking institution employed as a Foreign Subcustodian insofar as such
books and records relate to the performance of such foreign banking institution
under its agreement with State Street.
(7) Reports by State Street. State Street will supply to the Fund
from time to time, as mutually agreed upon, statements in respect of the
securities and other assets of the Fund held by Foreign Subcustodians,
including, but not limited to, an identification of entities having possession
of the Fund's securities and other assets and advices or notifications of any
transfers of securities to or from each custodial account maintained by a
foreign banking institution for State Street on behalf of the Fund indicating,
as to securities acquired for the Fund, the identity of the entity having
physical possession of such securities.
(8) Transactions in Foreign Custody Account. (a) Upon receipt of
Proper Instructions, which may be continuing instructions when deemed
appropriate by the parties, State Street shall make or cause its Foreign
Subcustodians to transfer, exchange or deliver foreign securities owned by the
Fund, but, except to the extent explicitly provided in Paragraph 4R(8)(b), only
in any of the cases specified in this Agreement. Upon receipt of Proper
Instructions, which may be continuing instructions when deemed appropriate by
the parties, State Street shall pay out or cause its Foreign Subcustodians to
pay out monies of the Fund, but, except to the extent explicitly provided in
Paragraph 4R(8)(b), only in any of the cases specified in this Agreement.
(b) Notwithstanding any provision of this Agreement to the contrary,
settlement and payment for securities received for the account of the Fund and
delivery of securities maintained for the account of the Fund may be effected in
accordance with the customary or established securities trading or securities
processing practices and procedures in the jurisdiction or market in which the
transaction occurs, including, without limitation, delivering securities to the
purchaser thereof or to a dealer therefor (or an agent for such purchaser or
dealer) against a receipt with the expectation of receiving later payment for
such securities from such purchaser or dealer. Securities maintained in the
custody of a Foreign Subcustodian may be maintained in the name of such entity's
nominee to the same extent as set forth in Paragraphs 2 and 4F of this
Agreement, and the Fund agrees to hold any such nominee harmless from any
liability as a holder of record of such securities.
(9) Liability of Foreign Subcustodians. Each agreement pursuant to
which State Street employs a foreign banking institution as a Foreign
Subcustodian shall require the institution to exercise reasonable care in the
performance of its duties and to indemnify, and hold harmless, State Street and
the Fund from and against any loss, damage, cost, expense, liability or claim
arising out of, or in connection with, the institution's performance of such
obligations. At the election of the Fund, it shall be entitled to be subrogated
to the rights of State Street with respect to any claims against a foreign
banking institution as a consequence of any such loss, damage, cost, expense,
liability or claim if, and to the extent that, the Fund has not been made whole
for any such loss, damage, cost, expense, liability or claim.
(10) Liability of State Street. State Street shall be liable to the
Fund for the acts or omissions of a foreign banking institution appointed
pursuant to these provisions to the same extent that such foreign banking
institution is liable to State Street as provided under Paragraph 4R(9);
provided, however, that State Street shall not be liable to the Fund for any
loss resulting from, or caused by, nationalization, expropriation, currency
restrictions, acts of war or terrorism or other similar events or acts.
(11) Monitoring Responsibilities. State Street shall furnish annually
to the Fund, during the month of June, information concerning the Foreign
Subcustodians employed by State Street. Such information shall be similar in
kind and scope to that furnished to the Fund in connection with the initial
approval of this Agreement. In addition, State Street will promptly inform the
Fund in the event that State Street learns of a material adverse change in the
financial condition of a Foreign Subcustodian or any material loss in the assets
of the Fund, or is notified by a foreign banking institution employed as a
Foreign Subcustodian that there appears to be a substantial likelihood that its
shareholders' equity will decline below $200 million (U.S. dollars or the
equivalent thereof) or that its shareholders equity has declined below $200
million (in each case computed in accordance with generally accepted U.S.
accounting principles).
(12) Branches of U.S. Banks. Except as otherwise set forth in this
Agreement, the provisions hereof shall not apply where the custody of the Fund's
assets are maintained in a foreign branch of a banking institution that is a
"bank" as defined by Section 2(a)(5) of the 1940 Act and which meets the
qualifications set forth in Section 26(a) of the 1940 Act. The appointment of
any such branch as a subcustodian shall be governed by Paragraph 7C of this
Agreement.
S. 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 an itemized statement of security
transactions that settled the day before. State Street shall render to the Fund
weekly an itemized statement of security transactions that failed to settle as
scheduled. At the end of each week, State Street shall provide to the Fund a
list of all security transactions that remain unsettled at such time.
5. Additionally, as Custodian, State Street shall promptly do the
following:
A. Bank Account. State Street shall 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 and 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 to 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, State Street shall collect, receive and deposit in the bank
account or accounts maintained pursuant to Paragraph 5A 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 that 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. State Street shall 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
beneficial interest ("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,
State Street shall 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, State Street shall 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 of the
Fund to make funds available for transfer through the Federal Reserve Wire
System or by other bank wire to a commercial bank account designated by the
redeeming stockholder.
F. Stock Dividends, Rights, Etc. State Street shall 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, State Street
shall 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, State Street shall 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 4G, 4H, 5D, 5E, and 5G of this Agreement)
which the Fund declares is a proper corporate purpose.
I. Records. State Street shall create, maintain and retain all
records 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 or 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 10 below.
J. Miscellaneous. State Street shall 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 and as otherwise
reasonably requested by the Fund.
K. Fund Accounting and Net Asset Value Computation. State Street
shall maintain the general ledger and all other books of account of the Fund,
including the accounting of the Fund. In addition, upon receipt of Proper
Instructions, which may be deemed to be continuing instructions, State Street
shall compute daily, 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.
6. 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 electromechanical or electronic devices; provided that
the Fund and State Street are satisfied that such communications afford adequate
safeguards for the assets of the Fund. 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.
