<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION JANUARY 24, 1996.
File Nos. 2-21640/
811-1231
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-1A
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
Pre-Effective Amendment No. [ ]
Post-Effective Amendment No. 63 [ X ]
and
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940
Amendment No. 25 [ X ]
KEYSTONE INTERNATIONAL FUND INC.
--------------------------------
(Exact name of Registrant as specified in Charter)
200 Berkeley Street, Boston, Massachusetts 02116-5034
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(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, Massachusetts 02116-5034
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(Name and Address of Agent for Service)
It is proposed that this filing will become effective
[ X ] 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 has filed a Declaration pursuant to Rule 24f-2 under the
Investment Company Act of 1940. A Rule 24f-2 Notice for Registrant's last fiscal
year was filed on December 28, 1995.
<PAGE>
CALCULATION OF REGISTRATION FEE UNDER THE SECURITIES ACT OF 1933
Proposed Proposed
Title of Maximum Maximum
Securities Amount Offering Aggregate Amount of
Being Being Price Per Offering Registration
Registered Registered Unit* Price** Fee
- ------------------------------------------------------------------------------
Shares of
$1.00 Par 10,561,329 $7.23 $289,995 $100
Value
- ------------------------------------------------------------------------------
* Computed under Rule 457(d) on the basis of the offering price per share at the
close of business on January 16, 1996.
** The calculation of the maximum aggregate offering price is made pursuant to
Rule 24e-2 under the Investment Company Act of 1940. 16,703,211 shares of the
Fund were redeemed during its fiscal year ended October 31, 1995. Of such
shares, 6,181,992 were used for a reduction pursuant to Rule 24f-2 during the
current year. The remaining 10,521,219 shares are being used for a reduction in
this filing.
The Registrant has filed a declaration pursuant to Rule 24f-2 under the
Investment Company Act of 1940. A Rule 24f-2 Notice for Registrant's most recent
fiscal year ended October 31, 1995 was filed on December 28, 1995.
<PAGE>
KEYSTONE INTERNATIONAL FUND INC.
CONTENTS OF
POST-EFFECTIVE AMENDMENT NO. 63
to
REGISTRATION STATEMENT
This Post-Effective Amendment No. 63 to Registrant's Registration Statement No.
2-21640/81-1231 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 24(b)
Financial Statements
Independent Auditors' Report
Listing of Exhibits
PART C - OTHER INFORMATION - ITEMS 25-32 - and SIGNATURE PAGES
Number of Holders of Securities
Indemnification
Business and Other Connections
Principal Underwriter
Location of Accounts and Records
Undertakings
Signatures
Exhibits (including Powers of Attorney)
<PAGE>
KEYSTONE INTERNATIONAL FUND INC.
Cross-Reference Sheet pursuant to Rule 404 and 495 under the Securities Act of
1933.
Items in
Part A of
Form N-1A Prospectus Caption
- --------- ------------------
1 Cover Page
2 Fee Table
3 Financial Highlights
4 Cover Page
Fund Description
Fund Objective and Policies
Investment Restrictions
Risk Factors
5 Fund Management and Expenses
Additional Information
5A Not applicable
6 Fund Description
Dividends and Taxes
Fund Shares
Shareholder Services
7 How to Buy Shares
Distribution Plan
Shareholder Services
8 How to Redeem Shares
9 Not applicable
<PAGE>
KEYSTONE INTERNATIONAL FUND INC.
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 Fund's Investment Objective and Policies
Investment Restrictions
Brokerage
Appendix
14 Directors and Officers
15 Additional Information
16 Sales Charges
Distribution Plan
Investment Manager
Investment Adviser
Principal Underwriter
Additional Information
17 Brokerage
18 Articles of Incorporation
19 Valuation of Securities
Distribution Plan
Redemptions in kind
20 Distributions and Taxes
21 Principal Underwriter
22 Standardized Total Return and Yield
Quotations
23 Financial Statements
<PAGE>
- ------------------------------------------------------------------------------
PROSPECTUS JANUARY 24, 1996
- ------------------------------------------------------------------------------
KEYSTONE INTERNATIONAL FUND INC.
200 BERKELEY STREET, BOSTON, MASSACHUSETTS 02116-5034
CALL TOLL FREE 1-800-343-2898
- ------------------------------------------------------------------------------
Keystone International Fund Inc. (the "Fund") is a mutual fund whose primary
investment objective is long-term growth of capital. As a secondary objective,
the Fund seeks modest income.
The Fund's investments are internationally varied among common stocks, debt
obligations and other securities of United States ("U.S.") and foreign
companies and governments. Excluding repurchase agreements, the Fund currently
follows a policy of investing solely in securities of non-U.S. issuers.
Your purchase payment is fully invested. There is no sales charge when you
buy the Fund's shares. The Fund may, however, impose a deferred sales charge,
which declines from 4% to 1%, if you redeem your shares within four years of
purchase.
The Fund has adopted a Distribution Plan pursuant to Rule 12b-1 under the
Investment Company Act of 1940 under which it bears some of the costs of
selling its shares to the public.
This prospectus sets forth concisely the 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 January 24, 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 above.
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.
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
TABLE OF CONTENTS
- --------------------------------------------------------------------------------------------------------------
Page Page
<S> <C> <C> <C>
Fee Table .......................................... 2 How to Buy Shares .............................. 12
Financial Highlights ............................... 3 Distribution Plan .............................. 13
Fund Description ................................... 4 How to Redeem Shares ........................... 15
Fund Objectives and Policies ....................... 4 Shareholder Services ........................... 17
Investment Restrictions ............................ 6 Performance Data ............................... 18
Risk Factors ....................................... 6 Fund Shares .................................... 18
Pricing Shares ..................................... 9 Additional Information ......................... 19
Dividends and Taxes ................................ 10 Additional Investment Information ............. (i)
Fund Management and Expenses ....................... 10
- --------------------------------------------------------------------------------------------------------------
</TABLE>
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 INTERNATIONAL FUND INC.
The purpose of the fee table is to assist investors in understanding the
costs and expenses that an investor in the Fund 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 Plan"; and "Shareholder
Services."
SHAREHOLDER TRANSACTION EXPENSES
Contingent Deferred Sales Charge(1) .................. 4.00%
(as a percentage of the lesser of total cost or the
net asset value of shares redeemed)
Exchange Fee(2) ...................................... $10.00
(per exchange)
ANNUAL FUND OPERATING EXPENSES(3)
(as a percentage of average net assets)
Management Fee ....................................... 0.75%
12b-1 Fees(4) ........................................ 1.00%
Other Expenses ....................................... 0.82%
-----
Total Fund Operating Expenses ........................ 2.57%
=====
1 YEAR 3 YEARS 5 YEARS 10 YEARS
------ ------- ------- --------
EXAMPLE(5)
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 $66 $100 $137 $290
You would pay the following
expenses on the same
investment, assuming
no redemption ......... $26 $ 80 $137 $290
AMOUNTS SHOWN IN THE EXAMPLE SHOULD NOT BE CONSIDERED A REPRESENTATION OF PAST
OR FUTURE EXPENSES; ACTUAL EXPENSES MAY BE GREATER OR LESS THAN THOSE SHOWN.
- ----------
1 The deferred sales charge declines from 4% to 1% of amounts redeemed within
four calendar years after purchase. No deferred sales charge is imposed
thereafter.
2 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.")
3 Expense ratios are for the Fund's fiscal year ended October 31, 1995.
4 Long-term shareholders may pay more than the economic equivalent of the
maximum front end sales charges permitted by rules adopted by the National
Association of Securities Dealers, Inc. ("NASD").
5 The Securities and Exchange Commission requires use of a 5% annual return
figure for purposes of the example. Actual return for the Fund may be
greater or less than 5%.
<PAGE>
FINANCIAL HIGHLIGHTS
KEYSTONE INTERNATIONAL FUND INC.
(For a share outstanding throughout the year)
The following table contains important financial information relating to the
Fund and has been audited by KPMG Peat Marwick LLP, the Fund's independent
auditors. The table appears in the Fund's Annual Report and should be read in
conjunction with the Fund's financial statements and related notes, which also
appear, together with the independent auditors' report, in the Fund's Annual
Report. The Fund's financial statements, related notes, and independent
auditors' report are included in the statement of additional information.
Additional information about the Fund's performance is contained in its Annual
Report, which will be made available upon request and without charge.
<TABLE>
<CAPTION>
ONE MONTH
YEAR ENDED ENDED YEAR ENDED SEPTEMBER 30,
OCTOBER 31, OCTOBER 31,------------------------------------------------------------------------------------
1995 1994(e) 1994(e) 1993(e) 1992(e) 1991 1990 1989 1988 1987 1986
- --------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE
BEGINNING OF PERIOD $ 7.77 $ 7.67 $ 7.08 $ 6.01 $ 5.91 $ 5.35 $ 7.51 $ 6.66 $ 9.53 $ 8.05 $ 5.35
------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------
Income from
investment operations:
Net investment income 0.07 0 0 (0.03) (0.01) (0.01) (0.07) (0.14) 0.03 0 0.11
Net gains (losses) on
investments and foreign
currency related
transactions ....... 0.05 0.10 0.62 1.14 0.34 0.83 (1.74) 1.06 (1.60) 2.65 3.25
Net commissions paid on
fund share sales (a) 0 0 0 0 0 0 0 0 0 0 (0.07)
------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------
Total from investment
operations ......... 0.12 0.10 0.62 1.11 0.33 0.82 (1.81) 0.92 (1.57) 2.65 3.29
------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------
Less distributions from:
Net investment income (0.04) 0 (0.02) 0 0 0 0 (0.07) (0.08) (0.06) (0.13)
In excess of net
investment income .. 0 0 (0.01) (0.04) (0.23) (0.03) 0 0 0 0 0
Net realized gains on
investments and foreign
currency related
transactions........ (0.74) 0 0 0 0 (0.23) (0.35) 0 (1.22) (1.11) (0.46)
------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------
Total distributions.. (0.78) 0 (0.03) (0.04) (0.23) (0.26) (0.35) (0.07) (1.30) (1.17) (0.59)
------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------
NET ASSET VALUE
END OF PERIOD....... $ 7.11 $ 7.77 $ 7.67 $ 7.08 $ 6.01 $ 5.91 $ 5.35 $ 7.51 $ 6.66 $ 9.53 $ 8.05
====== ====== ====== ====== ====== ====== ====== ====== ====== ====== ======
TOTAL RETURN (c) 2.19% 1.30% 8.75% 18.59% 5.78% 15.59% (25.12%) 13.55% (15.55%) 39.96% 67.76%
RATIOS/SUPPLEMENTAL DATA
Ratios to average net assets:
Total expenses ..... 2.57%(b) 2.52%(d) 2.54% 2.94% 3.41% 3.14% 2.92% 2.65% 2.04% 2.17% 1.49%
Net investment
income ........... 0.88% (0.20%)(d) 0.01% (0.46%) (0.09%) (0.07%) (0.51%) (0.79%) 0.33% (0.04%) 1.53%
Portfolio turnover rate 76% 2% 121% 68% 74% 85% 42% 42% 60% 61% 97%
Net assets end of
period (thousands) $128,674 $157,929 $154,529 $111,752 $64,135 $72,923 $73,768 $121,047 $115,712 $173,319 $89,895
<FN>
(a) Prior to June 30, 1987, net commissions paid on new sales of shares under the Fund's Rule 12b-1 Distribution Plan had been
treated for both financial statement and tax purposes as capital charges. On June 11, 1987, the Securities and Exchange
Commission adopted a rule which required for financal statements for periods ended on or after June 30, 1987, that net
commissions paid under Rule 12b-1 Distribution Plans be treated as operating expenses rather than capital charges.
Accordingly, beginning with the fiscal year ended September 30, 1987, the Fund's financial statements reflect 12b-1
Distribution Plan expenses (i.e., shareholder service fees plus commissions paid net of deferred sales charges received by
the Fund) as a component of net investment income.
(b) "Ratio of total expenses to average net assets" for the year ended October 31, 1995 includes indirectly paid expenses.
Excluding indirectly paid expenses for the year ended October 31, 1995, the expense ratio would have been 2.56%.
(c) Excluding contingent deferred sales charges (CDSC).
(d) Annualized.
(e) Calculation based on average shares outstanding.
</TABLE>
<PAGE>
- ------------------------------------------------------------------------------
FUND DESCRIPTION
- ------------------------------------------------------------------------------
The Fund is an open-end, diversified management investment company, commonly
known as a mutual fund. The Fund was incorporated in 1963 under the laws of
Massachusetts. It is the successor to Keystone International Fund Ltd., which
was incorporated in 1954 under the Companies Act of Canada. From 1968 to 1979,
the Fund was named the Polaris Fund Inc. The Fund is one of twenty funds
managed by Keystone Management, Inc. ("Keystone Management"), the Fund's
investment manager, and is one of more than thirty funds managed or advised by
Keystone Investment Management Company ("Keystone") (formerly named Keystone
Custodian Funds, Inc.), the Fund's investment adviser. Keystone and Keystone
Management are, from time to time, collectively referred to as "Keystone."
- ------------------------------------------------------------------------------
FUND OBJECTIVES AND POLICIES
- ------------------------------------------------------------------------------
The Fund's primary investment objective is long-term growth of capital. As a
secondary objective, the Fund seeks modest income from its investments.
Investments are internationally varied in order to take advantage of domestic
and international changes in technology, the economy and market conditions. In
pursuing its objectives, the Fund may invest in the securities of U.S.
companies and companies of any foreign nation, including issuers located in
certain countries with developed markets as well as those with emerging
markets and the formerly communist countries of Eastern Europe. Countries with
emerging markets are generally those where the per capita income is in the low
to middle ranges, as determined by the International Bank for Reconstruction
and Development ("World Bank").
The Fund may invest in preferred stocks, common stocks and securities
convertible into common stocks or having common stock characteristics
(consisting of rights, warrants and options); debt obligations, zero coupon
bonds and payment-in-kind ("PIK") securities of the U.S. and debt obligations
of any foreign governments, including their political subdivisions; securities
and debt obligations of any international agency; and time deposits with U.S.
and foreign banks. The Fund may hold cash and cash equivalents, as described
below, in U.S. currency or currencies of any nation. The Fund also may engage
in the various investment techniques described herein. The Fund invests at
least 65% of its assets in the securities of at least three countries other
than the U.S. Excluding repurchase agreements, the Fund currently follows a
policy of investing solely in securities of non-U.S. issuers.
There are no limitations on the types, sizes, operating histories or
dividend paying records of companies or industries in which the Fund may
invest, and there is no requirement that the Fund's foreign securities be
listed on a foreign exchange. Except as described below, the primary
investment criterion used by the Fund in the selection of portfolio securities
is that the securities provide opportunities for capital growth. For example,
because the market value of debt obligations can be expected to vary inversely
with changes in prevailing interest rates, investing in debt securities may
provide an opportunity for capital appreciation when interest rates are
expected to decline.
The Fund may invest in debt securities and, to the extent it does, will
invest predominantly in foreign debt securities. Foreign debt securities
generally are not rated, and thus a portion of the Fund's assets will be
invested in unrated securities. Keystone will utilize the various evaluation
methods described below to determine the quality of the debt securities in
which the Fund will invest.
A portion of the debt securities in which the Fund will invest will be rated
BBB or higher by Standard & Poor's Corporation ("S&P") or Baa or higher by
Moody's Investors Service ("Moody's"). If unrated, the securities will be
deemed by Keystone to be of comparable quality to securities rated BBB or
higher by S&P or Baa or higher by Moody's. Debt rated BBB is regarded as
having adequate capacity to pay interest and repay principal; however, adverse
economic conditions or changing circumstances are more likely to lead to
weakened capacity to pay interest and repay principal for debt in this
category than in higher rated categories. Debt rated Baa is considered a
medium grade obligation and is neither highly protected nor poorly secured.
Bonds in this category lack outstanding investment characteristics and have
speculative characteristics as well. In addition, investments may be held on a
short-term basis when the Fund considers it desirable.
The Fund also has the authority to invest up to 10% of its assets in foreign
and domestic debt securities rated BB or lower by S&P or Ba or lower by
Moody's or, if unrated, deemed by Keystone to be of comparable quality.
Securities rated BB or lower or Ba or lower, or unrated securities of
comparable quality, are considered below investment grade and are generally
referred to as high yield, high risk securities.
In evaluating debt securities, Keystone will utilize its internal credit
analysis resources as well as financial and economic information obtained from
other sources. With respect to foreign corporate issuers, Keystone will
consider the financial condition of the issuer and market and economic
conditions relevant to its operations. In terms of foreign governmental
obligations, Keystone will review the financial position of the issuer and
political and economic conditions in the country. Investments in securities of
supranational entities are subject to the additional risk, to be considered by
Keystone, that member governments will fail to make required capital
contributions, thereby possibly preventing a supranational entity from meeting
its obligations.
When market conditions warrant, the Fund may adopt a defensive position to
preserve shareholders' capital by investing in money market instruments. Such
instruments, which must mature within one year of their purchase, consist of
the following: (1) commercial paper, 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 by Moody's) or, if not rated by such services, is issued by
a company that at the date of investment has an outstanding issue rated A or
better by S&P or Moody's; (2) obligations, including certificates of deposit
and bankers' acceptances, of banks or savings and loan associations 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 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.; and (5)
repurchase agreements and reverse repurchase agreements for such instruments.
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
which may not be sold or disposed of in the ordinary course of business within
seven days at approximately the value at which the Fund has valued the
investment on its books and (2) limiting its holdings of such securities to
15% of net assets.
The Fund may invest in restricted securities, including securities eligible
for resale pursuant to Rule 144A under the Securities Act of 1933 (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. The Board of Directors has
adopted guidelines and procedures pursuant to which Keystone determines the
liquidity of the Fund's Rule 144A securities. The Board monitors Keystone's
implementation of such guidelines and procedures.
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 Board of Directors will consider what action, if any, is
appropriate.
The Fund may enter into repurchase and reverse repurchase agreements, lend
portfolio securities, purchase and sell securities and currencies on a when
issued and delayed delivery basis and purchase or sell securities on a forward
commitment basis, write covered call and put options and purchase call and put
options to close out existing positions and may employ new investment
techniques with respect to such options. The Fund may also enter into currency
and other financial futures contracts and related options transactions for
hedging purposes and not for speculation, and may employ new investment
techniques with respect to such futures contracts and related options.
For further information about the types of investments and investment
techniques available to the Fund, including the risks associated therewith,
see the "Risk Factors" and "Additional Investment Information" sections of
this prospectus and the statement of additional information.
Of course, there can be no assurance that the Fund will achieve its
investment objective since there is uncertainty in every investment.
The investment objective of the Fund cannot be changed without a vote of the
holders of a majority (as defined in the Investment Company Act of 1940, as
amended, ("1940 Act")) of the Fund's outstanding shares.
- ------------------------------------------------------------------------------
INVESTMENT RESTRICTIONS
- ------------------------------------------------------------------------------
The Fund has adopted the fundamental restrictions set forth below, which may
not be changed without the approval of a majority (as defined in the 1940 Act)
of the Fund's outstanding shares. These restrictions and certain other
fundamental and nonfundamental restrictions are set forth in the statement of
additional information.
The Fund may not do the following: (1) invest more than 5% of its total
assets, computed at market value at the time of purchase, in the securities of
any one issuer; and (2) borrow money, except from banks and/or enter into
reverse repurchase agreements for emergency or extraordinary purposes in
aggregate amounts up to 10% of the value of the Fund's gross assets, computed
at the lower of cost or current value, provided that no additional investments
shall be made at any time when outstanding borrowings (including amounts
payable under reverse repurchase agreements) exceed 5% of the Fund's gross
assets.
In addition, the Fund may, notwithstanding any other investment policy or
restriction, 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. The Fund does
not currently intend to implement this policy and would do so only if the
Directors were to determine such action to be in the best interest of the Fund
and its shareholders. In the event of such implementation, the Fund will
comply with such requirements as to written notice to shareholders as are then
in effect.
- ------------------------------------------------------------------------------
RISK FACTORS
- ------------------------------------------------------------------------------
Like any investment, your investment in the Fund involves some degree 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.
The Fund seeks to provide long-term growth of capital and modest income
through an internationally varied portfolio of investments.
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
which is growth oriented and has the potential for returns. The Fund involves
risk and is not an appropriate investment for conservative investors who are
seeking preservation of capital and/or income.
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".
FUND RISKS. Investing in the Fund involves the risk common to investing in
any security, that is that the value of the securities held by the Fund will
fluctuate in response to changes in economic conditions or public expectations
about those securities. The net asset value of the Fund's shares will change
accordingly.
FOREIGN RISK
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.
Investing in securities of issuers in emerging markets 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 markets 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 formerly
communist countries of Eastern Europe involves additional risks to those
associated with investments in companies in non-formerly communist emerging
markets countries. 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. These risks are carefully considered by Keystone prior to the
purchase of these securities.
NON-INVESTMENT GRADE BONDS
The Fund currently has the authority to invest up to 10% of its assets in
foreign and domestic high yield, high risk bonds and similar securities. The
degree to which the Fund will hold such securities will, among other things,
depend upon Keystone's economic forecast and its judgment as to the
comparative values offered by high yield, high risk securities and higher
quality issues.
The Fund intends to invest a portion of its assets aggressively and seeks to
maximize return on such assets over time from a combination of many factors,
including high current income and capital appreciation from high yield, high
risk securities. Such aggressive investing involves risks that are greater
than the risks of investing in higher quality debt securities. These risks are
discussed in greater detail below and include risks from (1) interest rate
fluctuation; (2) changes in credit status, including weaker overall credit
conditions of issuers and risks of default; (3) industry, market and economic
risk; (4) volatility of price resulting from broad and rapid changes in the
value of underlying securities; and (5) greater price variability and credit
risks of certain high yield, high risk securities, such as zero coupon bonds
and PIK securities.
While these risks provide the opportunity for the Fund to maximize return
over time on a portion of its assets, they may result in greater upward and
downward movement of the net asset value per share of the Fund. As a result,
they should be carefully considered by investors.
The high yield, high risk securities in which the Fund may invest generally
will be rated BB or lower by S&P or Ba or lower by Moody's. If unrated, such
securities will be deemed by Keystone to be of comparable quality. The Fund
may invest in securities that are rated (or unrated but of comparable quality
to securities rated) as low as D by S&P and C- by Moody's. The descriptions at
the back of this prospectus describe the S&P and Moody's rating categories.
The Fund intends to invest in D rated debt (or unrated securities deemed to
be of comparable quality to 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.
Investment in higher yielding, higher risk securities involves certain
risks, including the following:
(1) securities rated BB or lower by S&P or Baq or lower by Moody's (or
comparable unrated securities) are considered predominantly speculative
with respect to the ability of the issuer to meet principal and interest
payments;
(2) the value of high yield, high risk securities may be more susceptible to
real or perceived adverse economic, company or industry conditions than is
the case for higher quality securities;
(3) adverse market, credit or economic conditions could make it difficult at
certain times to sell certain high yield, high risk securities held by the
Fund;
(4) the secondary market for high yield, high risk securities may be less
liquid than the secondary market for higher quality securities, which may
affect the value of certain high yield, high risk securities held by the
Fund at certain times; and
(5) zero coupon and PIK high yield, high risk securities may be subject to
greater changes in value due to market conditions, the absence of a cash
interest payment and the tendency of issuers of such securities to have
weaker overall credit conditions than issuers of other high yield, high
risk securities.
These characteristics of high yield, high risk securities make them
generally more appropriate for long term investment.
If and when the Fund invests in zero coupon bonds, the Fund does not expect
to have enough zero coupon bonds to have a material effect on dividends. The
Fund has undertaken to a state securities authority to disclose that zero
coupon securities pay no interest to holders prior to maturity, and the
interest on these securities is reported as income to the Fund and distributed
to its shareholders. These distributions must be made from the Fund's cash
assets or, if necessary, from the proceeds of sales of portfolio securities.
The Fund will not be able to purchase additional income producing securities
with cash used to make such distributions and its current income ultimately
may be reduced as a result.
The table below shows the weighted average percentages of the Fund's assets
invested at the end of each month during the last fiscal year in (1) debt
securities assigned to the various rating categories by S&P and (2) unrated
debt securities determined by Keystone to be of comparable quality. Since the
percentages in this table are based on month-end averages throughout the
Fund's fiscal year, they do not reflect the Fund's holdings at any one point
in time. The percentages in each category may be higher or lower on any day
than those shown in the table.
*UNRATED
SECURITIES
OF COMPARABLE
RATED SECURITIES QUALITY AS
AS PERCENTAGE OF PERCENTAGE OF
RATING FUND'S ASSETS FUND'S ASSETS
- ------ ---------------- -------------
AAA 1.73% 0.00%
AA- 0.00% 0.00%
A 0.00% 0.00%
BBB 0.00% 0.00%
BB+ 0.00% 0.00%
BB and below 3.96% 5.51%
CCC 0.00% 0.00%
CC and below 0.00% 0.00%
Unrated* 5.51%
Cash, equities and
others 88.80%
-----
TOTAL 100.00%
======
Since the Fund intends to take an aggressive approach to investing a portion
of its assets, Keystone will attempt to maximize the return by controlling
risk through diversification, credit analysis, review of sector and industry
trends, interest rate forecasts and economic analysis. Keystone's analysis of
securities focuses on factors such as interest or dividend coverage, asset
values, earnings prospects and the quality of management of the issuer. In
making investment recommendations, Keystone also considers current income,
potential for capital appreciation, maturity structure, quality guidelines,
coupon structure, average yield, percentage of zeros and PIKs, percentage of
non-accruing items and yield to maturity.
Keystone may consider the ratings of Moody's and S&P assigned to various
securities, but will not rely on ratings assigned by Moody's and S&P for the
following reasons: (1) Moody's and S&P assigned ratings are based largely on
historical financial data and may not accurately reflect the current financial
outlook of companies; (2) there can be large differences among the current
financial conditions of issuers within the same rating category; and (3) a
large portion of the high yield, high risk securities in which the Fund will
invest will be unrated.
Income and yields on high yield, high risk securities, as on all securities,
will fluctuate over time.
OTHER CONSIDERATIONS. The Fund does not, by itself, constitute a balanced
investment plan. The Fund may be appropriate as part of an overall investment
program. Investors may wish to consult their financial advisers when
considering what portion of their total assets to invest in international
securities.
Past performance should not be considered representative of results for any
future period of time.
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PRICING SHARES
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The net asset value of a Fund share is computed each day on which the New
York Stock Exchange (the "Exchange") is open as of the close of trading on the
Exchange (currently 4:00 p.m. eastern time for the purpose of pricing Fund
shares) except on days when changes in the value of the Fund's securities do
not affect the current net asset value of its shares. The Exchange is
currently 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 is arrived at by determining the value of all of
the Fund's assets, subtracting all liabilities and dividing the result by the
number of shares outstanding.
The Fund values its money market investments as follows: short-term money
market investments purchased with maturities of sixty days or less are valued
at amortized cost (original purchase cost as adjusted for amortization of
premium or accretion of discount), which, when combined with accrued interest,
approximates market; money market investments with maturities of more than
sixty days for which market quotations are readily available are valued at
market value; and money market investments maturing in more than sixty days
when purchased that are held on the sixtieth day prior to maturity are valued
at amortized cost (market value on the sixtieth day adjusted for amortization
of premium or accretion of discount), which, when combined with accrued
interest, approximates market; and which in any case reflects fair value as
determined by the Board of Directors. All other investments are valued at
market value or, where market quotations are not readily available, at fair
value as determined in good faith by the Board of Directors.
- ------------------------------------------------------------------------------
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 on October 31 of such calendar
year. Any taxable dividend declared in October, November, or December to
shareholders of record in such a month, and paid by the following January 31
will be includable in the taxable income of the shareholders 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 and net capital gains, if any, at least annually.
Distributions are payable in shares of the Fund or, at the shareholder's
option (which must be exercised before the record date for the distribution),
in cash. Fund distributions in the form of additional shares are made at net
asset value without the imposition of a sales charge. Income dividends and net
short-term gains distributions 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.
Dividends and distributions may also be subject to state and local taxes. The
Fund advises its shareholders annually as to the federal tax status of all
distributions made during the year.
In addition, 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 dividends
paid by the Fund and the amount the Fund advises him is his pro rata portion
of taxes withheld by foreign governments from interest and dividends paid on
the Fund's foreign investments. A shareholder will be entitled to take,
however, his share of the amount of any foreign taxes withheld as a credit
against his U.S. income tax or to treat his share of the foreign tax withheld
as an itemized deduction from his gross income.
- ------------------------------------------------------------------------------
FUND MANAGEMENT AND EXPENSES
- ------------------------------------------------------------------------------
FUND MANAGEMENT
Subject to the general supervision of the Fund's Board of Directors,
Keystone Management, located at 200 Berkeley Street, Boston, Massachusetts
02116-5034, serves as investment manager to the Fund and is responsible for
the overall management of the Fund's business and affairs.
INVESTMENT MANAGER
Keystone Management, organized in 1989, is a wholly-owned subsidiary of
Keystone. Its directors and principal executive officers have been affiliated
with Keystone, a seasoned investment adviser, for a number of years. Keystone
Management also serves as investment manager to each of the other funds in the
Keystone Fund Family and certain other funds in the Keystone Investments
Family of Funds.
Pursuant to its Investment Management Agreement with the Fund, Keystone
Management has delegated its investment management functions, except for
certain administrative and management services, to Keystone and has entered
into an Investment Advisory Agreement with Keystone under which Keystone
provides investment advisory and management services to the Fund. Services
performed by Keystone Management include (1) performing research and planning
with respect to (a) the Fund's qualification as a regulated investment company
under Subchapter M of the Internal Revenue Code, (b) tax treatment of the
Fund's portfolio investments, (c) tax treatment of special corporate actions
(such as reorganizations), (d) state tax matters affecting the Fund, and (e)
the Fund's distributions of income and capital gains; (2) preparing the Fund's
federal and state tax returns; (3) providing services to the Fund's
shareholders in connection with federal and state taxation and distributions
of income and capital gains; and (4) storing documents relating to the Fund's
activities.
The Fund pays Keystone Management a fee for its services at the annual rate
set forth below:
AGGREGATE NET ASSET VALUE
MANAGEMENT OF THE SHARES
FEE OF THE FUND
- ------------------------------------------------------------------------------
0.75% of the first $200,000,000, plus
0.65% of the next $200,000,000, plus
0.55% of the next $200,000,000, plus
0.45% of amounts over $600,000,000.
computed as of the close of business each business day and payable daily.
During the fiscal year ended October 31, 1995, the Fund paid or accrued to
Keystone Management investment management and administrative service fees of
$985,652, which represented 0.75% of the Fund's average daily net assets. Of
such amount paid to Keystone Management, $837,804 was paid to Keystone for its
services to the Fund. The fee charged to the Fund is higher than that charged
to most investment companies. The fee is comparable, however, to fees charged
to other global and international funds, which, like the Fund, are subject to
the higher costs involved in managing a portfolio of predominantly
international securities.
INVESTMENT ADVISER
Keystone, the Fund's investment adviser, located at 200 Berkeley Street,
Boston, Massachusetts 02116-5034, has provided investment advisory and
management services to investment companies and private accounts since it was
organized in 1932. Keystone is a wholly-owned subsidiary of Keystone
Investments, Inc. ("Keystone Investments") (formerly named Keystone Group,
Inc.), located at 200 Berkeley Street, Boston, Massachusetts 02116-5034.
Keystone Investments is a corporation privately owned by current and former
members of management and certain employees 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 Management, Keystone,
their affiliates and the Keystone Investments Family of Funds.
Pursuant to the Investment Advisory Agreement, Keystone receives for its
services an annual fee representing 85% of the management fee received by
Keystone Management under its Investment Management Agreement with the Fund.
The Fund has adopted a Code of Ethics incorporating policies on personal
securities trading as recommended by the Investment Company Institute.
FUND EXPENSES
The Fund will pay all of its expenses. In addition to the investment
advisory and management fees discussed above, the principal expenses that the
Fund is expected to pay include, but are not limited to, expenses of its
transfer agent, its custodian and its independent auditors; expenses under its
Distribution Plan; fees of its Independent Directors; expenses of
shareholders' and Directors' meetings; fees payable to government agencies,
including registration and qualification fees of the Fund and its shares under
federal and state securities laws; expenses of preparing, printing and mailing
Fund prospectuses, notices, reports and proxy material; and certain
extraordinary expenses. In addition to such expenses, the Fund pays its
brokerage commissions, interest charges and taxes. For the fiscal year ended
October 31, 1995, the Fund paid 2.57% of its average net assets in expenses.
During the fiscal year ended October 31, 1995, the Fund paid or accrued to
Keystone Investor Resource Center, Inc. ("KIRC"), the Fund's transfer and
dividend disbursing agent, and to Keystone Investments, $62,044 for the cost
of certain accounting services and $616,119 for shareholder services. KIRC is
a wholly-owned subsidiary of Keystone.
PORTFOLIO MANAGER
Gilman C. Gunn has been the Fund's portfolio manager since 1991. Mr. Gunn is
a Keystone Senior Vice President and Senior Portfolio Manager. An investment
professional with 23 years of experience, he has spent over ten years in
London, Kuwait and Thailand.
SECURITIES TRANSACTIONS
Under policies established by the Fund's Board of Directors, 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 the number of shares of the Fund sold by such
broker-dealers. In addition, broker-dealers may, from time to time, be
affiliated with the Fund, Keystone Management, 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 portfolio turnover rates for the fiscal year ended October 31,
1995, the one month period ended October 31, 1994 and the twelve month period
ended September 30, 1994 were 76%, 2% and 121%, respectively. High portfolio
turnover may involve correspondingly greater brokerage commissions and other
transaction costs, which would be borne directly by the Fund, as well as
additional realized gains and/or losses to shareholders. For further
information about brokerage and distributions, see the statement of additional
information.
- ------------------------------------------------------------------------------
HOW TO BUY SHARES
- ------------------------------------------------------------------------------
You may purchase shares of the Fund from any broker-dealer that has a
selling agreement with Keystone Investment Distributors Company (formerly
named Keystone Distributors, Inc.) (the "Principal Underwriter"), the Fund's
principal underwriter. The Principal Underwriter, a wholly-owned subsidiary of
Keystone, is located at 200 Berkeley Street, Boston, Massachusetts 02116-5034.
In addition, you may open an account for the purchase of 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
Fund shares in any amount may be made by check, by wiring Federal funds or by
an electronic funds transfer ("EFT").
The Fund's shares are sold at the net asset value per share next computed
after the Fund receives the purchase order. The initial purchase must be at
least $1,000 except for purchases by participants in certain retirement plans
for which the minimum is waived. There is no minimum for subsequent purchases.
Purchase payments are fully invested at net asset value. There are no sales
charges on purchases of Fund shares at the time of purchase.
CONTINGENT DEFERRED SALES CHARGE
With certain exceptions, when shares are redeemed within four calendar years
after their purchase, a deferred sales charge may be imposed at rates ranging
from a maximum of 4% of amounts redeemed during the same calendar year of
purchase to 1% of amounts redeemed during the third calendar year after the
year of purchase. No deferred sales charge is imposed on amounts redeemed
thereafter or on shares purchased through reinvestment of dividends. If
imposed, the deferred sales charge is deducted from the redemption proceeds
otherwise payable to the shareholder. Prior to July 8, 1992, the Fund retained
the deferred sales charge. Since July 8, 1992, the deferred sales charge
attributable to shares purchased prior to January 1, 1992 has been retained by
the Fund, and the deferred sales charge attributable to shares purchased after
January 1, 1992 is, to the extent permitted by NASD rules, paid to the
Principal Underwriter.
The contingent deferred sales charge is a declining percentage of the lesser
of (1) the net asset value of the shares redeemed or (2) the total cost of
such shares. No contingent deferred sales charge is imposed when a shareholder
redeems amounts derived from (1) increases in the value of his account above
the total cost of such shares due to increases in the net asset value per
share of the Fund; (2) certain shares with respect to which the Fund did not
pay a commission on issuance, including shares acquired through reinvestment
of dividend income and capital gains distributions; or (3) shares held in all
or part of more than four consecutive calendar years.
In determining whether a contingent deferred sales charge is payable and, if
so, the percentage charge applicable, it is assumed that shares held the
longest are the first to be redeemed. No deferred sales charge is payable on
permitted exchanges of shares between the Funds in the Keystone Fund Family
that have adopted distribution plans pursuant to Rule 12b-1 under the 1940
Act. When shares of one such fund have been exchanged for shares of another
such fund, for purposes of any future contingent deferred sales charge, the
calendar year of the purchase of the shares of the fund exchanged into is
assumed to be the year shares tendered for exchange were originally purchased.
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.
WAIVER OF DEFERRED SALES CHARGE
Shares also may be sold, to the extent permitted by applicable law, at net
asset value without the payment of commissions or the imposition of a deferred
sales charge to (1) certain officers, Directors, Trustees and employees of the
Fund, Keystone Management, Keystone and certain of their affiliates; (2)
registered representatives of firms with dealer agreements with the Principal
Underwriter; and (3) a bank or trust company acting as trustee for a single
account.
- ------------------------------------------------------------------------------
DISTRIBUTION PLAN
- ------------------------------------------------------------------------------
The Fund bears some of the costs of selling its shares under a Distribution
Plan adopted pursuant to Rule 12b-1 under the 1940 Act. The Fund's
Distribution Plan provides that the Fund may expend up to 0.3125% quarterly
(approximately 1.25% annually) of the average daily net asset value of its
shares to pay distribution costs for sales of its shares and to pay
shareholder service fees. A NASD rule limits the amount that the Fund may pay
annually in distribution costs for the sale of its shares and shareholder
service fees. The rule 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 services
fees. The NASD rule also limits the aggregate amount that the Fund may pay for
such distribution costs is limited to 6.25% of gross share sales since the
inception of the Fund's Distribution Plan, plus interest at the prime rate
plus 1% per annum on such amounts (less any contingent deferred sales charges
paid by shareholders to the Principal Underwriter), remaining unpaid from time
to time.
Payments under the Distribution Plan are currently made to the Principal
Underwriter (which may reallow all or part to others, such as dealers) (1) as
commissions for Fund shares sold and (2) as shareholder service fees in
respect of shares maintained by the recipients outstanding on the Fund's books
for specified periods. Amounts paid or accrued to the Principal Underwriter
under (1) and (2) in the aggregate may not exceed the annual limitations
referred to above. The Principal Underwriter generally reallows to brokers or
others a commission equal to 4% of the price paid for each Fund share sold. In
addition, the Principal Underwriter generally reallows to brokers or others a
shareholder service fee at a rate of 0.25% per annum of the net asset value of
shares maintained by such recipients outstanding on the books of the Fund for
specified periods.
If the Fund is unable to pay the Principal Underwriter a commission on a new
sale because the annual maximum (0.75% of average daily net assets) has been
reached, the Principal Underwriter intends, but is not obligated, to continue
to accept new orders for the purchase of Fund shares and to pay or accrue
commissions and service fees to dealers in excess of the amount it currently
receives from the Fund. While the Fund is under no contractual obligation to
pay the Principal Underwriter for advances made by the Principal Underwriter
in excess of the Distribution Plan limitation, the Principal Underwriter
intends to seek full payment of such amounts from the Fund (together with
interest at the rate of prime plus one percent) at such time in the future as,
and to the extent that, payment thereof by the Fund would be within permitted
limits. The Principal Underwriter currently intends to seek payment of
interest only on such charges paid or accrued by the Principal Underwriter
subsequent to January 1, 1992. If the Fund's Independent Directors 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 Directors to take whatever action they deem appropriate under the
circumstances with respect to payment of such amounts.
During the fiscal year ended October 31, 1995, the Fund recovered $1,380 in
deferred sales charges. During the year, the Fund paid the Principal
Underwriter under the Distribution Plan $1,316,980. The amount paid by the
Fund under its Distribution Plan, net of deferred sales charges received by
the Fund, was $1,315,600 (1.00% of the Fund's average daily net asset value
during the year). During the year, the Principal Underwriter also received
$375,704 in deferred sales charges. Unpaid distribution costs at October 31,
1995 were $1,721,992 (1.31% of the Fund's net assets).
The amounts and purposes of expenditures under the Distribution Plan must be
reported to the Independent Directors quarterly. The Independent Directors may
require or approve changes in the operation of the Distribution Plan and may
require that total expenditures by the Fund under the Distribution Plan be
kept within limits lower than the maximum amount permitted by the Distribution
Plan as stated above. If such costs are not limited by the Independent
Directors, such costs could, for some period of time, be higher than such
costs permitted by most other plans presently adopted by other investment
companies.
