AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION DECEMBER 29, 1995.
File Nos. 33-8515
and 811-4830
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. 19 X
and
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940
Amendment No. 20 X
KEYSTONE WORLD BOND FUND
(formerly known as Keystone America World Bond Fund)
(Exact name of Registrant as specified in Charter)
200 Berkeley Street, Boston, Massachusetts 02116-5034
(Address of Principal Executive Offices) (Zip Code)
Registrant's Telephone Number, including Area Code:
(617) 338-3677
Rosemary D. Van Antwerp, Esq., 200 Berkeley Street,
Boston, MA 02116-5034
Name and Address of Agent for Service
It is proposed that this filing will become effective:
___ immediately upon filing pursuant to paragraph (b)
___ on (date) pursuant to paragraph (b)(1)
_X_ 60 days after filing pursuant to paragraph (a)(1)
___ on (date) pursuant to paragraph (a)(1)
___ 75 days after filing pursuant to paragraph (a)(2)
___ on (date) pursuant to paragraph (a)(2) of Rule 485
<PAGE>
CALCULATION OF REGISTRATION FEE UNDER THE SECURITIES ACT OF 1933
Proposed Proposed
Title of Maximum Maximum
Securities Amount Offering Aggregate Amount of
Being Being Price Offering Registration
Registered Registered Per Unit* Price** Fee
- -------------------------------------------------------------------------------
Shares of
$.01 Par 613,632 $8.69 $289,994 $100
Value
- -------------------------------------------------------------------------------
*Computed under Rule 457(d) on the basis of the offering price per share at the
close of business on December 19, 1995.
** The calculation of the maximum aggregate offering price is made pursuant to
Rule 24e-2 under the Investment Company Act of 1940. 666,093 shares of the Fund
were redeemed during its fiscal year ended October 31, 1995. Of such shares,
85,832 were used for a reduction pursuant to Rule 24f-2(c). The total amount
being used for a reduction in this filing is 580,261.
Pursuant to Rule 24f-2 under the Investment Company Act of 1940, the Registrant
has elected to register an indefinite number of its securities under the
Securities Act of 1933. A Rule 24f-2 Notice for Registrant's most recent fiscal
year ended October 31, 1995 was filed on December 28, 1995.
<PAGE>
KEYSTONE WORLD BOND FUND
CONTENTS OF
POST-EFFECTIVE AMENDMENT NO. 19
to
REGISTRATION STATEMENT
This Post-Effective Amendment No. 19 to Registration
Statement No. 33-8515/811-4830 consists of
the following pages, items of information, and documents:
The Facing Sheet
The Contents Page
The Cross-Reference Sheet
PART A
Prospectus
PART B
Statement of Additional Information
PART C
PART C - OTHER INFORMATION - ITEM 24(a) and (b)
Financial Statements
Independent Auditors' Report
Listing of Exhibits
PART C - OTHER INFORMATION - ITEMS 25-32 - AND SIGNATURE PAGES
Number of Holders of Securities
Indemnification
Business and Other Connections
Principal Underwriter
Location of Accounts and Records
Signatures
Exhibits (including Powers of Attorney)
<PAGE>
KEYSTONE WORLD BOND FUND
Cross-Reference Sheet pursuant to Rules 404 and 495 under the Securities Act of
1933.
Items in
Part A of
Form N-1A Prospectus Caption
1 Cover Page
2 Fee Table
3 Financial Highlights
4 Cover Page
The Fund
Investment Objective and Policies
Investment Restrictions
Risk Factors
5 Fund Management and Expenses
Additional Information
5A Not applicable
6 The Fund
Dividends and Taxes
Fund Shares
Shareholder Services
7 Pricing Shares
How to Buy Shares
Distribution Plan
Shareholder Services
8 How to Redeem Shares
9 Not applicable
Items in
Part B of
Form N-1A Statement of Additional Information Caption
10 Cover Page
11 Table of Contents
12 The Fund
13 The Fund
Investment Restrictions
Brokerage
Appendix
<PAGE>
KEYSTONE WORLD BOND FUND
Cross-Reference Sheet continued.
Items in
Part B of
Form N-1A Statement of Additional Information Caption
14 Trustees and Officers
15 Additional Information
16 Sales Charges
Distribution Plan
Investment Adviser
Investment Manager
Principal Underwriter
Additional Information
17 Brokerage
18 The Fund
Declaration of Trust
19 Valuation of Securities
Sales Charges
Distribution Plan
20 Dividends and Taxes
21 Principal Underwriter
22 Standardized Total Return and Yield Calculations
23 Financial Statements
<PAGE>
KEYSTONE WORLD BOND FUND
PROSPECTUS FEBRUARY , 1996
Keystone World Bond Fund (formerly named Keystone America World Bond Fund)
(the "Fund") is a mutual fund authorized to issue more than one series of
shares. At this time, the Fund issues shares of only one portfolio, the World
Bond Portfolio (the "Portfolio").
The Portfolio seeks current income by investing primarily in a non-diversified
portfolio consisting of debt securities denominated in United States ("U.S.")
and foreign currencies. The Portfolio seeks capital appreciation as a secondary
objective.
Generally, the Portfolio offers three classes of shares. Information on share
classes and their fee and sales charge structures may be found in the "Fee
Table," "Alternative Sales Options," "Contingent Deferred Sales Charge and
Waiver of Sales Charges," "Distribution Plans," and "Fund Shares."
This prospectus concisely states information about the Fund and the Portfolio
that you should know before investing. Please read it and retain it for future
reference.
Additional information about the Fund and the Portfolio is contained in a
statement of additional information dated February , 1996, which has been filed
with the Securities and Exchange Commission and is incorporated by reference
into this prospectus. For a free copy, or for other information about the Fund,
write to the address or call the telephone number listed below.
KEYSTONE WORLD BOND FUND
200 BERKELEY STREET
BOSTON, MASSACHUSETTS 02116-5034
CALL TOLL FREE 1-800-343-2898
THE PORTFOLIO MAY INVEST UP TO 35% OF ITS ASSETS IN EITHER OR BOTH OF (I)
LOWER RATED BONDS, COMMONLY KNOWN AS "JUNK BONDS," AND (II) BONDS ISSUED BY
FOREIGN ISSUERS RATED BELOW INVESTMENT GRADE, BOTH OF WHICH ENTAIL GREATER
RISKS, INCLUDING RISKS OF DEFAULT, UNTIMELY INTEREST AND PRINCIPAL PAYMENTS AND
PRICE VOLATILITY, THAN THOSE FOUND IN HIGHER RATED SECURITIES, AND MAY PRESENT
PROBLEMS OF LIQUIDITY AND VALUATION. INVESTORS SHOULD CAREFULLY CONSIDER THESE
RISKS BEFORE INVESTING. SEE "INVESTMENT OBJECTIVES AND POLICIES," PAGE 7, AND
"RISK FACTORS," PAGE 9, OF THIS PROSPECTUS.
SHARES OF THE FUND ARE NOT DEPOSITS OR OBLIGATIONS OF, OR GUARANTEED OR
ENDORSED BY, ANY BANK, AND SHARES ARE NOT FEDERALLY INSURED BY THE FEDERAL
DEPOSIT INSURANCE CORPORATION, THE FEDERAL RESERVE BOARD, OR ANY OTHER AGENCY.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
<PAGE>
TABLE OF CONTENTS
Page
Fee Table ....................................................... 3
Financial Highlights ............................................ 4
The Fund ........................................................ 7
Investment Objectives and Policies .............................. 7
Investment Restrictions ......................................... 9
Risk Factors .................................................... 9
Pricing Shares .................................................. 12
Dividends and Taxes ............................................. 13
Fund Management and Expenses .................................... 14
How to Buy Shares ............................................... 16
Alternative Sales Options ....................................... 17
Contingent Deferred Sales Charge and Waiver of Sales Charges .... 21
Distribution Plans .............................................. 22
How to Redeem Shares ............................................ 23
Shareholder Services ............................................ 25
Performance Data ................................................ 27
Fund Shares ..................................................... 27
Additional Information .......................................... 28
Additional Investment Information ............................... (i)
Exhibit A ....................................................... A-1
<PAGE>
FEE TABLE
KEYSTONE WORLD BOND FUND
The purpose of this fee table is to assist investors in understanding the
costs and expenses that an investor in each class will bear directly or
indirectly. For more complete descriptions of the various costs and expenses,
see the following sections of this prospectus: "Fund Management and Expenses";
"How to Buy Shares"; "Alternative Sales Options"; "Contingent Deferred Sales
Charge and Waiver of Sales Charges"; "Distribution Plans"; and "Shareholder
Services."
<TABLE>
<CAPTION>
CLASS A SHARES CLASS B SHARES CLASS C SHARES
FRONT END BACK END LEVEL LOAD
SHAREHOLDER TRANSACTION EXPENSES LOAD OPTION LOAD OPTION\1/ OPTION\2/
-------------- -------------- --------------
<S> <C> <C> <C>
Sales Charge ...................................... 4.75%\3/ None None
(as a percentage of offering price)
Contingent Deferred Sales Charge .................. 0.00%\4/ 5.00% in the first year 1.00% in the first
(as a percentage of the lesser of cost or market declining to 1.00% in year
value of shares redeemed) the and 0.00% thereafter
sixth year and 0.00%
thereafter
Exchange Fee (per exchange)\5/ .................... $10.00 $10.00 $10.00
ANNUAL FUND OPERATING EXPENSES\6/
After Expense Reimbursements
(as a percentage of average net assets)
Management Fees ................................... 0.65% 0.65% 0.65%
12b-1 Fees ........................................ 0.25% 1.00%\7/ 1.00%\7/
Other Expenses .................................... 1.56% 1.56% 1.56%
---- ---- ----
Total Fund Operating Expenses ..................... 2.46% 3.21% 3.21%
==== ==== ====
<CAPTION>
EXAMPLES\8/ 1 YEAR 3 YEARS 5 YEARS 10 YEARS
------ ------- ------- --------
You would pay the following expenses on a $1,000 investment, assuming (1) 5%
annual return and (2) redemption at the end of each period:
<S> <C> <C> <C> <C>
Class A ............................................................................ $71 $121 $172 $314
Class B ............................................................................ $82 $129 $188 N/A
Class C ............................................................................ $42 $ 99 $168 $351
You would pay the following expenses on the same investment, assuming no
redemption at the end of each period:
Class A ............................................................................ $71 $121 $172 $314
Class B ............................................................................ $32 $ 99 $168 N/A
Class C ............................................................................ $32 $ 99 $168 $351
AMOUNTS SHOWN IN THE EXAMPLE SHOULD NOT BE CONSIDERED A REPRESENTATION OF PAST OR FUTURE EXPENSES. ACTUAL EXPENSES MAY BE GREATER
OR LESS THAN THOSE SHOWN.
<FN>
- ----------
\1/ Class B shares purchased on or after June 1, 1995 convert tax free to Class
A shares after eight years. See "Class B Shares" for more information.
\2/ Class C shares are available only through dealers who have entered into
special distribution agreements with Keystone Investment Distributors
Company, the Fund's principal underwriter.
\3/ The sales charge applied to purchases of Class A shares declines as the
amount invested increases. See "Alternative Sales Options."
\4/ Purchases of Class A shares in the amount of $1,000,000 or more and/or
purchases made by certain qualifying retirement or other plans are not
subject to a sales charge, but may be subject to a contingent deferred sales
charge. See "Class A Shares" and "Contingent Deferred Sales Charge and
Waiver of Sales Charges" for an explanation of the charge.
\5/ There is no fee for exchange orders received by the Fund directly from a
shareholder over the Keystone Automated Response Line ("KARL"). (For a
description of KARL, see "Shareholder Services.")
\6/ Expense ratios shown above are for the fiscal year ended October 31, 1995.
Total Fund Operating Expenses for the fiscal year ended October 31, 1995
include indirectly paid expenses.
\7/ Long term shareholders may pay more than the economic equivalent of the
maximum front end sales charges otherwise permitted by the National
Association of Securities Dealers, Inc. ("NASD").
\8/ The Securities and Exchange Commission requires use of a 5% annual return
figure for purposes of this example. Actual return for the Fund may be
greater or less than 5%.
</TABLE>
<PAGE>
FINANCIAL HIGHLIGHTS
KEYSTONE WORLD BOND FUND -- WORLD BOND PORTFOLIO CLASS A SHARES
(FOR A SHARE OUTSTANDING THROUGHOUT THE PERIOD)
The following table contains important financial information with respect to
the Fund. The financial highlights for the year ended October 31, 1995, the
period from January 1, 1994 to October 31, 1994 and each of the years in the
five year period ended December 31, 1993 were audited by KPMG Peat Marwick LLP,
the Fund's independent auditors. The financial highlights for the year ended
December 31, 1988 and the period January 9, 1987 (commencement of operations) to
December 31, 1987 were audited by the Fund's previous 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>
PERIOD FROM JANUARY 9, 1987
YEAR ENDED JANUARY 1, 1994 YEAR ENDED DECEMBER 31, (COMMENCEMENT OF
OCTOBER 31, TO OCTOBER 31, --------------------------------------------------------- OPERATIONS) TO
1995 1994 1993 1992 1991 1990 1989 1988 DECEMBER 31, 1987
---------- --------------- ------- ------- -------- ------- ------- ------ -----------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE
BEGINNING OF
PERIOD .............. $ 8.42 $ 9.56 $ 8.69 $10.77 $ 9.82 $ 9.76 $10.04 $11.02 $10.00
------ ------ ------ ------ ------ ------ ------ ------ ------
INCOME FROM INVESTMENT
OPERATIONS:
Net investment income 0.61 0.32 0.44 0.64 0.66 0.63 0.61 0.54 0.56
Net realized and
unrealized gain
(loss) on investment
and foreign
currency related
transactions ........ (0.01) (0.96) 1.03 (0.79) 0.99 0.31 (0.27) (0.92) 1.27
------ ------ ------ ------ ------ ------ ------ ------ ------
Total from
investment
operations ....... 0.60 (0.64) 1.47 (0.15) 1.65 0.94 0.34 (0.38) 1.83
------ ------ ------ ------ ------ ------ ------ ------ ------
LESS DISTRIBUTIONS FROM:
Net investment income (0.54) 0 (0.43) (0.96) (0.45) (0.52) (0.62) (0.54) (0.56)
In excess of net
investment income (c) 0 0 (0.17) (0.28) 0 (0.04) 0 0 0
Tax basis return of
capital ............. (0.06) (0.50) 0 0 0 0 0 0 0
Net realized gains on
investment and foreign
currency related
transactions ........ 0 0 0 (0.69) (0.25) (0.32) 0 (0.06) (0.25)
------ ------ ------ ------ ------ ------ ------ ------ ------
Total distributions (0.60) (0.50) (0.60) (1.93) (0.70) (0.88) (0.62) (0.60) (0.81)
------ ------ ------ ------ ------ ------ ------ ------ ------
NET ASSET VALUE END OF
PERIOD $ 8.42 $ 8.42 $ 9.56 $ 8.69 $10.77 $ 9.82 $ 9.76 $10.04 $11.02
====== ====== ====== ====== ====== ====== ====== ====== ======
TOTAL RETURN (d) ..... 7.62% (6.72%) 17.26% (1.24%) 17.48% 10.11% 3.07% (3.34%) 19.10%
RATIOS/SUPPLEMENTAL DATA
RATIOS TO AVERAGE NET ASSETS:
Total expenses (a) . 2.46%(e) 2.20%(b) 2.20% 2.20% 2.00% 2.00% 1.81% 1.19% 1.88%(b)
Net investment income 7.21% 4.66%(b) 4.62% 5.44% 6.43% 6.48% 5.81% 5.34% 5.68%(b)
Portfolio turnover rate 108% 100% 107% 185% 204% 154% 73% 335% 171%
NET ASSETS END OF
PERIOD (THOUSANDS) . $9,956 $6,047 $8,403 $7,121 $11,843 $13,833 $14,806 $5,043 $4,774
<FN>
(a) Figures are net of expense reimbursement by Keystone in connection with
voluntary expense limitations. Before the expense reimbursement, the "Ratio
of total expenses to average net assets" would have been 2.25%, 3.12%,
2.50%, 2.15% and 2.47% for the period from January 1, 1994 to October 31,
1994 and the years ended December 31, 1993, 1992, 1991 and 1990,
respectively.
(b) Annualized.
(c) Effective January 1, 1993, the Fund adopted Statement of Position 93-2:
"Determination, Disclosure, and Financial Statement Presentation of Income,
Capital Gain and Return of Capital Distributions by Investment Companies."
As a result, distribution amounts exceeding book basis net investment income
(or tax basis net income on a temporary basis) are presented as
"Distributions in excess of investment income." Similarly, capital gain
distributions in excess of book basis capital gains (or tax basis capital
gains on a temporary basis) are presented as "Distributions in excess of
capital gains." For the fiscal years ended December 31, 1992 and 1990,
distributions in excess of book basis net investment income were charged to
paid-in capital.
(d) Excluding applicable sales charges.
(e) The expense ratio includes indirectly paid expenses for the year ended
October 31, 1995. Excluding indirectly paid expenses, the expense ratio
would have been 2.44%.
</TABLE>
<PAGE>
FINANCIAL HIGHLIGHTS
KEYSTONE WORLD BOND FUND
WORLD BOND PORTFOLIO
CLASS B SHARES
(FOR A SHARE OUTSTANDING THROUGHOUT THE PERIOD)
The following table contains important financial information with respect 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>
AUGUST 2, 1993
PERIOD FROM (DATE OF INITIAL
YEAR ENDED JANUARY 1, 1994 TO PUBLIC OFFERING) TO
OCTOBER 31, 1995 OCTOBER 31, 1994 DECEMBER 31, 1993
---------------- ------------------ -----------------
<S> <C> <C> <C>
NET ASSET VALUE BEGINNING
OF PERIOD .............. $ 8.46 $ 9.58 $ 9.47
------ ------ ------
INCOME FROM INVESTMENT
OPERATIONS:
Net investment income .... 0.52 0.31 0.16
Net realized and
unrealized gain (loss)
on investment and
foreign currency related
transactions ........... 0.01 (0.99) 0.21
------ ------ ------
Total from investment
operations ............. 0.53 (0.68) 0.37
------ ------ ------
LESS DISTRIBUTIONS FROM:
Net investment income .... (0.48) 0 (0.11)
In excess of net
investment income (c) .. 0 0 (0.15)
Tax basis return of
capital ................ (0.06) (0.44) 0
Net realized gains on
investment and foreign
currency related
transactions ........... 0 0 0
------ ------ ------
Total distributions ...... (0.54) (0.44) (0.26)
------ ------ ------
NET ASSET VALUE END OF
PERIOD ................. $ 8.45 $ 8.46 $ 9.58
====== ====== ======
TOTAL RETURN (D) ......... 6.68% (7.18%) 3.93%
RATIOS/SUPPLEMENTAL DATA
RATIOS TO AVERAGE NET
ASSETS:
Total expenses (a) ..... 3.21%(e) 2.95%(b) 2.95%(b)
Net investment income .. 6.43% 4.05%(b) 3.79%(b)
Portfolio turnover rate .. 108% 100% 107%
NET ASSETS END OF PERIOD
(THOUSANDS) ............ $3,680 $3,429 $2,544
<FN>
(a) Figures are net of expense reimbursement by Keystone in connection with
voluntary expense limitations. Before the expense reimbursement, the "Ratio
of total expenses to average net assets" would have been 3.03% and 3.47% for
the period from January 1, 1994 to October 31, 1994 and for the period from
August 2, 1993 (Date of Initial Public Offering) to December 31, 1993,
respectively.
(b) Annualized.
(c) Effective January 1, 1993, the Fund adopted Statement of Position 93-2:
"Determination, Disclosure, and Financial Statement Presentation of Income,
Capital Gain and Return of Capital Distributions by Investment Companies."
As a result, distribution amounts exceeding book basis net investment income
(or tax basis net income on a temporary basis) are presented as
"Distributions in excess of investment income." Similarly, capital gain
distributions in excess of book basis capital gains (or tax basis capital
gains on a temporary basis) are presented as "Distributions in excess of
capital gains."
(d) Excluding applicable sales charges.
(e) The expense ratio includes indirectly paid expenses for the year ended
October 31, 1995. Excluding indirectly paid expenses, the expense ratio
would have been 3.19%.
</TABLE>
<PAGE>
FINANCIAL HIGHLIGHTS
KEYSTONE WORLD BOND FUND
WORLD BOND PORTFOLIO
CLASS C SHARES
(FOR A SHARE OUTSTANDING THROUGHOUT THE PERIOD)
The following table contains important financial information with respect 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>
AUGUST 2, 1993
PERIOD FROM (DATE OF INITIAL
YEAR ENDED JANUARY 1, 1994 TO PUBLIC OFFERING) TO
OCTOBER 31, 1995 OCTOBER 31, 1994 DECEMBER 31, 1993
---------------- ------------------ -----------------
<S> <C> <C> <C>
NET ASSET VALUE
BEGINNING OF PERIOD ............ $ 8.42 $ 9.58 $ 9.47
------ ------ ------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income............. 0.56 0.30 0.18
Net realized and unrealized gain
(loss) on investment and
foreign currency related
transactions ................... (0.02) (1.02) 0.19
------ ------ ------
Total from investment operations 0.54 (0.72) 0.37
------ ------ ------
LESS DISTRIBUTIONS FROM:
Net investment income ............ (0.48) 0 (0.12)
In excess of net investment
income (c) ..................... 0 0 (0.14)
Tax basis return of capital ...... (0.06) (0.44) 0
Net realized gains on investment
and foreign currency related
transactions ................... 0 0 0
------ ------ ------
Total distributions .............. (0.54) (0.44) (0.26)
------ ------ ------
NET ASSET VALUE END OF PERIOD .... $ 8.42 $ 8.42 $ 9.58
====== ====== ======
TOTAL RETURN (D) ................. 6.83% (7.61%) 3.93%
RATIOS/SUPPLEMENTAL DATA
RATIOS TO AVERAGE NET ASSETS:
Total expenses (a) ............. 3.21%(e) 2.95%(b) 2.95%(b)
Net investment income .......... 6.49% 3.94%(b) 3.79%(b)
Portfolio turnover rate .......... 108% 100% 107%
NET ASSETS END OF PERIOD (THOUSANDS) $1,183 $1,591 $1,878
<FN>
(a) Figures are net of expense reimbursement by Keystone in connection with
voluntary expense limitations. Before the expense reimbursement, the "Ratio
of total expenses to average net assets" would have been 3.03% and 3.40% for
the period from January 1, 1994 to October 31, 1994 and for the period from
August 2, 1993 (Date of Initial Public Offering) to December 31, 1993,
respectively.
(b) Annualized.
(c) Effective January 1, 1993, the Fund adopted Statement of Position 93-2:
"Determination, Disclosure, and Financial Statement Presentation of Income,
Capital Gain and Return of Capital Distributions by Investment Companies."
As a result, distribution amounts exceeding book basis net investment income
(or tax basis net income on a temporary basis) are presented as
"Distributions in excess of investment income." Similarly, capital gain
distributions in excess of book basis capital gains (or tax basis capital
gains on a temporary basis) are presented as "Distributions in excess of
capital gains."
(d) Excluding applicable sales charges.
(e) The expense ratio includes indirectly paid expenses for the year ended
October 31, 1995. Excluding indirectly paid expenses, the expense ratio
would have been 3.19%.
</TABLE>
<PAGE>
THE FUND
The Fund is an open-end, management investment company, commonly known as a
mutual fund, and is authorized to issue series of shares representing portfolios
of its assets, some or all of which portfolios may be diversified. At this time,
the Fund issues shares of one nondiversified portfolio, the World Bond
Portfolio. The Fund was formed as a Massachusetts business trust on September 5,
1986. The Fund is one of the thirty funds managed or advised by Keystone
Investment Management Company (formerly named Keystone Custodian Funds, Inc.)
("Keystone"), the Fund's investment adviser.
INVESTMENT OBJECTIVES AND POLICIES
The Portfolio seeks current income by investing primarily in a nondiversified
portfolio consisting of debt securities denominated in U.S. and foreign
currencies. The Portfolio seeks capital appreciation as a secondary objective.
NORMAL MARKET CONDITIONS POLICY
The Portfolio invests at least 65% of its total assets in bonds denominated in
at least three currencies, one of which may be United States ("U.S.") currency.
This policy is fundamental and may not be changed without obtaining the approval
of the Portfolio's shareholders. While the Portfolio's fundamental policy
requires it to invest at least 65% of its total assets in bonds denominated in
at least three currencies, it is expected that under normal market conditions in
excess of 80% of the Portfolio's total assets will be invested in debt
securities denominated in U.S. and foreign currencies.
COUNTRY OF ISSUER POLICY
Under normal market conditions, at least 65% of the Portfolio's total assets
will also be invested in the securities of issuers located in three countries,
one of which may be the U.S. The Portfolio may, and the Portfolio's adviser
intends to, invest up to 35% of its assets in the securities of issuers located
in "emerging" or "developing" market countries. For this purpose, countries with
emerging or developing 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").
DEFENSIVE POLICY
When, in the opinion of the Portfolio's investment adviser, market conditions
warrant, the Portfolio may, for defensive purposes, temporarily invest more than
35% of its total assets in money market instruments, cash and government
securities denominated in U.S. and foreign currencies. Under circumstances where
the Portfolio is investing for defensive purposes, it may not be pursuing its
investment objectives.
NONDIVERSIFICATION POLICY
The Portfolio will attempt to vary its investments among issuers located in
different countries as indicated above, but reserves authority to invest up to
25% of its total assets in obligations issued or guaranteed by any one foreign
government and up to 10% of its total assets in obligations issued or guaranteed
by any one multinational agency.
In allocating the Portfolio's investments among issuers located in different
countries, the Portfolio's adviser will take into consideration the interest
rate environments and general economic conditions of such countries. It will
also evaluate the relative values of different currencies on the basis of
technical and political data and such fundamental economic criteria, as relative
inflation rates and trends, projected growth rates, balance of payments status
and economic policies.
The debt securities in which the Portfolio may invest include bonds,
debentures, notes, commercial paper, certificates of deposit, obligations issued
or guaranteed by the U.S. or a foreign government or any of their political
subdivisions, agencies or instrumentalities, and debt securities convertible
into common stock.
At least 65% of the debt securities selected for the Portfolio will be rated
Baa or higher by Moody's Investors Service ("Moody's") or BBB or higher by
Standard & Poor's Corporation ("S&P") or, if unrated, will be deemed to be of
comparable quality by the Portfolio's adviser.
Bonds rated Baa or higher by Moody's or BBB or higher by S&P are considered
investment grade bonds and are generally considered medium to high quality
obligations of the issuer. Such bonds generally have protections for timely
interest payments and repayment of principal. Bonds rated in the lower part of
these ratings, however, may have some speculative characteristics. Any
split-rated bond in which the Portfolio may invest will be rated at least Baa by
Moody's or BBB by S&P.
Bonds that are rated Baa by Moody's are considered to be medium grade
obligations, i.e., they are neither highly protected nor poorly secured.
Interest payments and principal security appear adequate for the present, but
certain protective elements may be lacking or may be characteristically
unreliable over any great length of time. Such bonds lack outstanding investment
characteristics and in fact have speculative characteristics as well. Bonds
rated BBB by S&P are regarded as having an adequate capacity to pay interest and
repay principal. While such bonds normally exhibit 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
bonds in this category than in higher rated categories.
The balance of the debt securities held by the Portfolio may be rated below
Baa by Moody's or below BBB by S&P. Such bonds are commonly referred to as "junk
bonds." For a discussion of the investment risks associated with investments in
such bonds, see the "Risk Factors" section of this prospectus.
The value of the Portfolio's investments will vary inversely with changes in
prevailing interest rates and changes in the value of the U.S. dollar in
relation to foreign currencies. Because of these factors, investment in debt
obligations may provide an opportunity for capital appreciation when interest
rates are expected to decline.
Investing in a nondiversified portfolio, as opposed to a diversified
portfolio, may result in a greater degree of exposure to the economic movements
of the market sector in which the Portfolio invests. Investment in foreign
securities also involves other risks, which are described under "Risk Factors."
EQUITY POLICY
The Portfolio, consistent with achieving its investment objectives, may invest
up to 35% of its total assets in dividend-paying equity securities, such as
common stocks or preferred stocks, including convertible preferred stock, and in
the other instruments described herein.
OTHER ELIGIBLE SECURITIES
The Portfolio may enter into repurchase agreements with respect to U.S. and
foreign government securities for the purpose of investing cash balances. The
Portfolio may purchase or sell foreign currency, purchase options on currency
and purchase or sell forward foreign currency exchange contracts to manage
exchange rates. In addition, the Portfolio may write covered call and put
options and purchase call and put options on any security in which the Portfolio
may invest, including the purchase of options to close out previously written
options of the same series. The Portfolio may, for hedging purposes, purchase
and sell futures contracts and put and call options on futures contracts. The
Portfolio may purchase securities on a when-issued or forward commitment basis
and may engage in the lending of portfolio securities.
The Portfolio is authorized to enter into forward currency exchange contracts
if, as a result, no more than 75% of the value of the investing classes of the
Portfolio would be committed to the consummation of such contracts; provided,
however, that the Fund has satisfied the requirements imposed by the Securities
and Exchange Commission under the Investment Company Act of 1940 ("1940 Act").
In addition to the options, futures contracts and forwards mentioned above, if
consistent with its investment objectives, the Portfolio may also invest in
certain other types of derivative instruments, including collateralized mortgage
obligations, structured notes, interest rate swaps, index swaps, currency swaps
and caps and floors. These vehicles can also be combined to create more complex
products called hybrid derivatives or structured securities.
The Portfolio intends to follow policies of the Securities and Exchange
Commission as they are adopted from time to time with respect to illiquid
securities, including, at this time, (1) treating as illiquid, securities that
may not be sold or disposed of in the ordinary course of business within seven
days at approximately the value at which the Portfolio has valued such
securities on its books, and (2) limiting its holdings of such securities to 15%
of net assets.
For further information about the types of investments and investment
techniques available to the Portfolio, including the associated risks, see the
section of this prospectus entitled "Additional Investment Information" and the
statement of additional information.
If the Portfolio's investment objectives change, shareholders should consider
whether the Portfolio is still an appropriate investment in light of their then
current financial positions and needs.
Of course, there can be no assurance that the Portfolio will achieve its
investment objectives since there is uncertainty in every investment.
NATURE OF INVESTMENT OBJECTIVES
The Portfolio's investment objectives are nonfundamental and may be changed
without the vote of a majority of the shareholders. If the investment objectives
are changed and a shareholder determines that the Portfolio is no longer an
appropriate investment, the shareholder may redeem his shares, but may be
subject to a contingent deferred sales charge upon redemption.
INVESTMENT RESTRICTIONS
The Fund has adopted the fundamental restrictions summarized below on behalf
of its portfolios, which may not be changed without the approval of a majority
(as defined in the 1940 Act) of the portfolio's outstanding shares. These
restrictions and certain other fundamental and nonfundamental restrictions are
contained in the statement of additional information.
Generally, the Portfolio may not do the following:
(1) purchase securities of any one issuer if as a result more than 10% of
the outstanding voting secutities of such issuer would be held by the
Portfolio, or invest more than 5% of the Portfolio's total assets (taken at
market value) in the securities of any one issuer, except securities issued or
guaranteed by the U.S. government or any of its agencies or instrumentalities,
provided that the Portfolio may invest up to 25% of its total assets in
securities issued or guaranteed by any single foreign government and up to 10%
of its total assets in securities issued or guaranteed by any single
multinational agency;
(2) borrow money, except from a bank for temporary or emergency purposes
(not for leveraging or investment) and may not borrow money in an amount
exceeding one-third of the value of its total assets (less liabilities other
than borrowings); any borrowings that come to exceed one-third of the
Portfolio's total assets by reason of a decline in net assets will be reduced
within three days to the extent necessary to comply with the one-third
limitation; the Portfolio will not purchase securities while temporary bank
borrowings in excess of 5% of its total assets are outstanding; and
(3) invest more than 25% of its total assets (taken at market value) in
securities of issuers in a particular industry or group of related industries,
except U.S. government securities.
RISK FACTORS
Like any investment, your investment in the Fund involves an element of risk.
Before you invest in the Fund, you should carefully evaluate your ability to
assume the risks your investment in the Fund poses. 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.
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."
FOREIGN SECURITIES
In addition, investing in the Portfolio, with its globally varied investments,
involves greater risk than investing in a fund with a portfolio consisting
solely of 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 less liquid and 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 exchanges, brokers,
listed companies and banks in foreign countries than in the U.S.;
(6) the Portfolio may incur fees on currency exchanges when it changes
investments from one country to another;
(7) the Portfolio's foreign investments could be affected by expropriation,
confiscatory taxation, nationalization, establishment of exchange controls,
political or social instability or diplomatic developments;
(8) foreign governments may withhold income on investments; and
(9) fluctuations in foreign exchange rates will affect the value of the
Portfolio'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.
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.
NONINVESTMENT GRADE BONDS
The Portfolio may invest up to 35% of its assets in high yielding, high risk
bonds and other similar securities commonly referred to as "junk bonds."
Investment in such bonds involves risks that are greater than the risks of
investing in higher quality debt securities and may result in greater upward and
downward movement of the net asset value per share of the Portfolio. As a
result, such risks should be carefully considered by investors. These risks,
discussed in greater detail below, include risks from:
(1) interest rate fluctuations;
(2) changes in credit status, including weaker overall credit condition of
issuers and risks of default;
(3) industry, market and economic risk;
(4) volatility of price resulting from broad and rapid changes in the
value of underlying securities; and
(5) greater price variability and credit risks of certain high yield
securities such as zero coupon bonds and payment-in-kind bonds ("PIKs").
More specifically, investors should be aware of the following risks:
(1) Securities rated BB or lower by S&P or Ba or lower by Moody's are
considered predominantly speculative with respect to the ability of the issuer
to meet principal and interest payments.
(2) The lower ratings of certain securities held by the Portfolio reflect a
greater possibility that adverse changes in the financial condition of the
issuer, or in general economic conditions, or both, or an unanticipated rise
in interest rates, may impair the ability of the issuer to make payments of
interest and principal, especially if the issuer is highly leveraged. Such
issuer's ability to meet its debt obligations may also be adversely affected
by specific corporate developments, or the issuer's inability to meet specific
projected business forecasts, or the unavailability of additional financing.
Also, an economic downturn or an increase in interest rates may increase the
potential for a default by the issuers of these securities.
(3) The value of certain securities held by the Portfolio may be more
susceptible to real or perceived adverse economic, company or industry
conditions and publicity than is the case for higher quality securities.
(4) The values of certain securities, like those of other fixed income
securities, fluctuate in response to changes in interest rates. When interest
rates decline, the value of a portfolio invested in bonds can be expected to
rise. Conversely, when interest rates rise, the value of a portfolio invested
in bonds can be expected to decline. For example, in the case of an investment
in a fixed income security, if interest rates increase after the security is
purchased, the security, if sold prior to maturity, may return less than its
cost. The prices of noninvestment grade bonds, however, are generally less
sensitive to interest rate changes than higher rated bonds, but more sensitive
to adverse or positive economic changes or individual corporate developments.
With respect to derivative or structured securities, the market value of such
securities may vary depending on the manner in which such securities have been
structured. As a result, the value of such investments may change at a more
rapid rate than that of traditional fixed income securities.
(5) The secondary market for certain securities held by the Portfolio may be
less liquid at certain times than the secondary market for higher quality debt
securities, which may have an adverse effect on market price and the
Portfolio's ability to dispose of particular issues and may also make it more
difficult for the Portfolio to obtain accurate market quotations for purposes
of valuing its assets.
(6) Zero coupon bonds and PIKs involve additional special considerations.
For example, zero coupon bonds do not require the periodic payment of
interest. PIK bonds are debt obligations that provide that the issuer may, at
its option, pay interest on such bonds in cash or in the form of additional
debt obligations. Such investments may experience greater fluctuation in value
due to changes in interest rates than debt obligations that pay current
interest currently. Even though these investments do not pay current interest
in cash, the Portfolio is, nonetheless, required by tax laws to accrue
interest income on such investments and to distribute such amounts at least
annually to shareholders. Thus the Portfolio could be required at times to
liquidate investments in order to fulfill its intention to distribute
substantially all of its net income as dividends. The Portfolio will not be
able to purchase additional income producing securities with cash used to make
such distributions, and its direct income may be reduced as a result.
The Portfolio may invest in securities that are rated as low as D by S&P and
C- by Moody's. It is possible for securities rated D or C-, respectively, to
have defaulted on payments of principal and/or interest at the time of
investment. The section of this prospectus entitled "Additional Investment
Information" describes these rating categories. The Portfolio intends to invest
in D rated debt only in cases where, in the adviser's judgment, there is a
distinct prospect of improvement in the issuer's financial position as a result
of the completion of reorganization or otherwise. The Portfolio may also invest
in unrated securities that, in the adviser's judgment, offer comparable yields
and risks to those of securities that are rated, as well as in non-investment
quality zero coupon bonds and PIKs.
RULE 144A SECURITIES
The Portfolio 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 Portfolio may
purchase Rule 144A securities when such securities present an attractive
investment opportunity and otherwise meet the Portfolio's selection criteria.
The Board of Trustees has adopted guidelines and procedures pursuant to which
the liquidity of the Portfolio's Rule 144A securities is determined by Keystone,
the Portfolio's adviser. The Board of Trustees monitors Keystone's
implementation of such guidelines and procedures.
At the present time, the Portfolio 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 Trustees will consider what action, if any, is appropriate.
By itself, the Portfolio does not constitute a balanced investment program.
You should take into account your own investment objectives as well as your
other investments when considering an investment in the Portfolio.
Should the Portfolio need to raise cash to meet a large number of redemptions
it may have to sell portfolio securities at a time when it would be
disadvantageous to do so.
PRICING SHARES
The net asset value of a share of the Portfolio 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
Portfolio shares) except on days when changes in the value of the Portfolio's
securities do not affect the current net asset value of its shares. The Exchange
currently is closed on weekends, New Year's Day, Presidents' Day, Good Friday,
Memorial Day, Independence Day, Labor Day, Thanksgiving Day and Christmas Day.
The net asset value per share of the Portfolio is arrived at by determining the
value of the Portfolio's assets, subtracting its liabilities and dividing the
result by the number of its shares outstanding.
Current values for the Portfolio's securities are determined as follows:
(1) bonds, debentures and other debt securities, whether or not listed on
any national securities exchange, are valued at a price supplied by a pricing
service or a bond dealer selected by the Portfolio's adviser;
(2) common stock, preferred stock and other equity securities listed on the
Exchange are valued on the basis of the last sale price on the Exchange; in
the absence of any sales, such securities are valued at the mean between the
closing asked price and the closing bid price;
(3) common stock, preferred stock and other equity securities listed on
other U.S. or foreign exchanges will be valued as described in paragraph (1)
using quotations on the exchange on which the security is most extensively
traded;
(4) common stock, preferred stock and other equity securities unlisted and
quoted on the National Market System ("NMS") are valued at the last sale
price, provided a sale has occurred; in the absence of any sales, such
securities are valued at the high or "inside" bid supplied by the NASD on its
NASDAQ system for securities traded in the over-the-counter market;
(5) common stock, preferred stock and other equity securities quoted on the
NASDAQ system, but not listed on NMS, are valued at the high or "inside" bid;
(6) common stock, preferred stock and other equity securities not listed and
not quoted on the NASDAQ system for which over-the-counter market quotations
are readily available are valued at the mean between the current bid and asked
prices for such securities;
(7) non-U.S. common stock, preferred stock and other equity securities not
listed or listed and subject to restrictions on sale are valued at prices
supplied by a dealer selected by the Portfolio's adviser;
(8) short-term instruments having maturities of more than sixty days for
which market quotations are readily available are valued at current market
value; where market quotations are not available, such instruments are valued
at fair value as determined by the Fund's Board of Trustees;
(9) short-term instruments purchased with maturities of sixty days or less
(including all master demand notes) are valued at amortized cost (original
purchase cost as adjusted for amortization of premium or accretion of
discount), which, when combined with accrued interest, approximates market;
short-term instruments maturing in more than sixty days when purchased and
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
Fund's Board of Trustees;
(10) options, futures contracts and options on futures listed or traded on a
national securities exchange are valued at the last sale price on such
exchange prior to the time of determining net asset value or, if no sale is
reported, are valued at the mean between the most recent bid and asked prices;
(11) forward currency contracts are valued at their last sale as reported by
a pricing service, and in the absence of a report at a value determined on the
basis of the underlying currency at prevailing exchange rates;
(12) securities subject to restrictions on resale are valued at fair value
at least monthly by a pricing service under the direction of the Fund's Board
of Trustees; and
(13) all other assets are valued at fair market value as determined by or
under the direction of the Fund's Board of Trustees.
DIVIDENDS AND TAXES
The Portfolio has qualified and intends to qualify in the future as a
regulated investment company under the Internal Revenue Code. The Portfolio
qualifies if, among other things, it distributes to its shareholders at least
90% of its net investment income for its fiscal year. The Portfolio 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 distributions declared in October, November, or December to shareholders
of record in such a month and paid by the following January 31 will be taxable
to shareholders as if paid on December 31 of the year in which declared. If the
Portfolio qualifies and if it distributes substantially all of its net
investment income and net capital gains, if any, to shareholders, it will be
relieved of any federal income tax liability.
The Fund declares and distributes dividends from the Portfolio's net
investment income monthly. Distributions of short-term and long-term capital
gains, if any, will be made at least annually. Shareholders receive Fund
distributions in the form of additional shares of that class of shares upon
which the distribution is based or, at the shareholder's option, in cash. Fund
distributions in the form of additional shares are made at net asset value
without the imposition of a sales charge.
Because Class A shares bear most of the costs of distribution of such shares
through payment of a front end sales charge while Class B and Class C shares
bear such expenses through a higher annual distribution fee, expenses
attributable to Class B shares and Class C shares will generally be higher than
those attributable to Class A shares, and income distributions paid by the Fund
with respect to Class A shares will generally be greater than those paid with
respect to Class B and Class C shares.
Income dividends and net short-term gains distributions are taxable as
ordinary income and net long-term gains distributions are taxable as capital
gains regardless of how long Fund shares have been held. However, if Fund shares
held for less than six months are sold at a loss, such loss will be treated for
tax purposes as a long-term capital loss to the extent of any long-term capital
gains dividends received. The Fund advises shareholders annually as to the
federal tax status of all distributions made during the year.
FUND MANAGEMENT AND EXPENSES
BOARD OF TRUSTEES
Under Massachusetts law, the Fund's Board of Trustees has absolute and
exclusive control over the management and disposition of all assets of the Fund.
Subject to the authority of the Fund's Board of Trustees, Keystone, the Fund's
adviser, provides investment advice, management and administrative services to
the Fund.
INVESTMENT ADVISER
Keystone, located at 200 Berkeley Street, Boston, Massachusetts 02116-5034,
has provided investment advisory and management services to investment companies
and private accounts since it was organized in 1932. Keystone is a wholly-owned
subsidiary of Keystone Investments, Inc. (formerly named Keystone Group, Inc.)
("Keystone Investments"), located at 200 Berkeley Street, Boston, Massachusetts
02116-5034.
Keystone Investments is a corporation predominantly owned by current and
former members of management of Keystone and its affiliates. The shares of
Keystone Investments common stock beneficially owned by management are held in a
number of voting trusts, the trustees of which are George S. Bissell, Albert H.
Elfner, III, Edward F. Godfrey and Ralph J. Spuehler, Jr. Keystone Investments
provides accounting, bookkeeping, legal, personnel and general corporate
services to Keystone, its affiliates and the Keystone Investments Family of
Funds.
Under its Investment Advisory and Management Agreement (the "Advisory
Agreement") with the Fund, Keystone manages the investment and reinvestment of
the Portfolio's assets, supervises the operation of the Fund, provides all
necessary office space, facilities, equipment and personnel and arranges, at the
request of the Fund, for its employees to serve as officers or agents of the
Fund.
The Portfolio pays Keystone a fee for its services at the annual rates set
forth below:
Aggregate Net Asset
Management Value of the Shares
Fee Income of the Portfolio
- ------------------------------------------------------------------------------
1.5% of Gross Income plus
0.50% of the first $ 500,000,000, plus
0.45% of the next $ 500,000,000, plus
0.40% of amounts over $1,000,000,000
Keystone's fee is computed as of the close of business on each business day
and payable daily.
For the fiscal period ended October 31, 1995, the Portfolio paid to Keystone
management fees of $93,806, which represented 0.65% of the Portfolio's average
net assets.
To the extent the Portfolio's management fee exceeds 0.75% of the Portfolio's
average net assets, the fee would be higher than that paid by most other
investment companies. The Portfolio's fee structure is comparable, however, to
that of other global and international funds subject to the higher costs
involved in managing a portfolio of predominantly international securities.
The Advisory Agreement continues in effect from year to year only so long as
such continuance is specifically approved at least annually by the Fund's Board
of Trustees or by vote of a majority of the outstanding shares of the Fund. In
either case, the terms of the Advisory Agreement and continuance thereof must be
approved by the vote of a majority of Independent Trustees in person at a
meeting called for the purpose of voting on such approval. The Advisory
Agreement may be terminated, without penalty, on 60 days' written notice by the
Fund or Keystone. The Advisory Agreement will terminate automatically upon its
assignment.
FUND EXPENSES
The Portfolio will pay all of its expenses. In addition to the investment
advisory, management and Distribution Plan fees discussed herein, the principal
expenses the Portfolio is expected to pay include its share (currently 100%) of
the expenses of certain Trustees; the Fund's transfer, dividend disbursing and
shareholder servicing agent expenses; the Fund's custodian expenses; fees of the
Fund's accountants, as well as legal counsel to the Fund's Trustees; fees
payable to government agencies, including registration and qualification fees
attributable to the Fund and its shares under federal and state securities laws;
and certain extraordinary expenses. In addition, each class will pay all of the
expenses attributable to it. Such expenses are currently limited to Distribution
Plan expenses. The Portfolio also pays its brokerage commissions, interest
charges and taxes.
For the fiscal year ended October 31, 1995, the Portfolio's Class A, Class B,
and Class C shares paid 2.46%, 3.21%, and 3.21%, respectively, of such class'
average net assets in expenses. These percentages are after Keystone's
reimbursement of certain of the Fund's expenses pursuant to voluntary expense
limitations, which were in effect until December 31, 1994. In connection with
such voluntary expense limits, Keystone reimbursed the Fund $597, $190 and $156
for Class A, Class B and Class C shares, respectively. Keystone would not be
required to reimburse the Fund to the extent such reimbursement would result in
the Fund's inability to qualify as a regulated investment company under the
Internal Revenue Code.
During the fiscal year ended October 31, 1995, the Portfolio paid or accrued
to Keystone Investor Resource Center, Inc. ("KIRC"), the Fund's transfer and
dividend paying agent, $19,141 for certain accounting and printing services and
$74,907 for transfer agent services. KIRC is a wholly-owned subsidiary of
Keystone.
The Fund has adopted a Code of Ethics incorporating policies on personal
securities trading as recommended by the Investment Company Institute.
PORTFOLIO MANAGER
Gilman C. Gunn is the Fund's portfolio manager. Mr. Gunn is a Keystone
Senior Vice President and Group Head. 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 Board of Trustees, the Portfolio's adviser
selects broker-dealers to execute transactions subject to the receipt of best
execution. When selecting broker-dealers to execute portfolio transactions, the
Portfolio's adviser may consider as a factor the number of shares of the
Portfolio sold by such broker-dealer. In addition, broker-dealers executing
portfolio transactions may, from time to time, be affiliated with the Fund,
Keystone, the Fund's principal underwriter or their affiliates.
The Portfolio may pay higher commissions to broker-dealers that provide
research services. Keystone may use these services in advising the Portfolio as
well as in advising its other clients.
PORTFOLIO TURNOVER
The Portfolio's turnover rates for the ten-month period ended October 31, 1994
and the fiscal year ended October 31, 1995 were 100% and 108%, respectively.
High portfolio turnover involves correspondingly greater brokerage commissions
and other transaction costs, which will be borne directly by the Portfolio as
well as additional gains and/or losses. The Portfolio pays brokerage commissions
in connection with the writing of options and effecting the closing purchase or
sale transactions as well as for some purchases and sales of portfolio
securities.
HOW TO BUY SHARES
You may purchase shares of the Portfolio from any broker-dealer that has a
selling agreement with Keystone Investment Distributors Company (formerly named
Keystone Distributors, Inc.) (the "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
Portfolio 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 Portfolio. You may also open an account by
telephoning 1-800-343-2898 to obtain the number of an account to which you can
wire or electronically transfer funds, and then sending in a completed account
application. Subsequent investments in Portfolio shares in any amount may be
made by check, by wiring Federal funds or by an electronic funds transfer
("EFT").
Orders for the purchase of shares of the Portfolio will be confirmed at an
offering price equal to the net asset value per share next determined after
receipt of the order in proper form by the Principal Underwriter (generally as
of the close of the Exchange on that day) plus, in the case of Class A shares,
the sales charge. Orders received by dealers or other firms prior to the close
of the Exchange and received by the Principal Underwriter prior to the close of
its business day will be confirmed at the offering price effective as of the
close of the Exchange on that day.
Orders for shares received, other than as stated above, will receive the
offering price equal to the net asset value per share next determined (generally
the next business day's offering price) plus, in the case of Class A shares, the
sales charge.
An initial purchase must be at least $1,000. There is no minimum amount for
subsequent purchases. The Fund reserves the right to determine the net asset
value more frequently than once a day if deemed desirable. Dealers and other
financial services firms are obligated to transmit orders promptly.
The Fund reserves the right to withdraw all or any part of the offering made
by this prospectus and to reject purchase orders.
Shareholder inquiries should be directed to KIRC by calling toll free 1-800-
343-2898 or writing to KIRC or to the firm from which this prospectus was
received.
ALTERNATIVE SALES OPTIONS
Generally, the Fund offers three classes of shares:
CLASS A SHARES -- FRONT END LOAD OPTION
Class A shares are sold with a sales charge at the time of purchase. Class A
shares are not subject to a sales charge when they are redeemed except as
follows: Class A shares purchased on or after April 10, 1995 (1) in an amount
equal to or exceeding $1,000,000 or (2) by a corporate qualified retirement plan
or a non-qualified deferred compensation plan sponsored by a corporation having
100 or more eligible employees (a "Qualifying Plan"), in either case without a
front end sales charge, will be subject to a contingent deferred sales charge
for the 24 month period following the date of purchase. Certain Class A shares
purchased prior to April 10, 1995 may be subject to a deferred sales charge upon
redemption during the one year period following the date of purchase.
CLASS B SHARES -- BACK END LOAD OPTION
Class B shares are sold without a sales charge at the time of purchase, but
are, with certain exceptions, subject to a deferred sales charge if they are
redeemed. Class B shares purchased on or after June 1, 1995 are subject to a
deferred sales charge upon redemption during the 72 month period from and
including the month of purchase. Class B shares purchased prior to June 1, 1995
are subject to a deferred sales charge upon redemption during the four calendar
years following purchase. Class B shares purchased on or after June 1, 1995 that
have been outstanding for eight years from and including the month of purchase
will automatically convert to Class A shares without imposition of a front-end
sales charge or exchange fee. Class B shares purchased prior to June 1, 1995
will retain their existing conversion rights.
CLASS C SHARES -- LEVEL LOAD OPTION
Class C shares are sold without a sales charge at the time of purchase, but
are subject to a deferred sales charge if they are redeemed within one year
after the date of purchase. Class C shares are available only through dealers
who have entered into special distribution agreements with the Principal
Underwriter.
Each class of shares, pursuant to its Distribution Plan or other plans, as the
case may be, pays an annual service fee of 0.25% of the Fund's average daily net
assets attributable to that class. In addition to the 0.25% service fee the
Class B and C Distribution Plans provide for the payment of an annual
distribution fee of up to 0.75% of the average net assets attributable to their
respective classes. As a result, income distributions paid by the Fund with
respect to Class B and Class C shares will generally be less than those paid
with respect to Class A shares.
Investors who would rather pay the entire cost of distribution at the time of
investment, rather than spreading such cost over time, might consider Class A
shares. Depending on the amount of the purchase and the intended length of
investment, other investors might consider Class B or Class C shares, in which
case 100% of the purchase price is invested immediately. The Fund will not
normally accept any purchase of Class B shares in the amount of $250,000 or
more, and will not normally accept any purchase of Class C shares in the amount
of $1,000,000 or more.
CLASS A SHARES
Class A shares are offered at net asset value plus an initial sales charge as
follows:
<TABLE>
<CAPTION>
AS A % OF CONCESSION TO
AS A % OF NET AMOUNT DEALERS AS A % OF
AMOUNT OF PURCHASE OFFERING PRICE INVESTED* OFFERING PRICE
- ---------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Less than $100,000 ................................. 4.75% 4.99% 4.25%
$100,000 but less than $250,000 .................... 3.75% 3.90% 3.25%
$250,000 but less than $500,000 .................... 2.50% 2.56% 2.25%
$500,000 but less than $1,000,000 .................. 1.50% 1.52% 1.50%
- ----------
*Rounded to the nearest one-hundredth percent.
</TABLE>
----------------------------------------------
Purchases of the Fund's Class A shares in the amount of $1 million or more
and/or purchases of Class A shares made by a Qualifying Plan or a tax-sheltered
annuity plan sponsored by public educational organization having 5,000 or more
eligible employees (a "TSA Plan") will be at net asset value without the
imposition of a front-end sales charge (each such purchase, an "NAV Purchase").
With respect to NAV Purchases, the Principal Underwriter will pay broker/
dealers or others concessions based on (1) the investor's cumulative purchases
during the one-year period beginning with the date of the initial NAV Purchase
and (2) the investor's cumulative purchases during each subsequent one-year
period beginning with the first NAV Purchase following the end of the prior
period. For such purchases, concessions will be paid at the following rate:
1.00% of the investment amount up to $2,999,999; plus 0.50% of the investment
amount between $3,000,000 and $4,999,999; plus 0.25% of the investment amount
over $4,999,999.
With the exception of Class A shares acquired by a TSA Plan in an NAV
Purchase, as described above, Class A shares acquired on or after April 10, 1995
in an NAV Purchase are subject to a contingent deferred sales charge of 1.00%
upon redemption during the 24 month period commencing on the date the shares
were originally purchased. Class A shares acquired by a TSA Plan in an NAV
Purchase are not subject to a contingent deferred sales charge. Certain Class A
shares purchased without a front-end sales charge prior to April 10, 1995 are
subject to a contingent deferred sales charge of 0.25% upon redemption during
the one year period commencing on the date such shares were originally
purchased.
The sales charge is paid to the Principal Underwriter, which in turn normally
reallows a portion to your broker-dealer. In addition, your broker-dealer
currently will be paid periodic service fees at an annual rate of up to 0.25% of
the average daily net asset value of Class A shares maintained by such recipient
on the books of the Fund for specified periods.
Upon written notice to dealers with whom it has dealer agreements, the
Principal Underwriter may reallow up to the full applicable sales charge.
Initial sales charges may be eliminated for persons purchasing Class A shares
that are included in a broker-dealer or investment adviser managed fee based
program (a wrap account) through broker dealers or investment advisers who have
entered into special agreements with the Principal Underwriter. Initial sales
charges may be reduced or eliminated for persons or organizations purchasing
Class A shares of the Fund alone or in combination with Class A shares of other
Keystone America Funds. See Exhibit A to this prospectus.
Since January 1, 1995 through ____, 1996 and upon prior notification to the
Principal Underwriter, Class A shares may be purchased at net asset value by
clients of registered representatives within six months after the redemption of
shares of any registered open-end investment company not distributed or managed
by Keystone or its affiliates when the amount invested represents redemption
proceeds from such unrelated registered open-end investment company, and the
shareholder either (1) paid a front end sales charge, or (2) was at some time
subject to, but did not actually pay, a contingent deferred sales charge with
respect to the redemption proceeds.
In addition, upon prior notification to the Principal Underwriter, Class A
shares may be purchased at net asset value by clients of registered
representatives within six months after a change in the registered
representative's employment when the amount invested represents redemption
proceeds from a registered open-end management investment company not
distributed or managed by Keystone or its affiliates; and the shareholder either
(1) paid a front end sales charge, or (2) was at some time subject to, but did
not actually pay, a contingent deferred sales charge with respect to the
redemption proceeds.