7. State Street and the Fund further agree as follows:
A. Indemnification. State Street, as 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. State Street 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. However, in order for the indemnification
provision contained in this paragraph to apply, 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 that 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 that may be the subject
of this indemnification. In the event that the Fund elects to defend State
Street, 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 with
respect to the Fund, 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
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 or 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.
8. 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. Should the Fund fail to repay State Street promptly, State
Street shall be entitled to utilize available cash and to dispose of the Fund's
assets to the extent necessary to obtain reimbursement. However, 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.
9. The Fund shall pay State Street for its services as Custodian
such compensation as shall be specified on the attached Schedule A. Such
compensation shall remain fixed until [December 31, 1996], unless this Agreement
is terminated as provided in paragraph 10.
10. 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. This Agreement 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 shall take effect sixty (60) days after the date of such
delivery or mailing. 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 4B or 4C hereof in the absence of receipt of an initial
certificate of the Secretary or an Assistant Secretary, certifying 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, certifying 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 4C
hereof in the absence of receipt of an initial certificate of the Secretary or
an Assistant Secretary, certifying 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, certifying that the Board of
Trustees has reviewed the use by the Fund of the Direct Paper System. Neither
the Fund nor State Street shall 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 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. The Fund shall likewise reimburse State Street for its costs,
expenses and disbursements incurred prior to such termination in accordance with
paragraph 7B 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, 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 and upon reasonable notice to State Street. Upon request of the
Fund's 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, (ii) is demonstrably known
previously to the party to whom it is disclosed, (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.
11. The Fund shall not circulate any printed matter that 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
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.
12. 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.
13. 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 the Commonwealth.
14. Notices and other writings delivered or mailed postage prepaid to
Keystone Emerging Markets Fund, c/o Keystone Investment Management Company, 200
Berkeley Street, Boston, Massachusetts 02116, 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.
15. This Agreement shall be binding upon and shall inure to the benefit
of the Fund and State Street and their respective successors or assigns.
16. This Agreement may be executed simultaneously in two or more
counterparts, each of which shall be deemed an original.
17. 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.
<PAGE>
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 EMERGING MARKETS FUND
By:
- --------------------------- -------------------------------
Name: J. Kevin Kenely
Title: Treasurer
ATTEST: STATE STREET BANK AND TRUST COMPANY
By:
- --------------------------- -------------------------------
Name:
Title:
<PAGE>
Schedule A
FEE SCHEDULE
<PAGE>
SCHEDULE B
Approved Foreign Subcustodians
The Board of Directors/Trustees of KEYSTONE EMERGING MARKETS FUND has
approved certain foreign banking institutions and foreign securities
depositories within State Street's Global Custody Network for use as
subcustodians for the Fund's securities, cash and cash equivalents held outside
of the United States. Board approval is as indicated by the initials of the
Fund's Authorized Officer
<TABLE>
<CAPTION>
FUND
OFFICER
INITIALS COUNTRY SUBCUSTODIAN CENTRAL DEPOSITORY
- -------- ------- ------------ ------------------
<S> <C> <C> <C>
RVA Argentina Citibank, N.A. Caja de Valores S.A.
Australia Westpac Banking Austraclear Limited;
Corporation
Reserve Bank Information and
Transfer System (RITS)
Austria GiroCredit Bank Oesterreichische
Aktiengesellschaft Kontrollbank AG
der Sparkassen (Wertpapiersammelbank Division)
Bangladesh Standard Chartered Bank None
Belgium Generale Bank Caisse Interprofessionnelle
de Depots et de
Virements de Titres S.A. (CIK);
Banque Nationale de Belgique
Botswana Barclays Bank of Botswana None
Limited
RVA Brazil Citibank, N.A. Bolsa de Valores de Sao Paulo
(Bovespa);
Banco Central do Brasil,
Systema Especial de Liquidacao
e Custodia (SELIC)
Canada Canada Trustco The Canadian Depository
Mortgage Company for Securities Limited
(CDS)
<PAGE>
SCHEDULE B
PAGE 2
<CAPTION>
FUND
OFFICER
INITIALS COUNTRY SUBCUSTODIAN CENTRAL DEPOSITORY
- -------- ------- ------------ ------------------
Chile Citibank, N.A. None
RVA People's Republic The Hongkong and Shanghai Shanghai Securities Central
of China Banking Corporation Limited, Clearing and Registration
Shanghai and Shenzhen branches Corporation (SSCCRC);
Shenzhen Securities Registrars
Co., Ltd. and its designated
agent banks
Colombia Cititrust Colombia S.A. None
Sociedad Fiduciaria
Cyprus Barclays Bank PLC None
RVA Czech Republic Ceskoslovenska Obchodni Stredisko cennych papiru~(SCP);
Banka A.S.
Czech National Bank (CNB)
Denmark Den Danske Bank Vaerdipapircentralen -
The Danish Securities
Center (VP)
Ecuador Citibank, N.A. None
Egypt National Bank of Egypt None
Finland Merita Bank Limited The Central Share Register of
Finland
France Banque Paribas Societe Interprofessionnelle
pour la Compensation des
Valeurs Mobilieres (SICOVAM);
Banque de France,
Saturne System
Germany BHF-Bank Aktiengesellschat The Deutscher Kassenverein AG
<PAGE>
SCHEDULE B
PAGE 3
<CAPTION>
FUND
OFFICER
INITIALS COUNTRY SUBCUSTODIAN CENTRAL DEPOSITORY
- -------- ------- ------------ ------------------
Ghana Barclays Bank of Ghana Limited None
RVA Greece National Bank of Greece S.A. The Central Securities Depository
(Apothetirion Titlon A.E.)
RVA Hong Kong Standard Chartered Bank The Central Clearing and
Settlement System (CCASS)
RVA Hungary Citibank Budapest Rt. The Central Depository and
Clearing House (Budapest) Ltd.
(KELER Ltd.)