The Distribution Plan may be terminated at any time by vote of the
Independent Directors or by vote of a majority of the outstanding voting
shares of the Fund. Any change in the Distribution Plan that would materially
increase the distribution expenses of the Fund provided for in the
Distribution Plan requires shareholder approval. Otherwise, the Distribution
Plan may be amended by votes of the majority of both (1) the Fund's Directors
and (2) the Independent Directors cast in person at a meeting called for the
purpose of voting on such amendment.
While the Distribution Plan is in effect, the Fund is required to commit the
selection and nomination of candidates for Independent Directors to the
discretion of the Independent Directors.
Whether any expenditure under the Distribution Plan is subject to a state
expense limit depends 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.
ARRANGEMENTS WITH BROKER-DEALERS AND OTHERS
Upon written notice to dealers, the Principal Underwriter, at its own
expense, may periodically sponsor programs that offer additional compensation
in connection with sales of shares of the Fund. Participation in such programs
may be available to all dealers or to selected dealers who have sold or are
expected to sell significant amounts of shares. Additional compensation may
also include financial assistance to dealers in connection with preapproved
seminars, conferences and advertising. No such programs or additional
compensation will be offered to the extent they are prohibited by the laws of
any state or any self-regulatory agency, such as the NASD.
The Principal Underwriter may, at its own expense, pay concessions in
addition to those described above to dealers which 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 up to 0.25% of the value
of shares sold by such dealer.
The Principal Underwriter may also pay banks and other financial services
firms that facilitate transactions in shares of the Fund for their clients a
transaction fee up to the level of payments allowed to dealers for the sale of
shares, as described above.
The Glass-Steagall Act currently limits the ability of a depository
institution (such as a commercial bank or a savings and loan association) to
become an underwriter or distributor of securities. In the event the Glass-
Steagall Act is deemed to prohibit depository institutions from accepting
payments under the arrangement described above, or should Congress relax
current restrictions on depository institutions, the Board of Directors 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.
- ------------------------------------------------------------------------------
HOW TO REDEEM SHARES
- ------------------------------------------------------------------------------
Fund shares may be redeemed for cash at the redemption value upon written
order by the shareholder(s) to the Fund, c/o Keystone Investor Resource
Center, Inc., Box 2121, Boston, Massachusetts 02106-2121, and presentation to
the Fund of a properly endorsed share certificate, if certificates have been
issued. The signature(s) of the shareholder(s) on the written order and
certificates must be guaranteed. The redemption value is the net asset value
adjusted for fractions of a cent and may be more or less than the
shareholder's cost depending upon changes in the value of the Fund's portfolio
securities between purchase and redemption. The Fund may impose a deferred
sales charge at the time of redemption of certain shares as explained under
"How to Buy Shares." If imposed, the Fund deducts the deferred sales charge
from the redemption proceeds otherwise payable to the shareholder.
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 drawn on a U.S. bank or by bank wire of funds. Although the
mailing of a redemption check may be delayed, the redemption value will be
determined and the redemption processed in the ordinary course of business
upon receipt of proper documentation. In such a case, after redemption and
prior to the release of the proceeds, no appreciation or depreciation will
occur in the value of the redeemed shares, and no interest will be paid on the
redemption proceeds. If the mailing of a redemption check has been delayed,
the check will be mailed or the proceeds wired or sent by electronic funds
transfer promptly after good payment has been collected.
The Fund computes the redemption value at the close of the Exchange at the
end of the day on which it has received all proper documentation from the
shareholder. Payment of the amount due on redemption, less any applicable
deferred sales charge, will be made within seven days thereafter except as
discussed herein.
Shareholders may also redeem their shares through their broker-dealers. The
Principal Underwriter, acting as agent for the Fund, stands ready to
repurchase Fund shares upon orders from dealers as follows: redemption
requests received by broker-dealers prior to that day's close of trading on
the Exchange and transmitted to the Fund prior to its close of business that
day will receive the net asset value per share computed at the close of
trading on the Exchange on the same day. Redemption requests received by
broker-dealers after that day's close of trading on the Exchange and
transmitted to the Fund prior to the close of business on the next business
day will receive the next business day's net asset value price. The Principal
Underwriter will pay the redemption proceeds, less any applicable deferred
sales charge, to the dealer placing the order within seven days thereafter,
assuming it has received proper documentation. The Principal Underwriter
charges no fees for this service, but the shareholder's broker-dealer may do
so.
For the protection of shareholders, SIGNATURES ON CERTIFICATES, STOCK POWERS
AND ALL WRITTEN ORDERS OR AUTHORIZATIONS MUST BE GUARANTEED BY A U.S. STOCK
EXCHANGE MEMBER, A BANK OR OTHER PERSONS ELIGIBLE TO GUARANTEE SIGNATURES
UNDER THE SECURITIES EXCHANGE ACT OF 1934 AND KIRC'S POLICIES. The Fund and
KIRC may waive this requirement, but may also require additional documents in
certain cases. Currently, the requirement for a signature guarantee has been
waived on redemptions of $50,000 or less where the account address of record
has been the same for a minimum period of 30 days. The Fund and KIRC reserve
the right to withdraw this waiver at any time.
If the Fund receives a redemption or repurchase order, but the shareholder
has 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 the shareholder and process the order the day it
receives such information.
TELEPHONE
Under ordinary circumstances, you may redeem up to $50,000 from your account
by telephone by calling toll free 1-800-343-2898.To engage in telephone
transactions generally, you must complete the appropriate sections of the
Fund's application.
In order to insure that instructions received by KIRC are genuine when you
initiate a telephone transaction, you will be asked to verify certain criteria
specific to your account. At the conclusion of the transaction, you will be
given a transaction number confirming your request, and written confirmation
of your transaction will be mailed the next business day. Your telephone
instructions will be recorded. Redemptions by telephone are allowed only if
the address and bank account of record have been the same for a minimum period
of 30 days.
If the redemption proceeds are less than $2,500, they will be mailed by
check. If they are $2,500 or more, they will be mailed, wired or sent by EFT
to your previously designated bank account as you direct. If you do not
specify how you wish your redemption proceeds to be sent, they will be mailed
by check.
If you cannot reach the Fund by telephone, you should follow the procedures
for redeeming by mail or through a broker as set forth above.
SMALL ACCOUNTS
Because of the high cost of maintaining small accounts, the Fund reserves
the right to redeem your account if its value falls 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
contingent deferred sales charges are applied to such redemptions.
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) the Fund cannot dispose of its
investments or fairly determine their value; or (4) the Securities and
Exchange Commission, for the protection of shareholders, so orders.
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SHAREHOLDER SERVICES
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Details on all shareholder services may be obtained from KIRC by calling
toll free 1-800-343-2898.
KEYSTONE AUTOMATED RESPONSE LINE
KARL offers shareholders specific fund account information and price and
yield quotations as well as the ability to effect account transactions,
including investments, exchanges and redemptions. Shareholders 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 any of the other funds in the Keystone Fund
Family, on the basis of their respective net asset values by calling toll free
1-800-343-2898 or by writing KIRC at Box 2121, Boston, Massachusetts 02106-
2121. (See "How to Redeem Shares" for additional information with respect to
telephone transactions.)
Fund shares purchased by check may be exchanged for shares of the funds in
the Keystone Fund Family, other than Keystone Precious Metals Holdings
("KPMH"), Keystone Tax Exempt Trust ("KTET") or Keystone Tax Free Fund
("KTFF"). In order to exchange Fund shares for shares of KPMH, KTET or KTFF, a
shareholder must have held Fund shares for a period of at least six months.
You may exchange your 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. If the shares being tendered for
exchange have been held for less than four years and 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 to terminate
this exchange offer or to change its terms, including the right to change the
service charge for any exchange.
Orders to exchange shares of the Fund for shares of Keystone Liquid Trust
("KLT") will be executed by redeeming the shares of the Fund and purchasing
shares of KLT at the net asset value of KLT shares determined after the
proceeds from such redemption become available, which may be up to seven days
after such redemption. In all other cases, orders for exchanges received by
the Fund prior to 4:00 p.m. eastern time on any day the funds are open for
business will be executed at the respective net asset values determined as of
the close of business that day. Orders for exchanges received after 4:00 p.m.
eastern time on any business day will be executed at the respective net asset
values determined at the close of the next business day.
An excessive number of exchanges may be disadvantageous to the Fund.
Therefore, the Fund, in addition to its right to reject any exchange, reserves
the right to terminate the exchange privilege of any shareholder who makes
more than five exchanges 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.
RETIREMENT PLANS
The Fund has various retirement plans available to investors, including
Individual Retirement Accounts ("IRAs"); Rollover IRAs; Simplified Employee
Pension Plans ("SEPs"); Tax Sheltered Account Plans ("TSAs"); 403(b) Plans;
401(k) Plans; Keogh Plans; Corporate Profit-Sharing Plans; and Money Purchase
Pension Plans. For details, including fees and application forms, call KIRC
toll free at 1-800-247-4075 or write to KIRC at P.O. Box 2121, Boston,
Massachusetts 02106-2121.
AUTOMATIC INVESTMENT PLAN
Shareholders may take advantage of investing on an automatic basis by
establishing an Automatic Investment Plan. Funds are drawn on a shareholder's
checking account monthly and used to purchase Fund shares.
AUTOMATIC WITHDRAWAL PLAN
Under an Automatic Withdrawal Plan, shareholders may arrange for regular
monthly or quarterly fixed withdrawal payments. Each payment must be at least
$100 and may be as much as 1% per month or 3% per quarter of the total net
asset value of the Fund shares in the shareholder's 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 a shareholder's account.
OTHER SERVICES
Under certain circumstances, shareholders may, within 30 days after a
redemption, reinstate their accounts at current net asset value.
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PERFORMANCE DATA
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From time to time, the Fund may advertise "total return" and "current
yield." BOTH FIGURES ARE BASED ON HISTORICAL EARNINGS AND ARE NOT INTENDED TO
INDICATE FUTURE PERFORMANCE. Total return refers to the Fund's average annual
compounded rates of return over specified periods determined by comparing the
initial amount invested to the ending redeemable value of that amount. The
resulting equation assumes reinvestment of all dividends and distributions and
deduction of all recurring charges, if any, applicable to all shareholder
accounts. The deduction of the contingent deferred sales charge is reflected
in the applicable years. 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 presently does not intend to advertise current
yield.
The Fund may include comparative performance information 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.
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FUND SHARES
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The Fund currently issues one class of shares, which participate equally in
dividends and distributions and have equal voting, liquidation and other
rights. 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. Shareholders are entitled to one vote for each
full share owned and fractional votes for fractional shares. Shares are
redeemable, transferable and freely assignable as collateral. There are no
sinking fund provisions. The Fund may establish additional classes or series
of shares. The Fund is required to hold annual meetings of shareholders.
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ADDITIONAL INFORMATION
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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 written notice to those shareholders, the Fund intends,
when an annual report or 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>
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ADDITIONAL INVESTMENT INFORMATION
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The Fund may engage in the following investment practices to the extent
described in the prospectus and 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, which 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 degree of speculation. While such debt will
likely have some quality and protective characteristics, these are outweighed
by large uncertainties or major risk exposures to adverse conditions. Debt
rated CI 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.
REPURCHASE AGREEMENTS
The Fund may enter into repurchase agreements with member banks of the
Federal Reserve System having at least $1 billion in assets, primary dealers
in U.S. government securities or other financial institutions believed by
Keystone to be creditworthy. Such persons must be registered as U.S.
government securities dealers with an appropriate regulatory organization.
Under such agreements, the bank, primary dealer or other financial institution
agrees, upon entering into the contract, to repurchase the security at a
mutually agreed upon date and price, thereby determining the yield during the
term of the agreement. This results in a fixed rate of return insulated from
market fluctuations during such period. Under a repurchase agreement, the
seller must maintain the value of the securities subject to the agreement at
not less than the repurchase price, and such value will be determined on a
daily basis by marking the underlying securities to their market value.
Although the securities subject to the repurchase agreement might bear
maturities exceeding a year, the Fund only intends to enter into repurchase
agreements that provide for settlement within a year and usually within seven
days. Securities subject to repurchase agreements will be held by the Fund's
custodian or in the Federal Reserve book entry system. The Fund does not bear
the risk of a decline in the value of the underlying security unless the
seller defaults under its repurchase obligation. In the event of a bankruptcy
or other default of a seller of a repurchase agreement, the Fund could
experience both delays in liquidating the underlying securities and losses,
including (1) possible declines in the value of the underlying securities
during the period while the Fund seeks to enforce its rights thereto; (2)
possible subnormal levels of income and lack of access to income during this
period; and (3) expenses of enforcing its rights. The Board of Directors of
the Fund has established procedures to evaluate the creditworthiness of each
party with whom the Fund enters into repurchase agreements by setting
guidelines and standards of review for Keystone and monitoring Keystone's
actions with regard to repurchase agreements. As a general matter, the Fund
anticipates that not more than 10% of its assets will be invested in
repurchase agreements. However, during temporary defensive periods, up to 50%
of the Fund's net assets may be so invested.
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 Securities and Exchange Commission ("SEC") has
taken the position that reverse repurchase agreements are subject to the
percentage limit on borrowings imposed on the Fund under the 1940 Act.
FOREIGN SECURITIES
The Fund may invest its assets in securities principally traded in
securities markets outside the U.S. While investment in foreign securities is
intended to reduce risk by providing further diversification, such investments
involve sovereign risk in addition to the credit and market risks normally
associated with domestic securities. Foreign investments may be affected
favorably or unfavorably by changes in currency rates and exchange control
regulations. There may be less publicly available information about a foreign
company, particularly emerging market countries companies, than about a U.S.
company, and foreign companies may not be subject to accounting, auditing and
financial reporting standards and requirements comparable to those applicable
to U.S. companies. Securities of some foreign companies are less liquid or
more volatile than securities of U.S. companies, and foreign brokerage
commissions and custodian fees are generally higher than in the United States.
Investments in foreign securities may also be subject to other risks different
from those affecting U.S. investments, including local political or economic
developments, particularly with respect to companies in the formerly communist
countries of Eastern Europe, expropriation or nationalization of assets,
imposition of withholding taxes on dividend or interest payments and currency
blockage (which would prevent cash from being brought back to the U.S.). These
risks are carefully considered by Keystone prior to the purchase of these
securities.
"WHEN-ISSUED" AND "FORWARD COMMITMENT" TRANSACTIONS
The Fund may also purchase 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 or
sold 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 purchase. A forward commitment transaction is an agreement by
the Fund to purchase or sell securities at a specified future date. The Fund
may also enter into foreign currency forward contracts which are described in
more detail in the section entitled "Foreign Currency Transactions." 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, delayed delivery 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. The SEC has established
certain requirements to assure that the Fund is able to meet its obligations
under these contracts, for example a separate account of liquid assets equal
to the value of such purchase commitments may be maintained until payment is
made. When issued, delayed delivery and forward commitment transactions are
subject to risks from changes in value based upon changes in the level of
interest rates, currency rates and other market factors, both before and after
delivery. The Fund does not accrue any income on such securities or currencies
prior to their delivery. To the extent the Fund engages in any of these
transactions, it will do so for the purpose of acquiring portfolio securities
or currencies consistent with its investment objective and policies and not
for the purpose of investment leverage. The Fund currently does not intend to
invest more than 5% of its assets in when issued or delayed delivery
transactions.
DERIVATIVES
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, although the Fund generally uses
derivatives primarily as direct investments in order to enhance yields and
broaden portfolio diversification. Each of these uses entails greater risk
than if derivatives were used solely for hedging 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 a 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.
* Leverage Risk -- Since many derivatives have a leverage component, adverse
changes in the value or level of the underlying asset, rate or index can
result in a loss substantially greater than the amount invested in the
derivative itself. In the case of swaps, the risk of loss generally is
related to a notional principal amount, even if the parties have not made
any initial investment. Certain derivatives have the potential for unlimited
loss, regardless of the size of the initial investment.
* Other Risks -- Other risks in using derivatives include the risk of
mispricing or improper valuation and the inability of derivatives to
correlate perfectly with underlying assets, rates and indices. Many
derivatives, in particular privately negotiated derivatives, are complex and
often valued subjectively. Improper valuations can result in increased cash
payment requirements to counterparties or a loss of value to a Fund.
Derivatives do not always perfectly or even highly correlate or track the
value of the assets, rates or indices they are designed to closely track.
Consequently, the Fund's use of derivatives may not always be an effective
means of, and sometimes could be counterproductive to, furthering the Fund's
investment objective.
OPTIONS TRANSACTIONS
WRITING COVERED OPTIONS. The Fund may write (i.e., sell) covered call
options. By writing a call option, the Fund becomes obligated during the term
of the option to deliver the securities underlying the option upon payment of
the exercise price.
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.
If the Fund has written options against all of its securities that are
available for writing options, the Fund may be unable to write additional
options unless it sells a portion of its portfolio holdings to obtain new
securities against which it can write options. If this were to occur, higher
portfolio turnover and correspondingly greater brokerage commissions and other
transaction costs may result. However, the Fund does not expect that this will
occur.
The principal reason for writing call 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
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.
PURCHASING OPTIONS. The Fund may purchase call options for the purpose of
offsetting previously written call options of the same series.
An option position may be closed out only in a secondary market for an
option of the same series. Although the Fund generally will write only those
options for which there appears to be an active secondary market, there is no
assurance that a liquid secondary market will exist for any particular option
at any particular time, and, for some options, no secondary market may exist.
In such event it might not be possible to effect a closing transaction in a
particular option. 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.
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 objectives.
OPTIONS TRADING MARKETS. Options in which the Fund will trade are generally
listed on national securities exchanges. Exchanges on which such options are
currently 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. In addition to the limits on its use of options discussed herein,
the Fund is subject to the investment restrictions described in this
prospectus and in the statement of additional information.
The staff of the SEC is of the view that the premiums 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 policies pertaining to illiquid investments.
FUTURES TRANSACTIONS
The Fund may enter into currency and other financial futures contracts and
write options on such contracts. The Fund intends to enter into such contracts
and related options for hedging purposes. The Fund will enter into securities,
currency or index-based futures contracts in order to hedge against changes in
interest or exchange rates or securities prices. A futures contract on
securities or currencies is an agreement to buy or sell securities or
currencies at a specified price during a designated month. A futures contract
on a securities index does not involve the actual delivery of securities but
merely requires the payment of a cash settlement based on changes in the
securities index. 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 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 sells futures
contracts in order to offset a possible decline in the value of its securities
or currencies. If a futures contract is purchased by the Fund, the value of
the contract will tend to rise when the value of the underlying securities or
currencies increases and to fall when the value of such securities or
currencies declines. The Fund intends to purchase futures contracts in order
to fix what is believed by Keystone to be a favorable price and rate of return
for securities or favorable exchange rate for currencies the Fund intends to
purchase.
The Fund also intends to purchase put and call options on 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 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. 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. The Fund has the ability to write options on futures, but intends to
write such options only to close out options purchased by the Fund. The Fund
will not change these policies without supplementing the information in its
prospectus and statement of additional information.
FOREIGN CURRENCY TRANSACTIONS
As discussed above, 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 or receive when the contract is completed) is fixed when the Fund
enters into the contract, usually the Fund 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 may also 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. Although the Fund does not currently intend to do
so, the Fund may also purchase and sell options related to foreign currencies.
The Fund does not intend to enter into foreign currency transactions for
speculation or leverage.
PAYMENT-IN-KIND SECURITIES
Payment-in-kind 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 an 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. However, PIKs
are gaining popularity over zeros 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. Sixty-eight percent of the PIK debentures issued
prior to 1987 have already been redeemed, and approximately 35% of the over
$10 billion PIK debentures issued through year-end 1988 have been retired.
ZERO COUPON "STRIPPED" BONDS
A zero coupon (interest) "stripped" bond represents ownership in serially
maturing interest payments 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. These bonds
mature on the payment dates of the interest or principal which they represent.
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 coupon 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.
LOANS OF SECURITIES TO BROKER-DEALERS
The Fund may lend securities to brokers or dealers pursuant to agreements
requiring that the loans be continuously secured by cash or securities of the
U.S. government, its agencies or instrumentalities, or any combination of cash
and such securities, as collateral equal at all times in value to at least the
market value of the securities loaned. Such securities loans will not be made
with respect to the Fund if, as a result, the aggregate of all outstanding
securities loans exceeds 15% of the value of the Fund's total assets taken at
their current value. The Fund continues to receive interest or dividends on
the securities loaned and simultaneously earns interest on the investment of
the cash loan collateral in U.S. Treasury notes, certificates of deposit,
other high-grade, short-term obligations or interest bearing cash equivalents.
Although voting rights attendant to securities loaned pass to the borrower,
such loans may be called at any time and will be called so that the securities
may be voted by the Fund if, in the opinion of the Fund, a material event
affecting the investment is to occur. There may be risks of delay in receiving
additional collateral or in recovering the securities loaned or even loss of
rights in the collateral should the borrower of the securities fail
financially. Loans may only be made, however, to borrowers deemed to be of
good standing, under standards approved by Keystone, when the income to be
earned from the loan justifies the attendant risks.
<PAGE>
KEYSTONE
FUND FAMILY
()
Quality Bond Fund (B-1)
Diversified Bond Fund (B-2)
High Income Bond Fund (B-4)
Balanced Fund (K-1)
Strategic Growth Fund (K-2)
Growth and Income Fund (S-1)
Mid-Cap Growth Fund (S-3)
Small Company Growth Fund (S-4)
International Fund
Precious Metals Holdings
Tax Free Fund
Tax Exempt Trust
Liquid Trust
[logo] KEYSTONE
INVESTMENTS
Keystone Investment Distributors Company
200 Berkeley Street
Boston, Massachusetts 02116-5034
[RECYCLE LOGO]
KEYSTONE
{photo: Father and son, reading]
INTERNATIONAL
FUND
[logo]
PROSPECTUS AND
APPLICATION
<PAGE>
KEYSTONE INTERNATIONAL FUND INC.
PART B
STATEMENT OF ADDITIONAL INFORMATION
<PAGE>
STATEMENT OF ADDITIONAL INFORMATION
KEYSTONE INTERNATIONAL FUND INC.
January 24, 1996
This statement of additional information is not a prospectus, but
relates to, and should be read in conjunction with, the prospectus of Keystone
International Fund Inc. (the "Fund") dated January 24, 1996. A copy of the
prospectus may be obtained from Keystone Investment Distributors Company (the
"Principal Underwriter"), the Fund's principal underwriter, located at 200
Berkeley Street, Boston, Massachusetts 02116-5034 or your broker-dealer.
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TABLE OF CONTENTS
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Page
The Fund's Objectives and Policies 2
Investment Restrictions 2
Valuation of Securities 4
Distributions and Taxes 5
Sales Charges 6
Shareholder Services 9
Distribution Plan 11
Redemptions in Kind 13
Investment Manager 13
Investment Adviser 16
Directors and Officers 18
Principal Underwriter 22
Brokerage 23
Standardized Total Return and Yield Quotations 25
Additional Information 26
Appendix A-1
Financial Statements F-1
Independent Auditors' Report F-16
<PAGE>
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THE FUND'S OBJECTIVES AND POLICIES
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The Fund is an open-end, diversified management investment company. The
Fund's primary investment objective is long-term growth of capital. As a
secondary objective, the Fund seeks modest income on its investments. At this
time, the Fund follows a policy of investing solely in securities of non-U.S.
issuers. Investments may be held on a short-term basis when the Fund considers
it desirable.
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INVESTMENT RESTRICTIONS
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None of the restrictions enumerated in this paragraph may be changed
without a vote of the holders of a majority (as defined in the Investment
Company Act of 1940 (the "1940 Act")) of the Fund's outstanding shares.
The Fund shall not do the following:
(1) invest more than 5% of its total assets, computed at market value,
in the securities of any one issuer;
(2) invest in more than 10% of the outstanding voting securities of any
one issuer;
(3) invest more than 5% of the value of its total assets in companies
that have been in operation for less than three years;
(4) borrow money, except that the Fund may borrow money from banks
and/or enter into reverse repurchase agreements for emergency or extraordinary
purposes in aggregate amounts up to 10% of its gross assets, computed at the
lower of cost or current value, provided that no additional investments shall be
made at any time that outstanding borrowings (including amounts payable under
reverse repurchase agreements) exceed 5% of the Fund's gross assets;
(5) underwrite securities, except that the Fund may purchase securities
from issuers thereof or others and dispose of such securities in a manner
consistent with its other investment policies; in the disposition of restricted
securities the Fund may be deemed to be an underwriter, as defined in the
Securities Act of 1933 (the "1933 Act");
(6) purchase real estate or commodities or commodity contracts, except
that the Fund may enter into currency or other financial futures contracts and
engage in related options transactions;
(7) invest in a company for the purpose of exercising control over or
management of any issuer;
(8) make margin purchases or short sales of securities;
(9) lend any of its assets, except through the purchase of debt
securities of a type commonly distributed or sold publicly or privately to
financial institutions and except that the Fund may lend limited amounts of its
portfolio securities to broker dealers;
(10) invest more than 25% of its assets in the securities of issuers in
any single industry; and
(11) purchase the securities of any other investment company except in
the open market and at customary brokerage rates and in no event more than 3% of
the voting securities of any investment company.
If a percentage limit is satisfied at the time of investment or
borrowing, a later increase or decrease resulting from a change in the value of
a security or a decrease in Fund assets is not a violation of the limit.
The Fund has no current intention of purchasing the securities of other
investment companies. Purchasing such securities would result in Fund investors
indirectly bearing a proportionate share of the expenses of such investment
companies, including their operating costs and investment advisory and
administrative fees. If the Fund were to purchase such securities, such purchase
would not result in the Fund owning immediately after the purchase securities of
such investment company having a value in excess of 5% of the Fund's total
assets, nor in the Fund owning securities of more than one investment company
with an aggregate value in excess of 10% of the Fund's total assets.
The Fund is subject to restrictions in the sale of portfolio securities
to, and in its purchase or retention of securities of, companies in which the
management personnel of the Fund or of its investment adviser own individually
more than 1/2 of 1% and together own more than 5% of such securities.
As a condition of its continuing registration in a state, the Fund has
undertaken not to invest more than 5% of its total assets in securities of
unseasoned issuers, including their predecessors, that have been in operation
for less than three years, and in equity securities of issuers that are not
readily marketable. The Fund similarly has undertaken not to invest in interests
in oil, gas, or other mineral exploration or development programs. The Fund has
also undertaken that its investment in warrants, valued at the lower of cost or
market, will not exceed 5% of the value of its net assets. Included within that
amount, but not to exceed 2% of the value of the Fund's net assets, may be
warrants not listed on the New York or American Stock Exchanges. Warrants
acquired by the Fund in units or attached to securities will be deemed to be
without value with regard to this restriction.
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VALUATION OF SECURITIES
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Current value for the Fund's portfolio securities is determined in the
following manner:
(1) Securities traded on an established exchange are valued on the
basis of the last sales price on the exchange where primarily traded prior to
the time of valuation; (Currently, values of Fund investments quoted in other
than U.S. dollars are converted into U.S. dollar equivalents at the midday
foreign exchange rate as reported by the Dow Jones News Service.)
(2) Securities traded in the over-the-counter market, for which
complete quotations are readily available, are valued at the mean of the bid and
asked prices at the time of valuation;
(3) When the Board in good faith determines that amortized cost
reflects fair value, short-term money market instruments that are purchased with
maturities of sixty days or less are valued at amortized cost (original purchase
cost as adjusted for amortization of premium or accretion of discount), which,
when combined with accrued interest, approximates market; money market
instruments maturing in more than sixty days for which market quotations are
readily available are valued at market value; and money 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 in any case reflects
fair value as determined by the Board of Directors; and
(4) The Fund's Board of Directors 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; (b) listed
securities, if in the opinion of the Board of Directors the last sales price
does not reflect a current market value or if no sale occurred; and (c) other
assets; and
The Fund believes that reliable market quotations are generally not
readily available for purposes of valuing fixed income securities. As a result,
depending on the particular securities owned by the Fund, it is likely that most
of the valuations for such securities will be based upon their fair value
determined under procedures approved by the Directors. The Board of Directors
has authorized the use of a pricing service to determine the fair value of its
fixed income securities and certain other securities. Securities for which
market quotations are readily available are valued on a consistent basis at the
price quoted that, in the opinion of the Board of Directors or the person
designated by the Board of Directors to make the determination, most nearly
represents the market value of the particular security. Any securities for which
market quotations are not readily available or other assets are valued on a
consistent basis at fair value as determined in good faith using methods
prescribed by the Board of Directors.
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DISTRIBUTIONS AND TAXES
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The Fund distributes to its shareholders dividends from net investment
income and net realized long-term and short-term capital gains annually in
shares or, at the option of the shareholder, in cash. (Distributions of ordinary
income may be eligible in whole or in part for the corporate 70% dividends
received deduction.) 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 by the 15th of November of each year. 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 predetermined 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 cash 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.
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SALES CHARGES
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In order to reimburse the Fund for certain expenses relating to the
sale of its shares (see "Distribution Plan"), a deferred sales charge may be
imposed at the time of redemption of certain Fund shares within four calendar
years after their purchase. If imposed, the deferred sales charge is deducted
from the redemption proceeds otherwise payable to the shareholder. For the
fiscal year ended October 31, 1995, the Fund recovered $1,380 in deferred sales
charges.
The contingent deferred sales charge is a declining percentage of the
lesser of (1) the net asset value of the shares redeemed, or (2) the total cost
of such shares. No contingent deferred sales charge is imposed when the
shareholder redeems amounts derived from (1) increases in the value of his
account above the total cost of such shares due to increases in the net asset
value per share of the Fund; (2) certain shares with respect to which the Fund
did not pay a commission on issuance, including shares acquired through
reinvestment of dividend income and capital gains distributions; (3) shares held
in all or part of more than four consecutive calendar years.
Subject to the limitations stated above, the contingent deferred sales
charge is imposed according to the following schedule: 4% of amounts redeemed
during the calendar year of purchase; 3% of amounts redeemed during the calendar
year after the year of purchase; 2% of amounts redeemed during the second
calendar year after the year of purchase; and 1% of amounts redeemed during the
third calendar year after the year of purchase. No contingent deferred sales
charge is imposed on amounts redeemed thereafter.
The following example illustrates the operation of the contingent
deferred sales charge. Assume that an investor makes a purchase payment of
$10,000 during the calendar year 1995 and on a given date in 1996 the value of
the investor's account has grown through investment performance and reinvestment
of distributions to $12,000. On such date in 1996, the investor could redeem up
to $2,000 ($12,000 minus $10,000) without incurring a deferred sales charge. If,
on such date, the investor should redeem $3,000, a deferred sales charge would
be imposed on $1,000 of the redemption proceeds (the amount by which the
investor's account was reduced by the redemption below the amount of the initial
purchase payment). The charge would be imposed at the rate of 3% (because the
redemption is made during the calendar year after the calendar year of purchase)
and would total $30.
In determining whether a contingent deferred sales charge is payable
and, if so, the percentage charge applicable, it is assumed that shares held the
longest are the first to be redeemed. There is no contingent deferred sales
charge on permitted exchanges of shares between Funds in the Keystone Fund
Family that have adopted distribution plans pursuant to Rule 12b-1 under the
1940 Act. Moreover, when shares of one such fund have been exchanged for shares
of another such fund, the calendar year of the exchange, for purposes of any
future deferred sales charge, is assumed to be the year shares tendered for
exchange were originally purchased.
Shares also may be sold, to the extent permitted by applicable law,
regulations, interpretations or exemptions, at net asset value without the
imposition of a deferred sales charge to (1) officers, Directors, Trustees,
full-time employees and sales representatives of the Fund, Keystone, Keystone
Management, Keystone Investments, Inc. ("Keystone Investments"), Harbor Capital
Management Company, Inc., their subsidiaries and the Principal Underwriter, who
have been such for not less than ninety days; and (2) the pension and
profit-sharing plans established by such companies, their subsidiaries and
affiliates, for the benefit of their officers, Directors, Trustees, full-time
employees and sales representatives, provided, however, that all such sales are
made upon the written assurance of the purchaser that the purchase is made for
investment purposes and that the securities will not be resold except through
redemption by the Fund.
No contingent deferred sales charge is imposed on a redemption of
shares of the Fund purchased 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, any other Fund in the Keystone Fund Family (as hereinafter
defined), Keystone Precious Metals Holdings, Inc., Keystone Tax Exempt Trust,
Keystone Tax Free Fund, Keystone Liquid Trust and/or any Keystone America Fund
(as hereinafter defined), is at least $500,000 and any commission paid by the
Fund and such other funds invested at the time of such purchase is not more than
1% of the amount invested.
In addition, no contingent deferred sales charge is imposed on 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 591/2 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 11/2% 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.
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SHAREHOLDER SERVICES
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REINVESTMENT PRIVILEGE
A shareholder may elect to reinvest any part of the proceeds of a total
or partial redemption of Fund shares. Upon making such an election, the Fund
will credit the deferred sales charge previously deducted. The calendar year of
such reinvestment purchase, for purposes of any future contingent deferred sales
charge, is assumed to be the year such shares were originally purchased. A
shareholder must make such an election within 30 days of the date of such
redemption and the purchase must be of Fund shares. The number of shares
credited upon reinvesting the proceeds will be based on the net asset value of
Fund shares next computed following receipt of the proceeds and request for
reinvestment. This reinvestment privilege may be used only once with respect to
any shareholder. If a shareholder exercises this reinvestment privilege, any tax
loss realized upon the original sale of the Fund shares will not be recognized
for federal income tax purposes. Any capital gains, however, would be recognized
for federal income tax purposes. For tax reporting purposes, the Fund treats a
redemption and subsequent reinvestment purchase as separate transactions.
TAX-SHELTERED PLANS
For an individual with earned income or wages not participating in a
qualified retirement plan who wishes to purchase Fund shares as a tax deductible
contribution prior to the year he or she attains age 70-1/2, there is available
a Custody Agreement for an Individual Retirement Account ("IRA") that has been
accepted by the Internal Revenue Service as a prototype under Section 408 of the
Internal Revenue Code (the "Code"). This Custody Agreement may also be used by
an individual wishing to establish a Rollover IRA or by an employer wishing to
establish a Simplified Employee Pension Plan.
For self-employed individuals, corporations and other organizations
that wish to purchase Fund shares in a qualified plan for the benefit of their
employees, there is available a Trust Agreement for a Defined Contribution Plan
that has been accepted by the Internal Revenue Service as a prototype under
Section 401 of the Code. The prototype contains a series of Adoption Agreements
classified as Profit Sharing, Money Purchase or Target Benefit.
For corporations and other organizations that wish to purchase Fund
shares in a qualified plan for the benefit of their employees, the following
Corporate Plans and Agreements that have been accepted by the Internal Revenue
Service as prototypes under the Employee Retirement Income Security Act of 1974
("ERISA") are available: Profit Sharing Plan and Trust Agreement, Pension Plan
and Trust Agreement and Target Benefit Plan and Trust Agreement.
For public educational institutions and certain tax-exempt
organizations that wish to purchase Fund shares on behalf of employees pursuant
to a salary reduction or waiver of increase agreement, there is available a
Custody Agreement that is intended to qualify as a tax-sheltered "annuity
purchase" plan.
Investors considering the funding of a plan are advised to consult with
an attorney or to obtain advice from a competent retirement plan consultant with
respect to the requirements of the plan and the tax aspects thereof. For
details, including fees, see the specific plan and agreement and supplementary
guide as provided by the Fund's Principal Underwriter. These plans may be
restated in compliance with changes mandated by applicable law.
AUTOMATIC WITHDRAWAL PLAN
Ordinarily, an investor must have made an initial purchase payment of
at least $10,000 or otherwise have accumulated shares having a net asset value
of $10,000 before being eligible for an Automatic Withdrawal Plan. If so
eligible, the investor may arrange for fixed withdrawal payments, of a minimum
of $100 and a maximum of 1% per month or 3% per quarter of the total net asset
value of the Fund shares in the shareholder's account at inception of the Plan.
Payments will be made at regular monthly or quarterly intervals to the investor
or beneficiaries designated by him. Fixed withdrawal payments are not subject to
a deferred sales charge. An investor may not make arrangements for fixed
withdrawal payments while he is making regular purchase payments since the Fund
will be paying distribution expenses in connection with shares purchased at the
same time shares are being redeemed at net asset value without a deferred sales
charge. Withdrawal payments may represent proceeds from the liquidation of
shares and, to the extent they exceed distributions by the Fund, will reduce or
possibly exhaust the shareholder's investment in the Fund. The latter effect
will be accentuated by a decline in the securities market. Capital gains
realized by such withdrawals will be subject to federal capital gains taxes.
AUTOMATIC INVESTMENT PLAN
The investor may provide for continuous investing on an automatic basis
by establishing an automatic investment plan offered through Keystone Investor
Resource Center, Inc. ("KIRC"), the Fund's transfer and dividend disbursing
agent. On the fifth or twentieth day of each month, a minimum of at least $25
automatically drawn on the investor's checking account will be used to purchase
Fund shares, which will be held in his Fund account. The investor may increase
the amount of his investment at any time or stop his plan by written notice to
KIRC at least five business days before a purchase of Fund shares is to be made.
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DISTRIBUTION PLAN
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Rule 12b-1 under the 1940 Act permits investment companies, such as the
Fund, to use their assets to bear expenses of distributing their shares if they
comply with various conditions, including adoption of a distribution plan
containing certain provisions set forth in Rule 12b-1. The Fund bears some of
the costs of selling its shares under a Distribution Plan adopted on January 19,
1983 pursuant to Rule 12b-1 (the "Distribution Plan").
The Fund's Distribution Plan provides that the Fund may expend up to
0.3125% quarterly (approximately 1.25% annually) of the average daily net asset
value of its shares to pay distribution costs for sales of its shares and to pay
shareholder service fees. The NASD limits such annual expenditures to 1.0%, of
which 0.75% may be used to pay such distribution costs and 0.25% may be used to
pay shareholder service fees. The aggregate amount that the Fund may pay for
such distribution costs is limited 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 charge paid by
shareholders to the Principal Underwriter).
Payments under the Distribution Plan are currently made to the
Principal Underwriter (which may reallow all or part to others, such as dealers)
(1) as commissions for Fund shares sold and (2) as shareholder service fees in
respect of shares maintained by the recipients outstanding on the Fund's books
for specific periods. Amounts paid or accrued to the Principal Underwriter under
(1) and (2) in the aggregate may not exceed the limitation referred to above.
The Principal Underwriter generally reallows to brokers or others a commission
equal to 4% of the price paid for each Fund share sold as well as a shareholder
service fee at a rate of 0.25% per annum of the net asset value of shares
maintained by such recipients and outstanding on the books of the Fund for
specified periods.
If the Fund is unable to pay the Principal Underwriter a commission on
a new sale because the annual maximum (0.75% of average daily net assets) has
been reached, the Principal Underwriter intends, but is not obligated, to
continue to accept new orders for the purchase of Fund shares and to pay
commissions and service fees for dealers in excess of the amount it currently
receives from the Fund. While the Fund is under no contractual obligation to pay
the Principal Underwriter for advances made by the Principal Underwriter in
excess of the Distribution Plan limitation, the Principal Underwriter intends to
seek full payment of such amounts from the Fund (together with interest at the
rate of prime plus one percent) at such time in the future as, and to the extent
that, payment thereof by the Fund would be within permitted limits. The
Principal Underwriter currently intends to seek payment of interest only on such
charges paid or accrued by the Principal Underwriter subsequent to July 7, 1992.
If the Fund's Independent Directors ("Independent Directors") authorize such
payments, the effect will 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 Directors to take whatever action they deem appropriate under the
circumstances with respect to payment of such amounts.
The total amounts paid by the Fund under the foregoing arrangements may
not exceed the maximum Distribution Plan limit specified above, and the amounts
and purposes of expenditures under the Distribution Plan must be reported to the
Fund's Independent Directors quarterly. The Fund's Independent Directors may
require or approve changes in the implementation or operation of the
Distribution Plan and may require that total expenditures by the Fund under the
Distribution Plan be kept within limits lower than the maximum amount permitted
by the Distribution Plan as stated above. If such costs are not limited by the
Independent Directors, such costs could, for some period of time, be higher than
such costs permitted by most other plans presently adopted by other investment
companies.