CLASS A DISTRIBUTION PLAN
The Fund has adopted a Distribution Plan with respect to its Class A shares
("Class A Distribution Plan") that provides for expenditures, currently limited
to 0.25% annually of the average daily net asset value of Class A shares, to pay
expenses associated with the distribution of Class A shares. Payments under the
Class A Distribution Plan are currently made to the Principal Underwriter (which
may reallow all or part to others, such as dealers) as shareholder service fees
at an annual rate of up to 0.25% of the average daily net asset value of Class A
shares maintained by such recipients on the books of the Fund for specified
periods.
CLASS B SHARES
Class B shares are offered at net asset value, without an initial sales
charge.
With respect to Class B shares purchased on or after June 1, 1995, the Fund,
with certain exceptions, imposes a deferred sales charge in accordance with the
following schedule:
DEFERRED
SALES
CHARGE
REDEMPTION TIMING IMPOSED
- ----------------- -------
First twelve month period .................... 5.00%
Second twelve month period ................... 4.00%
Third twelve month period .................... 3.00%
Fourth twelve month period ................... 3.00%
Fifth twelve month period .................... 2.00%
Sixth twelve month period .................... 1.00%
No deferred sales charge is imposed on amounts redeemed thereafter.
With respect to Class B shares purchased prior to June 1, 1995, the Fund, with
certain exceptions, imposes a deferred sales charge of 3.00% on shares redeemed
during the calendar year of purchase and the first calendar year after the year
of purchase; 2.00% on shares redeemed during the second calendar year after the
year of purchase; and 1.00% on shares redeemed during the third calendar year
after the year of purchase. No deferred sales charge is imposed on amounts
redeemed thereafter.
When imposed, the deferred sales charge is deducted from the redemption
proceeds otherwise payable to you. The deferred sales charge is retained by the
Principal Underwriter. Amounts received by the Principal Underwriter under the
Class B Distribution Plan are reduced by deferred sales charges retained by the
Principal Underwriter. See "Contingent Deferred Sales Charge and Waiver of Sales
Charges" below.
Class B shares purchased on or after June 1, 1995 that have been outstanding
for eight years from and including the month of purchase will automatically
convert to Class A shares (which are subject to a lower Distribution Plan
charge) without imposition of a front-end sales charge or exchange fee. Class B
shares purchased prior to June 1, 1995 will similarly convert to Class A shares
at the end of seven calendar years after the year of purchase. (Conversion of
Class B shares represented by stock certificates will require the return of the
stock certificates to KIRC.) The Class B shares so converted will no longer be
subject to the higher expenses borne by Class B shares. Because the net asset
value per share of the Class A shares may be higher or lower than that of the
Class B shares at the time of conversion, although the dollar value will be the
same, a shareholder may receive more or fewer Class A shares than the number of
Class B shares converted. Under current law, it is the Fund's opinion that such
a conversion will not constitute a taxable event under federal income tax law.
In the event that this ceases to be the case, the Board of Trustees will
consider what action, if any, is appropriate and in the best interests of the
Class B shareholders.
CLASS B DISTRIBUTION PLANS
The Fund has adopted Distribution Plans and other plans with respect to its
Class B shares (all such plans collectively, "Class B Distribution Plans") that
provide for expenditures at an annual rate of up to 1.00% of the average daily
net asset value of Class B shares to pay expenses of the distribution of Class B
shares. Payments under the Class B Distribution Plans are currently made to the
Principal Underwriter (which may reallow all or part to others, such as dealers)
(1) as commissions for Class B shares sold and (2) as shareholder service fees.
Amounts paid or accrued to the Principal Underwriter under (1) and (2) in the
aggregate may not exceed the annual limitation referred to above.
The Principal Underwriter generally reallows to brokers or others a commission
equal to 4.00% of the price paid for each Class B share sold plus the first
year's service fee in advance in the amount of 0.25% of the price paid for each
Class B share sold. Beginning approximately 12 months after the purchase of a
Class B share, the broker or other party will receive service fees at an annual
rate of 0.25% of the average daily net asset value of such Class B share
maintained by the recipient on the books of the Fund for specified periods. See
"Distribution Plans" below.
CLASS C SHARES
Class C shares are offered only through dealers who have special distribution
agreements with the Principal Underwriter. Class C shares are offered at net
asset value, without an initial sales charge. With certain exceptions, the Fund
may impose a deferred sales charge of 1.00% on shares redeemed within one year
after the date of purchase. No deferred sales charge is imposed on amounts
redeemed thereafter. If imposed, the deferred sales charge is deducted from the
redemption proceeds otherwise payable to a shareholder. The deferred sales
charge is retained by the Principal Underwriter. See "Contingent Deferred Sales
Charges and Waiver of Sales Charges" below.
CLASS C DISTRIBUTION PLANS
The Fund has adopted a Distribution Plan and other plans with respect to its
Class C shares (all such plans collectively, the "Class C Distribution Plans")
that provide for expenditures at an annual rate of up to 1.00% of the average
daily net asset value of Class C shares to pay expenses of the distribution of
Class C shares. Payments under the Class C Distribution Plans 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. Amounts paid or accrued to the Principal Underwriter under (1) and (2) in
the aggregate may not exceed the annual limitation referred to above.
The Principal Underwriter generally reallows to brokers or others a commission
in the amount of 0.75% of the price paid for each Class C share sold, plus the
first year's service fee in advance in the amount of 0.25% of the price paid for
each Class C share sold, and, beginning approximately fifteen months after
purchase, a commission at an annual rate of 0.75% (subject to NASD rules -- see
"Distribution Plans") plus service fees at an annual rate of 0.25%,
respectively, of the average daily net asset value of each Class C share
maintained by such recipients on the books of the Fund for specified periods.
See "Distribution Plans" below.
CONTINGENT DEFERRED SALES CHARGE AND
WAIVER OF SALES CHARGES
Any contingent deferred sales charge imposed upon the redemption of Class A,
Class B or Class C shares is a percentage of the lesser of (1) the net asset
value of the shares redeemed or (2) the net asset value at the time of purchase
of such shares. No contingent deferred sales charge is imposed when a
shareholder redeems amounts derived from (1) increases in the value of an
account above the net cost of such shares due to increases in the net asset
value per share of the Fund; (2) certain shares with respect to which the Fund
did not pay a commission on issuance, including shares acquired through
reinvestment of dividend income and capital gains distributions; (3) certain
Class A shares held for more than one year or two years, as the case may be,
from the date of purchase; (4) Class B shares held during more than four
consecutive calendar years or more than 72 months, as the case may be; or (5)
Class C shares held for more than one year from the date of purchase. Upon
request for redemption, shares not subject to the contingent deferred sales
charge will be redeemed first. Thereafter, shares held the longest will be the
first to be redeemed.
The Fund also may sell Class A, Class B or Class C shares at net asset value
without any initial sales charge or a contingent deferred sales charge to
certain Directors, Trustees, officers and employees of the Fund and Keystone and
certain of their affiliates, to registered representatives of firms with dealer
agreements with the Principal Underwriter and to a bank or trust company acting
as a trustee for a single account.
With respect to Class A shares purchased by a Qualifying Plan at net asset
value or Class C shares purchased by a Qualifying Plan, no contingent deferred
sales charge will be imposed on any redemptions made specifically by an
individual participant in the Qualifying Plan. This waiver is not available in
the event a Qualifying Plan (as a whole) redeems substantially all of its
assets.
In addition, no contingent deferred sales charge is imposed on a redemption of
shares of the Fund in the event of (1) death or disability of the shareholder;
(2) a lump-sum distribution from a 401(k) plan or other benefit plan qualified
under the Employee Retirement Income Security Act of 1974 ("ERISA"); (3)
automatic withdrawals from ERISA plans if the shareholder is at least 59 1/2
years old; (4) involuntary redemptions of accounts having an aggregate net asset
value of less than $1,000; (5) automatic withdrawals under an automatic
withdrawal plan of up to 1 1/2% per month of the shareholder's initial account
balance; (6) withdrawals consisting of loan proceeds to a retirement plan
participant; (7) financial hardship withdrawals made by a retirement plan
participant; or (8) withdrawals consisting of returns of excess contributions or
excess deferral amounts made to a retirement plan participant.
ARRANGEMENTS WITH BROKER-DEALERS AND OTHERS
The Principal Underwriter may, from time to time, provide promotional
incentives, including reallowance of up to the entire sales charge, to certain
dealers whose representatives have sold or are expected to sell significant
amounts of Fund shares. In addition, dealers may, from time to time, receive
additional cash payments. The Principal Underwriter may also provide written
information to dealers with whom it has dealer agreements that relates to sales
incentive campaigns conducted by such dealers for their representatives as well
as financial assistance in connection with pre-approved seminars, conferences
and advertising. No such programs or additional compensation will be offered to
the extent they are prohibited by the laws of any state or any self-regulatory
agency, such as the NASD. Dealers to whom substantially the entire sales charge
is reallowed may be deemed to be underwriters as that term is defined under the
1933 Act.
The Principal Underwriter may, at its own expense, pay concessions in addition
to those described above to dealers that satisfy certain criteria established
from time to time by the Principal Underwriter. These conditions relate to
increasing sales of shares of the Keystone funds over specified periods and
certain other factors. Such payments may, depending on the dealer's satisfaction
of the required conditions, be periodic and may be up to 0.25% of the value of
shares sold by such dealer.
The Principal Underwriter also may 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 the payments made allowable to dealers for
the sale of such shares as described above.
The Glass-Steagall Act currently limits the ability of a depository
institution (such as a commercial bank or a savings and loan association) to
become an underwriter or distributor of securities. In the event the
Glass-Steagall Act is deemed to prohibit depository institutions from accepting
payments under the arrangement described above, or should Congress relax current
restrictions on depository institutions, the Board of Trustees will consider
what action, if any, is appropriate.
In addition, state securities laws on this issue may differ from the
interpretations of federal law expressed herein, and banks and financial
institutions may be required to register as dealers pursuant to state law.
DISTRIBUTION PLANS
As discussed above, the Fund bears some of the costs of selling its shares
under Distribution Plans and other plans adopted with respect to its Class A,
Class B and Class C shares pursuant to Rule 12b-1 under the 1940 Act.
The NASD currently limits the amount that a fund may pay annually in
distribution costs for the sale of its shares and shareholder service fees. The
NASD limits annual expenditures to 1.00% of the aggregate average daily net
asset value of a fund's shares, of which 0.75% may be used to pay such
distribution costs and 0.25% may be used to pay shareholder service fees. The
NASD also limits the aggregate amount that the Fund may pay for such
distribution costs to 6.25% of gross share sales since the inception of the
12b-1 Distribution Plans, plus interest at the prime rate plus 1% on such
amounts (less any contingent deferred sales charges paid by shareholders to the
Principal Underwriter) remaining unpaid from time to time.
The Principal Underwriter intends, but is not obligated, to continue to pay or
accrue distribution charges incurred in connection with the Class B Distribution
Plans that exceed current annual payments permitted to be received by the
Principal Underwriter from the Fund. The Principal Underwriter intends to seek
full payment of such charges from the Fund (together with annual interest
thereon at the prime rate plus one percent) at such time in the future as, and
to the extent that, payment thereof by the Fund would be within the permitted
limits.
If the Fund's Independent Trustees authorize such payments, the effect would
be to extend the period of time during which the Fund incurs the maximum amount
of costs allowed by a Distribution Plan. If a Distribution Plan is terminated,
the Principal Underwriter will ask the Independent Trustees to take whatever
action they deem appropriate under the circumstances with respect to payment of
such amounts.
In connection with financing its distribution costs, including commission
advances to dealers and others, the Principal Underwriter has sold to a
financial institution substantially all of its 12b-1 fee collection rights and
contingent deferred sales charge collection rights in respect of Class B shares
sold during the two-year period commencing approximately June 1, 1995. The Fund
has agreed not to reduce the rate of payment of 12b-1 fees in respect of such
Class B shares unless it terminates such shares' Distribution Plan completely.
If it terminates such Distribution Plan, the Fund may be subject to adverse
distribution consequences.
Each of the Distribution Plans may be terminated at any time by vote of the
Independent Trustees or by vote of a majority of the outstanding voting shares
of the respective class.
For Class B shares sold prior to June 1, 1995, unreimbursed distribution
expenses at October 31, 1995 were $191,513 (5.2% of such Class B assets at
October 31, 1995). For Class B shares sold on or after June 1, 1995,
unreimbursed distribution expenses at October 31, 1995 were $18,809 (1.0% of
such Class B net assets at October 31, 1995). Unreimbursed distribution expenses
at October 31, 1995 for Class C shares were $117,401 (9.9% of Class C net assets
at October 31, 1995).
For the fiscal year ended October 31, 1995, the Fund paid the Principal
Underwriter $22,659, $31,853 ($29,857 with respect to Class B shares sold prior
to June 1, 1995 and $1,996 with respect to Class B shares sold on or after June
1, 1995) and $13,920 pursuant to its Class A, Class B and Class C Distribution
Plans, respectively.
Dealers or others may receive different levels of compensation depending on
which class of shares they sell. Payments pursuant to a Distribution Plan are
included in the operating expenses of the class.
HOW TO REDEEM SHARES
You may redeem Portfolio shares for cash at their net asset value upon written
order to the Fund c/o KIRC, and presentation to the Fund of a properly endorsed
share certificate (if certificates have been issued). Your signature (s) on the
written order and certificates must be guaranteed as described below. In order
to redeem by telephone, you must have completed the authorization in your
account application.
The redemption value equals the net asset value per share and may be more or
less than your cost depending upon changes in the value of the Portfolio's
securities between purchase and redemption.
If imposed, the deferred sales charge is deducted from the redemption proceeds
otherwise payable to you.
REDEMPTION OF SHARES IN GENERAL
At various times, the Fund may be requested to redeem shares for which it has
not yet received good payment. In such a case, the Fund will mail the redemption
proceeds upon clearance of the purchase check which may take up to 15 days or
more. Any delay may be avoided by purchasing shares either with a certified
check or by Federal Reserve or bank wire of funds or by EFT. Although the
mailing of a redemption check or the wiring or EFT of redemption proceeds may be
delayed, the redemption value will be determined and the redemption processed in
the ordinary course of business upon receipt of proper documentation. In such a
case, after the redemption and prior to the release of the proceeds, no
appreciation or depreciation will occur in the value of the redeemed shares, and
no interest will be paid on the redemption proceeds. If the payment of a
redemption has been delayed, the check will be mailed or the proceeds wired or
sent EFT promptly after good payment has been collected.
The Fund computes the amount due you at the close of the Exchange at the end
of the day on which it has received all proper documentation from you. Payment
of the amount due on redemption, less any applicable contingent deferred sales
charge (as described above), will be made within seven days thereafter except as
discussed herein.
You may also redeem your shares through broker-dealers. The Principal
Underwriter, acting as agent for the Fund, stands ready to repurchase Portfolio
shares upon orders from dealers and will calculate the net asset value on the
same terms as those orders for the purchase of shares received from
broker-dealers and described under "How to Buy Shares." If the Principal
Underwriter has received proper documentation, it will pay the redemption
proceeds, less any applicable deferred sales charge, to the broker-dealer
placing the order within seven days thereafter. The Principal Underwriter
charges no fees for this service; your broker-dealer, however, may charge a
service fee.
For your protection, SIGNATURES ON CERTIFICATES, STOCK POWERS AND ALL WRITTEN
ORDERS OR AUTHORIZATIONS MUST BE GUARANTEED BY A U.S. STOCK EXCHANGE MEMBER, A
BANK OR OTHER PERSONS ELIGIBLE TO GUARANTEE SIGNATURES UNDER THE SECURITIES
EXCHANGE ACT OF 1934 AND KIRC'S POLICIES. The Fund or KIRC may waive this
requirement but 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 when the account address of record has been the
same for a minimum period of 30 days. The Fund and KIRC reserve the right to
withdraw this waiver at any time.
If the Fund receives a redemption order, but you have not clearly indicated
the amount of money or number of shares involved, the Fund cannot execute the
order. In such cases, the Fund will request the missing information from you and
process the order on the day such information is received.
TELEPHONE REDEMPTIONS
Under ordinary circumstances, you may redeem up to $50,000 from your account
by telephone by calling toll free 1-800-343-2898. 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 has fallen below $1,000, the current
minimum investment level, as a result of your redemptions (but not as a result
of market action). You will be notified in writing and allowed 60 days to
increase the value of your account to the minimum investment level. No deferred
sales charges are applied to such redemptions.
REDEMPTIONS IN KIND
If conditions arise that would make it undesirable for the Fund to pay for all
redemptions in cash, the Fund may authorize payment for shares to be made in
portfolio securities or other property. The Fund has obligated itself, however,
under the 1940 Act to redeem for cash all shares presented for redemption by any
one shareholder in any 90-day period up to the lesser of $250,000 or 1% of the
Portfolio's net assets at the beginning of such period. Securities delivered in
payment of redemptions would be valued at the same value assigned to them in
computing the net asset value per share and would, to the extent permitted by
law, be readily marketable. Shareholders receiving such securities would incur
brokerage costs when these securities are sold.
GENERAL
The Fund reserves the right at any time to terminate, suspend or change the
terms of any redemption method described in this prospectus, except redemption
by mail, and to impose fees.
Except as otherwise noted, neither the Fund, KIRC nor the Principal
Underwriter assumes responsibility for the authenticity of any instructions
received by any of them from a shareholder in writing, over the Keystone
Automated Response Line ("KARL") or by telephone. KIRC will employ reasonable
procedures to confirm that instructions received over KARL or by telephone are
genuine. Neither the Fund, KIRC nor the Principal Underwriter will be liable
when following instructions received over KARL or by telephone which KIRC
reasonably believes to be genuine.
The Fund may temporarily suspend the right to redeem its shares when (1) the
Exchange is closed, other than customary weekend and holiday closings; (2)
trading on the Exchange is restricted; (3) an emergency exists and the Fund
cannot dispose of its investments or fairly determine their value; or (4) the
Securities and Exchange Commission so orders.
SHAREHOLDER SERVICES
Details on all shareholder services may be obtained from KIRC by writing or by
calling toll free 1-800-343-2898.
KEYSTONE AUTOMATED RESPONSE LINE
The Keystone Automated Response Line offers you specific fund account
information and price and yield quotations as well as the ability to do account
transactions, including investments, exchanges and redemptions. You may access
KARL by dialing toll free 1-800-346-3858 on any touch-tone telephone, 24 hours a
day, seven days a week.
EXCHANGES
If you have obtained the appropriate prospectus, you may exchange shares of
the Portfolio for shares of other Keystone America Funds and Keystone Liquid
Trust ("KLT") as follows:
Class A shares may be exchanged for Class A shares of other Keystone America
Funds and Class A shares of KLT;
Class B shares, except as noted below, may be exchanged for the same type of
Class B shares of other Keystone America Funds and the same type of Class B
shares of KLT; and
Class C shares may be exchanged for Class C shares of other Keystone America
Funds and Class C shares of KLT.
Class B shares purchased on or after June 1, 1995 cannot be exchanged for
Class B shares of Keystone Capital Preservation and Income Fund during the 24
month period commencing with and including month of purchase.
The exchange of Class B shares and Class C shares will not be subject to a
contingent deferred sales charge. However, if the shares being tendered for
exchange are:
(1) Class A shares acquired in an NAV Purchase or otherwise without a front
end sales charge,
(2) Class B shares that have been held for less than 72 months or four years,
as the case may be, or
(3) Class C shares that have been held for less than one year,
and are still subject to a deferred sales charge, such charge will carry over to
the shares being acquired in the exchange transaction.
You may exchange shares by calling toll free 1-800-343-2898 (provided you have
selected such option on the application), by writing KIRC or by calling KARL.
Shares purchased by check are eligible for exchange after 15 days. 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. As indicated above, if the shares being tendered
for exchange are still subject to a deferred sales charge, such charge will
carry over to the shares being acquired in the exchange transaction. The Fund
reserves the right, after providing the required notice to shareholders, to
terminate this exchange offer or to change its terms, including the right to
change the fee for any exchange.
Orders to exchange a certain class of shares of the Portfolio for the
corresponding class of shares of KLT will be executed by redeeming the shares of
the Portfolio and purchasing the corresponding class of shares of KLT at the net
asset value of such shares next determined after the proceeds from such
redemption become available, which may be up to seven days after such
redemption. In all other cases, orders for exchanges received by the Fund prior
to 4:00 p.m. eastern time on any day the Fund is open for business will be
executed at the respective net asset values determined as of the close of
business that day. Orders for exchanges received after 4:00 p.m. eastern time on
any business day will be executed at the respective net asset values determined
at the close of the next business day.
An excessive number of exchanges may be disadvantageous to the Fund.
Therefore, the Fund, in addition to its right to reject any exchange, reserves
the right to terminate the exchange privilege of any shareholder who makes more
than five exchanges of shares of the funds in a year or three in a calendar
quarter.
An exchange order must comply with the requirements for a redemption or
repurchase order and must specify the dollar value or number of shares to be
exchanged. Exchanges are subject to the minimum initial purchase requirements of
the fund being acquired. An exchange constitutes a sale for federal income tax
purposes.
The exchange privilege is available only in states where shares of the fund
being acquired may legally be sold.
KEYSTONE AMERICA MONEY LINE
Keystone America Money Line eliminates the delay of mailing a check or the
expense of wiring funds. You must request the service on your application.
Keystone America Money Line allows you to authorize electronic transfers of
money to purchase shares in any amount and to redeem up to $50,000 worth of
shares. You can use Keystone America Money Line like an "electronic check" to
move money between your bank account and your account in the Fund with one
telephone call. You must allow two business days after the call for the transfer
to take place. For money recently invested, you must allow normal check clearing
time before redemption proceeds are sent to your bank.
You may also arrange for systematic monthly or quarterly investments into your
Keystone America account. Once proper authorization is given, your bank account
will be debited to purchase the specified class of shares in the Portfolio. You
will receive confirmation from the Principal Underwriter for every transaction.
To change the amount of a Keystone America Money Line service or to terminate
such service (which could take up to 30 days), you must write to Keystone
Investor Resource Center, Inc., P.O. Box 2121, Boston, Massachusetts 02106-2121,
and include your account number.
RETIREMENT PLANS
The Fund has various pension and profit-sharing plans available to you,
including Individual Retirement Accounts ("IRAs"); Rollover IRAs; Simplified
Employee Pension Plans ("SEP's"); Tax Sheltered Annuity Plans ("TSA's"); 401 (k)
Plans; Keogh Plans; Corporate Profit-Sharing Plans; Money Purchase Pension Plans
and Salary-Reduction Plans. For details, including fees and application forms,
call toll free 1-800-247-4075 or write to KIRC.
AUTOMATIC WITHDRAWAL PLAN
Under an Automatic Withdrawal Plan, if your account has a value of at least
$10,000, you may arrange for regular monthly or quarterly fixed withdrawal
payments. Each payment must be at least $100 and may be as much as 1.5% per
month or 4.5% per quarter of the total net asset value of the Portfolio shares
in your account when the Automatic Withdrawal Plan is opened. Fixed withdrawal
payments are not subject to a deferred sales charge. Excessive withdrawals may
decrease or deplete the value of your account. Moreover, because of the effect
of the applicable sales charge, a Class A investor should not make continuous
purchases of the Portfolio's shares while participating in an Automatic
Withdrawal Plan.
DOLLAR COST AVERAGING
Through dollar cost averaging you can invest a fixed dollar amount each month
or each quarter in any Keystone America Fund. This results in more shares being
purchased when the selected fund's net asset value is relatively low and fewer
shares being purchased when the fund's net asset value is relatively high, which
may cause a lower average cost per share than a less systematic investment
approach.
Prior to participating in dollar cost averaging, you must have established an
account in a Keystone America Fund or a money market fund managed or advised by
Keystone. You should designate on the application the dollar amount of each
monthly or quarterly investment (minimum $100) you wish to make and the fund in
which the investment is to be made. Thereafter, on the first day of the
designated month, an amount equal to the specified monthly or quarterly
investment will automatically be redeemed from your initial account and invested
in shares of the designated fund. If you are a Class A investor and paid a sales
charge on your initial purchase, the shares purchased will be eligible for
Rights of Accumulation, and the sales charge applicable to the purchase will be
determined accordingly. In addition, the value of shares purchased will be
included in the total amount required to fulfill a Letter of Intent. If a sales
charge was not paid on the initial purchase, a sales charge will be imposed at
the time of subsequent purchases and the value of shares purchased will become
eligible for Rights of Accumulation and Letters of Intent.
TWO DIMENSIONAL INVESTING
You may elect to have income and capital gains distributions from any class of
Keystone America Fund shares you may own automatically invested to purchase the
same class of shares of any other Keystone America Fund. You may select this
service on your application and indicate the Keystone America Fund(s) into which
distributions are to be invested. The value of shares purchased will be
ineligible for Rights of Accumulation and Letters of Intent.
OTHER SERVICES
Under certain circumstances, you may, within 30 days after a redemption,
reinstate your account in the same class of shares that you redeemed at current
net asset value.
PERFORMANCE DATA
From time to time the Portfolio may advertise "total return" and "current
yield." ALL DATA IS BASED ON HISTORICAL EARNINGS AND IS NOT INTENDED TO INDICATE
FUTURE PERFORMANCE. Total return and current yield are computed separately for
each class of shares of the Fund. Total return refers to the Portfolio's average
annual compounded rates of return over specified periods determined by comparing
the initial amount invested in a particular class to the ending redeemable value
of that amount. The resulting equation assumes reinvestment of all dividends and
distributions and deduction of the maximum sales charge or applicable contingent
deferred sales charge and all recurring charges, if any, applicable to all
shareholder accounts. The exchange fee is not included in the calculation.
Current yield quotations represent the yield on an investment for a stated
30-day period computed by dividing net investment income earned per share during
the base period by the maximum offering price per share on the last day of the
base period.
The Fund may also include comparative performance data for each class of
shares in advertising or marketing the Fund's shares, such as data from Lipper
Analytical Services, Inc., Morningstar, Inc., Ibbotson Associations or other
industry publications.
FUND SHARES
Generally, the Fund currently issues three classes of shares of the Portfolio,
which participate in dividends and distributions and have equal voting,
liquidation and other rights except that (1) expenses related to the
distribution of each class of shares or other expenses that the Board of
Trustees may designate as class expenses from time to time, are borne solely by
such class; (2) each class of shares has exclusive voting rights with respect to
its Distribution Plan; (3) each class has different exchange privileges; and (4)
each class generally has a different designation. When issued and paid for, the
shares will be fully paid and nonassessable by the Fund. Shares may be exchanged
as explained under "Shareholder Services" but will have no other preference,
conversion, exchange or preemptive rights. Shares are redeemable, transferable
and freely assignable as collateral. The Fund is authorized to issue additional
series (portfolios) and classes of shares.
Shareholders are entitled to one vote for each full share owned and fractional
votes for fractional shares. Shares of the Fund vote together except when
required by law to vote separately by class. The Fund does not have annual
meetings. The Fund will have special meetings from time to time as required
under its Declaration of Trust and under the 1940 Act. As provided in the
Declaration of Trust of the Fund, shareholders have the right to remove Trustees
by an affirmative vote of two-thirds of the outstanding shares. A special
meeting of the shareholders will be held when holders of 10% of the outstanding
shares request a meeting for the purpose of removing a Trustee. As prescribed by
Section 16(c) of the 1940 Act, shareholders may be eligible for shareholder
communication assistance in connection with the special meeting.
The Fund's Declaration of Trust provides that shareholders shall not be
subject to any personal liability for the Fund's obligations and provides
indemnification from Fund assets for any shareholder held personally liable for
the Fund's obligations. Disclaimers of such liability are included in each Fund
agreement. Under Massachusetts law, however, it is possible that a Fund
shareholder might be held personally liable for certain of the Fund's
obligations.
ADDITIONAL INFORMATION
KIRC, located at 101 Main Street, Cambridge, Massachusetts 02142-1519, is a
wholly-owned subsidiary of Keystone and serves as the Fund's transfer agent and
dividend disbursing agent.
When the Fund determines from its records that more than one account in the
Fund is registered in the name of a shareholder or shareholders having the same
address, upon notice to those shareholders, the Fund intends, when an annual
report or a semi-annual report of the Fund is required to be furnished, to mail
one copy of such report to that address.
Except as otherwise stated in this prospectus or required by law, the Fund
reserves the right to change the terms of the offer stated in this prospectus
without shareholder approval, including the right to impose or change fees for
services provided.
<PAGE>
ADDITIONAL INVESTMENT INFORMATION
DESCRIPTIONS OF CERTAIN TYPES OF INVESTMENTS AND
INVESTMENT TECHNIQUES AVAILABLE TO THE PORTFOLIO
The Fund may engage in the following investment practices to the extent
described in the prospectus and the statement of additional information.
CORPORATE BOND RATINGS
Higher yields are usually available on securities that are lower rated or that
are unrated. Bonds rated Baa by Moody's are considered as medium grade
obligations 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 which are speculative
in a high degree. Such issues are often in default or have other market
shortcomings. Bonds that are rated C by Moody's are the lowest rated class of
bonds, and issues so rated can be regarded as having extremely poor prospects of
ever attaining any real investment standing.
ZERO COUPON BONDS
A zero coupon "stripped" bond represents ownership in serially maturing
interest or principal payments on specific underlying notes and bonds, including
coupons relating to such notes and bonds. The interest and principal payments
are direct obligations of the issuer. Coupon zero coupon bonds of any series
mature periodically from the date of issue of such series through the maturity
date of the securities related to such series. Principal zero coupon bonds
mature on the date specified therein, which is the final maturity date of the
related securities. Each zero coupon bond entitles the holder to receive a
single payment at maturity. There are no periodic interest payments on a zero
coupon bond. Zero coupon bonds are offered at discounts from their face amounts.
In general, owners of zero coupon bonds have substantially all the rights and
privileges of owners of the underlying coupon obligations or principal
obligations. Owners of zero coupon bonds have the right upon default on the
underlying coupon obligations or principal obligations to proceed directly and
individually against the issuer and are not required to act in concert with
other holders of zero coupon bonds.
For federal income tax purposes, a purchaser of principal zero coupon bonds or
coupon zero coupon bonds (either initially or in the secondary market) is
treated as if the buyer had purchased a corporate obligation issued on the
purchase date with an original issue discount equal to the excess of the amount
payable at maturity over the purchase price. The purchaser is required to take
into income each year as ordinary income an allocable portion of such discounts
determined on a "constant yield" method. Any such income increases the holder's
tax basis for the zero coupon bond, and any gain or loss on a sale of the zero
coupon bonds relative to the holder's basis, as so adjusted, is a capital gain
or loss. If the holder owns both principal zero coupon bonds and coupon zero
bonds representing interest in the same underlying issue of securities, a
special basis allocation rule (requiring the aggregate basis to be allocated
among the items sold and retained based on their relative fair market value at
the time of sale) may apply to determine the gain or loss on a sale of any such
zero coupon bonds.
PAYMENT-IN-KIND SECURITIES
PIK securities pay interest in either cash or additional securities, at the
issuer's option, for a specified period. The issuer's option to pay in
additional securities typically ranges from one to six years compared to an
average maturity for all PIK securities of eleven years. Call protection and
sinking fund features are comparable to those offered on traditional debt
issues.
PIKs, like zero coupon bonds, are designed to give the issuer flexibility in
managing cash flow. Several PIKs are senior debt. In other cases, where PIKs are
subordinated, most senior lenders view them as equity equivalents.
An advantage of PIKs for the issuer -- as with zero coupon securities -- is
that interest payments are automatically compounded (reinvested) at the stated
coupon rate, which is not the case with cash-paying securities. 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.
REPURCHASE AGREEMENTS
The Portfolio may enter into repurchase agreements; i.e., the Portfolio
purchases a security subject to the Portfolio's obligation to resell and the
seller's obligation to repurchase that security at an agreed upon price and
date, such date usually being not more than seven days from the date of
purchase. The resale price is based on the purchase price plus an agreed upon
market rate of interest that is unrelated to the coupon rate or maturity of the
purchased security. A repurchase agreement imposes an obligation on the seller
to pay the agreed upon price, which obligation is in effect secured by the value
of the underlying security. The value of the underlying security is at least
equal to the amount of the agreed upon resale price and marked to market daily.
The Portfolio may enter into such agreements only with respect to U.S.
government and foreign government securities, which may be denominated in U.S.
or foreign currencies. The Portfolio may enter into such repurchase agreements
with foreign banks and securities dealers approved in advance by the Fund's
Trustees. Whether a repurchase agreement is the purchase and sale of a security
or a collateralized loan has not been definitively established. This might
become an issue in the event of the bankruptcy of the other party to the
transaction. It does not presently appear possible to eliminate all risks
involved in repurchase agreements. These risks include the possibility of a
decline in the market value of the underlying securities, as well as delay and
costs to the Portfolio in connection with bankruptcy proceedings. Therefore, it
is the policy of the Portfolio to enter into repurchase agreements only with
large, well-capitalized banks that are members of the Federal Reserve System and
with primary dealers in U.S. government securities (as designated by the Federal
Reserve Board) whose creditworthiness has been reviewed and found satisfactory
by the Portfolio's adviser. The Portfolio anticipates that less than 10% of its
net assets will be invested in repurchase agreements maturing in more than seven
days.
CONVERTIBLE SECURITIES
The Portfolio may invest in convertible securities. These securities, which
include bonds, debentures, corporate notes, preferred stocks and other
securities, are securities which the holder can convert into common stock.
Convertible securities rank senior to common stock in a corporation's capital
structure and, therefore, entail less risk than that corporation's common stock.
The value of a convertible security is a function of its investment value (its
market worth without a conversion privilege) and its conversion value (its
market worth if exchanged). If a convertible security's investment value is
greater than its conversion value, its price primarily will reflect its
investment value and will tend to vary inversely with interest rates. (The
issuer's creditworthiness and other factors also may affect its value.) If a
convertible security's conversion value is greater than its investment value,
its price will tend to be higher than its conversion value, and it will tend to
fluctuate directly with the price of the underlying equity security.
WHEN ISSUED AND FORWARD COMMITMENT
TRANSACTIONS
The Portfolio may purchase newly issued securities on a when issued and
delayed delivery basis and may purchase or sell securities on a forward
commitment basis. When issued or delayed delivery transactions arise when
securities are purchased by the Portfolio 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 Portfolio at the time of entering into the transaction. A
forward commitment transaction is an agreement by the Portfolio to purchase or
sell securities at a specified future date. When the Portfolio engages in these
transactions, the Portfolio relies on the buyer or seller, as the case may be,
to consummate the sale. Failure to do so may result in the Portfolio missing the
opportunity to obtain a price or yield considered to be advantageous. When
issued and delayed delivery transactions and forward commitment transactions may
be expected to occur a month or more before delivery is due. However, no payment
or delivery is made by the Portfolio until it receives payment or delivery from
the other party to the transaction. A separate account of liquid assets equal to
the value of purchase commitments will be maintained until payment is made.
SHORT SALES
The Portfolio may make short sales of securities "against the box." A short
sale involves the borrowing of a security, which must eventually be returned to
the lender. A short sale is "against the box" if, at all times when the short
position is open, the Portfolio owns the securities sold short or owns an equal
amount of securities convertible into, or exchangeable without further
consideration for, securities identical to the securities sold short. Short
sales against the box are used to defer recognition of gains or losses or in
order to receive a portion of the interest earned by the executing broker from
the proceeds of such sale. The proceeds of a short sale are held by the broker
until the settlement date when the Portfolio delivers the convertible security
to close out its short position. Although prior to such delivery the Portfolio
will have to pay an amount equal to any dividends paid on the securities sold
short, the Portfolio will receive the dividends from the securities convertible
into the securities sold short, plus a portion of the interest earned from the
proceeds of the short sale. The Portfolio will not make short sales of
securities subject to outstanding call options written by it. The Portfolio will
segregate the securities sold short or appropriate convertible securities in a
special account with the Fund's custodian in connection with its short sales
"against the box."
LOANS OF SECURITIES
The Portfolio may lend its securities to broker-dealers or other institutional
borrowers for use in connection with such borrowers' short sales, arbitrages or
other securities transactions. Such loan transactions afford the Portfolio an
opportunity to continue to earn income on the securities loaned and at the same
time to earn income on the collateral held by it to secure the loan. Loans of
portfolio securities will be made (if at all) in strict conformity with
applicable federal and state rules and regulations. There may be delays in
recovery of loaned securities or even a loss of rights in collateral should the
borrower fail financially. Therefore, loans will be made only to firms deemed by
the Portfolio's adviser to be of good standing and will not be made unless, in
the judgment of the adviser, the consideration to be earned from such loans
justifies the risk. The Fund understands that it is the current view of the
staff of the SEC that the Portfolio is permitted to engage in loan transactions
only if it meets the following conditions: (1) the Portfolio must receive 100%
collateral in the form of cash or cash equivalents, e.g., U.S. Treasury bills or
notes, from the borrower; (2) the borrower must increase the collateral whenever
the market value of the securities (determined on a daily basis) exceeds the
value of the collateral; (3) the Portfolio must be able to terminate the loan,
after notice, at any time; (4) the Portfolio must receive reasonable interest on
the loan or a flat fee from the borrower, as well as amounts equivalent to any
dividends, interest or other distributions on the securities loaned and any
increase in the securities' market values, which could result from the returned
loaned securities; (5) the Portfolio may pay only reasonable custodian fees in
connection with the loan; and (6) voting rights on the securities loaned may
pass to the borrower; however, if a material event affecting the securities
occurs, the Portfolio must be able to terminate the loan and vote proxies or
enter into an alternative arrangement with the borrower to enable the Fund to
vote proxies. Excluding items (1) and (2), these procedures may be amended from
time to time, as regulatory policies may permit, by the Fund's Board of Trustees
without shareholder approval. Such loans may not exceed 25% of the Portfolio's
total assets.
DERIVATIVES
The Fund may use derivatives only in a manner consistent with its investment
objectives. 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 use of derivatives for non-hedging purposes
entails greater risks than if derivatives were used solely for hedging purposes.
The Fund uses futures contracts and related options as well as forwards for
hedging purposes. Derivatives are a valuable tool, which, when used properly,
can provide significant benefit to Fund shareholders. With respect to the
Portfolio, Keystone does not currently intend to aggressively use derivatives.
However, the Portfolio 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 Portfolio'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, futures, forwards and swaps,
is provided later in this section and is provided in the Fund's statement of
additional information.
Debt instruments that incorporate one or more of these building blocks for the
purpose of determining the principal amount of and/or rate of interest payable
on the debt instruments are often referred to as "structured securities." An
example of this type of structured security is indexed commercial paper. The
term is also used to describe certain securities issued in connection with the
restructuring of certain foreign obligations. See "Indexed Commercial Paper" and
"Structured Securities" below. The term "derivative" is also sometimes used to
describe securities involving rights to a portion of the cash flows from an
underlying pool of mortgages or other assets from which payments are passed
through to the owner of, or that collateralize, the securities. See "Mortgage
Related Securities," "Collateralized Mortgage Obligations," "Adjustable Rate
Mortgage Securities," "Stripped Mortgage Securities," "Mortgage Securities -
Special Considerations," and "Other Asset-Backed Securities" and the Fund's
statement of additional information.
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 Portfolio'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 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 Portfolio
as a result of the failure of another party to a derivative (usually referred
to as a "counterparty") to comply with the terms of the derivative contract.
The credit risk for exchange-traded derivatives is generally less than for
privately negotiated derivatives, since the clearing house, which is the
issuer or counterparty to each exchange-traded derivative, provides a
guarantee of performance. This guarantee is supported by a daily payment
system (i.e., margin requirements) operated by the clearing house in order to
reduce overall credit risk. For privately negotiated derivatives, there is no
similar clearing agency guarantee. Therefore, the Fund considers the
creditworthiness of each counterparty to a privately negotiated derivative in
evaluating potential credit risk.
* Liquidity Risk -- Liquidity risk exists when a particular instrument is
difficult to purchase or sell. If a derivative transaction is particularly
large or if the relevant market is illiquid (as is the case with many
privately negotiated derivatives), it may not be possible to initiate a
transaction or liquidate a position at an advantageous price.
* 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 the Portfolio. 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 Portfolio's use
of derivatives may not always be an effective means of, and sometimes could be
counterproductive to, furthering the Portfolio's investment objectives.
OPTIONS TRANSACTIONS
WRITING COVERED OPTIONS. The Portfolio may write (i.e., sell) covered call and
put options. No more than 25% of the Portfolio's net assets will be subject to
covered options. By writing a call option, the Portfolio becomes obligated
during the term of the option to deliver the securities underlying the option
upon payment of the exercise price. By writing a put option, the Portfolio
becomes obligated during the term of the option to purchase the securities
underlying the option at the exercise price if the option is exercised.
The Portfolio may only write "covered" options. This means that so long as the
Portfolio 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 Portfolio might own substantially similar U.S. Treasury
bills. If the Portfolio has written options against all of its securities that
are eligible for writing options, the Portfolio may be unable to write
additional options unless it sells a portion of its portfolio holdings to obtain
new securities against which it can write options. If this were to occur, higher
portfolio turnover and, correspondingly, greater brokerage commissions and other
transaction costs may result. The Portfolio does not expect, however, that this
will occur.
The Portfolio will be considered "covered" with respect to a put option it
writes if, so long as it is obligated as the writer of the put option, it
deposits and maintains liquid assets having a value equal to or greater than the
exercise price of the option with the Fund's custodian in a segregated account.
The principal reason for writing call or put options is to obtain, through a
receipt of premiums, a greater current return than would be realized on the
underlying securities alone. The Portfolio receives a premium from writing a
call or put option which it retains whether or not the option is exercised. By
writing a call option, the Portfolio might lose the potential for gain on the
underlying security while the option is open, and by writing a put option, the
Portfolio might become obligated to purchase the underlying security for more
than its current market price upon exercise.
PURCHASING OPTIONS. The Portfolio may purchase call and put options.
The Portfolio would normally purchase call options to hedge against an
increase in the market value of the Portfolio's securities. The purchase of a
call option would entitle the Portfolio, in return for the premium paid, to
purchase specified securities at a specified price, upon exercise of the option,
during the option period. The Portfolio would ordinarily realize a gain if,
during the option period, the value of such securities exceeds the sum of the
exercise price, the premium paid and transaction costs; otherwise the Portfolio
would realize a loss on the purchase of the call option.
The Portfolio may purchase put or call options, including purchasing put or
call options for the purpose of offsetting previously written put or call
options of the same series. If the Portfolio is unable to effect a closing
purchase transaction with respect to covered options it has written, the
Portfolio will not be able to sell the underlying securities until the options
expire or are exercised.
The Portfolio would normally purchase put options to hedge against a decline
in the market value of securities in its portfolio (protective puts). The
Portfolio will not engage in such transactions for speculation. The purchase of
a put option would entitle the Portfolio, in exchange for the premium paid, to
sell specified securities at a specified price, upon exercise of the option,
during the option period. Gains and losses on the purchase of protective put
options would tend to be offset by countervailing changes in the value of
underlying portfolio securities. The Portfolio would ordinarily realize a gain
if, during the option period, the value of the underlying securities declined
below the exercise price sufficiently to cover the premium and transaction
costs; otherwise the Portfolio would realize a loss on the purchase of the put
option.
The Portfolio may purchase put and call options on securities indices for the
same purposes as the purchase of options on securities. Currently, only options
on stock indices are traded and only on national exchanges. Options on
securities indices are similar to options on securities, except that the
exercise of securities index options requires cash payments and does not involve
the actual purchase or sale of securities. In addition, securities index options
are designed to reflect price fluctuations in a group of securities or segment
of the securities market rather than price fluctuations in a single security.
The Portfolio's purchases of securities index options is subject to the risk
that the value of its portfolio securities may not change as much as an index
because the Portfolio's investments generally cannot match exactly the
composition of an index.
An option position may be closed out only in a secondary market for an option
of the same series. Although the Portfolio will generally write only those
options for which there appears to be an active secondary market, there is no
assurance that a liquid secondary market will exist for any particular option at
any particular time, and for some options no secondary market may exist. In such
event it might not be possible to effect a closing transaction in a particular
option.
Options on some securities are relatively new, and it is impossible to predict
the amount of trading interest that will exist in such options. There can be no
assurance that viable markets will develop or continue. The failure of such
markets to develop or continue could significantly impair the Portfolio's
ability to use such options to achieve its investment objectives.
OPTIONS TRADING MARKETS
Options in which the Portfolio will trade are generally listed on national
securities exchanges. Exchanges on which such options currently are traded
include the Chicago Board Options Exchange and the New York, American, Pacific
and Philadelphia Stock Exchanges. Options on some securities may not be listed
on any exchange but traded in the over-the-counter market. Options traded in the
over-the-counter market involve the additional risk that securities dealers
participating in such transactions could fail to meet their obligations to the
Portfolio. The use of options traded in the over-the-counter market may be
subject to limitations imposed by certain state securities authorities.
The staff of the Securities and Exchange Commission ("SEC") is of the view
that the premiums that the Portfolio pays for the purchase of unlisted options
and the value of securities used to cover unlisted options written by the
Portfolio are considered to be invested in illiquid securities or assets for the
purpose of calculating whether the Portfolio is in compliance with its
fundamental investment restrictions relating to illiquid securities.
FUTURES TRANSACTIONS
The Portfolio may enter into futures contracts for the purchase or sale of
securities or currencies or futures contracts based on securities indices and
may write options on such contracts. The Portfolio intends to enter into such
contracts and related options for hedging purposes. The Portfolio may enter into
other types of futures contracts that may become available and relate to the
securities held by the Portfolio. A futures contract is an agreement to buy or
sell securities or currencies at a specified price during a designated month.
The Portfolio 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 Portfolio may sell or purchase futures contracts. When a futures contract
is sold by the Portfolio, 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 Portfolio would sell
futures contracts in order to offset a possible decline in the value of its
securities or currencies. If a futures contract were purchased by the Portfolio,
the value of the contract would tend to rise when the value of the underlying
securities or currencies increased and to fall when the value of such securities
or currencies declined. The Portfolio intends to purchase futures contracts in
order to fix what is believed by its advisers to be a favorable price and rate
of return for securities or favorable exchange rate for currencies the Portfolio
intends to purchase.
The Portfolio also may purchase put and call options on securities and
currency futures contracts for hedging purposes. A put option purchased by the
Portfolio would give it the right to assume a position as the seller of a
futures contract. A call option purchased by the Portfolio 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 Portfolio to pay a premium. In
exchange for the premium, the Portfolio 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 Portfolio's loss will be limited to the amount of the
premium and any transaction costs.
In addition, the Portfolio may write (sell) put and call options on futures
contracts for hedging purposes. The writing of a put option on a futures
contract generates a premium, which may partially offset an increase in the
price of securities that the Portfolio intends to purchase. However, the
Portfolio becomes obligated to purchase a futures contract, which may have a
value lower than the exercise price. Conversely, the writing of a call option on
a futures contract generates a premium which may partially offset a decline in
the value of the Portfolio's assets. By writing a call option, the Portfolio
becomes obligated, in exchange for the premium, to sell a futures contract which
may have a value higher than the exercise price.
The Portfolio 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 Portfolio'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 Portfolio will be able to enter into an offsetting
transaction with respect to a particular contract at a particular time. If the
Portfolio is not able to enter into an offsetting transaction, the Portfolio
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 Portfolio
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 the
Portfolio's adviser correctly predicts interest or exchange rate movements, a
hedge could be unsuccessful if changes in the value of the Portfolio's futures
position did not correspond to changes in the value of its investments. This
lack of correlation between the Portfolio'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 Portfolio's futures position and the securities or currencies
held by or to be purchased for the Portfolio. In addition, futures contracts
transactions involve the remote risk that a party participating in a transaction
will not be able to fulfill its obligations and the amount of the obligation
will exceed the ability of the clearing broker to satisfy. The adviser will
attempt to minimize these risks through careful selection and monitoring of the
Portfolio's futures and options positions.
The Portfolio does not intend to use futures transactions for speculation or
leverage. The Portfolio may not purchase or sell futures contracts or options on
futures, except for closing purchase or sale transactions, if immediately
thereafter the sum of margin deposits on the Portfolio's outstanding futures and
options positions and premiums paid for outstanding options on futures would
exceed 5% of the market value of the Portfolio's total assets. The Fund will not
change these policies of the Portfolio without supplementing the information
contained in its prospectus and statement of additional information.
FOREIGN CURRENCY TRANSACTIONS
The Portfolio may invest in securities of foreign issuers. When the Portfolio
invests in foreign securities they usually will be denominated in foreign
currencies, and the Portfolio temporarily may hold funds in foreign currencies.
Thus, the value of Portfolio 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 Portfolio 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 Portfolio will deliver and receive when the contract is completed) is fixed
when the Portfolio enters into the contract. The Portfolio usually will enter
into these contracts to stabilize the U.S. dollar value of a security it has
agreed to buy or sell. The Portfolio intends to use these contracts to hedge the
U.S. dollar value of a security it already owns, particularly if the Portfolio
expects a decrease in the value of the currency in which the foreign security is
denominated. Although the Portfolio will attempt to benefit from using forward
contracts, the success of its hedging strategy will depend on its adviser's
ability to predict accurately the future exchange rates between foreign
currencies and the U.S. dollar. The value of the Portfolio's investments
denominated in foreign currencies will depend on the relative strength of those
currencies and the U.S. dollar, and the Portfolio may be affected favorably or
unfavorably by changes in the exchange rates or exchange control regulations
between foreign currencies and the dollar. Changes in foreign currency exchange
rates also may affect the value of dividends and interest earned, gains and
losses realized on the sale of securities and net investment income and gains,
if any, to be distributed to shareholders by the Portfolio. The Portfolio may
also purchase and sell options related to foreign currencies in connection with
hedging strategies.
INTEREST RATE TRANSACTIONS (SWAPS, CAPS AND FLOORS). If the Portfolio enters
into interest rate swap, cap or floor transactions, it expects to do so
primarily for hedging purposes, which may include preserving a return or spread
on a particular investment or portion of its portfolio or protecting against an
increase in the price of securities the Portfolio anticipates purchasing at a
later date. The Portfolio does not currently intend to use these transactions in
a speculative manner.
Interest rate swaps involve the exchange by the Portfolio with another party
of their respective commitments to pay or receive interest (e.g., an exchange of
floating rate payments for fixed rate payments). Interest rate caps and floors
are similar to options in that the purchase of an interest rate cap or floor
entitles the purchaser, to the extent that a specified index exceeds (in the
case of a cap) or falls below (in the case of a floor) a predetermined interest
rate, to receive payments of interest on a contractually-based principal
("notional") amount from the party selling the interest rate cap or floor. The
Portfolio may enter into interest rate swaps, caps and floors on either an
asset-based or liability-based basis, depending upon whether it is hedging its
assets or liabilities, and will usually enter into interest rate swaps on a net
basis (i.e., the two payment streams are netted out, with the Portfolio
receiving or paying, as the case may be, only the net amount of the two
payments).
The swap market has grown substantially in recent years, with a large number
of banks and investment banking firms acting as principals and as agents
utilizing standardized swap documentation. As a result, the swap market has
become more established and relatively liquid. Caps and floors are less liquid
than swaps. These transactions also involve the delivery of securities or other
underlying assets and principal. Accordingly, the risk of loss to the Portfolio
from interest rate transactions is limited to the net amount of interest
payments that the Portfolio is contractually obligated to make.
INDEXED COMMERCIAL PAPER. Indexed commercial paper may have its principal linked
to changes in foreign currency exchange rates whereby its principal amount is
adjusted upwards or downwards (but not below zero) at maturity to reflect
changes in the referenced exchange rate. If permitted by its investment
policies, the Portfolio will purchase such commercial paper with the currency in
which it is denominated and, at maturity, will receive interest and principal
payments thereon in that currency, but the amount of principal payable by the
issuer at maturity will change in proportion to the change (if any) in the
exchange rate between the two specified currencies between the date the
instrument is issued and the date the instrument matures. While such commercial
paper entails the risk of loss of principal, the potential for realizing gains
as a result of changes in foreign currency exchange rates enables the Portfolio
to hedge (or cross-hedge) against a decline in the U.S. dollar value of
investments denominated in foreign currencies while providing an attractive
money market rate of return.
MORTGAGE-RELATED SECURITIES. The mortgage-related securities in which the
Portfolio may invest typically are securities representing interests in pools of
mortgage loans made to home owners. Mortgage-related securities bear interest at
either a fixed rate or an adjustable rate determined by reference to an index
rate. The mortgage loan pools may be assembled for sale to investors (such as
the Portfolio) by governmental or private organizations. Mortgage-related
securities issued by the Government National Mortgage Association ("GNMA") are
backed by the full faith and credit of the U.S. government; those issued by
Federal National Mortgage Associated ("FNMA") and Federal Home Loan Mortgage
Corporation ("FHLMC") are not so backed.
Securities representing interests in pools created by private issuers
generally offer a higher rate of interest than securities representing interests
in pools created by governmental issuers because there are no direct or indirect
governmental guarantees of the underlying mortgage payments. However, private
issuers sometimes obtain committed loan facilities, lines of credit, letters of
credit, surety bonds or other forms of liquidity and credit enhancement to
support the timely payment of interest and principal with respect to their
securities if the borrowers on the underlying mortgages fail to make their
mortgage payments. The ratings of such non-governmental securities are generally
dependent upon the ratings of the providers of such liquidity and credit support
and would be adversely affected if the rating of such an enhancer were
downgraded. The Portfolio may buy mortgage-related securities without credit
enhancement if the securities meet the Portfolio's investment standards.
Although the market for mortgage-related securities is becoming increasingly
liquid, those of certain private organizations may not be readily marketable.
One type of mortgage-related security is of the "pass-through" variety. The
holder of a pass-through security is considered to own an undivided beneficial
interest in the underlying pool of mortgage loans and receives a pro rata share
of the monthly payments made by the borrowers on their mortgage loans, net of
any fees paid to the issuer or guarantor of the securities. Prepayments of
mortgages resulting from the sale, refinancing or foreclosure of the underlying
properties are also paid to the holders of these securities. Some
mortgage-related securities, such as securities issued by GNMA, are referred to
as "modified pass-through" securities. The holders of these securities are
entitled to the full and timely payment of principal and interest, net of
certain fees, regardless of whether payments are actually made on the underlying
mortgages. Another form of mortgage-related security is a "pay-through"
security, which is a debt obligation of the issuer secured by a pool of mortgage
loans pledged as collateral that is legally required to be paid by the issuer
regardless of whether payments are actually made on the underlying mortgages.
COLLATERALIZED MORTGAGE OBLIGATIONS. ("CMOs") are the predominant type of
"pay-through" mortgage-related security. CMOs are designed to reduce the risk of
prepayment for investors by issuing multiple classes of securities, each having
different maturities, interest rates and payment schedules, and with the
principal and interest on the underlying mortgages allocated among the several
classes in various ways. The collateral securing the CMOs may consist of a pool
of mortgages, but may also consist of mortgage-backed bonds or pass-through
securities. CMOs may be issued by a U.S. government instrumentality or agency or
by a private issuer. Although payment of the principal of, and interest on, the
underlying collateral securing privately issued CMOs may be guaranteed by GNMA,
FNMA or FHLMC, these CMOs represent obligations solely of the private issuer and
are not insured or guaranteed by GNMA, FNMA, FHLMC, any other governmental
agency or any other person or entity.
INVERSE FLOATING RATE COLLATERALIZED MORTGAGE OBLIGATIONS. In addition to
investing in fixed rate and adjustable rate CMOs, the Portfolio may also invest
in CMOs with rates that move inversely to market rates ("inverse floaters").
An inverse floater bears an interest rate that resets in the opposite
direction of the change in a specified interest rate index. As market interest
rates rise, the interest rate on the inverse floater goes down, and vice versa.
Inverse floaters tend to exhibit greater price volatility than fixed-rate bonds
of similar maturity and credit quality. The interest rates on inverse floaters
may be significantly reduced, even to zero, if interest rates rise. Moreover,
the secondary market for inverse floaters may be limited in rising interest rate
environments.
ADJUSTABLE RATE MORTGAGE SECURITIES. Another type of mortgage-related security,
known as adjustable-rate mortgage securities ("ARMS"), bears interest at a rate
determined by reference to a predetermined interest rate or index. There are two
main categories of rates or indices: (1) rates based on the yield on U.S.
Treasury securities and (2) indices derived from a calculated measure such as a
cost of funds index or a moving average of mortgage rates. Some rates and
indices closely mirror changes in market interest rate levels, while others tend
to lag changes in market rate levels and tend to be somewhat less volatile.