RVA India Deutsche Bank AG None
RVA Indonesia Standard Chartered Bank None
Ireland Bank of Ireland None;
The Central Bank of Ireland,
The Gilt Settlement Office (GSO)
Israel Bank Hapoalim B.M. The Clearing House of the
Tel Aviv Stock Exchange
Italy Morgan Guaranty Trust Monte Titoli S.p.A.;
Company
Banca d'Italia
Japan The Sumitomo Trust Japan Securities Depository
& Banking Co., Ltd. Center (JASDEC);
Bank of Japan Net System
Jordan The British Bank of the None
Middle East
<PAGE>
SCHEDULE B
PAGE 4
<CAPTION>
FUND
OFFICER
INITIALS COUNTRY SUBCUSTODIAN CENTRAL DEPOSITORY
- -------- ------- ------------ ------------------
Kenya Barclays Bank of Kenya Limited None
RVA Republic of Korea SEOULBANK Korea Securities Depository (KSD)
RVA Malaysia Standard Chartered Bank Malaysian Central Depository Sdn.
Malaysia Berhad Bhd. (MCD)
Mauritius The Hongkong and Shanghai None
Banking Corporation Limited
RVA Mexico Citibank Mexico, S.A. S.D. INDEVAL, S.A. de C.V.
(Instituto pare el Deposito de
Valores);
Banco de Mexico
Morocco Banque Commerciale du Maroc None
Netherlands MeesPierson N.V. Nederlands Centraal
Instituut voor Giraal
Effectenverkeer B.V.
(NECIGEF)
New Zealand ANZ Banking Group None;
(New Zealand) Limited
Reserve Bank of New Zealand,
Austraclear NZ
Norway Christiania Bank og Verdipapirsentralen -
Kreditkasse The Norwegian Registry
of Securities (VPS)
Pakistan Deutsche Bank AG None
RVA Peru Citibank, N.A. Caja de Valores (CAVAL)
RVA Philippines Standard Chartered Bank None
<PAGE>
SCHEDULE B
PAGE 5
<CAPTION>
FUND
OFFICER
INITIALS COUNTRY SUBCUSTODIAN CENTRAL DEPOSITORY
- -------- ------- ------------ ------------------
RVA Poland Citibank Poland S.A. The National Depository
of Securities (Centrum
Krajowego Depozytu
Papierow Wartosciowych)
RVA Portugal Banco Comercial Portugues Central de Valores
Mobiliarios (Central)
RVA Singapore The Development Bank The Central Depository
of Singapore Ltd. (Pte) Limited (CDP)
Slovak Republic Ceskoslovenska Obchodna Stredisko cennych papierov (SCP);
Banka A.S.
National Bank of Slovakia
RVA South Africa Standard Bank of None
South Africa Limited
Spain Banco Santander, S.A. Servicio de Compensacion y
Liquidacion de Valores (SCLV);
Banco de Espana,
Anotaciones en Cuenta
Sri Lanka The Hongkong and Shanghai The Central Depository
Banking Corporation Limited System (Pvt) Limited
Swaziland Barclays Bank of Swaziland None
Limited
Sweden Skandinaviska Enskilda Vardepapperscentralen VPC AB,
Banken The Swedish Central Securities
Depository
Switzerland Union Bank of Switzerland Schweizerische Effekten -
Giro AG (SEGA)
RVA Taiwan - R.O.C. Central Trust of China The Taiwan Securities
Central Depository
Company, Ltd. (TSCD)
<PAGE>
SCHEDULE B
PAGE 6
<CAPTION>
FUND
OFFICER
INITIALS COUNTRY SUBCUSTODIAN CENTRAL DEPOSITORY
- -------- ------- ------------ ------------------
RVA Thailand Standard Chartered Bank Thailand Securities Depository
Company Limited (TSD)
RVA Turkey Citibank, N.A. Istanbul Stock Exchange
Settlement and Custody Co. Inc.
(I.M.K.B. Takas ve Saklama A.S.)
United Kingdom State Street Bank and None;
Trust Company
The Bank of England,
The Central Gilts Office (CGO);
The Central Moneymarkets Office
(CMO)
Uruguay Citibank, N.A. None
Venezuela Citibank, N.A. None
Zambia Barclays Bank of Zambia Limited None
Zimbabwe Barclays Bank of Zimbabwe None
Limited
Euroclear (The Euroclear System)/State Street London Limited
Cedel (Cedel Bank societe anonyme)/State Street London Limited
CERTIFIED BY:
- ---------------------------------------- ----------------------------
FUND'S AUTHORIZED OFFICER DATE
</TABLE>
<PAGE>
SCHEDULE C
FORM OF
SUBCUSTODIAN AGREEMENT
AGREEMENT made this day of , 19 , between State Street Bank
and Trust Company, a Massachusetts Trust Company (hereinafter referred to as the
"Custodian"), having its principal place of business at 225 Franklin Street,
Boston, MA, and
(hereinafter referred to as the "Subcustodian"), a
organized under the laws of and having an office
at .
WHEREAS, Custodian has been appointed to act as Trustee, Custodian or
Subcustodian of securities and monies on behalf of certain of its customers
including, without limitation, collective investment undertakings, investment
companies subject to the U.S. Investment Company Act of 1940, as amended, and
employee benefit plans subject to the U.S. Employee Retirement Income Security
Act of 1974, as amended;
WHEREAS, Custodian wishes to establish Account (the "Account") with the
Subcustodian to hold and maintain certain property for which Custodian is
responsible as custodian; and
WHEREAS, Subcustodian agrees to establish the Account and to hold and
maintain all Property in the Account in accordance with the terms and conditions
herein set forth.
NOW THEREFORE, in consideration of the mutual covenants and agreements
hereinafter contained, the Custodian and the Subcustodian agree as follows:
I. The Account
A. Establishment of the Account. Custodian hereby requests that
Subcustodian establish for each client of the Custodian an Account which shall
be composed of:
1. A Custody Account for any and all Securities (as hereinafter defined)
from time to time received by Subcustodian therefor, and
2. A Deposit Account for any and all Cash (as hereinafter defined) from
time to time received by Subcustodian therefor.