The Distribution Plan may be terminated at any time by vote of the
Independent Directors, or by vote of a majority of the outstanding voting
securities of the Fund. Any change in the Distribution Plan that would
materially increase the distribution expenses of the Fund provided for in the
Distribution Plan requires shareholder approval. [Otherwise, the Distribution
Plan may be amended by votes of the majority of both (1) the Fund's Directors,
and (2) the Independent Directors cast in person at a meeting called for the
purpose of voting on such amendment.
While the Distribution Plan is in effect, the Fund will be required to
commit the selection and nomination of candidates for Independent Directors to
the discretion of the Independent Directors.
During the fiscal year ended October 31, 1995, the Fund paid the
Principal Underwriter $1,316,980 under the Distribution Plan. For said year, the
Principal Underwriter received $524,433 after payments of commissions on new
sales and shareholder service fees to dealers and others of $792,547.
Whether any expenditure under the 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.
The Independent Directors have determined that the sales of the Fund's
shares resulting from payments under the Distribution Plan have benefited the
Fund.
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REDEMPTIONS IN KIND
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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 Fund 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. Shareholders receiving such securities would incur
brokerage costs when these securities are sold.
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INVESTMENT MANAGER
- ------------------------------------------------------------------------------
Subject to the general supervision of the Fund's Board of Directors,
Keystone Management, located at 200 Berkeley Street, Boston, Massachusetts
02116-5034, serves as investment manager to the Fund and is responsible for the
overall management of the Fund's business and affairs. Keystone Management,
organized in 1989, is a wholly-owned subsidiary of Keystone. Its directors and
principal executive officers have been affiliated with Keystone, a seasoned
investment adviser, for a number of years. Keystone Management also serves as
investment manager to each of the other funds in the Keystone Fund Family and to
certain other funds in the Keystone Investments Family of Funds.
Except as otherwise noted below, pursuant to an Investment Management
Agreement with the Fund (the "Management Agreement") and subject to the
supervision of the Fund's Board of Trustees, Keystone Management manages and
administers the operation of the Fund and manages the investment and
reinvestment of the Fund's assets in conformity with the Fund's investment
objectives and restrictions. The Management Agreement stipulates that Keystone
Management shall provide office space, all necessary office facilities,
equipment and personnel in connection with its services under the Management
Agreement and shall pay or reimburse the Fund for the compensation of Fund
officers and Trustees who are affiliated with the investment manager as well as
pay all expenses of Keystone Management incurred in connection with the
provision of its services. All charges and expenses other than those
specifically referred to as being borne by Keystone Management will be paid by
the Fund, including, but not limited to, custodian charges and expenses;
bookkeeping and auditors' charges and expenses; transfer agent charges and
expenses; fees of Independent Trustees; brokerage commissions, brokers' fees and
expenses; issue and transfer taxes; costs and expenses under the Distribution
Plan; taxes and trust fees payable to governmental agencies; the cost of share
certificates; fees and expenses of the registration and qualification of the
Fund and its shares with the Securities and Exchange Commission (sometimes
referred to herein as the "SEC" or the "Commission") or under state or other
securities laws; expenses of preparing, printing and mailing prospectuses,
statements of additional information, notices, reports and proxy materials to
shareholders of the Fund; expenses of shareholder's and Trustees' meetings;
charges and expenses of legal counsel for the Fund and for the Trustees of the
Fund on matters relating to the Fund; charges and expenses of filing annual and
other reports with the SEC and other authorities; and all extraordinary charges
and expenses of the Fund.
The Management Agreement permits Keystone Management to enter into an
agreement with Keystone or another investment adviser under which Keystone or
such other investment adviser, as investment adviser, will provide substantially
all the services to be provided by Keystone Management under the Management
Agreement. The Management Agreement also permits Keystone Management to delegate
to Keystone or another investment adviser substantially all of the investment
manager's rights, duties and obligations under the Management Agreement.
Services performed by Keystone Management currently include (1)
performing research and planning with respect to (a) the Fund's qualification as
a regulated investment company under Subchapter M of the Internal Revenue Code,
(b) tax treatment of the Fund's portfolio investments, (c) tax treatment of
special corporate actions (such as reorganizations), (d) state tax matters
affecting the Fund, and (e) the Fund's distributions of income and capital
gains; (2) preparing the Fund's federal and state tax returns; (3) providing
services to the Fund's shareholders in connection with federal and state
taxation and distributions of income and capital gains; and (4) storing
documents relating to the Fund's activities.
The Fund pays Keystone Management a fee for its services at the annual
rate set forth below:
Aggregate Net Asset
Management Value of the Shares
Fee of the Fund
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0.75% of the first $ 200,000,000, plus
0.65% of the next $ 200,000,000, plus
0.55% of the next $ 200,000,000, plus
0.45% of amounts over $ 600,000,000
computed as of the close of business each business day and payable daily.
The fee is higher than that charged to most investment companies. The
fee is comparable, however, to fees charged to other global and international
funds, which, together with the Fund, are subject to the higher costs involved
in managing a portfolio of predominantly international securities.
The Fund is subject to certain state annual expense limitations, the
most restrictive of which is as follows:
2.5% of the first $30 million of Fund average net assets;
2.0% of the next $70 million of Fund average net assets; and
1.5% of Fund average net assets over $100 million.
Capital charges and certain expenses, including a portion of the Fund's
Distribution Plan expenses, are not included in the calculation of the state
expense limitations. This limitation may be modified or eliminated in the
future.
In order to comply with these limitations, Keystone Management has
agreed to reimburse the Fund annually for any included expenses in excess of
such limitations. Keystone Management is not required, however, 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.
As a continuing condition of registration of shares in a state,
Keystone Management has agreed to reimburse the Fund annually for certain
operating expenses incurred by the Fund in excess of certain percentages of the
Fund's average daily net assets. Keystone Management is not required, however,
to make such reimbursements to an extent that would result in the Fund's
inability to qualify as a regulated investment company under provisions of the
Internal Revenue Code. This condition may be modified or eliminated in the
future.
The Management Agreement will continue in effect only if approved at
least annually by the Fund's Board of Directors of the Fund or by a vote of a
majority of the outstanding shares, and such renewal has been approved by the
vote of a majority of the Independent Directors cast in person at a meeting
called for the purpose of voting on such approval. The Management Agreement may
be terminated, without penalty, on 60 days' written notice by the Fund's Board
of Directors or by a vote of a majority of outstanding shares. The Management
Agreement will terminate automatically upon its "assignment" as that term is
defined in the 1940 Act.
For additional discussion of fees paid to Keystone Management, see
"Investment Adviser" below.
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INVESTMENT ADVISER
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Pursuant to the Management Agreement, Keystone Management has delegated
its investment management functions, except for certain administrative and
management services, to Keystone and has entered into an Investment Advisory
Agreement (the "Advisory Agreement") with Keystone under which Keystone provides
investment advisory and management services to the Fund.
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 corporation primarily owned by current and
former members of management and certain employees 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 Management, Keystone, their
affiliates and the Keystone Investments Family of Funds.
Pursuant to the Advisory Agreement, Keystone receives for its services
an annual fee representing 85% of the management fee received by Keystone
Management under its Management Agreement.
Pursuant to the Advisory Agreement, Keystone provides the Fund with
investment research, advice, and supervision and continuously furnishes an
investment program for the Fund's portfolio. Keystone recommends what securities
shall be purchased for the portfolio of the Fund, what portfolio securities
shall be sold by the Fund and what portion of the Fund's assets shall be held
uninvested. Keystone also advises and assists the officers of the Fund to take
such steps as are necessary or appropriate to carry out the decisions of the
Fund's Board of Directors and of the appropriate committees of such Board
regarding the foregoing and regarding the general conduct of the investment
business of the Fund.
Under the Advisory Agreement, Keystone pays the ordinary office
expenses of the Fund, including its rent, and provides investment advisory,
research, and statistical facilities and all clerical services relating to
research, statistical and investment work. Keystone is not required to pay any
expenses of the Fund other than those enumerated in the Advisory Agreement and,
in particular, but without limiting the generality of the foregoing, is not
required to pay brokerage and Distribution Plan expenses; legal, auditing, and
registrar's fees and expenses; taxes and governmental fees; the cost of sale,
underwriting, distribution, redemption, transfer, or repurchase of shares of the
Fund; the expenses of registering or qualifying securities for sale; the cost of
preparing and distributing reports and notices to shareholders, or the fees and
disbursements of custodians of the Fund's assets, including expenses incurred in
the performance of any obligations enumerated in the Articles of Organization or
By-Laws of the Fund insofar as they govern agreement with any such custodian.
During the year ended September 30, 1993, the Fund paid or accrued to
Keystone Management investment management and administrative services fees of
$573,317, which represented 0.75% of the Fund's average net assets. Of such
amount paid to Keystone Management, $487,319 was paid to Keystone for its
services to the Fund.
During the twelve month period ended September 30, 1994 and the one
month period ended October 31, 1994, the Fund paid or accrued to Keystone
Management investment management and administrative services fees of $1,094,303
and $98,556, respectively, which represented 0.75% and 0.75% (annualized),
respectively, of the Fund's average net assets. Of such amounts paid to Keystone
Management, $930,158 and $83,773, respectively, were paid to Keystone for
investment advisory services under the Investment Advisory Agreement.
During the year ended October 31, 1995, the Fund paid or accrued to
Keystone Management investment management and administrative services fees of
$985,652 which represented 0.75% of the Fund's average net assets. Of such
amount paid to Keystone Management, $837,804 was paid to Keystone for its
services to the Fund.
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DIRECTORS AND OFFICERS
- ------------------------------------------------------------------------------
The Directors and officers of the Fund, their positions with the Fund
and their principal occupations during the past five years are as follows:
*ALBERT H. ELFNER, III: President, Chief Executive Officer and Director of the
Fund; Chairman of the Board, President, Director and Chief Executive Officer
of Keystone Investments, Inc. ("Keystone Investments"), Keystone Management,
Inc. ("Keystone Management") and Keystone Software Inc. ("Keystone
Software"); President, Chief Executive Officer and Trustee or Director of
all other Keystone Investments Funds; Chairman of the Board, Director and
Chief Executive Officer of Keystone Investment Management Company
("Keystone"); Chairman of the Board and Director of Keystone Institutional
Company, Inc. ("Keystone Institutional") (formerly named Keystone Investment
Management Corporation) and Keystone Fixed Income Advisors ("KFIA");
Director and President of Keystone Asset Corporation, Keystone Capital
Corporation and Keystone Trust Company; Director of Keystone Investment
Distributors Company ("the Principal Underwriter"), Keystone Investor
Resource Center, Inc. ("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: Director of the Fund; Trustee or Director ofall 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: Director 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 Director of the Fund; Director of
Keystone Investments; Chairman of the Board and Trustee or Director of all
other Keystone Investments Funds; 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; former Chief Executive Officer of the Fund;
and former Director and Chairman of the Board of Hartwell Keystone;
EDWIN D. CAMPBELL: Director of the Fund; Trustee or Director of all other
Keystone Investments Funds; Executive Director, Coalition of Essential
Schools, Brown University; Director and former Executive Vice President,
National Alliance of Business; former Vice President, Educational Testing
Services; and former Dean, School of Business, Adelphi University.
CHARLES F. CHAPIN: Director of the Fund; Trustee or Director of all other
Keystone Investments Funds; former Group Vice President, Textron Corp.; and
former Director, Peoples Bank (Charlotte, N.C).
LEROY KEITH, JR.: Director of the Fund; Trustee or Director of all other
Keystone Investments Funds; Director of Phoenix Total Return Fund and
Equifax, Inc.; Trustee of Phoenix Series Fund, Phoenix Multi-Portfolio Fund
and The Phoenix Big Edge Series Fund; and former President, Morehouse
College.
K. DUN GIFFORD: Director of the Fund; Trustee or Director of all other Keystone
Investments Funds; Chairman of the Board, Director and Executive Vice
President, The London Harness Company; Managing Partner, Roscommon Capital
Corp.; Trustee, Cambridge College; Chairman Emeritus and Director, American
Institute of Food and Wine; Chief Executive Officer, Gifford Gifts of Fine
Foods; Chairman, Gifford, Drescher & Associates (environmental consulting);
President, Oldways Preservation and Exchange Trust (education); and former
Director, Keystone Investments and Keystone.
F. RAY KEYSER, JR.: Director 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: Director 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: Director 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: Director of the Fund; Trustee or Director ofall 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 and
Keystone Trust Company; Treasurer of Keystone Institutional and FICO;
Treasurer and Director of Keystone Management and Keystone Software, Inc.;
Director of KIRC; former Treasurer and Director of Hartwell Keystone; and
former Treasurer of Robert Van Partners, Inc.,
JAMES R. McCALL: Senior Vice President of the Fund; Senior Vice President of all
other Keystone Investments Funds; and President of Keystone.
J. KEVIN KENELY: Treasurer of the Fund; Treasurer of all other Keystone
Investments Funds; Vice President of Keystone Investments, and former Vice
President and Controller of Keystone Investments and certain of its
affiliated operating companies.
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; and former Senior Vice President and
Secretary of Hartwell Keystone and Robert Van Partners, Inc.
* This Director may be considered an "interested person" within the meaning of
the 1940 Act.
Mr. Elfner and Mr. Bissell are "interested persons" by virtue of their
positions as officers and/or Directors of Keystone Investments and several of
its affiliates including Keystone, the Principal Underwriter and KIRC. Mr.
Elfner and Mr. Bissell own shares of Keystone Investments. Mr. Elfner is
Chairman of the Board, Chief Executive Officer and a Director of Keystone
Investments. Mr. Bissell is a Director of Keystone Investments.
During the fiscal year ended October 31, 1995, no Director affiliated
with Keystone or any officer received any direct remuneration from the Fund.
During the same period, the unaffiliated Directors received $7,300 in retainers
and fees from the Fund. Annual retainers and meeting fees paid by all funds in
the Keystone Investments Family of Funds (which includes 30 mutual funds) for
the fiscal year ended October 31, 1995, totalled approximately $462,686. On
December 31, 1995, the Fund's Directors and officers beneficially owned less
than 1.0% of the Fund's then outstanding shares.
The address of all the Fund's Directors and officers and the address of
the Fund is 200 Berkeley Street, Boston, Massachusetts 02116-5034.
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PRINCIPAL UNDERWRITER
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Pursuant to a Principal Underwriting Agreement with the Fund (the
"Underwriting Agreement"), the Principal Underwriter acts as the Fund's
principal underwriter. The Principal Underwriter, located at 200 Berkeley
Street, Boston, Massachusetts 02116-5034, is a Delaware corporation wholly-owned
by Keystone. The Principal Underwriter, as agent, has agreed to use its best
efforts to find purchasers for the shares. The Principal Underwriter may retain
and employ representatives to promote distribution of the shares and may obtain
orders from brokers, dealers and others, acting as principals, for sales of
shares to them. The Underwriting Agreement provides that the Principal
Underwriter will bear the expense of preparing, printing and distributing
advertising and sales literature and prospectuses used by it. In its capacity as
principal underwriter, the Principal Underwriter may receive payments from the
Fund pursuant to the Fund's Distribution Plan.
The Underwriting Agreement provides that it will remain in effect as
long as its terms and continuance are approved by a majority of the Fund's
Independent Directors at least annually at a meeting called for that purpose and
if its continuance is approved annually by vote of a majority of Directors 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 Board of Directors 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.
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.
During the twelve month period ended September 30, 1994 and the one
month period ended October 31, 1994, the Fund recovered $7,861 and $801,
respectively, in deferred sales charges. During those same periods, the Fund
paid the Principal Underwriter $1,460,493 and $113,527, respectively. For those
same periods, the amounts paid by the Fund under its Distribution Plan, net of
deferred sales charges, were $1,452,632 and $112,726, respectively (1.00% and
0.07%, respectively, of the Fund's average daily net asset value during the
respective period). During those same periods, the Principal Underwriter
received $0 and $36,343 after payments of commissions on new sales and service
fees to dealers and others of $1,709,228 and $77,184, respectively. During the
same periods, the Principal Underwriter also received $183,020 and $22,063,
respectively, in contingent deferred sales charges. At October 31, 1994, the
Principal Underwriter's total unreimbursed 12b-1 expenses amounted to $2,213,911
(1.40% of net assets as of October 31, 1994), of which $1,058,492 and $0 were
incurred during the twelve month period ended September 30, 1994 and the one
month period ended October 31, 1994, respectively. The right to certain portions
of this amount, if and when receivable, was assigned by the Principal
Underwriter in 1988 in connection with a financing transaction. As of October
31, 1994, $51,270 of the amount assigned remained outstanding.
For the fiscal year ended October 31, 1995, the Principal Underwriter
earned commissions of $524,433, after allowing commissions and service fees of
$792,547 to retail dealers under the distribution plan.
The Principal Underwriter intends to seek payment of the remaining
$2,213,911 to such extent that such payment, together with payments for future
sales, will not exceed the limitations discussed above. The Independent
Directors have agreed to reimburse the Principal Underwriter prior to the next
quarterly meeting of Directors, with respect to prior sales of shares of the
Fund, the maximum amount permissible within the cost limitation of the Plan.
Except as described above, the Fund has no obligation to pay any portion of this
amount, and the time, condition and amounts, if any, to be paid by the Fund are
solely within the discretion of the Independent Directors.
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BROKERAGE
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It is the policy of the Fund, in effecting transactions in portfolio
securities, to seek best execution of orders at the most favorable prices. The
determination of what may constitute best execution and price in the execution
of a securities transaction by a broker involves a number of considerations,
including, without limitation, the overall direct net economic result to the
Fund, involving both price paid or received and any commissions and other costs
paid, the efficiency with which the transaction is effected, the ability to
effect the transaction at all where a large block is involved, the availability
of the broker to stand ready to execute potentially difficult transactions in
the future and the financial strength and stability of the broker. Such
considerations are judgmental and 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, Keystone Management or Keystone is
considered to be in addition to and not in lieu of services required to be
performed by Keystone Management under the Management Agreement or Keystone
under the Advisory Agreement. The cost, value and specific application of such
information are indeterminable and cannot be practicably allocated among the
Fund and other clients of Keystone Management or 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.
The Fund expects that purchases and sales of securities usually will be
effected through brokerage transactions for which commissions are payable.
Purchases from underwriters will include the underwriting commission or
concession, and purchases from dealers serving as market makers will include a
dealer's mark-up or reflect a dealer's mark-down. Where transactions are made in
the over-the-counter market, the Fund will deal with primary market makers
unless more favorable prices are otherwise obtainable.
The Fund may participate, if and when practicable, in group bidding for
the purchase directly from an issuer of certain securities for the Fund's
portfolio in order to take advantage of the lower purchase price available to
members of such a group.
Neither Keystone Management, Keystone or the Fund intend to place
securities transactions with any particular broker-dealer or group thereof. The
Fund's Board of Directors, however, has determined that the Fund may follow a
policy of considering sales of shares as a factor in the selection of
broker-dealers to execute portfolio transactions, subject to the requirements of
best execution, including best price, described above.
The policy of the Fund with respect to brokerage is and will be
reviewed by the Board of Directors 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
Management or Keystone from those of the other funds and investment accounts
managed by Keystone Management or Keystone. It may frequently develop that the
same investment decision is made for more than one fund. Simultaneous
transactions are inevitable when the same security is suitable for the
investment objective of more than one account. When two or more funds or
accounts are engaged in the purchase or sale of the same security, the
transactions are allocated as to amount in accordance with a formula that is
equitable to each fund or account. It is recognized that in some cases this
system could have a detrimental effect on the price or volume of the security as
far as the Fund is concerned. In other cases, however, it is believed that the
ability of the Fund to participate in volume transactions will produce better
executions for the Fund.
In no instance are portfolio securities purchased from or sold to
Keystone Management, Keystone, the Principal Underwriter or any of their
affiliated persons, as defined in the 1940 Act and rules and regulations issued
thereunder.
During the fiscal year ended September 30, 1993, the twelve month
period ended September 30, 1994 and the one month period ended October 31, 1994,
the Fund paid approximately $14,827, $923,756 and $0, respectively, in brokerage
fees. During the fiscal year ended October 31, 1995, the Fund paid approximately
$707,000 in brokerage fees.
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STANDARDIZED TOTAL RETURN AND YIELD QUOTATIONS
- ------------------------------------------------------------------------------
Total return quotations for 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 on a hypothetical $1,000
investment that would equate the initial amount invested to the ending
redeemable value. To the initial investment all dividends and distributions are
added, and all recurring fees charged to all shareholder accounts are deducted.
The ending redeemable value assumes a complete redemption at the end of the one,
five and ten year periods.
The cumulative total return of the Fund for the one, five and ten year
periods ended October 31, 1995 was (0.56%) (including contingent deferred sales
charges), 49.04% and 154.29%, respectively. The compounded average rate of
return for the five and ten year periods ended October 31, 1995 were 8.31% and
9.78%, respectively.
Current yield quotations as they may appear, from time to time, in
advertisements will consist of a quotation based on a 30-day period ended on the
date of the most recent balance sheet of 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 currently
intend to advertise current yield.
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ADDITIONAL INFORMATION
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State Street Bank and Trust Company, 225 Franklin Street, Boston,
Massachusetts 02110, is custodian of all securities and cash of the Fund (the
"Custodian"). The Custodian may hold securities of some foreign issuers outside
the U.S. The Custodian performs no investment management functions for the Fund,
but, in addition to its custodial services, is responsible for accounting and
related recordkeeping on behalf of the Fund.
KPMG Peat Marwick LLP, 99 High Street, Boston, Massachusetts 02110,
Certified Public Accountants, are the independent auditors for the Fund.
KIRC, located at 101 Main Street, Cambridge, Massachusetts 02142-1519,
is a wholly-owned subsidiary of Keystone. KIRC acts as transfer agent and
dividend disbursing agent for the Fund.
To the best of the Fund's knowledge, as of December 31, 1995, there
were no beneficial owners of record who owned 5% or more of the outstanding
shares of the Fund.
Except as otherwise stated in its prospectus or required by law, the
Fund reserves the right to change the terms of the offer stated in its
prospectus without shareholder approval, including the right to impose or change
fees for services provided.
No dealer, salesman or other person is authorized to give any
information or to make any representation not contained in the Fund's
prospectus, this statement of additional information or in supplemental sales
literature issued by the Fund or the Principal Underwriter. No person is
entitled to rely on any information or representation not contained therein.
The Fund's prospectus and this statement of additional information omit
certain information contained in the registration statement filed with the SEC,
which may be obtained from the SEC's principal office in Washington, D.C. upon
payment of the fee prescribed by the rules and regulations promulgated by the
SEC.
<PAGE>
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APPENDIX
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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 Service, 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: (a) capsule stock
information which reveals short and long-term growth and yield afforded by the
indicated dividend, based on a recent price; (b) a long-term price chart which
shows patterns of monthly stock price movements and monthly trading volumes; (c)
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; (d) interim
earnings for the current year to date, plus three previous years; (e) dividend
information; (f) company background; (g) recent corporate developments; (h)
prospects for a company in the immediate future and the next few years; and (i)
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 which 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 United States,
with respect to a specific obligation. This assessment may take into
consideration obligors such as guarantors, insurers, or lessees. Ratings of
foreign obligors do not take into account currency exchange and related
uncertainties. The ratings are based on current information furnished by the
issuer or obtained by S&P from other sources it considers reliable.
The ratings are based, in varying degrees, on the following
considerations:
a. Likelihood of default - capacity and willingness of the obligor as
to the timely payment of interest and repayment of principal in accordance with
the terms of the obligation;
b. Nature of and provisions of the obligation; and
c. Protection afforded by and relative position of the obligation in
the event of bankruptcy, reorganization or other arrangement under the laws of
bankruptcy and other laws affecting creditors' rights.
PLUS (+) OR MINUS (-): To provide more detailed indications of credit
quality, ratings from AA to 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.
6. CI - The rating CI is reserved for income bonds on which no interest
is being paid.
7. D - Debt rated D is in default, and payment of interest and/or
repayment of principal is in arrears.
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 that
make the long term risks appear somewhat larger than in AAA securities.
3. A - Bonds that are rated A possess many favorable investment
attributes and are to be considered as upper medium grade obligations. Factors
giving security to principal and interest are considered adequate but elements
may be present that suggest a susceptibility to impairment sometime in the
future.
4. Baa - Bonds that are rated Baa are considered as medium grade
obligations, i.e., they are neither highly protected nor poorly secured.
Interest payments and principal security appear adequate for the present but
certain protective elements may be lacking or may be characteristically
unreliable over any great length of time. Such bonds lack outstanding investment
characteristics and in fact have speculative characteristics as well.
5. Ba - Bonds that are rated Ba are judged to have speculative
elements. Their future cannot be considered as well assured. Often the
protection of interest and principal payments may be very moderate and thereby
not well safeguarded during both good and bad times over the future. Uncertainty
of position characterizes bonds in this class.
6. B - Bonds that are rated B generally lack characteristics of the
desirable investment. Assurance of interest and principal payments or of
maintenance of other terms of the contract over any long period of time may be
small.
7. Caa - Bonds that are rated Caa are of poor standing. Such issues may
be in default or there may be present elements of danger with respect to
principal or interest.
8. Ca - Bonds that are rated Ca represent obligations that are
speculative in a high degree. Such issues are often in default or have other
market shortcomings.
9. C - Bonds that are rated as C 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.
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.
MONEY MARKET INSTRUMENTS
The Fund's investments in commercial paper are limited to those rated
A-1 by Standard & Poor's Corporation, PRIME-1 by Moody's Investors Service, Inc.
or F-1 by Fitch Investors Service, Inc. These ratings and other money market
instruments are described as follows:
COMMERCIAL PAPER RATINGS
Commercial paper rated A-1 by Standard & Poor's has the following
characteristics: Liquidity ratios are adequate to meet cash requirements. The
issuer's long-term senior debt is rated A or better, although in some cases BBB
credits may be allowed. The issuer has access to at least two additional
channels of borrowing. Basic earnings and cash flow have an upward trend with
allowance made for unusual circumstances. Typically, the issuer's industry is
well established and the issuer has a strong position within the industry.
The rating PRIME-1 is the highest commercial paper rating assigned by
Moody's. Among the factors considered by Moody's in assigning ratings are the
following: (1) evaluation of the management of the issuer; (2) economic
evaluation of the issuer's industry or industries and an appraisal of
speculative-type risks which may be inherent in certain areas; (3) evaluation of
the issuer's products in relation to competition and customer acceptance; (4)
liquidity; (5) amount and quality of long-term debt; (6) trend of earnings over
a period of ten years; (7) financial strength of a parent company and the
relationships that exist with the issuer; and (8) recognition by the management
of obligations that may be present or may arise as a result of public
preparations to meet such obligations. Relative strength or weakness of the
above factors determines how the issuer's commercial paper is rated within
various categories.
The rating F-1 is the highest rating assigned by Fitch. Among the
factors considered by Fitch in assigning this rating are: (1) the issuer's
liquidity; (2) its standing in the industry; (3) the size of its debt; (4) its
ability to service its debt; (5) its profitability; (6) its return on equity;
(7) its alternative sources of financing; and (8) its ability to access the
capital markets. Analysis of the relative strength or weakness of these factors
and others determines whether an issuer's commercial paper is rated F-1.
UNITED STATES GOVERNMENT SECURITIES
Securities issued or guaranteed by the United States Government include
a variety of Treasury securities that differ only in their interest rates,
maturities and dates of issuance. 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.
Securities issued or guaranteed by the United States Government or its
agencies or instrumentalities include direct obligations of the United States
Treasury and securities issued or guaranteed by the Federal Housing
Administration, Farmers Home Administration, Export-Import Bank of the United
States, Small Business Administration, Government National Mortgage Association,
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 United States Government agencies and
instrumentalities, such as Treasury bills and Government National Mortgage
Association pass-through certificates, are supported by the full faith and
credit of the United States; others, such as securities of Federal Home Loan
Banks, by the right of the issuer to borrow from the Treasury; still 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 United States 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 that the credit risk with
respect to the instrumentality does not make its securities unsuitable
investments. United States Government securities will not include international
agencies or instrumentalities in which the United States Government, its
agencies or instrumentalities participate, such as the World Bank, the Asian
Development Bank or the InterAmerican Development Bank, or issues insured by the
Federal Deposit Insurance Corporation.
CERTIFICATES OF DEPOSITS
Certificates of deposit are receipts issued by a bank in exchange for
the deposit of funds. The issuer agrees to pay the amount deposited plus
interest to the bearer of the receipt on the date specified on the certificate.
The certificate usually can be traded in the secondary market prior to maturity.
Certificates of deposit will be limited to U.S. dollar-denominated
certificates of United States banks, including their branches abroad, and of
U.S. branches of foreign banks that are members of the Federal Reserve System or
the Federal Deposit Insurance Corporation and have at least $1 billion in
deposits as of the date of their most recently published financial statements.
The Fund will not acquire time deposits or obligations issued by the
International Bank for Reconstruction and Development, the Asian Development
Bank or the Inter-American Development Bank. Additionally, the Fund does not
currently intend to purchase such foreign securities (except to the extent that
certificates of deposit of foreign branches of U.S. banks may be deemed foreign
securities) or purchase certificates of deposit, bankers' acceptances or other
similar obligations issued by foreign banks.
BANKERS' ACCEPTANCES
Bankers' acceptances typically arise from short-term credit
arrangements designed to enable businesses to obtain funds to finance commercial
transactions. Generally, an acceptance is a time draft drawn on a bank by an
exporter or an importer to obtain a stated amount of funds to pay for specific
merchandise. The draft is then "accepted" by the bank that, in effect,
unconditionally guarantees to pay the face value of the instrument on its
maturity date. The acceptance may then be held by the accepting bank as an
earning asset or it may be sold in the secondary market at the going rate of
discount for a specific maturity. Although maturities for acceptances can be as
long as 270 days, most acceptances have maturities of six months or less.
Bankers' acceptances acquired by the Fund must have been accepted by U.S.
commercial banks, including foreign branches of U.S. commercial banks, having
total deposits at the time of purchase in excess of $1 billion and must be
payable in U.S. dollars.
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 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 debt 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, in 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.
OPTIONS TRADING MARKETS
Options that the Fund will trade are generally listed on Exchanges.
Exchanges on which such options currently are traded are the Chicago Board
Options Exchange and the 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 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 fundamental investment restriction prohibiting it from
investing more than 10% of its net assets (taken at current value) in any
combination of illiquid assets and 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 its Custodian liquid assets maturing no
later than those that 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.
For example, when the Fund anticipates a significant market or market
sector advance, it will purchase a stock index futures contract as a hedge
against not participating in such advance at a time when the Fund is not fully
invested. The purchase of a futures contract serves as a temporary substitute
for the purchase of individual securities which may then be purchased in an
orderly fashion. As such purchases are made, an equivalent amount of index based
futures contracts would be terminated by offsetting sales. In contrast, the Fund
would sell stock index futures contracts in anticipation of or in a general
market or market sector decline that may adversely affect the market value of
the Fund's portfolio. To the extent that the Fund's portfolio changes in value
in correlation with a given index, the sale of futures contracts on that index
would substantially reduce the risk to the portfolio of a market decline or
change in interest rates, and, by so doing, provide an alternative to the
liquidation of the Fund's securities positions and the resulting transaction
costs.
The Fund intends to engage in options transactions that are related to
commodity futures contracts for hedging purposes and in connection with the
hedging strategies described above.
Although techniques other than sales and purchases of futures contracts
and related options transactions could be used to reduce the Fund's exposure to
interest rate and/or market fluctuations, the Fund may be able to hedge its
exposure more effectively and perhaps at a lower cost through using futures
contracts and related options transactions. While the Fund does not intend to
take delivery of the instruments underlying futures contracts it holds, the Fund
does not intend to engage in such futures contracts for speculation.
FUTURES CONTRACTS
Futures contracts are transactions in the commodities markets rather
than in the securities markets. A futures contract creates an obligation by the
seller to deliver to the buyer the commodity specified in the contract at a
specified future time for a specified price. The futures contract creates an
obligation by the buyer to accept delivery from the seller of the commodity
specified at the specified future time for the specified price. In contrast, a
spot transaction creates an immediate obligation for the seller to deliver and
the buyer to accept delivery of and pay for an identified commodity. In general,
futures contracts involve transactions in fungible goods such as wheat, coffee
and soybeans. However, in the last decade an increasing number of futures
contracts have been developed that 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 United States are The Board of
Trade of the City of Chicago, the Chicago Mercantile Exchange, the International
Monetary Market (a division of the Chicago Mercantile Exchange), the New York
Futures Exchange and the Kansas City Board of Trade. Each exchange guarantees
performance under contract provisions through a clearing corporation, a
nonprofit organization managed by the exchange membership, which is also
responsible for handling daily accounting of deposits or withdrawals of margin.
A futures commission merchant ("Broker") effects each transaction in connection
with futures contracts for a commission. Futures exchanges and trading are
regulated under the Commodity Exchange Act by the Commodity Futures Trading
Commission ("CFTC") and National Futures Association ("NFA").
INTEREST RATE FUTURES CONTRACTS
The sale of an interest rate futures contract creates an obligation by
the Fund, as seller, to deliver the type of financial instrument specified in
the contract at a specified future time for a specified price. The purchase of
an interest rate futures contract creates an obligation by the Fund, as
purchaser, to accept delivery of the type of financial instrument specified at a
specified future time for a specified price. The specific securities delivered
or accepted, respectively, at settlement date, are not determined until at or
near that date. The determination is in accordance with the rules of the
exchange on which the futures contract sale or purchase was made.
Currently interest rate futures contracts can be purchased or sold on
90-day U.S. Treasury bills, U.S. Treasury bonds, U.S. Treasury notes with
maturities between 6 1/2 and 10 years, Government National Mortgage Association
("GNMA") certificates, 90-day domestic bank certificates of deposit, 90-day
commercial paper, and 90-day Eurodollar certificates of deposit. It is expected
that futures contracts trading in additional financial instruments will be
authorized. The standard contract size is $100,000 for futures contracts in U.S.
Treasury bonds, U.S. Treasury notes and GNMA certificates, and $1,000,000 for
the other designated contracts. While U.S. Treasury bonds, U.S. Treasury bills
and U.S. Treasury notes are backed by the full faith and credit of the U.S.
government and GNMA certificates are guaranteed by a U.S. government agency, the
futures contracts in U.S. government securities are not obligations of the U.S.
Treasury.
INDEX BASED FUTURES CONTRACTS
STOCK INDEX FUTURES CONTRACTS
A stock index assigns relative values to the common stocks included in
the index. The index fluctuates with changes in the market values of the common
stocks so included. A stock index futures contract is a bilateral agreement by
which two parties agree to take or make delivery of an amount of cash equal to a
specified dollar amount times the difference between the closing value of the
stock index on the expiration date of the contract and the price at which the
futures contract is originally made. No physical delivery of the underlying
stocks in the index is made.
Currently stock index futures contracts can be purchased or sold on the
Standard and Poor's Corporation (S&P) Index of 500 Stocks, the S&P Index of 100
Stocks, the New York Stock Exchange Composite Index, the Value Line Index and
the Major Market Index. It is expected that futures contracts trading in
additional stock indices will be authorized. The standard contract size is $500
times the value of the index.
The Fund does not believe that differences between existing stock
indices will create any differences in the price movements of the stock index
futures contracts in relation to the movements in such indices. However, such
differences in the indices may result in differences in correlation of the
futures with movements in the value of the securities being hedged.
OTHER INDEX BASED FUTURES CONTRACTS
It is expected that bond index and other financially based index
futures contracts will be developed in the future. It is anticipated that such
index based futures contracts will be structured in the same way as stock index
futures contracts but will be measured by changes in interest rates, related
indexes or other measures, such as the consumer price index. In the event that
such futures contracts are developed the Fund will sell interest rate index and
other index based futures to hedge against changes which are expected to affect
the Fund's portfolio.
The purchase or sale of a futures contract differs from the purchase or
sale of a security, in that no price or premium is paid or received. Instead, to
initiate trading an amount of cash, cash equivalents, money market instruments,
or U.S. Treasury bills equal to approximately 1 1/2% (up to 5%) of the contract
amount must be deposited by the Fund with the Broker. This amount is known as
initial margin. The nature of initial margin in futures transactions is
different from that of margin in security transactions. Futures contract margin
does not involve the borrowing of funds by the customer to finance the
transactions. Rather, the initial margin is in the nature of a performance bond
or good faith deposit on the contract which is returned to the Fund upon
termination of the futures contract assuming all contractual obligations have
been satisfied. The margin required for a particular futures contract is set by
the exchange on which the contract is traded, and may be significantly modified
from time to time by the exchange during the term of the contract.
Subsequent payments, called variation margin, to the Broker and from
the Broker, are made on a daily basis as the value of the underlying instrument
or index fluctuates making the long and short positions in the futures contract
more or less valuable, a process known as mark-to-market. For example, when the
Fund has purchased a futures contract and the price of the underlying financial
instrument or index has risen, that position will have increased in value and
the Fund will receive from the Broker a variation margin payment equal to that
increase in value. Conversely, where the Fund has purchased a futures contract
and the price of the underlying financial instrument or index has declined, the
position would be less valuable and the Fund would be required to make a
variation margin payment to the Broker. At any time prior to expiration of the
futures contract, the Fund may elect to close the position. A final
determination of variation margin is then made, additional cash is required to
be paid to or released by the Broker, and the Fund realizes a loss or gain.
The Fund intends to enter into arrangements with its custodian and with
Brokers to enable its initial margin and any variation margin to be held in a
segregated account by its custodian on behalf of the Broker.
Although interest rate futures contracts by their terms call for actual
delivery or acceptance of financial instruments, and index based futures
contracts call for the delivery of cash equal to the difference between the
closing value of the index on the expiration date of the contract and the price
at which the futures contract is originally made, in most cases such futures
contracts are closed out before the settlement date without the making or taking
of delivery. Closing out a futures contract sale is effected by an offsetting
transaction in which the Fund enters into a futures contract purchase for the
same aggregate amount of the specific type of financial instrument or index and
same delivery date. If the price in the sale exceeds the price in the offsetting
purchase, the Fund is paid the difference and thus realizes a gain. If the
offsetting purchase price exceeds the sale price, the Fund pays the difference
and realizes a loss. Similarly, the closing out of a futures contract purchase
is effected by an offsetting transaction in which the Fund enters into a futures
contract sale. If the offsetting sale price exceeds the purchase price, the Fund
realizes a gain. If the purchase price exceeds the offsetting sale price the
Fund realizes a loss. The amount of the Fund's gain or loss on any transaction
is reduced or increased, respectively, by the amount of any transaction costs
incurred by the Fund.
As an example of an offsetting transaction, the contractual obligations
arising from the sale of one contract of September U.S. Treasury bills on an
exchange may be fulfilled at any time before delivery of the contract is
required (i.e., on a specified date in September, the "delivery month") by the
purchase of one contract of September U.S. Treasury bills on the same exchange.
In such instance the difference between the price at which the futures contract
was sold and the price paid for the offsetting purchase after allowance for
transaction costs represents the profit or loss to the Fund.
There can be no assurance, however, that the Fund will be able to enter
into an offsetting transaction with respect to a particular contract at a
particular time. If the Fund is not able to enter into an offsetting
transaction, the Fund will continue to be required to maintain the margin
deposits on the contract and to complete the contract according to its terms.
OPTIONS ON 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 to terminate an existing
position. 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 commodity 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 a call option on a commodity futures contract
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 commodity futures contracts may be purchased to
hedge against an interest rate increase or a market advance when the Fund is not
fully invested.
USE OF NEW INVESTMENT TECHNIQUES INVOLVING COMMODITY 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 which may be developed from time to
time and which are consistent with the Fund's investment objective. The Fund
believes that no additional techniques have been identified for employment by
the Fund in the foreseeable future other than those described above.
LIMITATIONS ON PURCHASE AND SALE OF FUTURES CONTRACTS AND RELATED OPTIONS ON
SUCH FUTURES CONTRACTS
The Fund will not enter into a futures contract if, as a result
thereof, more than 5% of the Fund's total assets (taken at market value at the
time of entering into the contract) would be committed to margin deposits on
such futures contracts.
The Fund intends that its futures contracts and related options
transactions will be entered into for traditional hedging purposes. That is,
futures contracts will be sold to protect against a decline in the price of
securities that the Fund owns or futures contracts will be purchased to protect
the Fund against an increase in the price of securities it intends to purchase.
The Fund does not intend to enter into futures contracts for speculation.
