SUPPLEMENT TO CURRENT PROSPECTUS
AND STATEMENT OF ADDITIONAL INFORMATION
OF
KEYSTONE INTERNATIONAL FUND INC.
(the "FUND")
Dated February 1, 1995
The Financial Highlights section of the Fund's prospectus is hereby
supplemented to include the following unaudited financial information:
FINANCIAL HIGHLIGHTS
(FOR A SHARE OUTSTANDING THROUGHOUT THE PERIOD)
<TABLE>
<CAPTION>
Six Months
Ended
March 31, 1994<F1>
(Unaudited)
<S> <C>
Net asset value: Beginning of period $ 7.08
------------------------------------------------------------------
INCOME FROM INVESTMENT OPERATIONS
Investment income (deficit)-net (0.01)
Realized gains (losses) on investments-net 0.59
------------------------------------------------------------------
Total from investment operations 0.58
LESS DISTRIBUTIONS
Dividends from investment income-net 0
Distributions in excess of investment income-net <F2> 0
Distributions from realized capital gains 0
------------------------------------------------------------------
Total distributions 0.00
------------------------------------------------------------------
Net asset value: End of period $ 7.66
------------------------------------------------------------------
TOTAL RETURN <F3> 8.19% <F4>
RATIOS/SUPPLEMENTAL DATA
Ratios to average net assets:
Operating and management expenses<F5> 2.39%
Investment income (deficit)-net <F5> (0.66%)
Portfolio turnover rate 70%
Net assets, end of period (thousands) $148,651
<FN>
<F1> Calculation based on average shares outstanding.
<F2> Effective October 1, 1993 the Fund adopted Statement of Position 93-2;
Determination, Disclosure and Financial Statement Presentation of Income,
Capital Gain and Return of Capital Distributions by Investment Companies.
As a result, distribution amounts exceeding book basis net investment
income (or tax basis net income on a temporary basis) are presented as
"Distributions in excess of investment income-net". Similarly, capital
distributions in excess of book basis capital gains (or tax basis capital
gains on a temporary basis) are presented as "Distributions in excess of
realized capital gains". For the fiscal years prior to September 30, 1993,
distributions in excess of book basis net income were charged to paid-in
capital.
<F3> Excluding applicable sales charges.
<F4> Total return indicated is not annualized.
<F5> Annualized.
</TABLE>
<PAGE>
In addition, the Fund's prospectus and statement of additional information
are hereby supplemented to include the following information:
* On July 27, 1994, the Fund's fiscal year end was changed to October 31.
* For the fiscal period ended September 30, 1994, the Fund paid 2.54% of its
average net assets in expenses. During the period ended September 30, 1994,
the Fund paid or accrued to Keystone Management, Inc. ("Keystone
Management") investment management and administrative services fees of
$1,094,303, which represented 0.75% of the Fund's average net assets on an
annualized basis. Of such amount paid to Keystone Management, $930,158 was
paid to Keystone Custodian Funds, Inc. ("Keystone") for its investment
advisory services. During the fiscal period ended September 30, 1994, the
Fund paid or accrued to Keystone Investor Resource Center, Inc. ("KIRC")
and Keystone Group, Inc. $24,705 for certain accounting and printing
services and $667,589 to KIRC for transfer agent fees.
* During the fiscal period ended September 30, 1994, the Fund recovered
$7,861 in deferred sales charges. During such fiscal period, the Fund paid
Keystone Distributors, Inc. ("KDI") $1,460,493 under the Fund's Rule 12b-1
Distribution Plan. The amount paid by the Fund under its Distribution Plan,
net of contingent deferred sales charges, was $1,452,632 (1.00% of the
Fund's average daily net asset value during the fiscal period). During the
fiscal period ended September 30, 1994, KDI received $0 after payments of
commissions on new sales and service fees to dealers and others of
$1,709,228. During such fiscal period, KDI also received $183,020 in
contingent deferred sales charges. At September 30, 1994, KDI's total
unreimbursed distribution expenses amounted to $2,258,471, (1.46% of the
Fund's net asset value as of September 30, 1994). The right to certain
portions of this amount, if and when receivable, was assigned by KDI in
1988 in connection with a financial transaction. As of September 30, 1994,
$92,780 of the amount assigned remained outstanding.
* The Fund's portfolio turnover rates for the fiscal period or year, as the
case may be, ended September 30, 1994 and 1993 were 121% and 68%,
respectively.
* During the fiscal period ended September 30, 1994, the Fund paid
approximately $923,756 in brokerage fees.
* The cumulative total return of the Fund for the one, five and ten year
periods ended September 30, 1994 was 5.75% (with CDSC), 18.09%, and
207.28%, respectively. The compounded average rate of return for the five
and ten year periods ended September 30, 1994 were 3.38% and 11.88%,
respectively.
The Fund's statement of additional information is further supplemented to
include the following unaudited financial information:
<PAGE>
Keystone International Fund, Inc.