B. Use of the Account. The Account shall be used exclusively to hold,
acquire, transfer or otherwise care for, on behalf of Custodian as custodian and
the customers of Custodian and not for Custodian's own interest, Securities and
such Cash or cash equivalents as are transferred to Subcustodian or as are
received in payment of any transfer of, or as payment on, or interest on, or
dividend from, any such Securities (herein collectively called "Cash").
C. Transfer of Property in the Account. Beneficial ownership of the
Securities and Cash in the Account shall be freely transferable without payment
of money or value other than for safe custody and administration.
D. Ownership and Segregation of Property in the Account. The ownership of
the property in the Account, whether Securities, Cash or both, and whether any
such property is held by Subcustodian in an Eligible Depository, shall be
clearly recorded on Subcustodian's books as belonging to Custodian on behalf of
Custodian's customers, and not for Custodian's own interest and, to the extent
that Securities are physically held in the Account, such Securities shall also
be physically segregated from the general assets of Subcustodian, the assets of
Custodian in its individual capacity and the assets of Subcustodian's other
customers. In addition, Subcustodian shall maintain such other records as may be
necessary to identify the property hereunder as belonging to each Account.
E. Registration of Securities in the Account. Securities which are eligible
for deposit in a depository as provided for in Paragraph III may be maintained
with the depository in an account for Subcustodian's customers. Securities which
are not held in a depository and that are ordinarily held in registered form
will be registered in the name of Subcustodian or in the name of Subcustodian's
nominee, unless alternate Instructions are furnished by Custodian.
II. Services to Be Provided By the Subcustodian
The services Subcustodian will provide to Custodian and the manner in which
such services will be performed will be as set forth below in this Agreement.
A. Services Performed Pursuant to Instructions. All transactions involving
the Securities and Cash in the Account shall be executed solely in accordance
with Custodian's Instructions as that term is defined in Paragraph IV hereof,
except those described in paragraph B below.
B. Services to Be Performed Without Instructions. Subcustodian will, unless
it receives Instructions from Custodian to the contrary:
1. Collect Cash. Promptly collect and receive all dividends, income,
principal, proceeds from transfer and other payments with respect to property
held in the Account, and present for payment all Securities held in the Account
which are called, redeemed or retired or otherwise become payable and all
coupons and other income items which call for payment upon presentation, and
credit Cash receipts therefrom to the Deposit Account.
2. Exchange Securities. Promptly exchange Securities where the exchange
is purely ministerial including, without limitation, the exchange of temporary
Securities for those in definitive form and the exchange of warrants, or other
documents of entitlement to Securities, for the Securities themselves.
3. Sale of Rights and Fractional Interests. Whenever notification of a
rights entitlement or a fractional interest resulting from a rights issue, stock
dividend or stock split is received for the Account and such rights entitlement
or fractional interest bears an expiration date, Subcustodian will promptly
endeavor to obtain Custodian's Instructions, but should these not be received in
time for Subcustodian to take timely action, Subcustodian is authorized to sell
such rights entitlement or fractional interest and to credit the Account.
4. Execute Certificates. Execute in Custodian's name for the Account,
whenever Subcustodian deems it appropriate, such ownership and other
certificates as may be required to obtain the payment of income from the
Securities held in the account.
5. Pay Taxes and Receive Refunds. To pay or cause to be paid from the
Account any and all taxes and levies in the nature of taxes imposed on the
property in the Account by any governmental authority, and to take all steps
necessary to obtain all tax exemptions, privileges or other benefits, including
reclaiming and recovering any foreign withholding tax, relating to the Account
and to execute any declaration, affidavits, or certificates of ownership which
may be necessary in connection therewith.
6. Prevent Losses. Take such steps as may be reasonably necessary to
secure or otherwise prevent the loss of, entitlements attached to or otherwise
relating to property held in the Account.
C. Additional Services.
1. Transmission of Notices of Corporate Action. By such means as will
permit Custodian to take timely action with respect thereto, Subcustodian will
promptly notify Custodian upon receiving notices or reports, or otherwise
becoming aware, of corporate action affecting Securities held in the Account
(including, but not limited to, calls for redemption, mergers, consolidations,
reorganizations, recapitalizations, tender offers, rights offerings, exchanges,
subscriptions and other offerings) and dividend, interest and other income
payments relating to such Securities.
2. Communications Regarding the Exercise of Entitlements. Upon request
by Custodian, Subcustodian will promptly deliver, or cause any Eligible
Depository authorized and acting hereunder to deliver, to Custodian all notices,
proxies, proxy soliciting materials and other communications that call for
voting or the exercise of rights or other specific action (including material
relative to legal proceedings intended to be transmitted to security holders)
relating to Securities held in the Account to the extent received by
Subcustodian or said Eligible Depository, such proxies or any voting instruments
to be executed by the registered holder of the Securities, but without
indicating the manner in which such Securities are to be voted.
3. Monitor Financial Service. In furtherance of its obligations under
this Agreement, Subcustodian will monitor a leading financial service with
respect to announcements and other information respecting property held in the
Account, including announcements and other information with respect to corporate
actions and dividend, interest and other income payments.
III. Use of Securities Depository
Subcustodian may, with the prior written approval of Custodian, maintain all or
any part of the Securities in the Account with a securities depository or
clearing agency which is incorporated or organized under the laws of a country
other than the United States of America and is supervised or regulated by a
government agency or regulatory authority in the foreign jurisdiction having
authority over such depositories or agencies, and which operates (a) the central
system for handling of designated securities or equivalent book entries in , or
(b) a transnational system for the central handling of securities or equivalent
book entries (herein called "Eligible Depository"), provided however, that,
while so maintained, such Securities shall be subject only to the directions of
Subcustodian, and that Subcustodian duties, obligations and responsibilities
with regard to such Securities shall be the same as if such Securities were held
by Subcustodian on its premises.