In instances involving the purchase of futures contracts by the Fund,
an amount of cash and cash equivalents, equal to the market value of the futures
contracts will be deposited in a segregated account with the Fund's custodian
and/or in a margin account with a Broker to collateralize the position and
thereby insure that the use of such futures is unleveraged.
FEDERAL INCOME TAX TREATMENT
For federal income tax purposes, the Fund is required to recognize as
income for each taxable year its net unrealized gains and losses on futures
contracts as of the end of the year as well as those actually realized during
the year. Any gain or loss recognized with respect to a futures contract is
considered to be 60% long-term and 40% short-term, without regard to the holding
period of the contract. In the case of a futures transaction classified as a
"mixed straddle," the recognition of losses may be deferred to a later taxable
year. The federal income tax treatment of gains or losses from transactions in
options on futures is unclear.
In order for the Fund to continue to qualify for federal income tax
treatment as a regulated investment company, at least 90% of its gross income
for a taxable year must be derived from qualifying income. Any net gain realized
from the closing out of futures contracts, for purposes of the 90% requirement,
will be qualifying income. In addition, gains realized on the sale or other
disposition of securities held for less than three months must be limited to
less than 30% of the Fund's annual gross income. The 1986 Tax Act added a
provision that effectively treats both positions in certain hedging transactions
as a single transaction for the purpose of the 30% requirement. The provision
provides that, in the case of any "designated hedge," increases and decreases in
the value of positions of the hedge are to be netted for the purposes of the 30%
requirement. However, in certain situations, in order to avoid realizing a gain
within a three month period, the Fund may be required to defer the closing out
of a contract beyond the time when it would otherwise be advantageous to do so.
RISKS OF FUTURES CONTRACTS
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 involves
an extremely high degree of leverage. As a result, a relatively small price
movement in a futures contract may result in immediate and substantial loss, as
well as gain, to the investor. For example, if at the time of purchase, 10% of
the value of the futures contract is deposited as margin, a 10% decrease in the
value of the futures contract would result in a total loss of the margin
deposit, before any deduction for the transaction costs, if the account were
then closed out, and a 15% decrease would result in a loss equal to 150% of the
original margin deposit. Thus, a purchase or sale of a futures contract may
result in losses in excess of the amount invested in the futures contract.
However, the Fund would presumably have sustained comparable losses if, instead
of entering into the futures contract, it had invested in the underlying
financial instrument. Furthermore, in order to be certain that the Fund has
sufficient assets to satisfy its obligations under a futures contract, the Fund
will establish a segregated account in connection with its futures contracts
which will hold cash or cash equivalents equal in value to the current value of
the underlying instruments or indices less the margins on deposit.
Most U.S. futures exchanges limit the amount of fluctuation permitted
in futures contract prices during a single trading day. The daily limit
establishes the maximum amount that the price of a futures contract may vary
either up or down from the previous day's settlement price at the end of a
trading session. Once the daily limit has been reached in a particular type of
contract, no trades may be made on that day at a price beyond that limit. The
daily limit governs only price movement during a particular trading day and
therefore does not limit potential losses because the limit may prevent the
liquidation of unfavorable positions. Futures contract prices have occasionally
moved to the daily limit for several consecutive trading days with little or no
trading, thereby preventing prompt liquidation of futures positions and
subjecting some futures traders to substantial losses.
RISKS OF OPTIONS ON FUTURES CONTRACTS
In addition to the risks described above for 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 contract or at any particular time. The Fund will not purchase
options on any futures contract unless and until it believes that the market for
such options has developed sufficiently that the risks in connection with such
options are not greater than the risks in connection with the futures contracts.
Compared to the use of futures contracts, the purchase of options on such
futures involves less potential risk to the Fund because the maximum amount at
risk is the premium paid for the options (plus transaction costs). However,
there may be circumstances when the use of an option on a futures contract would
result in a loss to the Fund, even though the use of a futures contract would
not, such as when there is no movement in the level of the futures contract.
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 rate 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 rate 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 United States is regulated under the Commodity Exchange Act by
the Commodity Futures Trading Commission ("CFTC") and National Futures
Association ("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.
Currently currency futures contracts for the British Pound Sterling,
Canadian Dollar, Dutch Guilder, Deutsche Mark, Japanese Yen, Mexican Peso, Swiss
Franc and French Franc can be purchased or sold for U.S. dollars through the
International Monetary Market. It is expected that futures contracts trading in
additional currencies will be authorized. The standard contract sizes are
L125,000 for the Pound, 125,000 for the Guilder, Mark and Swiss Francs,
C$100,000 for the Canadian Dollar, Y12,500,000 for the Yen, and 1,000,000 for
the Peso. In contrast to Forward Currency Exchange Contracts which can be traded
at any time, only four value dates per year are available, the third Wednesday
of March, June, September and December.
FOREIGN CURRENCY OPTIONS TRANSACTIONS
Foreign currency options (as opposed to futures) are traded in a
variety of currencies in both the United States 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. The Fund does not intend to trade more
than 5% of its net assets under foreign exchange contracts with one 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 the 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 that are advantageous to the company but disclaim those contracts that
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 control 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.
<PAGE>
EXHIBIT A
GLOSSARY OF TERMS
CLASS OF OPTIONS. Options covering the same underlying security.
CLEARING CORPORATION. The Options Clearing Corporation, Trans Canada
Options, Inc., The European Options Clearing Corporation B.V., or the London
Options Clearing House.
CLOSING PURCHASE TRANSACTION. A transaction in which an investor who is
obligated as a writer of an option or seller of a futures contract terminates
his obligation by purchasing on an Exchange an option of the same series as the
option previously written or futures contract identical to the futures contract
previously sold, as the case may be. (Such a purchase does not result in the
ownership of an option or futures contract.)
CLOSING SALE TRANSACTION. A transaction in which an investor who is the
holder or buyer of an outstanding option or futures contract liquidates his
position as a holder or seller by selling an option of the same series as the
option previously purchased or futures contract identical to the futures
contract previously purchased. (Such sale does not result in the investor
assuming the obligations of a writer or seller.)
COVERED CALL OPTION WRITER. A writer of a call option who, so long as
he remains obligated as a writer, owns the shares of the underlying security or
holds on a share for share basis a call on the same security where the exercise
price of the call held is equal to or less than the exercise price of the call
written, or, if greater than the exercise price of the call written, the
difference is maintained by the writer in cash, U.S. Treasury bills or other
high grade, short term obligations in a segregated account with the writer's
broker or custodian.
COVERED PUT OPTION WRITER. A writer of a put option who, so long as he
remains obligated as a writer, has deposited Treasury bills with a value equal
to or greater than the exercise price with a securities depository and has
pledged them to the Options Clearing Corporation for the account of the
broker-dealer carrying the writer's position or holds on a share for share basis
a put on the same security as the put written where the exercise price of the
put held is equal to or greater than the exercise price of the put written, or,
if less than the exercise price of the put written, the difference is maintained
by the writer in cash, U.S. Treasury bills or other high grade, short term
obligations in a segregated account with the writer's broker or custodian.
SECURITIES EXCHANGE. A securities exchange on which call and put
options are traded. The U.S. Exchanges are as follows: The Chicago Board Options
Exchange; American Stock Exchange; New York Stock Exchange; Philadelphia Stock
Exchange; and Pacific Stock Exchange. The foreign securities exchanges in Canada
are the Toronto Stock Exchange and the Montreal Stock Exchange; in the
Netherlands, the European Options Exchange; and in the United Kingdom, the Stock
Exchange (London).
Those issuers whose common stocks have been approved by the Exchanges
as underlying securities for options transactions are published in various
financial publications.
COMMODITIES EXCHANGE. A commodities exchange on which futures contracts
are traded that is regulated by exchange rules that have been approved by the
Commodity Futures Trading Commission. The U.S. exchanges are as follows: The
Chicago Board of Trade of the City of Chicago; Chicago Mercantile Exchange,
International Monetary Market (a division of the Chicago Mercantile Exchange);
the Kansas City Board of Trade; and the New York Futures Exchange.
EXERCISE PRICE. The price per unit at which the holder of a call option
may purchase the underlying security upon exercise or the holder of a put option
may sell the underlying security upon exercise.
EXPIRATION DATE. The latest date when an option may be exercised or a
futures contract must be completed according to its terms.
HEDGING. An action taken by an investor to neutralize an investment
risk by taking an investment position that will move in the opposite direction
as the risk being hedged so that a loss (or gain) on one will tend to be offset
by a gain (or loss) on the other.
OPTION. Unless the context otherwise requires, the term "option" means
either a call or put option issued by a Clearing Corporation, as defined above.
A call option gives a holder the right to buy from such Clearing Corporation the
number of shares of the underlying security covered by the option at the stated
exercise price by the filing of an exercise notice prior to the expiration time
of the option. A put option gives a holder the right to sell to a Clearing
Corporation the number of shares of the underlying security covered by the put
at the stated exercise price by the filing of an exercise notice prior to the
expiration time of the option. The Fund will sell ("write") and purchase puts
only on U.S. Exchanges.
OPTION PERIOD. The time during which an option may be exercised,
generally from the date the option is written through its expiration date.
PREMIUM. The price of an option agreed upon between the buyer and
writer or their agents in a transaction on the floor of an Exchange.
SERIES OF OPTIONS. Options covering the same underlying security and
having the same exercise price and expiration date.
STOCK INDEX. A stock index assigns relative values to the common stocks
included in the index, and the index fluctuates with changes in the market
values of the common stocks so included.
INDEX BASED FUTURES CONTRACT. An index based futures contract is a
bilateral agreement pursuant to which a party agrees to buy or deliver at
settlement an amount of cash equal to $500 times the difference between the
closing value of an index on the expiration date and the price at which the
futures contract is originally struck. Index based futures are traded on
Commodities Exchanges. Currently index based stock index futures contracts can
be purchased or sold with respect to the Standard & Poor's Corporation (S&P) 500
Stock Index and S&P 100 Stock Index on the Chicago Mercantile Exchange, the New
York Stock Exchange Composite Index on the New York Futures Exchange and the
Value Line Stock Index and Major Market Index on the Kansas City Board of Trade.
UNDERLYING SECURITY. The security subject to being purchased upon the
exercise of a call option or subject to being sold upon the exercise of a put
option.
<PAGE>
PAGE 10
- --------------------------------------------------------------------------------
Keystone International Fund Inc.
SCHEDULE OF INVESTMENTS--October 31, 1995
NUMBER OF MARKET
SHARES VALUE
================================================================================
COMMON STOCKS (82.8%)
(bullet) ARGENTINA (0.3%)
Beverages & Tobacco (0.3%)
Nobleza Piccardo 108,746 $ 418,630
================================================================================
(bullet) AUSTRALIA (3.9%)
Banking (1.8%)
National Australia Bank Ltd. 155,500 1,331,368
Westpac Banking Corp. 231,000 948,423
- --------------------------------------------------------------------------------
2,279,791
- --------------------------------------------------------------------------------
Business & Public Services (0.2%)
Memtec Ltd. 170,000 279,708
- --------------------------------------------------------------------------------
Beverages & Tobacco (0.2%)
Foster's Brewing Group Ltd. 270,000 257,084
- --------------------------------------------------------------------------------
Energy Sources (1.7%)
Broken Hill Proprietary Co. Ltd. 162,765 2,204,419
- --------------------------------------------------------------------------------
(bullet) TOTAL AUSTRALIA 5,021,002
================================================================================
(bullet) BELGIUM (1.2%)
Industrial Components (1.2%)
Bekaert S.A. 2,180 1,600,726
================================================================================
(bullet) CANADA (4.6%)
Advertising & Publishing (1.8%)
Quebecor, Inc. 147,906 2,249,264
- --------------------------------------------------------------------------------
Conglomerates (0.5%)
Brascan Ltd. 26,400 413,793
Imasco Ltd. 15,000 268,697
- --------------------------------------------------------------------------------
682,490
- --------------------------------------------------------------------------------
Beverages & Tobacco (0.5%)
Canada Malting Ltd. 43,800 662,002
- --------------------------------------------------------------------------------
Fertilizer (1.8%)
Potash Corp. of Saskatchewan, Inc. 32,380 2,271,772
- --------------------------------------------------------------------------------
(bullet) TOTAL CANADA 5,865,528
================================================================================
(bullet) CHILE (2.0%)
Conglomerates (2.0%)
Antofagasta Holdings 519,000 $2,502,688
================================================================================
(bullet) FINLAND (0.3%)
Industrial Components (0.3%)
Fiskars Oy AB, Series K 4,400 207,176
Fiskars Oy AB 3,533 178,829
- --------------------------------------------------------------------------------
(bullet) TOTAL FINLAND 386,005
================================================================================
(bullet) FRANCE (5.0%)
Building Materials (0.7%)
Lafarge 13,200 874,853
- --------------------------------------------------------------------------------
Cosmetics (0.7%)
L'Oreal S.A. 3,500 855,299
- --------------------------------------------------------------------------------
Banking (1.5%)
Credit Commerce de France 39,888 1,982,124
- --------------------------------------------------------------------------------
Industrial Components (0.8%)
Michelin 26,200 1,058,158
- --------------------------------------------------------------------------------
Leisure/Tourism (0.5%)
Accor S.A. 5,651 671,404
- --------------------------------------------------------------------------------
Energy Sources (0.8%)
Societe Nationale Elf Aquitaine 14,555 991,148
- --------------------------------------------------------------------------------
(bullet) TOTAL FRANCE 6,432,986
================================================================================
(bullet) HONG KONG (3.4%)
Banking (2.3%)
HSBC Holdings 175,677 2,556,186
Wing Hang Bank 117,700 379,054
- --------------------------------------------------------------------------------
2,935,240
- --------------------------------------------------------------------------------
Beverages & Tobacco (0.1%)
Tsingtao Brewery 535,000 141,851
- --------------------------------------------------------------------------------
Merchandising (0.5%)
Giordano Holdings 771,000 638,204
- --------------------------------------------------------------------------------
See Notes to Schedule of Investments.
<PAGE>
PAGE 11
- --------------------------------------------------------------------------------
SCHEDULE OF INVESTMENTS--October 31, 1995
NUMBER OF MARKET
SHARES VALUE
================================================================================
Telecommunications (0.5%)
Hong Kong Telecommunications Ltd. 378,000 $ 660,010
- --------------------------------------------------------------------------------
(bullet) TOTAL HONG KONG 4,375,305
================================================================================
(bullet) INDONESIA (1.6%)
Health and Personal (0.4%)
Kalbe Farma 159,840 506,758
- --------------------------------------------------------------------------------
Merchandising (0.4%)
Matahari Putra 240,750 503,550
- --------------------------------------------------------------------------------
Textiles & Apparel (0.8%)
Indorama Synthetic 300,500 992,404
- --------------------------------------------------------------------------------
(bullet) TOTAL INDONESIA 2,002,712
================================================================================
(bullet) ITALY (1.8%)
Chemicals (0.1%)
Saes Getters 4,500 85,822
- --------------------------------------------------------------------------------
Food & Household Products (0.2%)
Industrie Natuzzi 7,400 296,000
- --------------------------------------------------------------------------------
Telecommunications (1.5%)
Telecom Italia MOB 630,000 1,057,246
Telecom Italia 630,000 956,462
- --------------------------------------------------------------------------------
2,013,708
- --------------------------------------------------------------------------------
(bullet) TOTAL ITALY 2,395,530
================================================================================
(bullet) JAPAN (20.2%)
Appliances/Household Durables (2.8%)
Sharp Corp. 79,000 1,096,632
Sony Corp. 56,700 2,549,685
- --------------------------------------------------------------------------------
3,646,317
- --------------------------------------------------------------------------------
Beverages & Tobacco (0.1%)
Kita Kyushu Coca Cola 7,000 136,175
- --------------------------------------------------------------------------------
Chemicals (0.4%)
Rohm 9,000 546,361
- --------------------------------------------------------------------------------
Electrical/Electronics (4.4%)
Hitachi Ltd. 141,000 1,447,285
- --------------------------------------------------------------------------------
Electrical/Electronics (Continued)
NEC Corp. 207,000 $ 2,731,805
Toshiba Corp. 203,000 1,470,482
- --------------------------------------------------------------------------------
5,649,572
- --------------------------------------------------------------------------------
Electronic Components (2.7%)
Advantest 20,500 1,162,325
Fanuc 16,000 692,898
Kyocera Corp. 8,000 655,360
Murata Manufacturing Co. 8,000 280,757
Tokyo Electronics 16,000 694,462
- --------------------------------------------------------------------------------
3,485,802
- --------------------------------------------------------------------------------
Financial Services (0.6%)
Nichiei Co. 12,000 744,904
- --------------------------------------------------------------------------------
Food & Household Products (0.0%)
Plenus 2,000 94,433
- --------------------------------------------------------------------------------
Industrial Components (1.7%)
Bridgestone Corp. 93,000 1,290,972
NGK Spark Plug Co. 63,000 862,212
- --------------------------------------------------------------------------------
2,153,184
- --------------------------------------------------------------------------------
Insurance (3.3%)
Mitsui Marine and Fire 108,000 649,299
Nichido Fire and Marine 181,000 1,353,585
Sumitomo Marine and Fire 305,000 2,176,548
- --------------------------------------------------------------------------------
4,179,432
- --------------------------------------------------------------------------------
Leisure & Tourism (0.4%)
Fuji Photo Film Co. 19,000 469,915
- --------------------------------------------------------------------------------
Office & Business Equipment (3.8%)
Canon, Inc. 283,000 4,841,390
- --------------------------------------------------------------------------------
(bullet) TOTAL JAPAN 25,947,485
================================================================================
(bullet) KOREA (1.8%)
Electronic Components (0.2%)
Chung Ho Computer 2,390 221,774
- --------------------------------------------------------------------------------
Electric/Electronics (0.9%)
Samsung Electronics Co., Ltd., Global
Depository Shares 5,500 1,207,606
- --------------------------------------------------------------------------------
See Notes to Schedule of Investments. (continued on next page)
<PAGE>
PAGE 12
- --------------------------------------------------------------------------------
Keystone International Fund Inc.
SCHEDULE OF INVESTMENTS--October 31, 1995
NUMBER OF MARKET
SHARES VALUE
================================================================================
Metals & Mining (0.2%)
Pohang Iron & Steel Co., Ltd. 2,500 $ 217,604
- --------------------------------------------------------------------------------
Utilities (0.5%)
Korea Electric Power 16,300 671,045
- --------------------------------------------------------------------------------
(bullet) TOTAL KOREA 2,318,029
================================================================================
(bullet) MALAYSIA (1.3%)
Wholesale/International (0.2%)
Sime Darby BHD 88,000 219,913
- --------------------------------------------------------------------------------
Foods & Household Products (0.4%)
Nestle Malay Berhad 90,000 634,002
- --------------------------------------------------------------------------------
Leisure & Tourism (0.7%)
Genting Berhad 98,500 857,431
- --------------------------------------------------------------------------------
(bullet) TOTAL MALAYSIA 1,711,346
================================================================================
(bullet) MEXICO (0.3%)
Metals & Mining (0.3%)
Industrias Penoles S.A. de C.V. 96,500 362,975
================================================================================
(bullet) NETHERLANDS (8.9%)
Advertising & Publishing (2.4%)
Telegraaf N.V. 10,000 1,438,712
Wolters Kluwer N.V. 17,424 1,585,807
- --------------------------------------------------------------------------------
3,024,519
- --------------------------------------------------------------------------------
Appliances/Household Durables (0.5%)
Philips Electronics N.V. 17,350 670,776
- --------------------------------------------------------------------------------
Beverages & Tobacco (1.6%)
Heineken N.V. 11,788 2,091,925
- --------------------------------------------------------------------------------
Health & Personal Products (0.6%)
Unilever N.V. 5,615 735,594
- --------------------------------------------------------------------------------
Insurance (0.8%)
AEGON N.V. 26,920 1,021,998
- --------------------------------------------------------------------------------
Energy Sources (2.3%)
Royal Dutch Petroleum Co. 23,740 $ 2,947,564
- --------------------------------------------------------------------------------
Merchandising (0.7%)
Ahold 24,383 924,137
- --------------------------------------------------------------------------------
(bullet) TOTAL NETHERLANDS 11,416,513
================================================================================
(bullet) NEW ZEALAND (0.2%)
Forest Products (0.2%)
Fletcher Challenge 12,769 17,616
Fletcher Challenge Forest 90,000 238,234
- --------------------------------------------------------------------------------
(bullet) TOTAL NEW ZEALAND 255,850
================================================================================
(bullet) SINGAPORE (1.5%)
Business & Public Services (0.1%)
Venture Manufacturing 38,500 114,437
- --------------------------------------------------------------------------------
Conglomerates (0.6%)
Jardine Matheson 128,166 781,813
- --------------------------------------------------------------------------------
Beverages & Tobacco (0.8%)
Fraser & Neave 89,000 1,051,875
- --------------------------------------------------------------------------------
(bullet) TOTAL SINGAPORE 1,948,125
================================================================================
(bullet) SPAIN (0.9%)
Energy Sources (0.9%)
Repsol S.A. 37,300 1,113,912
================================================================================
(bullet) SWEDEN (7.5%)
Appliances & Household Durables (1.1%)
Electrolux AB 33,925 1,450,878
- --------------------------------------------------------------------------------
Automotive (1.6%)
Volvo AB 93,200 2,098,214
- --------------------------------------------------------------------------------
Business & Public Services (0.9%)
Esselte AB 79,500 1,167,251
- --------------------------------------------------------------------------------
Electrical & Electronics (0.4%)
Asea AB 5,000 493,178
- --------------------------------------------------------------------------------
See Notes to Schedule of Investments.
<PAGE>
PAGE 13
- --------------------------------------------------------------------------------
SCHEDULE OF INVESTMENTS--October 31, 1995
NUMBER OF MARKET
SHARES VALUE
================================================================================
Health & Personal Products (3.1%)
AB Astra 20,900 $ 767,943
Elekta 21,425 887,250
Pharmacia AB 67,000 2,330,663
- --------------------------------------------------------------------------------
3,985,856
- --------------------------------------------------------------------------------
Capital Goods (0.4%)
Assa Abloy (c) 69,000 457,188
- --------------------------------------------------------------------------------
(bullet) TOTAL SWEDEN 9,652,565
================================================================================
(bullet) SWITZERLAND (6.7%)
Business & Public Services (0.7%)
SGS Holding 475 897,450
- --------------------------------------------------------------------------------
Chemicals (1.6%)
Ciba-Geigy AG 2,435 2,101,911
- --------------------------------------------------------------------------------
Food/Household Products (3.9%)
Nestle S.A. 4,731 4,958,945
- --------------------------------------------------------------------------------
Health and Personal Products (0.5%)
Sandoz AG 825 680,899
- --------------------------------------------------------------------------------
(bullet) TOTAL SWITZERLAND 8,639,205
================================================================================
(bullet) TAIWAN, PROVINCE OF CHINA (0.6%)
Electronic Components (0.1%)
Taiwan Semiconductor (c) 14,400 44,822
United Micro Electric 16,500 40,353
- --------------------------------------------------------------------------------
85,175
- --------------------------------------------------------------------------------
Finance (0.5%)
Chronicle 2001 Mutual Fund 1,653,374 628,585
- --------------------------------------------------------------------------------
Transportation (0.0%)
Evergreen Marine 30,800 46,223
- --------------------------------------------------------------------------------
(bullet) TOTAL TAIWAN, PROVINCE OF CHINA 759,983
================================================================================
(bullet) UNITED KINGDOM (7.5%)
Advertising/Publishing (1.1%)
Blenheim Group PLC 60,000 $ 242,846
Pearson 132,000 1,311,652
- --------------------------------------------------------------------------------
1,554,498
- --------------------------------------------------------------------------------
Miscellaneous Materials (0.7%)
Pilkington PLC 285,000 851,621
- --------------------------------------------------------------------------------
Conglomerates (2.4%)
Lonrho PLC 1,253,184 3,100,764
- --------------------------------------------------------------------------------
Health and Personal Products (0.3%)
Takare PLC 110,000 356,522
- --------------------------------------------------------------------------------
Metals & Mining (1.8%)
British Steel PLC 892,000 2,302,277
- --------------------------------------------------------------------------------
Oil (1.2%)
British Petroleum Co., PLC 204,000 1,499,763
- --------------------------------------------------------------------------------
(bullet) TOTAL UNITED KINGDOM 9,665,445
================================================================================
(bullet) VENEZUELA (1.3%)
Building Materials (0.2%)
Venezolana de Ceme 126,390 241,190
- --------------------------------------------------------------------------------
Conglomerates (0.1%)
H L Boulton & Co. 1,351,329 32,632
- --------------------------------------------------------------------------------
Forest Products (0.2%)
Venezolana de Papeles 377,775 322,739
- --------------------------------------------------------------------------------
Utilities (0.8%)
La Electricidad de Caracas C.A. 945,266 1,080,081
- --------------------------------------------------------------------------------
(bullet) TOTAL VENEZUELA 1,676,642
================================================================================
(bullet) TOTAL COMMON STOCKS
(Cost--$88,194,222) 106,469,187
================================================================================
See Notes to Schedule of Investments. (continued on next page)
<PAGE>
PAGE 14
- --------------------------------------------------------------------------------
Keystone International Fund Inc.
SCHEDULE OF INVESTMENTS--October 31, 1995
Maturity Market
Value Value
================================================================================
SHORT-TERM INVESTMENTS (10.6%)
REPURCHASE AGREEMENTS (10.6%)
Keystone Joint Repurchase
Agreement (Investments in
repurchase agreements, in a
joint trading account,
purchased 10/31/95, 5.870
to 5.8750%, maturing
11/01/95) (d) $13,666,229 $ 13,664,000
================================================================================
TOTAL SHORT-TERM INVESTMENTS
(Cost--$13,664,000) 13,664,000
================================================================================
TOTAL INVESTMENTS
(Cost--$101,858,222) (e) 120,133,187
================================================================================
FOREIGN CURRENCY HOLDINGS (3.6%)
Japanese Yen $ 4,343,267
New Taiwan Dollar (a) 14,070
Venezuelan Bolivar (a) 263,122
- --------------------------------------------------------------------------------
TOTAL FOREIGN CURRENCY HOLDINGS
(Cost--$4,716,137) 4,620,459
================================================================================
OTHER ASSETS AND LIABILITIES--NET
(3.0%) 3,920,009
- --------------------------------------------------------------------------------
NET ASSETS (100%) $128,673,655
================================================================================
NOTES TO SCHEDULE OF INVESTMENTS:
(a) Investments denominated in the local currency and/or foreign currency
holdings of certain countries are considered illiquid due to foreign
exchange restrictions of these markets.
(b) Securities that may be resold to "qualified institutional buyers" under
Rule 144A of the Federal Securities Act of 1933. These securities have
been determined to be liquid under guidelines established by the Board of
Directors.
(c) Non-income-producing security.
(d) The repurchase agreements are fully collateralized by U.S. government
and/or agency obligations based on market prices at October 31, 1995.
(e) The cost of investments for income tax purposes amounted to $101,953,236.
Gross unrealized appreciation and depreciation of investments, based on
identified tax cost at October 31, 1995 are as follows:
Gross unrealized appreciation $21,445,442
Gross unrealized depreciation (3,361,169)
-----------
Net unrealized appreciation $18,084,273
===========
See Notes to Financial Statements.
<PAGE>
PAGE 15
- --------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
(For a share outstanding throughout the period)
<TABLE>
<CAPTION>
One Month
Year Ended Ended
October October
31, 31, Year Ended September 30,
1995 1994(e) 1994(e) 1993(e) 1992(e) 1991 1990 1989 1988 1987 1986
===================================================================================================================================
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Net asset value beginning
of period $ 7.77 $ 7.67 $ 7.08 $ 6.01 $ 5.91 $ 5.35 $ 7.51 $ 6.66 $ 9.53 $ 8.05 $ 5.35
- -----------------------------------------------------------------------------------------------------------------------------------
Income from investment operations
Net investment income 0.07 0 0 (0.03) (0.01) (0.01) (0.07) (0.14) 0.03 0 0.11
Net gains (losses) on
investments and foreign
currency related
transactions 0.05 0.10 0.62 1.14 0.34 0.83 (1.74) 1.06 (1.60) 2.65 3.25
Net commissions paid on
fund share sales (a) 0 0 0 0 0 0 0 0 0 0 (0.07)
- -----------------------------------------------------------------------------------------------------------------------------------
Total from investment
operations 0.12 0.10 0.62 1.11 0.33 0.82 (1.81) 0.92 (1.57) 2.65 3.29
- -----------------------------------------------------------------------------------------------------------------------------------
Less distributions from:
Net investment income (0.04) 0 (0.02) 0 0 0 0 (0.07) (0.08) (0.06) (0.13)
In excess of net
investment income 0 0 (0.01) (0.04) (0.23) (0.03) 0 0 0 0 0
Net realized gains on
investments and foreign
currency related
transactions (0.74) 0 0 0 0 (0.23) (0.35) 0 (1.22) (1.11) (0.46)
- -----------------------------------------------------------------------------------------------------------------------------------
Total distributions (0.78) 0 (0.03) (0.04) (0.23) (0.26) (0.35) (0.07) (1.30) (1.17) (0.59)
- -----------------------------------------------------------------------------------------------------------------------------------
Net asset value end of
period $ 7.11 $ 7.77 $ 7.67 $ 7.08 $ 6.01 $ 5.91 $ 5.35 $ 7.51 $ 6.66 $ 9.53 $ 8.05
===================================================================================================================================
Total return (c) 2.19% 1.30% 8.75% 18.59% 5.78% 15.59% (25.12%) 13.55% (15.55%) 39.96% 67.76%
Ratios/supplemental data
Ratios to average net assets:
Total expenses 2.57%(b) 2.52%(d) 2.54% 2.94% 3.41% 3.14% 2.92% 2.65% 2.04% 2.17% 1.49%
Net investment income 0.88% (0.20%)(d) 0.01% (0.46%) (0.09%) (0.07%) (0.51%) (0.79%) 0.33% (0.04%) 1.53%
Portfolio turnover rate 76% 2% 121% 68% 74% 85% 42% 42% 60% 61% 97%
- -----------------------------------------------------------------------------------------------------------------------------------
Net assets end of period
(thousands) $128,674 $157,929 $154,529 $111,752 $64,135 $72,923 $73,768 $121,047 $115,712 $173,319 $89,895
===================================================================================================================================
</TABLE>
(a) Prior to June 30, 1987, net commissions paid on new sales of shares under
the Fund's Rule 12b-1 Distribution Plan had been treated for both
financial statement and tax purposes as capital charges. On June 11,
1987, the Securities and Exchange Commission adopted a rule which
required for financial statements for periods ended on or after June 30,
1987, that net commissions paid under Rule 12b-1 Distribution Plans be
treated as operating expenses rather than capital charges. Accordingly,
beginning with the fiscal year ended September 30, 1987, the Fund's
financial statements reflect 12b-1 Distribution Plan expenses (i.e.,
shareholder service fees plus commissions paid net of deferred sales
charges received by the Fund) as a component of net investment income.
(b) "Ratio of total expenses to average net assets" for the year ended
October 31, 1995 includes indirectly paid expenses. Excluding indirectly
paid expenses for the year ended October 31, 1995, the expense ratio
would have been 2.56%.
(c) Excluding contingent deferred sales charges (CDSC).
(d) Annualized.
(e) Calculation based on average shares outstanding.
See Notes to Financial Statements.
<PAGE>
PAGE 16
- --------------------------------------------------------------------------------
Keystone International Fund Inc.
STATEMENTS OF ASSETS AND LIABILITIES--
October 31, 1995
================================================================================
Assets:
Investments at market value (identified cost--
$88,194,222) (Note 1) $106,469,187
Repurchase Agreements (identified cost--
$13,664,000) (Note 1) 13,664,000
Foreign currency holdings (identified cost--
$4,716,137) (Note 1) 4,620,459
- --------------------------------------------------------------------------------
Total investments and foreign currency holdings
(identified cost--$106,574,359) 124,753,646
- --------------------------------------------------------------------------------
Cash 271
Receivable for:
Unrealized appreciation on open foreign currency
contracts
(Notes 1 and 5) 654,349
Investments sold 4,270,517
Fund shares sold 338,050
Interest and dividends 190,714
Refundable foreign tax withheld 100,125
Prepaid expenses 13,072
- --------------------------------------------------------------------------------
Total assets 130,320,744
- --------------------------------------------------------------------------------
Liabilities:
Payable for:
Unrealized depreciation on open foreign currency
contracts
(Notes 1 and 5) 1,328,394
Fund shares redeemed 121,169
Foreign tax withholding 23,689
Other accrued expenses 173,837
- --------------------------------------------------------------------------------
Total liabilities 1,647,089
- --------------------------------------------------------------------------------
Net assets $128,673,655
================================================================================
Net assets represented by (Notes 1, 2 and 5):
Paid-in capital $108,440,042
Undistributed net investment income 1,985,964
Accumulated net realized gains on investments
and foreign currency related transactions 744,780
Net unrealized appreciation (depreciation) on:
Investments, foreign currency holdings and
other assets and liabilities 18,176,914
Foreign currency contracts (674,045)
- --------------------------------------------------------------------------------
Total net assets applicable to outstanding
shares of beneficial interest at 10/31/95
($7.11 a share on 18,088,843 shares
outstanding) $128,673,655
================================================================================
STATEMENT OF OPERATIONS--
For the Year Ended October 31, 1995
==========================================================================
Investment income (Note 1):
Dividends (net of foreign
withholding taxes of $305,494) $ 2,327,124
Interest 2,200,392
- --------------------------------------------------------------------------
Total income 4,527,516
- --------------------------------------------------------------------------
Expenses (Notes 2 and 4):
Management fee $ 985,652
Transfer agent fees 616,119
Accounting, auditing and legal 65,683
Custodian fees--foreign 154,575
Custodian fees--domestic 89,856
Distribution Plan expenses 1,315,600
Printing expense 40,526
Registration fees 48,734
Other foreign investment taxes 50,579
Miscellaneous expenses 22,959
- --------------------------------------------------------------------------
Total expenses 3,390,283
Less: Expenses paid indirectly
(Note 4) (19,366)
- --------------------------------------------------------------------------
Net expenses 3,370,917
- --------------------------------------------------------------------------
Net investment income 1,156,599
- --------------------------------------------------------------------------
Net realized and unrealized gain
(loss) on investments and foreign
currency related transactions
(Notes 1, 3 and 5):
Realized gain (loss) on:
Investments 3,055,864
Foreign currency holdings (352,786)
- --------------------------------------------------------------------------
Net realized gain (loss) on
investments and foreign currency
related transactions 2,703,078
- --------------------------------------------------------------------------
Net change in unrealized
appreciation (depreciation) on:
Investments foreign currency
holdings and other assets and
liabilities (2,836,275)
Foreign currency contracts 363,133
- --------------------------------------------------------------------------
Net change in unrealized
appreciation or depreciation (2,473,142)
- --------------------------------------------------------------------------
Net gain on investments and foreign
currency related transactions 229,936
- --------------------------------------------------------------------------
Net increase in net assets resulting
from operations $ 1,386,535
==========================================================================
See Notes to Financial Statements.
<PAGE>
PAGE 17
- --------------------------------------------------------------------------------
STATEMENTS OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
One Month
Period
Year Ended Ended Year Ended
October 31, 1995 October 31, 1994 September 30, 1994
===================================================================================================================
<S> <C> <C> <C>
Operations (Notes 1 and 3):
Net investment income (loss) $ 1,156,599 $ (26,579) $ 9,601
Net realized gain (loss) on investments and foreign
currency related transactions 2,703,078 (325,955) 11,373,326
Net change in unrealized appreciation or depreciation (2,473,142) 2,527,836 (2,252,430)
- -------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in net assets resulting from
operations 1,386,535 2,175,302 9,130,497
- -------------------------------------------------------------------------------------------------------------------
Distributions to shareholders from (Note 1):
Net investment income (701,392) 0 (385,197)
In excess of net investment income 0 0 (214,920)
Net realized gains on investments and foreign currency
related transactions (14,792,324) 0 0
- -------------------------------------------------------------------------------------------------------------------
Total distributions to shareholders (15,493,716) 0 (600,117)
- -------------------------------------------------------------------------------------------------------------------
Capital share transactions (Note 2):
Proceeds from shares sold 84,005,110 11,958,676 146,821,752
Payments for shares redeemed (112,505,516) (10,734,623) (113,073,728)
Net asset value of shares issued in reinvestment of
dividends and distributions 13,352,659 0 499,199
- -------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in net assets resulting from
capital share transactions (15,147,747) 1,224,053 34,247,223
- -------------------------------------------------------------------------------------------------------------------
Total increase (decrease) in net assets (29,254,928) 3,399,355 42,777,603
- -------------------------------------------------------------------------------------------------------------------
Net assets:
Beginning of period 157,928,583 154,529,228 111,751,625
- -------------------------------------------------------------------------------------------------------------------
End of period [including undistributed net investment
income (accumulated distributions in excess of net
investment income) as follows:
October 31, 1995--$1,985,964
October 31, 1994--$1,266,496
September 30, 1994--($3,808,221)] (Note 1) $ 128,673,655 $157,928,583 $ 154,529,228
===================================================================================================================
</TABLE>
See Notes to Financial Statements.
<PAGE>
PAGE 18
- --------------------------------------------------------------------------------
Keystone International Fund Inc.
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 Investment Management Company (formerly 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 Investments, Inc.
("KII") (formerly Keystone Group, Inc.), a Delaware corporation. KII is
privately owned by an investor group consisting of current and former members
of management of Keystone. Keystone Investor Resource Center, Inc. ("KIRC"),
a wholly-owned subsidiary of Keystone, is the Fund's transfer agent.
The following is a summary of significant accounting policies consistently
followed by the Fund in the preparation of its financial statements. The
policies are in conformity with generally accepted accounting principles.
A. 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. 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. In addition
to market risk, the Fund is subject to the credit risk that the other party
will not complete the obligations of the contract.
C. Securities transactions are accounted for no later than the day after the
trade date. Realized gains and losses are recorded on the identified cost
basis. Interest
<PAGE>
PAGE 19
- --------------------------------------------------------------------------------
income is recorded on the accrual basis and dividend income is recorded on
the ex-dividend date. 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 expects to be 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 any excise tax liability by making the required
distributions under the Internal Revenue Code.
E. 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.
Pursuant to an exemptive order issued by the Securities and Exchange
Commission, the Fund, along with certain other Keystone funds, may transfer
uninvested cash balances into a joint trading account. These balances are
invested in one or more repurchase agreements that are fully collateralized
by U.S. Treasury and/or Federal Agency obligations.
F. 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. In addition to market risk,
the Fund is subject to the credit risk that the other party will not complete
the obligations of the contract.
G. The Fund distributes net investment income and net capital gains, if any,
annually. Distributions are determined in accordance with income tax
regulations. The significant difference between financial statement amounts
available for distribution and distributions made in accordance with income
tax regulations is due to the differing treatment of 12b-1 expenses and
foreign currency gains and losses for financial statement and federal income
tax purposes.
(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:
<PAGE>
PAGE 20
- --------------------------------------------------------------------------------
Keystone International Fund Inc.
<TABLE>
<CAPTION>
Year One Month Year
Ended Ended Ended
10/31/95 10/31/94 9/30/94
====================================================================
<S> <C> <C> <C>
Shares sold 12,460,964 1,555,441 18,905,283
Shares redeemed (16,703,211) (1,394,884) (14,595,196)
Shares issued in
reinvestment of
dividends and
distributions 2,010,943 0 64,579
- --------------------------------------------------------------------
Net increase (decrease) (2,231,304) 160,557 4,374,666
====================================================================
</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 Investment
Distributors Company (formerly Keystone Distributors, Inc.) ("KIDC"), 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 KIDC in connection
with the Distribution Plan, and subject to the limitations discussed below,
KIDC generally pays brokers or others a commission equal to 4.0% 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.
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 Rule") limits the
annual expenditures which the Fund may incur under the Distribution Plan to
1.0%, of which 0.75% may be used to pay such distribution expenses and 0.25%
may be used to pay shareholder service fees. The 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 12b-1 Distribution
Plan, plus interest at the prime rate plus 1.0% on unpaid amounts thereof
(less any contingent deferred sales charges paid by the shareholders to
KIDC).
The Fund has operated its Distribution Plan in accordance with both the
Plan and the NASD Rule since July 8, 1992, except that until July 7, 1993,
maximum annual payments with respect to Net Asset Value as represented by
shares sold prior to January 1, 1992 remained at the then current rate of
0.3125% quarterly (approximately 1.25% annually).