SCHEDULE OF INVESTMENTS-March 31, 1994
(Unaudited)
<TABLE>
<CAPTION>
Number Market
of Shares Value
<S> <C> <C>
COMMON STOCKS (70.2%)
ARGENTINA (0.9%)
DIVERSIFIED COMPANIES (0.6%)
YPF 38,936 $ 936,411
FINANCE (0.2%)
Citicorp Equity Investments 35,500 216,550
INDUSTRIALS (0.1%)
Quilmes 9,400 191,760
TOTAL ARGENTINA 1,344,721
AUSTRALIA (1.3%)
FINANCE (1.2%)
National Australia Bank 95,500 762,018
Westpac Banking 300,000 961,296
1,723,314
FOODS (0.1%)
Fosters Brewing Group 270,000 227,177
TOTAL AUSTRALIA 1,950,491
BELGIUM (0.8%)
AUTOMOTIVE (0.8%)
Bekaert 1,680 1,154,219
BRAZIL (0.9%)
BROADCASTING (0.4%)
Telebras 15,200 642,200
METALS AND MINING (0.1%)
Acesita 3,049,500 213,651
UTILITIES (0.4%)
Eletrobras 1,870,000 513,904
TOTAL BRAZIL 1,369,755
CANADA (6.7%)
ADVERTISING AND PUBLISHING (0.3%)
Quebecor 25,300 365,686
CAPITAL GOODS (0.5%)
Bombardier, Inc. 48,000 732,818
CONGLOMERATES (0.4%)
Brascan 50,000 $623,329
DIVERSIFIED COMPANIES (0.6%)
Power Corp. Canada 64,100 949,664
FINANCE (0.6%)
Bank Montreal 13,000 246,621
Investors Group 20,000 289,080
MacKenzie Financial 50,000 374,901
910,602
FOODS (0.2%)
Seagram 9,000 249,750
METALS AND MINING (1.4%)
Alcan Aluminum Ltd. 20,000 440,000
Cameco Corp. 13,900 241,093
Chauvco Resources Ltd. 20,066 280,970
Cominco Ltd. 8,800 127,600
Inco Ltd. 20,000 495,000
Metall Mining Corp. 25,000 221,327
Rio Algom Ltd. 13,500 232,875
2,038,865
PAPER AND PACKAGING (1.3%)
Macmillan Bloedel Ltd. 106,300 1,642,092
Noranda 1st, Inc. 28,500 267,760
1,909,852
RETAIL (0.7%)
Hudson's Bay 50,000 1,065,982
TRANSPORTATION (0.7%)
Canadian Pacific 69,300 1,076,787
TOTAL CANADA 9,923,335
CHILE (1.6%)
DIVERSIFIED COMPANIES (1.6%)
Antofagasta Holdings 113,400 2,375,019
FINLAND (0.2%)
INDUSTRIALS (0.2%)
Fiskars AB Oy 4,600 244,524
<PAGE>
SCHEDULE OF INVESTMENTS-March 31, 1994
(Unaudited)
Number Market
of Shares Value
FRANCE (3.7%)
AUTOMOTIVE (0.8%)
Michelin 26,200 $1,144,727
CAPITAL GOODS (1.3%)
Alcatel Alsthom 16,326 1,907,899
CONSUMER GOODS (0.4%)
Skis Rossignol 1,740 619,488
COSMETICS (0.8%)
L'Oreal 6,000 1,234,953
FINANCE (0.4%)
Cie Finance Paribas, A Bearer Shares 4,650 355,338
Cie Finance Paribas 9,300 3,264
Societe Generale 2,263 250,165
608,767
TOTAL FRANCE 5,515,834
GERMANY (1.8%)
ADVERTISING AND PUBLISHING (0.9%)
Siemens AG 3,265 1,360,335
FINANCE (0.9%)
Deutsche Bank 1,695 803,248
Dresdner Bank 2,282 547,209
1,350,457
TOTAL GERMANY 2,710,792
HONG KONG (1.9%)
AIR TRANSPORTATION (0.4%)
Cathay Pacific Airways 464,000 654,468
CONSUMER GOODS (0.5%)
Amway Asia Pacific Ltd. 18,000 659,250
FINANCE (0.7%)
HSBC Holdings 93,543 1,053,112
TELECOMMUNICATIONS (0.3%)
Hongkong Telecom 240,000 $397,526
TOTAL HONG KONG 2,764,356
INDONESIA (0.9%)
DRUGS (0.3%)
Kalbe Farma 79,920 430,196
FOODS (0.0%)
Mayora Indah 19,500 2,715
RETAIL (0.2%)
Matahari Putra 73,000 264,223
Tigaraksa Satria 15,000 55,684
319,907
TEXTILES & APPAREL (0.4%)
Indorama Synthetic 147,000 590,046
TOTAL INDONESIA 1,342,864
ITALY (1.2%)
TELECOMMUNICATIONS (1.2%)
STET Societa Finanziaria Tel 505,500 1,808,389
JAPAN (14.6%)
AMUSEMENTS (1.2%)
Chudenko 28,000 967,969
Sega Enterprises 10,200 761,015
1,728,984
AUTOMOTIVE (3.1%)
Bridgestone 168,000 2,460,937
Nissan Motor 140,000 1,121,094
Toyota Motor 55,000 1,058,106
4,640,137
BUILDING (0.3%)
Sekisui House 34,000 421,680
DIVERSIFIED COMPANIES (0.3%)
Aoyama Trading 9,000 512,402
(continued on next page)
<PAGE>
Keystone International Fund, Inc.