ARMS may be secured by adjustable-rate mortgages or fixed-rate mortgages. ARMS
secured by fixed-rate mortgages generally have lifetime caps on the coupon rates
of the securities. To the extent that general interest rates increase faster
than the interest rates on the ARMS, these ARMS will decline in value. The
adjustable-rate mortgages that secure ARMS will frequently have caps that limit
the maximum amount by which the interest rate or the monthly principal and
interest payments on the mortgages may increase. These payment caps can result
in negative amortization (i.e., an increase in the balance of the mortgage
loan). Furthermore, since many adjustable-rate mortgages only reset on an annual
basis, the values of ARMS tend to fluctuate to the extent that changes in
prevailing interest rates are not immediately reflected in the interest rates
payable on the underlying adjustable-rate mortgages.
STRIPPED MORTGAGE SECURITIES. Stripped mortgage-related securities ("SMRS") are
mortgage-related securities that are usually structured with two classes of
securities collateralized by a pool of mortgages or a pool of mortgaged-backed
bonds or pass-through securities, with each class receiving different
proportions of the principal and interest payments from the underlying assets. A
common type of SMRS has one class of interest-only securities ("IOs") receiving
all of the interest payments from the underlying assets, while the other class
of securities, principal-only securities ("POs"), receives all of the principal
payments from the underlying assets. IOs and POs are extremely sensitive to
interest rate changes and are more volatile than mortgage-related securities
that are not stripped. IOs tend to decrease in value as interest rates decrease,
while POs generally increase in value as interest rates decrease. If prepayments
of the underlying mortgages are greater than anticipated, the amount of interest
earned on the overall pool will decrease due to the decreasing principal balance
of the assets. Changes in the values of IOs and POs can be substantial and occur
quickly, such as occurred in the first half of 1994 when the value of many POs
dropped precipitously due to increase in interest rates. For this reason the
Portfolio does not rely on IOs and POs as the principal means of furthering its
investment objective.
MORTGAGE-RELATED SECURITIES -- SPECIAL CONSIDERATIONS. The value of
mortgage-related securities is affected by a number of factors. Unlike
traditional debt securities, which have fixed maturity dates, mortgage-related
securities may be paid earlier than expected as a result of prepayment of the
underlying mortgages. If property owners make unscheduled prepayments of their
mortgage loans, these prepayments will result in the early payment of the
applicable mortgage-related securities. In that event the Portfolio may be
unable to invest the proceeds from the early payment of the mortgage-related
securities in an investment that provides as high a yield as the
mortgage-related securities. Consequently, early payment associated with
mortgage-related securities causes these securities to experience significantly
greater price and yield volatility than experienced by traditional fixed-income
securities. The occurrence of mortgage prepayments is affected by the level of
general interest rates, general economic conditions and other social and
demographic factors. During periods of falling interest rates, the rate of
mortgage prepayments tends to increase, thereby tending to decrease the life of
mortgage-related securities. During periods of rising interest rates, the rate
of mortgage prepayments usually decreases, thereby tending to increase the life
of mortgage-related securities. If the life of a mortgage-related security is
inaccurately predicted, the Portfolio may not be able to realize the rate of
return it expected.
As with fixed-income securities generally, the value of mortgage-related
securities can also be adversely affected by increases in general interest rates
relative to the yield provided by such securities. Such adverse effect is
especially possible with fixed-rate mortgage securities. If the yield available
on other investments rises above the yield of the fixed-rate mortgage securities
as a result of general increases in interest rate levels, the value of the
mortgage-related securities will decline. Although the negative effect could be
lessened if the mortgage-related securities were to be paid earlier (thus
permitting the Portfolio to reinvest the prepayment proceeds in investments
yielding the higher current interest rate), as described above the rate of
mortgage prepayments and earlier payment of mortgage-related securities
generally tends to decline during a period of rising interest rates.
Although the value of ARMS may not be affected by rising interest rates as
much as the value of fixed-rate mortgage securities is affected by rising
interest rates, ARMS may still decline in value as a result of rising interest
rates. Although, as described above, the yield on ARMS varies with changes in
the applicable interest rate or index, there is often a lag between increases in
general interest rates and increases in the yield on ARMS as a result of
relatively infrequent interest rate reset dates. In addition, adjustable-rate
mortgages and ARMS often have interest rate or payment caps that limit the
ability of the adjustable-rate mortgages or ARMS to fully reflect increases in
the general level of interest rates.
OTHER ASSET-BACKED SECURITIES. The securitization techniques used to develop
mortgage-related securities are being applied to a broad range of financial
assets. Through the use of trusts and special purpose corporations, various
types of assets, including automobile loans and leases, credit card receivables,
home equity loans, equipment leases and trade receivables, are being securitized
in structures similar to the structures used in mortgage securitizations. These
asset-backed securities are subject to risks associated with changes in interest
rates and prepayment of underlying obligations similar to the risks of
investment in mortgage-related securities discussed above.
Each type of asset-backed security also entails unique risks depending on the
type of assets involved and the legal structure used. For example, credit card
receivables are generally unsecured obligations of the credit card holder and
the debtors are entitled to the protection of a number of state and federal
consumer credit laws, many of which give such debtors the right to set off
certain amounts owed on the credit cards, thereby reducing the balance due.
There have also been proposals to cap the interest rate that a credit card
issuer may charge. In some transactions, the value of the asset-backed security
is dependent on the performance of a third party acting as credit enhancer or
servicer. Furthermore, in some transactions (such as those involving the
securitization of vehicle loans or leases) it may be administratively burdensome
to perfect the interest of the security issuer in the underlying collateral and
the underlying collateral may become damaged or stolen.
VARIABLE, FLOATING AND LEVERAGED INVERSE FLOATING RATE INSTRUMENTS. Fixed-income
securities may have fixed, variable or floating rates of interest. Variable and
floating rate securities pay interest at rates that are adjusted periodically,
according to a specified formula. A "variable" interest rate adjusts at
predetermined intervals (e.g., daily, weekly or monthly), while a "floating"
interest rate adjusts whenever a specified benchmark rate (such as the bank
prime lending rate) changes.
If permitted by its investment policies, the Portfolio may invest in
fixed-income securities that pay interest at a coupon rate equal to a base rate,
plus additional interest for a certain period of time if short-term interest
rates rise above a predetermined level or "cap." The amount of such an
additional interest payment typically is calculated under a formula based on a
short-term interest rate index multiplied by a designated factor.
An inverse floater may be considered to be leveraged to the extent that its
interest rate varies by a magnitude that exceeds the magnitude of the change in
the index rate of interest. The higher degree of leverage inherent in inverse
floaters is associated with greater volatility in market value.
STRUCTURED SECURITIES. Structured securities represent interests in entities
organized and operated solely for the purpose of restructuring the investment
characteristics of sovereign debt obligations or foreign government securities.
This type of restructuring involves the deposit with or purchase by an entity,
such as a corporation or trust, of specified instruments (such as commercial
bank loans or Brady Bonds) and the issuance by that entity of one or more
classes of structured securities backed by, or representing interests in, the
underlying instruments. The cash flow on the underlying instruments may be
apportioned among the newly issued structured securities to create securities
with different investment characteristics such as varying maturities, payment
priorities and interest rate provisions, and the extent of the payments made
with respect to structured securities is dependent on the extent of the cash
flow on the underlying instruments. Because structured securities typically
involve no credit enhancement, their credit risk generally will be equivalent to
that of the underlying instruments. Structured securities of a given class may
be either subordinated or unsubordinated to the right of payment of another
class. Subordinated structured securities typically have higher yields and
present greater risks than unsubordinated structured securities.
BRADY BONDS. Brady Bonds are created through the exchange of existing commercial
bank loans to foreign entities for new obligations in connection with debt
restructurings under a plan introduced by former U.S. Secretary of the Treasury,
Nicholas F. Brady (the "Brady Plan"). Brady Bonds have been issued only
recently, and, accordingly, do not have a long payment history. They may be
collateralized or uncollateralized and issued in various currencies (although
most are U.S. dollar-denominated) and they are actively traded in the
over-the-counter secondary market.
U.S. dollar-denominated, collateralized Brady Bonds, which may be fixed-rate
par bonds or floating rate discount bonds, are generally collateralized in full
as to principal due at maturity by U.S. Treasury zero coupon obligations that
have the same maturity as the Brady Bonds. Interest payments on these Brady
Bonds generally are collateralized by cash or securities in an amount that, in
the case of fixed rate bonds, is equal to at least one year of rolling interest
payments based on the applicable interest rate at that time and is adjusted at
regular intervals thereafter. Certain Brady Bonds are entitled to "value
recovery payments" in certain circumstances, which in effect constitute
supplemental interest payments, but generally are not collateralized. Brady
Bonds are often viewed as having up to four valuation components: (1)
collateralized repayment of principal at final maturity, (2) collateralized
interest payments, (3) uncollateralized interest payments, and (4) any
uncollateralized repayment of principal at maturity (these uncollateralized
amounts constitute the "residual risk"). In the event of a default with respect
to collateralized Brady Bonds as a result of which the payment obligations of
the issuer are accelerated, the U.S. Treasury zero coupon obligations held as
collateral for the payment of principal will not be distributed to investors,
nor will such obligations be sold and the proceeds distributed. The collateral
will be held by the collateral agent to the scheduled maturity of the defaulted
Brady Bonds, which will continue to be outstanding, at which time the face
amount of the collateral will equal the principal payments that would have then
been due on the Brady Bonds in the normal course. In addition, in light of the
residual risk of Brady Bonds and, among other factors, the history of defaults
with respect to commercial bank loans by public and private entities of
countries issuing Brady Bonds, investments in Brady Bonds are to be viewed as
speculative.
<PAGE>
EXHIBIT A
REDUCED SALES CHARGES
Initial sales charges may be reduced or eliminated for persons or
organizations purchasing Class A shares of the Fund alone or in combination with
Class A shares of other Keystone America Funds. Only Class A shares subject to
an initial or deferred sales charge are eligible for inclusion in the reduced
sales charge program.
For purposes of qualifying for reduced sales charges on purchases made
pursuant to Rights of Accumulation or Letters of Intent, the term "Purchaser"
includes the following persons: an individual; an individual, his or her spouse
and children under the age of 21; a trustee or other fiduciary of a single trust
estate or single fiduciary account established for their benefit; an
organization exempt from federal income tax under Section 501 (c)(3) or (13) of
the Internal Revenue Code; a pension, profit-sharing or other employee benefit
plan whether or not qualified under Section 401 of the Internal Revenue Code; or
other organized groups of persons, whether incorporated or not, provided the
organization has been in existence for at least six months and has some purpose
other than the purchase of redeemable securities of a registered investment
company at a discount. In order to qualify for a lower sales charge, all orders
from an organized group will have to be placed through a single investment
dealer or other firm and identified as originating from a qualifying purchaser.
CONCURRENT PURCHASES
For purposes of qualifying for a reduced sales charge, a Purchaser may combine
concurrent direct purchases of Class A shares of two or more of the "Eligible
Funds," as defined under "Right of Accumulation." For example, if a Purchaser
concurrently invested $75,000 in one of the other "Eligible Funds" and $75,000
in the Fund, the sales charge would be that applicable to a $150,000 purchase,
i.e., 3.75% of the offering price, as indicated in the sales charge schedule in
the prospectus.
RIGHT OF ACCUMULATION
In calculating the sales charge applicable to current purchases of the Fund's
Class A shares, a Purchaser is entitled to accumulate current purchases with the
current value of previously purchased Class A shares of the Fund and Class A
shares of certain other eligible funds that are still held in (or exchanged for
shares of and are still held in) the same or another eligible fund ("Eligible
Fund(s)") irrespective of class. The Eligible Funds are the Keystone America
Funds and Keystone Liquid Trust.
For example, if a Purchaser held shares valued at $99,999 and purchased an
additional $5,000, the sales charge for the $5,000 purchase would be at the next
lower sales charge of 3.75% of the offering price as indicated in the sales
charge schedule. KIRC must be notified at the time of purchase that the
Purchaser is entitled to a reduced sales charge, which reduction will be granted
subject to confirmation of the Purchaser's holdings. The Right of Accumulation
may be modified or discontinued at any time.
LETTER OF INTENT
A Purchaser may qualify for a reduced sales charge on a purchase of Class A
shares of the Fund alone or in combination with purchases of Class A shares of
any of the other Eligible Funds by completing the Letter of Intent section of
the application. By so doing, the Purchaser agrees to invest within a
thirteen-month period a specified amount that, if invested at one time, would
qualify for a reduced sales charge. Each purchase will be made at a public
offering price applicable to a single transaction of the dollar amount specified
on the application, as described in this prospectus. The Letter of Intent does
not obligate the Purchaser to purchase, nor the Fund to sell, the amount
indicated.
After the Letter of Intent is received by KIRC, each investment made will be
entitled to the sales charge applicable to the level of investment indicated on
the application. The Letter of Intent may be back-dated up to ninety days so
that any investments made in any of the Eligible Funds during the preceding
ninety-day period, valued at the Purchaser's cost, can be applied toward
fulfillment of the Letter of Intent. However, there will be no refund of sales
charges already paid during the ninety-day period. No retroactive adjustment
will be made if purchases exceed the amount specified in the Letter of Intent.
Income and capital gains distributions taken in additional shares will not apply
toward completion of the Letter of Intent.
If total purchases made pursuant to the Letter of Intent are less than the
amount specified, the Purchaser will be required to remit an amount equal to the
difference between the sales charge paid and the sales charge applicable to
purchases actually made. Out of the initial purchase (or subsequent purchases,
if necessary) 5% of the dollar amount specified on the application will be held
in escrow by KIRC in the form of shares registered in the Purchaser's name. The
escrowed shares will not be available for redemption, transfer or encumbrance by
the Purchaser until the Letter of Intent is completed or the higher sales charge
paid. All income and capital gains distributions on escrowed shares will be paid
to the Purchaser or his order.
When the minimum investment specified in the Letter of Intent is completed
(either prior to or by the end of the thirteen-month period), the Purchaser will
be notified and the escrowed shares will be released. If the intended investment
is not completed, the Purchaser will be asked to remit to the Principal
Underwriter any difference between the sales charge on the amount specified and
on the amount actually attained. If the Purchaser does not within 20 days after
written request by the Principal Underwriter or his dealer pay such difference
in sales charge, KIRC will redeem an appropriate number of the escrowed shares
in order to realize such difference. Shares remaining after any such redemption
will be released by KIRC. Any redemptions made by the Purchaser during the
thirteen-month period will be subtracted from the amount of the purchases for
purposes of determining whether the Letter of Intent has been completed. In the
event of a total redemption of the account prior to completion of the Letter of
Intent, the additional sales charge due will be deducted from the proceeds of
the redemption and the balance will be forwarded to the Purchaser.
By signing the application, the Purchaser irrevocably constitutes and appoints
KIRC his attorney to surrender for redemption any or all escrowed shares with
full power of substitution.
The Purchaser or his dealer must inform the Principal Underwriter or KIRC that
a Letter of Intent is in effect each time a purchase is made.
<PAGE>
- ------------------------------------
KEYSTONE AMERICA
FUND FAMILY
*
Capital Preservation and Income Fund
Government Securities Fund
Intermediate Term Bond Fund
Strategic Income Fund
World Bond Fund
Tax Free Income Fund
California Insured Tax Free Fund
Florida Tax Free Fund
Massachusetts Tax Free Fund
Missouri Tax Free Fund
New York Insured Tax Free Fund
Pennsylvania Tax Free Fund
Texas Tax Free Fund
Fund for Total Return
Global Opportunities Fund
Hartwell Emerging Growth Fund, Inc.
Hartwell Growth Fund
Omega Fund
Fund of the Americas
Strategic Development Fund
- ------------------------------------
[Logo] KEYSTONE
INVESTMENTS
Keystone Investment Distributors Company
200 Berkeley Street
Boston, Massachusetts 02116-5034
[Recycle Logo]
-----------------------------
KEYSTONE
---------------
---------------
WORLD
BOND FUND
-----------------------------
[Logo]
PROSPECTUS AND
APPLICATION
<PAGE>
KEYSTONE WORLD BOND FUND
STATEMENT OF ADDITIONAL INFORMATION
FEBRUARY __, 1996
This statement of additional information is not a prospectus, but
relates to, and should be read in conjunction with, the prospectus of Keystone
World Bond Fund (formerly named Keystone America World Bond Fund) (the "Fund")
dated February __, 1996. A copy of the prospectus may be obtained from Keystone
Investments Distributors Company (formerly named Keystone Distributors, Inc.)
(the "Principal Underwriter"), the Fund's principal underwriter, 200 Berkeley
Street, Boston, Massachusetts 02116-5034, or your broker-dealer.
- -----------------------------------------------------------------------------
TABLE OF CONTENTS
- -----------------------------------------------------------------------------
Page
The Fund 2
Investment Restrictions 2
Dividends and Taxes 6
Valuation of Securities 7
Brokerage 9
Sales Charges 11
Distribution Plans 15
Trustees and Officers 19
Fund Expenses 22
Investment Adviser 24
Principal Underwriter 25
Declaration of Trust 27
Standardized Total Return
and Yield Quotations 29
Additional Information 30
Appendix A-1
Financial Statements F-1
Independent Auditors' Report F-__
<PAGE>
- --------------------------------------------------------------------------------
THE FUND
- --------------------------------------------------------------------------------
The Fund is an open-end management investment company commonly known as
a mutual fund. The Fund is authorized to issue series of shares representing
portfolios of its assets. At this time, the Fund issues shares of one portfolio,
the World Bond Portfolio (the "Portfolio"). The Portfolio seeks current income
by investing primarily in a non-diversified portfolio consisting of debt
securities denominated in United States ("U.S.") and foreign currencies.
Interest income will be an important factor in securities selection, but only if
consistent with management's outlook for local bond prices and currency
movements. The Portfolio seeks capital appreciation as a secondary objective.
Upon formation, the Portfolio was known as the Global Income Plus
Portfolio of International Heritage Fund, which was formed as a Massachusetts
business trust on September 5, 1986. On April 19, 1989, the International
Heritage Fund joined the Keystone America Funds. In 1989, the Fund and the
Portfolio were renamed Keystone America World Bond Fund and World Bond
Portfolio, respectively. On May 1, 1995, the Fund changed its name from Keystone
America World Bond Fund to its present name.
Certain information about the Fund is contained in its prospectus. This
statement of additional information provides additional information about the
Fund that may be of interest to some investors.
- --------------------------------------------------------------------------------
INVESTMENT RESTRICTIONS
- --------------------------------------------------------------------------------
The Fund has adopted, on behalf of the Portfolio, the fundamental
investment restrictions set forth below, which may not be changed without the
vote of a majority of the Portfolio's outstanding shares. Unless otherwise
stated, all references to Portfolio assets are in terms of current market value.
A portfolio of the Fund may not do the following:
(1) issue senior securities, except as appropriate to evidence
indebtedness which the portfolio is permitted to incur pursuant to Investment
Restriction (3) and except for shares of any additional series or portfolios
which may be established by the Trustees;
(2) (a) sell securities short (except by selling futures contracts or
covered options), unless it owns, or by virtue of ownership of other securities
has the right to obtain without additional consideration, securities identical
in kind and amount to the securities sold, or (b) purchase securities on margin,
except for such short-term credits as are necessary for the clearance of
transactions, and provided that a portfolio may make initial and variation
margin payments in connection with purchases or sales of futures contracts or of
options on futures contracts;
(3) borrow money, except from a bank for temporary or emergency
purposes (not for leveraging or investment) and may not borrow money in an
amount exceeding one-third of the value of its total assets (less liabilities
other than borrowings); any borrowings that come to exceed one-third of a
portfolio's total assets by reason of a decline in net assets will be reduced
within three days to the extent necessary to comply with the one-third
limitation; a portfolio will not purchase securities while temporary bank
borrowings in excess of 5% of its total assets are outstanding;
(4) underwrite securities issued by others, except to the extent that a
portfolio may be deemed an underwriter in connection with the disposition of
restricted securities;
(5) invest in real estate or mortgages (but may invest in real estate
investment trusts or companies whose business involves the purchase or sale of
real estate or mortgages except real estate limited partnerships) or commodities
or commodity contracts, except futures contracts and options on futures
contracts, including, but not limited to, contracts for the future delivery of
securities or currency, contracts based on securities indices and forward
foreign currency exchange contracts;
(6) invest 25% or more of the portfolio's total assets (taken at market
value) in securities of issuers in a particular industry or group of related
industries, except U.S. government securities;
(7) make loans, except (a) through the purchase of a portion of an
issue of publicly distributed debt securities in accordance with its investment
objectives, policies and restrictions, and (b) by entering into (i) loan
transactions and (ii) repurchase agreements with respect to portfolio securities
if, as a result thereof, not more than 25% of the portfolio's total assets
(taken at current value) would be subject to loan transactions;
(8) invest in companies for the purpose of exercising control or
management, provided, however, that this limitation shall not preclude a
portfolio from exercising its rights as a security holder to participate in or
influence decisions to be made by the security holders or management of such
companies with respect to matters affecting the value of such companies'
securities or the interests of the portfolio;
(9) pledge, mortgage or hypothecate its assets, except that a portfolio
may pledge not more than one-third of its total assets (taken at current value)
to secure borrowings made in accordance with Investment Restriction (3) above,
and provided that a portfolio may make initial and variation margin payments in
connection with purchases or sales of futures contracts or of options on futures
contracts;
(10) invest in oil, gas or other mineral exploration or development
programs (although a portfolio may invest in companies which own or invest in
such interests);
(11) purchase or retain the securities of any issuer, if, to the Fund's
knowledge, those Trustees or directors and officers of the Fund or its
investment manager or advisers, who individually own beneficially more than 1/2
of 1% of the outstanding securities of such issuer, together own beneficially
more than 5% of such outstanding securities; and
(12) purchase securities of any one issuer if as a result more than 10%
of the outstanding voting securities of such issuer would be held by the
portfolio, or invest more than 5% of the portfolio's total assets (taken at
market value) in the securities of any one issuer, except securities issued or
guaranteed by the U.S. government or any of its agencies or instrumentalities,
provided that a portfolio may invest up to 25% of its total assets in securities
issued or guaranteed by any single foreign government and up to 10% of its total
assets in securities issued or guaranteed by any single multinational agency.
The Fund has adopted the nonfundamental policies set forth below, in
order to permit the sale of shares in certain states, which may be changed as to
any portfolio without shareholder approval or notification.
A portfolio may not do the following:
(1) pledge, mortgage or hypothecate its assets in excess of an amount
equal to 10% of its net assets, except to secure borrowings made in accordance
with Investment Restriction (3) above, and provided that the portfolio may make
initial and variation margin payments in connection with purchases or sales of
futures contracts or of options on futures contracts;
(2) purchase any option on securities or a securities index if, as a
result, the aggregate premiums paid for all options it owns would exceed 5% of
its net assets at the time of such purchase;
(3) purchase warrants, valued at the lower of cost or market, in excess
of 5% of the value of the portfolio's net assets; included within that amount,
but not to exceed 2% of the value of the portfolio's net assets, may be warrants
which are not listed on the New York or American Stock Exchanges; warrants
acquired by the portfolio at any time in units or attached to securities are not
subject to this restriction;
(4) purchase the securities of any issuer if, as a result, more than 5%
of the portfolio's total assets (taken at current value) would be invested in
the securities of companies which, including predecessors, have a record of less
than three years' continuous operation, except obligations issued or guaranteed
by the U.S. government or a foreign government or their respective agencies and
instrumentalities and except securities of closed-end investment companies;
(5) enter into futures contracts if, as a result, the aggregate value
of initial margin deposits made by a portfolio in connection with such contracts
and premiums paid for options on futures would exceed 5% of the value of the
portfolio's total assets;
(6) write covered options, unless the securities underlying such
options are listed on a national securities exchange and the options are issued
by the Options Clearing Corporation, provided, however, that the securities
underlying such options may be traded on the automated quotation system
("NASDAQ") of the National Association of Securities Dealers, Inc. ("NASD"), if,
and to the extent, permitted by applicable state regulations;
(7) write or sell covered call or put options with respect to more than
25% of the portfolio's net assets at the time such options are written, purchase
protective puts with a value in excess of 25% of the portfolio's net assets or
purchase calls and puts, other than protective puts, with a value in excess of
5% of the portfolio's net assets;
(8) purchase the securities of other registered investment companies,
except (a) securities of a "money market" fund sponsored, managed or advised by
one of the Fund's investment advisers, or an affiliate thereof, but only to the
extent authorized by an order of the Securities and Exchange Commission, (b) by
purchase in the open market when no commission or profit to a sponsor or dealer
results from such purchase, other than the customary broker's commission, or (c)
when such purchase, though not made on the open market, is part of a plan of
merger or consolidation;
(9) simultaneously purchase and sell the same or an equivalent security
in order to profit from price discrepancies; and
(10) invest in oil, gas and other mineral leases.
The Portfolio's purchase of securities of other investment companies
would result in a layering of expenses, such that the Portfolio's shareholders
would indirectly bear a proportionate share of the expenses of those investment
companies, including operating costs, investment advisory and administrative
fees. The Portfolio does not anticipate purchasing the securities of other
investment companies.
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 such securities on
its books and (2) limiting its holdings of such securities to 15% of net assets.
- --------------------------------------------------------------------------------
DIVIDENDS AND TAXES
- --------------------------------------------------------------------------------
The Fund intends to distribute dividends from the Portfolio's net
investment income monthly and all net realized long-term capital gains, if any,
annually. Fund distributions are made in additional shares of that class of
shares upon which the distribution is based or, at the option of the
shareholder, in cash. Distributions are taxable whether paid in cash or
additional Fund shares. Shareholders who have not opted, prior to the record
date for any distribution, to receive cash will have the number of such shares
determined on the basis of net asset value per share computed at the end of the
day on the record date after adjustment for the distribution. Net asset value is
used in computing the number of shares in both gains and income distribution
reinvestments. Account statements and/or checks as appropriate will be mailed to
shareholders within seven days after the Fund pays the distribution. Unless the
Fund receives instructions to the contrary from a shareholder before the record
date, it will assume that the shareholder wishes to receive that distribution
and future gains and income distributions in shares. Instructions continue in
effect until changed in writing.
Distributed long-term capital gains are taxable as such to the
shareholder regardless of the period of time Portfolio shares have been held by
the shareholder. However, if 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 gains distribution received in
connection with such shares. If the net asset value of the Portfolio's shares is
reduced below a shareholder's cost by any 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 Portfolio, they may
or may not occur. The foregoing comments relating to the taxation of dividends
and distributions paid on the Portfolio'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 on behalf of the Portfolio, it
intends to distribute only the Portfolio's net capital gains and such income as
has been pre-determined to the best of the Fund's ability to be taxable as
ordinary income. Shareholders of the Portfolio will be advised annually of the
federal income tax status of distributions.
If more than 50% of the value of the Portfolio'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 the Portfolio's
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 Portfolio's investments. The shareholder will be entitled, however, to take
his share of the amount of such 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, if that should be to his advantage. In
substance, this policy enables the shareholder to benefit from the same foreign
tax credit or deduction that he would have received if he had been the
individual owner of foreign securities and had paid foreign income tax on the
income therefrom. As in the case of individuals receiving income directly from
foreign sources, the above described tax credit and deductions are subject to
certain limitations.
- --------------------------------------------------------------------------------
VALUATION OF SECURITIES
- --------------------------------------------------------------------------------
Current values for the Portfolio's securities are determined as
follows:
(1) Common stock, preferred stock and other equity securities listed on
the New York Stock Exchange (the "Exchange") are valued on the basis of the last
sale price on the Exchange. In the absence of any sales, such securities are
valued at the mean between the closing asked price and the closing bid price.
(2) Common stock, preferred stock and other equity securities listed on
other U.S. or foreign exchanges will be valued as described in (1) above using
quotations on the exchange on which the security is most extensively traded.
(3) Common stock, preferred stock and other equity securities unlisted
and quoted on the National Market System ("NMS") are valued at the last sale
price, provided a sale has occurred. In the absence of any sales, such
securities are valued at the high or "inside" bid, which is the bid supplied by
the NASD on its NASDAQ system for securities traded in the over-the-counter
market.
(4) Common stock, preferred stock and other equity securities quoted on
the NASDAQ system, but not listed on NMS, are valued at the high or "inside"
bid.
(5) Common stock, preferred stock and other equity securities not
listed and not quoted on the NASDAQ System and for which over-the-counter market
quotations are readily available are valued at the mean between the current bid
and asked prices for such securities.
(6) Non-U.S. common stock, preferred stock and other equity securities
not listed or listed and subject to restrictions on sale are valued at prices
supplied by a dealer selected by Keystone Investment Management Company
(formerly named Keystone Custodian Funds, Inc.) ("Keystone").
(7) Bonds, debentures and other debt securities, whether or not listed
on any national securities exchange, are valued at a price supplied by a pricing
service or a bond dealer selected by Keystone.
(8) Short-term instruments having maturities of more than sixty days
for which market quotations are readily available are valued at current market
value. Where market quotations are not available, such instruments are valued at
fair value as determined by the Fund's Board of Trustees.
(9) Short-term instruments 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 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.
(10) Options, futures contracts and options on futures listed or traded
on a national securities exchange are valued at the last sale price on such
exchange prior to the time of determining net asset value or, if no sale is
reported, are valued at the mean between the most recent bid and asked prices.
(11) Forward currency contracts are valued at their last sales price as
reported by a pricing service, and, in the absence of a report, at a value
determined on the basis of the underlying currency at prevailing exchange rates.
(12) Securities subject to restrictions on resale are valued at fair
value at least monthly by a pricing service under the direction of the Fund's
Board of Trustees.
(13) All other assets are valued at fair market value as determined by
or under the direction of the Fund's Board of Trustees.
- --------------------------------------------------------------------------------
BROKERAGE
- --------------------------------------------------------------------------------
It is the policy of the Fund, in effecting transactions in securities
for the Portfolio, 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 Portfolio (involving both price paid or received and any
commissions and other costs paid), the efficiency with which the transaction is
effected, the ability to effect the transaction at all where a large block is
involved, the availability of the broker to stand ready to execute potentially
difficult transactions in the future and the financial strength and stability of
the broker. Such considerations are weighed by management in determining the
overall reasonableness of brokerage commissions paid.
Subject to the foregoing, a factor in the selection of brokers is the
receipt of research services, such as analyses and reports concerning issuers,
industries, securities, economic factors and trends as well as other statistical
and factual information (including related computer services and equipment). Any
such research and other statistical and factual information provided by brokers
to the Fund or Keystone are considered to be in addition to and not in lieu of
services required to be performed by Keystone under its Investment Advisory and
Management Agreement with the Fund. The cost, value and specific application of
such information are indeterminable and cannot be practically allocated among
the Fund and other clients of Keystone who may indirectly benefit from the
availability of such information. Similarly, the Fund may indirectly benefit
from information made available as a result of transactions effected for such
other clients. Under its Investment Advisory and Management Agreement with the
Fund, Keystone is permitted to pay higher brokerage commissions for brokerage
and research services in accordance with Section 28(e) of the Securities
Exchange Act of 1934. In the event Keystone does follow such a practice, it will
do so on a basis that is fair and equitable to the Fund.
The Fund expects that purchases and sales of securities for the
Portfolio usually will be principal transactions. Such securities are normally
purchased directly from the issuer or from an underwriter or market maker for
the securities. There usually will be no brokerage commissions paid by the Fund
for such purchases. Purchases from underwriters will include the underwriting
commission or concession, and purchases from dealers serving as market makers
will include a dealer's mark up or reflect a dealer's mark down. Where
transactions are made in the over-the-counter market, the Fund will deal with
primary market makers unless more favorable prices are otherwise obtainable.
The Fund may participate, if and when practicable, in group bidding for
the direct purchase from an issuer of certain securities, thereby taking
advantage of the lower purchase price available to such a group.
Neither Keystone nor the Fund has any intention of placing the
Portfolio's securities transactions with any particular broker-dealer or group
thereof. The Fund's Board of Trustees has determined, however, that the Fund may
follow a policy of considering sales of shares of the Portfolio as a factor in
the selection of broker-dealers to execute portfolio transactions, subject to
the requirements of best execution, described above.
In addition, securities for the Portfolio will not be purchased from or
sold to Keystone, the Principal Underwriter, or any of their affiliated persons
except in accordance with the Investment Company Act of 1940 (the "1940 Act")
and rules and regulations issued thereunder.
Investment decisions for the Portfolio are made independently from
those of the other funds and investment accounts managed by Keystone. It may
frequently develop, however, that the same investment decision is made for more
than one fund. Simultaneous transactions are inevitable when the same security
is suitable for the investment objective of more than one account. When two or
more funds or accounts are engaged in the purchase or sale of the same security,
the transactions are allocated as to amount in accordance with a formula that is
equitable to each fund or account. It is recognized that in some cases this
system could have a detrimental effect on the price or volume of the security as
far as the Portfolio is concerned. In other cases, however, it is believed that
the ability of the Portfolio to participate in volume transactions will produce
better executions for the Portfolio. It is the opinion of the Fund's Board of
Trustees that the desirability of retaining Keystone as investment adviser to
the Fund outweighs any disadvantages that may result from exposure to
simultaneous transactions.
The policy of the Fund with respect to brokerage is and will be
reviewed by the Fund's Board of Trustees from time to time. Because of the
possibility of further regulatory developments affecting the securities
exchanges and brokerage practices generally, the foregoing practices may be
changed, modified or eliminated.
During the fiscal years ended December 31, 1992 and 1993, the Fund did
not pay any brokerage commissions. During the ten-month period ended October 31,
1994, the Fund paid $9,000 in brokerage commissions. During the fiscal year
ended October 31, 1995, the Fund paid $6,695 in brokerage commissions.
- --------------------------------------------------------------------------------
SALES CHARGES
- --------------------------------------------------------------------------------
GENERAL
Generally, the Fund offers three classes of shares. Class A shares are
offered with a maximum front-end sales charge of 4.75% payable at the time of
purchase ("Front End Load Option"). Class B shares purchased on or after June 1,
1995 are subject to a contingent deferred sales charge payable upon redemption
during the 72 month period from and including the month of purchase. Class B
shares purchased prior to June 1, 1995 are subject to a contingent deferred
sales charge upon redemption within three calendar years following the year of
purchase ("Back End Load Option"). Class B shares purchased on or after June 1,
1995 that have been outstanding eight years from and including the month of
purchase will automatically convert to Class A shares without imposition of a
front-end sales charge or exchange fee. Class B shares purchased prior to June
1, 1995 that have been outstanding during seven calendar years will similarly
convert to Class A shares. (Conversion of Class B shares represented by stock
certificates will require the return of the stock certificates to Keystone
Investor Resource Center, Inc., the Fund's transfer and dividend disbursing
agent ("KIRC").) Class C shares are sold subject to a contingent deferred sales
charge payable upon redemption within one year after purchase ("Level Load
Option"). Class C shares are available only through dealers who have entered
into special distribution agreements with the Principal Underwriter. The
prospectus contains a general description of how investors may buy shares of the
Fund, as well as a table of applicable sales charges for Class A shares, a
discussion of reduced sales charges that may apply to subsequent purchases and a
description of applicable contingent deferred sales charges.
CONTINGENT DEFERRED SALES CHARGES
In order to reimburse the Fund for certain expenses relating to the
sale of its shares (See "Distribution Plans"), a contingent deferred sales
charge is imposed at the time of redemption of certain Fund shares, as follows:
CLASS A SHARES
With certain exceptions, purchases of Class A shares made on or after
April 10, 1995 (1) in an amount equal to or exceeding $1,000,000 and/or (2) by a
corporate qualified retirement plan or a non-qualified deferred compensation
plan sponsored by a corporation having 100 or more eligible employees (a
"Qualifying Plan"), in either case without a front-end sales charge, will be
subject to a contingent deferred sales charge of 1.00% during the 24 month
period following the date of purchase. Certain Class A shares purchased without
a front-end sales charge prior to April 10, 1995 may be subject to a contingent
deferred sales charge of 0.25% upon redemption during the one-year period
commencing on the date such shares were originally purchased. The contingent
deferred sales charge will be retained by the Principal Underwriter. See
"Calculation of Contingent Deferred Sales Charge" below.
CLASS B SHARES
With respect to Class B shares purchased on or after June 1, 1995, the
Fund, with certain exceptions, will impose a deferred sales charge as a
percentage of the lesser of net asset value or net cost of such Class B shares
redeemed during succeeding twelve month periods as follows: 5% during the first
twelve month period; 4% during the second twelve month period; 3% during the
third twelve month period; 3% during the fourth twelve month period; 2% during
the fifth twelve month period; and 1% during the sixth twelve month period. No
deferred sales charge is imposed on amounts redeemed thereafter. See
"Calculation of Contingent Deferred Sales Charge" below.
With respect to Class B shares sold prior to June 1, 1995, the Fund,
with certain exceptions, will impose a deferred sales charge of 3.00% on shares
redeemed during the calendar year of purchase and during the first calendar year
after purchase; 2.00% on shares redeemed during the second calendar year after
purchase; and 1.00% on shares redeemed during the third calendar year after
purchase. No deferred sales charge is imposed on amounts redeemed thereafter.
When imposed, the deferred sales charge is deducted from the redemption
proceeds otherwise payable to you. The deferred sales charge is retained by the
Principal Underwriter. Amounts received by the Principal Underwriter under the
Class B Distribution Plans are reduced by deferred sales charges retained by the
Principal Underwriter. See "Calculation of Contingent Deferred Sales Charge"
below.
CLASS C SHARES
With certain exceptions, the Fund will impose a deferred sales charge
of 1% on Class C shares redeemed within one year after the date of purchase. No
deferred sales charge is imposed on amounts redeemed thereafter.
When imposed, the deferred sales charge is deducted from the redemption
proceeds otherwise payable to you. The deferred sales charge is retained by the
Principal Underwriter. See "Calculation of Contingent Deferred Sales Charge"
below.
CALCULATION OF CONTINGENT DEFERRED SALES CHARGE
Any contingent deferred sales charge imposed upon the redemption of
Class A, Class B or Class C shares is a percentage of the lesser of (1) the net
asset value of the shares redeemed or (2) the net cost of such shares.
No contingent deferred sales charge is imposed when you redeem amounts
derived from (1) increases in the value of your account above the net cost of
such shares due to increases in the net asset value per share of the Fund; (2)
certain shares with respect to which the Fund did not pay a commission on
issuance, including shares acquired through reinvestment of dividend income and
capital gains distributions; (3) certain Class A shares held for more than one
or two years, as the case may be; (4) Class B shares held during more than four
consecutive calendar years or more than 72 months, as the case may be; or (5)
Class C shares held for more than one year from the date of purchase.
Upon request for redemption, shares not subject to the contingent
deferred sales charge will be redeemed first. Thereafter, shares held the
longest will be the first to be redeemed. There is no contingent deferred sales
charge imposed when the shares of a class are exchanged for the shares of the
same class of another Keystone America Fund. Moreover, when shares of one such
class of a fund have been exchanged for shares of another such class of a fund,
for purpose of any future contingent deferred sales charge the calendar year of
the purchase of the shares of the fund exchanged into is deemed to be the year
shares tendered for exchange were originally purchased.
WAIVER OF SALES CHARGES
Shares of the Portfolio may also be sold, to the extent permitted by
applicable law, regulations, interpretations or exemptions, at net asset value
without the imposition of an initial sales charge to (1) an eligible officer,
Director, Trustee, full-time employee or sales representative of the Fund,
Keystone, Keystone Investments, Inc. (formerly named Keystone Group, Inc.)
("Keystone Investments"), their subsidiaries or the Principal Underwriter who
have been such for not less than ninety days; (2) a pension and profit-sharing
plan established by such companies, their subsidiaries and affiliates for the
benefit of their officers, Directors, Trustees, full-time employees and sales
representatives; or (3) a registered representative of a firm with a dealer
agreement with the Principal Underwriter, provided all such sales are made upon
written assurance that the purchase is made for investment purposes and that the
securities will not be resold except through redemption by the Fund.
No initial sales charge is imposed on purchases of shares of the
Portfolio 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
Portfolio or any fund in the Keystone Investments Family of Funds purchased
pursuant to this waiver, is at least $500,000 and any commission paid at the
time of such purchase is not more than 1% of the amount invested. In addition,
no deferred sales charge is imposed on redemptions of such shares.
With respect to Class A shares purchased by a Qualifying Plan at net
asset value or Class C shares purchased by a Qualifying Plan, no contingent
deferred sales charge will be imposed on any redemptions made specifically by an
individual participant in the Qualifying Plan. This waiver is not available in
the event a Qualifying Plan, as a whole, redeems substantially all of its
assets.
In addition, no contingent deferred sales charge is imposed on a
redemption of shares of the Fund in the event of (1) death or disability of the
shareholder; (2) a lump-sum distribution from a benefit plan qualified under the
Employee Retirement Income Security Act of 1974 ("ERISA"); (3) automatic
withdrawals from ERISA plans if the shareholder is at least 59 1/2 years old;
(4) involuntary redemptions of accounts having an aggregate net asset value of
less than $1,000; (5) automatic withdrawals under an automatic withdrawal plan
of up to 1.5% per month of the shareholder's initial account balance; (6)
withdrawals consisting of loan proceeds to a retirement plan participant; (7)
financial hardship withdrawals made by a retirement plan participant; or (8)
withdrawals consisting of returns of excess contributions or excess deferral
amounts made to a retirement plan participant.
The Fund's prospectus enumerated certain additional deferred sales
charge waivers.
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 in any 90 day period up
to the lesser of $250,000 or 1% of the Fund's assets.
- --------------------------------------------------------------------------------
DISTRIBUTION PLANS
- --------------------------------------------------------------------------------
Rule 12b-1 under the 1940 Act permits investment companies, such as the
Fund, to use their assets to bear expenses of distributing their shares if they
comply with various conditions, including adoption of a distribution plan
containing certain provisions set forth in Rule 12b-1. The Fund's Class A, B and
C Distribution Plans have been approved by the Fund's Board of Trustees,
including a majority of the Trustees who are not interested persons of the Fund
as defined in the 1940 Act ("Independent Trustees") and a majority of the
Trustees who have no direct or indirect financial interest in the Distribution
Plans, or any agreement related thereto (the "Rule 12b-1 Trustees," who are the
same as the Independent Trustees).
The NASD limits the amount that a Fund may pay annually in distribution
costs for sale of its shares and shareholder service fees. The NASD limits
annual expenditures to 1% of the aggregate average daily net asset value of its
shares, of which 0.75% may be used to pay such distribution costs and 0.25% may
be used to pay shareholder service fees. The NASD also limits the aggregate
amount that the Fund may pay for such distribution costs to 6.25% of gross share
sales since the inception of the 12b-1 Plans, plus interest at the prime rate
plus 1% on such amounts (less any contingent deferred sales charges paid by
shareholders to the Principal Underwriter).
CLASS A DISTRIBUTION PLAN. The Class A Distribution Plan provides that
the Fund may expend daily amounts at an annual rate, which is currently limited
up to 0.25% of the Fund's average daily net asset value attributable to Class A
shares, to finance any activity that is primarily intended to result in the sale
of Class A shares, including, without limitation, expenditures consisting of
payments to the principal underwriter of the Fund (currently the Principal
Underwriter) to enable the Principal Underwriter to pay or to have paid to
others who sell Class A shares a service or other fee, at such intervals as the
Principal Underwriter may determine, in respect of Class A shares maintained by
any such recipients on the books of the Fund for specified periods.
Amounts paid by the Fund under the Class A Distribution Plan are
currently used to pay others, such as dealers, service fees at an annual rate of
up to 0.25% of the average net asset value of Class A shares maintained by such
others on the books of the Fund for specified periods.
CLASS B DISTRIBUTION PLANS. The Fund has adopted Distribution Plans and
other plans with respect to its Class B shares that provide that the Fund may
expend daily amounts at an annual rate of up to 1.00% of the Fund's average
daily net asset value attributable to Class B shares to finance any activity
that is primarily intended to result in the sale of Class B shares, including,
without limitation, expenditures consisting of payments to the principal
underwriter of the Fund (currently the Principal Underwriter) (1) to enable the
Principal Underwriter to pay to others (dealers) commissions in respect of Class
B shares sold since inception of the Distribution Plan; and (2) to enable the
Principal Underwriter to pay or to have paid to others a service fee, at such
intervals as the Principal Underwriter may determine, in respect of Class B
shares maintained by any such recipients on the books of the Fund for specified
periods.
The Principal Underwriter generally reallows to brokers or others a
commission equal to 4.00% of the price paid for each Class B share sold plus the
first year's service fee in advance in the amount of 0.25% of the price paid for
each Class B share sold. Beginning approximately 12 months after the purchase of
a Class B share, the broker or other party receives service fees at an annual
rate of 0.25% of the average daily net asset value of such Class B share
maintained by the recipient on the books of the Fund for specified periods.
The Principal Underwriter intends, but is not obligated, to continue to
pay or accrue distribution charges incurred in connection with the Class B
Distribution Plans that exceed current annual payments permitted to be received
by the Principal Underwriter from the Fund. The Principal Underwriter intends to
seek full payment of such charges from the Fund (together with annual interest
thereon at the prime rate plus one percent) at such time in the future as, and
to the extent that, payment thereof by the Fund would be within the permitted
limits.
If the Fund's Independent Trustees authorize such payments, the effect
would be to extend the period of time during which the Fund incurs the maximum
amount of costs allowed by a Class B Distribution Plan. If a Class B
Distribution Plan is terminated, the Principal Underwriter will ask the
Independent Trustees to take whatever action they deem appropriate under the
circumstances with respect to payment of such amounts.
In connection with financing its distribution costs, including
commission advances to dealers and others, the Principal Underwriter has sold to
a financial institution substantially all of its 12b-1 fee collection rights and
contingent deferred sales charge collection rights in respect of Class B shares
sold during the two-year period commencing approximately June 1, 1995. The Fund
has agreed not to reduce the rate of payment of 12b-1 fees in respect of such
Class B shares unless it terminates such shares' Distribution Plan completely.
If it terminates such Distribution Plan, the Fund may be subject to possible
adverse distribution consequences.
CLASS C DISTRIBUTION PLAN. The Class C Distribution Plan provides that
the Fund may expend daily amounts at an annual rate of up to 1.00% of the Fund's
average daily net asset value attributable to Class C shares to finance any
activity that is primarily intended to result in the sale of Class C shares,
including, without limitation, expenditures consisting of payments to the
principal underwriter of the Fund (currently the Principal Underwriter) (1) to
enable the Principal Underwriter to pay to others (dealers) commissions in
respect of Class C shares sold since inception of the Distribution Plan; and (2)
to enable the Principal Underwriter to pay or to have paid to others a service
fee, at such intervals as the Principal Underwriter may determine, in respect of
Class C shares maintained by any such recipients on the books of the Fund for
specified periods.
The Principal Underwriter generally reallows to brokers or others a
commission in the amount of 0.75% of the price paid for each Class C share sold
plus the first year's service fee in advance in the amount of 0.25% of the price
paid for each Class C share sold. Beginning approximately fifteen months after
purchase, brokers or others receive a commission at an annual rate of 0.75%
(subject to NASD rules) plus service fees at the annual rate of 0.25% of the
average daily net asset value of each Class C share maintained by the recipients
on the books of the Fund for specified periods.
DISTRIBUTION PLANS IN GENERAL
Whether any expenditure under a Distribution Plan is subject to a state
expense limit will depend upon the nature of the expenditure and the terms of
the state law, regulation or order imposing the limit. A portion of the Fund's
Distribution Plan expenses may be includable in the Portfolio's total operating
expenses for purposes of determining compliance with state expense limits.
A Distribution Plan may be terminated at any time by a vote of a
majority of the Fund's Rule 12b-1 Trustees or by vote of a majority of the
outstanding voting shares of the respective class of Portfolio shares. Any
change in a Distribution Plan that would materially increase the distribution
expenses of the Portfolio provided for in a Distribution Plan requires
shareholder approval. Otherwise, a Distribution Plan may be amended by the
Trustees, including the Fund's Rule 12b-1 Trustees.
For Class B shares sold prior to June 1, 1995, unreimbursed
distribution expenses at October 31, 1995 were $191,513 (5.2% of such Class B
net assets at October 31, 1995). For Class B shares sold on or after June 1,
1995, unreimbursed distribution expenses at October 31, 1995 were $18,809 (1.0%
of such Class B net assets at October 31, 1995). Unreimbursed distribution
expenses at October 31, 1995 for Class C shares were $117,401 (9.9% of Class C
net assets at October 31 1995).
While a Distribution Plan is in effect, the Fund will be required to
commit the selection and nomination of candidates for Independent Trustees to
the discretion of the Independent Trustees.
The total amounts paid by the Fund under the foregoing arrangements may
not exceed the maximum Distribution Plan limit specified above. The amounts and
purposes of expenditures under a Distribution Plan must be reported to the Rule
12b-1 Trustees quarterly. The Rule 12b-1 Trustees may require or approve changes
in the implementation or operation of a Distribution Plan and may also require
that total expenditures by the Fund under a Distribution Plan be kept within
limits lower than the maximum amount permitted by a Distribution Plan as stated
above.
The Independent Trustees of the Fund have determined that the sales of
the Portfolio's shares resulting from payments under the Distribution Plans are
expected to benefit the Portfolio.
For the fiscal year ended December 31, 1992, the Portfolio paid the
Principal Underwriter $22,420 in Class A Distribution Plan expenses. This amount
was used to pay commissions and maintenance fees.
For the fiscal year ended December 31, 1993, the Fund paid the
Principal Underwriter $19,751 pursuant to its Class A Distribution Plan. For the
period beginning August 2, 1993 (date of initial public offering) to December
31, 1993, the Fund paid the Principal Underwriter $5,359 and $3,715 pursuant to
its Class B and C Distribution Plans, respectively. These amounts were used to
pay commissions and maintenance fees.
For the ten month period ended October 31, 1994, the Fund paid the
Principal Underwriter $13,778, $26,882 and $14,984 pursuant to its Class A, B
and C Distribution Plans, respectively. These amounts were used to pay
commissions and service fees.
For the fiscal year ended October 31, 1995, the Fund paid the Principal
Underwriter $22,659, $31,853 ($29,857 with respect to Class B shares sold prior
to June 1, 1995 and $1,996 with respect to Class B shares sold on or after June
1, 1995) and $13,920 pursuant to its Class A, Class B and Class C Distribution
Plans, respectively. These amounts were used to pay commissions and service
fees.
TRUSTEES AND OFFICERS
Trustees and officers of the Fund, their principal occupations and some
of their affiliations over the last five years are as follows:
*ALBERT H. ELFNER, III: President, Chief Executive Officer and Trustee of the
Fund; Chairman of the Board, President, Director and Chief Executive
Officer of Keystone Investments; President, Chief Executive Officer and
Trustee or Director of all 30 funds in the Keystone Investments Family
of Funds; Director and Chairman of the Board, Chief Executive Officer
and Vice Chairman of Keystone; Chairman of the Board and Director of
Keystone Institutional Company, Inc. ("Keystone Institutional")
(formerly named Keystone Investment Management Corporation), and
Keystone Fixed Income Advisors ("KFIA"); Director, Chairman of the
Board, Chief Executive Officer and President of Keystone Management,
Keystone Software Inc. ("Keystone Software"); Director and President of
Keystone Asset Corporation, Keystone Capital Corporation, and Keystone
Trust Company; Director of the Principal Underwriter, KIRC, and
Fiduciary Investment Company, Inc. ("FICO"); Director of Boston
Children's Services Association; Trustee of Anatolia College, Middlesex
School, and Middlebury College; Member, Board of Governors, New England
Medical Center; former Director and President of Hartwell Keystone
Advisers, Inc. ("Hartwell Keystone"); former Director and Vice
President of Robert Van Partners, Inc.; and former Trustee of Neworld
Bank.
FREDERICK AMLING: Trustee of the Fund; Trustee or Director of all other Keystone
Investments Funds; Professor, Finance Department, George Washington
University; President, Amling & Company (investment advice); Member,
Board of Advisers, Credito Emilano (banking); and former Economics and
Financial Consultant, Riggs National Bank.
CHARLES A. AUSTIN III: Trustee of the Fund; Trustee or Director of all other
Keystone Investments Funds; Investment Counselor to Appleton Partners,
Inc.; former Managing Director, Seaward Management Corporation
(investment advice) and former Director, Executive Vice President and
Treasurer, State Street Research & Management Company (investment
advice).
*GEORGE S. BISSELL: Chairman of the Board and Trustee of the Fund; Director of
Keystone Investments; Chairman of the Board and Trustee or Director of
all other Keystone Investments Funds; former Director and Chairman of
the Board of Hartwell Keystone; Chairman of the Board and Trustee of
Anatolia College; Trustee of University Hospital (and Chairman of its
Investment Committee); former Chairman of the Board and Chief Executive
Officer of Keystone Investments; and former Chief Executive Officer of
the Fund.
EDWIN D. CAMPBELL: Trustee of the Fund; Trustee or Director of all other
Keystone Investments Funds; Executive Director, Coalition of Essential
Schools, Brown University; Director and former Executive Vice
President, National Alliance of Business; former Vice President,
Educational Testing Services; and former Dean, School of Business,
Adelphi University.
CHARLES F. CHAPIN: Trustee of the Fund; Trustee or Director of all other
Keystone Investments Funds; former Group Vice President, Textron Corp.;
and former Director, Peoples Bank (Charlotte, N.C).
LEROY KEITH, JR.: Trustee of the Fund; Trustee or Director of all other
Keystone Investments Funds; Director of Phoenix Total Return Fund and
Equifax, Inc.; Trustee of Phoenix Series Fund, Phoenix Multi-Portfolio
Fund and The Phoenix Big Edge Series Fund; and former President,
Morehouse College.
K. DUN GIFFORD: Trustee of the Fund; Trustee or Director of all other
Keystone Investments Funds; Chairman of the Board, Director and
Executive Vice President, The London Harness Company; Managing Partner,
Roscommon Capital Corp.; Trustee, Cambridge College; Chairman Emeritus
and Director, American Institute of Food and Wine; Chief Executive
Officer, Gifford Gifts of Fine Foods; Chairman, Gifford, Drescher &
Associates (environmental consulting); President, Oldways Preservation
and Exchange Trust (education); and former Director, Keystone
Investments and Keystone.
F. RAY KEYSER, JR.: Trustee of the Fund; Trustee or Director of all other
Keystone Investments Funds; Of Counsel, Keyser, Crowley & Meub, P.C.;
Member, Governor's (VT) Council of Economic Advisers; Chairman of the
Board and Director, Central Vermont Public Service Corporation and
Hitchcock Clinic; Director, Vermont Yankee Nuclear Power Corporation,
Vermont Electric Power Company, Inc., Grand Trunk Corporation, Central
Vermont Railway, Inc., S.K.I. Ltd., Sherburne Corporation, Union Mutual
Fire Insurance Company, New England Guaranty Insurance Company, Inc.
and the Investment Company Institute; former Governor of Vermont;
former Director and President, Associated Industries of Vermont; former
Chairman and President, Vermont Marble Company; former Director of
Keystone; and former Director and Chairman of the Board, Green Mountain
Bank.
DAVID M. RICHARDSON: Trustee of the Fund; Trustee or Director of all other
Keystone Investments Funds; Executive Vice President, DHR
International, Inc. (executive recruitment); former Senior Vice
President, Boyden International Inc. (executive recruitment); and
Director, Commerce and Industry Association of New Jersey, 411
International, Inc. and J & M Cumming Paper Co.
RICHARD J. SHIMA: Trustee of the Fund; Trustee or Director of all other
Keystone Investments Funds; Chairman, Environmental Warranty, Inc., and
Consultant, Drake Beam Morin, Inc. (executive outplacement); Director
of Connecticut Natural Gas Corporation, Trust Company of Connecticut,
Hartford Hospital, Old State House Association and Enhanced Financial
Services, Inc.; Member, Georgetown College Board of Advisors; Chairman,
Board of Trustees, Hartford Graduate Center; Trustee, Kingswood-Oxford
School and Greater Hartford YMCA; former Director, Executive Vice
President and Vice Chairman of The Travelers Corporation; and former
Managing Director of Russell Miller, Inc.
ANDREW J. SIMONS: Trustee of the Fund; Trustee or Director of all other
Keystone Investments Funds; Partner, Farrell, Fritz, Caemmerer, Cleary,
Barnosky & Armentano, P.C.; former President, Nassau County Bar
Association; and former Associate Dean and Professor of Law, St. John's
University School of Law.
EDWARD F. GODFREY: Senior Vice President of the Fund; Senior Vice President of
all other Keystone Investments Funds; Director, Senior Vice President,
Chief Financial Officer and Treasurer of Keystone Investments, the
Principal Underwriter, Keystone Asset Corporation, Keystone Capital
Corporation, Keystone Trust Company; Treasurer of Keystone
Institutional, and FICO; Treasurer and Director of Keystone Management,
and Keystone Software; Vice President and Treasurer of KFIA; and
Director of KIRC; former Treasurer and Director of Hartwell Keystone;
former Treasurer of Robert Van Partners, Inc.