IV. Claims Against Property in the Account
The property in the account shall not be subject to any right, charge, security
interest, lien or claim of any kind (collectively "Charges") in favor of
Subcustodian or any Eligible Depository or any creditor of Subcustodian or of
any Eligible Depository except a claim for payment for such property's safe
custody or administration in accordance with the terms of this Agreement.
Subcustodian will immediately notify Custodian of any attempt by any party to
assert any Charge against the property held in the Account and shall take all
lawful actions to protect such property from such Charges until Custodian has
had a reasonable time to respond to such notice.
V. Subcustodian's Warranty
Subcustodian represents and warrants that:
(A) It is a branch of a "qualified U.S. bank" or an "eligible foreign
custodian" as those terms are defined in Rule 17f-5 of the Investment Company
Act of 1940, a copy of which is attached hereto as Attachment A (the "Rule"),
and Subcustodian shall immediately notify Custodian, in writing or by other
authorized means, in the event that there appears to be a substantial likelihood
that Subcustodian will cease to qualify under the Rule as currently in effect or
as hereafter amended, or
(B) It is the subject of an exemptive order issued by the United States
Securities and Exchange Commission which order permits Custodian to employ
Subcustodian notwithstanding the fact that Subcustodian fails to qualify under
the terms of the Rule, and Subcustodian shall immediately notify Custodian, in
writing or by other authorized means, if for any reason it is no longer covered
by such exemptive order.
Upon receipt of any such notification required under (A) or (B) of this section,
Custodian may terminate this Agreement immediately without prior notice to
Subcustodian.
VI. Definitions
A. Instructions. The term "Instructions" means:
1. instructions in writing signed by authorized individuals designated
as such by Custodian;
2. telex or tested telex instructions of Custodian;
3. other forms of instructions in computer readable form as shall
customarily be used for the transmission of like information, and
4. such other forms of communication as from time to time may be agreed
upon by Custodian and Subcustodian, which Subcustodian believes in good faith to
have been given by Custodian or which are transmitted with proper testing or
authentication pursuant to terms and conditions which Custodian may specify.
Unless otherwise expressly provided, all Instructions shall continue in full
force and effect until canceled or superseded. Subcustodian shall act in
accordance with Instructions and shall not be liable for any act or omission in
respect of any Instruction except in the case of willful default, negligence,
fraud, bad faith, willful misconduct, or reckless disregard of duties on the
part of Subcustodian. Subcustodian in executing all Instructions will take
relevant action in accordance with accepted industry practice and local
settlement practice.
B. Account. The term "Account" means collectively the Custody Account, and
the Deposit Account.
C. Securities. The term "Securities" includes, without limitation, stocks,
shares, bonds, debentures, debt securities (convertible or non-convertible),
notes, or other obligations or securities and any certificates, receipts,
futures contracts, foreign exchange contracts, options, warrants, scrip or other
instruments representing rights to receive, purchase or subscribe for the same,
or evidencing or representing any other rights or interests therein, or in any
property or assets.
VII. Miscellaneous Provisions
A. Statements Regarding the Account. Subcustodian will supply Custodian
with such statements regarding the Account as Custodian may request, including
the identity and location of any Eligible Depository authorized and acting
hereunder. In addition, Subcustodian will supply Custodian an advice or
notification of any transfers of Securities to or from the Account indicating,
as to Securities acquired for the Account, if applicable, the Eligible
Depository having physical possession of such Securities.
B. Examination of Books and Records. Subcustodian agrees that its books and
records relating to the Account and Subcustodian's actions under this Agreement
shall be open to the physical, on-premises inspection and audit at reasonable
times by officers of, auditors employed by or other representatives of Custodian
including (to the extent permitted under the law of ) the independent public
accountants for any customer of Custodian whose property is being held hereunder
and such books and records shall be retained for such period as shall be agreed
upon by Custodian and Subcustodian.
As Custodian may reasonably request from time to time, Subcustodian will furnish
its auditor's reports on its system of internal controls, and Subcustodian will
use its best efforts to obtain and furnish similar reports of any Eligible
Depository authorized and acting hereunder.
C. Standard of Care. In holding, maintaining, servicing and disposing of
Property under this Agreement, and in fulfilling any other obligations
hereunder, Subcustodian shall exercise the same standard of care that it
exercises over its own assets, provided that Subcustodian shall exercise at
least the degree of care and maintain adequate insurance as expected of a
prudent professional Subcustodian for hire and shall assume the burden of
proving that it has exercised such care in its maintenance of Property held by
Subcustodian in its Account. The maintenance of the Property in an Eligible
Depository shall not affect Subcustodian's standard of care, and Subcustodian
will remain as fully responsible for any loss or damage to such securities as if
it had itself retained physical possession of them. Subcustodian shall also
indemnify and hold harmless Custodian and each of Custodian's customers from and
against any loss, damage, cost, expense, liability or claim (including
reasonable attorney's fees) arising out of or in connection with the improper or
negligent performance or the nonperformance of the duties of Subcustodian.
Subcustodian shall be responsible for complying with all provisions of the law
of , __________________ or any other law, applicable to Subcustodian in
connection with its duties hereunder, including (but not limited to) the payment
of all transfer taxes or other taxes and compliance with any currency
restrictions and securities laws in connection with its duties as Subcustodian.
D. Loss of Cash or Securities. Subcustodian agrees that, in the even of any
loss of Securities or Cash in the Account, Subcustodian will use its best
efforts to ascertain the circumstances relating to such loss and will promptly
report the same to Custodian and shall use every legal means available to it to
effect the quickest possible recovery.
E. Compensation of Subcustodian. Custodian agrees to pay to Subcustodian
from time to time such compensation for its services and such out-of-pocket or
incidental expenses of Subcustodian pursuant to this Agreement as may be
mutually agreed upon in writing from time to time.