SCHEDULE OF INVESTMENTS-March 31, 1994
(Unaudited)
Number Market
of Shares Value
ELECTRONICS PRODUCTS (6.1%)
Hitachi 198,000 $1,798,242
NEC 104,000 1,076,563
Sony 65,500 3,741,943
Toshiba 332,000 2,389,492
9,006,240
FINANCE (1.9%)
Nomura Securities 131,000 2,750,488
OFFICE AND BUSINESS EQUIPMENT (1.7%)
Canon 164,000 2,594,531
TOTAL JAPAN 21,654,462
MALAYSIA (0.6%)
AMUSEMENTS (0.2%)
Genting Berhad 29,000 279,273
FOODS (0.4%)
Nestle Malay Berhad 54,000 295,807
Rothmans Pall Mall 53,000 349,581
645,388
TOTAL MALAYSIA 924,661
MEXICO (0.5%)
BUILDING (0.0%)
International de Ceramica 4,600 30,139
FOODS (0.3%)
Tablex de Cv 152,500 454,166
METALS AND MINING (0.2%)
Penoles 88,500 253,023
TOTAL MEXICO 737,328
NETHERLANDS (6.6%)
ADVERTISING AND PUBLISHING (1.3%)
Telegraaf 10,000 864,692
Wolters Kluwer 17,172 1,017,396
1,882,088
CONSUMER GOODS (2.0%)
Heineken 9,431 $1,122,558
Philips 67,700 1,846,528
2,969,086
FINANCE (0.3%)
ABN Amro 13,222 457,318
HEALTH & HOUSEHOLD PRODUCTS (0.7%)
Unilever 9,615 1,014,617
INSURANCE (0.3%)
Aegon 10,632 536,850
OIL (1.6%)
Royal Dutch Petroleum Co. 23,740 2,405,045
RETAIL (0.4%)
Ahold 22,976 602,147
TOTAL NETHERLANDS 9,867,151
PERU (3.6%)
FINANCE (0.9%)
Banco de Credito 461,070 1,359,211
METALS AND MINING (1.6%)
Minsur 81,240 667,957
Southern Peru 553,243 1,740,511
2,408,468
UTILITIES (1.1%)
Peruana Telefonos 255,000 1,555,136
TOTAL PERU 5,322,815
REPUBLIC OF KOREA (5.2%)
ELECTRONICS PRODUCTS (1.1%)
Samsung Electronics, Ltd.,
Global Depository Shares 17,859 794,726
Samsung Electronics, Ordinary Shares 11,000 906,275
Samsung, Ordinary Shares 572 18,567
1,719,568
<PAGE>
SCHEDULE OF INVESTMENTS-March 31, 1994
(Unaudited)
Number Market
of Shares Value
FINANCE (0.1%)
Daegu Bank 6,500 $96,636
FOODS (1.2%)
Cheil Food & Chemicals, New Shares 1,192 52,929
Cheil Food & Chemicals, Ordinary
Shares 8,500 471,783
Oriental Brewery 50,000 1,220,343
1,745,055
INDUSTRIALS (0.3%)
Daewoo Heavy Industries 33,639 500,115
METALS AND MINING (0.6%)
Pohang Iron & Steel 15,000 958,930
TEXTILES & APPAREL (0.2%)
Baikyang 190 20,950
Pangrim Spinning 4,254 242,438
263,388
UTILITIES (1.7%)
Korea Electric Power 83,000 2,467,943
TOTAL REPUBLIC OF KOREA 7,751,635
SPAIN (1.5%)
FINANCE (1.5%)
Argentaria 35,000 739,375
Banco Santander 19,000 909,091
Banco Popular 5,050 550,165
2,198,631
TOTAL SPAIN 2,198,631
SWEDEN (2.2%)
AUTOMOTIVE (0.7%)
Volvo AB 14,100 1,100,421
CONSUMER GOODS (0.9%)
Electrolux AB 27,800 1,280,434
OFFICE AND BUSINESS EQUIPMENT (0.6%)
Esselte AB 70,000 949,322
TOTAL SWEDEN 3,330,177
SWITZERLAND (5.9%)
CHEMICALS (1.0%)
Ciba-Geigy 2,435 $1,570,968
DRUGS (1.9%)
Roche Holding AG 466 2,315,959
Sandoz 165 452,712
2,768,671
FINANCE (0.8%)
CS Holding 1,385 613,701
Swiss Bank Corp. 2,327 338,203
Swiss Reinsurance 605 252,208
1,204,112
FOODS (1.6%)
Nestle 2,756 2,317,346
TECHNOLOGY (0.6%)
Oerlikon Buhrle AG 3,600 393,052
SGS Holding 340 525,487
918,539
TOTAL SWITZERLAND 8,779,636
UNITED KINGDOM (4.4%)
AIR TRANSPORTATION (0.3%)
British Airways 69,800 420,795
CAPITAL GOODS (0.5%)
Pilkington 285,000 767,862
CONGLOMERATES (1.5%)
Lonrho 1,000,000 2,180,708
DIVERSIFIED COMPANIES (0.1%)
Christie's International 73,000 231,453
FINANCE (0.7%)
Forte 63,000 241,947
Warburg (S.G.) Group 77,000 869,946
1,111,893
(continued on next page)
<PAGE>
Keystone International Fund, Inc.