JAMES R. McCALL: Senior Vice President of the Fund; Senior Vice President of
all other Keystone Investments Funds; and President of Keystone.
J. KEVIN KENELY: Treasurer of the Fund; Treasurer of all other Keystone
Investments Funds; Vice President and Controller of Keystone
Investments, Keystone, the Principal Underwriter, FICO and Keystone
Software; and Controller of Keystone Asset Corporation and Keystone
Capital Corporation.
CHRISTOPHER P. CONKEY: Vice President of the Fund; Vice President certain other
Keystone Investment Funds; and Senior Vice President of Keystone.
GILMAN C. GUNN, III: Vice President of the Fund; Vice President of certain
other Keystone Investments Funds; and Senior Vice President of
Keystone.
ROSEMARY D. VAN ANTWERP: Senior Vice President and Secretary of the Fund; Senior
Vice President and Secretary of all other Keystone Investments Funds;
Senior Vice President, General Counsel and Secretary of Keystone;
Senior Vice President, General Counsel, Secretary and Director of the
Principal Underwriter, Keystone Management and Keystone Software;
Senior Vice President and General Counsel of Keystone Institutional;
Senior Vice President, General Counsel and Director of FICO and KIRC;
Vice President and Secretary of KFIA; Senior Vice President, General
Counsel and Secretary of Keystone Investments, Keystone Asset
Corporation, Keystone Capital Corporation and Keystone Trust Company;
former Senior Vice President and Secretary of Hartwell Keystone, and
Robert Van Partners, Inc.
* This Trustee may be considered an "interested person" within the meaning of
the 1940 Act.
Mr. Elfner and Mr. Bissell are "interested persons" by virtue of their
positions as officers and/or Directors of Keystone Investments and several of
its affiliates including Keystone, the Principal Underwriter and KIRC. Mr.
Elfner and Mr. Bissell own shares of Keystone Investments. Mr. Elfner is
Chairman of the Board, Chief Executive Officer and Director of Keystone
Investments. Mr. Bissell is a Director of Keystone Investments.
During the fiscal year ended October 31, 1995, no Trustee affiliated
with Keystone nor any officer received any direct remuneration from the Fund.
For the fiscal year ended October 31, 1995, the nonaffiliated Trustees and
officers of the Fund did not receive any retainers or fees. As of November 30,
1995, the Fund's Trustees and officers beneficially owned none of the Fund's
then outstanding shares. For the year ended December 31, 1994, aggregate
compensation received by the Independent Trustees on a fund complex wide basis
was $585,990.
The address of the Fund's Trustees and officers and the address of the
Fund is 200 Berkeley Street, Boston, Massachusetts 02116-5034.
- --------------------------------------------------------------------------------
FUND EXPENSES
- --------------------------------------------------------------------------------
In addition to its investment advisory and management fee, the Fund, on
behalf of the Portfolio, assumes and pays its direct expenses and all other
expenses, including, without limitation, the following: (1) all charges and
expenses of any custodian or depository appointed by the Fund for the
safekeeping of the Fund's cash, securities and other property; (2) all charges
and expenses for bookkeeping and auditors; (3) all charges and expenses of any
transfer agents and registrars appointed by the Fund; (4) all fees of all
Trustees of the Fund who are not affiliated with Keystone or any of its
affiliates; (5) all brokers' fees, expenses and commissions and issue and
transfer taxes chargeable to the Fund in connection with transactions involving
securities and other property to which the Fund is a party; (6) all costs and
expenses of distribution of its shares incurred pursuant to a Distribution Plan
adopted under Rule 12b-1 issued under the 1940 Act; (7) all taxes and corporate
fees payable by the Fund to federal, state or other governmental agencies; (8)
all costs of certificates representing shares of the Portfolio; (9) all fees and
expenses involved in registering and maintaining registrations of the Portfolio
and of its shares with the Securities and Exchange Commission (the "SEC" or
"Commission") and registering or qualifying its shares under state or other
securities laws, including the preparation and printing of prospectuses for
filing with the Commission and other authorities; (10) expenses of preparing,
printing and mailing prospectuses to shareholders of the Portfolio; (11) all
expenses of shareholders' and Trustees' meetings and of preparing, printing and
mailing notices, reports and proxy materials to shareholders of the Fund; (12)
all charges and expenses of legal counsel for the Fund and for Trustees of the
Fund in connection with legal matters relating to the Fund including, without
limitation, legal services rendered in connection with the Fund's existence,
business trust and financial structure and relations with its shareholders,
registrations and qualifications of securities under federal, state and other
laws, issues of securities, expenses that the Fund has assumed, whether
customary or not, and extraordinary matters; (13) all charges and expenses of
filing annual and other reports with the Commission; and (14) all extraordinary
expenses and charges of the Fund. In the event Keystone provides any of these
services or pays any of these expenses, the Fund will promptly reimburse
Keystone therefor.
The Portfolio is also subject to certain state annual expense limits,
the most restrictive of which is currently 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
Portfolio's distribution plan fees, are not included in the calculation of the
state expense limitation. This limitation may be modified or eliminated in the
future.
- --------------------------------------------------------------------------------
INVESTMENT ADVISER
- --------------------------------------------------------------------------------
Keystone, located at 200 Berkeley Street, Boston, Massachusetts
02116-5034, organized in 1932, has been retained under an Investment Advisory
and Management Agreement (the "Advisory Agreement") to provide investment advice
and, in general, to manage the investment and reinvestment of the assets of the
Portfolio.
Keystone is a wholly-owned subsidiary of Keystone Investments, located
at 200 Berkeley Street, Boston, Massachusetts 02116-5034. Keystone Investments
is a corporation predominantly owned by current and former members of management
of Keystone and its affiliates. The shares of Keystone Investments common stock
beneficially owned by management are held in a number of voting trusts, the
trustees of which are George S. Bissell, Albert H. Elfner, III, Edward F.
Godfrey and Ralph J. Spuehler, Jr. Keystone Investments provides accounting,
bookkeeping, legal, personnel and general corporate services to Keystone,
Hartwell Keystone, their affiliates and the Keystone Investments Family of
Funds.
The overall supervision and management of the Fund rests with its Board
of Trustees. Pursuant to the Advisory Agreement, Keystone furnishes to the Fund
investment advisory, management and administrative services, office facilities,
equipment and personnel in connection with its services for managing the
investment and reinvestment of the Portfolio's assets, and pays (or causes to be
paid) the compensation of all officers and employees of the Fund.
As compensation for its services to the Portfolio, Keystone is entitled
to a fee at the annual rate set forth below:
Aggregate Net Asset
Management Value of the Shares
Fee Income of the Portfolio
- -------------------------------------------------------------------------------
1.5% of Gross
Income Plus
0.50% of the first $ 500,000,000, plus
0.45% of the next $ 500,000,000, plus
0.40% of amounts over $1,000,000,000
- -------------------------------------------------------------------------------
computed as of the close of business on each business day and paid daily.
For the fiscal year ended October 31, 1995, the Portfolio paid to
Keystone fees of $93,806, which represented 0.65% of the Portfolio's average net
assets. For the fiscal years ended December 31, 1992 and 1993 and the ten-month
period ended October 31, 1994, the Portfolio paid to Keystone fees of $53,621,
$49,732 and $61,697, respectively.
All expenses (other than those specifically referred to as being borne
by Keystone) incurred in the operation of the Fund, and any public offering of
its shares, are borne by the Fund. To the extent that Keystone provides certain
of such services, the Fund promptly reimburses Keystone therefor. The fee
charged to the Fund is higher than that charged to most other investment
companies with different investment objectives and policies. However, the fee is
comparable to fees charged to other global and international funds that are
subject to the higher costs involved in managing a portfolio of predominantly
international securities.
Under the Advisory Agreement, any liability of Keystone in connection
with rendering services thereunder is limited to situations involving its
willful misfeasance, bad faith, gross negligence or reckless disregard of its
duties.
The Advisory Agreement continues in effect from year to year only so
long as such continuance is specifically approved at least annually by the
Fund's Board of Trustees or by vote of a majority of the outstanding shares. In
either case, the terms of the Advisory Agreement and continuance thereof must be
approved by the vote of a majority of Independent Trustees in person at a
meeting called for the purpose of voting on such approval. The Advisory
Agreement may be terminated, without penalty, on 60 days' written notice by the
Fund or Keystone or may be terminated by a vote of the Fund's shareholders. The
Agreement will terminate automatically upon its assignment.
- --------------------------------------------------------------------------------
PRINCIPAL UNDERWRITER
- --------------------------------------------------------------------------------
The Fund has entered into a Principal Underwriting Agreements (the
"Principal Underwriting Agreements") with the Principal Underwriter, a
wholly-owned subsidiary of Keystone.
The Principal Underwriter, as agent, currently has the right to obtain
subscriptions for and to sell shares of the Fund to the public. In so doing, the
Principal Underwriter may retain and employ representatives to promote
distribution of the shares and may obtain orders from brokers, dealers or
others, acting as principals, for sales of shares. No such representative,
dealer or broker has any authority to act as agent for the Fund. The Principal
Underwriter has not undertaken to buy or to find purchasers for any specific
number of shares. The Principal Underwriter may receive payments from the Fund
pursuant to the Fund's Distribution Plans.
All subscriptions and sales of shares by the Principal Underwriter are
at the offering price of the shares, such price being in accordance with the
provisions of the Fund's Declaration of Trust, By-Laws, the current prospectus
and statement of additional information. All orders are subject to acceptance by
the Fund, and the Fund reserves the right, in its sole discretion, to reject any
order received. Under the Principal Underwriting Agreements, the Fund is not
liable to anyone for failure to accept any order.
The Fund has agreed under the Principal Underwriting Agreements to pay
all expenses in connection with registration of its shares with the Commission
as well as auditing and filing fees in connection with registration of its
shares under the various state "blue-sky" laws. The Principal Underwriter
assumes the cost of sales literature and preparation of prospectuses used by it
and certain other expenses.
From time to time, if in the Principal Underwriter's judgment it could
benefit the sales of Fund shares, the Principal Underwriter may use its
discretion in providing to selected dealers promotional materials and selling
aids, including, but not limited to, personal computers, related software and
Fund data files.
The Principal Underwriter has agreed that it will, in all respects,
duly conform with all state and federal laws applicable to the sale of the
shares and will indemnify and hold harmless the Fund, and each person who has
been, is or may be a Trustee or officer of the Fund, against expenses reasonably
incurred by any of them in connection with any claim or in connection with any
action, suit or proceeding to which any of them may be a party that arises out
of or is alleged to arise out of any misrepresentation or omission to state a
material fact on the part of the Principal Underwriter or any other person for
whose acts the Principal Underwriter is responsible or is alleged to be
responsible, unless such misrepresentation or omission was made in reliance upon
written information furnished by the Fund.
The Principal Underwriting Agreements will remain in effect as long as
their terms and continuance are approved by a majority of the Fund's Independent
Trustees at least annually at a meeting called for that purpose and if their
continuance is approved annually by vote of a majority of Trustees or by vote of
a majority of the outstanding shares.
The Principal Underwriting Agreement may be terminated, without
penalty, on 60 days' written notice by the Fund's Board of Trustees or by a vote
of a majority of outstanding shares. The Principal Underwriting Agreements will
terminate automatically upon their "assignment" as that term is defined in the
1940 Act.
- --------------------------------------------------------------------------------
DECLARATION OF TRUST
- --------------------------------------------------------------------------------
MASSACHUSETTS BUSINESS TRUST
The Fund is organized as a Massachusetts business trust. Under its
Declaration of Trust, the Fund is authorized to issue more than one series
(portfolio) and may divide any series into more than one class of shares. The
Portfolio is currently the only series the Fund issues and the Portfolio
currently issues three classes of shares. The Fund is the successor to
International Heritage Fund, which was organized as a Massachusetts business
trust on September 5, 1986, and Keystone America Global Income Fund, which was
formed on April 19, 1989. The Fund is similar in most respects to a business
corporation. The principal distinction between the Fund and a corporation
relates to shareholder liability as described below. A copy of the Declaration
of Trust is filed as an exhibit to the Fund's Registration Statement, of which
this statement of additional information is a part. This summary is qualified in
its entirety by reference to the Declaration of Trust. On July 27, 1993, the
Fund's shareholders approved a restatement of the entire Declaration of Trust
(the "Restatement"). The purpose of the Restatement is to authorize the issuance
of additional classes of shares. The Restatement also omits provisions which are
reiterations of statutes, rules and regulations or which are otherwise
unnecessary and expands certain provisions for clarification or ease of
administration.
DESCRIPTION OF SHARES
The Declaration of Trust authorizes the issuance of an unlimited number
of shares of beneficial interest of classes of shares, each of which represents
an equal proportionate interest in the Fund with each other share of that class.
Shares are entitled upon liquidation of the Fund to a pro rata share of the Fund
based on the relative net assets of each class. Shareholders have no preemptive
or conversion rights. Shares are redeemable, transferable and freely assignable
as collateral. Shareholders representing 10% or more of the Fund may, as set
forth in the Declaration of Trust, call meetings for any purpose, including the
purpose of voting on removal of one or more Trustees.
SHAREHOLDER LIABILITY
Pursuant to certain decisions of the Supreme Judicial Court of
Massachusetts, shareholders of a Massachusetts business trust may, under certain
circumstances, be held personally liable as partners for the obligations of the
trust. Even if, however, the Fund were held to be a partnership, the possibility
of the shareholders incurring financial loss for that reason appears remote
because (1) the Fund's Declaration of Trust contains an express disclaimer of
shareholder liability for obligations of the Fund and requires that notice of
such disclaimer be given in each agreement, obligation or instrument entered
into or executed by the Fund or the Trustees; and (2) the Declaration of Trust
provides for indemnification out of the Fund's property for any shareholder held
personally liable for the obligations of the Fund. The Declaration of Trust also
provides that the Fund will, upon request, assume the defense of any claim made
against any shareholder of the Fund for any act or obligation of the Fund and
satisfy any judgment thereon from the assets of the Fund.
VOTING RIGHTS
Under the terms of the Declaration of Trust, the Fund does not hold
annual meetings. However, at meetings called for the initial election of
Trustees or to consider other matters, shares are entitled to one vote per
share. Classes of shares of the Fund have equal voting rights except that each
class of shares has exclusive voting rights with respect to its respective
Distribution Plan. No amendment may be made to the Declaration of Trust that
adversely affects any class of shares without the approval of a majority of the
shares of that class. Shares have non-cumulative voting rights, which means that
the holders of more than 50% of the shares voting for the election of Trustees
can elect 100% of the Trustees to be elected at a meeting and, in such event,
the holders of the remaining 50% or less of the shares voting will not be able
to elect any Trustees.
After the initial meeting as described above, no further meetings of
shareholders for the purpose of electing Trustees will be held, unless required
by law, until such time as less than a majority of the Trustees holding office
have been elected by shareholders, at which time the Trustees then in office
will call a shareholders' meeting for the election of Trustees.
Except as set forth above, the Trustees shall continue to hold office
indefinitely, unless otherwise required by law, and may appoint successor
Trustees. A Trustee may be removed from or cease to hold office (as the case may
be) (1) at any time by two-thirds vote of the remaining Trustees; (2) when such
Trustee becomes mentally or physically incapacitated; or (3) at a special
meeting of shareholders by a two-thirds vote of the outstanding shares. Any
Trustee may voluntarily resign from office.
LIMITATION OF TRUSTEES' LIABILITY
The Declaration of Trust provides that a Trustee shall be liable only
for his own willful defaults and, if reasonable care has been exercised in the
selection of officers, agents, employees or investment advisers, shall not be
liable for any neglect or wrongdoing of any such person; provided, however, that
nothing in the Declaration of Trust shall protect a Trustee against any
liability for his willful misfeasance, bad faith, gross negligence or reckless
disregard of his duties.
The Trustees have absolute and exclusive control over the management
and disposition of all assets of the Fund and may perform such acts as in their
sole judgment and discretion are necessary and proper for conducting the
business and affairs of the Fund or promoting the interests of the Fund and the
shareholders
- --------------------------------------------------------------------------------
STANDARDIZED TOTAL RETURN AND YIELD QUOTATIONS
- --------------------------------------------------------------------------------
Total return quotations for a class of shares of a Portfolio of the
Fund as they may appear from time to time in advertisements are calculated by
finding the average annual compounded rates of return over one, five and ten
year periods, or the time periods for which such class of shares has been
effective, whichever is relevant, on a hypothetical $1,000 investment that would
equate the initial amount invested in the class to the ending redeemable value.
All dividends and distributions are added to the initial investment, the maximum
sales load deducted and all recurring fees charged to all shareholder accounts
are deducted. The ending redeemable value assumes a complete redemption at the
end of the relevant periods.
The Portfolio's Class A total return for the one and five year periods
ended October 31, 1995 were (2.51)% and 31.93%, respectively (including any
applicable sales charge). The Portfolio's Class A total return for the period
January 9, 1987 (commencement of operations) to October 31, 1995 was 69.97%
(including any applicable sales charge). The Portfolio's Class A compounded
average rate of return for the period January 9, 1987 (commencement of
operations) to October 31, 1995 was 6.21% (including any applicable sales
charge). The Portfolio's Class A compounded average rate of return for the five
year period ended October 31, 1995 was 5.70% (including any applicable sales
charge). The total returns for Class B and Class C of the Portfolio for the
period August 2, 1993 (date of initial public offering) through October 31, 1995
were 0.24% and 2.59%, respectively (including any applicable sales charge). The
total return figures do not reflect expense subsidizations by International
Heritage Corp. or Keystone, the Portfolio's advisers during these periods.
Effective April 19, 1989, Keystone became investment adviser to the Portfolio.
Total return figures are included for historical purposes.
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 Portfolio, 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 Portfolio presently does
not intend to advertise current yield.
- --------------------------------------------------------------------------------
ADDITIONAL INFORMATION
- --------------------------------------------------------------------------------
To the best of the Fund's knowledge, there were no shareholders of
record who owned 5% or more of the Portfolio's outstanding Class A shares as of
November 30, 1995.
As of November 30, 1995, Merrill Lynch Pierce Fenner & Smith, Attn:
Book Entry, 4800 Deer Lake Dr. E, 3rd Floor, Jacksonville, FL 32246-6484; and
Alan Baker Co., 160 Sylvester Rd., South San Francisco, CA 94080-6014 owned
6.112% and 5.565%, respectively, of the Portfolio's outstanding Class B shares.
As of November 30 1995, Merrill Lynch Pierce Fenner & Smith, Attn: Book
Entry, 4800 Deer Lake Dr. E, 3rd Floor, Jacksonville, FL 32246-6484; PaineWebber
for the Benefit of PaineWebber Cdn., FBO: Howard I. Richert, PO Box 3321,
Weehawken, NJ 07087; PaineWebber for the Benefit of Paine Webber Cdn., FBO:
Jerry H. Hall, P.O. Box 3321, Weehawken, NJ 07087; and State Street Bank and
Trust Co., Cust., Univ. of Texas/Austin Orp., FBO: Arnold H. Buss, 3318 Parry
Lane, Austin, TX 78731-5331 owned 13.074%, 7.917%, 6.484% and 5.154%,
respectively, of the Portfolio's outstanding Class C shares.
State Street Bank and Trust Company, 225 Franklin Street, Boston,
Massachusetts 02110, is the custodian ("Custodian") of all securities and cash
of the Fund. The Custodian performs no investment management functions for the
Fund, but, in addition to its custodial services, is responsible for accounting
and related recordkeeping on behalf of the Fund.
KPMG Peat Marwick LLP, 99 High Street, Boston, Massachusetts 02110,
Certified Public Accountants, are the independent auditors for the Fund.
KIRC, located at 101 Main Street, Cambridge, Massachusetts 02142, is a
wholly-owned subsidiary of Keystone and acts as transfer agent and dividend
disbursing agent for the Fund.
Except as otherwise stated in its prospectus or required by law, the
Fund reserves the right to change the terms of the offer stated in its
prospectus without shareholder approval, including the right to impose or change
fees for services provided.
No dealer, salesman or other person is authorized to give any
information or to make any representation not contained in the Fund's
prospectus, statement of additional information or in supplemental sales
literature issued by the Fund or the Principal Underwriter, and no person is
entitled to rely on any information or representation not contained therein.
The Fund's prospectus and statement of additional information omit
certain information contained in the Fund's Registration Statement filed with
the Commission, which may be obtained from the Commission's principal office in
Washington, D.C. upon payment of the fee prescribed by the rules and regulations
promulgated by the Commission.
The Fund is one of 15 different investment companies in the Keystone
America Fund Family. The Keystone America Funds offers a range of choices to
serve shareholder needs. The other Keystone America Funds consist of the funds
having the various investment objectives described below:
KEYSTONE AMERICA HARTWELL EMERGING GROWTH FUND, INC. - Seeks capital
appreciation by investment primarily in small and medium-sized companies in a
relatively early stage of development that are principally traded in the
over-the-counter market.
KEYSTONE HARTWELL GROWTH FUND - Seeks capital appreciation by investment in
securities selected for their long-term growth prospects.
KEYSTONE CAPITAL PRESERVATION AND INCOME FUND - Seeks high level of current
income, consistent with low volatility of principal, by investing in adjustable
rate securities issued by the U.S. government, its agencies or
instrumentalities.
KEYSTONE FUND FOR TOTAL RETURN - Seeks total return from a combination of
capital growth and income from dividend paying quality common stocks, preferred
stocks, convertible bonds, other fixed-income securities and foreign securities
(up to 25%).
KEYSTONE GLOBAL OPPORTUNITIES FUND - Seeks long-term capital growth from foreign
and domestic securities.
KEYSTONE GOVERNMENT SECURITIES FUND - Seeks income and capital preservation from
U.S. government securities.
KEYSTONE INTERMEDIATE TERM BOND FUND - Seeks income, capital preservation and
price appreciation potential from investment grade corporate bonds.
KEYSTONE AMERICA OMEGA FUND, INC. - Seeks maximum capital growth from common
stocks and securities convertible into common stocks.
KEYSTONE STATE TAX FREE FUND - A mutual fund consisting of five separate series
of shares investing in different portfolio securities which seeks the highest
possible current income, exempt from federal income taxes and applicable state
taxes.
KEYSTONE STATE TAX FREE FUND - SERIES II - A mutual fund consisting of two
separate series of shares investing in different portfolio securities which
seeks the highest possible current income, exempt from federal income taxes and
applicable state taxes.
KEYSTONE STRATEGIC INCOME FUND - Seeks high yield and capital appreciation
potential from corporate bonds, discount bonds, convertible bonds, preferred
stock and foreign bonds (up to 25%).
KEYSTONE TAX FREE INCOME FUND - Seeks income exempt from federal income taxes
and capital preservation from the four highest grades of municipal bonds.
KEYSTONE FUND OF THE AMERICAS - Seeks long term growth of capital through
investments in equity securities in North America (the United States and Canada)
and Latin America (Mexico and countries in South and Central America).
KEYSTONE STRATEGIC DEVELOPMENT FUND - Seeks long term capital growth by
investing primarily in equity securities.
<PAGE>
- -------------------------------------------------------------------------------
APPENDIX
- -------------------------------------------------------------------------------
MONEY MARKET INSTRUMENTS
Money market securities are instruments with remaining maturities of
one year or less such as bank certificates of deposit, bankers' acceptances,
commercial paper (including variable rate master demand notes), and obligations
issued or guaranteed by the United States ("U.S.") government, its agencies or
instrumentalities, some of which may be subject to repurchase agreements.
COMMERCIAL PAPER
Commercial paper, including commercial paper of foreign issuers, will
consist of issues rated at the time of purchase A-1 by Standard & Poor's
Corporation ("S&P"), or PRIME-1 by Moody's Investors Service, Inc., ("Moody's");
or, if not rated, will be issued by companies that have an outstanding debt
issue rated at the time of purchase Aaa, Aa or A by Moody's, or AAA, AA or A by
S&P, or will be determined by Keystone to be of comparable quality.
A. S&P RATINGS
An S&P commercial paper rating is a current assessment of the
likelihood of timely payment of debt having an original maturity of no more than
365 days. Ratings are graded into four categories, ranging from "A" for the
highest quality obligations to "D" for the lowest. The top category is as
follows:
1. A: Issues assigned this highest rating are regarded as having the
greatest capacity for timely payment. Issues in this category are delineated
with the numbers 1, 2 and 3 to indicate the relative degree of safety.
a. A-1: This designation indicates that the degree of safety regarding
timely payment is either overwhelming or very strong. Those issues determined to
possess overwhelming safety characteristics are denoted with a plus (+) sign
designation.
B. MOODY'S RATINGS
The term "commercial paper" as used by Moody's means promissory
obligations not having an original maturity in excess of nine months. Moody's
commercial paper ratings are opinions of the ability of issuers to repay
punctually promissory obligations not having an original maturity in excess of
nine months. Moody's employs the following designation, judged to be investment
grade, to indicate the relative repayment capacity of rated issuers.
1. The rating PRIME-1 is the highest commercial paper rating assigned by
Moody's. Issuers rated PRIME-1 (or related supporting institutions) are deemed
to have a superior capacity for repayment of short term promissory obligations.
Repayment capacity of PRIME-1 issuers is normally evidenced by the following
characteristics:
(1) leading market positions in well-established industries;
(2) high rates of return on funds employed;
(3) conservative capitalization structures with moderate reliance on
debt and ample asset protection;
(4) broad margins in earnings coverage of fixed financial charges and
high internal cash generation; and
(5) well established access to a range of financial markets and assured
sources of alternate liquidity.
In assigning ratings to issuers whose commercial paper obligations are
supported by the credit of another entity or entities, Moody's evaluates the
financial strength of the affiliated corporations, commercial banks, insurance
companies, foreign governments or other entities, but only as one factor in the
total rating assessment.
U.S. CERTIFICATES OF DEPOSIT
U.S. certificates of deposit are receipts issued by a U.S. bank in
exchange for the deposit of funds. The issuer agrees to pay the amount deposited
plus interest to the bearer of the receipt on the date specified on the
certificate. The certificate usually can be traded in the secondary market prior
to maturity.
U.S. certificates of deposit will be limited to U.S. dollar-denominated
certificates of U.S. banks, including their branches abroad, that are members of
the Federal Reserve System or the Federal Deposit Insurance Corporation, and of
U.S. branches of foreign banks, each of which have total deposits at the time of
purchase in excess of $1 billion.
UNITED STATES GOVERNMENT SECURITIES
Securities issued or guaranteed by the U.S. government include a
variety of Treasury securities that differ only in their interest rates,
maturities and dates of issuance and securities issued by the Government
National Mortgage Association ("GNMA"). Treasury bills have maturities of one
year or less. Treasury notes have maturities of one to ten years and Treasury
bonds generally have maturities of greater than ten years at the date of
issuance. GNMA securities include GNMA mortgage pass-through certificates. Such
securities are supported by the full faith and credit of the U.S.
Securities issued or guaranteed by U.S. government agencies or
instrumentalities include securities issued or guaranteed by the Federal Housing
Administration, Farmers Home Administration, Export-Import Bank of the United
States, Small Business Administration, General Services Administration, Central
Bank for Cooperatives, Federal Home Loan Banks, Federal Loan Mortgage
Corporation, Federal Intermediate Credit Banks, Federal Land Banks, Maritime
Administration, The Tennessee Valley Authority, District of Columbia Armory
Board and Federal National Mortgage Association.
Some obligations of U.S. government agencies and instrumentalities,
such as securities of Federal Home Loan Banks, are supported by the right of the
issuer to borrow from the Treasury. Others, such as bonds issued by the Federal
National Mortgage Association, a private corporation, are supported only by the
credit of the instrumentality. Because the United States government is not
obligated by law to provide support to an instrumentality it sponsors, the
Portfolio will invest in the securities issued by such an instrumentality only
when Keystone determines under standards established by the Board of Trustees
that the credit risk with respect to the instrumentality does not make its
securities unsuitable investments. While the Portfolio may invest in such
instruments, United States government securities do not include international
agencies or instrumentalities in which the United States government, its
agencies or instrumentalities participate, such as the World Bank, Asian
Development Bank or the Interamerican Development Bank, or issues insured by the
Federal Deposit Insurance Corporation.
CORPORATE BOND RATINGS
S&P CORPORATE BOND RATINGS
An S&P corporate bond rating is a current assessment of the
creditworthiness of an obligor, including obligors outside the U.S., with
respect to a specific obligation. This assessment may take into consideration
obligors such as guarantors, insurers, or lessees. Ratings of foreign obligors
do not take into account currency exchange and related uncertainties. The
ratings are based on current information furnished by the issuer or obtained by
S&P from other sources it considers reliable.
The ratings are based, in varying degrees, on the following
considerations:
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 a 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.
B. MOODY'S CORPORATE BOND RATINGS
Moody's ratings are as follows:
1. Aaa - Bonds that are rated Aaa are judged to be of the best quality.
They carry the smallest degree of investment risk and are generally referred to
as "gilt-edge." Interest payments are protected by a large or by an
exceptionally stable margin and principal is secure. While the various
protective elements are likely to change, such changes as can be visualized are
most unlikely to impair the fundamentally strong position of such issues.
2. Aa - Bonds that are rated Aa are judged to be of high quality by all
standards. Together with the Aaa group they comprise what are generally known as
high grade bonds. They are rated lower than the best bonds because margins of
protection may not be as large as in Aaa securities or fluctuation of protective
elements may be of greater amplitude or there may be other elements present
which make the long term risks appear somewhat larger than in Aaa securities.
3. A - Bonds that are rated A possess many favorable investment
attributes and are to be considered as upper medium grade obligations. Factors
giving security to principal and interest are considered adequate but elements
may be present which suggest a susceptibility to impairment sometime in the
future.
4. Baa - Bonds that are rated Baa are considered as medium grade
obligations, i.e., they are neither highly protected nor poorly secured.
Interest payments and principal security appear adequate for the present but
certain protective elements may be lacking or may be characteristically
unreliable over any great length of time. Such bonds lack outstanding investment
characteristics and in fact have speculative characteristics as well.
5. Ba - Bonds that are rated Ba are judged to have speculative
elements. Their future cannot be considered as well assured. Often the
protection of interest and principal payments may be very moderate and thereby
not well safeguarded during both good and bad times over the future. Uncertainty
of position characterizes bonds in this class.
6. B - Bonds that are rated B generally lack characteristics of the
desirable investment. Assurance of interest and principal payments or of
maintenance of other terms of the contract over any long period of time may be
small.
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 and 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.
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, 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 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 than in the
"aaa" and "aa" classification, earnings and asset protection are, nevertheless,
expected to be maintained at adequate levels.
4. baa: An issue that is rated "baa" is considered to be a medium-grade
preferred stock, neither highly protected nor poorly secured. Earnings and asset
protection appear adequate at present but may be questionable over any great
length of time.
5. ba: An issue that is rated "ba" is considered to have speculative
elements and its future cannot be considered well assured. Earnings and asset
protection may be very moderate and not well safeguarded during adverse periods.
Uncertainty of position characterizes preferred stocks in this class.
6. b: An issue that is rated "b" generally lacks the characteristics of
a desirable investment. Assurance of dividend payments and maintenance of other
terms of the issue over any long period of time may be small.
7. caa: An issue that is rated "caa" is likely to be in arrears on
dividend payments. This rating designation does not purport to indicate the
future status of payments.
8. ca: An issue that is rated "ca" is speculative in a high degree and
is likely to be in arrears on dividends with little likelihood of eventual
payments.
9. c: This is the lowest rated class of preferred or preference stock.
Issues so rated can be regarded as having extremely poor prospects of ever
attaining any real investment standing.
Moody's applies numerical modifiers 1, 2 and 3 in each rating
classification: the modifier 1 indicates that the security ranks in the higher
end of its generic rating category; the modifier 2 indicates a mid-range
ranking; and the modifier 3 indicates that the issue ranks in the lower end of
its generic rating category.
OPTIONS TRANSACTIONS
WRITING COVERED OPTIONS
The Portfolio writes only covered options. Options written by the
Portfolio 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 Portfolio 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 Portfolio 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 Portfolio is able to enter
into a closing purchase transaction, the Portfolio 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 Portfolio 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 Portfolio 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 Portfolio intends to qualify as a regulated investment
company under the Internal Revenue Code, the extent to which the Portfolio 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 Portfolio may write covered call and put options with respect to up
to 25% of its net assets. A call option gives the purchaser of the option the
right to buy, and the writer the obligation to sell, the underlying security at
the exercise price during the option period. Conversely, a put option gives the
purchaser the right to sell, and the writer the obligation to buy, the
underlying security at the exercise price during the option period.
So long as the obligation of the writer continues, the writer may be
assigned an exercise notice by the broker-dealer through whom the option was
sold. The exercise notice would require the writer to deliver, in the case of a
call, or take delivery of, in the case of a put, the underlying security against
payment of the exercise price. This obligation terminates upon expiration of the
option, or at such earlier time as the writer effects a closing purchase
transaction by purchasing an option of the same series as the one previously
sold. Once an option has been exercised, the writer may not execute a closing
purchase transaction. For options traded on national securities exchanges
("Exchanges"), to secure the obligation to deliver the underlying security in
the case of a call option, the writer of the option is required to deposit in
escrow the underlying security or other assets in accordance with the rules of
the OCC, an institution created to interpose itself between buyers and sellers
of options. Technically, the OCC assumes the order side of every purchase and
sale transaction on an Exchange and, by doing so, gives its guarantee to the
transaction.
The principal reason for writing options on a securities portfolio is
to attempt to realize, through the receipt of premiums, a greater return than
would be realized on the underlying securities alone. In return for the premium,
the covered call option writer has given up the opportunity for profit from a
price increase in the underlying security above the exercise price so long as
the option remains open, but retains the risk of loss should the price of the
security decline. Conversely, the put option writer gains a profit, in the form
of a premium, so long as the price of the underlying security remains above the
exercise price, but assumes an obligation to purchase the underlying security
from the buyer of the put option at the exercise price, even though the price of
the security may fall below the exercise price, at any time during the option
period. If an option expires, the writer realizes a gain in the amount of the
premium. Such a gain may, in the case of a covered call option, be offset by a
decline in the market value of the underlying security during the option period.
If a call option is exercised, the writer realizes a gain or loss from the sale
of the underlying security. If a put option is exercised, the writer must
fulfill his obligation to purchase the underlying security at the exercise
price, which will usually exceed the then market value of the underlying
security. In addition, the premium paid for the put effectively increases the
cost of the underlying security, thus reducing the yield otherwise available
from such security.
Because the Portfolio can write only covered options, it may at times
be unable to write additional options unless it sells a portion of its portfolio
holdings to obtain new securities against which it can write options. This may
result in higher portfolio turnover and correspondingly greater brokerage
commissions and other transaction costs.
To the extent that a secondary market is available the covered option
writer may close out options it has written prior to the assignment of an
exercise notice by purchasing, on a closing purchase transaction, an option of
the same series as the option previously written. If the cost of such a closing
purchase, plus transaction costs, is greater than the premium received upon
writing the original option, the writer will incur a loss in the transaction.
PURCHASING PUT AND CALL OPTIONS
The Portfolio can close out a put option it has purchased by effecting
a closing sale transaction; for example, the Portfolio may close out a put
option it has purchased by selling a put option. If, however, a secondary market
does not exist at a time the Portfolio wishes to effect a closing sale
transaction, the Portfolio will have to exercise the option to realize any
profit. In addition, in a transaction in which the Portfolio does not own the
security underlying a put option it has purchased, the Portfolio would be
required, in the absence of a secondary market, to purchase the underlying
security before it could exercise the option. In each such instance, the
Portfolio would incur additional transaction costs. The Portfolio may also
purchase call options for the purpose of offsetting previously written call
options of the same series.
The Portfolio would normally purchase call options in anticipation of
an increase in the market value of securities of the type in which the Portfolio
may invest. The purchase of a call option would entitle the Portfolio, in return
for the premium paid, to purchase specified securities at a specified price
during the option period. The Portfolio would ordinarily realize a gain if,
during the option period, the value of such securities exceeded the sum of the
exercise price, the premium paid and transaction costs; otherwise the Portfolio
would realize a loss on the purchase of the call option.
The Portfolio would normally purchase put options in anticipation of a
decline in the market value of securities in its portfolio ("protective puts")
or securities of the type in which it is permitted to invest. The purchase of a
put option would entitle the Portfolio, in exchange for the premium paid, to
sell specified securities at a specified price during the option period. The
purchase of protective puts is designed merely to offset or hedge against a
decline in the market value of the Portfolio's securities. Gains and losses on
the purchase of protective put options would tend to be offset by countervailing
changes in the value of underlying portfolio securities. Put options may also be
purchased by the Portfolio for the purpose of affirmatively benefitting from a
decline in the price of securities that the Portfolio does not own. The
Portfolio would ordinarily realize a gain if, during the option period, the
value of the underlying securities decreased below the exercise price
sufficiently to cover the premium and transaction costs; otherwise the Portfolio
would realize a loss on the purchase of the put option.
The Portfolio may purchase put and call options on securities indices
for the same purposes as the purchase of options on securities. Options on
securities indices are similar to options on securities, except that the
exercise of securities index options requires cash payments and does not involve
the actual purchase or sale of securities. In addition, securities index options
are designed to reflect price fluctuations in a group of securities or segment
of the securities market rather than price fluctuations in a single security.
OPTIONS TRADING MARKETS
Options in which the Portfolio will trade are generally listed on
Exchanges. Exchanges on which such options currently are traded include the
Chicago Board Options Exchange and the New York, American, Pacific, and
Philadelphia Stock Exchanges. Options on some securities may not be listed on
any Exchange but traded in the over-the-counter market. Options traded in the
over-the-counter market involve the additional risk that securities dealers
participating in such transactions would fail to meet their obligations to the
Portfolio. 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 Portfolio is
subject to the investment restrictions described in the prospectus and the
statement of additional information.
The staff of the Commission currently is of the view that the premiums
that the Portfolio pays for the purchase of unlisted options and the value of
securities used to cover unlisted options written by the Portfolio are
considered to be invested in illiquid securities or assets for the purpose of
calculating whether the Portfolio is in compliance with its fundamental
investment restriction prohibiting it from investing more than 10% of its total
assets (taken at current value) in any combination of illiquid assets and
securities. The Portfolio intends to request that the Commission staff
reconsider its current view. It is the intention of the Portfolio to comply with
the staff's current position and the outcome of such reconsideration.
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 Portfolio holds a long position
in U.S. Treasury bills with a principal amount corresponding to the option
contract size, the Portfolio may be hedged from a risk standpoint. In addition,
to ensure that it can meet its open option obligations the Portfolio will
maintain in a segregated account with the Fund's Custodian liquid assets
maturing no later than those which would be deliverable in the event of an
assignment of an exercise notice.
ON GNMA CERTIFICATES. Options on GNMA certificates are not currently
traded on any Exchange. However, the Portfolio 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 Portfolio, 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 Portfolio 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 Portfolio to cover an option position in
any but the nearest expiration month may cease to represent 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 Portfolio will no longer be covered, and the Portfolio will
either enter into a closing purchase transaction or replace the GNMA certificate
with a certificate which represents cover. When the Portfolio 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 Portfolio 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 Portfolio would have to exercise its options in order to
realize any profit and might incur transaction costs in connection therewith. If
the Portfolio 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 Portfolio 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 Portfolio or as a hedge against changes in the prices of
securities or currencies held by the Portfolio or to be acquired by the
Portfolio. The Portfolio's hedging may include sales of futures as an offset
against the effect of expected increases in interest or currency exchange rates
or securities prices and purchases of futures as an offset against the effect of
expected declines in interest or currency exchange rates.
The Portfolio intends to engage in options transactions that are
related to currency and other financial futures contracts for hedging purposes
and in connection with the hedging strategies described above.
Although techniques other than sales and purchases of futures contracts
and related options transactions could be used to reduce the Portfolio's
exposure to interest rate and/or market fluctuations, the Portfolio 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 Portfolio does not
intend to take delivery of the instruments underlying futures contracts it
holds, the Portfolio 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").
OPTIONS ON CURRENCY AND OTHER FINANCIAL FUTURES
The Portfolio intends to purchase call and put options on currency and
other financial futures contracts and sell such options. Options on currency and
other financial futures contracts are similar to options on stocks except that
an option on a currency or other financial futures contract gives the purchaser
the right, in return for the premium paid, to assume a position in a futures
contract (a long position if the option is a call and a short position if the
option is a put) rather than to purchase or sell stock, currency or other
financial instruments at a specified exercise price at any time during the
period of the option. Upon exercise of the option, the delivery of the futures
position by the writer of the option to the holder of the option will be
accompanied by delivery of the accumulated balance in the writer's futures
margin account. This amount represents the amount by which the market price of
the futures contract at exercise exceeds, in the case of a call, or is less
than, in the case of a put, the exercise price of the option on the futures
contract. If an option is exercised on 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 Portfolio intends to use options on currency and other financial
futures contracts in connection with hedging strategies. In the future the
Portfolio may use such options for other purposes.
PURCHASE OF PUT OPTIONS ON FUTURES CONTRACTS
The purchase of protective put options on financial futures contracts
is analogous to the purchase of protective puts on individual stocks, where an
absolute level of protection is sought below which no additional economic loss
would be incurred by the Portfolio. Put options may be purchased to hedge a
portfolio of stocks or debt instruments or a position in the futures contract
upon which the put option is based.
PURCHASE OF CALL OPTIONS ON FUTURES CONTRACTS
The purchase of call options on currency and other financial futures
contracts represents a means of obtaining temporary exposure to market
appreciation at limited risk. It is analogous to the purchase of a call option
on an individual stock which can be used as a substitute for a position in the
stock itself. Depending on the pricing of the option compared to either the
futures contract upon which it is based, or upon the price of the underlying
financial instrument or index itself, the purchase of a call option may be less
risky than the ownership of the interest rate or index based futures contract or
the underlying securities. Call options on currency or other financial futures
contracts may be purchased to hedge against an interest rate increase or a
market advance when the Portfolio is not fully invested.
USE OF NEW INVESTMENT TECHNIQUES INVOLVING CURRENCY AND OTHER FINANCIAL FUTURES
CONTRACTS OR RELATED OPTIONS
The Portfolio may employ new investment techniques involving currency
and other financial futures contracts and related options. The Portfolio intends
to take advantage of new techniques in these areas which may be developed from
time to time and which are consistent with the Portfolio's investment objective.
The Portfolio believes that no additional techniques have been identified for
employment by the Portfolio 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 Portfolio will not enter into a futures contract if, as a result
thereof, more than 5% of the Portfolio'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 and premiums on options futures contracts.
The Portfolio 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 Portfolio owns or futures contracts will be purchased to
protect the Portfolio against an increase in the price of securities it intends
to purchase. The Portfolio does not intend to enter into futures contracts for
speculation.
In instances involving the purchase or sale of futures contracts by the
Portfolio, an amount of cash and cash equivalents or securities equal to the
market value of the futures contracts will be deposited in a segregated account
with the Fund's custodian. In addition, in the case of a purchase, the Portfolio
may be required to make a deposit to a margin account with a Broker to
collateralize the position, and in the case of a sale, the Portfolio may be
required to make daily deposits to the buyer's margin account. The Portfolio
would make such deposits in order to insure that the use of such futures is
unleveraged.
FEDERAL INCOME TAX TREATMENT
For federal income tax purposes, the Portfolio 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 Portfolio 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 Portfolio's annual gross income. The 1986 Tax
Act added a provision which effectively treats both positions in certain hedging
transactions as a single transaction for the purpose of the 30% requirement. The
provision provides that, in the case of any "designated hedge," increases and
decreases in the value of positions of the hedge are to be netted for the
purposes of the 30% requirement. However, in certain situations, in order to
avoid realizing a gain within a three month period, the Portfolio 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; and 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 Portfolio'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 Portfolio 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 Portfolio has
sufficient assets to satisfy its obligations under a futures contract, the
Portfolio will establish a segregated account in connection with its futures
contracts which will hold cash or cash equivalents equal in value to the current
value of the underlying instruments or indices less the margins on deposit.
Most U.S. futures exchanges limit the amount of fluctuation permitted
in futures contract prices during a single trading day. The daily limit
establishes the maximum amount that the price of a futures contract may vary
either up or down from the previous day's settlement price at the end of a
trading session. Once the daily limit has been reached in a particular type of
contract, no trades may be made on that day at a price beyond that limit. The
daily limit governs only price movement during a particular trading day and
therefore does not limit potential losses because the limit may prevent the
liquidation of unfavorable positions. Futures contract prices have occasionally
moved to the daily limit for several consecutive trading days with little or no
trading, thereby preventing prompt liquidation of futures positions and
subjecting some futures traders to substantial losses.
RISKS OF OPTIONS ON FUTURES CONTRACTS
In addition to the risks described above for currency and other
financial futures contracts, there are several special risks relating to options
on futures contracts. The ability to establish and close out positions on such
options will be subject to the development and maintenance of a liquid secondary
market. There is no assurance that a liquid secondary market will exist for any
particular option or at any particular time. The Portfolio 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 Portfolio 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 Portfolio, 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 Portfolio may invest in securities of foreign issuers. When the
Portfolio invests in foreign securities they usually will be denominated in
foreign currencies and the Portfolio temporarily may hold funds in foreign
currencies. Thus, the Portfolio's share value will be affected by changes in
exchange rates.
FORWARD CURRENCY CONTRACTS
As one way of managing exchange rate risk, the Portfolio 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 Portfolio will deliver or receive when
the contract is completed) is fixed when the Portfolio enters into the contract.
The Portfolio usually will enter into these contracts to stabilize the U.S.
dollar value of a security it has agreed to buy or sell. The Portfolio also may
use these contracts to hedge the U.S. dollar value of a security it already
owns, particularly if the Portfolio expects a decrease in the value of the
currency in which the foreign security is denominated. Although the Portfolio
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
Portfolio's investments denominated in foreign currencies will depend on the
relative strength of those currencies and the U.S. dollar, and the Portfolio may
be affected favorably or unfavorably by changes in the exchange rates or
exchange control regulations between foreign currencies and the dollar. Changes
in foreign currency exchange rates also may affect the value of dividends and
interest earned, gains and losses realized on the sale of securities and net
investment income and gains, if any, to be distributed to shareholders by the
Portfolio.
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 Portfolio intends to only engage in currency futures
contracts for hedging purposes, and not for speculation. The Portfolio 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 Portfolio 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, Swiss and French 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 Portfolio must continually make up the margin balance. As a
result, a wrong price move could result in the Portfolio losing more than the
original investment as it cannot walk away from the futures contract as it can
an option contract.
The Portfolio 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 Portfolio. 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 Portfolio 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 Portfolio is not fully invested.
The Portfolio 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 Portfolio's investment objective. The Portfolio believes that no
additional techniques have been identified for employment by the Portfolio 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 Portfolio 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
Portfolio 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 Portfolio 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 Portfolio 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 Portfolio'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 Portfolio 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 Portfolio intends to evaluate the
creditworthiness of each other party.
Credit risk exists because the Portfolio's counterparty may be unable
or unwilling to fulfill its contractual obligations as a result of bankruptcy or
insolvency or when foreign exchange controls prohibit payment. In any foreign
exchange transaction, each party agrees to deliver a certain amount of currency
to the other on a particular date. In establishing its hedges a portfolio relies
on each contract being completed. If the contract is not performed, then the
Portfolio's hedge is eliminated, and the Portfolio 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 Portfolio
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
Portfolio.
Another form of credit risk stems from the time zone differences
between the U.S. and foreign nations. If the Portfolio 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 Portfolio.
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 which 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 Portfolio 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 Portfolio.
Other changes in official regulations influence international
investment transactions. If one of the factors affecting the buying or selling
of a currency changes, the exchange rate is likely to respond. Changes in such
controls often are unpredictable and can create a significant exchange rate
response.
Many major countries have moved toward liberalization of exchange and
payments restrictions in recent years or accepted the principle that
restrictions should be relaxed. A few industrial countries have moved in the
other direction. Important liberalizations were carried out by Switzerland, the
United Kingdom and Japan. They dismantled mechanisms for restricting either
foreign exchange inflows (Switzerland), outflows (Britain) or elements of both
(Japan). By contrast, France and Mexico have recently tightened foreign exchange
controls.
Overall, many exchange markets are still heavily restricted. Several
countries limit access to the forward market to companies financing documented
export or import transactions in an effort to insulate the market from purely
speculative activities. Some of these countries permit local traders to enter
into forward contracts with residents but prohibit certain forward transactions
with nonresidents. By comparison, other countries have strict controls on
exchange transactions by residents, but permit free exchange transactions
between local traders and non-residents. A few countries have established tiered
markets, funneling commercial transactions through one market and financial
transactions through another. Outside the major industrial countries, relatively
free foreign exchange markets are rare and controls on foreign currency
transactions are extensive.
Another aspect of country risk has to do with the possibility that the
Portfolio 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 Portfolio. This aspect of country risk is a major
element in the Portfolio's credit judgment as to with whom it will deal and in
what amounts.
<PAGE>
PAGE 9
- --------------------------------------
SCHEDULE OF INVESTMENTS--October 31, 1995
<TABLE>
<CAPTION>
COUPON MATURITY PRINCIPAL MARKET
RATE DATE AMOUNT VALUE
==================================================================================================
<S> <C> <C> <C> <C>
FOREIGN GOVERNMENT AGENCIES AND ISSUES (90.1%)
[bullet] AUSTRALIAN DOLLAR (3.2%)
New South Wales Treasury Corp. 12.600% 5/01/2006 500,000 $ 470,114
- --------------------------------------------------------------------------------------------------
[bullet] BRITISH POUND STERLING (3.2%)
European Investor Bank 8.000 6/10/2003 306,000 478,654
- --------------------------------------------------------------------------------------------------
[bullet] CANADIAN DOLLAR (13.1%)
Government of Canada 8.750 12/01/2005 1,500,000 1,215,293
Government of Canada 7.500 9/01/2000 950,000 721,470
- --------------------------------------------------------------------------------------------------
1,936,763
- --------------------------------------------------------------------------------------------------
[bullet] DANISH KRONE (5.3%)
Kingdom of Denmark 9.000 11/15/1998 4,000,000 783,382
- --------------------------------------------------------------------------------------------------
[bullet] NETHERLANDS GUILDER (5.1%)
Government of Netherlands 7.750 3/01/2005 1,100,000 758,873
- --------------------------------------------------------------------------------------------------
[bullet] NEW ZEALAND DOLLAR (8.6%)
Government of New Zealand 6.500 2/15/2000 1,150,000 738,249
Government of New Zealand 8.000 4/15/2004 325,000 224,190
Government of New Zealand
(Effective Yield 8.780%) (d) 0.000 3/20/1996 500,000 320,250
- --------------------------------------------------------------------------------------------------
1,282,689
- --------------------------------------------------------------------------------------------------
[bullet] SPANISH PESETA (4.5%)
Government of Spain 11.450 8/30/1998 32,000,000 269,701
Government of Spain 11.850 8/30/1996 24,000,000 199,425
Government of Spain 12.250 3/25/2000 23,000,000 199,407
- --------------------------------------------------------------------------------------------------
668,533
- --------------------------------------------------------------------------------------------------
[bullet] SWEDISH KRONA (6.5%)
Kingdom of Sweden 10.250 5/05/2003 6,000,000 957,320
- --------------------------------------------------------------------------------------------------
[bullet] UNITED STATES DOLLAR (40.6%)
CVRD Cenibra 9.375 12/21/2003 830,000 796,800
Companhia Brasileiras de Petroleo Ipiranga 8.625 2/25/2002 550,000 530,750
Ispat Mexicana S.A. 10.375 3/15/2001 1,025,000 902,000
Kingdom of Thailand 8.250 3/15/2002 1,000,000 1,088,030
Klabin Fabricadora Papel 12.125 12/28/2002 250,000 248,750
Republic of Argentina 8.375 12/20/2003 350,000 253,313
Telecom Argentina 8.375 10/18/2000 500,000 433,750
Telecom Brasileiras S.A. (a) 10.000 10/22/1997 500,000 503,750
Telefonica de Argentina 11.875 11/01/2004 760,000 741,000
Yacimientos Petroliferos Fiscales S.A. (YPF) 8.000 2/15/2004 600,000 512,250
- --------------------------------------------------------------------------------------------------
6,010,393
- --------------------------------------------------------------------------------------------------
See Notes to Schedule of Investments.
<PAGE>
PAGE 10
- --------------------------------------
Keystone World Bond Fund
SCHEDULE OF INVESTMENTS--October 31, 1995
COUPON MATURITY PRINCIPAL MARKET
RATE DATE AMOUNT VALUE
==================================================================================================
TOTAL FOREIGN GOVERNMENT AGENCIES & ISSUES (Cost--$12,778,963) $13,346,721
==================================================================================================
Maturity
Value
==================================================================================================
REPURCHASE AGREEMENT (2.6%)
Keystone Joint Repurchase Agreement
(Investments in repurchase agreements, in
a joint trading account, purchased
10/31/95)(Cost $387,000) (c) 5.872% 11/01/1995 $387,187 387,000
==================================================================================================
TOTAL INVESTMENTS (Cost $13,165,963) (b) 13,733,721
OTHER ASSETS AND LIABILITIES--NET (7.3%) 1,085,226
- --------------------------------------------------------------------------------------------------
NET ASSETS (100.0%) $14,818,947
==================================================================================================
</TABLE>
NOTES TO SCHEDULE OF INVESTMENTS:
(a) 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
Trustees.
(b) The cost of investments for federal income tax purposes is identical.
Gross unrealized appreciation and depreciation of investments based on
identified tax cost, is as follows:
Gross unrealized
appreciation $ 688,552
Gross unrealized
depreciation (120,794)
---------
Net unrealized depreciation $ 567,758
=========
(c) The repurchase agreements are fully collateralized by U.S. Government
and/or agency obligations based on market prices at October 31, 1995.
(d) Effective yield (calculated at the date of purchase) is the yield at
which the bond accretes on an accrual basis until maturity date.
See Notes to Financial Statements.
<PAGE>
PAGE 11
- --------------------------------------
FINANCIAL HIGHLIGHTS--CLASS A SHARES
(For a share outstanding throughout the period)
<TABLE>
<CAPTION>
Period from January 9, 1987
Year Ended January 1, 1994 (Commencement of
October 31, to October 31, Year Ended December 31, Operations to
1995 1994 1993 1992 1991 1990 1989 1988 December 31, 1987
==============================================================================================================================
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Net asset value
beginning of period $ 8.42 $ 9.56 $ 8.69 $10.77 $ 9.82 $ 9.76 $ 10.04 $11.02 $10.00
- ------------------------------------------------------------------------------------------------------------------------------
Income from
investment
operations
Net investment
income 0.61 0.32 0.44 0.64 0.66 0.63 0.61 0.54 0.56
Net realized and
unrealized gain
(loss) on
investment and
foreign currency
related transactions (0.01) (0.96) 1.03 (0.79) 0.99 0.31 (0.27) (0.92) 1.27
- ------------------------------------------------------------------------------------------------------------------------------
Total from
investment
operations 0.60 (0.64) 1.47 (0.15) 1.65 0.94 0.34 (0.38) 1.83
- ------------------------------------------------------------------------------------------------------------------------------
Less distributions
from:
Net investment
income (0.54) 0 (0.43) (0.96) (0.45) (0.52) (0.62) (0.54) (0.56)
In excess of net
investment income
(c) 0 0 (0.17) (0.28) 0 (0.04) 0 0 0
Tax basis return of
capital (0.06) (0.50) 0 0 0 0 0 0 0
Net realized gains
on investment and
foreign currency
related
transactions 0 0 0 (0.69) (0.25) (0.32) 0 (0.06) (0.25)
- ------------------------------------------------------------------------------------------------------------------------------
Total distributions (0.60) (0.50) (0.60) (1.93) (0.70) (0.88) (0.62) (0.60) (0.81)
- ------------------------------------------------------------------------------------------------------------------------------
Net asset value end
of period $ 8.42 $ 8.42 $ 9.56 $ 8.69 $ 10.77 $ 9.82 $ 9.76 $10.04 $11.02
==============================================================================================================================
Total return (d) 7.62% (6.72%) 17.26% (1.24%) 17.48% 10.11% 3.07% (3.34%) 19.10%
Ratios/supplemental
data
Ratios to average
net assets:
Total expenses (a) 2.46%(e) 2.20%(b) 2.20% 2.20% 2.00% 2.00% 1.81% 1.19% 1.88%(b)
Net investment
income 7.21% 4.66%(b) 4.62% 5.44% 6.43% 6.48% 5.81% 5.34% 5.68%(b)
Portfolio turnover
rate 108% 100% 107% 185% 204% 154% 73% 335% 171%
- ------------------------------------------------------------------------------------------------------------------------------
Net assets end of
period (thousands) $9,956 $6,047 $8,403 $7,121 $11,843 $13,833 $14,806 $5,043 $4,774
==============================================================================================================================
</TABLE>
(a) Figures are net of expense reimbursement by Keystone in connection with
voluntary expense limitations. Before the expense reimbursement, the
"Ratio of total expenses to average net assets" would have been 2.25%,
3.12%, 2.50%, 2.15% and 2.47% for the period from January 1, 1994 to
October 31, 1994 and the years ended December 31, 1993, 1992, 1991 and
1990, respectively.