To the extent Fund shares purchased prior to July 8, 1992 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.
Since July 8, 1992, contingent deferred sales charges applicable to shares
of the Fund issued after January 1, 1992 have, to the extent permitted by the
NASD Rule, been paid to KIDC rather than to the Fund.
KIDC intends, but is not obligated, to continue to pay or accrue
distribution charges which exceed current annual payments permitted to be
received by KIDC from the Fund. KIDC intends to seek full payment of such
charges from the Fund (together with annual interest thereon at the prime
rate plus 1.0%) at such time in the future as, and to the extent that, pay-
<PAGE>
PAGE 21
- --------------------------------------------------------------------------------
ment thereof by the Fund would be within permitted limits. KIDC currently
intends to seek payment of interest only on such charges paid or accrued by
KIDC since January 1, 1992.
During the year ended October 31, 1995, the Fund recovered $1,380 in
deferred sales charges. During the period, the Fund paid KDI $1,316,980 under
the Distribution Plan. The amount paid by the Fund under its Distribution
Plan, net of contingent deferred sales charges, was $1,315,600 (1.00% of the
Fund's average daily net asset value during the period.) During the year
ended October 31, 1995, KIDC received $524,433 after payments of commissions
on new sales and service fees to dealers and others of $792,547. During the
same period, KIDC received $375,704 in contingent deferred sales charges. At
October 31, 1995, KIDC's total unreimbursed Distribution expenses amounted to
$1,721,992 (1.31% of the Fund's net asset value as of October 31, 1995).
(3.) Securities Transactions
For the year ended October 31, 1995, purchases and sales of investment
securities were as follows:
<TABLE>
<CAPTION>
Cost of Proceeds
Purchases from Sales
===========================================================
<S> <C> <C>
Portfolio securities $ 94,396,748 $ 140,495,266
Short-term investments 1,548,344,495 1,539,065,000
- -----------------------------------------------------------
$1,642,741,243 $1,679,560,266
===========================================================
</TABLE>
(4.) Investment Management and Transactions with Affiliates
Under the terms of the Investment Management Agreement between KMI and the
Fund, Keystone 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 an Investment Advisory Agreement with
Keystone, 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.
For the year ended October 31, 1995, the Fund paid or accrued to KMI
investment management and administrative services fees of $985,652, which
represented 0.75% of the Fund's average net assets on an annualized basis. Of
this amount paid to KMI, $837,804 was paid to Keystone for its investment
advisory services to the Fund.
During the year ended October 31, 1995, the Fund paid or accrued to KII
$62,044 for certain accounting and printing services, and $616,119 to KIRC
for transfer agent fees.
The Fund has entered into an expense offset arrangement with its
custodian. For the year ended October 31, 1995, the Fund paid custody fees in
the amount of $225,065 and received a credit of $19,366 pursuant to the
expense offset arrangement, resulting in a total expense of $244,431. The
assets deposited with the custodian under the expense offset arrangement
could have been invested in income-producing assets.
(5.) Forward Foreign Currency Exchange Contracts
At October 31, 1995, the Fund had open currency exchange contracts that
obligate the Fund to deliver currencies at specified future dates. The
unrealized depreciation of $674,045 on these contracts is included in the
accompanying financial statements. The terms of the open contracts are as
follows:
<PAGE>
PAGE 22
- --------------------------------------------------------------------------------
Keystone International Fund Inc.
<TABLE>
<CAPTION>
Exchange Currency to U.S. $ value Currency to U.S. $ value
date be delivered as of 10/31/95 be received as of 10/31/95
=====================================================================================
<S> <C> <C> <C> <C>
01/05/96 3,321,160 2,522,555 2,535,374 2,535,374
Australian $ U.S. $
01/25/96 6,351,864 4,738,652 4,589,000 4,589,000
Canadian $ U.S. $
11/01/95 81,306 84,535 84,579 84,579
Brazilian U.S. $
11/01/95 620,365 645,004 645,340 645,340
Brazilian U.S. $
11/01/95 651,254 677,120 677,473 677,473
Brazilian U.S. $
11/01/95 677,184 704,080 704,446 704,446
Brazilian U.S. $
11/01/95 3,852 4,005 4,007 4,007
Brazilian U.S. $
11/01/95 677,391 704,295 704,661 704,661
Brazilian U.S. $
11/03/95 1,608,649 1,608,649 8,142,337 1,664,957
U.S. $ French Franc
11/03/95 10,333,084 2,112,924 2,164,994 2,164,994
French Franc U.S. $
11/03/95 5,386,500 1,101,439 1,050,000 1,050,000
French Franc U.S. $
11/20/95 16,860,671 583,185 558,485 558,485
Belgian Franc U.S. $
11/20/95 8,868,200 306,738 290,000 290,000
Belgian Franc U.S. $
11/20/95 1,923,000 1,923,000 2,253,660 1,989,565
U.S. $ Swiss Franc
11/20/95 2,876,603 2,539,508 2,365,627 2,365,627
Swiss Franc U.S. $
11/20/95 1,830,272 1,615,791 1,515,000 1,515,000
Swiss Franc U.S. $
11/10/95 73,918,520 604,989 608,784 608,784
Spanish Peseta U.S. $
11/20/95 507,907 119,604 117,102 117,102
Finnish Markka U.S. $
11/20/95 444,120 104,583 100,000 100,000
Finnish Markka U.S. $
11/20/95 3,183,000 3,183,000 2,052,158 3,242,950
U.S. $ Pound Sterling
11/20/95 2,439,475 3,855,013 3,782,650 3,782,650
Pound Sterling U.S. $
11/20/95 1,657,709 2,619,616 2,560,000 2,560,000
Pound Sterling U.S. $
</TABLE>
<PAGE>
PAGE 23
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Exchange Currency to U.S. $ value Currency to U.S. $ value
date be delivered as of 10/31/95 be received as of 10/31/95
=====================================================================================
<S> <C> <C> <C> <C>
11/20/95 1,615,184,140 $ 1,010,564 987,639 $ 987,639
Italian Lira U.S. $
11/20/95 178,871,000 111,913 110,000 110,000
Italian Lira U.S. $
11/20/95 3,201,000 3,201,000 5,239,077 3,324,218
U.S. $ Netherland
11/20/95 6,980,789 4,429,342 4,247,901 4,247,901
Netherlands U.S. $
11/20/95 3,561,281 2,259,649 2,140,000 2,140,000
Netherlands U.S. $
11/22/95 8,147,303 1,224,546 1,100,095 1,100,095
Swedish Krona U.S. $
11/22/95 13,824,192 2,077,788 1,920,000 1,920,000
Swedish Krona U.S. $
11/22/95 9,241,213 1,388,963 1,325,000 1,325,000
Swedish Krona U.S. $
12/29/95 719,352,928 7,099,594 7,301,000 7,301,000
Japanese Yen U.S. $
12/29/95 317,881,800 3,137,307 3,182,000 3,182,000
Japanese Yen U.S. $
12/29/95 198,283,410 1,956,941 1,989,000 1,989,000
Japanese Yen U.S. $
- -------------------------------------------------------------------------------------
$60,255,892 $59,581,847
=====================================================================================
</TABLE>
<PAGE>
PAGE 24
- --------------------------------------------------------------------------------
Keystone International Fund Inc.
(6.) Distributions to Shareholders
A distribution of net investment income of $0.10 per share and a distribution
of long-term capital gains of $0.05 per share were declared payable by
December 6, 1995 to shareholders of record November 24, 1995. These
distributions are not reflected in the accompanying financial statements.
================================================================================
Federal Tax Status--Fiscal 1995
Distributions (Unaudited)
A distribution of $0.74 per share of net long-term capital gains and $0.04
per share of net investment income was paid during the fiscal year ended
October 31, 1995.
In January of 1996 we will send you complete information on distributions
paid during the calendar year 1995 to help you in completing your federal tax
return.
<PAGE>
PAGE 25
- --------------------------------------------------------------------------------
INDEPENDENT AUDITORS' REPORT
The Directors and Shareholders of
Keystone International Fund Inc.
We have audited the accompanying statement of assets and liabilities of
Keystone International Fund Inc., including the schedule of investments, as
of October 31, 1995, and the related statement of operations for the year
then ended, the statements of changes in net assets for the year then ended,
the period from October 1, 1994 to October 31, 1994 and the year ended
September 30, 1994, and the financial highlights for the year then ended, the
period from October 1, 1994 to October 31, 1994 and for each of the years in
the nine-year period ended September 30, 1994. These financial statements and
financial highlights are the responsibility of the Fund's management. Our
responsibility is to express an opinion on these financial statements and
financial highlights based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements and
financial highlights are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures
in the financial statements. Our procedures included confirmation of
securities owned as of October 31, 1995 by correspondence with the custodian.
An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of
Keystone International Fund Inc., as of October 31, 1995, the results of its
operations for the year then ended, the changes in its net assets for the
year then ended, the period from October 1, 1994 to October 31, 1994 and the
year ended September 30, 1994, and the financial highlights for each of the
years or periods specified in the first paragraph above in conformity with
generally accepted accounting principles.
KPMG Peat Marwick LLP
Boston, Massachusetts
December 8, 1995
<PAGE>
KEYSTONE INTERNATIONAL FUND INC.
PART C
OTHER INFORMATION
Item 24. Financial Statements and Exhibits
Item 24(a). Financial Statements
All Financial Statements listed below are included in Registrant's statement of
additional information.
Schedule of Investments October 31, 1995
Financial Highlights For the fiscal years
ended September 30,
1986 through
September 30, 1994,
the period from
October 1, 1994 to
October 31, 1994,
the year ended
October 31, 1995
Statement of Assets and Liabilities October 31, 1995
Statement of Operations Fiscal year ended
October 31, 1995
Statement of Changes in Net Assets Year ended October
31, 1995, the period
from October 1, 1994
to October 31, 1994,
and the year ended
September 30, 1994
Notes to Financial Statements
Independent Auditors' Report
dated December 8, 1995
All other schedules are omitted as the required information is inapplicable.
<PAGE>
Item 24(b). Exhibits
(1) A copy of Registrant's Articles of Organization, as amended, were filed
with Post-Effective Amendment No. 29 to Registration Statement No.
2-21640/8121-1231 as Exhibit 24(b)(1).
(2) A copy of Registrant's By-Laws, as amended is filed herewith as Exhibit
24(b)(2).
(3) Not applicable.
(4) A specimen of the security issued by the Registrant was filed with
Post-Effective Amendment No. 29 to Registration Statement No.
2-21640/811-1231 as Exhibit 24(b)(4) and is incorporated by reference
herein.
(5) (A) A copy of the form of Investment Management Agreement between
Registrant and Keystone Management, Inc. dated August 19, 1993 is filed
herewith as Exhibit 24(b)(5)(A).
(B) A copy of the form of Investment Advisory Agreement between
Keystone Management, Inc. and Keystone Investment Management Company
(formerly named Keystone Custodian Funds, Inc.) dated August 19, 1993
is filed herewith as Exhibit 24(b)(5)(B).
(6) (A) A copy of the Principal Underwriting Agreement between Registrant
and Keystone Investment Distributors company (formerly named Keystone
Distributors, Inc.) dated August 19, 1993 is filed herewith as Exhibit
24(b)(6)(A).
(B) A copy of the form of Dealer Agreement used by Keystone Investment
Distributors Company is filed herewith as Exhibit 24(b)(6)(B).
(7) Not applicable.
(8) A copy of the Custodian, Fund Accounting and Recordkeeping Agreement
between Registrant and State Street Bank and Trust Company is filed
herewith as Exhibit 24(b)(8). Copies of Amendment Nos. 1-7 to said
Agreement are filed herewith as part of Exhibit 24(b)(8).
(9) Not applicable.
(10) An opinion and a consent of counsel as to the legality of the
securities registered were most recently filed with Registrant's Rule
24f-2 Notice on December 28, 1995 and are incorporated by reference
herein. An opinion and consent of counsel with respect to the
registration of 10,561,329 additional shares of the Fund pursuant to
Section 24(e)(1) of the 1940 Act is filed herewith as part of Exhibit
24(b)(10).
<PAGE>
Item 24(b) Exhibits (continued).
(11) A consent as to the use of the Independent Auditors' Report is filed
herewith s Exhibit 24(b)(11).
(12) Not applicable.
(13) Not applicable.
(14) Copies of model plans used in the establishment of retirement plans in
connection with which Registrant offers its securities were filed with
Post-Effective Amendment No. 66 to Registration Statement No.
2-10527/811-96 for Keystone Balanced Fund (K-1) as Exhibit 24(b)(14)
and are incorporated by reference herein.
(15) A copy of Registrant's Distribution Plan adopted pursuant to Rule 12b-1
is filed herewith as Exhibit 24(b)(15).
(16) A schedule for computation of total return quotations is filed herewith
as Exhibit 24(b)16).
(17) A financial data schedule is filed herewith as Exhibit 24(b)(17).
(18) Not applicable.
(19) Powers of Attorney are filed herewith as Exhibit 24(b)(19).
<PAGE>
Item 25. Persons Controlled by or under Common Control with Registrant
Not Applicable
Item 26. Number of Holders of Securities
Number of Record
Title of Class Holders as of December 29, 1995
-------------- -------------------------------
Common Stock, 15,563
$1.00 par value
Item 27. Indemnification
Provisions for the indemnification of Registrant's Directors, officers,
underwriters and affiliated persons of the Registrant are contained in the
Registrant's Articles of Organization, which is filed herewith as Exhibit
24(b)(1).
Provisions for the indemnification of Registrant's investment manager
are contained in Section 6 of the Investment Management Agreement between the
Registrant and Keystone Management, Inc., a copy of which is filed herewith as
Exhibit 24(b)(5)(A).
Provisions for the indemnification of Registrant's investment adviser,
Keystone Investment Management Company (formerly named Keystone Custodian Funds,
Inc.), are contained in Section 5 of the Investment Advisory Agreement between
Keystone Investment Management Company (formerly named Keystone Custodian Funds,
Inc.) and Keystone Management, Inc., a copy of which is filed herewith as
Exhibit 24(b)(5)(B).
Provisions for the indemnification of Registrant by its principal
underwriter are contained in Section 9 of the Principal Underwriting Agreement
between the Registrant and Keystone Investment Distributors Company (formerly
named Keystone Distributors, Inc.), a copy of which is filed herewith as Exhibit
24(b)(6).
Item 28. Business and other Connections of Investment Advisers
The following tables list the names of the various officers and
directors of Keystone Management, Inc. and Keystone Investment
Management Company, Registrant's investment manager and adviser,
respectively, and their respective positions. For each named
individual, the tables list, for at least the past two years, (i) any
other organizations (for Keystone Investment Management Company,
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 MANAGEMENT, INC.
Position with
Keystone Other
Management, Business
Name Inc. Affiliations
- ---- -------------- ------------
Albert H. Elfner, III Chairman of Chairman of the Board,
the Board, Chief Executive Officer,
Chief Executive President and Director:
Officer, President Keystone Investments, Inc.
and Director Keystone Software, Inc.
Keystone Asset Corporation
Keystone Capital Corporation
Keystone Investments
Family of Funds
Chairman of the Board
and Director:
Keystone Investment
Management Company
Keystone Institutional
Company, Inc.
Keystone Fixed Income
Advisers, Inc.
President and Director:
Keystone Trust Company
Director or Trustee:
Fiduciary Investment
Company, Inc.
Keystone Investor
Resource Center, Inc.
Boston Children's
Services Association
Middlesex School
Middlebury College
Former Trustee or
Director:
Neworld Bank
Robert Van Partners, Inc.
<PAGE>
Position with
Keystone Other
Management, Business
Name Inc. Affiliations
- ---- -------------- ------------
Edward F. Godfrey Treasurer and Senior Vice President,
Director Chief Financial Officer,
Treasurer and Director:
Keystone Investments,
Inc.
Keystone Investment
Management Company
Keystone Investment
Distributors Company
Treasurer:
Keystone Institutional
Company, Inc.
Keystone Software, Inc.
Fiduciary Investment
Company, Inc.
Former Treasurer and
Director:
Hartwell Keystone
Advisers, Inc.
Senior Vice President:
Keystone Investments
Family of Funds
Ralph J. Spuehler, Jr. Director President and Director:
Keystone Investment
Distributors Company
Chairman and Director:
Keystone Investor
Resource Center, Inc.
Keystone Investment
Management Company
Senior Vice President and
Director:
Keystone Investments, Inc.
Treasurer:
Hartwell Emerging Growth
Fund
Hartwell Growth Fund
Former President:
Keystone Management, Inc.
Former Treasurer:
Keystone Investments, Inc.
Keystone Investment
Management Company
<PAGE>
Position with
Keystone Other
Management, Business
Name Inc. Affiliations
- ---- -------------- ------------
Rosemary D. Van Antwerp Senior Vice General Counsel, Senior
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.
Formerly Senior Vice
President and Secretary:
Hartwell Keystone
Advisers, Inc.
Vice President and
Secretary:
Keystone Fixed Income
J. Kevin Kenely Vice President Vice President:
Keystone Investments, Inc.
Keystone Investment
Management Company
Keystone Investment
Distributors Company
Keystone Institutional
Company, Inc.
Fiduciary Investment
Company, Inc.
Keystone Software, Inc.
John D. Rogol Vice President Vice President and
and Controller Controller:
Keystone Investments, Inc.
Keystone Investment
Management Company
Keystone Investment
Distributors Company
Keystone Institutional
Company, Inc.
Fiduciary Investment
Company, Inc.
Keystone Software, Inc.
Advisers, Inc.
Michael A. Thomas Vice President Vice President:
Keystone Investments, Inc.
<PAGE>
LIST OF OFFICERS AND DIRECTORS OF
KEYSTONE INVESTMENT MANAGEMENT COMPANY
Position with
Keystone
Investment
Name Management Company Other Business Affiliations
- ---- ------------------ ---------------------------
Albert H. Elfner, III Chairman of Chairman of the Board,
the Board, Chief Executive Officer,
Chief Executive President and Director:
Officer,and Keystone Investments, Inc.
Director Keystone Management, Inc.
Keystone Software, Inc.
Keystone Asset Corporation
Keystone Capital Corporation
Chairman of the Board and
Director:
Keystone Fixed Income
Advisers, Inc.
Keystone Institutional
Company, Inc.
President and Director:
Keystone Trust Company
Director or Trustee:
Fiduciary Investment
Company, Inc.
Keystone Investment
Distributors Company
Keystone Investor
Resource Center, Inc.
Boston Children's
Services Associates
Middlesex School
Middlebury College
Former Trustee or Director:
Neworld Bank
Robert Van Partners, Inc.
Philip M. Byrne Director President and Director:
Keystone Institutional
Company, Inc.
Senior Vice President:
Keystone Investments, Inc.
<PAGE>
Position with
Keystone
Investment
Name Management Company Other Business Affiliations
- ---- ------------------ ---------------------------
Herbert L. Bishop, Jr. Senior Vice None
President
Donald C. Dates Senior Vice None
President
Gilman Gunn Senior Vice None
President
Edward F. Godfrey Director, Director, Senior Vice
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. Spuehler, Jr. Director President and Director:
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
Investment
Name Management Company Other Business Affiliations
- ---- ------------------ ---------------------------
Rosemary D. Van Antwerp Senior Vice General Counsel, Senior
President, Vice President and
General Counsel Secretary:
and Secretary Keystone Investments, Inc.
Senior Vice President and
General Counsel:
Keystone Institutional
Company, Inc.
Senior Vice President,
General Counsel and
Director:
Keystone Investor
Resource Center, Inc.
Fiduciary Investment
Company, Inc.
Keystone Investment
Distributors Company
Senior Vice President,
General Counsel, Director
and Secretary:
Keystone Management, Inc.
Keystone Software, Inc.
Former Senior Vice
President and Secretary:
Hartwell Keystone
Advisers, Inc.
Vice President and
Secretary:
Keystone Fixed Income
Advisers, Inc.
Robert K. Baumback Vice President None
Betsy A. Blacher Senior Vice None
President
Francis X. Claro Vice President None
Kristine R. Cloyes Vice President None
<PAGE>
Position with
Keystone
Investment
Name Management Company Other Business Affiliations
- ---- ------------------ ---------------------------
Christopher P. Conkey Senior Vice None
President
Richard Cryan Senior Vice None
President
Maureen E. Cullinane Senior Vice None
President
George E. Dlugos Vice President None
Antonio T. Docal Vice President None
Christopher R. Ely Senior Vice None
President
Robert L. Hockett Vice President None
Sami J. Karam Vice President None
Donald M. Keller Senior Vice None
President
J. Kevin Kenely Vice President Vice President:
Keystone Investments, Inc.
Keystone Investment
Distributors Company
Keystone Institutional
Company, Inc.
Keystone Management, Inc.
Keystone Software, Inc.
Fiduciary Investment
Company, Inc.
George J. Kimball Vice President None
JoAnn L. Lyndon Vice President None
John C. Madden, Jr. Vice President None
Stephen A. Marks Vice President None
Eleanor H. Marsh Vice President None
Walter T. McCormick Senior Vice None
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
<PAGE>
Position with
Keystone
Investment
Name Management Company Other Business Affiliations
- ---- ------------------ ---------------------------
William H. Parsons Vice President None
Daniel A. Rabasco Vice President None
David L. Smith Vice President None
Kathy K. Wang Vice President None
Judith A. Warners Vice President None
John D. Rogol Vice President Vice President and
and Controller: Controller
Keystone Investments, Inc.
Keystone Investment
Distributors Company
Keystone Institutional
Company, Inc.
Keystone Management Inc.
Fiduciary Investment
Company, Inc.
Keystone Software, Inc.
Joseph J. Decristofaro Asst. Vice President None
<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 Quality Fund (B-1)
Keystone Diversified Bond Fund (B-2)
Keystone High Income Bond Fund (B-4)
Keystone Balanced Fund (K-1)
Keystone Strategic Growth Fund (K-2)
Keystone Growth and Income Fund (S-1)
Keystone Mid-Cap Growth Fund (S-3)
Keystone Small Company Growth Fund (S-4)
Keystone Capital Preservation and Income Fund
Keystone Fund for Total Return
Keystone Global Opportunities Fund
Keystone Government Securities Fund
Keystone America Hartwell Emerging Growth Fund, Inc.
Keystone Hartwell Growth Fund
Keystone Intermediate Term Bond Fund
Keystone Omega Fund
Keystone State Tax Free Fund
Keystone State Tax Free Fund - Series II
Keystone Strategic Income Fund
Keystone Tax Free Income Fund
Keystone World Bond Fund
Keystone Fund of the Americas
Keystone Institutional Adjustable Rate Fund
Keystone Liquid Trust
Keystone Precious Metals Holdings, Inc.
Keystone Strategic Development Fund
Keystone Tax Free Fund
Keystone Tax Exempt Trust
Master Reserves Trust
(b) For information with respect to each officer and director of
Registrant's principal underwriter, see the following pages.
<PAGE>
Item 29(b) (continued).
Position and Offices with Position and
Name 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
Londonderry, 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
<PAGE>
Item 29(b) (continued)
Position and Offices with Position and
Name and Principal Keystone Investment Offices with
Business Address Distributors Company the Fund
- ------------------ ------------------------- ------------
Richard J. Fish Regional Vice President None
309 West 90th Street
New York, NY 10024
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
<PAGE>
Item 29(b) (continued)
Position and Offices with Position and
Name and Principal Keystone Investment Offices with
Business Address Distributors Company the Fund
- ------------------ ------------------------- ------------
John M. McAllister* Vice President None
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
Item 29(c). - Not applicable
<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 02142-1519
State Street Bank and Trust Company
1776 Heritage Drive
Quincy, Massachusetts 02171
Data Vault Inc.
3431 Sharpslot Road
Swansea, Massachusetts 02277
Item 31. Management Services
Not applicable.
Item 32. Undertakings
Upon request and without charge, Registrant hereby undertakes to
furnish to 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 meets all of the
requirements for the effectiveness of this Amendment to its Registration
Statement pursuant to Rule 485(b) under the Securities Act of 1933 and has duly
caused this Amendment to its Registration Statement to be signed on its behalf
by the undersigned, thereunto duly authorized, in the City of Boston, in The
Commonwealth of Massachusetts, on the 24 day of January, 1996.
KEYSTONE INTERNATIONAL FUND INC.
By: /s/ Rosemary D. Van Antwerp
------------------------------
Rosemary D. Van Antwerp
Senior Vice President and
Secretary
Pursuant to the requirements of the Securities Act of 1933, this Amendment to
Registrant's Registration Statement has been signed below by the following
persons in the capacities indicated on the 24 day of January, 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/ Melina M.T. Murphy
-------------------------
Melina M. T. Murphy**
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/ Melina M.T. Murphy
-------------------------
Melina M. T. Murphy**
Attorney-in-Fact
** Melina M. T. Murphy, by signing her 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>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933 and the Investment
Company Act of 1940, the Registrant certifies that it meets all of the
requirements for the effectiveness of this Amendment to its Registration
Statement pursuant to Rule 485(b) under the Securities Act of 1933 and has duly
caused this Amendment to its Registration Statement to be signed on its behalf
by the undersigned, thereunto duly authorized, in the City of Boston, in The
Commonwealth of Massachusetts, on the 24 day of January, 1996.
KEYSTONE INTERNATIONAL FUND INC.
By: /s/ Rosemary D. Van Antwerp
------------------------------
Rosemary D. Van Antwerp
Senior Vice President and
Secretary
Pursuant to the requirements of the Securities Act of 1933, this Amendment to
Registrant's Registration Statement has been signed below by the following
persons in the capacities indicated on the 24 day of January, 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/ Melina M.T. Murphy
-------------------------
Melina M. T. Murphy**
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/ Melina M.T. Murphy
-------------------------
Melina M. T. Murphy**
Attorney-in-Fact
** Melina M. T. Murphy, by signing her 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 Articles of Organization (1)
2 By-Laws
4 Specimen Stock Certificate (1)
5 (A) Investment Management Agreement
(B) Investment Advisory Agreement
6 (A) Principal Underwriting Agreement
(B) Dealers Agreement
8 Custodian, Fund Accounting and
Recordkeeping Agreement
Amendments to Custody, Fund Accounting
and Recordkeeping Agreement
10 Opinion and Consent of Counsel
11 Independent Auditors' Consent
14 Model Retirement Plans (2)
15 Distribution Plan
16 Performance Data Schedules
17 Financial Data Schedule (filed as Exhibit 27)
19 Powers of Attorney
- ----------------------------------
(1) Incorporated herein by reference to Post-Effective Amendment No. 29
to Registration Statement No. 2-21640/811-1231.
(2) Incorporated herein by reference to Post-Effective Amendment No. 66
to Registration Statement No. 2-10527/811-96.
<PAGE>
EXHIBIT 99.2
KEYSTONE INTERNATIONAL FUND INC.
AMENDMENT NUMBER 1 TO BYLAWS
The Bylaws of this Corporation are hereby amended by adding the
following new paragraph to the end of Article III, Section 1:
"Effective with the election of Directors at the 1983
Annual Meeting of Shareholders of the Corporation, no person
shall be eligible for election as a Director if at the time of
such election he has passed his seventieth birthday".
In all other respects the Bylaws are unchanged.
DATED: June 17, 1982
<PAGE>
BY-LAWS
of
KEYSTONE INTERNATIONAL FUND, INC.
ARTICLE I.
Stockholders
12/9/64
1. Annual Meeting. The annual meeting of the stockholders shall be held
on the second Tuesday of December in each year after the year 1963, (or if that
be a legal holiday, on the next succeeding full business day) at the principal
office of the corporation in Massachusetts at 2 o'clock P.M. unless a different
hour, place in Massachusetts or date within ninety days after the end of the
fiscal year of the corporation is specified by the Board of Directors or in
writing by the President. The purposes for which the annual meeting is to be
held, in addition to those prescribed by law, by the Articles of Organization
and by these by-laws, may be specified by the Board of Directors or in writing
by the President. If no annual meeting is held on the date herein provided for,
a special meeting may be held in lieu thereof, and any action taken at such
meeting shall have the same effect as if taken at the annual meeting.
2. Special Meetings. Special meetings of stockholders entitled to vote
may be called by the President or by the Board of Directors. Upon written
application of one or more stockholders who hold at least 10% of the capital
stock entitled to vote at the meeting, special meetings shall be called by the
Clerk, or in case of the death, absence, incapacity or refusal of the Clerk, by
any other officer. The call for the meeting shall state the date, hour and
purposes of the meeting, and the place in Massachusetts at which it is to be
held.
3. Notice of Meetings. A written notice of every meeting of
stockholders, stating the place, date and hour thereof, and the purposes for
which the meeting is to be held, shall be given by the Clerk or by the person
calling the meeting at least ten days before the meeting to each stockholder
entitled to vote thereat and to each stockholder, who by law, by the Articles of
Organization or by these by-laws is entitled to such notice, by leaving such
notice with him or at his residence or usual place of business, or by mailing it
postage prepaid and addressed to such stockholder at his address as it appears
upon the books of the corporation. No notice of the time, place or purposes of
any annual or special meeting of stockholders shall be required if every
stockholder entitled to notice thereof, or his attorney thereunto authorized,
waives such notice by a writing which is filed with the records of the meeting.
<PAGE>
4. Quorum. At any meeting of stockholders the holders of twenty-five
per cent (25%) of all stock issued and outstanding and entitled to vote upon a
matter to be acted on at the meeting shall constitute a quorum with respect to
such matter, but a lesser interest may adjourn any meeting from time to time and
such meeting may be held as adjourned without further notice. When a quorum is
present, the holders of a majority of the stock entitled to vote which is
represented thereat, except where a larger vote is required by law, by the
Articles of Organization or by these by-laws, shall decide any matter brought
before the meeting.
5. Voting and Proxies. At any meeting of stockholders each stockholder
shall have one vote for each share of stock entitled to vote held by him of
record according to the books of the corporation, unless otherwise provided by
law, by the Articles of Organization or by these by-laws. Stockholders may vote
either in person or by written proxy dated not more than six months before the
meeting named therein. Proxies shall be filed with the Clerk of the meeting, or
of any adjournment thereof, before being voted. Proxies shall entitle the
persons named therein to vote at any adjournment of such meeting but shall not
be valid after final adjournment of such meeting. Proxies need not be sealed or
attested.
ARTICLE II.
January 20, 1970
Officers
1. Directors and Officers. The officers of the corporation shall be a
Board of Directors consisting of such number not less than three nor more than
fifteen as may be fixed by the stockholders, a President, a Treasurer, a Clerk
and such other officers as the Board of Directors may from time to time elect.
At each annual meeting the stockholders shall fix the number of directors to be
elected, and shall elect by ballot a Board of Directors. The stockholders may
change the number of directors, within the limits provided for above, at any
special meeting held for that purpose, and may elect additional directors when
the number is increased, or may remove directors (as hereinafter provided) when
the number is reduced. No director need be a stockholder. Two or more offices
may be held by the same person.
The President, Treasurer and Clerk shall be elected annually by the
Board of Directors at its first meeting following the annual meeting of
stockholders. Such other offices of the corporation as may be created in
accordance with these by-laws may be filled at such meeting or at any other time
by the Board of Directors.
Acceptance by the Board of Directors
<PAGE>
1/20/70
3. Removal. The stockholders may at any meeting remove any director
without assigning any cause, by vote of the holders of a majority of the stock
issued and outstanding and entitled to vote, provided that notice of the
proposed action is included in the notice of the meeting The Board of Directors
may remove from office any officer other than a director by vote of a majority
of its entire number.
1/20/70
4. Vacancies. Any vacancy in the Board of Directors may be filled by
the stockholders at a special meeting called for the purpose. Unless so filled,
any such vacancy and any vacancy in any other office may be filled for the
unexpired balance of the term by vote of the Board of Directors. In the event of
vacancies in the Board of Directors, the remaining Directors may exercise the
powers of the full Board unti1 successors are elected.
ARTICLE III
BOARD OF DIRECTORS
1. Powers. The Board of Directors shall have and may exercise all the
powers of the corporation, except such as are conferred upon the stockholders by
law, by the Articles of Organization or by these by-laws.
2. Meetings. Regular meetings of the Board of Directors may be held
without call or notice at such places and at such times as the Board may by vote
from time to time determine. A regular meeting of the Board of Directors may be
held without call or notice at the same place as the annual meeting of
stockholders, or the special meeting held in lieu thereof, after the election of
a new Board of Directors.
Special meetings of the Board of Directors may be held at any time and
place when called by the President, Treasurer or two or more directors.
3. Notice of Meetings. Notice of all special meetings of the Board of
Directors shall be given to each director by the Secretary, or if there be no
Secretary by the Clerk, or in the case of the death, absence, incapacity or
refusal of such person, by the officer or one of the directors calling the
meeting. Notice shall be given to each director either personally or by
telephone or by telegram sent to his business or home address at least
twenty-four hours in advance of the meeting, or by written notice mailed to his
business or home address at least forty-eight hours in advance of the meeting.
Any meeting of the Board of Directors at which all the directors are present or
notice of which has been waived by each director in a writing filed with the
records of the meeting shall be a legal meeting without call or notice, and any
director may waive notice of a meeting in writing either before or after the
meeting.
<PAGE>
4. Quorum. At any meeting of the Board of Directors, a majority of the
directors then in office shall constitute a quorum. Less than a quorum may
adjourn any meeting from time to time without further notice.
5. Action of the Board of Directors. At any meeting of the Board of
Directors at which a quorum is present, the vote of a majority of those present,
except if a larger vote is required by law, by the Articles of Organization or
by these by-laws, shall be sufficient to decide any question brought before such
meeting. Any action set forth in the records of the Board of Directors which is
approved in writing endorsed on the records of the meeting by all of the
directors then in office, shall be the valid action of the Board of Directors
whether or not a meeting was held in accordance with these by-laws.
6. Executive Committee. The Board of Directors may, by vote of a
majority of its entire number, elect from its own number an Executive Committee
of three or more members in which committee shall be vested the management in
behalf of the Board of Directors of the current and ordinary business of the
corporation. A majority of the Executive Committee shall constitute a quorum for
the transaction of business but a less number may adjourn any meeting from time
to time, and the meeting may be held as adjourned without further notice. The
Executive Committee may make rules not inconsistent herewith for the holding and
conduct of its meetings. A record of the meetings of the Executive Committee
shall be kept as provided for meetings of the Board of Directors.
The Executive Committee shall report its action to the Board of
Directors. The Board of Directors shall have power to rescind any action of the
Executive Committee, but no such rescission shall have retroactive effect.
ARTICLE IV
Executive Officers
1. President and Vice Presidents. The President shall be the chief
executive officer of the corporation and shall, subject to the direction of the
Board of Directors, have general supervision and control of its business. Unless
otherwise provided by the Board of Directors he shall preside, when present, at
all meetings of stockholders and the Board of Directors.
Any Vice President shall have such powers and shall perform such duties
as the Board of Directors may from time to time designate.
<PAGE>
2. Treasurer and Assistant Treasurers. The Treasurer shall, subject to
the direction of the Board of Directors, have general charge of the financial
affairs of the corporation. He shall have power to endorse for deposit or
collection all instruments for the payment of money to the corporation and to
accept drafts on its behalf. He shall cause to be kept accurate books of account
of the affairs of the corporation, and if required by the Board of Directors he
shall give bond for the faithful performance of his duty in form and amounts and
with such sureties as may be determined by the Board of Directors.
Any Assistant Treasurer shall have such powers as the Board of
Directors may from time to time designate.
3. Clerk. The Clerk, who shall be a resident of Massachusetts, shall
keep a record of the meetings of stockholders. In case a Secretary is not
elected or is absent, the Clerk shall keep a record of the meetings of the Board
of Directors. In the absence of the Clerk from any meeting of stockholders, a
Temporary Clerk shall be designated by the person presiding at the meeting to
perform the duties of the Clerk. The Clerk and any Temporary Clerk shall be
sworn to the faithful performance of their duties.
4. Secretary. The Secretary, if one be elected, shall keep a record of
the meetings of the Board of Directors. In the absence of the Secretary and the
Clerk, a Temporary Secretary shall be designated by the person presiding at such
meeting to perform the duties of the Secretary.
5. Other Powers and Duties. Each executive officer shall, subject to
these by-laws, have in addition to the duties and powers specifically set forth
in these by-laws, such duties and powers as are customarily incident to his
office, and such duties and powers as the Board of Directors may from time to
time designate.
ARTICLE V.
Capital Stock
1/20/70
1. Certificates of Stock. Each stockholder of record shall be entitled
to a certificate of the capital stock of the corporation in such form as shall,
in conformity to law, be prescribed from time to time by the Board of Directors.
Such certificate shall be signed by the President or a Vice President, and by
the Treasurer or an Assistant Treasurer, but when any such certificate is signed
by a Transfer Agent or by a Registrar, other than a director, officer or
employee of the corporation, the signatures of the officers of the corporation
may be facsimile.
<PAGE>
2. Transfers. Subject to the restrictions, if any, endorsed or referred
to on the stock certificates, shares of stock may be transferred on the books of
the corporation by the surrender to the corporation or its Transfer Agent of the
certificate therefor properly endorsed or accompanied by a written assignment
and power of attorney properly executed, with necessary transfer stamps affixed,
and with such proof of the authenticity of signature as the corporation or its
Transfer Agent may reasonably require. Except as may be otherwise required by
law, by the Articles of Organization or by these by-laws, the corporation shall
be entitled to treat the record holder of stock as shown on its books as the
owner of such stock for all purposes, including the payment of dividends and the
right to vote with respect thereto, regardless of any transfer, pledge or other
disposition of such stock, until the shares have been transferred on the books
of the corporation in accordance with the requirements of these by-laws.
It shall be the duty of each stockholder to notify the corporation of
his post office address.
3. Transfer Books. The stock and transfer books of the corporation
shall be kept in Massachusetts at the principal office of the corporation or at
an office of its Transfer Agent and shall be open at all reasonable times to the
inspection of any stockholder for any proper purpose but not to secure a list of
stockholders for the purpose of selling said list or copies thereof or of using
the same for a purpose other than in the interest of the applicant, as a
stockholder, relative to the affairs of the corporation.
The Board of Directors may fix in advance a time of not more than sixty
days (or such other period as may be permitted by law) preceding the date of any
meeting of stockholders, or the date for the payment of any dividend or the
making of any distribution to stockholders, or the last day on which the consent
or dissent of stockholders may be effectively expressed for any purpose, as the
record date for determining the stockholders 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 or the right to give such consent or dissent. In
such case only stockholders of record on such record date shall have such right,
notwithstanding any transfer of stock on the books of the corporation after the
record date. Without fixing such record date the Board of Directors may for any
of such purposes close the transfer books for all or any part of such period.
4. Lost Certificates. In case of the alleged loss or destruction or the
mutilation of a certificate of stock, a duplicate certificate may be issued in
place thereof, upon such terms as the Board of Directors may prescribe.
<PAGE>
5. Issue of Stock. Unless otherwise voted by the incorporators or
stockholders, the whole or any part of any unissued balance of the authorized
capital stock of the corporation, may be issued pursuant to vote of the Board of
Directors to such persons, for such consideration, whether cash, property,
goodwill, services or expenses, or as a stock dividend, and on such terms as the
Board of Directors may determine from time to time and without first offering
the same for subscription to stockholders of the corporation.
ARTICLE VI.
Miscellaneous Provisions
1. Fiscal Year. Except as from time to time otherwise determined by the
Board of Directors, the fiscal year of the corporation shall be the twelve
months ending March 31.
2. Seal. The seal of the corporation shall, subject to alteration by
the Board of Directors, bear its name, the word "Massachusetts", and the year of
its incorporation.
3. Execution of Instruments. All deeds, leases, transfers, contracts,
bonds, notes and other obligations authorized to be executed by an officer of
the corporation in its behalf shall be signed by the President or the Treasurer
except as the Board of Directors may generally or in particular cases otherwise
determine.
4. Voting of Securities. Except as the Board of Directors may otherwise
designate, the President or Treasurer may waive notice of, and appoint any
person or persons to act as proxy or attorney in fact for this corporation (with
or without power of substitution) at any meeting of stockholders or shareholders
of any other corporation or organization, the securities of which may be held by
this corporation.
5. Evidence of Authority. A certificate by the Clerk or Secretary or a
Temporary Clerk or Temporary Secretary as to any action taken by the
stockholders, directors or any officer or representative of the corporation
shall, as to all persons who rely thereon in good faith, be conclusive evidence
of such action. The exercise of any power which by law, by the Articles of
Organization or by these by-laws, or under any vote of the stockholders or the
Board of Directors, may be exercised by an officer of the corporation only in
the event of absence of another officer or any other contingency, shall bind the
corporation in favor of anyone relying thereon in good faith, whether or not
such absence or contingency existed.