SCHEDULE OF INVESTMENTS-March 31, 1994
(Unaudited)
Number Market
of Shares Value
METALS AND MINING (1.3%)
British Steel 892,000 $1,878,803
TOTAL UNITED KINGDOM 6,591,514
UNITED STATES (0.3%)
TELECOMMUNICATIONS (0.3%)
Tele 2000 123,750 444,610
VENEZUELA (2.9%)
BUILDING (0.3%)
Vencemos 198,000 412,930
CONGLOMERATES (0.1%)
H L Boulton + Co. 1,649,500 197,086
FINANCE (0.0%)
Venezuela (Republic of) 20,000 200
FOODS (0.2%)
Mavesa 29,666 259,577
METALS AND MINING (0.2%)
Sivensa 700,000 272,506
PAPER AND PACKAGING (0.1%)
Venezolana de Pulp 235,006 153,158
UTILITIES (2.0%)
Electric de Caracas 940,000 2,997,740
TOTAL VENEZUELA 4,293,197
TOTAL COMMON STOCKS
(Cost--$86,569,300) 104,400,116
PREFERRED STOCK (2.0%)
AUSTRALIA (0.5%)
FINANCE (0.5%)
Westpac Banking 120,000 681,532
BRAZIL (1.5%)
FINANCE (0.1%)
Banco Bradesco 1,827,153 30,808
Unibanco Uniao de 2,758,000 168,798
199,606
FOODS (0.5%)
Sadia Concordia 68,000,000 $804,032
METALS AND MINING (0.1%)
Paranapanema 65,800,000 133,245
PAPER AND PACKAGING (0.4%)
Klabin Fab Papel 171,000 318,282
Papel Simao 7,250,000 254,011
572,293
RETAIL (0.1%)
Mesbla 205,000 152,402
TECHNOLOGY (0.3%)
Marco Polo 1,837,500 423,492
TOTAL BRAZIL 2,285,070
TOTAL PREFERRED STOCK
(Cost--$2,636,686) 2,966,602
Par
Value
FIXED INCOME (2.4%)
CANADA (1.1%)
CONVERTIBLE BONDS (1.1%)
Brascan Ltd., 7.00%, 10/15/02 $2,318,000 1,641,714
VENEZUELA (1.3%)
CONVERTIBLE BONDS (1.3%)
Venezuela (Republic of), 6.75%,
3/31/20 4,000,000 1,980,000
TOTAL FIXED INCOME
(Cost--$4,455,580) 3,621,714
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
SCHEDULE OF INVESTMENTS-March 31, 1994
(Unaudited)
Maturity Market
Value Value
<S> <C> <C>
SHORT-TERM INVESTMENTS (20.5%)
CERTIFICATE OF DEPOSIT (0.0%)
State Street Bank & Trust Co.,
2.375%, 5/2/94
(Cost $11,700) $11,700 $11,700
REPURCHASE AGREEMENTS (20.5%)
Kidder Peabody, 3.65%, purchased
3/31/94, maturing 4/4/94,
(Collateralized by $35,135,000 FNMA
Pool #74096, 6.374%, due 12/1/28) 15,006,083 15,000,000
Smith Barney Harris Upham & Co. Inc.,
3.55%, purchased 3/31/94, maturing
4/4/94 (Collateralized by $14,560,000
U.S. Treasury Bond, 7.875%, due
8/15/01) 15,397,071 15,391,000
30,391,000
TOTAL SHORT-TERM INVESTMENTS
(Cost--$30,402,700) 30,402,700
TOTAL INVESTMENTS
(Cost--$124,064,266) 141,391,132
OTHER ASSETS AND LIABILITIES--NET
(4.9%) 7,260,109
NET ASSETS (100%) $148,651,241
</TABLE>
See Notes to Financial Statements.