(b) Annualized.
(c) Effective January 1, 1993, the Fund adopted Statement of Position 93-2:
"Determination, Disclosure, and Financial Statement Presentation of
Income, Capital Gain and Return of Capital Distributions by Investment
Companies". As a result, distribution amounts exceeding book basis net
investment income (or tax basis net income on a temporary basis) are
presented as "Distributions in excess of net investment income".
Similarly, capital gain distributions in excess of book basis capital
gains (or tax basis capital gains on a temporary basis) are presented as
"Distributions in excess of capital gains". For the fiscal years ended
December 31, 1992 and 1990, distributions in excess of book basis net
investment income were charged to paid-in capital.
(d) Excluding applicable sales charges.
(e) The expense ratio includes indirectly paid expenses for the year ended
October 31, 1995. Excluding indirectly paid expenses, the expense ratio
would have been 2.44%.
See Notes to Financial Statements.
<PAGE>
PAGE 12
- --------------------------------------
Keystone World Bond Fund
FINANCIAL HIGHLIGHTS--CLASS B SHARES
(For a share outstanding throughout the period)
<TABLE>
<CAPTION>
August 2, 1993
Period from (Date of Initial
Year Ended January 1, 1994 to Public Offering) to
October 31, 1995 October 31, 1994 December 31, 1993
================================================================================================================
<S> <C> <C> <C>
Net asset value beginning of period $ 8.46 $ 9.58 $ 9.47
- ----------------------------------------------------------------------------------------------------------------
Income from investment operations
Net investment income 0.52 0.31 0.16
Net realized and unrealized gain (loss) on
investment and foreign currency related
transactions 0.01 (0.99) 0.21
- ----------------------------------------------------------------------------------------------------------------
Total from investment operations 0.53 (0.68) 0.37
- ----------------------------------------------------------------------------------------------------------------
Less distributions from:
Net investment income (0.48) 0 (0.11)
In excess of net investment income (c) 0 0 (0.15)
Tax basis return of capital (0.06) (0.44) 0
Net realized gains on investment and foreign
currency related transactions 0 0 0
- ----------------------------------------------------------------------------------------------------------------
Total distributions (0.54) (0.44) (0.26)
- ----------------------------------------------------------------------------------------------------------------
Net asset value end of period $ 8.45 $ 8.46 $ 9.58
================================================================================================================
Total return (d) 6.68% (7.18%) 3.93%
Ratios/supplemental data
Ratios to average net assets:
Total expenses (a) 3.21%(e) 2.95%(b) 2.95%(b)
Net investment income 6.43% 4.05%(b) 3.79%(b)
Portfolio turnover rate 108% 100% 107%
- ----------------------------------------------------------------------------------------------------------------
Net assets end of period (thousands) $3,680 $3,429 $2,544
================================================================================================================
</TABLE>
(a) Figures are net of expense reimbursement by Keystone in connection with
voluntary expense limitations. Before the expense reimbursement, the
"Ratio of total expenses to average net assets would have been 3.03% and
3.47% for the period from January 1, 1994 to October 31, 1994 and for the
period from August 2, 1993 (Date of Initial Public Offering) to December
31, 1993, respectively.
(b) Annualized.
(c) Effective January 1, 1993, the Fund adopted Statement of Position 93-2:
"Determination, Disclosure, and Financial Statement Presentation of
Income, Capital Gain and Return of Capital Distributions by Investment
Companies". As a result, distribution amounts exceeding book basis net
investment income (or tax basis net income on a temporary basis) are
presented as "Distributions in excess of net investment income".
Similarly, capital gain distributions in excess of book basis capital
gains (or tax basis capital gains on a temporary basis) are presented as
"Distributions in excess of capital gains".
(d) Excluding applicable sales charges.
(e) The expense ratio includes indirectly paid expenses for the year ended
October 31, 1995. Excluding indirectly paid expenses, the expense ratio
would have been 3.19%
See Notes to Financial Statements.
<PAGE>
PAGE 13
- --------------------------------------
FINANCIAL HIGHLIGHTS--CLASS C SHARES
(For a share outstanding throughout the period)
<TABLE>
<CAPTION>
August 2, 1993
Year Ended Period from (Date of Initial
October 31, January 1, 1994 to Public Offering) to
1995 October 31, 1994 December 31, 1993
================================================================================================================
<S> <C> <C> <C>
Net asset value beginning of period $ 8.42 $ 9.58 $ 9.47
- ----------------------------------------------------------------------------------------------------------------
Income from investment operations
Net investment income 0.56 0.30 0.18
Net realized and unrealized gain (loss) on
investment and foreign currency related
transactions (0.02) (1.02) 0.19
- ----------------------------------------------------------------------------------------------------------------
Total from investment operations 0.54 (0.72) 0.37
- ----------------------------------------------------------------------------------------------------------------
Less distributions from:
Net investment income (0.48) 0 (0.12)
In excess of net investment income (c) 0 0 (0.14)
Tax basis return of capital (0.06) (0.44) 0
Net realized gains on investment and foreign
currency related transactions 0 0 0
- ----------------------------------------------------------------------------------------------------------------
Total distributions (0.54) (0.44) (0.26)
- ----------------------------------------------------------------------------------------------------------------
Net asset value end of period $ 8.42 $ 8.42 $ 9.58
================================================================================================================
Total return (d) 6.83% (7.61%) 3.93%
Ratios/supplemental data
Ratios to average net assets:
Total expenses (a) 3.21%(e) 2.95%(b) 2.95%(b)
Net investment income 6.49% 3.94%(b) 3.79%(b)
Portfolio turnover rate 108% 100% 107%
- ----------------------------------------------------------------------------------------------------------------
Net assets, end of period (thousands) $1,183 $1,591 $1,878
================================================================================================================
</TABLE>
(a) Figures are net of expense reimbursement by Keystone in connection with
voluntary expense limitations. Before the expense reimbursement, the
"Ratio of total expenses to average net assets" would have been 3.03% and
3.40% for the period from January 1, 1994 to October 31, 1994 and for the
period from August 2, 1993 (Date of Initial Public Offering) to December
31, 1993, respectively.
(b) Annualized.
(c) Effective January 1, 1993, the Fund adopted Statement of Position 93-2:
"Determination, Disclosure, and Financial Statement Presentation of
Income, Capital Gain and Return of Capital Distributions by Investment
Companies". As a result, distribution amounts exceeding book basis net
investment income (or tax basis net income on a temporary basis) are
presented as "Distributions in excess of net investment income".
Similarly, capital gain distributions in excess of book basis capital
gains (or tax basis capital gains on a temporary basis) are presented as
"Distributions in excess of capital gains".
(d) Excluding applicable sales charges.
(e) The expense ratio includes indirectly paid expenses for the year ended
October 31, 1995. Excluding indirectly paid expenses, the expense ratio
would have been 3.19%.
See Notes to Financial Statements.
<PAGE>
PAGE 14
- --------------------------------------
Keystone World Bond Fund
STATEMENT OF ASSETS AND LIABILITIES--
October 31, 1995
=======================================================================
Assets:
Investments at market value
(identified cost--$13,165,963) (Notes 1 and 6) $13,733,721
Cash 984
Receivable for:
Investments sold 802,497
Unrealized appreciation on open currency contracts
(Notes 1 and 6) 152,139
Interest 409,636
Fund shares sold 258
Foreign taxes reclaimed 5,783
Prepaid expenses 7,368
- -----------------------------------------------------------------------
Total assets 15,112,386
- -----------------------------------------------------------------------
Liabilities:
Payable for:
Unrealized depreciation on open currency contracts
(Notes 1 and 6) 193,620
Fund shares redeemed 4,758
Income distribution 24,167
Foreign taxes withheld 2,399
Other accrued expenses 68,495
- -----------------------------------------------------------------------
Total liabilities 293,439
- -----------------------------------------------------------------------
Net assets $14,818,947
=======================================================================
Net assets represented by: (Note 1)
Paid-in capital $15,595,032
Accumulated distributions in excess of net investment
income (24,213)
Accumulated net realized loss on investment and
foreign currency related transactions (1,279,623)
Net unrealized appreciation (depreciation) on:
Investments, foreign currency related transactions
and other assets and liabilities 569,232
Open currency contracts (41,481)
- -----------------------------------------------------------------------
Total net assets $14,818,947
=======================================================================
Net Asset Value: (Note 1)
Class A Shares
Net assets of $9,956,467 / 1,182,807 shares
outstanding $8.42
Offering price per share ($8.42 / 0.9525)
(based on a sales charge of 4.75% of the
offering price) $8.84
Class B Shares
Net assets of $3,679,877 / 435,713 shares
outstanding $8.45
Class C Shares
Net assets of $1,182,603 / 140,478 shares
outstanding $8.42
- -----------------------------------------------------------------------
STATEMENT OF OPERATIONS
Year Ended October 31, 1995
=======================================================================
Investment income: (Note 1)
Interest (net of foreign withholding
taxes of $12,648) $1,399,550
Expenses: (Notes 2 and 4)
Management fee $ 93,806
Transfer agent fees 74,907
Accounting, auditing and legal fees 44,513
Custodian fees 36,114
Printing expenses 25,991
Distribution Plan expenses 68,432
Registration fees 45,584
Miscellaneous 1,720
- -----------------------------------------------------------------------
Total expenses 391,067
Less: Expenses paid indirectly (Note 4) (2,523)
- -----------------------------------------------------------------------
Net expenses 388,544
- -----------------------------------------------------------------------
Net investment income 1,011,006
- -----------------------------------------------------------------------
Net realized and unrealized gain
(loss) on investment and foreign
currency related transactions:
(Notes 1 and 3)
Net realized loss on investment and
foreign currency related
transactions (583,415)
- -----------------------------------------------------------------------
Net change in unrealized
appreciation or depreciation on
investment and other assets and
liabilities 654,874
Net change in unrealized
appreciation or depreciation on
open currency contracts 30,546
- -----------------------------------------------------------------------
Net change in unrealized
appreciation or depreciation 685,420
- -----------------------------------------------------------------------
Net gain on investment and foreign
currency related transactions 102,005
- -----------------------------------------------------------------------
Net increase in net assets resulting
from operations $1,113,011
=======================================================================
See Notes to Financial Statements.
<PAGE>
PAGE 15
- --------------------------------------
STATEMENTS OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
Period from
Year Ended January 1, 1994 to
October 31, 1995 Ocotber 31, 1994
===============================================================================================================
<S> <C> <C>
Operations:
Net investment income $ 1,011,006 $ 448,846
Net realized loss on investment and foreign currency
related transactions (583,415) (728,796)
Net change in unrealized appreciation or depreciation 685,420 (665,302)
- ---------------------------------------------------------------------------------------------------------------
Net increase (decrease) in net assets resulting from operations 1,113,011 (945,252)
- ---------------------------------------------------------------------------------------------------------------
Distributions to shareholders from: (Note 1)
Net investment income:
Class A Shares (653,425) 0
Class B Shares (187,676) 0
Class C Shares (82,887) 0
Tax basis return of capital:
Class A Shares (65,389) (389,502)
Class B Shares (24,167) (165,761)
Class C Shares (7,767) (85,383)
- ---------------------------------------------------------------------------------------------------------------
Total distributions to shareholders (1,021,311) (640,646)
- ---------------------------------------------------------------------------------------------------------------
Capital share transactions: (Note 2)
Shares issued in acquisition of Keystone Australia Income Fund:
(Note 5) 6,401,180 0
Proceeds from shares sold:
Class A Shares 379,004 455,701
Class B Shares 1,382,294 1,661,349
Class C Shares 226,771 833,775
Payments for shares redeemed:
Class A Shares (3,470,274) (2,151,391)
Class B Shares (1,277,770) (497,081)
Class C Shares (680,398) (948,169)
Net asset value of shares issued in reinvestment of dividends and
distributions:
Class A shares 467,191 267,045
Class B shares 168,229 140,950
Class C shares 64,105 66,089
- ---------------------------------------------------------------------------------------------------------------
Net increase (decrease) in net assets resulting from capital share
transactions 3,660,332 (171,732)
- ---------------------------------------------------------------------------------------------------------------
Total increase (decrease) in net assets 3,752,032 (1,757,630)
- ---------------------------------------------------------------------------------------------------------------
Net assets:
Beginning of period 11,066,915 12,824,545
- ---------------------------------------------------------------------------------------------------------------
End of period [including accumulated distributions in excess of net
investment income on October 31, 1995 of ($24,213) and
undistributed net investment income on October 31, 1994 of $22]
(Note 1) $14,818,947 $11,066,915
===============================================================================================================
</TABLE>
See Notes to Financial Statements.
<PAGE>
PAGE 16
- --------------------------------------
Keystone World Bond Fund
NOTES TO FINANCIAL STATEMENTS
(1.) Significant Accounting Policies
Keystone World Bond Fund (the "Fund") (formerly Keystone America World Bond
Fund) is a Massachusetts business trust for which Keystone Investment
Management Company (formerly Keystone Custodian Funds, Inc.) ("Keystone") is
the investment adviser. The Fund became part of the Keystone America Family
on April 19, 1989 and Keystone became the Fund's adviser on that date. It is
registered under the Investment Company Act of 1940 as a non-diversified,
open-end investment company.
The Fund offers three classes of shares. Class A shares are offered at a
public offering price which includes a maximum sales charge of 4.75% payable
at the time of purchase. Class B shares are sold subject to a contingent
deferred sales charge payable upon redemption which decreases depending on
when shares were purchased and how long they have been held. Class C shares
are sold subject to a contingent deferred sales charge payable upon
redemption within one year of purchase. Class C shares are available only
through dealers who have entered into special distribution agreements with
Keystone Investment Distributors Company (formerly Keystone Distributors,
Inc.) ("KIDC"), the Fund's principal underwriter.
Keystone is a wholly-owned subsidiary of Keystone Investments, Inc.
(formerly Keystone Group, Inc.) ("KII"), a Delaware corporation. KII is
privately owned by an investor group consisting of current and former members
of management of Keystone. Keystone Investor Resource Center, Inc. ("KIRC"),
a wholly-owned subsidiary of Keystone, is the Fund's transfer agent.
The following is a summary of significant accounting policies consistently
followed by the Fund in the preparation of its financial statements. The
policies are in conformity with generally accepted accounting principles.
A. Investments 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, by or under the direction of the Board of Trustees, 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. Foreign currency amounts are translated into
United States dollars as follows: market value of investments, assets and
liabilities at the daily rate of exchange; purchases and sales of
investments, income and expenses at the rate of exchange prevailing on the
dates of such transactions. Net unrealized foreign exchange gains/losses are
a component of unrealized appreciation/depreciation of investments, foreign
currency related transactions, and other assets and liabilities.
Short-term investments, if purchased with maturities of sixty days or
less, are valued at amortized cost (original purchase price 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, which are held on the sixtieth day prior to maturity, are valued
at amortized cost (market value on the sixtieth day adjusted for amortization
of premium or accretion of discount) which, when combined with accrued
interest, approximates market. All other securities and other assets are
valued at fair value as determined in good faith using methods prescribed by
the Board of Trustees.
<PAGE>
PAGE 17
- --------------------------------------
Investments denominated in foreign currencies are adjusted daily to
reflect changes in exchange rates. Market quotations are not considered to be
readily available for long-term corporate bonds and notes; such investments
are stated at fair value on the basis of valuations furnished by a pricing
service, approved by the Board of Trustees, which determines valuations for
normal, institutional-size trading units of such securities using methods
based on market transactions for comparable securities and various
relationships between securities which are generally recognized by
institutional traders.
B. Securities transactions are accounted for no later than the day following
the trade date. Realized gains and losses are computed on the identified cost
basis. Gains and losses on foreign currency related transactions are treated
as ordinary income for federal income tax purposes. Interest income is
recorded on the accrual basis and dividend income is recorded on the
ex-dividend date. Distributions to the shareholders are recorded by the Fund
at the close of business on the record date.
C. The Fund has qualified, and intends to qualify in the future, as a
regulated investment company under the Internal Revenue Code of 1986, as
amended ("Internal Revenue Code"). Thus, the Fund expects to be relieved of
any federal income or excise tax liability by distributing all of its net
taxable investment income and net taxable capital gains, if any, to its
shareholders. The Fund intends to avoid any excise tax liability by making
the required distributions under the Internal Revenue Code.
D. When the Fund enters into a repurchase agreement (a purchase of securities
whereby the seller agrees to repurchase the securities at a mutually agreed
upon date and price), the repurchase price of the securities will generally
equal the amount paid by the Fund plus a negotiated interest amount. The
seller under the repurchase agreement will be required to provide securities
("collateral") to the Fund whose value will be maintained at an amount not
less than the repurchase price, and which generally will be maintained at
101% of the repurchase price. The Fund monitors the value of collateral on a
daily basis, and if the value of 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.
E. 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
<PAGE>
PAGE 18
- --------------------------------------
Keystone World Bond Fund
currency related transactions. The Fund is subject to the credit risk that
the other party will not complete the obligations of the contract.
F. The Fund distributes net investment income monthly and net capital gains,
if any, annually. Distributions from net investment income are based on tax
basis net income. Distributions from taxable net income can exceed book basis
net investment income and net capital gains can exceed book basis net
investment income and net capital gains.
The significant differences between financial statement amounts available
for distribution and distributions made in accordance with income tax
regulations are due to the deferral of losses for income tax purposes that
have been recognized for financial statement purposes and treatment of
foreign currency gains as ordinary income for tax purposes.
(2.) Capital Share Transactions
The Trust Agreement authorizes the issuance of an unlimited number of
shares of beneficial interest without par value. Transactions in shares of
the Fund were as follows:
<TABLE>
<CAPTION>
Class A Shares
- ----------------------------------------------------------------
Period from
Year Ended January 1, 1994 to
October 31, 1995 October 31, 1994
- ----------------------------------------------------------------
<S> <C> <C>
Shares sold 42,522 49,122
Shares redeemed (425,398) (240,295)
Shares issued in
acquisition of
Australia Income
Fund (Note 5) 789,935 0
Shares issued in
reinvestment of
dividends and
distributions 57,481 30,841
- ----------------------------------------------------------------
Net increase
(decrease) 464,540 (160,332)
================================================================
</TABLE>
<TABLE>
<CAPTION>
Class B Shares
- ----------------------------------------------------------------
Period from
Year Ended January 1, 1994 to
October 31, 1995 October 31, 1994
- ----------------------------------------------------------------
<S> <C> <C>
Shares sold 166,498 179,486
Shares redeemed (156,895) (55,559)
Shares issued in
reinvestment of
dividends and
distributions 20,548 16,263
- ----------------------------------------------------------------
Net increase 30,151 140,190
================================================================
</TABLE>
<TABLE>
<CAPTION>
Class C Shares
- ----------------------------------------------------------------
Period from
Year Ended January 1, 1994 to
October 31, 1995 October 31, 1994
- ----------------------------------------------------------------
<S> <C> <C>
Shares sold 27,481 88,183
Shares redeemed (83,800) (102,789)
Shares issued in
reinvestment of
dividends and
distributions 7,882 7,619
- ----------------------------------------------------------------
Net decrease (48,437) (6,987)
================================================================
</TABLE>
The Fund bears some of the costs of selling its shares under a
Distribution Plan adopted with respect to its Class A, Class B and Class C
shares pursuant to Rule 12b-1 under the Investment Company Act of 1940 ("1940
Act").
The Class A Distribution Plan provides for payments which are currently
limited to 0.25% annually of the average daily net asset value of Class A
shares to pay expenses of the distribution of Class A shares. Amounts paid by
the Fund to KIDC under the Class A Distribution Plan are currently used to
pay others, such as dealers, service fees at an annual rate of up to 0.25% of
the average net asset value of Class A shares maintained by such others and
remaining outstanding on the Fund's books for specified periods.
<PAGE>
PAGE 19
- --------------------------------------
The Class B Distribution Plan provides for payments at an annual rate of up to
1.00% of the average daily net asset value of Class B shares to pay expenses of
the distribution of Class B shares. Amounts paid by the Fund under the Class B
Distribution Plan are currently used to pay others (dealers) a commission at the
time of purchase normally equal to 4.00% of the price paid for each Class B
share sold plus the first year's service fee in advance in the amount of 0.25%
of the price paid for each Class B share sold. Beginning approximately 12 months
after the purchase of a Class B share, the dealer or other party will receive
service fees at an annual rate of 0.25% of the average daily net asset value of
such Class B shares maintained by such others and remaining outstanding on the
Fund's books for specified periods. A contingent deferred sales charge will be
imposed, if applicable, on Class B shares purchased after June 1, 1995 at rates
decreasing from a maximum of 5.00% of amounts redeemed during the first 12
months following the date of purchase to 1.00% of amounts redeemed during the
sixth twelve month period following the date of purchase. Class B shares
purchased on or after June 1, 1995 that have been outstanding for eight years
following the month of purchase will automatically convert to Class A shares
without a front end sales charge or exchange fee. Class B shares purchased prior
to June 1, 1995 will retain their existing conversion rights.
The Class C Distribution Plan provides for payments at an annual rate of
up to 1.00% of the average daily net asset value of Class C shares to pay
expenses for the distribution of Class C shares. Amounts paid by the Fund
under the Class C Distribution Plan are currently used to pay others
(dealers) a commission at the time of purchase in the amount of 0.75% of the
price paid for each Class C share sold, plus the first year's service fee in
advance in the amount of 0.25% of the price paid for each Class C share sold.
Beginning approximately 15 months after purchase, the dealer or other party
will receive a commission at an annual rate of 0.75% (subject to applicable
limitations imposed by the rules of the National Association of Securities
Dealers, Inc.) ("NASD Rule") and service fees at the annual rate of 0.25%,
respectively, of the average net asset value of each Class C share maintained
by such others and remaining outstanding on the Fund's books for specified
periods.
Each of the Distribution Plans may be terminated at any time by vote of
the Independent Trustees or by vote of a majority of the outstanding voting
shares of the respective class. However, after the termination of any
Distribution Plan, at the discretion of the Board of Trustees, payments to
KIDC may continue as compensation for its services which had been earned
while the Distribution Plan was in effect.
For the year ended October 31, 1995, the Fund paid KIDC $22,659 under its
Class A Distribution Plan. The Fund paid KIDC $29,857 for Class B shares sold
prior to June 1, 1995, and $1,996 for Class B Shares sold on or after June 1,
1995. The Fund paid KIDC $13,920 under its Class C Distribution Plan.
Under the NASD Rule, the maximum uncollected amounts for which KIDC may
seek payment from the Fund under its Distribution Plans were $191,513 for
Class B shares purchased prior to June 1, 1995, and $18,809 for Class B
shares purchased on or after June 1, 1995. The maximum uncollected amount for
which KIDC may seek payment from the Fund under its Class C Distribution Plan
was $117,401 as of October 31, 1995.
Presently, the Fund's class-specific expenses are limited to Distribution
Plan expenses incurred by a class of shares.
<PAGE>
PAGE 20
- --------------------------------------
Keystone World Bond Fund
(3.) Securities Transactions
Keystone World Bond FundAs of October 31, 1995, the Fund has a capital
loss carryover for federal income tax purposes of approximately $1,286,000
which expires as follows: $472,000-2002 and $814,000-2003. Purchases and
sales of investment securities (including proceeds received at maturity) for
the year ended October 31, 1995 were as follows:
Cost of Proceeds
Purchases From Sales
=============================================================
Portfolio securities $ 16,444,213 $ 14,016,995
Short-term investments 163,288,618 163,319,824
- -------------------------------------------------------------
$179,732,831 $177,336,819
=============================================================
(4.) Investment Management and Transactions with Affiliates
Under the terms of an Investment Advisory and Management Agreement between
Keystone and the Fund, Keystone provides investment management and
administrative services to the Fund. In return, Keystone receives a fee,
computed and charged to the net assets of the Fund daily, calculated at a
rate of 1.5% of gross investment income plus an amount determined by applying
percentage rates, which start at 0.50% and decline, as net assets increase,
to 0.40% per annum, to the net asset value of the Fund. During the year ended
October 31, 1995, the Fund paid or accrued to Keystone investment management
and advisory fees of $93,806, which represented 0.65% of the Fund's average
net assets.
During the year ended October 31, 1995, the Fund paid or accrued to KII
$19,141 as reimbursement for certain accounting and printing services and
$74,907 was paid 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 $33,591 and received a credit of $2,523 pursuant to the expense
offset arrangement, resulting in a total expense of $36,114. The assets
deposited with the custodian under the expense offset arrangement could have
been invested in an income producing asset.
The Fund is subject to certain state annual expense limits, the most
restrictive of which is as follows: 2.5% of the first $30 million of Fund
average net assets; 2.0% of the next $70 million of Funds average net assets;
and 1.5% of Fund average net assets over $100 million.
Certain officers and/or Directors of Keystone are also officers and/or
Trustees of the Fund. Officers of Keystone and affiliated Trustees receive no
compensation directly from the Fund. Currently, the Independent Trustees of
the Fund receive no compensation for their services.
(5.) Fund Reorganization
On December 30, 1994, the Fund acquired the net assets of Keystone Australia
Income Fund in exchange for Class A Shares of the Fund pursuant to a plan of
reorganization approved by the shareholders of Keystone World Bond Fund on
December 30, 1994. The acquisition was accomplished by a tax-free exchange of
789,935 shares of the Fund for the net assets of Keystone Australia Income
Fund. The net assets of Keystone Australia Income Fund on that date,
including $32,769 of unrealized depreciation on investments, were combined
with the assets of the Fund. The aggregate net assets of the Fund and
Keystone Australia Income Fund immediately before the acquisition
<PAGE>
PAGE 21
- --------------------------------------
were $10,313,320 and $6,401,180, respectively. The net assets of the Fund
immediately after the acquisition was $16,714,500.
(6.) Forward Foreign Currency Exchange Contracts
At October 31, 1995, the Fund had entered into the following forward
foreign currency exchange contracts that obligate the Fund to deliver
currencies at specified future dates. The net unrealized depreciation of
$41,481 on these contracts is included in the accompanying financial
statements. The terms of the open contracts are as follows:
<TABLE>
<CAPTION>
Exchange Currency to U.S. $ value Currency to U.S. $ value
date be delivered at 10/31/95 be received at 10/31/95
- --------- ---------------- -------------- ---------------- ------------
<S> <C> <C> <C> <C>
11/01/95 4,384,843 $ 802,497 $ 809,027 $ 809,027
Danish Krone U.S.$
11/03/95 482,292 482,292 2,440,494 499,036
U.S.$ French Francs
11/03/95 185,145 185,145 936,871 191,573
U.S.$ French Francs
11/03/95 2,440,494 499,036 511,334 511,334
French Francs U.S.$
11/03/95 936,871 191,573 185,000 185,000
French Francs U.S.$
11/10/95 1,110,000 1,110,000 1,510,718 1,150,193
U.S.$ Australian$
11/10/95 1,248,000 1,248,000 1,687,901 1,285,092
U.S.$ Australian$
11/10/95 225,000 225,000 304,395 231,753
U.S.$ Australian$
11/10/95 3,794,595 2,889,034 2,811,795 2,811,795
Australian$ U.S.$
11/10/95 180,000 180,000 22,456,800 183,798
U.S.$ Sp. Peseta
11/10/95 41,571,852 $ 340,246 $ 342,381 $ 342,381
Sp. Peseta U.S.$
11/20/95 352,000 352,000 1,969,440 360,507
U.S.$ Danish Krone
11/20/95 211,000 211,000 1,151,997 210,874
U.S.$ Danish Krone
11/20/95 4,165,676 762,530 728,138 728,138
Danish Krone U.S.$
11/20/95 112,000 112,000 71,538 113,049
U.S.$ Pound Sterling
11/20/95 148,316 234,378 229,979 229,979
Pound Sterling U.S.$
11/20/95 166,256 166,257 267,705 169,860
Netherland
U.S.$ Guilders
11/20/95 573,128 363,653 348,756 348,756
Netherland
Guilders U.S.$
12/08/95 354,250 354,250 1,761,083 359,868
U.S.$ French Francs
12/08/95 184,685 184,685 910,589 186,074
U.S.$ French Francs
12/08/95 2,671,673 545,943 525,000 525,000
French Francs U.S.$
01/03/96 1,544,569 231,477 221,000 221,000
Swedish Krona U.S.$
01/25/96 1,267,480 945,572 921,000 921,000
Canadian$ U.S.$
- --------- -------------- ------------ -------------- ----------
Total $12,616,568 $12,575,087
- --------- -------------- ------------ -------------- ----------
</TABLE>
<PAGE>
PAGE 22
- --------------------------------------
Keystone World Bond Fund
(7.) Distributions to Shareholders
A distribution of net investment income of $0.05, $0.045 and $0.045 for Class A,
Class B and Class C shares, respectively, was declared payable December 6, 1995,
for shareholders of record November 24, 1995. This distribution is not reflected
in the accompanying financial statements. The Fund distributes to its
shareholders dividends from net investment income monthly and all net realized
long-term capital gains, if any, annually. Any taxable distribution which is
declared in December and paid in the following fiscal year will be taxable to
shareholders in the year declared.
- -------------------------------------------------------------------------------
<PAGE>
PAGE 23
- --------------------------------------
INDEPENDENT AUDITORS' REPORT
The Trustees and Shareholders
Keystone World Bond Fund
We have audited the accompanying statement of assets and liabilities of
Keystone World Bond Fund (formerly Keystone America World Bond Fund),
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 and for the period from January
1, 1994 to October 31, 1994, and the financial highlights for the year then
ended, the period from January 1, 1994 to December 31, 1994, and the five
year period ended December 31, 1993 for Class A shares and for the year ended
October 31, 1995 and the periods from January 1, 1994 to October 31, 1994 and
August 2, 1993 (date of initial public offering) to December 31, 1993 for
Class B and Class C shares. These financial statements and financial
highlights are the responsibility of the Fund's management. Our
responsibility is to express an opinion on these financial statements and
financial highlights based on our audits. The financial highlights for the
year ended December 31, 1988 and for the period January 9, 1987 (commencement
of operations) to December 31, 1987 were audited by other auditors whose
report, dated February 3, 1989, expressed an unqualified opinion thereon.
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 World Bond Fund 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 and for the period from January 1, 1994 to October 31, 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 WORLD BOND FUND
PART C
OTHER INFORMATION
Item 24. Financial Statements and Exhibits
Item 24(a). Financial Statements
ANNUAL FINANCIAL STATEMENTS
Schedule of Investments October 31, 1995
Financial Highlights January 9, 1987 (commencement of
operations) to December 31, 1987, fiscal
years ended December 31, 1988 through
December 31, 1993, ten month period ended
October 31, 1994, and fiscal year ended
October 31, 1995 for Class A shares; and
August 2, 1993 (date of initial public
offer-ings) to December 31, 1993, ten
month period ended October 31, 1994, and
fiscal year ended October 31, 1995 for
Class B and Class C shares, individually.
Statement of Assets and Liabilities October 31, 1995
Statement of Operations Fiscal year ended
October 31, 1995
Statement of Changes in Net Assets Ten month period ended October 31, 1994
and fiscal year ended December 31, 1995
Notes to Financial Statements
Independent Auditors' Report
dated December 8, 1995
<PAGE>
Item 24(b). Exhibits
(1) A copy of Registrant's Amended and Restated Declaration of Trust dated July
27, 1993, and an amendment thereto, are filed herewith as Exhibit 24(b)(1).
(2) A copy of Registrant's By-Laws is filed herewith as Exhibit 24(b)(2).
(3) Not applicable.
(4) A copy of the form of Registrant's share certificate was filed with
Post-Effective Amendment No. 4 to Registration Statement No.
33-8515/811-4830 as Exhibit 24(b)(4) and is incorporated by reference
herein.
(5) A copy of the Investment Advisory and Management Agreement dated August 19,
1993 between Registrant and Keystone Investment Management Company
(formerly known as Keystone Custodian Funds, Inc.) is filed herewith as
Exhibit 24(b)(5).
(6) (A) Copies of the Principal Underwriting Agreements between Registrant
and Keystone Investment Distributors Company (formerly known as
Keystone Distributors, Inc.), and amendments thereto, are filed
herewith as Exhibit 24(b)(6)(A).
(6) (B) A copy of the form of Dealer Agreement used by Keystone Investment
Distributors Company is filed herewith as Exhibit 24(b)(6)(B).
(7) Not applicable.
(8) A copy of the Custody Agreement between Registrant and State Street Bank
and Trust Company, and amendments thereto, are filed herewith as Exhibit
24(b)(8).
(9) Not applicable.
(10) An opinion and consent of counsel as to the legality of the securities
registered is filed herewith as Exhibit 24(b)(10).
(11) A consent of the Independent Auditors' Report is filed herewith as Exhibit
24(b)(11).
(12) Not applicable.
(13) Not applicable.
<PAGE>
Item 24(b) Exhibits (continued).
(14) Copies of model plans used in the establishment of retirement plans in
connection with which Registrant will offer its securities were filed with
Post-Effective Amendment No. 66 to the Registration Statement No. 2-10527/
811-96 as Exhibit 24(b)(14) and are incorporated by reference herein.
(15) Copies of Registrant's Class A, Class B and Class C Distribution Plans are
filed herewith as Exhibit 24(b)(15).
(16) Performance data schedules for computation of total return and current
yield are filed herewith as Exhibit 24(b)(16).
(17) Financial data schedules are filed herewith as Exhibit 27.
(18) A copy of Registrant's Multiple Class Plan adopted pursuant to Rule 18f-3
was filed with Post-Effective Amendment No. 18 to Registration Statement
No. 33-8515/811-4830 as Exhibit 24(b)(18) and is incorporated by reference
herein.
(19) Powers of Attorney are filed herewith as Exhibit 24(b)(19).
Item 25. Persons Controlled by or under Common Control with Registrant
Not applicable.
Item 26. Number of Holders of Securities
Number of Record Holders
Title of Class as of November 30, 1995
- -------------- -----------------------
Shares of Class A - 949
Beneficial Interest Class B - 292
$.01 par value Class C - 70
Item 27. Indemnification
Provisions for the indemnification of the Fund's Trustees and officers
are contained in Article VIII of Registrant's Amended and Restated Declaration
of Trust, a copy of which is filed herewith as Exhibit 24(b)(1) and are
incorporated by reference herein.
Provisions for the indemnification of Keystone Investment Distributors
Company, the Registrant's principal underwriter, are contained in Section 9 of
the Principal Underwriting Agreements between the Registrant and Keystone
Investment Distributors Company, copies of which are filed herewith as Exhibit
24(b)(6)(A) and are incorporated by reference herein.
Provisions for the indemnification of Keystone Investment Management
Company, Registrant's investment adviser, are contained in Section 5 of the
Investment Advisory and Management Agreement between Registrant and Keystone
Investment Management Company, a copy of which is filed herewith as Exhibit
24(b)(5) and are incorporated by reference herein.
Item 28. Businesses and Other Connections of Investment Adviser
The following table lists the names of the various officers and
directors of Keystone Investment Management Company, Registrant's investment
adviser, and their respective positions. For each named individual, the table
lists, for at least the past two fiscal years, (i) any other organizations
(excluding investment advisory clients) with which the officer and/or director
has had or has substantial involvement; and (ii) positions held with such
organizations.
<PAGE>
LIST OF OFFICERS AND DIRECTORS OF
KEYSTONE INVESTMENT MANAGEMENT COMPANY
Position with
Keystone
Investment
Name Management Company Other Business Affiliations
Albert H. Chairman of Chairman of the Board,
Elfner, III the Board, Chief Executive Officer,
Chief Executive President and Director:
Officer, and Keystone Investments, Inc.
Director Keystone Management, Inc.
Keystone Software, Inc.
Keystone Asset Corporation
Keystone Capital
Corporation
Chairman of the Board and
Director:
Keystone Fixed Income
Advisers, Inc.
Keystone Institutional
Company, Inc.
President and Director:
Keystone Trust Company
Director or Trustee:
Fiduciary Investment
Company, Inc.
Keystone Investment
Distributors Company
Keystone Investor
Resource Center, Inc.
Boston Children's
Services Associates
Incorporated 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. Senior Vice None
Bishop, Jr. President
Donald C. Dates Senior Vice None
President
Gilman Gunn Senior Vice None
President
Edward F. Director, Director, Senior Vice
Godfrey Senior Vice President
President, Chief Financial Officer and
Treasurer and Treasurer:
Chief Financial Keystone Investments, Inc.
Officer Keystone Investment
Distributors Company
Treasurer:
Keystone Institutional
Company, Inc.
Keystone Management,
Inc.
Keystone Software, Inc.
Fiduciary Investment
Company, Inc.
Former Treasurer and
Director: Hartwell
Keystone Advisers, Inc.
James R. McCall Director and None
President
Ralph J. Director President and Director:
Spuehler, Jr. Keystone Investment
Distributors Company
Senior Vice President and
Director:
Keystone Investments, Inc.
Chairman and Director:
Keystone Investor
Resource Center, Inc.
Keystone Management, Inc.
Formerly President:
Keystone Management, Inc.
Formerly Treasurer:
The Kent Funds
Keystone Investments, Inc.
Keystone Investment
Management Company
<PAGE>
Position with
Keystone
Investment
Name Management Company Other Business Affiliations
Rosemary D. Senior Vice General Counsel, Senior
Van Antwerp President, Vice President and
General Counsel Secretary:
and Secretary Keystone Investments, Inc.
Senior Vice President and
General Counsel:
Keystone Institutional
Company, Inc.
Senior Vice President,
General Counsel and
Director:
Keystone Investor
Resource Center, Inc.
Fiduciary Investment
Company, Inc.
Keystone Investment
Distributors Company
Senior Vice President,
General Counsel, Director
and Secretary:
Keystone Management, Inc.
Keystone Software, Inc.
Former Senior Vice
President and Secretary:
Hartwell Keystone
Advisers, Inc.
Vice President and
Secretary:
Keystone Fixed Income
Advisers, Inc.
Harry Barr Vice President None
Robert K. Vice President None
Baumback
Betsy A. Blacher Senior Vice None
President
Francis X. Claro Vice President None
Kristine R. Vice President None
Cloyes
<PAGE>
Position with
Keystone
Investment
Name Management Company Other Business Affiliations
Christopher P. Senior Vice None
Conkey President
Richard Cryan Senior Vice None
President
Maureen E. Senior Vice None
Cullinane President
George E. Dlugos Vice President None
Antonio T. Docal Vice President None
Christopher R. Senior Vice None
Ely President
Robert L. Hockett Vice President None
Sami J. Karam Vice President None
Donald M. Keller Senior Vice None
President
George J. Kimball Vice President None
JoAnn L. Lyndon Vice President None
John C. Vice President None
Madden, Jr.
Stephen A. Marks Vice President None
Eleanor H. Marsh Vice President None
Walter T. Senior Vice None
McCormick President
Barbara McCue Vice President None
Stanley M. Niksa Vice President None
Robert E. O'Brien Vice President None
Margery C. Parker Vice President None
<PAGE>
Position with
Keystone
Investment
Name Management Company Other Business Affiliations
William H. Vice President None
Parsons
Daniel A. Rabasco Vice President None
David L. Smith Vice President None
Kathy K. Wang Vice President None
Judith A. Warners Vice President None
J. Kevin Kenely Vice President None
and Controller
Joseph J. Asst. Vice President None
Decristofaro
<PAGE>
Item 29. Principal Underwriter
Keystone Investment Distributors Company (formerly named
Keystone Distributors, Inc.), which acts as Registrant's
principal underwriter, also acts as principal underwriter for
the following entities:
Keystone America Hartwell Emerging Growth Fund, Inc.
Keystone Quality Fund (B-1)
Keystone Diversified Bond Fund (B-2)
Keystone Balanced Fund (K-1)
Keystone Strategic Growth Fund (K-2)
Keystone Growth and Income Fund (S-1)
Keystone Mid-Cap Growth Fund (S-3)
Keystone Small Company Growth Fund (S-4)
Keystone Capital Preservation and Income Fund
Keystone Fund of the Americas
Keystone Fund for Total Return
Keystone Global Opportunities Fund
Keystone Government Securities Fund
Keystone Hartwell Growth Fund
Keystone Intermediate Term Bond Fund
Keystone International Fund, Inc.
Keystone Liquid Trust
Keystone Omega Fund
Keystone Precious Metals Holdings, Inc.
Keystone State Tax Free Fund
Keystone State Tax Free Fund - Series II
Keystone Strategic Development Fund
Keystone Strategic Income Fund
Keystone Tax Free Income Fund
Keystone Tax Exempt Trust
Keystone Tax Free Fund
Keystone World Bond Fund
(b) For information with respect to each officer and director of
Registrant's principal underwriter, see the following pages.
<PAGE>
Item 29(b) (continued)
Positions with
Keystone Investment Positions with
Name Distributors Company Registrant
Ralph J. Spuehler* Director, President None
Edward F. Godfrey* Director, Senior Vice Senior Vice
President, Treasurer President
and Chief Financial
Officer
Rosemary D. Van Antwerp* Director, Senior Vice Senior Vice
President, General President
Counsel and Secretary and Secretary
Albert H. Elfner, III* Director President
Charles W. Carr* Senior Vice President None
Peter M. Delehanty* Senior Vice President None
J. Kevin Kenely* Vice President and None
Controller
C. Kenneth Molander Divisional Vice None
8 King Edward Drive President
Londenderry, NH 03053
David S. Ashe Regional Manager and None
32415 Beaconsfield Vice President
Birmingham, MI 48025
David E. Achzet Regional Vice None
60 Lawn Avenue President
Greenway 27
Stamford, CT 06902
William L. Carey, Jr. Regional Vice None
4 Treble Lane President
Malvern, PA 19355
John W. Crites Regional Vice None
2769 Oakland Circle W. President
Aurora, CO 80014
Michael S. Festa* Vice President None
Jeffrey M. Lundes* Vice President None
<PAGE>
Item 29(b) (continued)
Positions with
Keystone Investment Positions with
Name Distributors Company Registrant
Richard J. Fish Regional Vice None
309 West 90th Street President
New York, NY 10024
Michael T. Flaherty* Regional Vice None
President
Michael E. Gathings Regional Vice None
245 Wicklawn Way President
Roswell, GA 30076
Robert G. Holz, Jr. Regional None
313 Meadowcrest Drive President
Richardson, Texas 75080
Todd L. Kobrin Regional Vice None
20 Iron Gate President
Metuchen, NJ 08840
Ralph H. Johnson Regional Vice None
345 Masters Court, #2 President
Walnut Creek, CA 94598
Paul J. McIntyre* Regional Vice None
President
Thomas E. Meloy* Regional Vice None
President
Juliana Perkins Regional Vice None
2348 West Adrian Street President
Newbury Park, CA 91320
Matthew D. Twomey Regional Vice None
9627 Sparrow Court President
Ellicott City, MD 21042
Mitchell I. Weiser Regional Vice None
7031 Ventura Court President
Parkland, FL 33067
Welden L. Evans Vice President None
490 Huntcliff Green
Atlanta, GA 30350
Russell A. Haskell* Vice President None
<PAGE>
Item 29(b) (continued)
Positions with
Keystone Investment Positions with
Name Distributors Company Registrant
John M. McAllister* Vice President None
Gregg A. Mahalich Vice President None
14952 Richards Drive W.
Minnetonka, MN 55345
Robert J. Matson* Vice President None
Alan V. Neimi* Vice President None
Ronald L. Noble* Vice President None
Burton Robbins Vice President None
1586 Folkstone Terrace
Westlake Village, CA
91361
Thomas E. Ryan, III* Vice President None
Peter Willis* Vice President None
Raymond P. Ajemian* Vice President None
Joan M. Balchunas* Assistant Vice None
President
Jody R. Baum* Assistant Vice None
President
Thomas J. Gainey* Assistant Vice None
President
Eric S. Jeppson* Assistant Vice None
President
Julie A. Robinson* Assistant Vice None
President
Peter M. Sullivan Assistant Vice None
21445 Southeast 35th Way President
Issaquah, WA 98027
*Located at 200 Berkeley Street, Boston, Massachusetts 02116-5034
Item 29(c). - Not applicable
<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, MA 02171
Data Vault Inc.
3431 Sharp Slot Road
Swansea, Massachusetts 02277
Item 31. Management Services
Not applicable.
Item 32. Undertakings
Registrant hereby undertakes to furnish to each person to whom
a copy of Registrant's prospectus is delivered with a copy of the
registrants latest annual report to shareholders upon request and
without charge.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933 and the Investment
Company Act of 1940, the Registrant has duly caused this Amendment to its
Registration Statement to be signed on its behalf by the undersigned, thereunto
duly authorized, in the City of Boston, in The Commonwealth of Massachusetts, on
the 29 day of December, 1995.
KEYSTONE WORLD BOND FUND
By:/s/ Rosemary D. Van Antwerp
-------------------------------------
Rosemary D. Van Antwerp*
Senior Vice President and
Secretary
Pursuant to the requirements of the Securities Act of 1933, this Amendment to
Registrant's Registration Statement has been signed below by the following
persons in the capacities indicated on the 29 day of December, 1995.
SIGNATURES TITLE
/s/ George S. Bissell Trustee, Chairman of the Board and
- ------------------------ Chief Executive Officer
George S. Bissell*
/s/ Albert H. Elfner, III President and Trustee
- ------------------------
Albert H. Elfner, III*
/s/ J. Kevin Kenely Treasurer (Principal Financial
- ------------------------ And Accounting Officer)
J. Kevin Kenely*
*By/s/ James M. Wall
------------------------
James M. Wall**
Attorney-in-Fact
<PAGE>
SIGNATURES TITLE
/s/ Frederick Amling Trustee
- --------------------------
Frederick Amling*
/s/ Charles A. Austin, III Trustee
- --------------------------
Charles A. Austin, III*
/s/ Edwin D. Campbell Trustee
- --------------------------
Edwin D. Campbell*
/s/ Charles F. Chapin Trustee
- --------------------------
Charles F. Chapin*
/s/ K. Dun Gifford Trustee
- --------------------------
K. Dun Gifford*
/s/ Leroy Keith, Jr. Trustee
- --------------------------
Leroy Keith, Jr.*
/s/ F. Ray Keyser, Jr. Trustee
- --------------------------
F. Ray Keyser, Jr.*
/s/ David M. Richardson Trustee
- --------------------------
David M. Richardson*
/s/ Richard J. Shima Trustee
- --------------------------
Richard J. Shima*
/s/ Andrew J. Simons Trustee
- --------------------------
Andrew J. Simons*
*By/s/ James M. Wall
------------------------------
James M. Wall**
Attorney-in-Fact
**James M. Wall, by signing his name hereto, does hereby sign this document on
behalf of each of the above-named individuals pursuant to powers of attorney
duly executed by such persons and attached hereto as Exhibit 24(b)(19).
<PAGE>
INDEX TO EXHIBITS
Page Number
in Sequential
Exhibit Number Exhibit Numbering System
1 Amended and Restated
Declaration of Trust,
as further amended
2 By-Laws
4 Specimen Share Certificate1
5 Investment Advisory and
Management Agreement
6 (A) Principal Underwriting Agreements
(B) Dealers Agreement
8 Custodian, Fund Accounting
and Recordkeeping Agreement,
as amended
10 Opinion and Consent of Counsel
11 Consent of Independent Auditors
14 Model Retirement Plans(2)
15 Class A, B and C Distribution Plans
16 Performance Data Schedules
17 Financial Data Schedule (filed as Exhibit 27)
18 Multiple Class Plan(3)
19 Powers of Attorney
- --------------------------------------------------------
(1)Incorporated by reference herein to Post-Effective Amendment No. 4 to
Registration Statement No. 33-8515/811-4830.
(2)Incorporated by reference herein to Post-Effective Amendment No. 66 to
Registration Statement No. 2-10527/811-96.
(3)Incorporated by reference herein to Post-Effective Amendment No. 18 to
Registration Statement No. 33-8515/811-4830.
EXHIBIT 99.1
AMENDED AND RESTATED DECLARATION OF TRUST
This AMENDED AND RESTATED DECLARATION OF TRUST of Keystone America World
Bond Fund, made at Boston, Massachusetts on July 27, 1993 by Frederick
Amling, Charles A. Austin, III, George S. Bissell, Edwin D. Campbell, Charles
F. Chapin, Albert H. Elfner, III, K. Dun Gifford, Leroy Keith, Jr., F. Ray
Keyser, Jr., David M. Richardson, Richard J. Shima and Andrew J. Simons
(hereinafter with their successors referred to as the "Trustees").
WITNESSETH:
WHEREAS the Trustees have agreed to manage all property received by them as
Trustees in accordance with the provisions hereinafter set forth.
NOW, THEREFORE, the Trustees hereby declare that they will hold all cash,
securities and other assets which they may from time to time acquire in any
manner as Trustees hereunder IN TRUST to manage and dispose of the same upon the
following terms and conditions for the pro rata benefit of the holders from time
to time of Shares in this Trust as hereinafter set forth.
ARTICLE I
Name and Definitions
Section 1. Name. This Trust shall be known as Keystone America World Bond
Fund and the Trustees shall conduct the business of this Trust under that name
or any other name as they may from time to time determine.
Section 2. Definitions. Whenever used herein, unless otherwise required by
the context or specifically provided
(a) The terms "Affiliated Person", "Assignment", "Commission",
"Interested Person" and "Principal Underwriter" shall have the meanings
given them in the 1940 Act;
(b) The "Trust" refers to the Massachusetts business trust established
by and under this Declaration of Trust;
(c) "Declaration of Trust" shall mean this Declaration of Trust as
amended or restated from time to time;
(d) "Net Asset Value Per Share" means the net asset value per share of
the Trust determined in the manner provided or authorized in Article VI,
Section 4;
(e) "Shareholder" means a record owner of Shares of the Trust;
(f) "Shares" means the equal proportionate units of interest into
which the beneficial interest in the Trust shall be divided from time to
time or, if more than one series ("Series") or more than one class ("Class")
of Shares is authorized by the Trustees, the equal proportionate units into
which each such Series or Class of Shares shall be divided from time to
time, and includes where appropriate fractions of a Share as well as a whole
Share, unless the Trustees provide that there shall be no fractions of any
particular Shares.
(g) "Trustees" refers to the Trustee or Trustees of the Trust who become
such in accordance with Article IV and where appropriate means a majority or
other portion of them acting in accordance with this Declaration of Trust or
the By-laws of the Trust; and
(h) The "1940 Act" refers to the Investment Company Act of 1940 and the
Rules and Regulations thereunder, all as amended from time to time.
ARTICLE II
Purpose of Trust
The purpose of the Trust is to provide investors a continuous source of
managed investments.
ARTICLE III
Beneficial Interest
Section 1. Shares of Beneficial Interest. The beneficial interest in the
Trust shall at all times be divided into transferable Shares, par value $.01 per
Share, each of which shall represent an equal proportionate interest in the
Trust with each other Share outstanding, none having priority or preference over
another, except to the extent modified by the Trustees under the provisions of
this Section. The number of Shares which may be issued is unlimited. The
Trustees may from time to time divide or combine the outstanding Shares into a
greater or lesser number without thereby changing the proportionate beneficial
interests in the Trust. Contributions to the Trust may be accepted for, and
Shares shall be redeemed as, whole Shares and/ or fractions.
From time to time, as they deem appropriate, the Trustees may create
additional Series and/or Classes of Shares, in addition to the Shares initially
created under this instrument ("Original Series"). References in this
Declaration of Trust to Shares of the Trust shall apply, as appropriate, to each
such Series of Shares and to each such Class of Shares.
Any additional Series of Shares created hereunder shall represent the
beneficial interest in the assets (and related liabilities) allocated by the
Trustees to such Series of Shares and acquired by the Trust only after creation
of the respective Series of Shares and only on account of such Series. If the
Trustees create any additional Series of Shares hereunder, then the Original
Series shall be deemed a separate Series of Shares. Upon creation of each Series
of Shares, the Trustees may designate it appropriately and determine the
investment policies with respect to the assets allocated to such Series of
Shares, redemption rights, dividend policies, conversion rights, liquidation
rights, voting rights, and such other rights and restrictions as the Trustees
deem appropriate, to the extent not inconsistent with the provisions of this
Declaration of Trust.
The Trustees may divide any Series (including the Original Series) into more
than one Class of Shares. Upon creation of each additional Class of Shares the
Trustees may designate it appropriately and determine its rights and
restrictions (including without limitation such redemption rights, dividend
rights, conversion rights, liquidation rights, voting rights, and such other
rights and restrictions as the Trustees deem appropriate).
Section 2. Ownership of Shares. The ownership of Shares shall be recorded in
the books of the Trust or a transfer agent or a similar agent. The Trustees may
make such rules as they consider appropriate for the transfer of Shares and
similar matters. The record books of the Trust as kept by the Trust or any
transfer agent or similar agent, as the case may be, shall be conclusive as to
who are the holders of Shares of each Series or Class and as to the number of
Shares of each Series or Class held from time to time by each.
Section 3. Investments in the Trust. The Trustees shall accept investments
in the Trust from such persons and on such terms and, subject to any
requirements of law, for such consideration as the Trustees from time to time
authorize and may cease offering Shares to the public at any time. After such
acceptance, the number of Shares of the appropriate Series or Class to represent
the contribution may in the Trustees' discretion be considered as outstanding
and the amount receivable by the Trustees on account of the contribution may be
treated as an asset of the Series or Class.
Section 4. No Preemptive Rights. Shareholders shall have no preemptive or
other right to subscribe to any additional Shares or other securities issued
by the Trust.
Section 5. Provisions Relating to Series or Classes of Shares. Whenever no
Shares of a Series or Class are outstanding, then the Trustees may abolish such
Series or Class. Whenever more than one Series or Class of Shares is
outstanding, then the following provisions shall apply:
(a) Assets Belonging to Each Series or Class. All consideration received
by the Trust for the issue or sale of Shares of a particular Series or
Class, together with all assets in which such consideration is invested or
reinvested, all income, earnings and proceeds thereof, and any funds derived
from any reinvestment of such proceeds, shall, except to the extent
specifically otherwise provided in the provisions adopted by the Board of
Trustees establishing the Series or Class, irrevocably belong to that Series
or Class for all purposes, subject only to the rights of creditors, and
shall be so recorded upon the books of the Trust. In the event there are
assets, income, earnings, and proceeds thereof which are not readily
identifiable as belonging to a particular Series or Class, then the Trustees
shall allocate such items to the various Series or Classes then existing, in
such manner and on such basis as they, in their sole discretion, deem fair
and equitable. The amount of each such item allocated to a particular Series
or Class by the Trustees shall then belong to that Series or Class, and each
such allocation shall be conclusive and binding upon the Shareholders of all
Series or Classes for all purposes.
(b) Liabilities Belonging to Each Series or Class. The assets belonging
to each particular Series or Class shall, except to the extent specifically
otherwise provided in the provisions adopted by the Board of Trustees
establishing the Series or Class, be charged with the liabilities, expenses,
costs and reserves of the Trust attributable to that Series or Class; and
any general liabilities, expenses, costs and reserves of the Trust which are
not readily identifiable as attributable to a particular Series or Class
shall be allocated by the Trustees to the various Series or Classes then
existing, in such manner and on such basis as they, in their sole
discretion, deem fair and equitable. Each such allocation shall be
conclusive and binding upon the Shareholders of all Series or Classes for
all purposes.
(c) Series or Classes of Shares, Dividends and Liquidation. Each Share
of each respective Class or Series shall, except to the extent specifically
otherwise provided in the provisions adopted by the Board of Trustees
establishing the Series or Class, have the same rights and pro rata
beneficial interest in the assets and liabilities of the Series or Class as
any other such Share. Any dividends paid on the Shares of any Series or
Class shall, except to the extent specifically otherwise provided in the
provisions adopted by the Board of Trustees establishing the Series or
Class, only be payable from and to the extent of the assets (net of
liabilities) belonging to that Series or Class. In the event of liquidation
of a Series or Class, only the assets (less provision for liabilities) of
that Series or Class shall be distributed to the holders of the Shares of
that Series or Class.