6. Articles of Organization. All references in these by-laws to the
Articles of Organization shall be deemed to refer to the Agreement of
Association and Articles of Organization of the corporation, as amended and in
effect from time to time.
<PAGE>
ARTICLE VII
Provisions for the Conduct of the
Corporation's Business
1. Dealings with Affiliates. The corporation shall not purchase or
retain securities issued by any issuer if one or more of the holders of the
securities of such issuer or one or more of the officers or directors of such
issuer is an officer or director of the corporation or of any organization,
association or corporation with which the corporation has an investment
adviser's contract (the "investment adviser"), if to the knowledge of the
corporation one or more of such officers or directors of the corporation or of
the investment adviser owns beneficially more than one-half of one per cent
(1/2%) of the shares or securities of such issuer and such officers and
directors owning more than one-half of one percent (1/2%) of such shares or
securities together own beneficially more than five per cent (5%) of such shares
or securities.
Subject to the provisions of the preceding paragraph, no officer,
director or agent of the corporation or of the investment adviser shall deal for
or on behalf of the corporation with himself as principal or agent, or with any
partnership, association or corporation in which he has a material financial
interest; provided that the foregoing provisions shall not prevent (a) officers
and directors of the corporation from buying, holding or selling shares in the
corporation, subject to the provisions of the agreement of association and of
these by-laws, or from being partners, officers or directors of or financially
interested in any investment adviser to the corporation; (b) purchases of
investments for the portfolio of the corporation or sales of investments owned
by the corporation through a securities dealer who is, or one or more of whose
partners, stockholders, officers or directors is, an officer or director of the
corporation, if such transactions are handled in the capacity of broker only and
commissions charged to the corporation do not exceed customary brokerage charges
for such services; or (c) employment of legal counsel, registrar, transfer
agent, dividend disbursing agent or custodian who is, or has a partner,
stockholder, officer or director who is, an officer or director of the
corporation, if only customary fees are charged for services to the corporation.
2. Dealing in Securities of the Corporation. The corporation, the
investment adviser, any corporation, firm or association, including the
investment adviser, which may at any time be the principal underwriter for
shares of the corporation (the "principal underwriter") and the officers and
directors of any of them shall not take long or short positions in the
securities of the corporation, except that:
<PAGE>
(a) the principal underwriter may place orders with the
corporation for its shares equivalent to orders received by the
principal underwriter;
(b) the principal underwriter may maintain a market for the shares
of the corporation as agent for the corporation; and
(c) the officers and directors of the principal underwriter,
investment adviser and the corporation may buy, for investment, shares
of the corporation.
3. Limitation on Certain Loans. The corporation shall make no loans to
any officer, director or employee of the corporation or the investment adviser
or principal underwriter or their respective officers, directors or partners or
employees.
4. Custodian
(a) All securities and cash owned by the corporation shall, as
hereinafter provided, be held or otherwise controlled by or deposited
with a Custodian which shall be a bank or trust company having
(according to its last published report) not less than two million
dollars ($2,000,000) aggregate capital, surplus and undivided profits,
provided such a Custodian can be found ready and willing to act.
(b) The corporation shall enter into a written contract with the
Custodian regarding the powers, duties and compensation of the
Custodian with respect to the cash and securities of the corporation
held by the Custodian. Said contract may contain provisions permitting
the Custodian to appoint a sub-custodian. Said contract and all
amendments thereto shall be approved by the Board of Directors of the
corporation.
(c) The corporation shall upon the resignation or inability to
serve of its Custodian or upon change of the Custodian:
(i) in case of such resignation or inability to serve, use
its best efforts to obtain a successor Custodian;
(ii) require that the cash and securities owned by the
corporation be delivered directly to the successor Custodian; and
(iii) in the event that no successor Custodian can be found,
submit to the stockholders, before permitting delivery of the cash
and securities owned by the corporation otherwise than to a
successor Custodian, the question whether or not the corporation
shall be liquidated or shall function without a Custodian.
<PAGE>
5. Limitations on Investments. The corporation shall not purchase for
its portfolio the securities of any issuer if immediately after such purchase
more than five per cent (5%) of the total assets of the corporation valued in
the manner set forth in the agreement of association would be invested in the
securities of any one issuer. The provisions of this paragraph shall not apply
to obligations issued or guaranteed by the government of the United States of
America or Canada or to obligations of any corporation organized under a general
Act of Congress if such corporation is an instrumentality of the United States.
The corporation shall not purchase for its portfolio the securities of
any issuer if as a result of such purchase the corporation would thereupon hold
more than ten per cent (10%) of the outstanding voting securities of such
issuer.
The corporation shall not invest any of its assets in the securities
issued by other investment companies except by purchases in the open market
where no commission or profit results to a distributor or dealer other than the
customary broker's commission.
The corporation shall not purchase for its portfolio the securities of
companies which have a record of less than three years' continuous operation if
as a result of such purchase the corporation's total investments in such
companies, valued in the manner set forth in the agreement of association would
thereupon amount to more than five percent (5%) of the corporation's total
assets valued, in the same manner. Such period of three years may include the
operation of any predecessor company or companies, partnership or individual
enterprise, if the company whose securities are taken as an investment for funds
of the corporation has come into existence as a result of a merger,
consolidation, reorganization, or the purchase of substantially all the assets
of such predecessor company or companies, partnership or individual enterprise.
6. Limitation on Borrowing and Pledging Assets by the Corporation.
(a) The corporation shall not borrow amounts in excess of ten per
cent (10%) of its gross assets taken at cost and any borrowing shal1 be
undertaken only as a temporary measure for extraordinary or emergency
purposes.
(b) The corporation shall not pledge, mortgage or hypothecate
assets taken at market to an extent greater than fifteen per cent (15%)
of its gross assets taken at cost.
<PAGE>
7. Limitation on Purchases on Margin and Short Sales. The corporation
shall not make short sales for the account of the corporation and shall not
purchase securities on margin, except such short-term credits as are necessary
for the clearance of transactions.
8. Limitation on Annual Charges. The maximum charges per annum paid by
the corporation in any fiscal year (including fees paid to the investment
adviser, but excluding taxes and brokerage charges) shall not exceed
three-quarters of one per cent (3/4%) of the average asset value for such fiscal
year. For the purposes of this paragraph the phrase "average asset value" shall
mean the value of the net assets of the corporation valued in the manner set
forth in the agreement of association plus the amount of funds borrowed for
investment purposes.
9. Reports to Stockholders: Distributions from Realized Gains. The
corporation shall send to each stockholder of record an annual report for each
fiscal year, which shall include financial statements certified by independent
public accountants, and at least semi-annually shall send to each such
stockholder a report of the current financial condition of the corporation and
of the results of its operations for the period covered. Whenever the
corporation makes distributions from realized gains, such fact shall be clearly
revealed to its stockholders and the basis of calculation shall be set forth.
10. Investment Adviser. The Board of Directors may at any time and from
time to time enter into an investment advisory contract whereby the other party
thereto shall undertake to furnish to the corporation such management,
investment advisory, statistical, research and clerical facilities and services,
and such other facilities and services as the Board of Directors may in their
discretion determine. Every such investment advisory contract entered into by
this corporation shall:
(a) be approved by vote of a majority of the outstanding voting
securities of the corporation;
(b) continue in effect for more than two years from the date of
its execution only so long as such continuance is specifically approved
at least annually by vote of the Board of Directors, which vote shall
include the approving vote of a majority of the directors who are not
parties to such contract or affiliated persons of any such party within
the meaning of the Investment Company Act of 1940 as amended from time
to time, or, alternatively, by vote of a majority of the outstanding
voting securities of the corporation;
(C) provide that it may be terminated at any time by this
corporation without payment of penalty upon not more than 60 days'
written notice to the other party; and that it shall terminate
automatically in the event of its assignment (direct or indirect),
transfer, sale, pledge or hypothecation by either party thereto;
(d) provide that any amendment thereto must be approved by the
affirmative vote of a majority of the outstanding voting securities of
the corporation.
11. Principal Underwriter. The Board of Directors may at any time and
from time to time enter into a contract or contracts providing for the sale of
the shares of common stock of the corporation. Any such underwriting contract
shall:
(a) be approved by vote of the Board of Directors and shall
continue in effect for a period of more than two (2) years from the
date of its execution only so long as such continuance is specifically
approved at least annually by vote of the Board of Directors, provided
that any such vote approving an underwriting contract or approving the
continuance of an underwriting contract shall include the approving
vote of a majority of the directors who are not parties to such
contract or affiliated persons of any such party within the meaning of
the Investment Company Act of 1940 as amended from time to time;
(b) provide that it shall terminate automatically in the event of
its assignment by the underwriter;
(c) fix the total commission or sales charge, if any, to be
charged upon the sale of the corporation's shares at not more than nine
percent (9%) of the offering price to the public.
3/14/69
ARTICLE VIII
Repurchases and Redemptions of its
Shares by the Corporation
1. Sales of Shares. The Board of Directors may authorize the sale by the
Corporation of any of its authorized and unissued shares of common stock and
may make such arrangements from time to time to carry out such sales as it
shall in its discretion determine to be necessary or appropriate, including
the appointment and authorization of officers and agents to act for the
corporation in connection therewith. Any such sale shall be made at a price
which is the sum of (1) the applicable sales charge as determined by the
Board of Directors, and (2) the net asset value per share which is next
computed after receipt of the order for such shares. Computations of net
asset value shall be made on each day during which the New York Stock
Exchange is open for trading once daily as of the time of the close of
trading on such Exchange and at such other time or times as the Board of
Directors may determine from time to time. The Directors may modify the
foregoing provisions of this paragraph but only in accordance with
applicable laws and regulations.
<PAGE>
2. Redemption of Shares. The corporation shall purchase such shares as
are offered by any stockholder for redemption, upon the presentation of the
certificate or certificates therefor to the corporation or to the Custodian duly
endorsed or accompanied by a proper instrument of transfer, together with a
request that the corporation purchase the shares represented thereby; and the
corporation shall pay upon each of the shares so presented the net asset value
per share which is next computed after the tender thereof. The Directors may
modify the foregoing provisions of this paragraph but only in accordance with
applicable laws and regulations. Payment for said shares shall be made by the
corporation to the stockholder within seven days after the date on which the
shares are properly presented.
3. Repurchase of Shares. The Board of Directors may authorize the
voluntary repurchase by the corporation of any of its outstanding shares of
common stock offered for repurchase and may make such arrangements from time to
time to carry out such repurchases as it shall in its discretion determine to be
necessary or appropriate, including the appointment and authorization of
officers and agents to act for the corporation in connection therewith. Any such
repurchase shall be made at the net asset value per share which is next computed
after receipt of the offer of such shares. The Directors may modify the
foregoing provisions of this paragraph but only in accordance with applicable
laws and regulations.
The obligation set out in the preceding paragraph is subject to the
provision that in the event that at any time the New York Stock Exchange shall
be closed for any period of time because of then existing financial conditions
or for any other unusual or extraordinary conditions then existing, the
obligations of the corporation relative to repurchase of the shares of the
corporation shall be suspended and ineffective from the period from the date of
the closing to the date of the reopening of the Exchange, including in such
period the day on which the action is taken for closing the Exchange and the day
on which the Exchange is reopened. In such case, the corporation shall not be
required to purchase any shares deposited during the day on which the action is
taken for closing the said Exchange and may return or cause to be returned to
the depositor in such case the deposited shares and the redemption price on
deposited shares not so returned shall be based on their net asset value at the
close of business on the date of the reopening of the Exchange. Furthermore,
sales by the corporation of such shares and the obligation to redeem such shares
shall be similarly suspended for such periods as the Securities and Exchange
Commission may by rule, regulation or order permit.
3/14/69
<PAGE>
The corporation shall make no charge in connection with repurchases or
redemptions of its shares.
ARTICLE IX
Amendments
1/20/70
Subject to any applicable requirements of law, these by-laws may be
amended or added to, altered or repealed by the stockholders at any annual or
special meeting of the stockholders, provided notice of the general purpose of
the proposed amendment, addition, alteration or repeal is given in the notice of
said meeting, or by the Board of Directors at any meeting of the Board of
Directors, except that the Board of Directors may not amend, add to, alter, or
repeal any provision hereof which by law, the articles of organization or these
by-laws requires action by the stockholders. Any by-laws adopted by the
Directors may be amended or repealed by the stockholders.
<PAGE>
EXHIBIT 99.5(A)
KEYSTONE INTERNATIONAL FUND INC.
BOSTON, MASSACHUSETTS
Keystone Management, Inc.
3800 Howard Hughes Parkway
Las Vegas, Nevada 89109
August 19, 1993
Dear Sirs:
INVESTMENT MANAGEMENT AGREEMENT
KEYSTONE INTERNATIONAL FUND INC. (the "Fund") has been incorporated under the
laws of Massachusetts to engage in the business of investing in securities. Its
Board of Directors has selected you to act as investment manager of the Fund and
to provide certain other services, as more fully set forth below, and you are
willing to act as such investment manager and to perform such services under the
terms and conditions hereinafter set forth. Accordingly, the Fund agrees with
you as follows:
1. Advisory Services -- You will regularly provide the Fund with investment
research, advice and supervision and will furnish continuously an investment
program for the Fund's portfolio. You will recommend what securities shall be
purchased for the portfolio of the Fund, what portfolio securities shall be sold
by the Fund, and what portion of the Fund's assets shall be held uninvested. You
shall advise and assist the officers of the Fund in taking such steps as are
necessary or appropriate to carry out the decisions of its Board of Directors
and the appropriate committees of such Board regarding the foregoing matters and
the general conduct of the investment business of the Fund.
2. Expenses of Operation -- You will pay the ordinary office expenses of the
Fund including its rent and will provide investment advisory, research and
statistical facilities and all clerical services relating to research,
statistical and investment work. You will not be required to pay any expenses of
the Fund other than those enumerated in this paragraph 2 and in particular, but
without limiting the generality of the foregoing, will not be required to pay
brokers' commissions; legal, auditing, and registrar's fees and expenses; taxes
and governmental fees; the cost of sale, underwriting, distribution, redemption,
transfer or repurchase of shares of the Fund; the expenses of registering or
qualifying securities for sale; the cost of preparing and distributing reports
and notices to shareholders; or the fees or disbursements of custodians of the
Fund's assets including expenses incurred in the performance of any obligations
enumerated in the Articles of Organization or Bylaws of the Fund, insofar as
they govern agreements with any such custodian.
3. Compensation to the Adviser -- For all services to be rendered and payments
made as provided in paragraphs 1 and 2 hereof, the Fund will pay you a
management fee, which shall be deducted daily from the assets of the Fund at the
rate of (a) .75 of 1% per annum of the total daily net asset vlaue of the Fund
for those assets of the Fund which are less than $200,000,000; (b) .65 of 1% per
annum of the total daily net asset value of the Fund for those assets of the
Fund which are $200,000,000 or more, but less than $400,000,000; (c) .55 of 1%
per annum of the total daily net asset value of the Fund for those assets of the
Fund which are $400,000,000 or more, but less than $600,000,000 and (d) .45 of
1% per annum of the total daily net asset value of the Fund for those assets of
the Fund which are $600,000,000 or more.
4. Avoidance of Inconsistent Position -- In connection with purchases or sales
of portfolio securities for the account of the Fund, neither you nor any of your
directors, officers or employees will act as principal or agent or receive any
commission.
5. Investment Adviser -- You may enter into an agreement to retain, at your
own expense, Keystone Custodian Funds, Inc. or any other firm or firms
("Adviser") to provide the Fund all of the services to be provided by you
hereunder, if such agreement is approved as required by law. Such agreement may
delegate to such Adviser all of your rights, obligations and duties hereunder.
6. Limitation of Liability of Manager -- You 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 matters to which this Agreement relates, except a loss resulting from
willful misfeasance, bad faith or gross negligence on your part in the
performance of your duties or from reckless disregard by you of your obligations
and duties under this Agreement. Any person, even though also employed by you,
who may be or become an employee of and paid by the Fund shall be deemed when
acting within the scope of his employment by the Fund to be acting in such
employment solely for the Fund and not as your employee or agent.
7. Duration and Termination of this Agreement -- This Agreement shall go into
effect on the date hereof and, unless terminated as provided in this paragraph 6
or in paragraph 7 hereof shall continue in effect until July 1, 1994; thereafter
it shall continue in effect from year to year but only so long as such
continuance is approved at least annually by the Board of Directors of the Fund
or by the vote of a majority of the outstanding voting securities of the Fund.
In addition, this Agreement shall not be entered into, renewed or performed
unless the terms of this Agreement and any renewal thereof have been approved by
the vote of a majority of the Directors of the Fund, who are not parties to this
Agreement or interested persons of any such party, cast in person at a meeting
called for the purpose of voting on such approval. This Agreement may be
terminated either by the Board of Directors of the Fund or by the vote of a
majority of the outstanding voting securities of the Fund or by you. Such
termination shall be effective after 60-days' notice and shall be without
penalty. This Agreement shall automatically terminate in the event of its
assignment.
8. Amendment of this Agreement -- No provision of this Agreement may be
changed, waived, discharged or terminated orally, but only by an instrument in
writing signed by the party against which enforcement of the change, waiver,
discharge or termination is sought and no amendment of this Agreement shall be
effective until approved by the vote of a majority of the Fund's outstanding
voting securities.
9. Miscellaneous -- The captions in this Agreement are included for
convenience or reference only and in no way define or delimit any of the
provisions hereof or otherwise affect their construction of effect. This
Agreement 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 instrument.
As used in this Agreement, the terms "assignment" and "majority of the
outstanding voting securities" shall have the meanings given to them by Sections
2(a)(4) and 2(a)(42), respectively, of the Investment Company Act of 1940.
If you are in agreement with the foregoing, please sign the form of acceptance
on the accompanying counterpart of this letter and return such counterpart to
the Fund, whereupon this letter shall become a binding contract.
Yours very truly,
KEYSTONE INTERNATIONAL FUND INC.
By:/s/ Ralph J. Spuehler, Jr.
----------------------------
Title: Treasurer
fcThe foregoing Agreement is hereby accepted as of the date thereof.
KEYSTONE MANAGEMENT, INC.
By: /s/ Edward Godfrey
----------------------------
Title: Treasurer
<PAGE>
EXHIBIT 99.5(B)
KEYSTONE MANAGEMENT, INC.
LAS VEGAS, NEVADA
Keystone Custodian Funds, Inc.
200 Berkeley Street
Boston, Massachusetts 02116
August 19, 1993
Dear Sirs:
INVESTMENT ADVISORY AGREEMENT
KEYSTONE INTERNATIONAL FUND INC. (the "Fund") has been incorporated under the
laws of Massachusetts to engage in the business of investing in securities.
Keystone Management, Inc. (the "Manager") and the Fund's Board of Directors have
selected you to act as investment adviser of the Fund and to provide certain
other services (with the exception of certain managerial and administrative
services to be provided by the Manager), as more fully set forth below, and you
are willing to act as such investment adviser and to perform such services under
the terms and conditions hereinafter set forth. Accordingly, the Manager agrees
with you as follows:
1. Advisory Services -- You will regularly provide the Fund with investment
research, advice and supervision and will furnish continuously an investment
program for the Fund's portfolio. You will recommend what securities shall be
purchased for the portfolio of the Fund, what portfolio securities shall be sold
by the Fund, and what portion of the Fund's assets shall be held uninvested. You
shall advise and assist the officers of the Fund in taking such steps as are
necessary or appropriate to carry out the decisions of its Board of Directors;
the appropriate committees of such Board and the Manager regarding the foregoing
matters and the general conduct of the investment business of the Fund.
2. Expenses of Operation -- You will pay the ordinary office expenses of the
Fund including its rent and will provide investment advisory, research and
statistical facilities and all clerical services relating to research,
statistical and investment work. You will not be required to pay any expenses of
the Fund other than those enumerated in this paragraph 2 and in particular, but
without limiting the generality of the foregoing will not be required to pay
brokers' commissions; legal, auditing, and registrar's fees and expenses; taxes
and governmental fees; the cost of sale, underwriting, distribution, redemption,
transfer or repurchase of shares of the Fund; the expenses of registering or
qualifying securities for sale; the cost of preparing and distributing reports
and notices to shareholders; or the fees or disbursements of custodians of the
Fund's assets including expenses incurred in the performance of any obligations
enumerated in the Articles of Organization or Bylaws of the Fund, insofar as
they govern agreements with any such custodian.
3. Compensation to the Adviser -- For all services to be rendered and payments
made as provided in paragraphs 1 and 2 hereof, the Manager will pay you a
management fee at the annual rate of 85% of the management fee paid by the Fund
to the Manager.
A pro rata portion of the fee shall be payable in arrears at the end of each
day. 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.
4. Avoidance of Inconsistent Position -- In connection with purchases or sales
of portfolio securities for the account of the Fund, neither you nor any of your
directors, officers or employees will act as principal or agent or receive any
commission.
5. Limitation of Liability of Adviser -- You 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 matters to which this Agreement relates, except a loss resulting from
willful misfeasance, bad faith or gross negligence on your part in the
performance of your duties or from reckless disregard by you of your obligations
and duties under this Agreement. Any person, even though also employed by you,
who may be or become an employee of and paid by the Fund shall be deemed when
acting within the scope of his employment by the Fund to be acting in such
employment solely for the Fund and not as your employee or agent. The Fund
agrees to indemnify and hold you harmless from all taxes, charges, expenses,
assessments, claims and liabilities (including, without limitation, liabilities
arising under the Securities Act of 1933, the Securities Exchange Act of 1934,
the Investment Company Act of 1940, and any state and foreign securities and
blue sky laws, as amended from time to time) and expenses, including (without
limitation) attorneys' fees and disbursements, arising directly or indirectly
from any action or thing which you take or do or omit to take or do hereunder;
provided that you 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 your part in
the performance of your duties, or from reckless disregard by you of your
obligations and duties under this Agreement.
6. Duration and Termination of this Agreement -- This Agreement shall go into
effect on the date hereof and, unless terminated as provided in this paragraph 6
or in paragraph 7 hereof shall continue in effect until July 1, 1994; thereafter
it shall continue in effect from year to year but only so long as such
continuance is approved at least annually by the Board of Directors of the Fund
or by the vote of a majority of the outstanding voting securities of the Fund.
In addition, this Agreement shall not be entered into, renewed or performed
unless the terms of this Agreement and any renewal thereof have been approved by
the vote of a majority of the Directors of the Fund, who are not parties to this
Agreement or interested persons of any such party, cast in person at a meeting
called for the purpose of voting on such approval. This Agreement may be
terminated either by the Board of Directors of the Fund or by the vote of a
majority of the outstanding voting securities of the Fund, by the Manager or by
you. Such termination shall be effective after 60-days' notice and shall be
without penalty. This Agreement shall automatically terminate in the event of
its assignment.
7. Amendment of this Agreement -- No provision of this Agreement may be
changed, waived, discharged or terminated orally, but only by an instrument in
writing signed by the party against which enforcement of the change, waiver,
discharge or termination is sought and no amendment of this Agreement shall be
effective until approved by the vote of a majority of the Fund's outstanding
voting securities.
8. Miscellaneous -- The captions in this Agreement are included for
convenience or reference only and in no way define or delimit any of the
provisions hereof or otherwise affect their construction of effect. This
Agreement 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 instrument.
As used in this Agreement, the terms "assignment" and "majority of the
outstanding voting securities" shall have the meanings given to them by Sections
2(a)(4) and 2(a)(42), respectively, of the Investment Company Act of 1940.
If you are in agreement with the foregoing, please sign the form of acceptance
on the accompanying counterpart of this letter and return such counterpart to
the Manager, whereupon this letter shall become a binding contract.
Yours very truly,
KEYSTONE MANAGEMENT, INC.
By: /s/ Edward Godfrey
----------------------------
Title: Treasurer
The foregoing Agreement is hereby accepted as of the date thereof.
KEYSTONE CUSTODIAN FUNDS, INC.
By: /s/ Edward Godfrey
----------------------------
Title: Sr. Vice President
<PAGE>
EXHIBIT 99.6(A)
PRINCIPAL UNDERWRITING AGREEMENT
KEYSTONE INTERNATIONAL FUND INC.
AGREEMENT made this 19th day of August, 1993 by and between
Keystone International Fund Inc. (the "Fund"), and Keystone Distributors, Inc.,
a Delaware corporation (the "Principal Underwriter").
It is hereby mutually agreed as follows:
1. The Fund hereby appoints Principal Underwriter a Principal
Underwriter pursuant to the terms of the 12b-1 Plan most recently adopted by the
Fund ("12b-1 Plan") and a Principal Underwriter of the shares of common stock of
the Fund (the "Shares") as an independent contractor upon the terms and
conditions hereinafter set forth. Except as the Fund may from time to time
agree, Principal Underwriter will act as agent for the Fund and not as
principal.
2. Principal Underwriter will use its best efforts to find purchasers
for the Shares and in so doing may retain and employ representatives to promote
distribution of the Shares and may obtain orders from brokers, dealers or others
for sales of Shares to them. No such representative, dealer or broker shall have
any authority to act as agent for the Fund; such dealer or broker shall act only
as principal in the sale of Shares.
3. All 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. All orders shall be
subject to acceptance by the Fund and the Fund reserves the right in its sole
discretion to reject any order received. The Fund shall not be liable to anyone
for failure to accept any order.
4. On all sales of Shares, the Fund shall receive the current net asset
value and Principal Underwriter shall be entitled to receive payments in
accordance with the 12b-1 Plan and as set forth in the then current prospectus
and/or statement of additional information of the Fund and to receive the sales
charges, including contingent deferred sales charges, as set forth in the then
current prospectus and/or statement of additional information of the Fund.
Principal Underwriter may reallow all or a part of the 12b-1 payments and the
sales charges to such brokers, dealers or other persons as Principal Underwriter
may determine.
5. Payment for Shares shall be in New York or Boston Clearing House
funds received by Principal Underwriter within ten (10) business days after
notice of acceptance of the purchase order and notice of the amount of the
applicable public offering price has been given to the purchaser. If such
payment is not received within such ten-day period, the Fund reserves the right,
without further notice forthwith to cancel its acceptance of any such order. The
Fund shall pay such issue taxes as may be required by law in connection with the
issue of the Shares.
6. Principal Underwriter shall not make, or permit any representative,
broker or dealer to 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/or statement of additional
information. Copies of the then current prospectus and/or statement of
additional information and any such printed supplemental information will be
supplied by the Fund to Principal Underwriter in reasonable quantities upon
request.
7. Principal Underwriter agrees to comply with the rules of Fair
Practice of the National Association of Securities Dealers, Inc.
8. The Fund appoints Principal Underwriter as its agent to accept
orders for redemptions and repurchases of Shares at values and in the manner
determined in accordance with the then current prospectus and/or statement of
additional information of the Fund.
9. Principal Underwriter covenants and agrees that it will in all
respects duly conform with all state and federal laws and regulations applicable
to the sale of the Shares and will indemnify and hold harmless the Fund and each
person who has been, is or may hereafter be a Director or officer of the Fund
against expenses reasonably incurred by any of them in connection with any claim
or in connection with any action, suit or proceeding to which any of them may be
a party, which arises out of or is alleged to arise out of any misrepresentation
or omission to state a material fact on the part of Principal Underwriter or any
other person for whose acts 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 term "expenses" includes
amounts paid in satisfaction of judgments or in settlement. The foregoing right
in indemnification shall be in addition to any other rights to which the Fund or
any such Director or officer may be entitled as a matter of law.
10. The Fund agrees to execute such papers and to do such acts and
things as shall from time to time be reasonable 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 and maintaining the
registration of the Fund and of the Shares under the Federal Securities Act of
1933, as amended ("1933 Act"), and the Federal Investment Company Act of 1940,
as amended ("1940 Act"). Principal Underwriter shall bear the expense of
preparing, printing and distributing advertising and sales literature and
prospectuses and statements of additional information used by it (but not the
expenses of registering Shares under the 1933 Act and the 1940 Act, qualifying
Shares for sale under the so-called "blue sky" laws of any state and the
preparation and printing of prospectuses and statements of additional
information and reports required to be filed with the Securities and Exchange
Commission by such Acts and the direct expenses of the issue of Shares).
11. The Principal Underwriter shall provide to the Board of Directors
of the Fund in connection with the 12b-1 Plan, not less than quarterly, a
written report of the amounts expended pursuant to such 12b-1 Plan and the
purpose for which such expenditures were made.
12. Unless sooner terminated or continued as provided below, the term
of this Agreement shall begin on the date hereof and expire after one year. This
Agreement shall continue in effect after such term if its continuance is
specifically approved by a majority of the Directors of the Fund and a majority
of the 12b-1 Directors referred to in the 12b-1 Plan of the Fund ("Rule 12b-1
Directors") at least annually in accordance with the 1940 Act and the rules and
regulations thereunder.
This Agreement may be terminated at any time, without payment of any
penalty, by vote of a majority of the Rule 12b-1 Directors or by a vote of a
majority of the Fund's outstanding shares on not more than sixty days written
notice to any other party to the agreement; and shall terminate automatically in
the event of its assignment (as defined in the 1940 Act).
13. This Agreement shall be construed in accordance with the laws of
The Commonwealth of Massachusetts. All sales hereunder are to be made, and title
to the Shares shall pass, in Boston, Massachusetts.
IN WITNESS WHEREOF, the parties hereto have caused this agreement to be
executed by their respective officers therunto duly authorized at Boston,
Massachusetts, on the day and year first written above.
KEYSTONE INTERNATIONAL FUND INC.
By: Roger Wickers
------------------------
Title: Vice President
KEYSTONE DISTRIBUTORS, INC.
By: Edward Godfrey
------------------------
Title: Senior Vice President
#1016018A
<PAGE>
EXHIBIT 99.6(B)
[LOGO] KEYSTONE
INVESTMENTS
200 Berkeley Street
Boston, Massachusetts 02116-5034
Dealer No._________________________________________________________
(Please indicate Exchange Membership(s), if any.)__________________
-------------------------------------------------------------------
Effective Date_____________________________________________________
CLASS A AND B SHARES
To Whom It May Concern:
Keystone Investment Distributors Company ("the Company"), principal
underwriter, invites you to participate in the distribution of shares of the
Keystone Fund Family, Classes A and B shares of the Keystone America Fund Family
and other Funds ("Funds") designated by us which are currently or hereafter
underwritten by the Company, subject to the following terms:
1. In the distribution and sale of shares, you shall not have authority to act
as agent for the issuer, the Company or any other dealer in any respect in such
transactions. All orders are subject to acceptance by us and become effective
only upon confirmation by us. The Company reserves the unqualified right not to
accept any specific order for the purchase or exchange of shares.
2. You will offer and sell shares of the Funds other than Class A shares of the
Keystone America Funds only at their respective net asset values in accordance
with the terms and conditions of a current prospectus of the Fund whose shares
you offer. With respect to Class A shares of the Keystone America Funds and
other Funds designated by us, you will offer and sell such shares at the public
offering price described in a current prospectus of the Fund whose shares you
offer. You will offer shares only on a forward pricing basis, i.e. orders for
the purchase or repurchase of shares accepted by you prior to the close of the
New York Stock Exchange and placed with us the same day prior to the close of
our business day, 5:00 p.m. Eastern Time, and orders to exchange shares of one
Fund for shares of another Fund eligible for exchange placed with us prior to
3:00 p.m. Eastern Time, shall be confirmed at the closing price for that
business day. You agree to place orders for shares only with us and at such
closing price. You further agree to confirm the transaction with your customer
at the price confirmed in writing by us. In the event of a difference between
verbal and written price confirmations, the written confirmations shall be
considered final. Prices of the Funds' shares are computed by and are subject to
withdrawal by the Funds in accordance with their current respective
prospectuses. You agree to place orders with us only through your central order
department unless we accept your written Power of Attorney authorizing others to
place orders on your behalf.
3. So long as this agreement remains in effect, we will pay you commissions on
sales of shares of the Funds and service fees, all in accordance with the
Schedule of Commissions and Service Fees ("Schedule") attached hereto and made a
part hereof, effective June 1, 1995, which Schedule may be modified from time to
time or rescinded by us, in either case without prior notice. You shall have no
vested right to receive any continuing service fees, other fees, or other
commissions which we may elect to pay to you from time to time on shares
previously sold by you. You agree not to share or rebate any portion of such
commissions or to otherwise grant any concessions, discounts or other allowances
to any person who is not a broker or dealer actually engaged in the investment
banking or securities business. You will receive commissions in accordance with
the attached Schedule on all purchase transactions in shareholder accounts
(excluding reinvestment of income dividends and capital gains distributions) for
which you are designated as Dealer of Record except where we determine that any
such purchase was made with the proceeds of a redemption or repurchase of shares
of the same Fund or another Fund whether or not the transaction constitutes the
exercise of the exchange privilege. Commissions will be paid to you twice a
month.
You hereby authorize us to act as your agent in connection with all
transactions in shareholder accounts in which you are designated as Dealer of
Record. All designations of Dealer of Record and all authorizations of the
Company to act as your Agent shall cease upon the termination of this Agreement,
or upon the shareholder's instruction to transfer his or her account to another
Dealer of Record.
4. Payment for all shares purchased from us shall be made to the Company and
shall be received by the Company within ten business days after the acceptance
of your order or such shorter time as may be required by law. If such payment is
not received by us, we reserve the right, without prior notice, forthwith to
cancel the sale, or, at our option, to sell the shares ordered by you back to
the Fund concerned in which latter case we may hold you responsible for any
loss, including loss of profit, suffered by us or by the Fund resulting from
your failure to make payment as aforesaid.
5. You agree to purchase shares of the Funds only from us or from your
customers. If you purchase shares from us, you agree that all such purchases
shall be made only to cover orders already received by you from your customers,
or for your own bonafide investment without a view to resale. If you purchase
shares from your customers, you agree to pay such customers the applicable net
asset value per share less any contingent deferred sales charge that would be
applicable if such shares were then tendered for redemption in accordance with
the then current applicable prospectus ("repurchase price").
6. You will sell shares only --
(a) to your clients at the prices described in paragraph 2 above; or
(b) to us as agent for the Funds at the repurchase price. In such a
sale to us, you may act either as principal for your own account or as
agent for your customer. If you act as principal for your own account
in purchasing shares for resale to us, you agree to pay your customer
not less than nor more than the repurchase price which you receive
from us. If you act as agent for your customer in selling shares to
us, you agree not to charge your customer more than a fair commission
for handling the transaction.
7. You shall not withhold placing with us orders received from your customers so
as to profit yourself as a result of such withholding.
8. We will not accept from you any conditional orders for shares.
9. If any shares sold to you under the terms of this agreement are repurchased
by a Fund, or are tendered for redemption, within seven business days after the
date of our confirmation of the original purchase by you, it is agreed that you
shall forfeit your right to any commissions on such sales even though the
shareholder may be charged a contingent deferred sales charge by the Fund.
We will notify you of any such repurchase or redemption within the next ten
business days after the date on which the certificate or written request for
redemption is delivered to us or to the Fund, and you shall forthwith refund to
us the full amount of any commission you received on such sale. We agree, in the
event of any such repurchase or redemption, to refund to the Fund any commission
we retained on such sale and, upon receipt from you of the commissions paid to
you, to pay such commissions forthwith to the Fund.
10. Shares sold to you hereunder shall not be issued in certificate form or
otherwise until payment has been received by the Fund concerned. If transfer
instructions are not received from you within 15 days after our acceptance of
your order, the Company reserves the right to instruct the transfer agent for
the Fund concerned to register a certificate for the shares sold to you in your
name and forward such certificate to you. You agree to hold harmless and
indemnify the Company, the Fund and its transfer agent for any loss or expense
resulting from such registration.
11. No person is authorized to make any representations concerning shares of the
Funds except those contained in the current applicable prospectuses and in sales
literature issued by us supplemental to such prospectuses. In purchasing shares
from us you shall rely solely on the representations contained in the
appropriate prospectus and in such sales literature. We will furnish additional
copies of the current prospectuses and such sales literature and other releases
and information issued by us in reasonable quantities upon request. You agree
that you will in all respects duly conform with all laws and regulations
applicable to the sale of shares of the Funds and will indemnify and hold
harmless the Funds, their directors and trustees and the Company from any damage
or expenses on account of any wrongful act by you, your representatives, agents
or sub-agents in connection with any orders or solicitation of orders of shares
of the Funds by you, your representatives, agents or sub-agents.
12. Each party hereto represents that it is a member of the National Association
of Securities Dealers, Inc., and agrees to notify the other should it cease to
be a member of such Association and agrees to the automatic termination of this
agreement at that time. It is further agreed that all rules or regulations of
said Association now in effect or hereafter adopted, which are binding upon
underwriters and dealers in the distribution of the securities of open-end
investment companies, shall be deemed to be a part of this agreement to the same
extent as if set forth in full herein.
13. You will not offer the Funds for sale in any State where they are not
qualified for sale under the Blue Sky Laws and regulations of such State or
where you are not qualified to act as a dealer, except for States in which they
are exempt from qualification.
14. This agreement supersedes and cancels any prior agreement with respect to
the sales of shares of any of the Funds underwritten by the Company and the
Company reserves the right to amend this agreement at any time and from time to
time.
15. This agreement shall be effective upon acceptance by us in Boston,
Massachusetts and all sales hereunder are to be made, and title to shares of the
Funds shall pass, in Boston. This agreement is made in the Commonwealth of
Massachusetts and shall be interpreted in accordance with the laws of
Massachusetts.
16. All communications to the Company should be sent to the above address. Any
notice to you shall be duly given if mailed or telegraphed to you at the address
specified by you below.
17. Either party may terminate this agreement at any time by written notice to
the other party.
Signed: Accepted:
- ---------------------------------- Boston, MA (USA) as of June 1, 1995
Dealer or Broker Name
- ---------------------------------- KEYSTONE INVESTMENT DISTRIBUTORS COMPANY
Address 200 Berkeley Street, Boston, MA 02116-5034
- ---------------------------------- -----------------------------------------
Authorized Signature Authorized Signature
<PAGE>
EXHIBIT 99.8
SEVENTH
AMENDMENT
TO
CUSTODIAN, FUND ACCOUNTING AND RECORDKEEPING AGREEMENT
BY AND BETWEEN
KEYSTONE INTERNATIONAL FUND INC.
AND
STATE STREET BANK AND TRUST COMPANY
This Seventh Amendment to the Custodian, Fund Accounting and
Recordkeeping Agreement by and between KEYSTONE INTERNATIONAL FUND INC., a
Massachusetts corporation incorporated and existing under the laws of the
Commonwealth of Massachusetts and having a principal place of business at 99
High Street, Boston, Massachusetts 02110 (hereinafter called the "Fund"), and
State Street Bank and Trust Company, a Massachusetts trust company, having its
principal place of business at 225 Franklin Street, Boston, Massachusetts 02110
(hereinafter called the "Custodian").
WHEREAS: The Fund and the Custodian are parties to a Custodian, Fund
Accounting and Recordkeeping Agreement dated December 31, 1979, as most recently
amended January 1, 1989 (the "Custodian Contract");
WHEREAS: The Fund desires that the Custodian issue a letter of credit
(the "Letter of Credit") on behalf of the Fund for the benefit of ICI Mutual
Insurance Company (the "Company") in accordance with the Continuing Letter of
Credit and Security Agreement and that the Fund's obligations to the Custodian
with respect to the Letter of Credit shall be fully collateralized at all times
while the Letter of Credit is outstanding by, among other things, segregated
assets of the Fund equal to 100% of the Fund's proportionate share of the face
amount of the Letter of Credit;
WHEREAS: the Custodian Contract provides for the establishment of
segregated accounts for proper Fund purposes upon Proper Instructions (as
defined in the Custodian Contract); and
WHEREAS: The Fund and the Custodian desire to establish a segregated
account to hold the collateral for the Fund's obligations to the Custodian with
respect to the Letter of Credit and to amend the Custodian Contract to provide
for the establishment and maintenance thereof:
WITNESSETH: That in consideration of the mutual covenants and
agreements hereinafter contained, the parties hereto hereby amend the Custodian
Contract as follows:
1. Capitalized terms used herein without definition shall have
the meanings ascribed to them in the Custodian Contract.