<PAGE>
FINANCIAL HIGHLIGHTS
(For a share outstanding throughout the period)
<TABLE>
<CAPTION>
Year Ended September 30,
Six Months
Ended
March 31, 1994(a) 1993(a) 1992(a) 1991 1990 1989
(Unaudited)
<S> <C> <C> <C> <C> <C> <C>
Net asset value: Beginning of
period $7.08 $6.01 $5.91 $5.35 $7.51 $6.66
Income from investment
operations
Investment income (deficit)-net (0.01) (0.03) (0.01) (0.01) (0.07) (0.14)
Realized gains (losses) on
investments-net 0.59 1.14 0.34 0.83 (1.74) 1.06
Total from investment
operations 0.58 1.11 0.33 0.82 (1.81) 0.92
Less distributions
Dividends from investment
income-net 0 0 0 0 0 (0.07)
Distributions in excess of
investment income-net (b) 0 (0.04) (0.23) (0.03) 0 0
Distributions from realized
capital gains 0 0 0 (0.23) (0.35) 0
Total distributions 0.00 (0.04) (0.23) (0.26) (0.35) (0.07)
Net asset value: End of period $7.66 $7.08 $6.01 $5.91 $5.35 $7.51
Total return (c) 8.19%(d) 18.59% 5.78% 15.59% (25.12%) 13.55%
Ratios/supplemental data
Ratios to average net assets:
Operating and management
expenses (e) 2.39% 1.93% 3.41% 3.14% 2.92% 2.65%
Investment income
(deficit)-net (e) (0.66%) (0.46%) (0.09%) (0.07%) (0.51%) (0.79%)
Portfolio turnover rate 70% 68% 74% 85% 42% 42%
Net assets, end of period
(thousands) $148,651 $111,752 $64,135 $72,923 $73,768 $121,047
</TABLE>
(a) Calculation based on average shares outstanding.
(b) Effective October 1, 1993 the Fund adopted Statement of Position 93-2:
Determination, Disclosure and Financial Statement Presentation of Income,
Capital Gain and Return of Capital Distributions by Investment Companies.
As a result, distribution amounts exceeding book basis net investment
income (or tax basis net income on a temporary basis) are presented as
"Distributions in excess of investment income-net". Similarly, capital
gain distributions in excess of book basis capital gains (or tax basis
capital gains on a temporary basis) are presented as "Distributions in
excess of realized capital gains". For the fiscal years prior to
September 30, 1993, distributions in excess of book basis net income were
charged to paid-in capital.
(c) Excluding applicable sales charges.
(d) Total return indicated is not annualized.
(e) Annualized.
See Notes to Financial Statements.
<PAGE>
STATEMENT OF ASSETS AND LIABILITIES--
March 31, 1994 (Unaudited)
<TABLE>
<CAPTION>
<S> <C>
ASSETS:
Investments at market value (Note 1):
Long-term investments $110,988,432
Repurchase agreements 30,391,000
Other short-term investments 11,700
Total investments
(identified cost--$124,064,266) $141,391,132
Receivable for:
Investments sold 8,732,105
Fund shares sold 295,632
Interest and dividends 645,281
Refundable foreign tax withholding 94,502
Forward foreign currency exchange contracts
(Notes 1 and 5) 66,800,394
Prepaid expenses 20,086
Total assets 217,979,132
Liabilities:
Payable for:
Fund shares redeemed 768,619
Forward foreign currency exchange contracts
(Notes 1 and 5) 68,377,510
Foreign tax withholding 68,995
Accrued reimbursable expenses (Note 4) 6,205
Other accrued expenses 106,562
Total liabilities 69,327,891
Net assets $148,651,241
Net assets represented by (Notes 1, 2 and 5):
Paid-in capital $121,394,862
Undistributed investment income (deficit)--net (447,352)
Accumulated realized gains (losses) on investment
transactions--net 11,954,474
Net unrealized appreciation (depreciation) on:
Investments 17,326,866
Foreign currency related transactions (1,577,609)
Total net assets applicable to outstanding shares of
beneficial interest ($7.66 a share on 19,395,467
shares outstanding) (Note 2) $148,651,241
</TABLE>
See Notes to Financial Statements.
STATEMENT OF OPERATIONS--
Six Months Ended March 31, 1994 (Unaudited)
<TABLE>
<CAPTION>
<S> <C> <C>
Investment income (Note 1):
Dividends (net of foreign withholding
taxes of $97,097) $542,523
Interest 672,466
Total income 1,214,989
Expenses (Notes 2 and 4):
Management fee $526,581
Transfer agent fees 308,435
Accounting, auditing and legal 33,142
Custodian fees--foreign 70,684
Custodian fees--domestic 44,656
Printing 16,320
Distribution Plan expenses 654,499
Registration fees 20,859
Miscellaneous expenses 1,516
Total expenses 1,676,692
Loss from operations (461,703)
Realized and unrealized gain (loss) on
investments and foreign currency related
transactions (Notes 1, 3 and 5):
Realized gain (loss) on:
Investments and foreign currency
holdings--net 12,885,672
Foreign currency related transactions 68,884
Realized gain on investments and
foreign currency related
transactions--net 12,954,556
Net change in unrealized appreciation
(depreciation) on:
Investments and foreign currency
holdings (2,687,766)
Foreign currency related transactions (1,263,582)
Increase (decrease) in unrealized
appreciation or depreciation--net (3,951,348)
Net gain on investments and foreign
currency related transactions 9,003,208
Net increase in net assets resulting
from operations $8,541,505
</TABLE>
<PAGE>
Keystone International Fund, Inc.