(d) Voting by Series or Class. Except as provided in this Section or as
limited by the rights and restrictions of any Series or Class, each Share of
the Trust may vote with and in the same manner as any other Share on matters
submitted to a vote of the Shareholders entitled to vote thereon, without
differentiation among votes from the separate Series or Classes; provided,
however, that (i) as to any matter with respect to which a separate vote of
any Series or Class is required by the 1940 Act, or otherwise by applicable
law, such requirement as to a separate vote shall apply in lieu of the
voting described above; (ii) in the event that the separate vote
requirements referred to in (i) above apply with respect to one or more
Series or Classes, then, subject to (iii) below, the Shares of all other
Series or Classes shall vote without differentiation among their votes; and
(iii) as to any matter which does not affect the interest of any particular
Series or Class, only the holders of Shares of the one or more affected
Series or Classes shall be entitled to vote.
Section 6. Limitation of Personal Liability. The Trustees shall have no
power to bind any Shareholder personally or to call upon any Shareholder for the
payment of any sum of money or assessment whatsoever other than such as the
Shareholder may at any time personally agree to pay by way of subscription to
any Shares or otherwise. Every note, bond, contract or other undertaking issued
by or on behalf of the Trust or the Trustees relating to the Trust shall include
a recitation limiting the obligation represented thereby to the Trust and its
assets (but the omission of such a recitation shall not operate to bind any
Shareholder).
ARTICLE IV
The Trustees
Section 1. Number of Trustees. The number of Trustees shall initially be
such number as shall be elected as such by a vote of the shareholders of the
Trust and thereafter shall be such number as shall be fixed from time to time by
action of a majority of the Trustees.
Section 2. Election or Appointment and Term. The initial Trustees shall be
the individuals signing this Declaration in that capacity, who shall have been
previously elected by a vote of the shareholders of the Trust. Thereafter,
subject to Section 16(a) of the 1940 Act, the Trustees may elect themselves or
their successors at such intervals, as they deem proper, and may appoint
Trustees to fill vacancies as provided in Section 4 hereof; provided, that
Trustees shall be elected by vote of a majority of Shares voting thereon at such
time or times as the Trustees shall determine that such action is advisable.
Subject to Section 3 hereof, the Trustees shall have the power to set and alter
the terms of office of the Trustees, and they may at any time lengthen or
shorten their own terms or make their terms of unlimited duration; provided,
that the term of office of any incumbent Trustee shall continue until
terminated, as provided in Section 4 hereof or, if not so terminated, until the
election of such Trustee's successor in office has become effective in
accordance with this Section 2.
Section 3. Resignation and Removal. Any Trustee may resign his trust
(without need for prior or subsequent accounting) by an instrument in writing
signed by him and delivered to the other Trustees, and such resignation shall be
effective upon such delivery or at any later date according to the terms of the
instrument. Any Trustee may be removed by the action of two-thirds of the
remaining Trustees. Upon the resignation or removal of a Trustee, or his
otherwise ceasing to be a Trustee, he shall execute and deliver such documents
as the remaining Trustees shall require for the purpose of conveying to the
Trust or the remaining Trustees any Trust property held in his name. Upon the
incapacity or death of any Trustee, his legal representative shall execute and
deliver on his behalf such documents as the remaining Trustees shall require as
provided in the preceding sentence. However, the execution and delivery of such
documents by a former Trustee or his legal representative shall not be requisite
to the vesting of title to the Trust property in the remaining Trustees.
Section 4. Vacancies. The term of office of a Trustee shall terminate and a
vacancy shall occur in the event of such Trustee's death, resignation, removal,
bankruptcy, adjudicated incompetence or other incapacity to perform the duties
of the office of Trustee. No such vacancy shall operate to annul this
Declaration of Trust or to revoke any existing agency created pursuant to the
terms of this Declaration of Trust. In the case of an existing vacancy,
including a vacancy existing by reason of an increase in the number of Trustees,
subject to applicable law, the remaining Trustees or, if only one Trustee shall
then remain in office, the sole remaining Trustee, shall appoint such individual
to fill such vacancy as they or he, in their or his discretion, shall see fit.
An appointment of a Trustee may be made in anticipation of a vacancy to occur at
a later date by reason of retirement or resignation of a Trustee or an increase
in the number of Trustees; provided, that such appointment shall not become
effective prior to such retirement or resignation or such increase in the number
of Trustees. Whenever a vacancy in the number of Trustees shall occur, until
such vacancy is filled as provided in this Section 4, the Trustees in office,
regardless of their number, shall have all the powers granted to the Trustees
and shall discharge all the duties imposed upon the Trustees by this Declaration
of Trust in the manner provided by this Declaration of Trust. A written
instrument certifying the existence of such vacancy signed by a majority of the
Trustees shall be conclusive evidence of the existence of such vacancy.
Section 5. Management of the Trust. Subject to the provisions of this
Declaration of Trust, the business and affairs of the Trust shall be managed by
the Trustees, and they shall have all powers necessary and desirable to carry
out that responsibility. Action by the Trustees may be taken by majority vote of
the Trustees at a meeting at which a quorum (which shall be a majority of the
Trustees then in office) shall be present, or by a writing signed by a majority
of the Trustees in office.
Without limiting the foregoing, the Trustees may adopt By-Laws not
inconsistent with this Declaration of Trust providing for the conduct of the
business of the Trust and may amend and repeal them to the extent that they do
not reserve that right to any Shareholders; they may elect and remove such
officers and appoint and terminate such agents as they consider appropriate;
they may appoint from their own number and terminate any one or more committees;
they may employ one or more custodians of the assets of the Trust and may
authorize such custodians to employ subcustodians and to deposit all or any part
of such assets in a system or systems for the central handling of securities,
retain a transfer agent or a Shareholder servicing agent, or both, provide for
the distribution of Shares by the Trust, through one or more principal
underwriters or otherwise, set, or otherwise provide for the setting of, record
dates, and in general delegate such authority to do any or all things which the
Trustees may do in the operation of the business of the Trust as they consider
desirable to any officers of the Trust and committees of the Trustees and to any
agent or employee, custodian or underwriter. Any action relating to the
operation of the Trust provided for herein to be taken by the Trustees may be
taken by any other person under authority granted by the Trustees whether or not
specifically so stated, and unless specifically so stated to the contrary. A
specific statement indicating that the Trustees may delegate any authority shall
not give rise to any contrary implication with respect to any provision of this
Declaration of Trust.
Without limiting the foregoing, the Trustees in addition to all powers
granted by law shall have power and authority:
(a) To invest and reinvest cash, and to hold cash uninvested, without in
anyway being bound or limited by any present or future law or custom in
regard to investments by trustees;
(b) To sell, exchange, lend, pledge, mortgage, hypothecate or lease
any or all of the assets of the Trust;
(c) To vote or give assent, or exercise any rights of ownership, with
respect to stock or other securities or property, and to execute and deliver
proxies or powers of attorney to such person or persons as the Trustees
shall deem proper, granting to such person or persons such power and
discretion with relation to securities or property as the Trustees shall
deem proper;
(d) To exercise powers and rights of subscription or otherwise which
in any manner arise out of ownership of securities;
(e) To hold any security or property in a form not indicating any trust,
whether in bearer, unregistered or other negotiable form, or in the Trust's
own name or in the name of a custodian or subcustodian or a nominee or
nominees or otherwise;
(f) To consent to or participate in any plan for the reorganization,
consolidation or merger of any corporation or concern, any security of which
is held in the Trust; to consent to any contract, lease, mortgage, purchase
or sale of property by such corporation or concern, and to pay calls or
subscriptions with respect to any security held in the Trust;
(g) To join with other security holders in acting through a committee,
depository, voting trustee or otherwise, and in that connection to deposit
any security with, or transfer any security to, any such committee,
depository or trustee, and to delegate to them such power and authority with
relation to any security (whether or not so deposited or transferred) as the
Trustees shall deem proper, and to agree to pay, and to pay, such portion of
the expenses and compensation of such committee, depository or trustee as
the Trustees shall deem proper;
(h) To compromise, arbitrate, or otherwise adjust claims in favor of or
against the Trust for any matter in controversy, including but not limited
to claims for taxes; and
(i) To borrow funds.
The Trustees shall not be required to obtain any court order to deal
with any assets of the Trust or take any other action hereunder.
Section 6. Ownership of Assets of the Trust. The assets of the Trust
shall be held separate and apart from any assets now or hereafter held in
any capacity other than as Trustee hereunder by the Trustees or by any
successor Trustees. All of the assets of the Trust shall at all times be
considered as vested in the Trustees. No Shareholder shall be deemed to have
a severable ownership in any individual asset of the Trust or any right of
partition or possession thereof, but each Shareholder shall have a
proportionate undivided beneficial interest in the assets of the Series or
Class of Shares of which he is a holder, subject to any rights or
restrictions applicable to any Series or Class of Shares of which he is a
holder.
Section 7. Payment of Expenses. The Trustees shall pay or cause to be
paid out of the principal or income of the Trust, or partly out of principal
and partly out of income, as they deem fair, all expenses, charges, taxes
and liabilities incurred or arising in connection with the Trust, or in
connection with the management thereof, including but not limited to the
Trustees' compensation and such expenses and charges for the services of the
Trust's investment adviser or manager, administrator, auditor, counsel,
custodian, transfer agent, Shareholder servicing agent, and such other
agents or independent contractors and such other expenses and charges as the
Trustees may deem necessary or proper to incur.
Section 8. Investment Management and Other Services. Without limiting
the generality of the powers of the Trustees, subject to applicable law, the
Trustees may enter into a contract with any person or persons, including any
firm, corporation, trust or association in which any Trustee, Shareholder or
officer of the Trust may be interested, to act as investment advisers and/or
managers of the Trust and to provide such investment advice and/or
management as the Trustees may from time to time consider appropriate
("Adviser"). Any such contract may authorize the Adviser to determine from
time to time what securities shall be acquired, held or disposed of by the
Trust and what portion of assets of the Trust shall be held uninvested and
to take, on behalf of the Trust, actions which the Adviser deems necessary
to implement the investment policies of the Trust, including the placement
of all orders for the purchase, sale or loan of portfolio securities for the
Trust's account with brokers or dealers or others selected by the Adviser
and the giving of instructions to the custodian of the Trust's assets as to
deliveries of securities and payments of cash for the account of the Trust.
Without limiting the generality of the powers of the Trustees, subject
to applicable law, the Adviser may enter into an agreement to retain at its
own expense any person or persons, including any firm, corporation, trust or
association in which any Trustee, Shareholder or officer of the Trust may be
interested, to provide the Trust investment advice and/or management and any
person or persons so retained may be granted all authority which has been
granted to the Adviser under the contract which the Adviser entered into
pursuant to the preceding paragraph.
Without limiting the generality of the powers of the Trustees, the
Trustees may enter into a contract with any person or persons, including any
firm, corporation, trust or association in which any Trustee, Shareholder or
officer of the Trust may be interested, to act as principal underwriter for
the Shares.
Section 9. Affiliations of Trustees or Officers, Etc. The fact that (i)
any of the Shareholders, Trustees or officers of the Trust is a shareholder,
Director, officer, partner, Trustee, employee, manager, adviser or
distributor of or for any partnership, corporation, trust, association or
other organization or for any parent or affiliate of any organization, with
which any contract including, without limitation, contracts for services as
manager, investment adviser, distributor, principal underwriter, custodian,
transfer agent or dividend disbursing agent or for related services may have
been or may hereafter be made, or that any such organization, or any parent
or affiliate thereof, is a Shareholder of or has an interest in the Trust,
or that (ii) any partnership, corporation, trust, association or other
organization with which a contract referred to in (i) above may have been or
may hereafter be made also has any one or more of such contracts with one or
more other partnerships, corporations, trusts, associations or other
organizations, or has other business or interests, shall not affect the
validity of any such contract or disqualify any Shareholder, Trustee or
officer of the Trust from voting upon or executing the same or create any
liability or accountability to the Trust or its Shareholders.
ARTICLE V
Shareholders' Voting Powers and Meetings
Section 1. Voting Powers. The Shareholders shall have power to vote
only (i) for the election of Trustees as provided in Section 2 of Article IV
hereof and the removal of Trustees to the extent provided in Section 16 (c)
of the 1940 Act, (ii) with respect to approval or termination in accordance
with the 1940 Act of any investment advisory or management agreement
described in Article IV hereof, (iii) with respect to any amendment of this
Declaration of Trust to the extent and as provided in Section 7 of Article
IX hereof, (iv) to the same extent as the stockholders of a Massachusetts
corporation as to whether or not a court action, proceeding or claim should
or should not be brought or maintained derivatively or as a class action on
behalf of the Trust or the Shareholders, and (v) with respect to such
additional matters relating to the Trust as may be required by this
Declaration of Trust or the By-Laws, or as to which the Trustees in their
discretion shall determine such Shareholder vote to be required by law or
otherwise to be necessary, appropriate or advisable.
Each whole Share shall be entitled to one vote as to any matter on which
it is entitled to vote and each fractional Share shall be entitled to a
proportionate fractional vote. There shall be no cumulative voting in the
election of Trustees. Shares may be voted in person or by proxy. A proxy
with respect to Shares held in the name of two or more persons shall be
valid if executed by any one of them unless at or prior to exercise of the
proxy the Trust receives a specific written notice to the contrary from any
one of them. A proxy purporting to be executed by or on behalf of a
Shareholder shall be deemed valid unless challenged at or prior to its
exercise and the burden of proving invalidity shall rest on the challenger.
Until Shares are issued, the Trustees may exercise all rights of
Shareholders and may take any action required by law, this Declaration of
Trust or any By-Laws of the Trust to be taken by Shareholders.
Section 2. Meetings. Meetings of Shareholders shall be held at such
times at the principal office of the Trust or such other place as the
Trustees may designate. Meetings of the Shareholders may be called by the
Trustees or such other person or persons as may be specified in the Bylaws.
Shareholders shall be entitled to at least seven days' notice of any
meeting.
Section 3. Quorum and Required Vote. Except as otherwise provided by
law, to constitute a quorum for the transaction of business at a
Shareholders' meeting there must be present, in person or by proxy, holders
of a majority of the total number of Shares of the Trust then outstanding
and entitled to vote at the meeting, but any lesser number shall be
sufficient for adjournment, and any adjourned session or sessions may be
held within 90 days after the date set for the original meeting without the
necessity of further notice. Subject to any applicable requirements of law,
a majority of the Shares present and entitled to vote on a question or
election shall decide such question or election, except when a larger vote
is required by any provision of this Declaration of Trust, the By-Laws of
the Trust or any applicable provision of law.
Section 4. Action by Written Consent. Except as otherwise required by
law, any action required or permitted to be taken at any meeting may be
taken without a meeting if a consent in writing setting forth such action is
signed by the Shareholders entitled to vote on the subject matter thereof
holding a majority of the Shares entitled to vote thereon.
Section 5. Additional Provisions. The By-Laws may include further
provisions for Shareholders' votes and meetings and related matters.
ARTICLE VI
Distributions and Redemptions
Section 1. Distributions. The Trustees may, but need not, each year
distribute to the Shareholders of each Series or Class such income and gains
as the Trustees may determine, after providing for actual and accrued
expenses and liabilities (including such reserves as the Trustees may
establish) determined in accordance with generally accepted accounting
practices. The Trustees shall have full discretion to determine which items
shall be treated as income and which items as capital and their
determination shall be binding upon the Shareholders. Distributions of each
year's income of each Series or Class, if any be made, may be made in one or
more payments, which shall be in Shares, in cash or otherwise and on a date
or dates and as of a record date or dates determined by or under the
authority of the Trustees. At any time and from time to time in their
discretion the Trustees may distribute to the Shareholders of any one or
more Series or Class as of a record date or dates determined by or under the
authority of the Trustees, in Shares, in cash or otherwise, all or part of
any gain realized on the sale or disposition of property of the Trust or
otherwise, or all or part of any other principal of the Trust. Each
distribution pursuant to this Section 1 shall be made ratably according to
the number of Shares of the Series or Class held by the several Shareholders
on the applicable record date thereof, provided that no distribution need be
made on Shares purchased pursuant to orders received or for which payment is
made after such time or times as may be determined by or under the authority
of the Trustees. Any such distribution paid in Shares will be paid at the
net asset value thereof as determined in accordance with Section 4 hereof.
Section 2. Redemptions. Upon offer by any Shareholder of all or part of
the Shares held by the Shareholder for redemption hereunder, in accordance
with such methods, upon such terms and subject to such conditions as from
time to time may be determined by or under the authority of the Trustees,
the Trust shall redeem the Shares so offered by distributing to the
Shareholder the Net Asset Value per Share thereof determined as of a time
fixed by or under the authority of the Trustees. The Trust shall have the
right at its option and at any time to redeem the Shares of any Shareholder
for their Net Asset Value per Share if the Shareholder owns Shares of a
Series or Class having an aggregate net asset value of less than such
minimum amount as may from time to time be prescribed by or under the
authority of the Trustees or if ownership of such Shares by the Shareholder
could create adverse tax consequences for the Trust or any Series or Class
thereof. With respect to all Shares or any Series or Class of Shares, the
right to redemption or the date for payment may, however, be delayed or
suspended by the Trustees if there is an extraordinary closing or
restriction of trading on the New York Stock Exchange as determined under
rules and regulations of the Commission, or an emergency exists as a result
of which it is not reasonably practicable for the Trust to dispose of
securities or fairly to determine the value of its net assets, or as the
Commission may permit. The completion of such distribution on redemption of
Shares shall constitute a full discharge of the Trust and Trustees with
respect to such Shares, and the Trustees may require that any certificate or
certificates issued by the Trust to evidence the ownership of the Shares
shall be surrendered to the Trustees for cancellation or notation. Shares so
redeemed shall be cancelled or held by the Trust for reissue, as the
Trustees may from time to time determine.
Section 3. Payment in Kind. Subject to any generally applicable
limitation imposed by the Trustees, any distribution on redemption may, if
authorized by the Trustees, be made wholly or partly in kind, instead of in
cash. Such distribution in kind shall be made by distributing investments
constituting, in the opinion of the Trustees, a fair representation of the
various types of securities then held by the Series or Class of Shares being
redeemed (but not necessarily including a portion of each particular
investment) and in each case having an aggregate value equal to the amount
of cash instead of which such distribution in kind is made.
Section 4. Determination of Net Asset Value per Share. Subject to
applicable law, the Net Asset Value per Share of each Series or Class shall
be computed as of such times as may be determined by or under authority of
the Trustees by determining the value of all the investments of such Series
or Class in such manner as may be determined by or under authority of the
Trustees, adding any other assets of such Series or Class, subtracting all
liabilities of such Series or Class and dividing the result by the number of
Shares of such Series or Class outstanding.
Determination of Net Asset Value per Share so made in good faith and
pursuant to the provisions of the 1940 Act shall be binding on all parties
concerned.
Section 5. Automatic Redemption from Small Accounts. The Trustees shall
have the power to redeem shares at a redemption price determined in
accordance with Section 4 of this Article if at any time the total
investment in an account does not have a value of at least $1,000 or such
other minimum amount as the Trustees may from time to time determine. Before
redeeming such Shares, the Shareholder will be notified that the value of
his account is less than the required minimum amount and be allowed 60 days
or such period as is permitted by law to make an additional investment to
bring the total value of such account to such amount or more.
Section 6. Power to Modify Foregoing Procedures. Notwithstanding any of
the foregoing provisions of this Article VI, the Trustees may prescribe, in
their absolute discretion, such other bases and times for the declaration
and payment of dividends and distributions as they may deem desirable or
necessary to enable the Trust to comply with any provision of the 1940 Act
or the Internal Revenue Code, including any rule or regulation adopted by
the Commission or any securities association registered under the Securities
Exchange Act of 1934, or any order of exemption issued by the Commission or
any rule or regulation issued under the Internal Revenue Code, all as in
effect now or as hereafter amended or modified.
ARTICLE VII
Compensation and Limitation of Liability of Trustees
Section 1. Compensation. The Trustees shall be entitled to reasonable
compensation from the Trust; they may fix the amount of their
compensation.
Section 2. Limitation of Liability. Provided they have exercised
reasonable care in their selection, the Trustees shall not be responsible or
liable in any event for any neglect or wrongdoing of any officer, agent,
employee or Adviser of the Trust nor shall any Trustee be responsible for
the act or omission of any other Trustee, but nothing herein contained shall
protect any Trustee against any liability to which he would otherwise be
subject by reason of wilful misfeasance, bad faith, gross negligence or
reckless disregard of the duties involved in the conduct of his office.
Every note, bond, contract, instrument, certificate, share or
undertaking and every other act or thing whatsoever executed or done by or
on behalf of the Trust or the Trustees or any of them in connection with the
Trust shall be conclusively deemed to have been executed or done only in
their or his capacity as Trustees or Trustee, and such Trustees or Trustee
shall not be personally liable thereon.
The Trustees shall use their best efforts to ensure that every note,
bond, contract, instrument, certificate or undertaking made or issued by the
Trustees or by any officers shall give notice of the existence of this
Declaration of Trust and shall recite to the effect that the same was
executed or made by or on behalf of the Trust or by them as Trustees or
officers, and not individually, and is not binding upon any of them or the
Shareholders individually, but is binding only upon the Trust property, or
the assets of the particular Series or Class in question, as the case may
be, but the omission thereof shall not operate to bind any Trustee or
officer or Shareholder individually, or to subject the assets of any Series
or Class to the obligations of any other Series or Class.
ARTICLE VIII
Indemnification
Section 1. Trustees, Officers, etc. The Trust shall indemnify each of
its present and former Trustees and officers and may indemnify any of its
present or former employees or agents, and shall indemnify any persons who
serve or have served at the Trust's request as Directors, officers or
Trustees of another organization, and may indemnify persons who serve or
have served at the Trust's request as employees or agents of another
organization in which the Trust has any interest as a shareholder, creditor
or otherwise (hereinafter referred to as a "Covered Person") against all
liabilities and expenses, including but not limited to amounts paid in
satisfaction of judgments, in compromise or as fines and penalties, and
counsel fees reasonably incurred by any such Covered Person in connection
with the defense or disposition of any action, suit or other proceeding,
whether civil or criminal, before any court or administrative or legislative
body, in which such Covered Person may be or may have been involved as a
party or otherwise or with which such person may be or may have been
threatened, while in office, employed or acting as agent, or thereafter, by
reason of being or having been such a Trustee, officer, Director, employee
or agent, except with respect to any matter as to which such Covered Person
shall have been finally adjudicated in any such action, suit or other
proceeding not to have acted in good faith in the reasonable belief that
such Covered Person's action was in the best interest of the Trust and
except that no person shall be indemnified against any liability to the
Trust or its Shareholders to which such Covered Person shall otherwise be
subject by reason of wilful misfeasance, bad faith, gross negligence or
reckless disregard of the duties involved in the conduct of his office.
Expenses, including counsel fees so incurred by any Covered Person, may in
the discretion of the Trustees be paid from time to time by the Trust in
advance of the final disposition of any such action, suit or proceeding upon
receipt of an undertaking by or on behalf of such Covered Person to repay
amounts so paid to the Trust if it is ultimately determined that
indemnification against such expenses is not authorized under this Article.
Except as otherwise provided by law, the Trust shall have power to
purchase and maintain insurance on behalf of a Covered Person against any
liability asserted against him and incurred by him in his capacity as a
Covered Person, or arising out of his status as such, whether or not the
Trust would have the power to indemnify him against the liability under the
provisions of this Section.
Section 2. Compromise Payment. As to any matter disposed of by a
compromise payment by any Covered Person referred to in Section 1 above,
pursuant to a consent decree or otherwise, no such indemnification either
for such payment or for any other expenses shall be provided unless such
compromise shall be approved as in the best interests of the Trust, after
notice that it involved such indemnification, (a) by a disinterested
majority of the Trustees then in office; or (b) by a majority of the
disinterested Trustees then in office; or (c) by any disinterested person or
persons to whom the question may be referred by the Trustees, provided that
in the case of approval pursuant to clause (b) or (c) there has been
obtained an opinion in writing of independent legal counsel to the effect
that such Covered Person appears to have acted in good faith in the
reasonable belief that his action was in the best interests of the Trust and
that such indemnification would not protect such person against any
liability to the Trust to which such person would otherwise be subject by
reason of wilful misfeasance, bad faith, gross negligence or reckless
disregard of the duties involved in the conduct of his office; or (d) by
vote of a majority of the Shares voting thereon, exclusive of any Shares
beneficially owned by any interested Covered Person. Approval by the
Trustees pursuant to clause (a) or (b) or any disinterested person or
persons pursuant to clause (c) of this Section shall not prevent the
recovery from any Covered Person of any amount paid to such Covered Person
in accordance with any such clauses as indemnification if such Covered
Person is subsequently adjudicated by a court of competent jurisdiction not
to have acted in good faith in the reasonable belief that such person's
action was in the best interests of the Trust or to have been liable to the
Trust or its Shareholders by reason of wilful misfeasance, bad faith, gross
negligence or reckless disregard of the duties involved in the conduct of
his office.
Section 3. Indemnification Not Exclusive. The right of indemnification
hereby provided shall not be exclusive or affect any other rights to which
any such Covered Person may be entitled. As used in this Article VIII, the
term "Covered Person" shall include such person's heirs, executors and
administrators. An "interested Covered Person" is one against whom the
action, suit or other proceeding in question or another action, suit or
other proceeding on the same or similar grounds is then or has been pending,
and a "disinterested person" is a person against whom none of such actions,
suits or other proceedings or another action, suit or other proceeding on
the same or similar grounds is then or has been pending. Nothing contained
in this Article shall affect any rights to indemnification to which
personnel of the Trust other than Trustees and officers or other persons may
be entitled by contract or otherwise under law.
Section 4. Shareholders. In case any Shareholder or former Shareholder
shall be held to be personally liable solely by reason of his being or
having been a Shareholder and not because of his acts or omissions or for
some other reason, the Shareholder or former Shareholder (or his heirs,
executors, administrators or other legal representatives or in the case of a
corporation or other entity, its corporate or other successor) shall be
entitled out of the assets of the Trust to be held harmless from and
indemnified against all loss and expense arising from such liability.
ARTICLE IX
Miscellaneous
Section 1. Trust Not a Partnership. It is hereby expressly declared that
a trust and not a partnership is created hereby. Neither the Trust nor the
Trustees, nor any officer, employee or agent of the Trust shall have any
power to bind personally either the Trust's Trustees or officers or any
Shareholders. All persons extending credit to, contracting with or having
any claim against the Trust shall look only to the assets of the Trust for
payment under such credit, contract or claim, and neither the Shareholders
nor the Trustees, nor any of the Trust's officers, employees or agents,
whether past, present or future, shall be personally liable therefor.
Nothing in this Declaration of Trust shall protect any Trustee against any
liability to which such Trustee would otherwise be subject by reason of
wilful misfeasance, bad faith, gross negligence or reckless disregard of the
duties involved in the conduct of the office of Trustee hereunder.
Section 2. Trustee's Good Faith Action, Expert Advice, No Bond or
Surety. The exercise by the Trustees of their powers and discretions
hereunder in good faith and with reasonable care under the circumstances
then prevailing shall be binding upon everyone interested. Subject to the
provisions of Section 1 of this Article IX, a Trustee shall be liable for
his own wilful defaults, and for nothing else, and shall not be liable for
errors of judgment or mistakes of fact or law. The Trustees may take advice
of counsel or other experts with respect to the meaning and operation of
this Declaration of Trust, and subject to the provisions of said Section 1
shall be under no liability for any act or omission in accordance with such
advice or for failing to follow such advice. The Trustees shall not be
required to give any bond as such, nor any surety if a bond is required.
Section 3. Liability of Third Persons Dealing with Trustees. No person
dealing with the Trustees shall be bound to make any inquiry concerning the
validity of any transaction made or to be made by the Trustees pursuant
hereto or to see to the application of any payments made or property
transferred to the Trust or upon its order.
Section 4. Duration; Termination of Trust; Amendments; Mergers, etc.
(a) This Trust shall continue without limitation of time but subject
to the provisions of this Section 4.
(b) The Trust (as used in this Section 4 the term "Trust" specifically
also means any Series or Class) may be terminated by action of the Trustees.
(c) Upon the termination of the Trust:
(i) The Trust shall carry on no business except for the purpose of
winding up its affairs.
(ii) The Trustees shall proceed to wind up the affairs of the Trust
and all of the powers of the Trustees under this Declaration of Trust
shall continue until the affairs of the Trust shall have been wound up,
including the power to fulfill or discharge the contracts of the Trust,
collect its assets, sell, convey, assign, exchange, transfer or
otherwise dispose of all or any part of the remaining Trust property to
one or more persons at public or private sale for consideration which
may consist in whole or in part of cash, securities or other property of
any kind, discharge or pay its liabilities, and to do all other acts
appropriate to liquidate its business.
(iii) After paying or adequately providing for the payment of all
liabilities, and upon receipt of such releases, indemnities and
refunding agreements as they deem necessary for their protection, the
Trustees shall distribute the remaining Trust property, in cash or in
kind or partly each, among the Shareholders according to their
respective rights and interests.
(d) After termination of the Trust and distribution to the Shareholders
as herein provided, a majority of the Trustees shall execute and lodge
among the records of the Trust an instrument in writing setting forth the
fact of such termination, and the Trustees shall thereupon be discharged
from all further liabilities and duties hereunder, and the rights and
interests of all Shareholders shall thereupon cease.
(e) Upon completion of the distribution of the remaining proceeds or
the remaining assets as provided in paragraphs (c) and (d), the Trust
shall terminate and the Trustees shall be discharged of any and all
further liabilities and duties hereunder and the right, title and interest
of all parties shall be canceled and discharged.
Section 5. Filing of Copies, References, Headings. The original or a copy
of this instrument and of each Declaration of Trust supplemental hereto or
Amendment hereof shall be kept at the office of the Trust where it may be
inspected by any Shareholder. Anyone dealing with the Trust may rely on a
certificate by an officer of the Trust as to whether or not any Supplemental
Declaration of Trust or Amendments have been made and as to any matters in
connection with the trust hereunder; and, with the same effect as if it were the
original, may rely on a copy certified by an officer of the Trust to be a copy
of this instrument or of any such Supplemental Declaration of Trust or
Amendment. In this instrument or in any such Amendment or Supplemental
Declaration of Trust, references to this instrument, and all expressions such as
"herein," "hereof," and "hereunder," shall be deemed to refer to this instrument
as amended or affected by any such Supplemental Declaration of Trust or
Amendment. Headings are placed herein for convenience of reference only and in
case of any conflict, the text of this instrument, rather than the headings,
shall control. This instrument may be executed in any number of counterparts
each of which shall be deemed an original.
Section 6. Applicable Law. The Trust set forth in this instrument is made in
The Commonwealth of Massachusetts, and it is created under and is to be governed
by and construed and administered according to the laws of such Commonwealth.
The Trust shall be of the type commonly called a Massachusetts business trust,
and, without limiting the provisions hereof, the Trust may exercise all powers
which are ordinarily exercised by such a trust.
Section 7. Amendments. (a) This Declaration of Trust may be amended by a
vote or written consent of the Trustees. However, if such amendment adversely
affects the rights of any Shares of any Series or any Class with respect to
matters to which such amendment is applicable, such amendment shall be subject
to approval by holders of a majority of the Shares of such Series or Class. An
amendment or other action which provides for an additional Series of Shares
(and/or Class thereof), which Series may vote together with Shares of other
Series (and/or Classes thereof) and makes other provisions with respect to such
Series (and/or Class thereof) and its relation to existing Series (and/or
Classes thereof), shall not be deemed to adversely affect the rights of any
other Series of Shares or Class thereof. The Trustees may also amend this
Declaration of Trust without any Shareholder approval to change the name of the
Trust, to supply any omission, to cure, correct or supplement any ambiguous,
defective or inconsistent provision hereof, or, if they deem it necessary, to
conform this Declaration of Trust to the requirements of applicable federal laws
or regulations or the requirements of the Internal Revenue Code, or to eliminate
or reduce any federal, state or local taxes which are or may be payable by the
Trust or the Shareholders, but the Trustees shall not be liable for failing to
do so.
(b) Nothing contained in this Declaration of Trust shall permit the
amendment of this Declaration of Trust to impair the exemption from personal
liability of the Shareholders, Trustees, officers, employees and agents of the
Trust or to permit assessments upon Shareholders.
(c) A certificate signed by a majority of the Trustees or by the Secretary
or any Assistant Secretary of the Trust, setting forth an amendment by reciting
that it was duly adopted by the Shareholders or by the Trustees as aforesaid, or
a copy of the Declaration of Trust as amended, and executed by a majority of the
Trustees or certified by the Secretary or any Assistant Secretary of the Trust,
shall be conclusive evidence of such amendment when lodged among the records of
the Trust.
Section 8. Merger, Consolidation and Sale of Assets. The Trust may merge
into or consolidate with any other corporation, association, trust or other
organization or may sell, lease or exchange all or substantially all of the
Trust property, including its good will, upon such terms and conditions and for
such consideration when and as authorized by the Trustees.
Section 9. Incorporation. The Trustees may cause to be organized or assist
in organizing a corporation or corporations under the laws of any jurisdiction
or any other trust, partnership, association or other organization to take over
all the Trust property or to carry on any business in which the Trust shall
directly or indirectly have any interest, and to sell, convey and transfer the
Trust property to any such corporation, trust, partnership, association or
organization in exchange for the shares or securities thereof or otherwise, and
to lend money to, subscribe for the shares or securities of, and enter into any
contracts with any such corporation, trust, partnership, association or
organization in which the Trust holds or is about to acquire shares or any other
interest. The Trustees may also cause a merger or consolidation between the
Trust or any successor thereto and any corporation, trust, partnership,
association or other organization if and to the extent permitted by law, as
provided under the law then in effect. Nothing contained herein shall be
construed as requiring approval of Shareholders for the Trustees to organize or
assist in organizing one or more corporations, trusts, partnerships,
associations or other organizations and selling, conveying or transferring the
Trust property to such organizations or entities.
IN WITNESS WHEREOF, the undersigned have hereunto set their hands and seals
in the City of Boston, Massachusetts, for themselves and their assigns, as of
the day and year first above written.
/s/ ----------------------------------------------------------
Frederick Amling
----------------------------------------------------------
Charles A. Austin, III
----------------------------------------------------------
George S. Bissell
----------------------------------------------------------
Edwin D. Campbell
----------------------------------------------------------
Charles F. Chapin
----------------------------------------------------------
Albert H. Elfner, III
----------------------------------------------------------
K. Dun Gifford
----------------------------------------------------------
Leroy Keith, Jr.
----------------------------------------------------------
F. Ray Keyser, Jr.
----------------------------------------------------------
David M. Richardson
----------------------------------------------------------
Richard J. Shima
----------------------------------------------------------
Andrew J. Simons
----------------------------------------------------------
<PAGE>
KEYSTONE AMERICA WORLD BOND FUND
FIRST AMENDMENT TO
AMENDED AND RESTATED DECLARATION OF TRUST
EFFECTIVE MAY 1, 1995
FIRST AMENDMENT TO AMENDED AND RESTATED DECLARATION OF TRUST dated
March 15, 1995 made by George S. Bissell, Albert H. Elfner, III, Frederick
Amling, Charles A. Austin, III, Edwin D. Campbell, Charles F. Chapin, K. Dun
Gifford, Leroy Keith, Jr., F. Ray Keyser, Jr., David M. Richardson, Richard J.
Shima and Andrew J. Simons (hereinafter with their successors referred to as the
"Trustees") to AMENDED AND RESTATED DECLARATION OF TRUST dated July 27, 1993.
WHEREAS, the Trustees have determined to change the name of the Trust
and to change the designation of its principal office to 200 Berkeley Street,
Boston, Massachusetts 02116.
NOW, THEREFORE, the Trustees hereby declare that they will amend the
Amended and Restated Declaration of Trust of this Trust as hereinafter set
forth:
ARTICLE I, Name and Definitions, Section 1. Name., is hereby amended to
read as follows:
"This Trust shall be known as the "Keystone World Bond Fund" and the
Trustees shall conduct the business of this Trust under that name or
any other name as they may from time to time determine."
This Amendment shall become effective as of May 1, 1995.
All other provisions of the Declaration of Trust shall continue as
originally stated.
IN WITNESS WHEREOF, the undersigned, being all of the Trustees of the
Trust, have caused this First Amendment to the Amended and Restated Declaration
of Trust to be executed on the 15th day of March, 1995.
/s/ George S. Bissell
- -----------------------------------
George S. Bissell, Trustee
/s/ Albert H. Elfner, III
- -----------------------------------
Albert H. Elfner, III, Trustee
/s/ Frederick Amling
- -----------------------------------
Frederick Amling, Trustee
/s/ Charles A. Austin
- -----------------------------------
Charles A. Austin, III, Trustee
/s/ Edwin D. Campbell
- -----------------------------------
Edwin D. Campbell, Trustee
/s/ Charles F. Chapin
- -----------------------------------
Charles F. Chapin, Trustee
/s/ K. Dun Gifford
- -----------------------------------
K. Dun Gifford, Trustee
/s/ Leroy Keith, Jr.
- -----------------------------------
Leroy Keith, Jr., Trustee
/s/ F. Ray Keyser, Jr.
- -----------------------------------
F. Ray Keyser, Jr., Trustee
/s/ David M. Richardson
- -----------------------------------
David M. Richardson, Trustee
/s/ Richard J. Shima
- -----------------------------------
Richard J. Shima, Trustee
/s/ Andrew J. Simons
- -----------------------------------
Andrew J. Simons, Trustee
10270089
EXHIBIT 99.2
BY-LAWS
OF
INTERNATIONAL HERITAGE FUND
Dated September 5, 1986
<PAGE>
TABLE OF CONTENTS
Page
ARTICLE I - DEFINITIONS
ARTICLE II - OFFICES
Section 1. Principal Office 1
Section 2. Other Offices 1
ARTICLE III - SHAREHOLDERS 1
Section 1. Meetings 1
Section 2. Notice of Meetings 1
Section 3. Record Date for Meetings
and Other Purposes 2
Section 4. Proxies 2
Secticn 5. Inspection of Records 3
Section 6. Action without Meeting 3
ARTICLE IV - TRUSTEES 3
Section 1. Meetings of the Trustees 3
Section 2. Quorum and Manner of Acting 4
ARTICLE V - COMMITTEES 4
Section 1. Executive and Other Committees 4
Section 2. Meetings, Quorum and Manner of Acting 4
ARTICLE VI - OFFICERS 5
Section 1. General Provisions 5
Section 2. Term of Office and Qualifications 5
Section 3. Removal 5
Section 4. Powers and Duties of the Chairman 5
Section 5. Powers and Duties of the President 6
Section 6. Powers and Duties of Vice Presidents 6
Section 7. Powers and Duties of the Treasurer 6
Section 8. Powers and Duties of the Secretary 6
Section 9. Powers and Duties of Assistant Treasurers 7
Section 10. Powers and Duties of Assistant Secretaries 7
Section 11. Compensation of Officers and Trustees
and Members of Advisory Board 7
ARTICLE VII - FISCAL YEAR 7
ARTICLE VIII - SEAL 8
ARTICLE IX - SUFFICIENCY AND WAIVERS OF NOTICE 8
ARTICLE X - CUSTODY OF SECURITIES 8
Section 1. Employment of A Custodian 8
Section 2. Action Upon Termination of
Custodian Agreement 8
Section 3. Provisions of Custodian Agreement 9
Section 4. Central Certificate System 10
Section 5. Acceptance of Receipts in Lieu of
Certificate 10
ARTICLE XI - AMENDMENTS 10
ARTICLE XII - MISCELLANEOUS 10
<PAGE>
BY-LAWS
OF
INTERNATIONAL HERITAGE FUND
ARTICLE I
DEFINITIONS
The terms "By-laws," "Comission", "Custodian", "Declaration,"
"Distributor", "Portfolio" or "Portfolios" "His", "Interested Person,"
"Investment Adviser", "1940 Act", "Person", "Series", "Shareholder", "Shares",
"Transfer Agent", "Trust", "Trust Property", "Trustees", and "vote of a majority
of the Shares outstanding and entitled to vote", have the respective meanings
given them in the Declaration of Trust of International Heritage Fund dated
September 5, 1986, as amended from time to time.
ARTICLE II
OFFICES
Section 1. Principal Office. Until changed by the Trustees, the
principal office of the Trust shall be in the City of Boston, Massachusetts.
Section 2. Other Offices: The Trust may have offices in such other
places without as well as within the Commonwealth of Massachusetts as the
Trustees may from time to time determine.
ARTICLE III
SHAREHOLDERS
Section 1. Meetinqs. Meetings of the Shareholders of the Trust or a
Series thereof shall be held as provided in the Declaration at such place within
or without the Commonwealth of Massachusetts as the Trustees shall designate.
The holders of a majority of outstanding Shares of the Trust or a Series thereof
present in person or by proxy shall constitute a quorum at any meeting of the
Shareholders of the Trust or such Series.
Section 2. Notice of Meetings. Notice of all meetinqs of the
Shareholders, stating the time, place and purposes of the meeting, shall be
given by the Trustees by mail to each Shareholder at his address as recorded on
the register of the Trust mailed at least (10) days and not more than sixty (60)
days before the meeting, provided, however, that notice of a meeting need not be
given to a shareholder to whom such notice need not be given under the proxy
rules of the Commission under the 1940 Act and the Securities Exchange Act of
1934, as amended. Only the business stated in the notice of the meeting shall be
considered at such meeting. Any adjourned meeting may be held as adjourned
without further notice. No notice need be given to any Shareholder who shall
have failed to inform the Trust of his current address or if a written waiver of
notice, executed before or after the meeting by the Shareholder or his attorney
thereunto authorized, is filed with the records of the meeting.
Section 3. Record Date for Meetinqs and Other Purposes. For the purpose
of determining the Shareholders who are entitled to notice of and to vote at any
meeting, or to participate in any distribution, or for the purpose of any other
action, the Trustees may from time to time close the transfer books for such
period, not exceeding thirty (30) days, as the Trustees may determine; or
without closing the transfer books the Trustees may fix a date not more than
sixty (60) days prior to the date of any meeting of Shareholders or distribution
or other action as a record date for the determination of the persons to be
treated as Shareholders of record for such purposes, except for dividend
payments which shall be governed by the Declaration.
Section 4. Proxies. At any meeting of Shareholders, any holder of
Shares entitled to vote thereat may vote by proxy, provided that no proxy shall
be voted at any meeting unless it shall have been placed on file with the
Secretary, or with such other officer or agent of the Trust as the Secretary may
direct, for verification prior to the time at which such vote shall be taken.
Proxies may be solicited in the name of one or more Trustees or one or more of
the officers of the Trust. Only Shareholders of record shall be entitled to
vote. Each whole Share shall be entitled to one vote as to any matter on which
it is entitled by the-Declaration to vote, and each fractional Share shall be
entitled to a proportionate fractional vote. When any Share is held jointly by
several persons, any one of them may vote at any meeting in person or by proxy
in respect of such Share, but if more than one of them shall be present at such
meeting in person or by proxy, and such joint owners or their proxies so present
disagree as to any vote to be cast, such vote shall not be received in respect
of such Share. A proxy purporting to be executed by or on behalf of a
shareholder shall be deemed valid unless challenged at or prior to its exercise,
and the burden of proving invalidity shall rest on the challenger. If the holder
of any such Share is a minor or a person of unsound mind, and subject to
guardianship or the legal control of any other person as regards the charge or
management of such Share, he may vote by his guardian or such other person
appointed or having such control, and such vote may be given in person or by
proxy.
Section 5. Inspection of Records. The records of the Trust shall be
open to inspection by Shareholders to the same extent as is permitted
shareholders of a Massachusetts business corporation.
Section 6. Action without Meeting. Any action which may be taken by
Shareholders may be taken without a meeting if a majority of Shareholders
entitled to vote on the matter (or such larger proportion thereof as shall be
required by law, the Declaration or these By-laws for approval of such matter)
consent to the action in writing and the written consents are filed with the
records of the meetings of Shareholders. Such consents shall be treated for all
purposes as a vote taken at a meeting of Shareholders.
ARTICLE IV
TRUSTEES
Section 1. Meetings of the Trustees. The Trustees may in their
discretion provide for regular or stated meetings of the Trustees. Notice of
regular or stated meetings need not be given. Meetings of the Trustees other
than regular or stated meetings shall be held whenever called by the President,
or by any one of the Trustees, at the time being in office. Notice of the time
and place of each meeting other than regular or stated meetings shall be given
by the Secretary or an Assistant Secretary or by the officer or Trustee calling
the meeting and shall be mailed to each Trustee at least two days before the
meeting, or shall be telegraphed, cabled, or wirelessed to each Trustee at his
business address, or personally delivered to him at least one day before the
meeting. Such notice may, however, be waived by any Trustee. Notice of a meeting
need not be given to any Trustee if a written waiver of notice, executed by him
before or after the meeting, is filed with the records of the meeting, or to any
Trustee who attends the meeting without protestinq prior thereto or at its
commencement the lack of notice to him. A notice or waiver of notice need not
specify ;he purpose of any meeting. The Trustees may meet by means of a
telephone conference circuit or similar communications equipment by means of
which all persons participatinq in the meeting can hear each otber at the same
time and participation by such means shall be deemed to have been held at a
place designated by the Trustees at the meeting. Participation in a telephone
conference meeting shall constitute presence in person at such meeting. any
action reguired or permitted to be taken at any meeting of the trustees may be
taken by the Trustees without a meeting if all the Trustees consent to the
action in writing and the written consents are filed with the records of the
Trustees' meetings. Such consents shall be treated as a vote for all purposes.
Section 2. Quorum and Manner of Acting. A majority of the Trustees shall
be present in person at any regular or special meeting of the Trustees in order
to constitute a quorum for the transaction of business at such meeting and
(except as otherwise required by law, the Declaration or these By-laws) the act
of a majority of the Trustees present at any such meeting, at which a quorum is
present, shall be the act of the Trustees. In the absence of a guorum, a
majority of the Trustees present may adjourn the meeting from time to time
until a quorum shall be present. Notice of an adjourned meeting need not be
given.
ARTICLE V
COMMITTEES
Section 1. Executive and Other Committees. The Trustees by vote of a
majority of all the Trustees may elect from their own number an Executive
Committee to consist of not less than three (3) members to hold office at the
pleasure of the Trustees, which shall have the power to conduct the current and
ordinary business of the Trust while the Trustees are not in session, including
the purchase and sale of securities and the designation of securities to be
delivered upon redemption of Shares of the Trust or a Series thereof, and such
other powers of the Trustees as the Trustees may, from time to time, delegate to
them except those powers which by law, the Declaration or these By-laws they are
prohibited from delegating. The Trustees may also elect from their own number
other Committees from time to time, the number composing such Co~mittees, the
powers conferred upon the same (subject to the same limitations as with respect
to the Executive Committee) and the term of membership on such Committees to be
determined by the Trustees. The Trustees may designate a chairman of any such
Committee. In the absence of such designation the Committee may elect its own
Chairman.
Section 2. Meetings, Quorum and Manner of Acting. The Trustees may (1)
provide for stated meetings of any Committee, (2) specify the manner of calling
and notice required for special meetings of any Committee, (3) specify the
number of members of a committee reguired to constitute a quorum and the number
of members of a Committee required to exercise specified powers delegated to
such Committee, (4) authorize the making of decisions to exercise specified
powers by written assent of the reguisite number of members of a Committee
without a meeting' and (5) authorize the members of a Committee to meet by means
of a telephone conference circuit.
The Executive Committee shall keep regular minutes of its meetings and
records of decisions taken without a meeting and cause them to be recorded ln a
book designated for that purpose and kept in the office of the Trust.
ARTICLE VI
OFFICERS
Section 1. General Provisions. The officers of the Trust shall be a
President, a Treasurer and a Secretary, who shall be elected by the Trustees.
The Trustees may elect or appoint such other officers or agents as the business
of the Trust may require, including one or more Vice Presidents, Assistant
Secretaries and Assistant Treasurers. The Trustees may delegate to any officer
or committee the power to appoint any subordinate officers or agents.
Section 2. Term of Office and Qualifications. Except as otherwise
provided by law, the Declaration or these By-laws, the President, the Treasurer
and the Secretary shall each hold office until his successor shall have been
duly elected and qualified, and all other officers shall hold office at the
pleasure of the Trustees. The Secretary and the Treasurer may be the same
person. A Vice President and the Treasurer or a Vice President and the Secretary
may be the same person, but the offices of Vice President, Secretary and
Treasurer shall not be held by the same person. The President shall hold no
other office; Except as above provided, any two offices may be held by the same
person. Any officer may be but none need be a Trustee or Shareholder.
Section 3. Removal. The Trustees, at any regular or special meeting of
the Trustees, may remove any officer without cause, by a vote of a majority of
the Trustees then in office. Any officer or agent appointed by an officer or
committee may be removed with or without cause by such appointing officer or
committee.
Section 4. Powers and Duties of the Chairman. The Trustees may, but
need not, appoint from among their number a Chairman. When present he shall
preside at the meetings of the Shareholders and of the Trustees. He may call
meetings of the Trustees and of any committee thereof whenever he deems it
necessary. He shall be an executive officer of the Trust and shall have, with
the President, general supervision over the business and policies of the Trust,
subject to the limitations imposed upon the President, as provided in Section 5
of this Article VI.
Section 5. Powers and Duties of the President. In the absence of the
Chairman, the President may call meetings of the Trustees and of any Committee
thereof when he deems it necessary and shall preside at all meetings of the
Shareholders. Subject to the control of the Trustees and to the control of any
Committees of the Trustees, within their respective spheres, as provided by the
Trustees, he shall at all times exercise a qeneral supervision and direction
over the affairs of the Trust. He shall have the power to employ attorneys and
counsel for the Trust or any Series thereof and to employ such subordinate
officers, agents, clerks and employees as he may find necessary to transact the
business of the Trust or such Series. He shall also have the power to grant,
issue, execute or sign such powers of attorney, proxies or other documents as
may be deemed advisable or necessary in furtherance of the interests of the
Trust or any Series thereof. The President shall have such other powers and
duties, as from time to time may be conferred upon or assigned to him by the
Trustees.
Section 6. Powers and Duties of Vice Presidents. In the absence or
disability of the President, the Vice President or, if there be more than one
Vice President, any Vice President designated by the Trustees shall perform all
the duties and may exercise any of the powers of the President, subject to the
control of the Trustees. Each Vice President shall perform such other duties as
may be assigned to him from time to time by the Trustees and the President.
Section 7. Powers and Duties of the Treasurer. The Treasurer shall be
tbe principal financial and accounting officer of the Trust. He shall deliver
all funds of the Trust or any Series thereof which may come into his hands to
such Custodian as the Trustees may employ pursuant to Article X of these
By-laws. He shall render a statement of condition of the finances of the Trust
or any Series thereof to the Trustees as often as they shall reguire the same
and he shall in general perform all the duties incident to the office of a
Treasurer and such other duties as from time to time may be assigned to him by
the Trustees. The Treasurer shall qive a bond for the faithful discharge of his
duties, if reguired to do so by the Trustees, in such sum and with such surety
or sureties as the Trustees shall require.
Section 8. Powers and Duties of the Secretary. The Secretary shall keep
the minutes of all meetings of the Trustees and of the Shareholders in proper
books provided for that purpose; he shall have custody of the seal of the Trust;
he shall have charge of the Share transfer books, lists and records unless the
same are in the charge of the Transfer Agent. He shall attend to the giving and
serving of all notices by the Trust in accordance with the provisions of these
By-laws and as required bylaw; and subject to these By-laws, he shall in
general perform all duties incident to the office of Secretary and such other
duties as from time to time may be assigned to him by the Trustees.
Section 9. Powers and Duties of Assistant Treasurers. In the absence or
disability of the Treasurer, any Assistant Treasurer designated by the Trustees
shall perform all the duties, and may exercise any of the powers, of the
Treasurer. Each Assistant Treasurer shall perform such other duties as from time
to time may be assigned to him by the Trustees. Each Assistant Treasurer
performing the duties and exercising the powers of the Treasurer shall give a
bond for the faithful discharge of his duties, if required so to do by the
Trustees, in such sum and with such surety or sureties as the Trustees shall
require.
Section 10. Powers and Duties of Assistant Secretaries. In the absence
or disability of the Secretary, any Assistant Secretary designated by the
Trustees shall perform all the duties, and may exercise any of the powers, of
the Secretary. Each Assistant Secretary shall perform such other duties as from
time to time may be assigned to him by the Trustees.
Section 11. Compensation of Officers and Trustees and Members of the
Advisory Board. Subject to any applicable provisions of the Declaration, the
compensation of the officers and Trustees and members of an Advisory Board shall
be fixed from time to time by the Trustees or, in the case of officers, by any
Committee or officer upon whom such power may be conferred by the Trustees. No
officer shall be prevented from receiving such compensation as such officer by
reason of the fact that he is also a Trustee.
ARTICLE VII
FISCAL YEAR
The fiscal year of the Trust shall begin on the first day of January in
each year and shall end on the last day of December in each year, provided,
however, that the Trustees may from time to time change the fiscal year. The
fiscal year of the Trust shall be the taxable year of each Series of the Trust.
ARTICLE VIII
SEAL
The Trustees may adopt a seal which shall be in such form and shall
have such inscription thereon as the Trustees may from time to time prescribe.
ARTICLE IX
SUFFICIENCY AND WAIVERS OF NOTICE
Whenever any notice whatever is required to be qiven by law, the
Declaration or these By-laws, a waiver thereof in writing, signed by the person
or persons entitled to said notice, whether before or after the time stated
therein, shall be deemed equivalent thereto. A notice shall be deemed to have
been telegraphed, cabled or wirelessed for the purposes of these By-laws when
it has been delivered to a representative of any telegraph, cable or wireless
company with instructions that it be telegraphed, cabled or wirelessed.
ARTICLE X
CUSTODY OF SECURITIES
Section 1. Employment of a Custodian. The Trust shall place and at all
times maintain in the custody of one or more Custodians (including any
sub-custodian for the Custodian) all funds, securities and similar investments
included in the Trust Property or the Trust Property allocated or belonging to
any Series thereof. The Custodian (and any sub-custodian) shall be a bank having
not less than $2,000,000 aggregate capital, surplus and undivided profits and
shall be appointed from time to time by the Trustees, who shall fix its
remuneration. The Trustees may also authorize the placement and maintenance in
the care of one or more eligible foreign custodians of all or part of the
foreign assets, securities, cash and cash eguivalents of the Trust or any Series
thereof in amounts reasonably necessary to effect the foreign investment
transactions of the Trust or such Serles, in accordance with such rules,
regulations and orders as the Commission may adopt.
Section 2. Action Upon Termination of Custodian Agreement. Upon
termination of a Custodian Agreement or inability of the Custodian to continue
to serve, the Trustees shall promptly appoint a successor Custodian, but in the
event that no successor Custodian can be found who has the required
gualifications and is willing to serve, the Trustees shall call as promptly as
possible a special meeting of the Shareholders of the Trust or the Series
thereof to determine whether the Trust or such Series shall function without a
Custodian or shall be liquidated. if so directed by vote of a majority of the
shares outstanding and entitled to vote, the Custodian shall deliver and pay
over all Trust Property or the Trust Property allocated or belonqing to such
series held by it as specified in such vote.
Section 3. Provisions of Custodian Agreement. The following provisions
shall apply to the employment of a Custodian and to any agreement entered into
with the Custodian so employed:
The Trustees shall cause to be delivered to the Custodian all
securities included in the Trust Property or the Trust Property
allocated or belonging to a Series thereof or to which the Trust or
such Series may become entitled, and shall order the same to be
delivered by the Custodian only on completion of a sale, exchange,
transfer, pledge, loan of securities to another person, or other
disposition thereof, all as the Trustees may generally or from time to
time reguire or approve or to a successor Custodian; and the Trustees
shall cause all funds included in the Trust Property or the Trust
Property allocated or belonging to a Series thereof or to which it may
become entitled to be paid to the Custodian, and shall order the same
disbursed only for investment against delivery of the securities
acguired, or the return of cash held as collateral for loans of
portfolio securities, or in payment of expenses, includinq management
or advisory fees, and liabilities of the Trust or such Series,
including distributions to Shareholders, or for other proper Trust
purposes, or to a successor Custodian. Notwithstanding anything to the
contrary in these By-laws, upon receipt of proper instructlons, which
may be standing instructions, the Custodian may deliver funds in the
followinq cases: In connection with repurchase agreements, the
Custodian shall transmit, prior to receipt on behalf of the Trust or
Series thereof of any securities or other property, funds from the
custodian account of the Trust or such Series to a special custodian
approved by the Trustees of the Trust, which funds shall be used to pay
for securities to be purchased by the Trust or such Series subject to
the obligation of the Trust or such Series to sell and the seller's
obligation to repurchase such securities. In such case, the securities
shall be held in the custody of the special custodian. In connection
with the purchase or sale of futures contracts, the Custodian shall
transmit, prior to receipt on behalf of the Trust or a Series of any
securities or other property, funds from the custodian account of the
Trust or Series in order to furnish to and maintain funds with brokers
as margin to guarantee the performance of the obligations of the Trust
or Series under such futures contracts in accordance with the
applicable reguirements of commodities exchanges and brokers.