F. Operating Requirements. The Subcustodian agrees to follow such Operating
Requirements as the Custodian may establish from time to time. A copy of the
current Operating Requirements is attached as Attachment B to this Agreement.
G. Termination. This Agreement may be terminated by Subcustodian or
Custodian on 60 days' written notice to the other party, sent by registered
mail, provided that any such notice, whether given by Subcustodian or Custodian,
shall be followed within 60 days by Instructions specifying the names of the
persons to whom Subcustodian shall deliver the Securities in the Account and to
whom the Cash in the account shall be paid. If within 60 days following the
giving of such notice of termination, Subcustodian does not receive such
Instructions, Subcustodian shall continue to hold such Securities and Cash
subject to this Agreement until such Instructions are given. The obligations of
the parties under this Agreement shall survive the termination of this
Agreement.
G. Notices. Unless otherwise specified in this Agreement, all notices and
communications with respect to matters contemplated by this Agreement shall be
in writing, and delivered by mail, postage prepaid, telex, SWIFT, or other
mutually agreed telecommunication methods to the following addresses (or to such
other address as either party hereto may from time to time designate by notice
duly given in accordance with this paragraph):
To Subcustodian:
To Custodian: State Street Bank and Trust Company
Securities Operations/
Network Administration
P.O. Box 1631
Boston, MA 02105
H. Confidentiality. Subcustodian and Custodian shall each use its best
efforts to maintain the confidentiality of the property in the Account and the
beneficial owners thereof, subject, however, to the provisions of any laws,
requiring disclosure. In addition, Subcustodian shall safeguard any test keys,
identification codes or other security devices which Custodian shall make
available to it. The Subcustodian further agrees it will not disclose the
existence of this Agreement or any current business relationship unless
compelled by applicable law or regulation or unless it has secured the
Custodian's written consent.
I. Assignment. This Agreement shall not be assignable by either party but
shall bind any successor in interest of Custodian and Subcustodian respectively.
J. Governing Law. This Agreement shall be governed by and construed in
accordance with the laws of __________________. To the extent inconsistent with
this Agreement or Custodian's Operating Requirements as attached hereto,
Subcustodian's rules and conditions regarding accounts generally or custody
accounts specifically shall not apply.
CUSTODIAN: STATE STREET BANK AND TRUST COMPANY
By: ________________________________________________________
Date: ______________________________________________________
AGREED TO BY SUBCUSTODIAN
_____________________________________________________________
By: _________________________________________________________
Date: _______________________________________________________
<PAGE>
Exhibit 99.24(B)(10)
February 5, 1996
Keystone Emerging Markets Fund
200 Berkeley Street
Boston, MA 02116-5034
Ladies and Gentlemen:
You have asked for my opinion with respect to the issuance of Class A,
B and C shares of Keystone Emerging Markets Fund (the "Fund") under the Fund's
Declaration of Trust, as amended (the "Declaration of Trust"). A prospectus and
statement of additional information are expected to be filed with the Securities
and Exchange Commission as part of the Fund's Registration Statement covering
the registration of the Fund as an investment company and the public offering
and sale of the Fund's Class A, B and C shares. In my opinion, after the
effectiveness of the Registration Statement, such shares, when issued and sold,
will be legally issued, fully paid and non-assessable by the Fund, entitling the
holders thereof to the rights set forth in the Declaration of Trust, and subject
to the limitations stated therein.
My opinion is based upon my examination of the Fund's Declaration of
Trust and the Fund's prospectus and statement of additional information as they
are proposed to be filed in the Registration Statement.
I hereby consent to the use of this opinion in connection with the
registration of the Fund and its shares with the Securities and Exchange
Commission.
Very truly yours,
/s/ Rosemary D. Van Antwerp
Rosemary D. Van Antwerp
Senior Vice President, Secretary
and General Counsel
<PAGE>
Exhibit 99.24(b)(11)
CONSENT OF INDEPENDENT AUDITORS
The Trustees and Shareholder
Keystone Emerging Markets Fund
We consent to the use of our report dated February 6, 1996 included
herein and to the reference to our firm under the caption "ADDITIONAL
INFORMATION" in the statement of additional information.
/s/ KPMG PEAT MARWICK LLP
KPMG PEAT MARWICK LLP
Boston, Massachusetts
February 23, 1996
<PAGE>
Exhibit 99.24(b)(13)
January 24, 1996
Albert H. Elfner, III, President and
Chief Executive Officer
Keystone Emerging Markets Fund
200 Berkeley Street
Boston, Massachusetts 02116-5034
Re: Subscription for Shares
Dear Mr. Elfner:
Keystone Investment Management Company ("Keystone"), in consideration
of the formation of Keystone Emerging Markets Fund (the "Fund") as a
Massachusetts business trust, hereby subscribes to 10,000 shares of
beneficial interest, without par value, of the Fund (the "Shares") and
agrees to pay $100,000 for the Shares ($10.00 each). We hereby advise you
that the purchase of the Shares pursuant to this subscription will be made
for investment purposes and not with a view to the distribution of the
Shares.
This subscription shall be payable and the Shares subscribed for in
this letter shall be issued prior to the effective date of the registration
of the Shares under the Securities Act of 1933. The payment of this
subscription shall be in cash and may be made in such increments and in
such classes of shares of the Fund as Keystone deems appropriate.
Please indicate your agreement and acceptance of this subscription by
signing below.
KEYSTONE INVESTMENT MANAGEMENT COMPANY
By:/s/ Rosemary D. Van Antwerp
------------------------------
Rosemary D. Van Antwerp
Senior Vice President,
Secretary and General Counsel
Accepted and Agreed to
on January 24, 1996
KEYSTONE EMERGING MARKETS FUND
By: /s/ Albert H. Elfner, III
--------------------------
Albert H. Elfner, III
President
101606a3
<PAGE>
Exhibit 99.24(B)(15)
KEYSTONE EMERGING MARKETS FUND
FORM OF CLASS A DISTRIBUTION PLAN
SECTION 1. Keystone Emerging Markets 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, as amended (the "1940 Act") according
to the terms of this Distribution Plan (the "Plan").