STATEMENTS OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
Six Months Year Ended
Ended September 30,
March 31, 1994 1993
(Unaudited)
<S> <C> <C>
Operations:
Loss from operations--net (Note 1) $(461,703) $(356,833)
Realized gain (loss) on investments, closed futures contracts and foreign
currency related transactions--net (Notes 1 and 3) 12,954,556 955,676
Increase (decrease) in unrealized appreciation or depreciation on
investments, open futures contracts, and foreign currency related
transactions--net (3,951,348) 12,881,104
Net increase in net assets resulting from operations 8,541,505 13,479,947
Distributions to shareholders in excess of investment income--net
(Note 1) 0 (431,822)
Capital share transactions (Note 2):
Proceeds from shares sold 91,488,410 71,255,741
Payments for shares redeemed (63,130,299) (37,059,530)
Net asset value of shares issued in reinvestment of distributions in
excess of investment income--net 0 372,504
Net increase in net assets resulting from capital share transactions 28,358,111 34,568,715
Total increase in net assets 36,899,616 47,616,840
Net assets:
Beginning of period 111,751,625 64,134,785
End of period [including undistributed investment income (deficit)--net as
follows: March 31, 1994--($447,352) September 30, 1993 ($993,980)] (Note 1)
$148,651,241 $111,751,625
</TABLE>
See Notes to Financial Statements.
<PAGE>
NOTES TO FINANCIAL STATEMENTS
1. Significant Accounting Policies
Keystone International Fund, Inc. (the "Fund") is a Massachusetts corporation
for which Keystone Management, Inc. ("KMI") is the Investment Manager and
Keystone Custodian Funds, Inc. ("Keystone") is the Investment Adviser. The
Fund is registered under the Investment Company Act of 1940 as a diversified,
open-end investment company.
Keystone is a wholly-owned subsidiary of Keystone Group, Inc. ("KGI"), a
Delaware corporation. KGI is privately owned by an investor group consisting
of members of current management of Keystone. Keystone Investor Resource
Center, Inc. ("KIRC"), a wholly-owned subsidiary of Keystone, is the Fund's
transfer agent.
The following is a summary of significant accounting policies consistently
followed by the Fund in the preparation of its financial statements. The
policies are in conformity with generally accepted accounting principles.
A. Investments, including American Depository Receipts ("ADRs"), are usually
valued at the closing sales price or, in the absence of sales and for
over-the-counter securities, the mean of bid and asked quotations.
Management values the following securities at prices it deems in good faith
to be fair: (a) securities (including restricted securities) for which
complete quotations are not readily available and (b) listed securities if,
in the opinion of management, the last sales price does not reflect a current
value or if no sale occurred. ADRs, which are certificates representing
shares of foreign securities deposited in domestic and foreign banks, are
traded and valued in United States dollars. Those securities traded in
foreign currency amounts are translated into United States dollars as
follows: market value of investments, assets, and liabilities at the daily
rate of exchange; and purchases and sales of investments, income, and
expenses at the rate of exchange prevailing on the respective dates of such
transactions.
Short-term investments maturing in sixty days or less are valued at amortized
cost (original purchase cost as adjusted for amortization of premium or
accretion of discount) which, when combined with accrued interest
approximates market. Short-term investments maturing in more than sixty days
for which market quotations are readily available are valued at current
market value. Short-term investments maturing in more than sixty days when
purchased which are held on the sixtieth day prior to maturity are valued at
amortized cost (market value on the sixtieth day adjusted for amortization of
premium or accretion of discount) which, when combined with accrued interest,
approximates market. Short-term investments denominated in a foreign currency
are adjusted daily to reflect changes in exchange rates.
B. A futures contract is an agreement between two parties to buy and sell a
specific amount of a commodity, security, financial instrument, or, in the
case of a stock index, cash at a set price on a future date. Upon entering
into a futures contract the Fund is required to deposit with a broker an
amount ("initial margin") equal to a certain percentage of the purchase price
indicated in the futures contract. Subsequent payments ("variation margin")
are made or received by the Fund each day, as the value of the underlying
instrument or index fluctuates, and are recorded for book purposes as
unrealized gains or losses by the Fund. For federal tax purposes, any futures
contracts which remain open at fiscal year-end are marked-to-market and the
resultant net gain or loss is included in federal taxable income.
C. Securities transactions are accounted for on the trade date. Realized
gains and losses are recorded on the identified cost basis. Interest income
is recorded on
<PAGE>
Keystone International Fund, Inc.
the accrual basis and dividend income is recorded on the ex-dividend date.
All original issue discounts are amortized for both financial reporting and
federal income tax purposes. Distributions to shareholders are recorded on
the ex-dividend date.
D. The Fund has qualified, and intends to qualify in the future, as a
regulated investment company under the Internal Revenue Code of 1986, as
amended ("Internal Revenue Code"). Thus, the Fund is relieved of any federal
income tax liability by distributing all of its net taxable investment income
and net taxable capital gains, if any, to its shareholders. The Fund intends
to avoid excise tax liability by making the required distributions under the
Internal Revenue Code.
E. For the year ended September 30, 1993, the Fund used the accounting
practice known as equalization by which a portion of the proceeds from sales
and the costs of redemptions of capital shares (equivalent on a per share
basis to the amount of undistributed net investment income on the date of the
transactions) was credited or charged to undistributed income. As a result,
undistributed net investment income per share was not affected by sales or
redemptions of shares. Effective October 1, 1993 the Fund discontinued
equalization accounting.