Section 4. Central Certificate System. Subject to such rules,
regulations and orders as the Commission may adopt, the Trustees may direct the
Custodian to deposit all or any part of the securities owned by the Trust or a
Series thereof in a system for the central handling of securities established by
a national securities exchange or a national securities association registered
with the Commission under the Securities Exchange Act of 1934, or such other
person as may be permitted by the Commission, or otherwise in accordance with
the 1940 Act, pursuant to which system all securities of any particular class or
series of any issuer deposited within the system are treated as fungible and may
be transferred or pledged by bookkeeping entry without physical delivery of such
securities, provided that all such deposits shall be subject to withdrawal only
upon the order of the Trust or such Series.
Section 5. Acceptance of Receipts in Lieu of Certificates. Subject to
such rules, regulations and orders as the Commission may adopt, the Trustees may
direct the Custodian to accept written receipts or other written evidences
indicating purchases of securities held in book-entry form in the Federal
Reserve System in accordance with regulations promulgated by the Board of
Governors of the Federal Reserve System and the local Federal Reserve Banks in
lieu of receipt of certificates representing such securities.
ARTICLE XI
AMENDMENTS
These By-laws, or any of them, may be altered, amended or repealed, or
new By-laws may be adopted by (a) vote of a majority of the Shares outstanding
and entitled to vote or (b) by the Trustees, provided, however, that no By-law
may be amended, adopted or repealed by the Trustees if such amendment, adoption
or repeal requires, pursuant to law, the Declaration or these By-laws, a vote of
the Shareholders.
ARTICLE XII
MISCELLANEOUS
(A) Except as hereinafter provided, no officer or Trustee of the Trust
and no partner, officer, director or shareholder of any Investment Adviser or of
the Distributor, and no Investment Adviser or Distributor, shall take long or
short positions in the securities issued by the Trust or any Series thereof.
(1) The foregoing provisions shall not prevent the Distributor
from purchasing Shares from the Trust or any Series if such purchases
are limited (except for reasonable allowances for clerical errors,
delays and errors of transmission and cancellation of orders) to
purchases for the purpose of filling orders for such Shares
received by the Distributor, and provided that orders to purchase
Shares of the Trust or any Series thereof are entered with the Trust or
any such Series or the Custodian promptly upon receipt by the
Distributor of purchase orders for such Shares, unless the Distributor
is otherwise instructed by its customer.
(2) The foregoing provision shall not prevent the Distributor
from purchasing Shares of the Trust or any Series thereof as agent for
the account of the Trust or any Series.
(3) The foregoing provisions shall not prevent the purchase
from the Trust or any Series thereof or the Distributor of Shares
issued by the Trust or any such Series, by any officer or Trustee of
the Trust or by any partner, officer, director or shareholder of an
Investment Adviser or of the Distributor at the price available to the
public generally at the time of such purchase, or as described in the
then currrently effective Prospectus of the Trust.
(4) The foregoing shall not prevent any Investment Adviser, or
any affiliate of any Investment Adviser, the Trust or any Series
thereof from purchasing Shares prior to the effectiveness of the first
registration statement relating to the Shares under the Securities Act
of 1933.
(B) Neither the Trust nor any Series thereof shall lend assets of the
Trust or of such Series to any officer or Trustee of the Trust, to any
Investment Adviser, the Distributor, or to any partner, officer, director or
shareholder of, or person financially interested in, any Investment Adviser or
the Distributor.
(C) The Trust shall not impose any restrictions upon the transfer of
the Shares of the Trust or any Series thereof except as provided in the
Declaration or as may be required to comply with federal or state securities
laws, but this requirement shall not prevent the charging of customary transfer
agent fees.
(D) The Trust shall not permit any officer or Trustee of the Trust, or
any partner, officer or director of any Investment Adviser or Distributor to
deal for or on behalf of the Trust or a Series thereof with himself as principal
or agent, or with any partnership, association or corporation in which he has a
financial interest; provided that the foregoing provisions shall not prevent (a)
officers and Trustees of the Trust or partners, officers or directors of an
Investment Adviser or Distributor from buying, holding or selling Shares of the
Trust or a Series thereof, or from being partners, officers or directors
or otherwise financially interested in an Investment Adviser or Distributor; (b)
purchases or sales of securities or other property by the Trust or a Series
thereof from or to an affiliated person or to the Investment Adviser or
Distributor if such transaction is not prohibited by or is exempt from the
applicable provisions of the 1940 Act; (c) purchases of investments by any
Series or the Trust or sales of investments owned by the Trust or a Series
thereof through a security dealer who is, or one or more of whose partners,
shareholders, officers or directors is, an officer or Trustee of the Trust, or a
partner, officer or director of any Investment Adviser or Distributor, if such
transactions are handled in the capacity of broker only and commissions charged
do not exceed customary brokerage charges for such services; (d) employment of a
legal counsel, registrar, Transfer Agent, dividend disbursing agent or Custodian
who is, or has a partner, shareholder, officer, or director who is, an officer
or Trustee of the Trust, or a partner, officer or director of any Investment
Adviser or Distributor, if only customary fees are charged for services to the
Trust or Series thereof; (e) sharing statistical research, legal and management
expenses and office hire and expenses with any other investment company in which
an officer or Trustee of the Trust, or a partner, officer or director of any
Investment Adviser or Distributor, is an officer or director or otherwise
financially interested.
END OF BY-LAWS
EXHIBIT 99.5
INVESTMENT ADVISORY AND MANAGEMENT AGREEMENT
AGREEMENT made the 19th day of August, 1993, by and between KEYSTONE
AMERICA WORLD BOND FUND, a Massachusetts business trust (the "Fund"), and
KEYSTONE CUSTODIAN FUNDS, INC., a Delaware corporation (the "Adviser").
WHEREAS, the Fund and the Adviser wish to enter into an Agreement setting
forth the terms on which the Adviser will perform certain services for the Fund.
THEREFORE, in consideration of the promises and the mutual agreements
hereinafter contained, the Fund and the Adviser agree as follows:
1. The Fund hereby employs the Adviser to manage and administer the
operation of the Fund, to supervise the provision of services to the Fund by
others, and to manage the investment and reinvestment of the assets of the Fund
in conformity with the Fund's investment objectives and restrictions as may be
set forth from time to time in the Fund's then current prospectus and statement
of additional information, if any, and other governing documents, all subject to
the supervision of the Board of Trustees of the Fund, for the period and on the
terms set forth in this Agreement. The Adviser hereby accepts such employment
and agrees during such period, at its own expense, to render the services and to
assume the obligations set forth herein, for the compensation provided herein.
The Adviser shall for all purposes herein be deemed to be an independent
contractor and shall, unless otherwise expressly provided or authorized, have no
authority to act for or represent the Fund in any way or otherwise be deemed an
agent of the Fund.
2. The Adviser shall place all orders for the purchase and sale of portfolio
securities for the account of the Fund with broker-dealers selected by the
Adviser. In executing portfolio transactions and selecting broker-dealers, the
Adviser will use its best efforts to seek best execution on behalf of the Fund.
In assessing the best execution available for any transaction, the Adviser shall
consider all factors it deems relevant, including the breadth of the market in
the security, the price of the security, the financial condition and execution
capability of the broker-dealer, and the reasonableness of the commission, if
any (all for the specific transaction and on a continuing basis). In evaluating
the best execution available, and in selecting the broker-dealer to execute a
particular transaction, the Adviser may also consider the brokerage and research
services (as those terms are used in Section 28(e) of the Securities Exchange
Act of 1934 (the "1934 Act") provided to the Fund and/or other accounts over
which the Adviser or an affiliate of the Adviser exercises investment
discretion. The Adviser is authorized to pay a broker-dealer who provides such
brokerage and research services a commission for executing a portfolio
transaction for the Fund which is in excess of the amount of commission another
broker-dealer would have charged for effecting that transaction if, but only if,
the Adviser determines in good faith that such commission was reasonable in
relation to the value of the brokerage and research services provided by such
broker-dealer viewed in terms of that particular transaction or in terms of all
of the accounts over which investment discretion is so exercised.
3. The Adviser, at its own expense, shall furnish to the Fund office space
in the offices of the Adviser or in such other place as may be agreed upon by
the parties from time to time, all necessary office facilities, equipment and
personnel in connection with its services hereunder, and shall arrange, if
desired by the Fund, for members of the Adviser's organization to serve without
salaries from the Fund as officers or, as may be agreed from time to time, as
agents of the Fund. The Adviser assumes and shall pay or reimburse the Fund for:
(1) the compensation (if any) of the Trustees of the Fund who are affiliated
with the Adviser or with its affiliates and of all officers of the Fund as such,
and (2) all expenses of the Adviser incurred in connection with its services
hereunder. The Fund assumes and shall pay all other expenses of the Fund,
including, without limitation: (1) all charges and expenses of any custodian or
depository appointed by the Fund for the safekeeping of its cash, securities and
other property; (2) all charges and expenses for bookkeeping and auditors; (3)
all charges and expenses of any transfer agents and registrars appointed by the
Fund; (4) all fees of all Trustees of the Fund who are not affiliated with the
Adviser or any of its affiliates; (5) all broker's fees, expenses and
commissions and issue and transfer taxes chargeable to the Fund in connection
with transactions involving securities and other property to which the Fund is a
party; (6) all costs and expenses of distribution of its shares incurred
pursuant to a Plan of Distribution adopted under Rule 12b-1 under the Investment
Company Act of 1940 ("1940 Act"); (7) all taxes and business trust fees payable
by the Fund to Federal, state or other governmental agencies; (8) all costs of
certificates representing shares of the Fund; (9) all fees and expenses involved
in registering and maintaining registrations of the Fund and of its shares with
the Securities and Exchange Commission (the "Commission") and registering or
qualifying its shares under state or other securities laws, including, without
limitation, the preparation and printing of registration statements,
prospectuses and statements of additional information for filing with the
Commission and other authorities; (10) expenses of preparing, printing and
mailing prospectuses and statements of additional information to shareholders of
the Fund; (11) all expenses of shareholders' and Trustees' meetings and of
preparing, printing and mailing notices, reports and proxy materials to
shareholders of the Fund; (12) all charges and expenses of legal counsel for the
Fund and for Trustees of the Fund in connection with legal matters relating to
the Fund, including, without limitation, legal services rendered in connection
with the Fund's existence, business trust and financial structure and relations
with its shareholders, registrations and qualifications of securities under
Federal, state and other laws, issues of securities, expenses which the Fund has
herein assumed, whether customary or not, and extraordinary matters, including,
without limitation, any litigation involving the Fund, its Trustees, officers,
employees or agents; (13) all charges and expenses of filing annual and other
reports with the Commission and other authorities; and (14) all extraordinary
expenses and charges of the Fund. In the event that the Adviser provides any of
these services or pays any of these expenses, the Fund will promptly reimburse
the Adviser therefor.
The services of the Adviser to the Fund hereunder are not to be deemed
exclusive, and the Adviser shall be free to render similar services to others.
4. As compensation for the Adviser's services to the Fund during the period
of this Agreement, the Fund will pay to the Adviser a fee at the annual rate of:
AGGREGATE NET ASSET VALUE
MANAGEMENT OF THE SHARES
FEE INCOME OF THE FUND
- ------------------------------------------------------------------------------
1.5% of
Gross Income, plus
0.50% of the first $ 500,000,000, plus
0.45% of the next $ 500,000,000, plus
0.40% of amounts over $1,000,000,000
computed as of the close of business on each business day.
A pro rata portion of the fee shall be payable in arrears at the end of each
day or calendar month as the Adviser may from time to time specify to the Fund.
If and when this Agreement terminates, any compensation payable hereunder for
the period ending with the date of such termination shall be payable upon such
termination. Amounts payable hereunder shall be promptly paid when due.
5. The Adviser shall not be liable for any error of judgment or mistake of
law or for any loss suffered by the Fund in connection with the performance of
this Agreement, except a loss resulting from the Adviser's willful misfeasance,
bad faith, gross negligence or from reckless disregard by it of its obligations
and duties under this Agreement. Any person, even though also an officer,
Director, partner, employee, or agent of the Adviser, who may be or become an
officer, Trustee, employee or agent of the Fund, shall be deemed, when rendering
services to the Fund or acting on any business of the Fund (other than services
or business in connection with the Adviser's duties hereunder), to be rendering
such services to or acting solely for the Fund and not as an officer, Director,
partner, employee, or agent or one under the control or direction of the Adviser
even though paid by it. The Fund agrees to indemnify and hold the Adviser
harmless from all taxes, charges, expenses, assessments, claims and liabilities
(including, without limitation, liabilities arising under the Securities Act of
1933, the 1934 Act, the 1940 Act, and any state and foreign securities and blue
sky laws, as amended from time to time) and expenses, including (without
limitation) attorneys' fees and disbursements, arising directly or indirectly
from any action or thing which the Adviser takes or does or omits to take or do
hereunder provided that the Adviser shall not be indemnified against any
liability to the Fund or to its shareholders (or any expenses incident to such
liability) arising out of a breach of fiduciary duty with respect to the receipt
of compensation for services, willful misfeasance, bad faith, or gross
negligence on the part of the Adviser in the performance of its duties, or from
reckless disregard by it of its obligations and duties under this Agreement.
6. The Fund shall cause its books and accounts to be audited at least once
each year by a reputable independent public accountant or organization of public
accountants who shall render a report to the Fund.
7. Subject to and in accordance with the Declaration of Trust of the Fund
and the Certificate of Incorporation of the Adviser, it is understood that
Trustees, officers, agents and shareholders of the Fund are or may be interested
in the Adviser (or any successor thereof) as Directors and officers of the
Adviser or its affiliates, as stockholders of Keystone Group, Inc. or otherwise;
that Directors, officers and agents of the Adviser and its affiliates, or
stockholders of Keystone Group, Inc., are or may be interested in the Fund as
Trustees, officers, shareholders or otherwise; that the Adviser (or any such
successor) is or may be interested in the Fund as shareholder, or otherwise, and
that the effect of any such adverse interests shall be governed by said
Declaration of Trust of the Fund and Certificate of Incorporation of the
Adviser.
8. This Agreement shall continue in effect after July 1, 1994 only so long
as (1) such continuance is specifically approved at least annually by the Board
of Trustees of the Fund or by a vote of a majority of the outstanding voting
securities of the Fund, and (2) such renewal has been approved by the vote of a
majority of Trustees of the Fund who are not interested persons, as that term is
defined in the 1940 Act, of the Adviser or of the Fund, cast in person at a
meeting called for the purpose of voting on such approval.
9. On sixty days' written notice to the Adviser, this Agreement may be
terminated at any time without the payment of any penalty by the Board of
Trustees of the Fund or by vote of the holders of a majority of the outstanding
voting securities of the Fund; and on sixty days' written notice to the Fund,
this Agreement may be terminated at any time without the payment of any penalty
by the Adviser. This Agreement shall automatically terminate upon its assignment
(as that term is defined in the 1940 Act). Any notice under this Agreement shall
be given in writing, addressed and delivered, or mailed postage prepaid, to the
other party at the main office of such party.
10. This Agreement may be amended at any time by an instrument in writing
executed by both parties hereto or their respective successors, provided that
with regard to amendments of substance such execution by the Fund shall have
been first approved by the vote of the holders of a majority of the outstanding
voting securities of the Fund and by the vote of a majority of Trustees of the
Fund who are not interested persons (as that term is defined in the 1940 Act) of
the Adviser or of any predecessor of the Adviser, or of the Fund, cast in person
at a meeting called for the purpose of voting on such approval. A "majority of
the outstanding voting securities of the Fund" shall have, for all purposes of
this Agreement, the meaning provided therefor in the 1940 Act.
11. Any compensation payable to the Adviser hereunder for any period other
than a full year shall be proportionately adjusted.
12. The provisions of this Agreement shall be governed, construed and
enforced in accordance with the laws of The Commonwealth of Massachusetts.
13. A copy of the Declaration of Trust of the Fund is on file with the
Secretary of The Commonwealth of Massachusetts. This instrument is executed on
behalf of the Trustees of the Fund as trustees and not individually and the
obligations of this instrument are not binding upon the Trustees or holders of
shares of the Fund individually but are binding only upon the assets and
property of the Fund.
IN WITNESS WHEREOF, the parties hereto have duly executed this Agreement on
the day and year first above written.
KEYSTONE AMERICA WORLD BOND FUND
By: /s/ Ralph J. Spuehler, Jr.
-----------------------------------------
Title: Treasurer
KEYSTONE CUSTODIAN FUNDS, INC.
By: /s/ [illegible]
-----------------------------------------
Title: Sr. Vice President
EXHIBIT 99.6A
PRINCIPAL UNDERWRITING AGREEMENT
KEYSTONE AMERICA WORLD BOND FUND
AGREEMENT made this 19th day of August, 1993 by and between Keystone
America World Bond Fund, a Massachusetts business trust, ("Fund"), and Keystone
Distributors, Inc., a Delaware corporation ("Principal Underwriter").
It is hereby mutually agreed as follows:
1. The Fund hereby appoints Principal Underwriter a principal
underwriter of the shares of beneficial interest of the Fund ("Shares") as an
independent contractor upon the terms and conditions hereinafter set forth.
Except as the Fund may from time to time agree, Principal Underwriter will act
as agent for the Fund and not as principal.
2. Principal Underwriter will use its best efforts to find purchasers
for the Shares, to promote distribution of the Shares and may obtain orders from
brokers, dealers or other persons for sales of Shares to them. No such dealer,
broker or other person shall have any authority to act as agent for the Fund;
such dealer, broker or other person shall act only as principal in the sale of
Shares.
3. Sales of Shares by Principal Underwriter shall be at the applicable
public offering price determined in the manner set forth in the prospectus
and/or statement of additional information of the Fund current at the time of
the Fund's acceptance of the order for Shares; provided that Principal
Underwriter also shall have the right to sell shares at net asset value, if such
sale is permissible under and consistent with applicable statutes, rules,
regulations and orders. All orders shall be subject to acceptance by the Fund
and the Fund reserves the right in its sole discretion to reject any order
received. The Fund shall not be liable to anyone for failure to accept any
order.
4. On all sales of Shares, the Fund shall receive the current net asset
value and Principal Underwriter shall be entitled to receive payments in
accordance with the 12b-1 Plan and as set forth in the then current prospectus
and/or statement of additional information of the Fund and to receive the sales
charges, including contingent deferred sales charges, as set forth in the then
current prospectus and/or statement of additional information of the Fund.
Principal Underwriter may reallow all or a part of the 12b-1 payments and the
sales charges to such brokers, dealers or other persons as Principal Underwriter
may determine.
5. Payment to the Fund for Shares shall be in New York or Boston
Clearing House funds received by Principal Underwriter within ten (10) business
days after notice of acceptance of the purchase order and the amount of the
applicable public offering price has been given to the purchaser. If such
payment is not received within such ten-day period, the Fund reserves the right,
without further notice, forthwith to cancel its acceptance of any such order.
The Fund shall pay such issue taxes as may be required by law in connection with
the issue of the Shares.
6. Principal Underwriter shall not make in connection with any sale or
solicitation of a sale of the Shares any representations concerning the Shares
except those contained in the then current prospectus and/or statement of
additional information covering the Shares and in printed information approved
by the Fund as information supplemental to such prospectus and statement of
additional information. Copies of the then current prospectus and statement of
additional information and any such printed supplemental information will be
supplied by the Fund to Principal Underwriter in reasonable quantities upon
request.
7. Principal Underwriter agrees to comply with the Rules of Fair
Practice of the National Association of Securities Dealers, Inc.
8. The Fund appoints Principal Underwriter as its agent to accept
orders for redemptions and repurchases of Shares at values and in the manner
determined in accordance with the then current prospectus and/or statement of
additional information of the Fund.
9. The Fund agrees to indemnify and hold harmless the Principal
Underwriter, its officers and Directors and each person, if any, who controls
the Principal Underwriter within the meaning of Section 15 of the Securities Act
of 1933 ("1933 Act"), against any losses, claims, damages, liabilities and
expenses (including the cost of any legal fees incurred in connection therewith)
which the Principal Underwriter, its officers, Directors or any such controlling
person may incur under the 1933 Act, under any other statute, at common law or
otherwise, arising out of or based upon
a) any untrue statement or alleged untrue statement of a
material fact contained in the Fund's registration statement,
prospectus or statement of additional information (including amendments
and supplements thereto), or
b) any omission or alleged omission to state a material fact
required to be stated in the Fund's registration statement, prospectus
or statement of additional information necessary to make the statements
therein not misleading, provided, however, that insofar as losses,
claims, damages, liabilities or expenses arise out of or are based upon
any such untrue statement or omission or alleged untrue statement or
omission made in reliance and in conformity with information furnished
to the Fund by the Principal Underwriter for use in the Fund's
registration statement, prospectus or statement of additional
information, such indemnification is not applicable. In no case shall
the Fund indemnify the Principal Underwriter or its controlling person
as to any amounts incurred for any liability arising out of or based
upon any action for which the Principal Underwriter, its officers and
Directors or any controlling person would otherwise be subject to
liability by reason of willful misfeasance, bad faith, or gross
negligence in the performance of its duties or by reason of the
reckless disregard of its obligations and duties under this Agreement.
10. The Principal Underwriter agrees to indemnify and hold harmless the
Fund, its officers and Trustees and each person, if any, who controls the Fund
within the meaning of Section 15 of the 1933 Act against any loss, claims,
damages, liabilities and expenses (including the cost of any legal fees incurred
in connection therewith) which the Fund, its officers, Trustees or any such
controlling person may incur under the 1933 Act, under any other statute, at
common law or otherwise arising out of the acquisition of any Shares by any
person which
a) may be based upon any wrongful act by the Principal
Underwriter or any of its employees or representatives, or
b) may be based upon any untrue statement or alleged untrue
statement of a material fact contained in the Fund's registration
statement, prospectus or statement of additional information (including
amendments and supplements thereto), or any omission or alleged
omission to state a material fact required to be stated therein or
necessary to make the statements therein not misleading, if such
statement or omission was made in reliance upon information furnished
or confirmed in writing to the Fund by the Principal Underwriter.
11. The Fund agrees to execute such papers and to do such acts and
things as shall from time to time be reasonably requested by Principal
Underwriter for the purpose of qualifying the Shares for sale under the
so-called "blue sky" laws of any state or for registering Shares under the 1933
Act or the Fund under the Investment Company Act of 1940 ("1940 Act"). Principal
Underwriter shall bear the expense of preparing, printing and distributing
advertising, sales literature, prospectuses, and statements of additional
information. The Fund shall bear the expense of registering Shares under the
1933 Act and the Fund under the 1940 Act, qualifying Shares for sale under the
so-called "blue sky" laws of any state, the preparation and printing of
prospectuses, statements of additional information and reports required to be
filed with the Securities and Exchange Commission and other authorities, the
preparation, printing and mailing of prospectuses and statements of additional
information to shareholders of the Fund, and the direct expenses of the issue of
Shares.
12. To the extent required by the 12b-1 Plan, Principal Underwriter
shall provide to the Board of Trustees of the Fund in connection with the 12b-1
Plan, not less than quarterly, a written report of the amounts expended pursuant
to such 12b-1 Plan and the purpose for which such expenditures were made.
13. The term of this agreement shall begin on the date hereof and,
unless sooner terminated or continued as provided below, shall expire after two
years. This agreement shall continue in effect after such term if its
continuance is specifically approved by a majority of the Trustees of the Fund
and a majority of the 12b-1 Trustees referred to in the 12b-1 Plan of the Fund
("Rule 12b-1 Trustees") at least annually in accordance with the 1940 Act and
the rules and regulations thereunder.
This agreement may be terminated at any time, without payment of any
penalty, by vote of a majority of the Rule 12b-1 Trustees or by a vote of a
majority of the Fund's outstanding shares on not more than sixty days written
notice to any other party to the agreement; and shall terminate automatically in
the event of its assignment (as defined in the 1940 Act).
14. This agreement shall be construed in accordance with the laws of
The Commonwealth of Massachusetts. All sales hereunder are to be made, and title
to the Shares shall pass, in Boston, Massachusetts.
15. The Fund is a Massachusetts business trust established under a
Declaration of Trust, as it may be amended from time to time. The obligations of
the Fund are not personally binding upon, nor shall recourse be had against the
private property of any of the Trustees, shareholders, officers, employees or
agents of the Fund, but only the property of the Fund shall be bound.
IN WITNESS WHEREOF, the parties hereto have caused this agreement to be
executed by their respective officers thereunto duly authorized at Boston,
Massachusetts, on the day and year first written above.
KEYSTONE AMERICA WORLD BOND
FUND
By: /s/ Illegible
--------------------------
Title: Vice President
KEYSTONE DISTRIBUTORS, INC.
By: /s/ Illegible
--------------------------
Title: Sr. Vice President
#10160108
<PAGE>
FIRST AMENDMENT
TO
PRINCIPAL UNDERWRITING AGREEMENT
OF
KEYSTONE WORLD BOND FUND
FIRST AMENDMENT (the "Amendment") made as of the 31st day of May 1995
to AGREEMENT (the "Agreement") made the 19th day of August 1993 by and between
Keystone World Bond Fund, a Massachusetts business trust, ("Fund"), and Keystone
Investment Distributors Company, a Delaware corporation (the "Principal
Underwriter").
1. This Amendment is made by the Fund, individually and/or on behalf of its
series if any, referred to above in the title of this Amendment, to which
series, if any, this Amendment shall relate, as applicable (the "Fund").
The Fund and the Principal Underwriter mutually agree that Section 1 of the
Agreement is amended as follows:
" 1. The Fund hereby appoints the Principal Underwriter a principal
underwriter of the Class A and Class C shares of beneficial interest
of the Fund ("Shares") as an independent contractor upon the terms and
conditions hereinafter set forth. Except as the Fund may from time to
time agree, the Principal Underwriter will act as agent for the Fund
and not as principal."
2. In all other respects the Agreement is unchanged.
IN WITNESS WHEREOF, the parties hereto have caused this agreement to be
executed by their respective officers thereunto duly authorized at Boston,
Massachusetts on the day and year first written above.
KEYSTONE WORLD BOND FUND
By: /s/
---------------------------------------
Title:
KEYSTONE INVESTMENT DISTRIBUTORS COMPANY
By: /s/
---------------------------------------
Title:
<PAGE>
PRINCIPAL UNDERWRITING AGREEMENT
FOR CLASS B-1 SHARES
OF
KEYSTONE WORLD BOND FUND
AGREEMENT made this 31st day of May 1995 by and between Keystone World
Bond Fund, a Massachusetts business trust, ("Fund"), and Keystone Investment
Distributors Company, a Delaware corporation (the "Principal Underwriter").
The Fund, individually and/or on behalf of its series, if any, referred to
above in the title of this Agreement, to which series, if any, this Agreement
shall relate, as applicable (the Fund ), may act as the distributor of certain
securities of which it is the issuer pursuant to Rule 12b-1 under the Investment
Company Act of 1940 (the 1940 Act ). Accordingly, it is hereby mutually agreed
as follows:
1. The Fund hereby appoints the Principal Underwriter a principal
underwriter of the Class B-1 shares of beneficial interest of the Fund ("B-1
Shares") as an independent contractor upon the terms and conditions hereinafter
set forth. The general term "Shares" as used herein has the same meaning as is
provided therefor in Schedule I hereto. Except as the Fund may from time to time
agree, the Principal Underwriter will act as agent for the Fund and not as
principal.
2. The Principal Underwriter will use its best efforts to find purchasers
for the B-1 Shares and to promote distribution of the B-1 Shares and may obtain
orders from brokers, dealers or other persons for sales of B-1 Shares to them.
No such dealer, broker or other person shall have any authority to act as agent
for the Fund; such dealer, broker or other person shall act only as principal in
the sale of B-1 Shares.
3. Sales of B-1 Shares by Principal Underwriter shall be at the public
offering price determined in the manner set forth in the prospectus and/or
statement of additional information of the Fund current at the time of the
Fund's acceptance of the order for B-2 Shares. All orders shall be subject to
acceptance by the Fund and the Fund reserves the right in its sole discretion to
reject any order received. The Fund shall not be liable to anyone for failure to
accept any order.
4. On all sales of B-1 Shares the Fund shall receive the current net asset
value. The Fund shall pay the Principal Underwriter Distribution Fees (as
defined in Section 14 hereof), as commissions for the sale of B-1 Shares and
other Shares, which shall be paid in conjunction with distribution fees paid to
the Principal Underwriter by other classes of Shares of the Fund to the extent
required in order to comply with Section 14 hereof, and shall pay over to the
Principal Underwriter CDSCs (as defined in Section 14 hereof) as set forth in
the Fund's current prospectus and statement of additional information, and as
required by Section 14 hereof. The Principal Underwriter shall also receive
payments consisting of shareholder service fees ("Service Fees") at the rate of
.25% per annum of the average daily net asset value of the Class B-1 Shares. The
Principal Underwriter may allow all or a part of said Distribution Fees and
CDSCs received by it (not paid to others as hereinafter provided) to such
brokers, dealers or other persons as Principal Underwriter may determine.
5. Payment to the Fund for B-1 Shares shall be in New York or Boston
Clearing House funds received by the Principal Underwriter within three business
days after notice of acceptance of the purchase order and the amount of the
applicable public offering price has been given to the purchaser. If such
payment is not received within such period, the Fund reserves the right, without
further notice, forthwith to cancel its acceptance of any such order. The Fund
shall pay such issue taxes as may be required by law in connection with the
issue of the B-1 Shares.
6. The Principal Underwriter shall not make in connection with any sale or
solicitation of a sale of the B-1 Shares any representations concerning the B-1
Shares except those contained in the then current prospectus and/or statement of
additional information covering the Shares and in printed information approved
by the Fund as information supplemental to such prospectus and statement of
additional information. Copies of the then current prospectus and statement of
additional information and any such printed supplemental information will be
supplied by the Fund to the Principal Underwriter in reasonable quantities upon
request.
7. The Principal Underwriter agrees to comply with the Rules of Fair
Practice of the National Association of Securities Dealers, Inc. (as defined in
the Purchase and Sale Agreement, dated as of May 31, 1995 (the Purchase
Agreement ), between the Principal Underwriter, Citibank, N.A. and Citicorp
North America, Inc., as agent (the "Rules of Fair Practice")).
8. The Fund appoints the Principal Underwriter as its agent to accept
orders for redemptions and repurchases of B-1 Shares at values and in the manner
determined in accordance with the then current prospectus and/or statement of
additional information of the Fund.
9. The Fund agrees to indemnify and hold harmless the Principal
Underwriter, its officers and Directors and each person, if any, who controls
the Principal Underwriter within the meaning of Section 15 of the Securities Act
of 1933 ("1933 Act"), against any losses, claims, damages, liabilities and
expenses (including the cost of any legal fees incurred in connection therewith)
which the Principal Underwriter, its officers, Directors or any such controlling
person may incur under the 1933 Act, under any other statute, at common law or
otherwise, arising out of or based upon
a. any untrue statement or alleged untrue statement of a material fact
contained in the Fund's registration statement, prospectus or
statement of additional information (including amendments and
supplements thereto) or
b. any omission or alleged omission to state a material fact required to
be stated in the Fund's registration statement, prospectus or
statement of additional information necessary to make the statements
therein not misleading, provided, however, that insofar as losses,
claims, damages, liabilities or expenses arise out of or are based
upon any such untrue statement or omission or alleged untrue statement
or omission made in reliance and in conformity with information
furnished to the Fund by the Principal Underwriter for use in the
Fund's registration statement, prospectus or statement of additional
information, such indemnification is not applicable. In no case shall
the Fund indemnify the Principal Underwriter or its controlling person
as to any amounts incurred for any liability arising out of or based
upon any action for which the Principal Underwriter, its officers and
Directors or any controlling person would otherwise be subject to
liability by reason of willful misfeasance, bad faith, or gross
negligence in the performance of its duties or by reason of the
reckless disregard of its obligations and duties under this Agreement.
10. The Principal Underwriter agrees to indemnify and hold harmless the
Fund, its officers and Trustees and each person, if any, who controls the Fund
within the meaning of Section 15 of the 1933 Act against any loss, claims,
damages, liabilities and expenses (including the cost of any legal fees incurred
in connection therewith) which the Fund, its officers, Directors or any such
controlling person may incur under the 1933 Act, under any other statute, at
common law or otherwise arising out of the acquisition of any Shares by any
person which
(a) may be based upon any wrongful act by the Principal Underwriter or any
of its employees or representatives, or
(b) may be based upon any untrue statement or alleged untrue statement of
a material fact contained in the Fund's registration statement,
prospectus or statement of additional information (including
amendments and supplements thereto), or any omission or alleged
omission to state a material fact required to be stated therein or
necessary to make the statements therein not misleading, if such
statement or omission was made in reliance upon information furnished
or confirmed in writing to the Fund by the Principal Underwriter.
11. The Fund agrees to execute such papers and to do such acts and things
as shall from time to time be reasonably requested by the Principal Underwriter
for the purpose of qualifying the B-1 Shares for sale under the so-called "blue
sky" laws of any state or for registering B-1 Shares under the 1933 Act or the
Fund under the Investment Company Act of 1940 ("1940 Act"). The Principal
Underwriter shall bear the expenses of preparing, printing and distributing
advertising, sales literature, prospectuses, and statements of additional
information. The Fund shall bear the expense of registering B-1 Shares under the
1933 Act and the Fund under the 1940 Act, qualifying B-1 Shares for sale under
the so-called "blue sky" laws of any state, the preparation and printing of
prospectuses, statements of additional information and reports required to be
filed with the Securities and Exchange Commission and other authorities, the
preparation, printing and mailing of prospectuses and statements of additional
information to holders of B-1 Shares, and the direct expenses of the issue of
B-1 Shares.
12. The Principal Underwriter shall, at the request of the Fund, provide to
the Board of Trustees or Directors (together herein called the Directors ) of
the Fund in connection with sales of B-1 Shares not less than quarterly a
written report of the amounts received from the Fund therefor and the purpose
for which such expenditures by the Fund were made.
13. The term of this Agreement shall begin on the date hereof and, unless
sooner terminated or continued as provided below, shall expire after one year.
This Agreement shall continue in effect after such term if its continuance is
specifically approved by a majority of the outstanding voting securities of
Class B-1 of the Fund or by a majority of the Directors of the Fund and a
majority of the Directors who are not parties to this Agreement or "interested
persons", as defined in the Investment Company Act of 1940 (the 1940 Act ), of
any such party and who have no direct or indirect financial interest in the
operation of the Fund's Rule 12b-1 plan for Class B-1 Shares or in any
agreements related to the plan at least annually in accordance with the 1940 Act
and the rules and regulations thereunder.
This Agreement may be terminated at any time, without payment of any
penalty, by vote of a majority of the Directors of the Fund, or a majority of
such Directors who are not parties to this Agreement or "interested persons", as
defined in the 1940 Act, of any such party and who have no direct or indirect
financial interest in the operation of the Fund's Rule 12b-1 plan for Class B-1
Shares or in any agreement related to the plan or by a vote of a majority of the
outstanding voting securities of Class B-1 on not more than sixty days written
notice to any other party to the agreement; and shall terminate automatically in
the event of its assignment (as defined in the 1940 Act), which shall not
include assignment of the Principal Underwriter's (as hereinafter defined)
provided for hereunder and/or rights related to such Allocable Portions.
14. The provisions of this Section 14 shall be applicable to the extent
necessary to enable the Fund to comply with the obligation of the Fund to pay
the Principal Underwriter its Allocable Portion of Distribution Fees paid in
respect of Shares while the Fund is required to do so pursuant the Principal
Underwriting Agreement, of even date herewith, in respect of Class B-2 Shares,
and shall remain in effect so long as any payments are required to be made by
the Fund pursuant to the irrevocable payment instruction (as defined in the
Purchase Agreement (the Irrevocable Payment Instruction )).
14.1 The Fund shall pay to the Principal Underwriter the Principal
Underwriter's Allocable Portion (as hereinafter defined) of a fee (the
"Distribution Fee") at the rate of .75% per annum of the average daily net asset
value of the Shares, subject to the limitation on the maximum aggregate amount
of such fees under the Rules of Fair Practice as applicable to such Distribution
Fee on the date hereof.
14.2 The Principal Underwriter's Allocable Portion of Distribution Fees
paid by the Fund in respect of Shares shall be equal to the portion of the Asset
Based Sales Charge allocable to Distributor Shares (as defined in Schedule I
hereto to this Agreement) in accordance with Schedule I hereto. The Fund agrees
to cause its transfer agent to maintain the records and arrange for the payments
on behalf of the Fund at the times and in the amounts and to the accounts
required by Schedule I hereto, as the same may be amended from time to time. It
is acknowledged and agreed that by virtue of the operation of Schedule I hereto
the Principal Underwriter's Allocable Portion of Distribution Fees paid by the
Fund in respect of Shares, may, to the extent provided in Schedule I hereto,
take into account Distribution Fees payable by the Fund in respect of other
existing and future classes and/or sub-classes of shares of the Fund which would
be treated as "Shares" under Schedule I hereto. The Fund will limit amounts paid
to any subsequent principal underwriters of Shares to the portion of the Asset
Based Sales Charge paid in respect of Shares which is allocable to
Post-distributor Shares (as defined in Schedule I hereto) in accordance with
Schedule I hereto. The Fund's payments to the Principal Underwriter in
consideration of its services in connection with the sale of B-1 Shares shall be
the Distribution Fees attributable to B-1 Shares which are Distributor Shares
(as defined in Schedule I hereto) and all other amounts constituting the
Principal Underwriter's Allocable Portion of Distribution Fees shall be the
Distribution Fees related to the sale of other Shares which are Distributor
Shares (as defined in Schedule I hereto).
The Fund shall cause its transfer agent and sub-transfer agents to withhold
from redemption proceeds payable to holders of Shares on redemption thereof the
contingent deferred sales charges payable upon redemption thereof as set forth
in the then current prospectus and/or statement of additional information of the
Fund ("CDSCs") and to pay over to the Principal Underwriter The Principal
Underwriter's Allocable Portion of said CDSCs paid in respect of Shares which
shall be equal to the portion thereof allocable to Distributor Shares (as
defined in Schedule I hereto) in accordance with Schedule I hereto.
14.3 The Principal Underwriter shall be considered to have completely
earned the right to the payment of its Allocable Portion of the Distribution Fee
and the right to payment over to it of its' Allocable Portion of the CDSC in
respect of Shares as provided for hereby upon the completion of the sale of each
Commission Share (as defined in Schedule I hereto) taken into account as a
Distributor Share in computing the Principal Underwriter's Allocable Portion in
accordance with Schedule I hereto.
14.4 Except as provided in Section 14.5 hereof in respect of Distribution
Fees only, the Fund's obligation to pay the Principal Underwriter the
Distribution Fees and to pay over to the Principal Underwriter CDSCs provided
for hereby shall be absolute and unconditional and shall not be subject to
dispute, offset, counterclaim or any defense whatsoever (it being understood
that nothing in this sentence shall be deemed a waiver by the Fund of its right
separately to pursue any claims it may have against the Principal Underwriter
and enforce such claims against any assets (other than the Principal
Underwriter's right to its Allocable Portion of the Distribution Fees and CDSCs
(the "Collection Rights") of the Principal Underwriter).
14.5 Notwithstanding anything in this Agreement to the contrary, the Fund
shall pay to the Principal Underwriter its Allocable Portion of Distribution
Fees provided for hereby notwithstanding its termination as Principal
Underwriter for the Shares or any termination of this Agreement and such payment
of such Distribution Fees, and that obligation and the method of computing such
payment, shall not be changed or terminated except to the extent required by any
change in applicable law, including, without limitation, the 1940 Act, the Rules
promulgated thereunder by the Securities and Exchange Commission and the Rules
of Fair Practice, in each case enacted or promulgated after June 1, 1995, or in
connection with a Complete Termination (as hereinafter defined). For the
purposes of this Section 14.5, "Complete Termination" means a termination of the
Fund's Rule 12b-1 plan for B-2 Shares involving the cessation of payments of the
Distribution Fees, and the cessation of payments of distribution fees pursuant
to every other Rule 12b-1 plan of the Fund for every existing or future
B-Class-of-Shares (as hereinafter defined) and the Fund's discontinuance of the
offering of every existing or future B-Class-of-Shares, which conditions shall
be deemed satisfied when they are first complied with hereafter and so long
thereafter as they are complied with prior to the earlier of (i) the date upon
which all of the B-2 Shares which are Distributor Shares pursuant to Schedule I
hereto shall have been redeemed or converted or (ii) June 1, 2005. For purposes
of this Section 14.5, the term B-Class-of-Shares means each of the B-1 Class of
Shares of the Fund, the B-2 Class of Shares of the Fund and each other class of
shares of the Fund hereafter issued which would be treated as Shares under
Schedule I hereto or which has substantially similar economic characteristics to
the B-1 or B-2 Classes of Shares taking into account the total sales charge,
CDSC or other similar charges borne directly or indirectly by the holder of the
shares of such class. The parties agree that the existing C Class of Shares of
the Fund does not have substantially similar economic characteristics to the B-1
or B-2 Classes of Shares taking into account the total sales charge, CDSC or
other similar charges borne directly or indirectly by the holder of such shares.
For purposes of clarity the parties to this agreement hereby state that they
intend that a new installment load class of shares which may be authorized by
amendments to Rule 6(c)-10 under the 1940 Act will be considered to be a
B-Class-of-Shares if it has economic characteristics substantially similar to
the economic characteristics of the existing B-1 or B-2 Classes of Shares taking
into account the total sale charge, CDSC or other similar charges borne directly
or indirectly by the holder of such shares and will not be considered to be a
B-Class-of-Shares if it has economic characteristics substantially similar to
the economic characteristics of the existing C Class of shares of the Fund
taking into account the total sales charge, CDSC or other similar charges borne
directly or indirectly by the holder of such shares.
14.6 The Principal Underwriter may assign any part of its Allocable
Portions and obligations of the Fund related thereto (but not the Principal
Underwriter's obligations to the Fund provided for in this Agreement) to any
person (an "Assignee") and any such assignment shall be effective as to the Fund
upon written notice to the Fund by the Principal Underwriter. In connection
therewith the Fund shall pay all or any amounts in respect of its Allocable
Portions directly to the Assignee thereof as directed in a writing by the
Principal Underwriter in the Irrevocable Payment Instruction, as the same may be
amended from time to time with the consent of the Fund, and the Fund shall be
without liability to any person if it pays such amounts when and as so directed,
except for underpayments of amounts actually due, without any amount payable as
consequential or other damages due to such underpayment and without interest
except to the extent that delay in payment of Distribution Fees and CDSCs
results in an increase in the maximum Sales Charge allowable under the Rules of
Fair Practice, which increases daily at a rate of prime plus one percent per
annum.
14.7 The Fund will not, to the extent it may otherwise be empowered to do
so, change or waive any CDSC with respect to B-1 Shares, except as provided in
the Fund's prospectus or statement of additional information without the
Principal Underwriter's or Assignee's consent, as applicable. Notwithstanding
anything to the contrary in this Agreement or any termination of this Agreement
or the Principal Underwriter as principal underwriter for the Shares of the
Fund, the Principal Underwriter shall be entitled to be paid its Allocable
Portion of the CDSCs whether or not the Fund's Rule 12b-1 plan for B-1 Shares is
terminated and whether or not any such termination is a Complete Termination, as
defined above.
15. This Agreement shall be construed in accordance with the laws of The
Commonwealth of Massachusetts. All sales hereunder are to be made, and title to
the Shares shall pass, in Boston, Massachusetts.
16. The Fund is a Massachusetts business trust established under a
Declaration of Trust, as it may be amended from time to time. The obligations of
the Fund are not personally binding upon, nor shall recourse be had against the
private property of any of the Trustees, shareholders, officers, employees or
agents of the Fund, but only the property of the Fund shall be bound.
IN WITNESS WHEREOF, the parties hereto have caused this agreement to be
executed by their respective officers thereunto duly authorized at Boston,
Massachusetts, on the day and year first written above.
KEYSTONE WORLD BOND FUND
By: /s/
----------------------------
Title:
KEYSTONE INVESTMENT DISTRIBUTORS COMPANY
By: /s/
----------------------------
Title:
<PAGE>
SCHEDULE I
TO
PRINCIPAL UNDERWRITING AGREEMENT
FOR CLASS B-1 SHARES
OF
KEYSTONE WORLD BOND FUND
TRANSFER AGENT PROCEDURES FOR DIFFERENTIATING
AMONG DISTRIBUTOR SHARES AND POST-DISTRIBUTOR SHARES
Amounts (in respect of Asset Based Sales Charges (as hereinafter defined)
and CDSCs (as hereinafter defined) in respect of Shares (as hereinafter defined)
of each Fund (as hereinafter defined) shall be allocated between Distributor
Shares (as hereinafter defined) and Post-distributor Shares (as hereinafter
defined) of such Fund in accordance with the rules set forth in clauses (B) and
(C). Clause (B) sets forth the rules to be followed by the Transfer Agent for
each Fund and the record owner of each Omnibus Account (as hereinafter defined)
in maintaining records relating to Distributor Shares and Post-distributor
Shares. Clause (C) sets forth the rules to be followed by the Transfer Agent for
each Fund and the record owner of each Omnibus Account in determining what
portion of the Asset Based Sales Charge (as hereinafter defined) payable in
respect of each class of Shares of such Fund and what portion of the CDSC (as
hereinafter defined) payable by the holders of Shares of such Fund is
attributable to Distributor Shares and Post-distributor Shares, respectively.
(A) DEFINITIONS:
Generally, for purposes of this Schedule I, defined terms shall be used
with the meaning assigned to them in the Agreement, except that for purposes of
the following rules the following definitions are also applicable:
"Agreement" shall mean the Principal Underwriting Agreement for Class B-1
Shares of the Instant Fund dated as of June 1, 1995 between the Instant Fund and
the Distributor.
"Asset Based Sales Charge" shall have the meaning set forth in Section
26(b)(8)(C) of the Rules of Fair Practice it being understood that for purposes
of this Exhibit I such term does not include the Service Fee.
"Business Day" shall mean any day on which the banks and the New York Stock
Exchange are not authorized or required to close in New York City.
"Capital Gain Dividend" shall mean, in respect of any Share of any Fund, a
Dividend in respect of such Share which is designated by such Fund as being a
"capital gain dividend" as such term is defined in Section 852 of the Internal
Revenue Code of 1986, as amended.
"CDSC" shall mean with respect to any Fund, the contingent deferred sales
charge payable, either directly or by withholding from the proceeds of the
redemption of the Shares of such Fund, by the shareholders of such Fund on any
redemption of Shares of such Fund in accordance with the Prospectus relating to
such Fund.
"Commission Share" shall mean, in respect of any Fund, a Share of such Fund
issued under circumstances where a CDSC would be payable upon the redemption of
such Share if such CDSC is not waived or shall have not otherwise expired.
"Date of Original Purchase" shall mean, in respect of any Commission Share
of any Fund, the date on which such Commission Share was first issued by such
Fund; provided, that if such Share is a Commission Share and such Fund issued
the Commission Share (or portion thereof) in question in connection with a Free
Exchange for a Commission Share (or portion thereof) of another Fund, the Date
of Original Purchase for the Commission Share (or portion thereof) in question
shall be the date on which the Commission Share (or portion thereof) of the
other Fund was first issued by such other Fund (unless such Commission Share (or
portion thereof) was also issued by such other Fund in a Free Exchange, in which
case this proviso shall apply to that Free Exchange and this application shall
be repeated until one reaches a Commission Share (or portion thereof) which was
issued by a Fund other than in a Free Exchange).
"Distributor" shall mean Keystone Investment Distributors Company, its
successors and assigns.
"Distributor's Account" shall mean the account of the Distributor, account
no. 9903-584-2, ABA No. 011 0000 28, entitled "General Account" maintained with
State Street Bank & Trust Company or such other account as the Distributor may
designate in a notice to the Transfer Agent.
"Distributor Inception Date" shall mean, in respect of any Fund, the date
identified as the date Shares of such Fund are first sold by the Distributor.
"Distributor Last Sale Cut-off Date" shall mean, in respect of any Fund,
the date identified as the last sale of a Commission Share during the period the
Distributor served as principal underwriter under the Agreement.
"Distributor Shares" shall mean, in respect of any Fund, all Shares of such
Fund the Month of Original Purchase of which occurs on or after the Inception
Date for such Fund and on or prior to the Distributor Last Sale Cut-off Date in
respect of such Fund.
"Dividend" shall mean, in respect of any Share of any Fund, any dividend or
other distribution by such Fund in respect of such Share.
"Free Exchange" shall mean any exchange of a Commission Share (or portion
thereof) of one Fund (the "Redeeming Fund") for a Share (or portion thereof) of
another Fund (the "Issuing Fund"), under any arrangement which defers the
exchanging Shareholder's obligation to pay the CDSC in respect of the Commission
Share (or portion thereof) of the Redeeming Fund so exchanged until the later
redemption of the Share (or portion thereof) of the Issuing Fund received in
such exchange.
"Free Share" shall mean, in respect of any Fund, each Share of such Fund
other than a Commission Share, including, without limitation: (i) Shares issued
in connection with the automatic reinvestment of Capital Gain Dividends or Other
Dividends by such Fund, (ii) Special Free Shares issued by such Fund and (iii)
Shares (or portion thereof) issued by such Fund in connection with an exchange
whereby a Free Share (or portion thereof) of another Fund is redeemed and the
Net Asset Value of such redeemed Free Share (or portion thereof) is invested in
such Shares (or portion thereof) of such Fund.
"Fund" shall mean each of the regulated investment companies or series or
portfolios of regulated investment companies identified in Schedule II to the
Irrevocable Payment Instruction, as the same may be amended from time to time in
accordance with the terms thereof.
"Instant Fund" shall mean Keystone World Bond Fund.
"ML Omnibus Account" shall mean, in respect of any Fund, the Omnibus
Account maintained by Merrill Lynch, Pierce, Fenner & Smith as subtransfer
agent.
"Month of Original Purchase" shall mean, in respect of any Share of any
Fund, the calendar month in which such Share was first issued by such Fund;
provided, that if such Share is a Commission Share and such Fund issued the
Commission Share (or portion thereof) in question in connection with a Free
Exchange for a Commission Share (or portion thereof) of another Fund, the Month
of Original Purchase for the Commission Share (or portion thereof) in question
shall be the calendar month in which the Commission Share (or portion thereof)
of the other Fund was first issued by such other Fund (unless such Commission
Share (or portion thereof) was also issued by such other Fund in a Free
Exchange, in which case this proviso shall apply to that Free Exchange and this
application shall be repeated until one reaches a Commission Share (or portion
thereof) which was issued by a Fund other than in a Free Exchange); provided,
further, that if such Share is a Free Share and such Fund issued such Free Share
in connection with the automatic reinvestment of dividends in respect of other
Shares of such Fund, the Month of Original Purchase of such Free Share shall be
deemed to be the Month of Original Purchase of the Share in respect of which
such dividend was paid; provided, further, that if such Share is a Free Share
and such Fund issued such Free Share in connection with an exchange whereby a
Free Share (or portion thereof) of another Fund is redeemed and the Net Asset
Value of such redeemed Free Share (or portion thereof) is invested in a Free
Share (or portion thereof) of such Fund, the Month of Original Issue of such
Free Share shall be the Month of Original Issue of the Free Share of such other
Fund so redeemed (unless such Free Share of such other Fund was also issued by
such other Fund in such an exchange, in which case this proviso shall apply to
that exchange and this application shall be repeated until one reaches a Free
Share which was issued by a Fund other than in such an exchange); and provided,
finally, that for purposes of this Schedule I each of the following periods
shall be treated as one calendar month for purposes of applying the rules of
this Schedule I to any Fund: (i) the period of time from and including the
Distributor Inception Date for such Fund to and including the last day of the
calendar month in which such Distributor Inception Date occurs; (ii) the period
of time commencing with the first day of the calendar month in which the
Distributor Last Sale Cutoff Date in respect of such Fund occurs to and
including such Distributor Last Sale Cutoff Date; and (iii) the period of time
commencing on the day immediately following the Distributor Last Sale Cutoff
Date in respect of such Fund to and including the last day of the calendar month
in which such Distributor Last Sale Cut-off Date occurs.
"Omnibus Account" shall mean any Shareholder Account the record owner of
which is a registered broker-dealer which has agreed with the Transfer Agent to
provide sub-transfer agent functions relating to each Sub-shareholder Account
within such Shareholder Account as contemplated by this Schedule I in respect of
each of the Funds.
"Omnibus Asset Based Sales Charge Settlement Date" shall mean, in respect
of each Omnibus Account, the Business Day next following the twentieth day of
each calendar month for the calendar month immediately preceding such date so
long as the record owner is able to allocate the Asset Based Sales Charge
accruing in respect of Shares of any Fund as contemplated by this Schedule I no
more frequently than monthly; provided, that at such time as the record owner of
such Omnibus Account is able to provide information sufficient to allocate the
Asset Based Sales Charge accruing in respect of such Shares of such Fund owned
of record by such Omnibus Account as contemplated by this Schedule I on a weekly
or daily basis, the Omnibus Asset Based Sales Charge Settlement Date shall be a
weekly date as in the case of the Omnibus CDSC Settlement Date or a daily date
as in the case of Asset Based Sales Charges accruing in respect of Shareholder
Accounts other than Omnibus Accounts, as the case may be.
"Omnibus CDSC Settlement Date" shall mean, in respect of each Omnibus
Account, the third Business Day of each calendar week for the calendar week
immediately preceding such date so long as the record owner of such Omnibus
Account is able to allocate the CDSCs accruing in respect of any Shares of any
Fund as contemplated by this Schedule I for no more frequently than weekly;
provided, that at such time as the record owner of such Shares of such Fund
owned of record by such Omnibus Account is able to provide information
sufficient to allocate the CDSCs accruing in respect of such Omnibus Account as
contemplated by this Schedule I on a daily basis, the Omnibus CDSC Settlement
Date for such Omnibus Account shall be a daily date as in the case of CDSCs
accruing in respect of Shareholder Accounts other than Omnibus Accounts.
"Original Purchase Amount" shall mean, in respect of any Commission Share
of any Fund, the amount paid (i.e., the Net Asset Value thereof on such date),
on the Date of Original Purchase in respect of such Commission Share, by such
Shareholder Account or Sub-shareholder Account for such Commission Share;
provided, that if such Fund issued the Commission Share (or portion thereof) in
question in connection with a Free Exchange for a Commission Share (or portion
thereof) of another Fund, the Original Purchase Amount for the Commission Share
(or portion thereof) in question shall be the Original Purchase Amount in
respect of such Commission Share (or portion thereof) of such other Fund (unless
such Commission Share (or portion thereof) was also issued by such other Fund in
a Free Exchange, in which case this proviso shall apply to that Free Exchange
and this application shall be repeated until one reaches a Commission Share (or
portion thereof) which was issued by a Fund other than in a Free Exchange).
"Other Dividend" shall mean in respect of any Share, any Dividend paid in
respect of such Share other than a Capital Gain Dividend.
"Post-distributor Shares" shall mean, in respect of any Fund, all Shares of
such Fund the Month of Original Purchase of which occurs after the Distributor
Last Sale Cut-off Date for such Fund.
"Program Agent" shall mean Citicorp North America, Inc., as Program Agent
under the Purchase Agreement, and its successors and assigns in such capacity.
"Purchase Agreement" shall mean that certain Purchase and Sale Agreement
dated as of May 31, 1995, among Keystone Investment Distributors Company, as
Seller, Citibank, N.A., as Purchaser, and Citicorp North America, Inc., as
Program Agent.