2. The Fund hereby instructs the Custodian to establish and
maintain a segregated account (the "Letter of Credit Custody
Account") for and on behalf of the Fund as contemplated by
[Section II, Paragraph 3N (iv) of the Custodian Contract] for
the purpose of collateralizing the Fund's obligations under
this Amendment to the Custodian Contract.
3. The Fund shall deposit with the Custodian and the Custodian
shall hold in the Letter of Credit Custody Account cash,
certificates of deposit, U.S. government securities or other
high-grade debt securities owned by the Fund acceptable to the
Custodian (collectively "Collateral Securities") equal to 100%
of the Fund's proportionate share of the face amount which the
Company may draw under the Letter of Credit. Upon receipt of
such Collateral Securities in the Letter of Credit Custody
Account, the Custodian shall issue the Letter of Credit to the
Company.
4. The Fund hereby grants to the Custodian a security
interest in the Collateral Securities from time to time in the
Letter of Credit Custody Account (the "Collateral") to secure
the performance of the Fund's obligations to the Custodian
with respect to the Letter of Credit, including, without
limitation, under Section 5-144(3) of the Uniform Commercial
Code. The Fund shall register the pledge of Collateral and
execute and deliver to the Custodian such powers and
instruments of assignment as may be requested by the Custodian
to evidence and perfect the limited interest in the Collateral
granted hereby.
5. The Collateral Securities in the Letter of Credit Custody
Account may be substituted or exchanged (including
substitutions or exchanges which increase or decrease the
aggregate value of the Collateral) only pursuant to Proper
Instructions from the Fund after the Fund notifies the
Custodian of the contemplated substitution or exchange and the
Custodian agrees that such substitution or exchange is
acceptable to the Custodian.
6. Upon any payment made pursuant to the Letter of Credit by the
Custodian to the Company, the Custodian may withdraw from the
Letter of Credit Custody Account Collateral Securities in an
amount equal in value to the amount actually so paid. The
Custodian shall have with respect to the Collateral so
withdrawn all of the rights of a secured creditor under the
Uniform Commercial Code as adopted in the Commonwealth of
Massachusetts at the time of such withdrawal and all other
rights granted or permitted to it under law.
7. The Custodian will transfer upon receipt all income earned on
the Collateral to the Fund custody account unless the
Custodian receives Proper Instructions from the Fund to the
contrary.
8. Upon the drawing by the Company of all amounts which
may become payable to it under the Letter of Credit and the
withdrawal of all Collateral Securities with respect thereto
by the Custodian pursuant to Section 6 hereof, or upon the
termination of the Letter of Credit by the Fund with the
written consent of the Company, the Custodian shall transfer
any Collateral Securities then remaining in the Letter of
Credit Custody Account to another fund custody account.
9. Collateral held in the Letter of Credit Custody Account shall
be released only in accordance with the provisions of this
Amendment to Custodian Contract. The Collateral shall at all
times until withdrawn pursuant to Section 6 hereof remain the
property of the Fund, subject only to the extent of the
interest granted herein to the Custodian.
10. Notwithstanding any other termination of the Custodian
Contract, the Custodian Contract shall remain in full force
and effect with respect to the Letter of Credit Custody
Account until transfer of all Collateral Securities pursuant
to Section 8 hereof.
11. The Custodian shall be entitled to reasonable compensation for
its issuance of the Letter of Credit and for its services in
connection with the Letter of Credit Custody Account as agreed
upon from time to time between the Fund and the Custodian.
12. The Custodian Contract as amended hereby shall be
governed by, and construed and interpreted under, the
laws of the Commonwealth of Massachusetts.
13. The parties agree to execute and deliver all such further
documents and instruments and to take such further action as
may be required to carry out the purposes of the Custodian
Contract, as amended hereby.
14. Except as provided in this Amendment, the Custodian Contract
shall remain in full force and effect, without amendment or
modification, and all applicable provisions of the Custodian
Contract, as amended hereby, shall govern the Letter of Credit
Custody Account and the rights and obligations of the Fund and
the Custodian under this Amendment to Custodian Contract. No
provision of this Amendment to Custodian Contract shall be
deemed to constitute a waiver of any rights of the Custodian
under the Custodian Contract or under law.
IN WITNESS WHEREOF, each of the parties has caused this Amendment to
Custodian Contract to be executed in its name and behalf by its duly authorized
representatives and its seal to be hereunder affixed as of the 8th day of
February, 1990.
ATTEST: KEYSTONE INTERNATIONAL FUND INC.
By: Mary E. [ illegible ] By: James McCall
---------------------- ---------------------
ATTEST: STATE STREET BANK AND TRUST COMPANY
By: [ illegible ] By: K. Donelin
---------------------- ---------------------
Assistant Secretary Vice President
<PAGE>
SIXTH
AMENDMENT
TO
CUSTODIAN, FUND ACCOUNTING AND RECORDKEEPING AGREEMENT
BY AND BETWEEN
KEYSTONE INTERNATIONAL FUND INC.
AND
STATE STREET BANK AND TRUST COMPANY
This Sixth Amendment to the Custodian, Fund Accounting and
Recordkeeping Agreement by and between KEYSTONE INTERNATIONAL FUND INC. ("Fund")
and STATE STREET BANK AND TRUST COMPANY ("State Street"), dated December 31,
1979 and amended through January 1, 1989 ("Agreement"), is made by and between
the Fund and State Street as of February 8, 1990.
In consideration of the mutual agreements contained herein, State Street and
the Fund hereby agree to amend the Agreement as
follows:
1. Section II is amended by deleting Paragraph 8 and by inserting the
following as Paragraph 7A:
" 7A. The Fund shall pay State Street for its services as
Custodian such compensation as specified in the existing Schedule A.
Such compensation shall remain fixed until March 31, 1990 unless this
Agreement is terminated as provided in Paragraph 8A."
2. In all other respects the Agreement shall remain in full force and
effect.
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 INTERNATIONAL FUND
By: Mary E. [ illegible ] By: James McCall
---------------------- ---------------------
ATTEST: STATE STREET BANK AND TRUST COMPANY
By: [ illegible ] By: K. Donelin
---------------------- ---------------------
Vice President
<PAGE>
FIFTH
AMENDMENT
TO
CUSTODIAN, FUND ACCOUNTING AND RECORDKEEPING AGREEMENT
BY AND BETWEEN
KEYSTONE INTERNATIONAL FUND INC.
AND
STATE STREET BANK AND TRUST COMPANY
This Fifth Amendment to the Custodian, Fund Accounting and
Recordkeeping Agreement by and between KEYSTONE INTERNATIONAL FUND INC. ("Fund")
and STATE STREET BANK AND TRUST COMPANY ("State Street"), dated December 31,
1979 and amended through September 1, 1988 ("Agreement") is made by and between
the Fund and State Street as of January 1, 1989.
In consideration of the mutual agreements contained herein, State Street and
the Fund hereby agree to amend the Agreement as
follows:
1. Section 3-D of Section II entitled, Purchases is amended by
concluding the first sentence of such paragraph with the following:
"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 as defined in Section 5-A, 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."
2. Section II is amended by deleting existing Paragraph 7 and by
inserting the following as Paragraphs 7 and 8:
"7. Lien on Assets. If the Fund requires State Street to
advance cash or securities for any purpose or in the event that State
Street or its nominee shall incur or be assessed any taxes, charges,
expenses, assessments, claims or liabilities in connection with the
performance of this Agreement, except such as may arise from its or its
nominee's own negligent action, negligent failure to act or willful
misconduct, any property at any time held for the account of the Fund
shall be security therefor and should the Fund fail to repay State
Street promptly, State Street shall be entitled to utilize available
cash and to dispose of the Fund assets to the extent necessary to
obtain reimbursement.
8. The Fund shall pay State Street for its services as
Custodian such compensation as shall be specified in the attached
Exhibit A. Such compensation shall remain fixed until December 31,
1989, unless this Agreement is terminated as provided in Section 8A."
3. In all other respects the Agreement shall remain in full force and
effect.
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 INTERNATIONAL FUND INC.
[ illegible ] By: Albert H. Elfner, III
- ----------------------- -------------------------
President
ATTEST: STATE STREET BANK AND TRUST COMPANY
[ illegible ] By: K. Donelin
- ----------------------- -------------------------
Vice President
<PAGE>
FOURTH
AMENDMENT
TO
CUSTODIAN, FUND ACCOUNTING AND RECORDKEEPING AGREEMENT
BY AND BETWEEN
KEYSTONE INTERNATIONAL FUND INC.
AND
STATE STREET BANK AND TRUST COMPANY
This Fourth Amendment to the Custodian, Fund Accounting and
Recordkeeping Agreement by and between KEYSTONE INTERNATIONAL FUND, INC.
("Fund") and STATE STREET BANK AND TRUST COMPANY ("State Street"), dated
December 31, 1979 and amended through December 31, 1984 ("Agreement") is made by
and between the Fund and State Street as of September 1, 1988.
In consideration of the mutual agreements contained herein, State Street and
the Fund hereby agree to amend the Agreement as follows:
1. Section II, Paragraph 3(K) is amended by inserting the following
language after Paragraph 3(J) and by renumbering existing Paragraph 3(K) as
Paragraph 3(L):
"K. Compliance with Applicable Rules and Regulations of The
Options Clearing Corporation and National Securities or Commodities Exchanges or
Commissions. Upon receipt of proper instructions, deliver securities in
accordance with the provisions of any agreement among the Fund, the Custodian
and a broker-dealer registered under the Securities Exchange Act of 1934
("Exchange Act") and a member of the National Association of Securities Dealers,
Inc.("NASD"), relating to compliance with the rules of The Options Clearing
Corporation and of any registered national securities exchange, or of any
similar organization or organizations, regarding escrow or other arrangements in
connection with transactions by the Fund; or, upon receipt of proper
instructions deliver securities in accordance with the provisions of any
agreement among the Fund, the Custodian, 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."
2. Existing Section II, Paragraph 3(L) is renumbered as Paragraph 3(M).
3. The following language is inserted after new Paragraph 3(M) as
Paragraph 3(N):
"N. Segregated Account. The Custodian 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 the
Custodian pursuant to Paragraph 3(B) hereof, (i) in accordance with the
provisions of any agreement among the Fund, the Custodian 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 Securities and Exchange 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."
4. Existing Section II, Paragraphs 3(M) and 3(N) are renumbered as
Paragraphs 3(O) and 3(P).
5. In all other respects the Agreement shall remain in full force and
effect.
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 INTERNATIONAL FUND INC.
Rosemary D. Van Antwerp By: Albert H. Elfner, III
- ----------------------- -------------------------
President
ATTEST: STATE STREET BANK AND TRUST COMPANY
[ illegible ] By: K. Donelin
- ----------------------- -------------------------
Vice President
<PAGE>
THIRD AMENDMENT
TO
CUSTODIAN, FUND ACCOUNTING AND RECORDKEEPING AGREEMENT
BY AND BETWEEN
KEYSTONE INTERNATIONAL FUND INC.
AND
STATE STREET BANK AND TRUST COMPANY
This Third Amendment to the Custodian, Fund Accounting and
Recordkeeping Agreement by and between KEYSTONE INTERNATIONAL FUND INC. (the
"Fund") and STATE STREET BANK AND TRUST COMPANY ("State Street"), dated December
31, 1979, amended January 1, 1982, and December 31, 1982 ("Agreement") is made
by and between the Fund and State Street as of December 31, 1984.
In consideration of the mutual agreements contained herein, State
Street and the Fund hereby agree to amend the Agreement by replacing each of
Section II, Paragraph 6(B), and Section II, Paragraph 7 with the following
provisions:
"6. B. Expense Reimbursement. State Street shall be entitled to receive
from the Fund on demand reimbursement for its cash disbursements, expenses and
charges, excluding salaries and usual overhead expenses, as set forth on the
attached Schedule D.
"7. The Fund shall pay State Street for its services as Custodian such
compensation as shall be as specified in the attached Schedule D. Such
compensation shall remain as provided in Schedule D until December 31, 1986,
unless this Agreement is terminated as provided in Section 8A; provided,
however, that in the event either party terminates this Agreement as provided in
Section 8A State Street hereby guarantees and agrees that no new agreement
entered into between the parties shall require payment during such period of
compensation greater than that specified herein."
<PAGE>
IN WITNESS WHEREOF, each of the parties hereto has caused this
Amendment to the Agreement to be executed in its name and on its behalf by a
duly authorized officer as of the day and year first written above.
KEYSTONE INTERNATIONAL FUND INC.
Attest:
By: /s/ Ralph J. Spuehler, Jr.
----------------------------------
/s/ [Illegible] Office: Treasurer
- --------------------------------------
STATE STREET BANK AND TRUST COMPANY
By: /s/ B. Weidlich
----------------------------------
Attest: Office:
/s/ [Illegible]
- --------------------------------------
<PAGE>
Schedule D
STATE STREET BANK AND TRUST COMPANY
Custodian Fee Schedule
KEYSTONE INTERNATIONAL FUND INC.
(Effective 1/1/85)
I. Administration
Custodian, Portfolio and Fund Accounting Service - Maintain custody of Fund
assets. Settle portfolio purchases and sales. Report buy and sell fails.
Determine and collect portfolio income. Make cash disbursements and report cash
transactions. Maintain investment ledgers, provide selected portfolio
transactions, position and income reports. Maintain general ledger and capital
stock accounts. Prepare daily trial balance. Calculate net asset value daily.
Provide selected general ledger reports. Securities yield or market value
quotations will be provided to State Street from a source designated by the
Fund.
The administration fee shown below is an annual charge, billed and payable
monthly, based on average net assets and calculated in the same manner as the
Fund management fee.
Annual Fee
----------
Fund Net Assets
- ---------------
First $35 million 1/15 of 1%
Next $65 million 1/30 of 1%
Excess 1/100 of 1%
No minimum
<PAGE>
II. Portfolio Trades - For each line item processed
a) Depository Trust Company and Federal Reserve
Book Entry System $12.25
b) Physical delivery, options and all other trades $16.00
III. Holdings & Appraisal Charge
For each issue maintained - monthly charge $5.00
IV. Out-of Pocket Expenses
A billing for the recovery of applicable out-of-pocket expenses will be
made as of the end of each month. Out-of-pocket expenses include, but are
not limited to the following:
Telephone
Wire charges ($3.85 per wire in and $3.60 out)
Postage and insurance
Courier service
Legal fees
Supplies related to Fund records
Rush transfer - $8.00 each
Duplicating
DTC eligibility books
Transfer fees
Sub-custodian charges
Price Waterhouse audit letter
Check writing ($.50 per check)
V. Additional Accounting and Reporting Functions
$150 per month
This fee schedule will terminate 12/31/86
<PAGE>
SECOND AMENDMENT
TO
CUSTODIAN, FUND ACCOUNTING AND RECORDKEEPING AGREEMENT
BY AND BETWEEN
KEYSTONE INTERNATIONAL FUND INC.
AND
STATE STREET BANK AND TRUST COMPANY
This Second Amendment to the Custodian, Fund Accounting and
Recordkeeping Agreement by and between KEYSTONE INTERNATIONAL FUND INC. (the
"Fund") and STATE STREET BANK AND TRUST COMPANY (" State Street"), dated
December 31, 1979 and amended January 1, 1982 (the "Agreement") is made by and
between the Fund and State Street as of December 31, 1982.
In consideration of the mutual agreements contained herein, State
Street and the Fund hereby agree to amend the Agreement by replacing each of
Section II, Paragraph 6(B), and Section II, Paragraph 7 with the following
provisions:
"6. B. Expense Reimbursement. State Street shall be entitled to receive
from the Fund on demand reimbursement for its cash disbursements, expenses and
charges, excluding salaries and usual overhead expenses, as set forth on the
attached Schedule C."
"7. The Fund shall pay State Street for its services as Custodian such
compensation as shall be as specified in the attached Schedule C. Such
compensation shall remain as provided in Schedule C until December 31, 1984,
unless this Agreement is terminated as provided in section 8A; provided,
however, that in the event either party terminates this Agreement as provided in
section 8A State Street hereby guarantees and agrees that no new Agreement
entered into between the parties shall require payment of compensation greater
than that specified herein during such period."
<PAGE>
IN WITNESS WHEREOF, each of the parties hereto has caused this SECOND
Amendment to the Agreement to be executed in its name and on its behalf by a
duly authorized officer as of the day and year first written above.
KEYSTONE INTERNATIONAL FUND INC.
Attest:
By: /s/ Ralph J. Spuehler, Jr.
----------------------------------
/s/ [Illegible] Treasurer
- --------------------------------------
STATE STREET BANK AND TRUST COMPANY
By: /s/ B. Weidlich
----------------------------------
Attest: Vice President
/s/ [Illegible]
- --------------------------------------
<PAGE>
Schedule C
STATE STREET BANK AND TRUST COMPANY
Custodian Fee Schedule
KEYSTONE INTERNATIONAL FUND
(Effective 1/1/83)
I. Administration
Custody, Portfolio and Fund Accounting Service - Maintain custody of fund
assets. Settle portfolio purchases and sales. Report buy and sell fails.
Determine and collect portfolio income. Make cash disbursements and report
cash transactions. Maintain investment ledgers, provide selected portfolio
transactions, position and income reports. Maintain general ledger and
capital stock accounts. Prepare daily trial balance. Calculate net asset
value daily. Provide selected general ledger reports. Securities yield or
market value quotations will be provided to State Street from a source
designated by the Fund.
The administration fee shown below is an annual charge, billed and payable
monthly, based on average net assets and calculated in the same manner as
the fund management fee.
Annual Fee
----------
Fund Net Assets
---------------
First $35 million 1/15 of 1%
Next $65 million 1/30 of 1%
Excess 1/100 of 1%
No Minimum
<PAGE>
II. Portfolio Trades - For each line item processed
All Trades $10.00
III. Holdings & Appraisal Charge
For each issue maintained - monthly charge $ 5.00
IV. Out-of-Pocket Expenses
A billing for the recovery of applicable out-of-pocket expenses will be
made as of the end of each month. Out-of-pocket expenses include, but are
not limited to the following:
Telephone
Wire charges ($3.65 per wire in and $3.50 out)
Postage and insurance
Courier service
Legal fees
Supplies related to fund records
Rush transfer - $8 each
Duplicating
DTC Eligibility Books
Transfer fees
Sub-custodian charges
Price Waterhouse Audit Letter
Check writing ($.50 per check)
This fee schedule will terminate 12/31/83
<PAGE>
SCHEDULE C
STATE STREET BANK AND TRUST COMPANY
Custodian Fee Schedule
KEYSTONE INTERNATIONAL FUND
(Effective 1/1/84)
I. Administration
Custody, Portfolio and Fund Accounting Service - Maintain custody of fund
assets. Settle portfolio purchases and sales. Report buy and sell fails.
Determine and collect portfolio income. Make cash disbursements and report
cash transactions. Maintain investment ledgers, provide selected portfolio
transactions, position and income reports. Maintain general ledger and
capital stock accounts. Prepare daily trial balance. Calculate net asset
value daily. Provide selected general ledger reports. Securities yield or
market value quotations will be provided to State Street from a source
designated by the Fund .
The administration fee shown below is an annual charge, billed and payable
monthly, based on average net assets and calculated in the same manner as
the fund management fee.
Annual Fee
----------
Fund Net Assets
---------------
First 35 million 1/15 of 1%
Next $65 million 1/30 of 1%
Excess 1/100 of 1%
No Minimum
<PAGE>
II. Portfolio Trades - For each line item processed
All Trades $ 12.25
III. Holdings & Appraisal Charge
For each issue maintained - monthly charge $ 5.00
IV. Out-of-Pocket Expenses
A billing for the recovery of applicable out-of-pocket expenses will be
made as of the end of each month. Out-of-pocket expenses include, but are
not limited to the following:
Telephone
Wire charges ($3.65 per wire in and $3.50 out)
Postage and insurance
Courier service
Legal fees
Supplies related to fund records
Rush transfer - $8 each
Duplicating
DTC Eligibility Books
Transfer fees
Sub-custodian charges
Price Waterhouse Audit Letter
Check writing ($.50 per check)
This fee schedule will terminate 12/31/84
<PAGE>
FIRST AMENDMENT
TO
CUSTODIAN, FUND ACCOUNTING AND RECORDKEEPING AGREEMENT
BY AND BETWEEN
KEYSTONE INTERNATIONAL FUND INC.
AND
STATE STREET BANK AND TRUST COMPANY
This First Amendment to the Custodian, Fund Accounting and Recordkeeping
Agreement by and between Keystone International Fund Inc. (the "Fund") and State
Street Bank and Trust Company ("State Street"), dated December 31, 1979 (the
"Agreement") is made by and between the Fund and State Street as of January 1,
1982.
In consideration of the mutual agreements contained herein, State Street
and the Fund hereby agree to amend the Agreement by replacing all of Section II,
Paragraph 3(B) with the following provisions:
"B. Deposit of Fund Assets in Securities Systems.
Notwithstanding any other provision of this Agreement, State Street may
deposit and/or maintain securities owned by the Fund in Depository Trust
Company, a clearing agency registered with the Securities and Exchange
Commission under Section 17A of the Securities Exchange Act of 1934, which
acts as a securities depository, or in the book-entry system authorized by
the U.S. Department of the Treasury and certain federal agencies,
collectively referred to herein as "Securities System(s)" in accordance
with applicable Federal Reserve Board and Securities and Exchange
Commission rules and regulations, if any, and subject to the following
provisions:
1. State Street may keep securities of the Fund in a Securities System
provided that such securities are deposited in an account ("Account")
of State Street in the Securities System which shall not include any
assets of State Street other than assets held as a fiduciary, custodian
or otherwise for customers;
2. The records of State Street with respect to securities of the Fund
which are maintained in a Securities System shall identify by bookentry
those securities belonging to the Fund;
3. State Street shall pay for securities purchased for the account of the
Fund upon (i) receipt of advice from the Securities System that such
securities have been transferred to the Account, and (ii) the making of
an entry on the records of State Street to reflect such payment and
transfer for the account of the Fund. State Street shall transfer
securities sold for the account of the Fund upon (i) receipt of advice
from the Securities System that payment for such securities has been
transferred to the Account, and (ii) the making of an entry on the
records of State Street to reflect such transfer and payment for the
account of the Fund. Copies of all advices from the Securities System
of transfers of securities for the account of the Fund shall identify
the Fund, be maintained for the Fund by State Street and be provided to
the Fund at its request. State Street shall furnish the Fund
confirmation of each transfer to or from the account of the Fund in the
form of a written advice or notice and shall furnish to the Fund copies
of daily transaction sheets reflecting each day's transactions in the
Securities System for the account of the Fund on the next business day;
<PAGE>
4. State Street shall promptly provide the Fund with any report obtained
by State Street on the Securities System's accounting system, internal
accounting control and procedures for safeguarding securities deposited
in the Securities System. State Street shall promptly provide the Fund
any report on State Street's accounting system, internal accounting
control and procedures for safeguarding securities deposited with State
Street which is reasonably requested by the Fund;
5. Anything to the contrary in this Agreement notwithstanding, State
Street shall be liable to the Fund for any claim, loss, liability,
damage or expense to the Fund, including attorney's fees, resulting
from use of a Securities System by reason of any negligence,
misfeasance or misconduct of State Street or any of its agents or of
any of its or their employees or from failure of State Street or any
such agent to enforce effectively such rights as it may have against a
Securities System. At the election of the Fund, it shall be entitled to
be subrogated to the rights of State Street or its agents with respect
to any claim against the Securities System or any other person which
State Street or its agents may have as a consequence of any such claim,
loss, liability, damage or expense if and to the extent that the Fund
has not been made whole for any such loss or damage."
"BB. State Street's Records
The records of State Street (and its agents) with respect to its
services for the Fund shall at all times during the regular business
hours of State Street (or its agents) be open for inspection by duly
authorized officers, employees or agents of the Fund and employees and
agents of the Securities and Exchange Commission."
<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 written above.
KEYSTONE INTERNATIONAL FUND INC.
By: /s/ William W. Hennig
----------------------------------
Attest:
/s/ [Illegible]
- --------------------------------------
STATE STREET BANK AND TRUST COMPANY
By: /s/ B. Weidlich
----------------------------------
Attest:
/s/ [Illegible]
- --------------------------------------
<PAGE>
CUSTODIAN AND RECORDKEEPING AGREEMENT
by and between
KEYSTONE INTERNATIONAL FUND, INC.
and
STATE STREET BANK AND TRUST COMPANY
Agreement made as of this 3lst day of December, 1979 by and between
Keystone International Fund Inc., a Massachusetts business corporation, having
its principal place of business at 99 High Street, Boston, Massachusetts 02110,
(the "Fund"), and STATE STREET AND BANK TRUST COMPANY, a Massachusetts banking
corporation, having its principal place of business at 225 Franklin Street,
Boston, Massachusetts 02110 ("State Street").
WITNESSETH THAT:
In consideration of the mutual agreements herein contained, the Fund and
State Street agree as follows:
I. DEPOSITORY
The Fund hereby appoints State Street as its Depository subject to the
provisions hereof. The Fund shall deliver to State Street certified or
authenticated copies of its Articles of Organization, By-Laws, all amendments
thereto, a certified copy of the resolution of its board of directors 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
directors, contracts and other documents as may be reasonably required by State
Street in the performance of its duties hereunder.
II. CUSTODIAN
1. The Fund appoints State Street as its Custodian, subject to the
provisions hereof. State Street hereby accepts such appointment as Custodian. As
such Custodian, State Street shall retain all securities and cash 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 and cash 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 and
cash 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 and cash now owned or hereafter acquired by the Fund during the
period of this Agreement.
2. All securities delivered to State Street (other than in bearer form)
shall be properly endorsed and in proper form for transfer into or in the name
of the Fund, of a nominee of State Street for the exclusive use of the Fund, or
of such other nominee as may be mutually agreed upon by State Street and the
Fund.
3. As Custodian, State Street shall promptly:
A. Safekeeping. Keep safely in a separate account the securities of the
Fund, including without limitation all securities in bearer form, and on behalf
of the Fund, receive delivery of certificates, including without limitation all
securities in bearer form, for safekeeping and keep such certificates physically
segregated at all times from those of any other person. State Street shall
maintain records of all receipts, deliveries and locations of such securities,
together with a current inventory thereof and shall conduct periodic physical
inspections of certificates representing bonds and other securities held by it
under this Agreement at least annually in such manner as State Street shall
determine from time to time to be advisable in order to verify the accuracy of
such inventory. State Street shall provide the Fund with copies of any reports
of its internal count or other verification of the securities of the Fund held
in its custody, including reports on its own system of internal accounting
control. In addition, if and when independent certified public accountants
retained by State Street shall count or otherwise verify the securities of the
Fund held in State Street's custody, State Street shall provide the Fund with a
copy of the report of such accountants. With respect to securities held by any
agent or Sub-Custodian appointed pursuant to paragraph 6-C of section II hereof,
State Street may rely upon certificates from such agent as to the holdings of
such agent and from such Sub-Custodian as to the holdings of such Sub-Custodian,
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. Use of a System for the Central Handling of Securities. Notwithstanding
any other provision of this Agreement, if in the best interest of the Fund,
deposit all or any part of the securities owned by the Fund in the book-entry
system of the Federal Reserve Banks (hereinafter called the "system") and to
use the facilities of such system, all as provided under the provisions of Rule
17f-4 of the Investment Company Act of 1940, as amended. Without limiting the
generality of such use, the following provisions shall apply thereto:
1) State Street may keep securities of the Fund in the system provided
that such securities are represented in an account ("Account") of State Street's
(or its agent or Sub-Custodian) in the system which shall not include any assets
of State Street (or such agent or Sub-Custodian) other than assets held as
fiduciary, custodian or otherwise for customers. The records of State Street
(and such agents or Sub-Custodians) shall at all times during the regular
business hours of State Street (or such agents or Sub-Custodians) be open for
inspection by duly authorized officers, employees or agents of the Fund and
employees and agents of the Securities and Exchange Commission.
2) State Street shall send to the Fund a confirmation of all transfers
to or from the system for the account of the Fund. Where securities are
transferred to the Fund's account, State Street shall, by book-entry or
otherwise, identify as belonging to the Fund a quantity of securities in a
fungible bulk of securities (i) registered in the name of State Street or its
nominee or (ii) shown on State Street's account on the books of the appropriate
Federal Reserve Bank. For this purpose, the term "confirmation" means advice or
notice of transaction; it is not intended to require preparation by State Street
of the confirmation required of broker-dealers under the Securities Exchange
Act of 1934.
3) State Street shall promptly send to the Fund any report it receives
from the appropriate Federal Reserve Bank on its system of internal accounting
control.
4) Anything to the contrary in this Agreement notwithstanding, State
Street shall be liable to the Fund for any claim, liability, loss or expense,
including attorney's fees, resulting to such Fund from use of the system by
reason of any negligence, misfeasance or misconduct of State Street (or any of
its agents or Sub-Custodians) or of any of its (or their) employees or from any
failure of State Street (or any such agent or Sub-Custodian) to enforce
effectively such rights as it (or they) may have against the system. At the
election of the Fund, it shall be entitled to be subrogated to State Street, its
agents or Sub-Custodians in any claim against the system or any other person
which State Street, its agents or Sub-Custodians may have as a consequence of
any such claim, liability, loss or expense if and to the extent that the Fund
has not been made whole for such claim, liability, loss or expense.
C. Registered Name, Nominee. Register securities of the Fund held by State
Street in the name of the Fund, of a nominee of State Street for the exclusive
use of the Fund, of such other nominees as may be mutually agreed upon, or of
any mutually acceptable nominee of any agent or Sub-Custodian appointed pursuant
to paragraph 6-C of section II hereof.
D. Purchases. Upon receipt of proper instructions (as defined in paragraph
5-A of section II hereof; hereafter "proper instructions") and insofar as cash
is available for the purpose, pay for and receive all securities purchased for
the account of the Fund, payment being made only upon receipt of the securities
by State Street (or any bank, banking firm, responsible commercial agent or
trust company doing business in the United States and appointed pursuant to
paragraph 6-C of section II hereof as State Street's agent or Sub-Custodian for
this purpose, registered as provided in paragraph 3-C of section II hereof or in
form for transfer satisfactory to State Street, or, in the case of repurchase
agreements entered into between the Fund and a bank or a dealer, delivery of the
securities either in certificate form or through an entry crediting State
Street's account at the Federal Reserve Bank with such securities. All
securities accepted by State Street shall be accompanied by payment of, or a
"due bill" for, any dividends, interest or other distributions of the issuer,
due the purchaser. In any and every case of a purchase of securities for the
account of the Fund where payment is made by State Street in advance of receipt
of the securities purchased, State Street shall be absolutely liable to the Fund
for such securities to the same extent as if the securities had been received by
State Street except that in the case of repurchase agreements entered into by
the Fund with a bank which is a member of the Federal Reserve System, State
Street may transfer funds to the account of such bank prior to the receipt of
written evidence that the securities subject to such repurchase agreement have
been transferred by book-entry into a segregated nonproprietary account of State
Street maintained with the Federal Reserve Bank of Boston, provided that such
securities have in fact been so transferred by book-entry; and 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.
E. Exchanges. Upon receipt of proper instructions, exchange securities,
interim receipts or temporary securities held by it or by any agent or any
Sub-Custodian appointed by it pursuant to paragraph 6-C of section II 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 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, its agents or
Sub-Custodians. State Street shall give notice as provided under paragraph 4-L
of section II hereof to the Fund in connection with any transaction specified in
this paragraph and at the same time shall specify to the Fund whether such
notice relates to securities held by an agent or Sub-Custodian appointed
pursuant to paragraph 6-C of section II hereof, so that the Fund may issue to
State Street proper instructions for State Street to act thereon prior to any
expiration date (which shall be presumed to be two business days prior to such
date unless State Street has previously advised the Fund of a different period).
The Fund shall give to State Street full details of the time and method of
submitting securities in response to any tender or similar offer, exercising any
subscription or purchase 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 appointed by
State Street pursuant to paragraph 6-C of section II hereof, the proper
instructions referred to in the preceding sentence must be received by State
Street in timely enough fashion (which shall be presumed to be three business
days unless State Street has advised the Fund in writing of a different period)
for State Street to notify the agent in sufficient time to permit such agent to
act prior to any expiration date. When the securities are in the possession of a
Sub-Custodian appointed pursuant to paragraph 6-C of section II hereof, the
proper instructions must be received by the Sub-Custodian in timely enough
fashion as previously advised in writing to the Fund by State Street or the
Sub-Custodian to permit the Sub-Custodian to act prior to any expiration date.
F. Sales. Upon receipt of proper instructions and upon receipt of full
payment therefor, release and deliver securities which have been sold for the
account of the Fund. At the time of delivery all such payments are to be made in
cash, by a certified check upon or a treasurer's or cashier's check of a bank,
by effective bank wire transfer through the Federal Reserve Wire System or, if
appropriate, outside of the Federal Reserve Wire System and subsequent credit to
the Fund's Custodian account, or, in case of delivery through a stock clearing
company, by book-entry credit by the stock clearing company in accordance with
the then current "street" custom.
G. Purchases by Issuer. Upon receipt of proper instructions, release and
deliver securities owned by the Fund to the issuer thereof or its agent when
such securities are called, redeemed, retired or otherwise become payable;
provided that in any such case, the cash or other consideration is to be
delivered to State Street.
H. Changes of Name and Denomination. Upon receipt of proper instructions,
release and deliver securities owned by the Fund to the issuer thereof or its
agent for transfer into the name of the Fund or of a nominee of State Street or
of the Fund for the exclusive use of the Fund or for exchange for a different
number of bonds, certificates, or other evidence representing the same aggregate
face amount of 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.
I. Street Delivery. In connection with delivery in New York City and upon
receipt of proper instructions, which in the case of registered securities may
be standing instructions, release securities owned by the Fund upon receipt of a
written receipt for such securities to the broker selling the same for
examination in accordance with the existing "street delivery" custom. In every
instance either payment in full for such securities shall be made or such
securities shall be returned to the Custodian that same day. In the event
existing "street delivery" custom is modified, State Street shall obtain
authorization from the board of directors of the Fund prior to any use of such
modified "street delivery" custom.
J. Release of Securities for Use as Collateral. Upon receipt of proper
instructions and subject to the Fund's By-Laws and Articles of Organization,
both as amended, release securities belonging to the Fund, trust company or
other pledgee for the purpose of pledge or hypothecation to secure any loan
incurred by the Fund; provided, however, that securities shall be released only
upon payment to State Street of the monies borrowed, except that in cases where
additional collateral is required to secure a borrowing already made, subject to
proper prior authorization from the Fund, further securities may be released for
that purpose. Upon receipt of proper instructions, pay such loan upon redelivery
to it of the securities pledged or hypothecated therefor and upon surrender of
the note or notes evidencing the loan.
K. Release or Delivery of Securities for Other Purposes. Upon receipt of
proper instructions, release or deliver any securities held by it for the
account of the Fund for any other purpose (in addition to those specified in
paragraphs 3-E, 3-F, 3-G, 3-H, 3-I and 3-J of section II hereof) which the Fund
declares is a proper corporate purpose pursuant to proper instructions.
L. Proxies, Notices, Etc. Promptly forward upon receipt to the Fund all
forms of proxies and all notices of meetings and any other notices or
announcements affecting or relating to the securities, including without
limitation notices relating to class action claims and bankruptcy claims, and
upon receipt of proper instructions execute and deliver or cause its nominee to
execute and deliver such proxies or other authorizations as may be required.
State Street, its nominee, its agents and Sub-Custodians 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 Sub-Custodians appointed pursuant to paragraph 6-C of section II
hereof to forward any such announcements and notices to State Street upon
receipt.
M. 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
which settled the day before and shall render to the Fund weekly an itemized
statement of security transactions which failed to settle as scheduled. At the
end of each week State Street shall provide a list of all security transactions
that remain unsettled at such time.
4. Additionally, as Custodian, State Street shall promptly:
A. Bank Account. Retain 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 Investment Company Act of 1940, as amended, in the banking department
of State Street in a separate account or accounts in the name of the Fund,
subject only to draft or order by State Street acting pursuant to the terms of
this Agreement. If and when authorized by proper instructions in accordance with
a vote of the board of directors of the Fund, State Street may open and maintain
an additional account or accounts in such other bank or trust companies as may
be designated by such instructions, such account or accounts, however, to be
solely in the name of State Street in its capacity as Custodian and subject only
to its draft or order in accordance with the terms of this Agreement. State
Street shall furnish the Fund, not later than thirty (30) calendar days after
the last business day of each month, a statement reflecting the current status
of its internal reconciliation of the closing balance as of that day in all
accounts described in this paragraph to the balance shown on the daily cash
report for that day rendered to the Fund.
B. Collections. Unless otherwise instructed by receipt of proper
instructions, collect, receive and deposit in the bank account or accounts
maintained pursuant to paragraph 4-A of section II hereof all income and other
payments with respect to the securities held hereunder, execute ownership and
other certificates and affidavits for all Federal and State tax purposes in
connection with the collection of bond and note coupons, do all other things
necessary or proper in connection with the collection of such income, and
without waiving the generality of the foregoing:
(1) Present for payment on the date of payment all coupons and other
income items requiring presentation;
(2) present for payment all securities which may mature or be called,
redeemed, retired or otherwise become payable on the date such
securities become payable;
(3) endorse and deposit for collection, in the name of the 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; the Custodian shall not be obliged to take legal action for
collection unless and until reasonably indemnified to its satisfaction for the
reasonable costs of such legal action for collection. It shall also notify the
Fund as soon as reasonably practicable whenever income due on securities is not
collected in due course.
C. Sale of Shares of the Fund. Make such arrangements with the Transfer
Agent of the Fund as will enable State Street to make certain it receives the
cash consideration due to the Fund for shares of the Fund as may be issued or
sold from time to time by the Fund, all in accordance with the Fund's Articles
of Organization and By-Laws, both as amended.
D. Dividends and Distributions. Upon receipt of proper instructions,
release or otherwise apply cash insofar as cash is available for the purpose for
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 limitations of the Fund's Articles of
Organization and By-Laws, both as amended, and applicable resolutions of the
board of directors of the Fund pursuant thereto, make funds available for
payment to shareholders who have delivered to the Transfer Agent a request for
redemption of their shares by the Fund pursuant to said Articles of Organization
and By-Laws, both as amended.
In connection with the redemption of shares of the Fund pursuant to the
Fund's Articles of Organization and By-Laws, both as amended, State Street is
authorized and directed upon receipt of proper instructions from the Transfer
Agent for the Fund to make funds available for transfer through the Federal
Reserve Wire System or by other bank wire to a commercial bank account
designated by the redeeming shareholder.
F. Stock Dividends, Rights, Etc. Receive and collect all stock dividends,
rights and other items of like nature; and deal with the same pursuant to proper
instructions relative thereto.
G. Disbursements. Upon receipt of proper instructions, make or cause to be
made, insofar as cash is available for the purpose, disbursements for the
payment on behalf of the Fund of interest, taxes, advisory fees and operating
expenses, including registration and qualification costs and other expenses of
issuing and selling shares or changing its capital structure, whether or not
such expenses shall be in whole or in part capitalized or treated as deferred
expenses.
H. Other Proper Corporate Purposes. Upon receipt of proper instructions,
make or cause to be made, insofar as cash is available for the purpose,
disbursements for any other purpose (in addition to the purposes specified in
the paragraphs 3-D, 3-E, 4-D, 4-E, and 4-G of this Agreement) which the Fund
declares is a proper corporate purpose.
I. Records. Create, maintain and retain all records a) relating to its
activities and obligations under this Agreement in such manner as shall meet the
obligations of the Fund under the Investment Company Act of 1940, as amended,
particularly Section 31 thereof and Rules 31a-1 and 31a-2 thereunder, under
applicable Federal and State tax laws and under any other law or administrative
rules or procedures which may be applicable to the Fund, b) necessary to comply
with the representations of Part I - Fund Custodian Services and Part II -
Portfolio Pricing and Accounting of State Street's Response, dated May 1, 1979,
as amended, to Keystone Custodian Funds, Inc.'s and The Massachusetts Companies,
Inc.'s Request for Proposal, dated March 19, 1979, as amended, (amendments since
June 22, 1979 are set forth in Exhibit B) ("Parts I and II"), insofar as such
representations relate to the creation, maintenance and retention of records for
the Fund or c) as reasonably requested from time to time by the Fund. All
records maintained by State Street in connection with the performance of its
duties under this Agreement shall remain the property of the Fund and in the
event of termination of this Agreement shall be delivered in accordance with the
terms of paragraph 8 below.