F. When the Fund enters into a repurchase agreement (a purchase of securities
whereby the seller agrees to repurchase the securities at a mutually agreed
upon date and price) the repurchase price of the securities will generally
equal the amount paid by the Fund plus a negotiated interest amount. The
seller under the repurchase agreement will be required to provide securities
("collateral") to the Fund whose value will be maintained at an amount not
less than the repurchase price, and which generally will be maintained at
101% of the repurchase price. The Fund monitors the value of collateral on a
daily basis, and if the value of the collateral falls below required levels,
the Fund intends to seek additional collateral from the seller or terminate
the repurchase agreement. If the seller defaults, the Fund would suffer a
loss to the extent that the proceeds from the sale of the underlying
securities were less than the repurchase price. Any such loss would be
increased by any cost incurred on disposing of such securities. If bankruptcy
proceedings are commenced against the seller under the repurchase agreement,
the realization on the collateral may be delayed or limited. Repurchase
agreements entered into by the Fund will be limited to transactions with
dealers or domestic banks believed to present minimal credit risks, and the
Fund will take constructive receipt of all securities underlying repurchase
agreements until such agreements expire.
G. In connection with portfolio purchases and sales of securities denominated
in a foreign currency, the Fund may enter into forward foreign currency
exchange contracts ("contracts"). Additionally, from time to time the Fund
may enter into contracts to hedge certain foreign currency assets. Contracts
are recorded at market value and marked-to-market daily. Realized gains and
losses arising from such transactions are included in net realized gain
(loss) on foreign currency related transactions. The Fund is subject to the
credit risk that the other party will not complete the obligations of the
contract.
H. The Fund distributes net investment income and net capital gains, if any,
to shareholders annually. Distributions are determined in accordance with
income tax regulations. Distributions from taxable net investment income and
net capital gains can exceed book basis net investment income and net capital
gains. Effective October 1, 1993, the Fund adopted Statement of Position
93-2: Determination, Disclosure, and Financial Statement Presentation of
Income, Capital Gain and Return of Capital Distributions by Investment
Companies. As a result of this statement, the Fund changed
<PAGE>
the classification of distributions to shareholders to better disclose the
differences between financial statement amounts and distributions determined
in accordance with income tax regulations. Accordingly, amounts as of
September 30, 1993 have been restated to reflect a decrease in paid-in
capital of $37,201,932 and increases in undistributed investment income--net
and accumulated net realized gains (losses) on investment transactions of
$481,698 and $36,720,234, respectively.
2. Capital Share Transactions
One hundred million shares of the Fund with a par value of $1.00 are
authorized for issuance. Transactions in shares of the Fund were as follows:
<TABLE>
<CAPTION>
Six Months Year
Ended Ended
March 31, 1994 September 30, 1993
<S> <C> <C>
Shares sold 11,663,774 10,751,496
Shares redeemed (8,053,231) (5,701,552)
Shares issued in
reinvestment of
distributions from
Investment income--net
and in excess of
investment income--net 0 62,501
Net increase 3,610,543 5,112,445
</TABLE>
The Fund bears some of the costs of selling its shares under a Distribution
Plan adopted pursuant to Rule 12b-1 under the Investment Company Act of 1940.
Under the Distribution Plan, the Fund pays Keystone Distributors, Inc.
("KDI"), the principal underwriter and a wholly-owned subsidiary of Keystone,
amounts which in total may not exceed the Distribution Plan maximum.
In connection with the Distribution Plan and subject to the limitations
discussed below, Fund shares are offered for sale at net asset value without
any initial sales charge. From the amounts received by KDI in connection with
the Distribution Plan, and subject to the limitations discussed below, KDI
generally pays brokers or others a commission equal to 4% of the price paid
to the Fund for each sale of Fund shares as well as a shareholder service fee
at a rate of 0.25% per annum of the net asset value of shares sold by such
brokers or others and remaining outstanding on the books of the Fund for
specified periods.
To the extent Fund shares are redeemed within four calendar years of original
issuance, the Fund may be eligible to receive a deferred sales charge from
the investor as partial reimbursement for sales commissions previously paid
on those shares. This charge is based on declining rates, which begin at
4.0%, applied to the lesser of the net asset value of shares redeemed or the
total cost of such shares.
The Distribution Plan provides that the Fund may incur certain expenses which
may not exceed a maximum amount equal to 0.3125% of the Fund's average daily
net assets for any calendar quarter (approximately 1.25% annually) occurring
after the inception of the Distribution Plan. A rule of the National
Association of Securities Dealers, Inc. ("NASD") limits the annual
expenditures which the Fund may incur under the Distribution Plan to 1%, of
which 0.75% may be used to pay such distribution expenses and 0.25% may be
used to pay shareholder service fees. The new NASD Rule also limits the
aggregate amount which the Fund may pay for such distribution costs to 6.25%
of gross share sales since the inception of the Fund's Distribution Plan,
plus interest at the prime rate plus 1% on unpaid amounts thereof (less any
contingent deferred sales charges paid by the shareholders to KDI).