SECTION 2. The Fund may expend daily amounts at an annual rate of 0.75% of
the average daily net asset value of Class A shares of the Fund to finance any
activity that is principally intended to result in the sale of Class A shares of
Fund including, without limitation, expenditures consisting of payments to a
principal underwriter of the Fund ("Principal Underwriter") in order (i) to
enable the Principal Underwriter to pay to others commissions in respect of
sales of Class A shares of the Fund since inception of the Plan; (ii) to enable
the Principal Underwriter to pay or to have paid to others who sell Class A
shares a maintenance or other fee, at such intervals as the Principal
Underwriter may determine, in respect of Class A shares previously sold by any
such others and remaining outstanding during the period in respect of which such
fee is or has been paid; and/or (iii) to compensate the Principal Underwriter
for its efforts in respect of sales of Class A shares of the Fund since
inception of the Plan.
SECTION 3. This Plan shall not take effect until it has been approved by a
vote of at least a majority (as defined in the 1940 Act) of the Fund's
outstanding Class A 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 defined in the 1940 Act) and who have
no direct or indirect financial interest in the operation of this Plan or any
agreements of the Fund or any other person related to this Plan ("Rule 12b-1
Trustees"), cast in person at a meeting called for the purpose of voting on this
Plan or such agreements.
SECTION 5. Unless sooner terminated pursuant to Section 7, this Plan shall
continue in effect for a period of one year from the date it takes effect and
thereafter shall continue in effect so long as such continuance is specifically
approved at least annually in the manner provided for approval of this Plan in
Section 4.
SECTION 6. Any person authorized to direct the disposition of monies paid
or payable by the Fund pursuant to this Plan or any related agreement shall
provide to the Fund's Board 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 Fund's outstanding
Class A shares.
SECTION 8. Any agreement of the Fund related to this Plan shall be in
writing, and shall provide:
A. That such agreement may be terminated at any time, without payment of
any penalty, by vote of a majority of the Rule 12b-1 Trustees or by
vote of a majority of the Fund's outstanding Class A shares on not more
than sixty days written notice to any other party to the agreement; and
B. That such agreement shall terminate automatically in the event of its
assignment.
SECTION 9. This Plan may not be amended to increase materially the amount
of distribution expenses provided for in Section 2 hereof unless such amendment
is approved in the manner provided in Section 3 hereof, and no material
amendment to this Plan shall be made unless approved in the manner provided for
in Section 4 hereof.
<PAGE>
KEYSTONE EMERGING MARKETS FUND
FORM OF CLASS B DISTRIBUTION PLAN
SECTION 1. Keystone Emerging Markets 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 (the "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 B
shares to finance any activity that is principally intended to result in the
sale of Class B shares, including, without limitation, expenditures consisting
of payments to a principal underwriter of the Fund (the "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 B 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 B
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 B 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.
101607A4
<PAGE>
KEYSTONE EMERGING MARKETS FUND
FORM OF CLASS C DISTRIBUTION PLAN
SECTION 1. Keystone Emerging Markets 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 (the "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 Under-
writer") 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 of the Fund.
SECTION 4. This Plan shall not take effect until it has been approved,
together with any related agreements of the Fund, by votes of a majority of both
(a) the Board of Trustees of the Fund and (b) those Trustees of the Fund who are
not "interested persons" of the Fund (as 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 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 99.24(B)(18)
MULTIPLE CLASS PLAN FOR KEYSTONE EMERGING MARKETS FUND
Keystone Emerging Markets Fund (the "Fund") currently offers three classes of
shares with the following class provisions and current offering and exchange
characteristics. Additional classes of shares, when created, may have
characteristics that differ from those described. References to percentages not
otherwise defined are to percentages of average daily net assets of a class.
I. CLASSES
1. Class A Shares
Class A Shares have a distribution plan adopted pursuant to Rule
12b-1 under the Investment Company Act of 1940 ("Rule 12b-1")
and/or a shareholder services plan. The plans provide for payments
annually for distribution and/or shareholder services fees based
on a percentage of average daily net assets of the Fund.
Class A Shares are offered with a front-end sales load, except
that purchases of Class A Shares made under certain circumstances
(i) are not subject to a front-end sales load but are subject to a
contingent deferred sales charge ("CDSC") of limited duration or
(ii) are not subject to a front-end sales load or a CDSC.
Class A Shares may be exchanged for Class A Shares of other
Keystone America Funds and Class A Shares of Keystone Liquid
Trust. Class A Shares subject to a CDSC when exchanged will remain
subject to the CDSC after the exchange.
2. Class B Shares
Class B Shares have a distribution plan adopted pursuant to Rule
12b-1 and may have a shareholder services plan that provides for
payments annually for distribution and/or shareholder services
fees based on a percentage of average daily net assets of the
Fund. Class B Shares are offered at net asset value without a
front-end sales load but with a CDSC, which is a declining
percentage on the lesser of current net asset value or initial
cost and is of limited duration.
Class B Shares automatically convert to Class A Shares within a
specified number of years without a sales load or exchange fee.
Class B Shares may be exchanged for Class B Shares of other
Keystone America Funds issued on or after June 1, 1995 and Class B
Shares of Keystone Liquid Trust issued on or after June 1, 1995.
Class B Shares subject to a CDSC when exchanged will remain
subject to the CDSC after the exchange.
3. Class C Shares
Class C Shares have a distribution plan adopted pursuant to Rule
12b-1, and may have a shareholder services plan, which plans
provide for payments annually for distribution and/or shareholder
services fees based on a percentage of average daily net assets of
the Fund.
Class C Shares are subject to a CDSC, which is a percentage of the
lesser of current net asset value or initial cost applied for a
limited duration.
Class C Shares are offered at net asset value without a front-end
sales load.