J. Miscellaneous. Assist generally in the preparation of routine reports
to holders of shares of the Fund, to the Securities and Exchange Commission,
including forms N1-R and N1-Q, to State "Blue Sky" authorities, to others in the
auditing of accounts and in other matters or like matters of like nature, as
required to comply with the representations of Part I and II insofar as such
representations relate to the preparation of reports for the Fund and as
otherwise reasonably requested by the Fund.
K. Fund Accounting and Net Asset Value Computuations. State Street shall
maintain the general ledger and all other books of account of the Fund including
the accounting for the Fund's portfolio. In addition, upon receipt of proper
instructions, which may be deemed to be continuing instructions, State Street
shall daily compute the net asset value of the shares of the Fund and the total
net asset value of the Fund. State Street shall, in addition, perform such other
services incidental to its duties hereunder as may be reasonably requested from
time to time by the Fund.
L. Services under Parts I and_Part II. In addition to the services
specified herein, State Street shall perform those services set forth in Parts I
and II, including without limitation general ledger accounting, daily Fund
portfolio pricing and custodian services to the extent such services relate to
the Fund: provided, however, that in the event that Parts I and II as they
relate to the Fund are in conflict with the terms of this Agreement, the terms
of this Agreement shall govern.
5. State Street and the Fund further agree as follows:
A. Proper Instructions. State Street shall be deemed to have received
proper instructions upon receipt of written instructions signed by the board of
directors or by one or more person or persons as the board of directors shall
have from time to time authorized to give the particular class of instructions
in question. Different persons may be authorized to give instructions for
different purposes. A copy of a resolution or action of the board of directors
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
board of directors 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 instructions may be general or
specific in terms. Oral instruction will be considered proper instructions if
the Custodian reasonably believes them to have been given by a person authorized
by the board of directors 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.
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 Articles of Organization and By-Laws of the Fund, both 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 Articles of Organization and By-Laws
of the Fund, both as amended, or resolutions or proceedings of the board of
directors of the Fund.
6. State Street and the Fund further agree as follows:
A. Indemnification. State Street, as Depository and Custodian, shall be
entitiled to receive and act upon advice of counsel (who may be counsel for the
Fund) and shall be without liability for any action reasonably taken or thing
reasonably done pursuant to such advice; provided that such action is not in
violation of applicable Federal or State laws or regulations or contrary to
written instructions received from the Fund, and shall be indemnified by the
Fund and without liability for any action taken or thing done by it in carrying
out the terms and provisions of this Agreement in good faith and without
negligence, misfeasance or misconduct. In order that the indemnification
provision contained in this paragraph shall apply, however, if the Fund is asked
to indemnify or save State Street harmless, the Fund shall be fully and promptly
advised of all pertinent facts concerning the situation in question and State
Street shall use all reasonable care to identify and notify the Fund fully and
promptly concerning any situation which presents or appears likely to present
the probability of such a claim for indemnification against the Fund. The Fund
shall have the option to defend State Street against any claim which may be the
subject of this indemnification, and in the event that the Fund so elects it
will so notify State Street, and thereupon the Fund shall take over complete
defense of the claim, and State Street shall initiate no further legal or other
expenses for which it shall seek indemnification under this paragraph. State
Street shall in no case confess any claim or make any compromise in any case in
which the Fund will be asked to indemnify State Street except with the Fund's
prior written consent.
B. Expense Reimbursement. State Street shall be entitled to receive from
the Fund on demand reimbursement for its cash disbursements, expenses and
charges, excluding salaries and usual overhead expenses, as set forth on
Schedule A.
C. Appointment of Agent and Sub-Custodians. State Street, as Custodian,
may appoint (and may remove) any other bank, trust company or responsible
commercial agent as its agent to carry out such of the provisions of this
Agreement as State Street may from time to time direct, and State Street, as
Custodian, may from time to time employ one or more Sub-Custodians, but only in
compliance with the terms and conditions set forth in the Fund's Articles of
Organization and By-Laws, both as amended, provided, however, that the
appointment of any such agent or Sub-Custodian shall not relieve State Street of
any of its responsibilities under this Agreement.
D. Reliance on Documents. So long as and to the extent that it is in good
faith and in the exercise of reasonable care, State Street, as Depository and
Custodian, shall not be responsible for the title, validity or genuineness of
any property or evidence of title thereto received by it or delivered by it
pursuant to this Agreement, shall be protected in acting upon any instructions,
notice, request, consent, certificate or other instrument or paper reasonably
believed by it to be genuine and to constitute proper instructions under this
Agreement and shall, except as otherwise specifically provided in this
Agreement, be entitled to receive as conclusive proof of any fact or matter
required to be ascertained by it hereunder a certificate signed by the board of
directors, the clerk or an assistant clerk of the Fund or any other person
expressly authorized by the board of directors 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 directors of, attorneys for, auditors employed by the Fund or any other
person as the board of directors shall direct.
F. Record-Keeping. State Street shall maintain such records as shall
enable the Fund to comply with the requirements of all Federal and State laws
and regulations applicable to the Fund with respect to the matters covered by
this Agreement and shall comply with the representations of Parts I and II as
such representations relate to maintaining records of the Fund.
7. The Fund shall pay State Street for its services as Custodian such
compensation as shall be as specified in the attached Exhibit A. Such
compensation shall remain fixed for two years from the date hereof, unless this
Agreement is terminated as provided in section 8A, and shall remain fixed for
an additional year in the event the Fund decides to continue this Agreement for
such period; provided, however, that in the event either party terminates this
Agreement as provided in section 8A State Street hereby guarantees and agrees
that no new Agreement entered into between the parties shall require payment of
compensation greater than that specified herein during such three year period.
8. State Street and the Fund further agree as follows:
A. Effective Period, Termination. Amendment and Interpretive and
Additional Provisions. This Agreement shall become effective as of the date of
its execution, shall continue in full force and effect until terminated as
hereinafter provided, may be amended at any time by mutual agreement of the
parties hereto and may be terminated at any time by the Fund by an instrument in
writing delivered or mailed, postage prepaid, to State Street and may be so
terminated by State Street through notice to the Fund at any time after three
years from the date hereof, or in the event of the Fund's substantial default
under this Agreement which default continues, after notice to the Fund of such
default, uncorrected for 30 days; provided, however, that in such event State
Street shall remain as Custodian hereunder for a reasonable period thereafter
if the Fund has used its best efforts and is unable to find a Successor
Custodian, any such termination to take effect not sooner than sixty (60) days
after the date of such delivery of mailing; provided, however, that the Fund
shall not amend or terminate this Agreement in contravention of any applicable
Federal or State laws or regulations, or any provision of the Articles of
Organization or By-Laws of the Fund, both as amended, and further provided, that
the Fund may by action of its board of directors substitute another bank or
trust company for State Street by giving notice as provided above to State
Street.
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
Articles of Organization or By-Laws, both 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 the
Custodian to continue to serve hereunder, the Fund shall pay to State Street
such compensation as may be due for services through the date of such
termination and shall likewise reimburse State Street for its costs, expenses
and disbursements incurred prior to such termination in accordance with
paragraph 6-B of section II hereof and such reasonable costs, expenses and
disbursements as may be incurred by State Street in connection with such
termination.
If a Successor Custodian is appointed by the board of directors of the
Fund in accordance with Section 6 of Article VI of the Fund's By-Laws, as
amended, State Street shall, upon termination, deliver to such Successor
Custodian at the office of State Street, properly endorsed and in proper form
for transfer, all securities then held hereunder, all cash and other properties
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 or board of directors pursuant to section 6 of Article VI of the
Fund's By-Laws, as amended, deliver such securities, cash and other properties
in accordance with such resolution.
In the event that no written order designating a Successor Custodian or
certified copy of a resolution of the shareholders of board of directors 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
selelction, having an aggregate capital, surplus and undivided profits as shown
by its last published report, of not less than $2,000,000, all securities, cash
and other properties held by State Street and all instruments 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 Articles of
Organization 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 board of
directors to appoint a Successor Custodian, State Street shall be entitled to
fair compensation for its services during such period and the provisions of this
Agreement relating to the duties and obligations of State Street shall remain in
full force and effect.
C. Duplicate Records and Backup Facilities. State Street shall not be
liable for loss of data, occurring by reason of circumstances beyond its
control, including but not limited to acts of civil or military authority,
national emergencies, fire, flood or catastrophe, acts of God, insurrection,
war, riots, or failure of transportation, communication or power supply.
However, State Street shall keep in a separate and safe place additional copies
of all records required to be maintained pursuant to this Agreement or
additional tapes, disks or other sources of information necessary to reproduce
all such records. Furthermore, at all times during this Agreement, State Street
shall maintain a contractual arrangement whereby State Street will have a
back-up computer facility available for its use in providing the services
required hereunder in the event circumstances beyond State Street's control
result in State Street not being able to process the necessary work at its
principal computer facility, State Street shall, from time to time, upon request
from the Fund provide written evidence and details of its arrangement for
obtaining the use of such a back-up computer facility. State Street shall use
its best efforts to minimize the likelihood of all damage, loss of data, delays
and errors resulting from an uncontrollable event, and should such damage, loss
of data, delays or errors occur, State Street shall use its best efforts to
mitigate the effects of such occurrence. Representatives of the Fund shall be
entitled to inspect the State Street premises and operating capabilities within
reasonable business hours upon reasonable notice to State Street, and, upon
request of such representative or representatives, State Street shall from time
to time as appropriate, furnish to the Fund a letter setting forth the insurance
coverage thereon any changes in such coverage which may occur and any claim
relating to the Fund which State Street may have made under such insurance.
D. Confidentiality. State Street agrees to treat all records and other
information relative to the Fund confidentially and State Street on behalf of
itself and its officers, employees, agents and Sub-Custodians 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.
(a) State Street and the Fund agree that they, their officers, employees,
agents and Sub-Custodians 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 this Paragraph shall not apply to information which (i)
is in or becomes part of the public domain, or (ii) is demonstrably known
previously to the party to whom it is disclosed, or (iii) is independently
developed outside this Agreement by the party to whom it is disclosed or (iv) is
rightfully obtained from third parties by the party to whom it is disclosed.
9. The Fund shall not circulate any printed matter which contains any
reference to State Street without the prior written approval of State Street,
excepting solely such printed matter as merely identifies State Street as
Depository or Custodian. The Fund will submit printed matter requiring approval
to State Street in draft form, allowing sufficient time for review by State
Street and its counsel prior to any deadline for printing
10. In the event of a reorganization of 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 right
to exchange his Fund shares represented by certificates for shares held by the
Custodian upon surrender to the Custodian of his 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 appropriate number of shares
held by State Street, unless such shareholder establishes an Open Account Plan
or other similar account as that time in which case 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 interest 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. The Custodian shall not release to any shareholder
any such shares held by it until such shareholder has properly surrendered for
exchange his Fund shares represented by certificates.
11. This Agreement is executed and delivered in the Commonwealth of
Massachusetts and shall be subject to and be construed in accordance with the
laws of said Commonwealth.
12. Notices and other writings delivered or mailed postage prepaid to the
Fund, c/o Keystone Custodian Funds, Inc., 99 High Street, 32nd Floor, Boston,
Massachusetts 02110 or to State Street at 225 Franklin Street, Boston,
Massachusetts 02110 or to such other address as the Fund or State Street may
hereafter specify, shall be deemed to have been properly delivered or given
hereunder to the respective address.
13. It is understood and is expressly stipulated that neither the holders
of shares in the Fund nor its board of directors, officers or employees shall be
personally liable hereunder, but only the assets of the Fund shall be bound.
14. This Agreement shall be binding on and shall inure to the benefit of
the Fund and State Street and their respective successors or assigns.
15. This Agreement may be executed simultaneously in two or more
counterparts, each of which shall be deemed an original.
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.
KEYSTONE INTERNATIONAL FUND INC.
By /s/ George S. Bissell
--------------------------------
Attest: ----------------------------
[illegible]
STATE STREET BANK AND TRUST COMPANY
By /s/ J. R. Towers
--------------------------------
Attest: /s/ Paul F. Lorenz Vice President
------------------------------
<PAGE>
SCHEDULE A
Keystone International Fund Inc.
State Street Bank and Trust Company
Custodian and Recordskeeping Fee Schedule
I. Annual Fee
$9,000
II. Out-of-Pocket Expenses
A billing for the recovery of applicable out-of-pocket expenses will be
made as of the end of each month. Out-of-pocket expenses include the
following:
Telephone
Postage and insurance
Courier service
Legal fees
Supplies related to Fund records
Duplicating
Transfer fees
Wire Service ($2.00 in or out)
III. Additional Services
Any modifications, innovations, improvements or other changes made by State
Street in the services and reports which it provides to other customers
receiving its custodial services without additional charges or fees shall
be provided to the Fund at its request for no additional charge or fee.
<PAGE>
SCHEDULE B
I. Operating Plan - Fund Custodian Services
1. Page 1
a) Trade instructions by tape input compatible with the SPARK system will
not be given.
b) System 34 terminals will not be provided for trade input.
2. Page 2
a) Distributions will be charged against the custodian account and credited
to the disbursement account on the payable date.
b) Reports - improved or new SPARK Reports will be made available to the
Fund at its request for no additional cost, if made available at no additional
cost to other customers of State Street.
II. Fund Custodian Services
A. Page 1
1) The Fund will receive Custody and Full Accounting Services.
B. Page 2
1) Polaris Fund Inc. is now Keystone International Fund Inc.
III. I. Custodian Reports
A. Page 1
2) Analytics - Spark information reports - the Funds will receive none of
these.
IV. KM - SSB Reports Comparison
A. Page 1 - MASSCO Report
1) (9) Different form with similar content to be prepared for Keystone Tax
Free Fund (Massachusetts Fund for Tax Exempt Income) rather than Master Reserves
Trust (MRT)
2) (12) To be prepared for all Funds.
3) (13) Trade Settlement Authorizations and all other reports as provided
to the Keystone Funds will be provided MassCo Funds.
4) (26) Initial instructions in memo from Mr. Joseph Naples. Instructions
may be changed from time to time by proper instructions.
5) (30) Letter to be supplied by Bradford Trust Company.
6) (31) Report to be supplied by Bradford Trust Company.
B. Keystone Reports
1) (3) Information to be supplied by Open Order System.
2) (16) Will be prepared manually by State Street. Calculations to be based
on initial instructions provided under (4)(26) memo.
3) (18) To be prepared by State Street.
4) (30) New SPARK Report to be provided the Funds.
5) (31) Pricing Quotes for foreign issues, restricted securities and
private placements not otherwise available to State Street to be supplied by the
Fund.
6) (46) KIMCO Reports unnecessary.
7) (58) State Street to prepare manually.
8) (57) Keystone to provide.
9) (70) New SPARK Report to be provided the Funds.
10) (73) SPARK Report to be provided the Funds.
11) (74) New SPARK Report and hard copy tape to be provided the Funds.
12) (75) State Street to provide weekly report of fails for each Fund.
13) All new SPARK reports must be reviewed and accepted by the Funds before
they will be considered to comply with State Street's Custodian, Portfolio
Accounting and Recordskeeping Agreements with the Funds, such acceptance not to
be unreasonably withheld.
VI. Responses
I. Fund Custodian Services
a) Page 2
Checkwriting privilege is $.35 per check - charged only for American Liquid
Trust at this time. Other Fund aqreements to be amended to include this charge
if such privilege is ever offered to shareholders of other Funds.
b) Page 3 (6) Individuals responsible for Fund services may change as long
as the quality of the personnel is maintained.
c) Page 6 (11) State Street is liable for the acts of its sub-custodians to
the same extent that it is liable for the acts of its agents.
II. Exhibits
1. Exhibit 1-2
a) (6) Notices of corporate actions shall include, without limitation
notices of class actions and bankruptcy actions in connection with issues held
by the Funds.
<PAGE>
EXHIBIT 99.10
January 24, 1996
Keystone International Fund Inc.
200 Berkeley Street
Boston, Massachusetts 02116-5034
Gentlemen:
I am a Senior Vice President of and General Counsel to Keystone
Investment Management Company (formerly named Keystone Custodian Funds, Inc.)
investment adviser to Keystone International Fund (the "Fund"). You have asked
for my opinion with respect to the proposed issuance of 10,561,329 additional
shares of the Fund.
To my knowledge, a Prospectus is on file with the Securities and
Exchange Commission (the "Commission") as part of Post-Effective Amendment No.
62 to the Fund's Registration Statement, which covers the public offering and
sale of the Fund shares currently registered with the Commission.
In my opinion, such additional shares, if issued and sold in accordance
with the Fund's Articles of Organization, as amended, ("Articles of
Organization") and offering Prospectus, will be legally issued, fully paid, and
nonassessable by the Fund, entitling the holders thereof to the rights set forth
in the Articles of Organization and subject to the limitations set forth
therein.
My opinion is based upon my examination of the Fund's Articles of
Organization and By-Laws; a review of the minutes of the Fund's Board of
Trustees authorizing the issuance of such additional shares; and the Fund's
Prospectus. In my examination of such documents, I have assumed the genuineness
of all signatures and the conformity of copies to originals.
I hereby consent to the use of this opinion in connection with
Post-Effective Amendment No. 63 to the Fund's Registration Statement, which
covers the registration of such additional shares.
Very truly yours,
/s/ Rosemary D. Van Antwerp
Rosemary D. Van Antwerp
Senior Vice President and
General Counsel
<PAGE>
EXHIBIT 99.11
CONSENT OF INDEPENDENT AUDITORS
The Directors
Keystone International Fund Inc.
We consent to the use of our report dated December 8, 1995, included
herein and to the references to our firm under the captions "FINANCIAL
HIGHLIGHTS" in the prospectus and "ADDITIONAL INFORMATION" in the statement of
additional information.
KPMG Peat Marwick LLP
Boston, Massachusetts
January 24, 1996
<PAGE>
EXHIBIT 99.15
DISTRIBUTION PLAN OF KEYSTONE INTERNATIONAL FUND INC.
Section 1. Keystone International Fund Inc. (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 "Act") according to the
terms of this Distribution Plan (the "Plan").
Section 2. Amounts, not exeeding in the aggregate a maximum amount
equal to .3125% of the averages of the daily net asset values of the Fund
during each fiscal quarter of the Fund elapsed after the inception of the Plan
(i.e., the first time that shares of the Fund are generally offered to the
public at a price equal to their net asset value) may be paid by the Fund to
the Distributor at any time after the inception of the Plan in order: (i) to
pay to the Distributor commissions in respect of shares of the Fund previously
sold at any time after the inception of the Plan, all or any part of which may
be or may have been reallowed or otherwise paid to others by the Distributor
in respect of or in furtherance of sales of shares of the Fund after the
inception of the Plan; and (ii) to enable the Distributor to pay or to have
paid to others who sell Fund shares a maintenance or other fee, at such
intervals as the Distributor may determine, in respect of Fund shares
previously sold by any such others at any time after the inception of the Plan
and remaining outstanding during the period in respect of which such fee is or
has been paid.
Section 3. This Plan shall not take effect until it has been
approved by a vote of at least a majority (as defined in the Act) of the
outstanding 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 the
majority of both (a) the Board of Directors of the Fund and (b) those
independent Directors of the Fund who have no direct or indirect financial
interest in the operation of this Plan or any agreements of the Fund or any
other person related to this Plan (the "Rule 12b-1 Directors"), cast in person
at a meeting called for the purpose of voting on this Plan or such agreements.
Section 5. Unless sooner terminated pursuant to Section 8, this
Plan shall continue in effect for a period of one year from the date it takes
effect and thereafter shall continue in effect so long as such continuance is
specifically approved at least annually in the manner provided for approval
of this Plan in Section 4.
Section 6. Any person authorized to direct the disposition of monies
paid or payable by the Fund pursuant to this Plan or any related agreement
shall provide to the Fund's Board and the Board shall review at least
quarterly a written report of the amounts so expended and the purposes for
which such expenditures were made.
Section 7. This Plan may be terminated at any time by vote of a
majority of the Rule 12b-1 Directors, or by vote of a majority of the Fund's
outstanding shares.
Section 8. Any agreement of the Fund related to this Plan shall be
in writing, and shall provide:
A. That such agreement may be terminated at any time, without
payment of any penalty, by vote of a majority of the Rule
12b-1 Directors or by a vote of a majority of the Fund's
outstanding shares on not more than sixty days written notice
to any other party to the agreement; and
B. That such agreement shall terminate automatically in the
event of its assignment.
Section 9. This Plan may not be amended to increase materially the
amount of distribution expenses provided for in Section 2 hereof unless such
amendment is approved in the manner provided in Section 3 hereof and no
material amendment to the Plan shall be made unless approved in the manner
provided for in Section 4 hereof.
<TABLE>
<CAPTION>
K2 MTD YTD ONE YEAR THREE YEAR THREE YEAR FIVE YEAR FIVE YEAR
31-Oct-95 TOTAL RETURN COMPOUNDED TOTAL RETURN COMPOUNDED
<S> <C> <C> <C> <C> <C> <C> <C>
with cdsc N/A 18.33% 12.05% 47.89% 13.93% 119.79% 17.06%
W/O CDSC -1.35% 21.33% 15.05% 48.89% 14.19% 119.79% 17.06%
Beg dates 29-Sep-95 30-Dec-94 31-Oct-94 30-Oct-92 30-Oct-92 31-Oct-90 31-Oct-90
Beg Value (no load) 56,271 45,754 48,250 37,284 37,284 25,256 25,256
End Value (W/O CDSC) 55,512 55,512 55,512 55,512 55,512 55,512 55,512
End Value (with cdsc) 54,139 54,065 55,139 55,139 55,512 55512.038226
beg nav 8.16 7.15 7.54 7.60 7.6 6.52 6.52
end nav 8.05 8.05 8.05 8.05 8.05 8.05 8.05
shares originally purhased 6,895.91 6,399.20 6,399.20 4,905.77 4,905.77 3,873.67 3,873.67
3 5
</TABLE>
TEN YEAR TEN YEAR
TOTAL RETURN COMPOUNDED
with cdsc 241.17% 13.06
W/O CDSC 241.17% 13.06
Beg dates 31-Oct-85 31-Oct-85
Beg Value (no load) 16,271 16,271
End Value (W/O CDSC) 55,512 55,512
End Value (with cdsc) 55,512 55512.038226
beg nav 7.47 7.47
end nav 8.05 8.05
shares originally purhased 2,178.16 2,178.16
10
<PAGE>
EXHIBIT 99.19
POWER OF ATTORNEY
I, the undersigned, hereby constitute Roger T. Wickers, Rosemary D. Van
Antwerp, Jean S. Loewenberg, Dorothy E. Bourassa, James M. Wall and Melina M. T.
Murphy, each of them singly, my true and lawful attorneys, with full power to
them and each of them to sign for me and in my name in the capacity indicated
below any and all registration statements, including, but not limited to, Forms
N-8A, N-8B-1, S-5, N-1 and N-1A, as amended from time to time, and any and all
amendments thereto to be filed with the Securities and Exchange Commission for
the purpose of registering from time to time all investment companies of which I
am now or hereafter a Director or Trustee and/or Chairman of the Board and Chief
Executive Officer and for which Keystone Custodian Funds, Inc. serves as Adviser
or Manager and registering from time to time the shares of such companies, and
generally to do all such things in my name and in my behalf to enable such
investment companies to comply with the provisions of the Securities Act of
1933, as amended, the Investment Company Act of 1940, as amended, and all
requirements and regulations of the Securities and Exchange Commission
thereunder, hereby ratifying and confirming my signature as it may be signed by
my said attorneys to any and all registration statements and amendments thereto.
/s/ George S. Bissell
George S. Bissell
Director/Trustee,
Chairman of the Board
Dated: December 14, 1994
<PAGE>
POWER OF ATTORNEY
I, the undersigned, hereby constitute Roger T. Wickers, Rosemary D. Van
Antwerp, Jean S. Loewenberg, Dorothy E. Bourassa, James M. Wall and Melina M. T.
Murphy, each of them singly, my true and lawful attorneys, with full power to
them and each of them to sign for me and in my name in the capacity indicated
below any and all registration statements, including, but not limited to, Forms
N-8A, N-8B-1, S-5, N-1 and N-1A, as amended from time to time, and any and all
amendments thereto to be filed with the Securities and Exchange Commission for
the purpose of registering from time to time all investment companies of which I
am now or hereafter a Director or Trustee and/or Chief Executive Officer and for
which Keystone Custodian Funds, Inc. serves as Adviser or Manager and
registering from time to time the shares of such companies, and generally to do
all such things in my name and in my behalf to enable such investment companies
to comply with the provisions of the Securities Act of 1933, as amended, the
Investment Company Act of 1940, as amended, and all requirements and regulations
of the Securities and Exchange Commission thereunder, hereby ratifying and
confirming my signature as it may be signed by my said attorneys to any and all
registration statements and amendments thereto.
/s/ Albert H. Elfner, III
Albert H. Elfner, III
Director/Trustee,
President and Chief
Executive Officer
Dated: December 14, 1994
<PAGE>
POWER OF ATTORNEY
I, the undersigned, hereby constitute Rosemary D. Van Antwerp, Jean S.
Loewenberg, Dorothy E. Bourassa, James M. Wall and Melina M. T. Murphy, each of
them singly, my true and lawful attorneys, with full power to them and each of
them to sign for me and in my name in the capacity indicated below any and all
registration statements, including, but not limited to, Forms N-8A, N-8B-1, S-5,
N-1 and N-1A, as amended from time to time, and any and all amendments thereto
to be filed with the Securities and Exchange Commission for the purpose of
registering from time to time all investment companies of which I am now or
hereafter a Director, Trustee or officer and for which Keystone Investment
Management Company serves as Adviser or Manager and registering from time to
time the shares of such companies, and generally to do all such things in my
name and in my behalf to enable such investment companies to comply with the
provisions of the Securities Act of 1933, as amended, the Investment Company Act
of 1940, as amended, and all requirements and regulations of the Securities and
Exchange Commission thereunder, hereby ratifying and confirming my signature as
it may be signed by my said attorneys to any and all registration statements and
amendments thereto.
/s/ J. Kevin Kenely
J. Kevin Kenely
Treasurer
Dated: December 15, 1995
<PAGE>
POWER OF ATTORNEY
I, the undersigned, hereby constitute Roger T. Wickers, Rosemary D. Van
Antwerp, Jean S. Loewenberg, Dorothy E. Bourassa, James M. Wall and Melina M. T.
Murphy, each of them singly, my true and lawful attorneys, with full power to
them and each of them to sign for me and in my name in the capacity indicated
below any and all registration statements, including, but not limited to, Forms
N-8A, N-8B-1, S-5, N-1 and N-1A, as amended from time to time, and any and all
amendments thereto to be filed with the Securities and Exchange Commission for
the purpose of registering from time to time all investment companies of which I
am now or hereafter a Director or Trustee and for which Keystone Custodian
Funds, Inc. serves as Adviser or Manager and registering from time to time the
shares of such companies, and generally to do all such things in my name and in
my behalf to enable such investment companies to comply with the provisions of
the Securities Act of 1933, as amended, the Investment Company Act of 1940, as
amended, and all requirements and regulations of the Securities and Exchange
Commission thereunder, hereby ratifying and confirming my signature as it may be
signed by my said attorneys to any and all registration statements and
amendments thereto.
/s/ Frederick Amling
Frederick Amling
Director/Trustee
Dated: December 14, 1994
<PAGE>
POWER OF ATTORNEY
I, the undersigned, hereby constitute Roger T. Wickers, Rosemary D. Van
Antwerp, Jean S. Loewenberg, Dorothy E. Bourassa, James M. Wall and Melina M. T.
Murphy, each of them singly, my true and lawful attorneys, with full power to
them and each of them to sign for me and in my name in the capacity indicated
below any and all registration statements, including, but not limited to, Forms
N-8A, N-8B-1, S-5, N-1 and N-1A, as amended from time to time, and any and all
amendments thereto to be filed with the Securities and Exchange Commission for
the purpose of registering from time to time all investment companies of which I
am now or hereafter a Director or Trustee and for which Keystone Custodian
Funds, Inc. serves as Adviser or Manager and registering from time to time the
shares of such companies, and generally to do all such things in my name and in
my behalf to enable such investment companies to comply with the provisions of
the Securities Act of 1933, as amended, the Investment Company Act of 1940, as
amended, and all requirements and regulations of the Securities and Exchange
Commission thereunder, hereby ratifying and confirming my signature as it may be
signed by my said attorneys to any and all registration statements and
amendments thereto.
/s/ Charles A. Austin III
Charles A. Austin III
Director/Trustee
Dated: December 14, 1994
<PAGE>
POWER OF ATTORNEY
I, the undersigned, hereby constitute Roger T. Wickers, Rosemary D. Van
Antwerp, Jean S. Loewenberg, Dorothy E. Bourassa, James M. Wall and Melina M. T.
Murphy, each of them singly, my true and lawful attorneys, with full power to
them and each of them to sign for me and in my name in the capacity indicated
below any and all registration statements, including, but not limited to, Forms
N-8A, N-8B-1, S-5, N-1 and N-1A, as amended from time to time, and any and all
amendments thereto to be filed with the Securities and Exchange Commission for
the purpose of registering from time to time all investment companies of which I
am now or hereafter a Director or Trustee and for which Keystone Custodian
Funds, Inc. serves as Adviser or Manager and registering from time to time the
shares of such companies, and generally to do all such things in my name and in
my behalf to enable such investment companies to comply with the provisions of
the Securities Act of 1933, as amended, the Investment Company Act of 1940, as
amended, and all requirements and regulations of the Securities and Exchange
Commission thereunder, hereby ratifying and confirming my signature as it may be
signed by my said attorneys to any and all registration statements and
amendments thereto.
/s/ Edwin D. Campbell
Edwin D. Campbell
Director/Trustee
Dated: December 14, 1994
<PAGE>
POWER OF ATTORNEY
I, the undersigned, hereby constitute Roger T. Wickers, Rosemary D. Van
Antwerp, Jean S. Loewenberg, Dorothy E. Bourassa, James M. Wall and Melina M. T.
Murphy, each of them singly, my true and lawful attorneys, with full power to
them and each of them to sign for me and in my name in the capacity indicated
below any and all registration statements, including, but not limited to, Forms
N-8A, N-8B-1, S-5, N-1 and N-1A, as amended from time to time, and any and all
amendments thereto to be filed with the Securities and Exchange Commission for
the purpose of registering from time to time all investment companies of which I
am now or hereafter a Director or Trustee and for which Keystone Custodian
Funds, Inc. serves as Adviser or Manager and registering from time to time the
shares of such companies, and generally to do all such things in my name and in
my behalf to enable such investment companies to comply with the provisions of
the Securities Act of 1933, as amended, the Investment Company Act of 1940, as
amended, and all requirements and regulations of the Securities and Exchange
Commission thereunder, hereby ratifying and confirming my signature as it may be
signed by my said attorneys to any and all registration statements and
amendments thereto.
/s/ Charles F. Chapin
Charles F. Chapin
Director/Trustee
Dated: December 14, 1994
<PAGE>
POWER OF ATTORNEY
I, the undersigned, hereby constitute Roger T. Wickers, Rosemary D. Van
Antwerp, Jean S. Loewenberg, Dorothy E. Bourassa, James M. Wall and Melina M. T.
Murphy, each of them singly, my true and lawful attorneys, with full power to
them and each of them to sign for me and in my name in the capacity indicated
below any and all registration statements, including, but not limited to, Forms
N-8A, N-8B-1, S-5, N-1 and N-1A, as amended from time to time, and any and all
amendments thereto to be filed with the Securities and Exchange Commission for
the purpose of registering from time to time all investment companies of which I
am now or hereafter a Director or Trustee and for which Keystone Custodian
Funds, Inc. serves as Adviser or Manager and registering from time to time the
shares of such companies, and generally to do all such things in my name and in
my behalf to enable such investment companies to comply with the provisions of
the Securities Act of 1933, as amended, the Investment Company Act of 1940, as
amended, and all requirements and regulations of the Securities and Exchange
Commission thereunder, hereby ratifying and confirming my signature as it may be
signed by my said attorneys to any and all registration statements and
amendments thereto.
/s/ K. Dun Gifford
K. Dun Gifford
Director/Trustee
Dated: December 14, 1994
<PAGE>
POWER OF ATTORNEY
I, the undersigned, hereby constitute Roger T. Wickers, Rosemary D. Van
Antwerp, Jean S. Loewenberg, Dorothy E. Bourassa, James M. Wall and Melina M. T.
Murphy, each of them singly, my true and lawful attorneys, with full power to
them and each of them to sign for me and in my name in the capacity indicated
below any and all registration statements, including, but not limited to, Forms
N-8A, N-8B-1, S-5, N-1 and N-1A, as amended from time to time, and any and all
amendments thereto to be filed with the Securities and Exchange Commission for
the purpose of registering from time to time all investment companies of which I
am now or hereafter a Director or Trustee and for which Keystone Custodian
Funds, Inc. serves as Adviser or Manager and registering from time to time the
shares of such companies, and generally to do all such things in my name and in
my behalf to enable such investment companies to comply with the provisions of
the Securities Act of 1933, as amended, the Investment Company Act of 1940, as
amended, and all requirements and regulations of the Securities and Exchange
Commission thereunder, hereby ratifying and confirming my signature as it may be
signed by my said attorneys to any and all registration statements and
amendments thereto.
/s/ Leroy Keith, Jr.
Leroy Keith, Jr.
Director/Trustee
Dated: December 14, 1994
<PAGE>
POWER OF ATTORNEY
I, the undersigned, hereby constitute Roger T. Wickers, Rosemary D. Van
Antwerp, Jean S. Loewenberg, Dorothy E. Bourassa, James M. Wall and Melina M. T.
Murphy, each of them singly, my true and lawful attorneys, with full power to
them and each of them to sign for me and in my name in the capacity indicated
below any and all registration statements, including, but not limited to, Forms
N-8A, N-8B-1, S-5, N-1 and N-1A, as amended from time to time, and any and all
amendments thereto to be filed with the Securities and Exchange Commission for
the purpose of registering from time to time all investment companies of which I
am now or hereafter a Director or Trustee and for which Keystone Custodian
Funds, Inc. serves as Adviser or Manager and registering from time to time the
shares of such companies, and generally to do all such things in my name and in
my behalf to enable such investment companies to comply with the provisions of
the Securities Act of 1933, as amended, the Investment Company Act of 1940, as
amended, and all requirements and regulations of the Securities and Exchange
Commission thereunder, hereby ratifying and confirming my signature as it may be
signed by my said attorneys to any and all registration statements and
amendments thereto.
/s/ F. Ray Keyser,Jr.
F. Ray Keyser, Jr.
Director/Trustee
Dated: December 14, 1994
<PAGE>
POWER OF ATTORNEY
I, the undersigned, hereby constitute Roger T. Wickers, Rosemary D. Van
Antwerp, Jean S. Loewenberg, Dorothy E. Bourassa, James M. Wall and Melina M. T.
Murphy, each of them singly, my true and lawful attorneys, with full power to
them and each of them to sign for me and in my name in the capacity indicated
below any and all registration statements, including, but not limited to, Forms
N-8A, N-8B-1, S-5, N-1 and N-1A, as amended from time to time, and any and all
amendments thereto to be filed with the Securities and Exchange Commission for
the purpose of registering from time to time all investment companies of which I
am now or hereafter a Director or Trustee and for which Keystone Custodian
Funds, Inc. serves as Adviser or Manager and registering from time to time the
shares of such companies, and generally to do all such things in my name and in
my behalf to enable such investment companies to comply with the provisions of
the Securities Act of 1933, as amended, the Investment Company Act of 1940, as
amended, and all requirements and regulations of the Securities and Exchange
Commission thereunder, hereby ratifying and confirming my signature as it may be
signed by my said attorneys to any and all registration statements and
amendments thereto.
/s/ David M. Richardson
David M. Richardson
Director/Trustee
Dated: December 14, 1994
<PAGE>
POWER OF ATTORNEY
I, the undersigned, hereby constitute Roger T. Wickers, Rosemary D. Van
Antwerp, Jean S. Loewenberg, Dorothy E. Bourassa, James M. Wall and Melina M. T.
Murphy, each of them singly, my true and lawful attorneys, with full power to
them and each of them to sign for me and in my name in the capacity indicated
below any and all registration statements, including, but not limited to, Forms
N-8A, N-8B-1, S-5, N-1 and N-1A, as amended from time to time, and any and all
amendments thereto to be filed with the Securities and Exchange Commission for
the purpose of registering from time to time all investment companies of which I
am now or hereafter a Director or Trustee and for which Keystone Custodian
Funds, Inc. serves as Adviser or Manager and registering from time to time the
shares of such companies, and generally to do all such things in my name and in
my behalf to enable such investment companies to comply with the provisions of
the Securities Act of 1933, as amended, the Investment Company Act of 1940, as
amended, and all requirements and regulations of the Securities and Exchange
Commission thereunder, hereby ratifying and confirming my signature as it may be
signed by my said attorneys to any and all registration statements and
amendments thereto.
/s/ Richard J. Shima
Richard J. Shima
Director/Trustee
Dated: December 14, 1994
<PAGE>
POWER OF ATTORNEY
I, the undersigned, hereby constitute Roger T. Wickers, Rosemary D. Van
Antwerp, Jean S. Loewenberg, Dorothy E. Bourassa, James M. Wall and Melina M. T.
Murphy, each of them singly, my true and lawful attorneys, with full power to
them and each of them to sign for me and in my name in the capacity indicated
below any and all registration statements, including, but not limited to, Forms
N-8A, N-8B-1, S-5, N-1 and N-1A, as amended from time to time, and any and all
amendments thereto to be filed with the Securities and Exchange Commission for
the purpose of registering from time to time all investment companies of which I
am now or hereafter a Director or Trustee and for which Keystone Custodian
Funds, Inc. serves as Adviser or Manager and registering from time to time the
shares of such companies, and generally to do all such things in my name and in
my behalf to enable such investment companies to comply with the provisions of
the Securities Act of 1933, as amended, the Investment Company Act of 1940, as
amended, and all requirements and regulations of the Securities and Exchange
Commission thereunder, hereby ratifying and confirming my signature as it may be
signed by my said attorneys to any and all registration statements and
amendments thereto.
/s/ Andrew J. Simons
Andrew J. Simons
Director/Trustee
Dated: December 14, 1994
<TABLE> <S> <C>
<ARTICLE> 6
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM ACCOUNTING
RECORDS AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH ACCOUNTING
RECORDS.
</LEGEND>
<SERIES>
<NUMBER> 101
<NAME> KEYSTONE INTERNATIONAL FUND CLASS A
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> OCT-31-1995
<PERIOD-START> NOV-01-1994
<PERIOD-END> OCT-31-1995
<INVESTMENTS-AT-COST> 106,574,359
<INVESTMENTS-AT-VALUE> 124,753,646
<RECEIVABLES> 5,553,755
<ASSETS-OTHER> 13,343
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 130,320,744
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 1,647,089
<TOTAL-LIABILITIES> 1,647,089
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 108,440,042
<SHARES-COMMON-STOCK> 18,088,843
<SHARES-COMMON-PRIOR> 20,320,147
<ACCUMULATED-NII-CURRENT> 1,985,964
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 744,780
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 17,502,869
<NET-ASSETS> 128,673,655
<DIVIDEND-INCOME> 2,327,124
<INTEREST-INCOME> 2,200,392
<OTHER-INCOME> 0
<EXPENSES-NET> (3,370,917)
<NET-INVESTMENT-INCOME> 1,156,599
<REALIZED-GAINS-CURRENT> 2,703,078
<APPREC-INCREASE-CURRENT> (2,473,142)
<NET-CHANGE-FROM-OPS> 1,386,535
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (701,392)
<DISTRIBUTIONS-OF-GAINS> (14,792,324)
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 12,460,964
<NUMBER-OF-SHARES-REDEEMED> (16,703,211)
<SHARES-REINVESTED> 2,010,943
<NET-CHANGE-IN-ASSETS> (29,254,928)
<ACCUMULATED-NII-PRIOR> 1,266,496
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> (985,652)
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> (3,390,283)
<AVERAGE-NET-ASSETS> 131,826,930
<PER-SHARE-NAV-BEGIN> 7.77
<PER-SHARE-NII> 0.07
<PER-SHARE-GAIN-APPREC> 0.05
<PER-SHARE-DIVIDEND> (0.04)
<PER-SHARE-DISTRIBUTIONS> (0.74)
<RETURNS-OF-CAPITAL> 0.00
<PER-SHARE-NAV-END> 7.11
<EXPENSE-RATIO> 2.57
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