KDI intends, but is not obligated, to continue to pay or accrue distribution
charges which exceed current annual payments permitted to be received by KDI
from the Fund. KDI intends to seek full payment of such charges from the Fund
(together with
<PAGE>
Keystone International Fund, Inc.
annual interest thereon at the prime rate plus 1%) at such time in the future
as, and to the extent that, payment thereof by the Fund would be within
permitted limits. KDI currently intends to seek payment of interest only on
such charges paid or accrued by KDI subsequent to January 1, 1992.
Commencing on July 8, 1992, contingent deferred sales charges applicable to
shares of the Fund issued after January 1, 1992 have, to the extent permitted
by NASD Rule, been paid to KDI rather than to the Fund.
During the six months ended March 31, 1994, the Fund recovered $9,481 in
deferred sales charges. During the six months, the Fund paid KDI $663,980
under the Distribution Plan. The amount paid by the Fund under its
Distribution Plan, net of deferred sales charges, was $654,499 (0.46% of the
Fund's average daily net asset value during the six months). During the six
months, KDI retained $645,763 and paid commissions on new sales and
maintenance fees to dealers and others of $1,123,932, of which $1,105,715 was
an advance. During the six months, KDI received $82,509 in deferred sales
charges, bringing the total advances outstanding to $2,223,185, (1.50% of the
Fund's net asset value as of March 31, 1994). The right to certain portions
of this amount, if and when receivable, was assigned by KDI in 1988 in
connection with a financial transaction. As of March 31, 1994, $189,759 of
the amount assigned remained outstanding.
3. Securities Transactions
As of September 30, 1993, the Fund had a capital loss carryover for federal
income tax purposes of approximately $1,111,000 which expires in the year
2000. For the six months ended March 31, 1994, purchases and sales of
investment securities were as follows:
<TABLE>
<CAPTION>
Cost of Proceeds
Purchases from Sales
<S> <C> <C>
Portfolio securities $84,334,090 $83,870,172
Short-term investments 1,751,865,671 1,733,337,547
$1,836,199,761 $1,817,207,719
</TABLE>
4. Investment Management and Transactions with Affiliates
Under the terms of the Investment Management Agreement between KMI and the
Fund, dated December 29, 1989, KMI provides investment management and
administrative services to the Fund. In return, KMI is paid a management fee
computed and paid daily. The management fee is calculated by applying
percentage rates, which start at 0.75% and decline, as net assets increase,
to 0.45% per annum, to the net asset value of the Fund. KMI has entered into
an Investment Advisory Agreement with Keystone, dated December 30, 1989,
under which Keystone provides investment advisory and management services to
the Fund and receives for its services an annual fee representing 85% of the
management fee received by KMI.
During the six months ended March 31, 1994, the Fund paid or accrued to KMI
investment management and administrative services fees of $526,581 which
represented 0.75% of the Fund's average net assets on an annualized basis. Of
such amount paid to KMI, $447,594 was paid to Keystone for its investment
advisory services to the Fund.
<PAGE>
During the six months ended March 31, 1994, the Fund paid or accrued to KIRC
and KGI $12,456 for certain accounting and printing services and $308,435 for
transfer agent fees.
5. Forward Foreign Currency Exchange Contracts
At March 31, 1994, the Fund had entered into the following currency exchange
contracts that obligate the Fund to deliver currencies at specified future
dates. The unrealized depreciation of $1,577,116 on these contracts is
included in the accompanying financial statements. The terms of the open
contracts are as follows:
<TABLE>
<CAPTION>
U.S. U.S.
Currency $ value Currency $ value
Exchange to be as of to be as of
date delivered 3/31/94 received 3/31/94
<S> <C> <C> <C> <C>
04/11/94 1,752,360,000 $1,089,306 1,020,000 $1,020,000
Italian Lira U.S. $
04/26/94 1,076,716 1,601,191 1,600,000 1,600,000
British Pound U.S. $
04/26/94 695,476 1,034,247 1,022,350 1,022,350
British Pound U.S. $
04/26/94 12,518,919 12,518,919 1,291,170,000 12,620,244
U.S. $ Japanese Yen
04/26/94 1,291,170,000 12,620,244 11,580,000 11,580,000
Japanese Yen U.S. $
06/08/94 12,839,496 9,249,038 9,441,500 9,441,500
Canadian $ U.S. $
06/17/94 1,175,662,755 11,517,461 11,113,700 11,113,700
Japanese Yen U.S. $
06/23/94 20,563,628 598,345 585,000 585,000
Belgian Franc U.S. $
06/23/94 7,145,678 5,062,740 4,964,000 4,964,000
Swiss Franc U.S. $
06/23/94 2,309,044 1,378,779 1,354,000 1,354,000
Deutsche Mark U.S. $
06/23/94 160,823,520 1,173,060 1,144,000 1,144,000
Spanish Peseta U.S. $
06/23/94 19,060,643 3,328,820 3,273,000 3,273,000
French Franc U.S. $
06/23/94 10,138,176 5,393,864 5,291,600 5,291,600
NL Guilder U.S. $
06/23/94 14,259,047 1,811,496 1,791,000 1,791,000
Swedish Krona U.S. $
$68,377,510 $66,800,394
</TABLE>