Class C Shares may be exchanged for Class C Shares of other
Keystone America Funds and Keystone Liquid Trust. Class C Shares
subject to a CDSC when exchanged will remain subject to the CDSC
after the exchange.
II. CLASS EXPENSES
Each class bears the expenses of its Rule 12b-1 plan and/or
shareholder services plan. There currently are no other class
specific expenses.
III. EXPENSE ALLOCATION METHOD
All income, realized and unrealized capital gains and losses and
expenses not assigned to a class will be allocated to each class
based on the relative net asset value of each class.
IV. VOTING RIGHTS
Each class shall have exclusive voting rights on any matter
submitted to its shareholders that relates solely to its class
arrangement.
Each class shall have separate voting rights on any matter
submitted to shareholders where the interests of one class differs
from the interests of any other class.
Each class has in all other respects the same rights and
obligations as each other class.
V. EXPENSE WAIVERS OR REIMBURSEMENTS
Any expense waivers or reimbursements shall be in compliance with
Rule 18f-3 issued under the Investment Company Act of 1940, as
amended.
<PAGE>
Exhibit 24(b)(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 EMERGING MARKETS FUND CLASS A
<PERIOD-TYPE> 1-MO
<FISCAL-YEAR-END> OCT-31-1996
<PERIOD-START> FEB-02-1996
<PERIOD-END> FEB-02-1996
<INVESTMENTS-AT-COST> 0
<INVESTMENTS-AT-VALUE> 0
<RECEIVABLES> 0
<ASSETS-OTHER> 106,300
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 106,300
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 6,300
<TOTAL-LIABILITIES> 6,300
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 80,000
<SHARES-COMMON-STOCK> 8,000
<SHARES-COMMON-PRIOR> 0
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 0
<NET-ASSETS> 80,000
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 0
<OTHER-INCOME> 0
<EXPENSES-NET> 0
<NET-INVESTMENT-INCOME> 0
<REALIZED-GAINS-CURRENT> 0
<APPREC-INCREASE-CURRENT> 0
<NET-CHANGE-FROM-OPS> 0
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 0
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 0
<NUMBER-OF-SHARES-REDEEMED> 0
<SHARES-REINVESTED> 0
<NET-CHANGE-IN-ASSETS> 0
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 0
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 0
<AVERAGE-NET-ASSETS> 80,000
<PER-SHARE-NAV-BEGIN> 10.00
<PER-SHARE-NII> 0.00
<PER-SHARE-GAIN-APPREC> 0.00
<PER-SHARE-DIVIDEND> 0.00
<PER-SHARE-DISTRIBUTIONS> 0.00
<RETURNS-OF-CAPITAL> 0.00
<PER-SHARE-NAV-END> 10.00
<EXPENSE-RATIO> 0.00
<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 EMERGING MARKETS FUND CLASS B
<PERIOD-TYPE> 1-MO
<FISCAL-YEAR-END> OCT-31-1996
<PERIOD-START> FEB-02-1996
<PERIOD-END> FEB-02-1996
<INVESTMENTS-AT-COST> 0
<INVESTMENTS-AT-VALUE> 0
<RECEIVABLES> 0
<ASSETS-OTHER> 106,300
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 106,300
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 6,300
<TOTAL-LIABILITIES> 6,300
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 10,000
<SHARES-COMMON-STOCK> 1,000
<SHARES-COMMON-PRIOR> 0
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 0
<NET-ASSETS> 10,000
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 0
<OTHER-INCOME> 0
<EXPENSES-NET> 0
<NET-INVESTMENT-INCOME> 0
<REALIZED-GAINS-CURRENT> 0
<APPREC-INCREASE-CURRENT> 0
<NET-CHANGE-FROM-OPS> 0
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 0
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 0
<NUMBER-OF-SHARES-REDEEMED> 0
<SHARES-REINVESTED> 0
<NET-CHANGE-IN-ASSETS> 0
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 0
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 0
<AVERAGE-NET-ASSETS> 10,000
<PER-SHARE-NAV-BEGIN> 10.00
<PER-SHARE-NII> 0.00
<PER-SHARE-GAIN-APPREC> 0.00
<PER-SHARE-DIVIDEND> 0.00
<PER-SHARE-DISTRIBUTIONS> 0.00
<RETURNS-OF-CAPITAL> 0.00
<PER-SHARE-NAV-END> 10.00
<EXPENSE-RATIO> 0.00
<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 EMERGING MARKETS FUND CLASS C
<PERIOD-TYPE> 1-MO
<FISCAL-YEAR-END> OCT-31-1996
<PERIOD-START> FEB-02-1996
<PERIOD-END> FEB-02-1996
<INVESTMENTS-AT-COST> 0
<INVESTMENTS-AT-VALUE> 0
<RECEIVABLES> 0
<ASSETS-OTHER> 106,300
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 106,300
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 6,300
<TOTAL-LIABILITIES> 6,300
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 10,000
<SHARES-COMMON-STOCK> 1,000
<SHARES-COMMON-PRIOR> 0
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 0
<NET-ASSETS> 10,000
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 0
<OTHER-INCOME> 0
<EXPENSES-NET> 0
<NET-INVESTMENT-INCOME> 0
<REALIZED-GAINS-CURRENT> 0
<APPREC-INCREASE-CURRENT> 0
<NET-CHANGE-FROM-OPS> 0
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 0
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 0
<NUMBER-OF-SHARES-REDEEMED> 0
<SHARES-REINVESTED> 0
<NET-CHANGE-IN-ASSETS> 0
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 0
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 0
<AVERAGE-NET-ASSETS> 10,000
<PER-SHARE-NAV-BEGIN> 10.00
<PER-SHARE-NII> 0.00
<PER-SHARE-GAIN-APPREC> 0.00
<PER-SHARE-DIVIDEND> 0.00
<PER-SHARE-DISTRIBUTIONS> 0.00
<RETURNS-OF-CAPITAL> 0.00
<PER-SHARE-NAV-END> 10.00
<EXPENSE-RATIO> 0.00
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