"Share" shall mean in respect of any Fund any share of the classes of
shares specified in Schedule II to the Irrevocable Payment Instruction opposite
the name of such Fund, as the same may be amended from time to time by notice
from the Distributor and the Program Agent to the Fund and the Transfer Agent;
provided, that such term shall include, after the Distributor Last Sale Cut-off
Date, a share of a new class of shares of such Fund: (i) with respect to each
record owner of Shares which is not treated in the records of each Transfer
Agent and Sub-transfer Agent for such Fund as an entirely separate and distinct
class of shares from the classes of shares specified Schedule II to the
Irrevocable Payment Instruction or (ii) the shares of which class may be
exchanged for shares of another Fund of the classes of shares specified on
Schedule II to the Irrevocable Payment Instruction of any class existing on or
prior to the Distributor Last Sale Cut-off Date; or (iii) dividends on which can
be reinvested in shares of the classes specified on Schedule II to the
Irrevocable Payment Instruction under the automatic dividend reinvestment
options; or (iv) which is otherwise treated as though it were of the same class
as the class of shares specified on Schedule II to the Irrevocable Payment
Instruction.
"Shareholder Account" shall have the meaning set forth in clause (B)(1)
hereof.
"Special Free Share" shall mean, in respect of any Fund, a Share (other
than a Commission Share) issued by such Fund other than in connection with the
automatic reinvestment of Dividends and other than in connection with an
exchange whereby a Free Share (or portion thereof) of another Fund is redeemed
and the Net Asset Value of such redeemed Share (or portion thereof) is invested
in a Share (or portion thereof) of such Fund.
"Sub-shareholder Account" shall have the meaning set forth in clause (B)(1)
hereof.
"Sub-transfer Agent" shall mean, in respect of each Omnibus Account, the
record owner thereof.
(B) RECORDS TO BE MAINTAINED BY THE TRANSFER AGENT FOR EACH FUND AND THE
RECORD OWNER OF EACH OMNIBUS ACCOUNT:
The Transfer Agent shall maintain Shareholder Accounts, and shall cause
each record owner of each Omnibus Account to maintain Sub-shareholder Accounts,
each in accordance with the following rules:
(1) SHAREHOLDER ACCOUNTS AND SUB-SHAREHOLDER ACCOUNTS. The Transfer Agent
shall maintain a separate account (a "Shareholder Account") for each record
owner of Shares of each Fund. Each Shareholder Account (other than Omnibus
Accounts) will represent a record owner of Shares of such Fund, the records of
which will be kept in accordance with this Schedule I. In the case of an Omnibus
Account, the Transfer Agent shall require that the record owner of the Omnibus
Account maintain a separate account (a "Sub-shareholder Account") for each
record owner of Shares which are reflected in the Omnibus Account, the records
of which will be kept in accordance with this Schedule I. Each such Shareholder
Account and Sub-shareholder Account shall relate solely to Shares of such Fund
and shall not relate to any other class of shares of such Fund.
(2) COMMISSION SHARES. For each Shareholder Account (other than an Omnibus
Account), the Transfer Agent shall maintain daily records of each Commission
Share of such Fund which records shall identify each Commission Share of such
Fund reflected in such Shareholder Account by the Month of Original Purchase of
such Commission Share.
For each Omnibus Account, the Transfer Agent shall require that the
Sub-transfer Agent in respect thereof maintain daily records of such
Sub-shareholder Account which records shall identify each Commission Share of
such Fund reflected in such Sub-shareholder Account by the Month of Original
Purchase; provided, that until the Sub-transfer Agent in respect of the ML
Omnibus Account develops the data processing capability to conform to the
foregoing requirements, such Sub-transfer Agent shall maintain daily records of
Sub-shareholder Accounts which identify each Commission Share of such Fund
reflected in such Sub-shareholder Account by the Date of Original Purchase. Each
such Commission Share shall be identified as either a Distributor Share or a
Post-distributor Share based upon the Month of Original Purchase of such
Commission Share (or in the case of a Sub-shareholder Account within the ML
Omnibus Account, based upon the Date of Original Purchase).
(3) FREE SHARES. The Transfer Agent shall maintain daily records of each
Shareholder Account (other than an Omnibus Account) in respect of any Fund so as
to identify each Free Share (including each Special Free Share) reflected in
such Shareholder Account by the Month of Original Purchase of such Free Share.
In addition, the Transfer Agent shall require that each Shareholder Account
(other than an Omnibus Account) have in effect separate elections relating to
reinvestment of Capital Gain Dividends and relating to reinvestment of Other
Dividends in respect of any Fund. Either such Shareholder Account shall have
elected to reinvest all Capital Gain Dividends or such Shareholder Account shall
have elected to have all Capital Gain Dividends distributed. Similarly, either
such Shareholder Account shall have elected to reinvest all Other Dividends or
such Shareholder Account shall have elected to have all Other Dividends
distributed.
The Transfer Agent shall require that the Sub-transfer Agent in respect of
each Omnibus Account maintain daily records for each Sub-shareholder Account in
the manner described in the immediately preceding paragraph for Shareholder
Accounts (other than Omnibus Accounts); provided, that until the Sub-transfer
Agent in respect of the ML Omnibus Account develops the data processing
capability to conform to the foregoing requirements, such Sub-transfer Agent
shall not be obligated to conform to the foregoing requirements. Each
Sub-shareholder Account shall also have in effect Dividend reinvestment
elections as described in the immediately preceding paragraph.
The Transfer Agent and each Sub-transfer Agent in respect of an Omnibus
Account shall identify each Free Share as either a Distributor Share or a
Post-distributor Share based upon the Month of Original Purchase of such Free
Share; provided, that until the Sub-transfer Agent in respect of the ML Omnibus
Account develops the data processing capability to conform to the foregoing
requirements, the Transfer Agent shall require such Sub-transfer Agent to
identify each Free Share of a given Fund in the ML Omnibus Account as a
Distributor Share, or Post-distributor Share, as follows:
(a) Free Shares of such Fund which are outstanding on the Distributor Last
Sale Cut-off Date for such Fund shall be identified as Distributor
Shares.
(b) Free Shares of such Fund which are issued (whether or not in
connection with an exchange for a Free Share of another Fund) to the
ML Omnibus Account during any calendar month (or portion thereof)
after the Distributor Last Sale Cut-off Date for such Fund shall be
identified as Distributor Shares in a number computed as follows:
A X (B/C)
where:
A = Free Shares of such Fund issued to the ML Omnibus Account during
such calendar month (or portion thereof)
B = Number of Commission Shares and Free Shares of such Fund in the
ML Omnibus Account identified as Distributor Shares and
outstanding as of the close of business in the last day of the
immediately preceding calendar month (or portion thereof)
C = Total number of Commission Shares and Free Shares of such Fund
in the ML Omnibus Account and outstanding as of the close of
business on the last day of the immediately preceding calendar
month (or portion thereof).
(c) Free Shares of such Fund which are issued (whether or not in
connection with an exchange for a free share of another Fund) to the
ML Omnibus Account during any calendar month (or portion thereof)
after the Distributor Last Sale Cut-off Date for such Fund shall be
identified as Post-distributor Shares in a number computed as follows:
(A X (B/C)
where:
A = Free Shares of such Fund issued to the ML Omnibus Account during
such calendar month (or portion thereof)
B = Number of Commission Shares and Free Shares of such Fund in the
ML Omnibus Account identified as Post-distributor Shares and
outstanding as of the close of business in the last day of the
immediately preceding calendar month (or portion thereof)
C = Total number of Commission Shares and Free Shares of such Fund
in the ML Omnibus Account and outstanding as of the close of
business on the last day of the immediately preceding calendar
month (or portion thereof).
(d) Free Shares of such Fund which are redeemed (whether or not in
connection with an exchange for Free Shares of another Fund or in
connection with the conversion of such Shares into a Class A Share of
such Fund) from the ML Omnibus Account in any calendar month (or
portion thereof) after the Distributor Last Sale Cut-off Date for such
Fund shall be identified as Distributor Shares in a number computed as
follows:
A X (B/C)
Where:
A = Free Shares of such Fund which are redeemed (whether or not in
connection with an exchange for Free Shares of another Fund or in
connection with the conversion of such Shares into a class A share
of such Fund) from the ML Omnibus Account during such calendar
month (or portion thereof)
B = Free Shares of such Fund in the ML Omnibus Account identified as
Distributor Shares and outstanding as of the close of business on
the last day of the immediately preceding calendar month.
C = Total number of Free Shares of such Fund in the ML Omnibus
Account and outstanding as of the close of business on the last
day of the immediately preceding calendar month.
(e) Free Shares of such Fund which are redeemed (whether or not in
connection with an exchange for Free Shares of another Fund or in
connection with the conversion of such Shares into a class A share of
such Fund) from the ML Omnibus Account in any calendar month (or
portion thereof) after the Distributor Last Sale Cut-off Date for such
Fund shall be identified as Post-distributor Shares in a number
computed as follows:
A X (B/C)
where:
A = Free Shares of such Fund which are redeemed (whether or not in
connection with an exchange for Free Shares of another Fund or in
connection with the conversion of such Shares into a class A share
of such Fund) from the ML Omnibus Account during such calendar
month (or portion thereof)
B = Free Shares of such Fund in the ML Omnibus Account identified as
Post-distributor Shares and outstanding as of the close of
business on the last day of the immediately preceding calendar
month.
C = Total number of Free Shares of such Fund in the ML Omnibus
Account and outstanding as of the close of business on the last
day of the immediately preceding calendar month.
(4) APPRECIATION AMOUNT AND COST ACCUMULATION AMOUNT. The Transfer Agent
shall maintain on a daily basis in respect of each Shareholder Account (other
than Omnibus Accounts) a Cost Accumulation Amount representing the total of the
Original Purchase Amounts paid by such Shareholder Account for all Commission
Shares reflected in such Shareholder Account as of the close of business on each
day. In addition, the Transfer Agent shall maintain on a daily basis in respect
of each Shareholder Account (other than Omnibus Accounts) sufficient records to
enable it to compute, as of the date of any actual or deemed redemption or Free
Exchange of a Commission Share reflected in such Shareholder Account an amount
(such amount an "Appreciation Amount") equal to the excess, if any, of the Net
Asset Value as of the close of business on such day of the Commission Shares
reflected in such Shareholder Account minus the Cost Accumulation Amount as of
the close of business on such day. In the event that a Commission Share (or
portion thereof) reflected in a Shareholder Account is redeemed or under these
rules is deemed to have been redeemed (whether in a Free Exchange or otherwise),
the Appreciation Amount for such Shareholder Account shall be reduced, to the
extent thereof, by the Net Asset Value of the Commission Share (or portion
thereof) redeemed, and if the Net Asset Value of the Commission Share (or
portion thereof) being redeemed equals or exceeds the Appreciation Amount, the
Cost Accumulation Amount will be reduced to the extent thereof, by such excess.
If the Appreciation Amount for such Shareholder Account immediately prior to any
redemption of a Commission Share (or portion thereof) is equal to or greater
than the Net Asset Value of such Commission Share (or portion thereof) deemed to
have been tendered for redemption, no CDSCs will be payable in respect of such
Commission Share (or portion thereof).
The Transfer Agent shall require that the Sub-transfer Agent in respect of
each Omnibus Account maintain on a daily basis in respect of each
Sub-shareholder Account reflected in such Omnibus Account a Cost Accumulation
Amount and sufficient records to enable it to compute, as of the date of any
actual or deemed redemption or Free Exchange of a Commission Share reflected in
such Sub-shareholder Account an Appreciation Amount in accordance with the
preceding paragraph and to apply the same to determine whether a CDSC is payable
(as though such Sub-shareholder Account were a Shareholder Account other than an
Omnibus Account; provided, that until the Sub-transfer Agent in respect of the
ML Omnibus Account develops the data processing capability to conform to the
foregoing requirements, such Sub-transfer Agent shall maintain for each
Sub-shareholder Account a separate Cost Accumulation Amount and a separate
Appreciation Amount for each Date of Original Purchase of any Commission Share
which shall be applied as set forth in the preceding paragraph as if each Date
of Original Purchase were a separate Month of Original Purchase.
(5) NASD CAP. On the date the distribution fees paid in respect of any
class of Shares equals the maximum amount thereon under the Rules of Fair
Practice, in respect of such class, all outstanding Shares of such class of such
Fund shall be converted into Class A shares of such Fund and will be deemed to
have been redeemed for their Net Asset Value for purposes of this Schedule I.
(6) IDENTIFICATION OF REDEEMED SHARES. If a Shareholder Account (other than
an Omnibus Account) tenders a Share of a Fund for redemption (other than in
connection with an exchange of such Share for a Share of another Fund or in
connection with the conversion of such Share pursuant to a Conversion Feature),
such tendered Share will be deemed to be a Free Share if there are any Free
Shares reflected in such Shareholder Account immediately prior to such tender.
If there is more than one Free Share reflected in such Shareholder Account
immediately prior to such tender, such tendered Share will be deemed to be the
Free Share with the earliest Month of Original Purchase. If there are no Free
Shares reflected in such Shareholder Account immediately prior to such tender,
such tendered Share will be deemed to be the Commission Share with the earliest
Month of Original Purchase reflected in such Shareholder Account.
If a Sub-shareholder Account reflected in an Omnibus Account tenders a
Share for redemption (other than in connection with an Exchange of such Share
for a Share of another Fund or in connection with the conversion of such Share
pursuant to a Conversion Feature), the Transfer Agent shall require that the
record owner of each Omnibus Account supply the Transfer Agent sufficient
records to enable the Transfer Agent to apply the rules of the preceding
paragraph to such Sub-shareholder Account (as though such Sub-shareholder
Account were a Shareholder Account other than an Omnibus Account); provided,
that until the Sub-transfer Agent in respect of the ML Omnibus Account develops
the data processing capability to conform to the foregoing requirements, such
Sub-transfer Agent shall not be required to conform to the foregoing rules
regarding Free Shares (and the Transfer Agent shall account for such Free Shares
as provided in (3) above) but shall apply the foregoing rules to each Commission
Share with respect to the Date of Original Purchase of any Commission Share as
though each such Date were a separate Month of Original Purchase.
(7) IDENTIFICATION OF EXCHANGED SHARES. When a Shareholder Account (other
than an Omnibus Account) tenders Shares of one Fund (the "Redeeming Fund") for
redemption where the proceeds of such redemption are to be automatically
reinvested in shares of another Fund (the "Issuing Fund") to effect an exchange
(whether or not pursuant to a Free Exchange) into Shares of the Issuing Fund:
(1) such Shareholder Account will be deemed to have tendered Shares (or portions
thereof) of the Redeeming Fund with each Month of Original Purchase represented
by Shares of the Redeeming Fund reflected in such Shareholder Account
immediately prior to such tender in the same proportion that the number of
Shares of the redeeming Fund with such Month of Original Purchase reflected in
such Shareholder immediately prior to such tender bore to the total number of
Shares of the Redeeming Fund reflected in such Shareholder Account immediately
prior to such tender, and on that basis the tendered Shares of the Redeeming
Fund will be identified as Distributor Shares or Post-distributor Shares; (2)
such Shareholder Account will be deemed to have tendered Commission Shares (or
portions thereof) and Free Shares (or portions thereof) of the Redeeming Fund of
each category (i.e., Distributor Shares or Post-distributor Shares) in the same
proportion that the number of Commission Shares or Free Shares (as the case may
be) of the Redeeming Fund in such category reflected in such Shareholder Account
bore to the total number of Shares of the Redeeming Fund in such category
reflected in such Shareholder Account immediately prior to such tender, (3) the
Shares (or portions thereof) of the Issuing Fund issued in connection with such
exchange will be deemed to have the same Months of Original Purchase as the
Shares (or portions thereof) of the Redeeming Fund so tendered and will be
categorized as Distributor Shares and Post-distributor Shares accordingly, and
(4) the Shares (or portions thereof) of each Category of the Issuing Fund issued
in connection with such exchange will be deemed to be Commission Shares and Free
Shares in the same proportion that the Shares of such Category of the Redeeming
Fund were Commission Shares and Free Shares.
The Transfer Agent shall require that each record owner of an Omnibus
Account maintain records relating to each Sub-shareholder Account in such
Omnibus Account sufficient to apply the foregoing rules to each such
Sub-shareholder Account (as though such Sub-shareholder Account were a
Shareholder Account other than an Omnibus Account); provided, that until the
Sub-transfer Agent in respect of the ML Omnibus Account develops the data
processing capability to conform to the foregoing requirements, such
Sub-transfer Agent shall not be required to conform to the foregoing rules
relating to Free Shares (and the Sub-transfer Agent shall account for such Free
Shares as provided in (3) above) and shall apply a first-in-first-out procedure
(based upon the Date of Original Purchase) to determine which Commission Shares
(or portions thereof) of a Redeeming Fund were redeemed in connection with an
exchange.
(8) IDENTIFICATION OF CONVERTED SHARES. The Transfer Agent records
maintained for each Shareholder Account (other than an Omnibus Account) will
treat each Commission Share of a Fund as though it were redeemed at its Net
Asset Value on the date such Commission Share converts into a class A share of
such Fund in accordance with an applicable Conversion Feature applied with
reference to its Month of Original Purchase and will treat each Free Share of
such Fund with a given Month of Original Purchase as though it were redeemed at
its Net Asset Value when it is simultaneously converted to a class A share at
the time the Commission Shares of such Fund with such Month of Original Purchase
are so converted.
The Transfer Agent shall require that each record owner of an Omnibus
Account maintain records relating to each Sub-shareholder Account in such
Omnibus Account sufficient to apply the foregoing rules to each such
Sub-shareholder Account (as though such Sub-shareholder Account were a
Shareholder Account other than an Omnibus Account) ; provided, that until the
Sub-transfer Agent in respect of the ML Omnibus Account develops the data
processing capability to conform to the foregoing requirements, such
Sub-transfer Agent shall apply the foregoing rules to Commission Shares with
reference to the Date of Original Issue of each Commission Share (as though each
such date were a separate Month of Original Issue) and shall not be required to
apply the foregoing rules to Free Shares (and the Sub-transfer Agent shall
account for such Free Shares as provided in (3) above).
(C) ALLOCATIONS OF ASSET BASED SALE CHARGES AND CDSCS AMONG DISTRIBUTOR
SHARES AND POST-DISTRIBUTOR SHARES:
The Transfer Agent shall use the following rules to allocate the amounts of
Asset Based Sales Charges and CDSCs payable by each Fund in respect of Shares
between Distributor Shares and Post-distributor Shares:
(1) RECEIVABLES CONSTITUTING CDSCS: CDSCs will be treated as relating to
Distributor Shares or Post-distributor Shares depending upon the Month of
Original Purchase of the Commission Share the redemption of which gives rise to
the payment of a CDSC by a Shareholder Account.
The Transfer Agent shall cause each Sub-transfer Agent to apply the
foregoing rule to each Sub-shareholder Account based on the records maintained
by such Sub-transfer Agent; provided, that until the Sub-transfer Agent in
respect of the ML Omnibus Account develops the data processing capability to
conform to the foregoing requirements, such Sub-transfer Agent shall apply the
foregoing rules to each Sub-shareholder Account with respect to the Date of
Original Purchase of any Commission Share as though each such date were a
separate Month of Original Purchase.
(2) RECEIVABLES CONSTITUTING ASSET BASED SALES CHARGES:
The Asset Based Sales Charges accruing in respect of each Shareholder
Account (other than an Omnibus Account) shall be allocated to each Share
reflected in such Shareholder Account as of the close of business on such day on
an equal per share basis. For example, the Asset Based Sales Charges
attributable to Distributor Shares on any day shall be computed and allocated as
follows:
A X (B/C)
where:
A. = Total amount of Asset Based Sales Charge accrued in respect of such
Shareholder Account (other than an Omnibus Account) on such day.
B. = Number of Distributor Shares reflected in such Shareholder Account
(other than an Omnibus Account) on the close of business on such day
C. = Total number of Distributor Shares and Post-Distributor Shares
reflected in such Shareholder Account (other than an Omnibus Account)
and outstanding as of the close of business on such day.
The Portion of the Asset Based Sales Charges of such Fund accruing in respect of
such Shareholder Account for such day allocated to Post-distributor Shares will
be obtained using the same formula but substituting for "B" the number of
Post-distributor Shares, as the case may be, reflected in such Shareholder
Account and outstanding on the close of business on such day. The foregoing
allocation formula may be adjusted from time to time by notice to the Fund and
the transfer agent for the Fund from the Seller and the Program Agent pursuant
to Section 8.18 of the Purchase Agreement.
The Transfer Agent shall, based on the records maintained by the record
owner of such Omnibus Account, allocate the Asset Based Sales Charge accruing in
respect of each Omnibus Account on each day among all Sub-shareholder Accounts
reflected in such Omnibus Account on an equal per share basis based upon the
total number of Distributor Shares and Post-distributor Shares reflected in each
such Sub-shareholder Account as of the close of business on such day. In
addition, the Transfer Agent shall apply the foregoing rules to each
Sub-shareholder Account (as though it were a Shareholder Account other than an
Omnibus Account), based on the records maintained by the record owner, to
allocate the Asset Based Sales Charge so allocated to any Sub-shareholder
Account among the Distributor Shares and Post-distributor Shares reflected in
each such Sub-shareholder Account in accordance with the rules set forth in the
preceding paragraph; provided, that until the Sub-transfer Agent in respect of
the ML Omnibus Account develops the data processing capacity to apply the rules
of this Schedule I as applicable to Sub-shareholder Accounts other than ML
Omnibus Accounts, the Transfer Agent shall allocate the Asset Based Sales Charge
accruing in respect of Shares of any Fund in the ML Omnibus Account during any
calendar month (or portion thereof) among Distributor Shares and
Post-distributor Shares as follows:
(a) The portion of such Asset Based Sales Charge allocable to Distributor
Shares shall be computed as follows:
A X ((B + C)/2)
-----------
((D + E)/2)
where:
A = Total amount of Asset Based Sales Charge accrued during such
calendar month (or portion thereof) in respect of Shares of such
Fund in the ML Omnibus Account
B = Shares of such Fund in the ML Omnibus Account and identified as
Distributor Shares and outstanding as of the close of business on
the last day of the immediately preceding calendar month (or
portion thereof), times Net Asset Value per Share as of such time
C = Shares of such Fund in the ML Omnibus Account and identified as
Distributor Shares and outstanding as of the close of business on
the last day of such calendar month (or portion thereof), times
Net Asset Value per Share as of such time
D = Total number of Shares of such Fund in the ML Omnibus Account
and outstanding as of the close of business on the last day of
the immediately preceding calendar month (or portion thereof),
times Net Asset Value per Share as of such time.
E = Total number of Shares of such Fund in the ML Omnibus Account
and outstanding as of the close of business on the last day of
such calendar month (or portion thereof), times Net Asset Value
per Share as of such time.
(b) The portion of such Asset Based Sales Charge allocable to
Post-distributor Shares shall be computed s follows:
A X ((B + C)/2)
-----------
((D + E)/2)
where:
A = Total amount of Asset Based Sales Charge accrued during such
calendar month (or portion thereof) in respect of Shares of such
Fund in the ML Omnibus Account
B = Shares of such Fund in the ML Omnibus Account and identified as
Post-distributor Shares and outstanding as of the close of
business on the last day of the immediately preceding calendar
month (or portion thereof), times Net Asset Value per Share as of
such time
C = Shares of such Fund in the ML Omnibus Account and identified as
Post-distributor Shares and outstanding as of the close of
business on the last day of such calendar month (or portion
thereof), times Net Asset Value per Share as of such time
D = Total number of Shares of such Fund in the ML Omnibus Account
and outstanding as of the close of business on the last day of
the immediately preceding calendar month (or portion thereof),
times Net Asset Value per Share as of such time.
E = Total number of Shares of such Fund in the ML Omnibus Account
outstanding as of the close of business on the last day of such
calendar month, times Net Asset Value per Share as of such time.
(3) PAYMENTS ON BEHALF OF EACH FUND.
On the close of business on each day the Transfer Agent shall cause payment to
be made of the amount of the Asset Based Sales Charge and CDSCs accruing on such
day in respect of the Shares of such Fund owned of record by Shareholder
Accounts (other than Omnibus Accounts) by two separate wire transfers, directly
from accounts of such Fund as follows:
1. The Asset Based Sales Charge and CDSCs accruing in respect of
Shareholder Accounts other than Omnibus Accounts and allocable to
Distributor Shares in accordance with the preceding rules shall be paid to
the Distributor's Account, unless the Distributor otherwise instructs the
Fund in any irrevocable payment instruction; and
2. The Asset Based Sales Charges and CDSCs accruing in respect of
Shareholder Accounts other than Omnibus Accounts and allocable to
Post-distributor Shares in accordance with the preceding rules shall be
paid in accordance with direction received from any future distributor of
Shares of the Instant Fund.
On each Omnibus CDSC Settlement Date, the Transfer Agent for each Fund
shall cause the applicable Sub-transfer Agent to cause payment to be made of the
amount of the CDSCs accruing during the period to which such Omnibus CDSC
Settlement Date relates in respect of the Shares of such Fund owned of record by
each Omnibus Account by two separate wire transfers directly from the account of
such Fund maintained by such Transfer Agent, as follows:
1. The CDSCs accruing in respect of such Omnibus Account and allocable to
Distributor Shares in accordance with the preceding rules shall be paid to
the Distributor's Account, unless the Distributor otherwise instructs the
Fund in any irrevocable payment instruction; and
2. The CDSCs accruing in respect of such Omnibus Account and allocable to
Post-distributor Shares in accordance with the preceding rules shall be
paid in accordance with direction received from any future distributor of
Shares of the Instant Fund.
On each Omnibus Asset Based Sales Charge Settlement Date the Transfer Agent
for each Fund shall cause payment to be made of the amount of the Asset Based
Sales Charge accruing for the period to which such Omnibus Asset Based Sales
Charge Settlement Date relates in respect of the Shares of such Fund owned of
record by each Omnibus Account by two separate wire transfers directly from
accounts of such Fund as follows:
1. The Asset Based Sales Charge accruing in respect of such Omnibus Account
and allocable to Distributor Shares shall be paid to the Distributor's
Collection Account, unless the Distributor otherwise instructs the Fund in
any irrevocable payment instruction; and
2. The Asset Based Sales Charge accruing in respect of such Omnibus Account
and allocable to Post-Distributor Shares shall be paid in accordance with
direction received from any future distributor of Shares of the Instant
Fund.
<PAGE>
PRINCIPAL UNDERWRITING AGREEMENT
FOR CLASS B-2 SHARES
OF
KEYSTONE WORLD BOND FUND
AGREEMENT made this 31st day of May 1995 by and between Keystone World
Bond Fund, a Massachusetts business trust, ("Fund"), and Keystone Investment
Distributors Company, a Delaware corporation (the "Principal Underwriter").
The Fund, individually and/or on behalf of its series, if any, referred to
above in the title of this Agreement, to which series, if any, this Agreement
shall relate, as applicable (the Fund ), may act as the distributor of certain
securities of which it is the issuer pursuant to Rule 12b-1 under the Investment
Company Act of 1940 (the 1940 Act ). Accordingly, it is hereby mutually agreed
as follows:
1. The Fund hereby appoints the Principal Underwriter a principal
underwriter of the Class B-2 shares of beneficial interest of the Fund ("B-2
Shares") as an independent contractor upon the terms and conditions hereinafter
set forth. The general term "Shares" as used herein has the same meaning as is
provided therefor in Schedule I hereto. Except as the Fund may from time to time
agree, the Principal Underwriter will act as agent for the Fund and not as
principal.
2. The Principal Underwriter will use its best efforts to find purchasers
for the B-2 Shares and to promote distribution of the B-2 Shares and may obtain
orders from brokers, dealers or other persons for sales of B-2 Shares to them.
No such dealer, broker or other person shall have any authority to act as agent
for the Fund; such dealer, broker or other person shall act only as principal in
the sale of B-2 Shares.
3. Sales of B-2 Shares by Principal Underwriter shall be at the public
offering price determined in the manner set forth in the prospectus and/or
statement of additional information of the Fund current at the time of the
Fund's acceptance of the order for B-2 Shares. All orders shall be subject to
acceptance by the Fund and the Fund reserves the right in its sole discretion to
reject any order received. The Fund shall not be liable to anyone for failure to
accept any order.
4. On all sales of B-2 Shares the Fund shall receive the current net asset
value. The Fund shall pay the Principal Underwriter Distribution Fees (as
defined in Section 14 hereof), as commissions for the sale of B-2 Shares and
other Shares, which shall be paid in conjunction with distribution fees paid to
the Principal Underwriter by other classes of Shares of the Fund to the extent
required in order to comply with Section 14 hereof, and shall pay over to the
Principal Underwriter CDSCs (as defined in Section 14 hereof) as set forth in
the Fund's current prospectus and statement of additional information, and as
required by Section 14 hereof. The Principal Underwriter shall also receive
payments consisting of shareholder service fees ("Service Fees") at the rate of
.25% per annum of the average daily net asset value of the Class B-2 Shares. The
Principal Underwriter may allow all or a part of said Distribution Fees and
CDSCs received by it (not paid to others as hereinafter provided) to such
brokers, dealers or other persons as Principal Underwriter may determine.
5. Payment to the Fund for B-2 Shares shall be in New York or Boston
Clearing House funds received by the Principal Underwriter within three business
days after notice of acceptance of the purchase order and the amount of the
applicable public offering price has been given to the purchaser. If such
payment is not received within such period, the Fund reserves the right, without
further notice, forthwith to cancel its acceptance of any such order. The Fund
shall pay such issue taxes as may be required by law in connection with the
issue of the B-2 Shares.
6. The Principal Underwriter shall not make in connection with any sale or
solicitation of a sale of the B-2 Shares any representations concerning the B-2
Shares except those contained in the then current prospectus and/or statement of
additional information covering the Shares and in printed information approved
by the Fund as information supplemental to such prospectus and statement of
additional information. Copies of the then current prospectus and statement of
additional information and any such printed supplemental information will be
supplied by the Fund to the Principal Underwriter in reasonable quantities upon
request.
7. The Principal Underwriter agrees to comply with the Rules of Fair
Practice of the National Association of Securities Dealers, Inc. (as defined in
the Purchase and Sale Agreement, dated as of May 31, 1995 (the Purchase
Agreement ), between the Principal Underwriter, Citibank, N.A. and Citicorp
North America, Inc., as agent (the "Rules of Fair Practice")).
8. The Fund appoints the Principal Underwriter as its agent to accept
orders for redemptions and repurchases of B-2 Shares at values and in the manner
determined in accordance with the then current prospectus and/or statement of
additional information of the Fund.
9. The Fund agrees to indemnify and hold harmless the Principal
Underwriter, its officers and Directors and each person, if any, who controls
the Principal Underwriter within the meaning of Section 15 of the Securities Act
of 1933 ("1933 Act"), against any losses, claims, damages, liabilities and
expenses (including the cost of any legal fees incurred in connection therewith)
which the Principal Underwriter, its officers, Directors or any such controlling
person may incur under the 1933 Act, under any other statute, at common law or
otherwise, arising out of or based upon
a. any untrue statement or alleged untrue statement of a material fact
contained in the Fund's registration statement, prospectus or
statement of additional information (including amendments and
supplements thereto) or
b. any omission or alleged omission to state a material fact required to
be stated in the Fund's registration statement, prospectus or
statement of additional information necessary to make the statements
therein not misleading, provided, however, that insofar as losses,
claims, damages, liabilities or expenses arise out of or are based
upon any such untrue statement or omission or alleged untrue statement
or omission made in reliance and in conformity with information
furnished to the Fund by the Principal Underwriter for use in the
Fund's registration statement, prospectus or statement of additional
information, such indemnification is not applicable. In no case shall
the Fund indemnify the Principal Underwriter or its controlling person
as to any amounts incurred for any liability arising out of or based
upon any action for which the Principal Underwriter, its officers and
Directors or any controlling person would otherwise be subject to
liability by reason of willful misfeasance, bad faith, or gross
negligence in the performance of its duties or by reason of the
reckless disregard of its obligations and duties under this Agreement.
10. The Principal Underwriter agrees to indemnify and hold harmless the
Fund, its officers and Trustees and each person, if any, who controls the Fund
within the meaning of Section 15 of the 1933 Act against any loss, claims,
damages, liabilities and expenses (including the cost of any legal fees incurred
in connection therewith) which the Fund, its officers, Directors or any such
controlling person may incur under the 1933 Act, under any other statute, at
common law or otherwise arising out of the acquisition of any Shares by any
person which
(a) may be based upon any wrongful act by the Principal Underwriter or any
of its employees or representatives, or
(b) may be based upon any untrue statement or alleged untrue statement of
a material fact contained in the Fund's registration statement,
prospectus or statement of additional information (including
amendments and supplements thereto), or any omission or alleged
omission to state a material fact required to be stated therein or
necessary to make the statements therein not misleading, if such
statement or omission was made in reliance upon information furnished
or confirmed in writing to the Fund by the Principal Underwriter.
11. The Fund agrees to execute such papers and to do such acts and things
as shall from time to time be reasonably requested by the Principal Underwriter
for the purpose of qualifying the B-2 Shares for sale under the so-called "blue
sky" laws of any state or for registering B-2 Shares under the 1933 Act or the
Fund under the Investment Company Act of 1940 ("1940 Act"). The Principal
Underwriter shall bear the expenses of preparing, printing and distributing
advertising, sales literature, prospectuses, and statements of additional
information. The Fund shall bear the expense of registering B-2 Shares under the
1933 Act and the Fund under the 1940 Act, qualifying B-2 Shares for sale under
the so-called "blue sky" laws of any state, the preparation and printing of
prospectuses, statements of additional information and reports required to be
filed with the Securities and Exchange Commission and other authorities, the
preparation, printing and mailing of prospectuses and statements of additional
information to holders of B-2 Shares, and the direct expenses of the issue of
B-2 Shares.
12. The Principal Underwriter shall, at the request of the Fund, provide to
the Board of Trustees or Directors (together herein called the Directors ) of
the Fund in connection with sales of B-2 Shares not less than quarterly a
written report of the amounts received from the Fund therefor and the purpose
for which such expenditures by the Fund were made.
13. The term of this Agreement shall begin on the date hereof and, unless
sooner terminated or continued as provided below, shall expire after one year.
This Agreement shall continue in effect after such term if its continuance is
specifically approved by a majority of the outstanding voting securities of
Class B-2 of the Fund or by a majority of the Directors of the Fund and a
majority of the Directors who are not parties to this Agreement or "interested
persons", as defined in the Investment Company Act of 1940 (the 1940 Act ), of
any such party and who have no direct or indirect financial interest in the
operation of the Fund's Rule 12b-1 plan for Class B-2 Shares or in any
agreements related to the plan at least annually in accordance with the 1940 Act
and the rules and regulations thereunder.
This Agreement may be terminated at any time, without payment of any
penalty, by vote of a majority of the Directors of the Fund, or a majority of
such Directors who are not parties to this Agreement or "interested persons", as
defined in the 1940 Act, of any such party and who have no direct or indirect
financial interest in the operation of the Fund's Rule 12b-1 plan for Class B-2
Shares or in any agreement related to the plan or by a vote of a majority of the
outstanding voting securities of Class B-2 on not more than sixty days written
notice to any other party to the agreement; and shall terminate automatically in
the event of its assignment (as defined in the 1940 Act), which shall not
include assignment of the Principal Underwriter's (as hereinafter defined)
provided for hereunder and/or rights related to such Allocable Portions.
14. The provisions of this Section 14 shall be applicable to the extent
necessary to enable the Fund to comply with the obligation of the Fund to pay
the Principal Underwriter its Allocable Portion of Distribution Fees paid in
respect of Shares while the Fund is required to do so pursuant the Principal
Underwriting Agreement, of even date herewith, in respect of Class B-2 Shares,
and shall remain in effect so long as any payments are required to be made by
the Fund pursuant to the irrevocable payment instruction (as defined in the
Purchase Agreement (the "Irrevocable Payment Instruction")).
14.1 The Fund shall pay to the Principal Underwriter the Principal
Underwriter's Allocable Portion (as hereinafter defined) of a fee (the
"Distribution Fee") at the rate of .75% per annum of the average daily net asset
value of the Shares, subject to the limitation on the maximum aggregate amount
of such fees under the Rules of Fair Practice as applicable to such Distribution
Fee on the date hereof.
14.2 The Principal Underwriter's Allocable Portion of Distribution Fees
paid by the Fund in respect of Shares shall be equal to the portion of the Asset
Based Sales Charge allocable to Distributor Shares (as defined in Schedule I
hereto to this Agreement) in accordance with Schedule I hereto. The Fund agrees
to cause its transfer agent to maintain the records and arrange for the payments
on behalf of the Fund at the times and in the amounts and to the accounts
required by Schedule I hereto, as the same may be amended from time to time. It
is acknowledged and agreed that by virtue of the operation of Schedule I hereto
the Principal Underwriter's Allocable Portion of Distribution Fees paid by the
Fund in respect of Shares, may, to the extent provided in Schedule I hereto,
take into account Distribution Fees payable by the Fund in respect of other
existing and future classes and/or sub-classes of shares of the Fund which would
be treated as "Shares" under Schedule I hereto. The Fund will limit amounts paid
to any subsequent principal underwriters of Shares to the portion of the Asset
Based Sales Charge paid in respect of Shares which is allocable to
Post-distributor Shares (as defined in Schedule I hereto) in accordance with
Schedule I hereto. The Fund's payments to the Principal Underwriter in
consideration of its services in connection with the sale of B-2 Shares shall be
the Distribution Fees attributable to B-2 Shares which are Distributor Shares
(as defined in Schedule I hereto) and all other amounts constituting the
Principal Underwriter's Allocable Portion of Distribution Fees shall be the
Distribution Fees related to the sale of other Shares which are Distributor
Shares (as defined in Schedule I hereto).
The Fund shall cause its transfer agent and sub-transfer agents to withhold
from redemption proceeds payable to holders of Shares on redemption thereof the
contingent deferred sales charges payable upon redemption thereof as set forth
in the then current prospectus and/or statement of additional information of the
Fund ("CDSCs") and to pay over to the Principal Underwriter The Principal
Underwriter's Allocable Portion of said CDSCs paid in respect of Shares which
shall be equal to the portion thereof allocable to Distributor Shares (as
defined in Schedule I hereto) in accordance with Schedule I hereto.
14.3 The Principal Underwriter shall be considered to have completely
earned the right to the payment of its Allocable Portion of the Distribution Fee
and the right to payment over to it of its' Allocable Portion of the CDSC in
respect of Shares as provided for hereby upon the completion of the sale of each
Commission Share (as defined in Schedule I hereto) taken into account as a
Distributor Share in computing the Principal Underwriter's Allocable Portion in
accordance with Schedule I hereto.
14.4 Except as provided in Section 14.5 hereof in respect of Distribution
Fees only, the Fund's obligation to pay the Principal Underwriter the
Distribution Fees and to pay over to the Principal Underwriter CDSCs provided
for hereby shall be absolute and unconditional and shall not be subject to
dispute, offset, counterclaim or any defense whatsoever (it being understood
that nothing in this sentence shall be deemed a waiver by the Fund of its right
separately to pursue any claims it may have against the Principal Underwriter
and enforce such claims against any assets (other than the Principal
Underwriter's right to its Allocable Portion of the Distribution Fees and CDSCs
(the "Collection Rights") of the Principal Underwriter).
14.5 Notwithstanding anything in this Agreement to the contrary, the Fund
shall pay to the Principal Underwriter its Allocable Portion of Distribution
Fees provided for hereby notwithstanding its termination as Principal
Underwriter for the Shares or any termination of this Agreement and such payment
of such Distribution Fees, and that obligation and the method of computing such
payment, shall not be changed or terminated except to the extent required by any
change in applicable law, including, without limitation, the 1940 Act, the Rules
promulgated thereunder by the Securities and Exchange Commission and the Rules
of Fair Practice, in each case enacted or promulgated after May 31, 1995, or in
connection with a Complete Termination (as hereinafter defined). For the
purposes of this Section 14.5, "Complete Termination" means a termination of the
Fund's Rule 12b-1 plan for B-2 Shares involving the cessation of payments of the
Distribution Fees, and the cessation of payments of distribution fees pursuant
to every other Rule 12b-1 plan of the Fund for every existing or future
B-Class-of-Shares (as hereinafter defined) and the Fund's discontinuance of the
offering of every existing or future B-Class-of-Shares, which conditions shall
be deemed satisfied when they are first complied with hereafter and so long
thereafter as they are complied with prior to the earlier of (i) the date upon
which all of the B-2 Shares which are Distributor Shares pursuant to Schedule I
hereto shall have been redeemed or converted or (ii) May 31, 2005. For purposes
of this Section 14.5, the term B-Class-of-Shares means each of the B-1 Class of
Shares of the Fund, the B-2 Class of Shares of the Fund and each other class of
shares of the Fund hereafter issued which would be treated as Shares under
Schedule I hereto or which has substantially similar economic characteristics to
the B-1 or B-2 Classes of Shares taking into account the total sales charge,
CDSC or other similar charges borne directly or indirectly by the holder of the
shares of such class. The parties agree that the existing C Class of Shares of
the Fund does not have substantially similar economic characteristics to the B-1
or B-2 Classes of Shares taking into account the total sales charge, CDSC or
other similar charges borne directly or indirectly by the holder of such shares.
For purposes of clarity the parties to this agreement hereby state that they
intend that a new installment load class of shares which may be authorized by
amendments to Rule 6(c)-10 under the 1940 Act will be considered to be a
B-Class-of-Shares if it has economic characteristics substantially similar to
the economic characteristics of the existing B-1 or B-2 Classes of Shares taking
into account the total sale charge, CDSC or other similar charges borne directly
or indirectly by the holder of such shares and will not be considered to be a
B-Class-of-Shares if it has economic characteristics substantially similar to
the economic characteristics of the existing C Class of shares of the Fund
taking into account the total sales charge, CDSC or other similar charges borne
directly or indirectly by the holder of such shares.
14.6 The Principal Underwriter may assign any part of its Allocable
Portions and obligations of the Fund related thereto (but not the Principal
Underwriter's obligations to the Fund provided for in this Agreement) to any
person (an "Assignee") and any such assignment shall be effective as to the Fund
upon written notice to the Fund by the Principal Underwriter. In connection
therewith the Fund shall pay all or any amounts in respect of its Allocable
Portions directly to the Assignee thereof as directed in a writing by the
Principal Underwriter in the Irrevocable Payment Instruction, as the same may be
amended from time to time with the consent of the Fund, and the Fund shall be
without liability to any person if it pays such amounts when and as so directed,
except for underpayments of amounts actually due, without any amount payable as
consequential or other damages due to such underpayment and without interest
except to the extent that delay in payment of Distribution Fees and CDSCs
results in an increase in the maximum Sales Charge allowable under the Rules of
Fair Practice, which increases daily at a rate of prime plus one percent per
annum.
14.7 The Fund will not, to the extent it may otherwise be empowered to do
so, change or waive any CDSC with respect to B-2 Shares, except as provided in
the Fund's prospectus or statement of additional information without the
Principal Underwriter's or Assignee's consent, as applicable. Notwithstanding
anything to the contrary in this Agreement or any termination of this Agreement
or the Principal Underwriter as principal underwriter for the Shares of the
Fund, the Principal Underwriter shall be entitled to be paid its Allocable
Portion of the CDSCs whether or not the Fund's Rule 12b-1 plan for B-2 Shares is
terminated and whether or not any such termination is a Complete Termination, as
defined above.
15. This Agreement shall be construed in accordance with the laws of The
Commonwealth of Massachusetts. All sales hereunder are to be made, and title to
the Shares shall pass, in Boston, Massachusetts.
16. The Fund is a Massachusetts business trust established under a
Declaration of Trust, as it may be amended from time to time. The obligations of
the Fund are not personally binding upon, nor shall recourse be had against the
private property of any of the Trustees, shareholders, officers, employees or
agents of the Fund, but only the property of the Fund shall be bound.
IN WITNESS WHEREOF, the parties hereto have caused this agreement to be
executed by their respective officers thereunto duly authorized at Boston,
Massachusetts, on the day and year first written above.
KEYSTONE WORLD BOND FUND
By: /s/
-------------------------------
Title:
KEYSTONE INVESTMENT DISTRIBUTORS COMPANY
By: /s/
-------------------------------
Title:
<PAGE>
SCHEDULE I
TO
PRINCIPAL UNDERWRITING AGREEMENT
FOR CLASS B-2SHARES
OF
KEYSTONE WORLD BOND FUND
TRANSFER AGENT PROCEDURES FOR DIFFERENTIATING
AMONG DISTRIBUTOR SHARES AND POST-DISTRIBUTOR SHARES
Amounts (in respect of Asset Based Sales Charges (as hereinafter defined)
and CDSCs (as hereinafter defined) in respect of Shares (as hereinafter defined)
of each Fund (as hereinafter defined) shall be allocated between Distributor
Shares (as hereinafter defined) and Post-distributor Shares (as hereinafter
defined) of such Fund in accordance with the rules set forth in clauses (B) and
(C). Clause (B) sets forth the rules to be followed by the Transfer Agent for
each Fund and the record owner of each Omnibus Account (as hereinafter defined)
in maintaining records relating to Distributor Shares and Post-distributor
Shares. Clause (C) sets forth the rules to be followed by the Transfer Agent for
each Fund and the record owner of each Omnibus Account in determining what
portion of the Asset Based Sales Charge (as hereinafter defined) payable in
respect of each class of Shares of such Fund and what portion of the CDSC (as
hereinafter defined) payable by the holders of Shares of such Fund is
attributable to Distributor Shares and Post-distributor Shares, respectively.
(A) DEFINITIONS:
Generally, for purposes of this Schedule I, defined terms shall be used
with the meaning assigned to them in the Agreement, except that for purposes of
the following rules the following definitions are also applicable:
"Agreement" shall mean the Principal Underwriting Agreement for Class B-2
Shares of the Instant Fund dated as of May 31, 1995 between the Instant Fund and
the Distributor.
"Asset Based Sales Charge" shall have the meaning set forth in Section
26(b)(8)(C) of the Rules of Fair Practice it being understood that for purposes
of this Exhibit I such term does not include the Service Fee.
"Business Day" shall mean any day on which the banks and the New York Stock
Exchange are not authorized or required to close in New York City.
"Capital Gain Dividend" shall mean, in respect of any Share of any Fund, a
Dividend in respect of such Share which is designated by such Fund as being a
"capital gain dividend" as such term is defined in Section 852 of the Internal
Revenue Code of 1986, as amended.
"CDSC" shall mean with respect to any Fund, the contingent deferred sales
charge payable, either directly or by withholding from the proceeds of the
redemption of the Shares of such Fund, by the shareholders of such Fund on any
redemption of Shares of such Fund in accordance with the Prospectus relating to
such Fund.
"Commission Share" shall mean, in respect of any Fund, a Share of such Fund
issued under circumstances where a CDSC would be payable upon the redemption of
such Share if such CDSC is not waived or shall have not otherwise expired.
"Date of Original Purchase" shall mean, in respect of any Commission Share
of any Fund, the date on which such Commission Share was first issued by such
Fund; provided, that if such Share is a Commission Share and such Fund issued
the Commission Share (or portion thereof) in question in connection with a Free
Exchange for a Commission Share (or portion thereof) of another Fund, the Date
of Original Purchase for the Commission Share (or portion thereof) in question
shall be the date on which the Commission Share (or portion thereof) of the
other Fund was first issued by such other Fund (unless such Commission Share (or
portion thereof) was also issued by such other Fund in a Free Exchange, in which
case this proviso shall apply to that Free Exchange and this application shall
be repeated until one reaches a Commission Share (or portion thereof) which was
issued by a Fund other than in a Free Exchange).
"Distributor" shall mean Keystone Investment Distributors Company, its
successors and assigns.
"Distributor's Account" shall mean the account of the Distributor, account
no. 9903-584-2, ABA No. 011 0000 28, entitled "General Account" maintained with
State Street Bank & Trust Company or such other account as the Distributor may
designate in a notice to the Transfer Agent.
"Distributor Inception Date" shall mean, in respect of any Fund, the date
identified as the date Shares of such Fund are first sold by the Distributor.
"Distributor Last Sale Cut-off Date" shall mean, in respect of any Fund,
the date identified as the last sale of a Commission Share during the period the
Distributor served as principal underwriter under the Agreement.
"Distributor Shares" shall mean, in respect of any Fund, all Shares of such
Fund the Month of Original Purchase of which occurs on or after the Inception
Date for such Fund and on or prior to the Distributor Last Sale Cut-off Date in
respect of such Fund.
"Dividend" shall mean, in respect of any Share of any Fund, any dividend or
other distribution by such Fund in respect of such Share.
"Free Exchange" shall mean any exchange of a Commission Share (or portion
thereof) of one Fund (the "Redeeming Fund") for a Share (or portion thereof) of
another Fund (the "Issuing Fund"), under any arrangement which defers the
exchanging Shareholder's obligation to pay the CDSC in respect of the Commission
Share (or portion thereof) of the Redeeming Fund so exchanged until the later
redemption of the Share (or portion thereof) of the Issuing Fund received in
such exchange.
"Free Share" shall mean, in respect of any Fund, each Share of such Fund
other than a Commission Share, including, without limitation: (i) Shares issued
in connection with the automatic reinvestment of Capital Gain Dividends or Other
Dividends by such Fund, (ii) Special Free Shares issued by such Fund and (iii)
Shares (or portion thereof) issued by such Fund in connection with an exchange
whereby a Free Share (or portion thereof) of another Fund is redeemed and the
Net Asset Value of such redeemed Free Share (or portion thereof) is invested in
such Shares (or portion thereof) of such Fund.
"Fund" shall mean each of the regulated investment companies or series or
portfolios of regulated investment companies identified in Schedule II to the
Irrevocable Payment Instruction, as the same may be amended from time to time in
accordance with the terms thereof.
"Instant Fund" shall mean Keystone World Bond Fund.
"ML Omnibus Account" shall mean, in respect of any Fund, the Omnibus
Account maintained by Merrill Lynch, Pierce, Fenner & Smith as subtransfer
agent.
"Month of Original Purchase" shall mean, in respect of any Share of any
Fund, the calendar month in which such Share was first issued by such Fund;
provided, that if such Share is a Commission Share and such Fund issued the
Commission Share (or portion thereof) in question in connection with a Free
Exchange for a Commission Share (or portion thereof) of another Fund, the Month
of Original Purchase for the Commission Share (or portion thereof) in question
shall be the calendar month in which the Commission Share (or portion thereof)
of the other Fund was first issued by such other Fund (unless such Commission
Share (or portion thereof) was also issued by such other Fund in a Free
Exchange, in which case this proviso shall apply to that Free Exchange and this
application shall be repeated until one reaches a Commission Share (or portion
thereof) which was issued by a Fund other than in a Free Exchange); provided,
further, that if such Share is a Free Share and such Fund issued such Free Share
in connection with the automatic reinvestment of dividends in respect of other
Shares of such Fund, the Month of Original Purchase of such Free Share shall be
deemed to be the Month of Original Purchase of the Share in respect of which
such dividend was paid; provided, further, that if such Share is a Free Share
and such Fund issued such Free Share in connection with an exchange whereby a
Free Share (or portion thereof) of another Fund is redeemed and the Net Asset
Value of such redeemed Free Share (or portion thereof) is invested in a Free
Share (or portion thereof) of such Fund, the Month of Original Issue of such
Free Share shall be the Month of Original Issue of the Free Share of such other
Fund so redeemed (unless such Free Share of such other Fund was also issued by
such other Fund in such an exchange, in which case this proviso shall apply to
that exchange and this application shall be repeated until one reaches a Free
Share which was issued by a Fund other than in such an exchange); and provided,
finally, that for purposes of this Schedule I each of the following periods
shall be treated as one calendar month for purposes of applying the rules of
this Schedule I to any Fund: (i) the period of time from and including the
Distributor Inception Date for such Fund to and including the last day of the
calendar month in which such Distributor Inception Date occurs; (ii) the period
of time commencing with the first day of the calendar month in which the
Distributor Last Sale Cutoff Date in respect of such Fund occurs to and
including such Distributor Last Sale Cutoff Date; and (iii) the period of time
commencing on the day immediately following the Distributor Last Sale Cutoff
Date in respect of such Fund to and including the last day of the calendar month
in which such Distributor Last Sale Cut-off Date occurs.
"Omnibus Account" shall mean any Shareholder Account the record owner of
which is a registered broker-dealer which has agreed with the Transfer Agent to
provide sub-transfer agent functions relating to each Sub-shareholder Account
within such Shareholder Account as contemplated by this Schedule I in respect of
each of the Funds.
"Omnibus Asset Based Sales Charge Settlement Date" shall mean, in respect
of each Omnibus Account, the Business Day next following the twentieth day of
each calendar month for the calendar month immediately preceding such date so
long as the record owner is able to allocate the Asset Based Sales Charge
accruing in respect of Shares of any Fund as contemplated by this Schedule I no
more frequently than monthly; provided, that at such time as the record owner of
such Omnibus Account is able to provide information sufficient to allocate the
Asset Based Sales Charge accruing in respect of such Shares of such Fund owned
of record by such Omnibus Account as contemplated by this Schedule I on a weekly
or daily basis, the Omnibus Asset Based Sales Charge Settlement Date shall be a
weekly date as in the case of the Omnibus CDSC Settlement Date or a daily date
as in the case of Asset Based Sales Charges accruing in respect of Shareholder
Accounts other than Omnibus Accounts, as the case may be.
"Omnibus CDSC Settlement Date" shall mean, in respect of each Omnibus
Account, the third Business Day of each calendar week for the calendar week
immediately preceding such date so long as the record owner of such Omnibus
Account is able to allocate the CDSCs accruing in respect of any Shares of any
Fund as contemplated by this Schedule I for no more frequently than weekly;
provided, that at such time as the record owner of such Shares of such Fund
owned of record by such Omnibus Account is able to provide information
sufficient to allocate the CDSCs accruing in respect of such Omnibus Account as
contemplated by this Schedule I on a daily basis, the Omnibus CDSC Settlement
Date for such Omnibus Account shall be a daily date as in the case of CDSCs
accruing in respect of Shareholder Accounts other than Omnibus Accounts.
"Original Purchase Amount" shall mean, in respect of any Commission Share
of any Fund, the amount paid (i.e., the Net Asset Value thereof on such date),
on the Date of Original Purchase in respect of such Commission Share, by such
Shareholder Account or Sub-shareholder Account for such Commission Share;
provided, that if such Fund issued the Commission Share (or portion thereof) in
question in connection with a Free Exchange for a Commission Share (or portion
thereof) of another Fund, the Original Purchase Amount for the Commission Share
(or portion thereof) in question shall be the Original Purchase Amount in
respect of such Commission Share (or portion thereof) of such other Fund (unless
such Commission Share (or portion thereof) was also issued by such other Fund in
a Free Exchange, in which case this proviso shall apply to that Free Exchange
and this application shall be repeated until one reaches a Commission Share (or
portion thereof) which was issued by a Fund other than in a Free Exchange).
"Other Dividend" shall mean in respect of any Share, any Dividend paid in
respect of such Share other than a Capital Gain Dividend.
"Post-distributor Shares" shall mean, in respect of any Fund, all Shares of
such Fund the Month of Original Purchase of which occurs after the Distributor
Last Sale Cut-off Date for such Fund.
"Program Agent" shall mean Citicorp North America, Inc., as Program Agent
under the Purchase Agreement, and its successors and assigns in such capacity.
"Purchase Agreement" shall mean that certain Purchase and Sale Agreement
dated as of May 31, 1995, among Keystone Investment Distributors Company, as
Seller, Citibank, N.A., as Purchaser, and Citicorp North America, Inc., as
Program Agent.
"Share" shall mean in respect of any Fund any share of the classes of
shares specified in Schedule II to the Irrevocable Payment Instruction opposite
the name of such Fund, as the same may be amended from time to time by notice
from the Distributor and the Program Agent to the Fund and the Transfer Agent;
provided, that such term shall include, after the Distributor Last Sale Cut-off
Date, a share of a new class of shares of such Fund: (i) with respect to each
record owner of Shares which is not treated in the records of each Transfer
Agent and Sub-transfer Agent for such Fund as an entirely separate and distinct
class of shares from the classes of shares specified Schedule II to the
Irrevocable Payment Instruction or (ii) the shares of which class may be
exchanged for shares of another Fund of the classes of shares specified on
Schedule II to the Irrevocable Payment Instruction of any class existing on or
prior to the Distributor Last Sale Cut-off Date; or (iii) dividends on which can
be reinvested in shares of the classes specified on Schedule II to the
Irrevocable Payment Instruction under the automatic dividend reinvestment
options; or (iv) which is otherwise treated as though it were of the same class
as the class of shares specified on Schedule II to the Irrevocable Payment
Instruction.
"Shareholder Account" shall have the meaning set forth in clause (B)(1)
hereof.
"Special Free Share" shall mean, in respect of any Fund, a Share (other
than a Commission Share) issued by such Fund other than in connection with the
automatic reinvestment of Dividends and other than in connection with an
exchange whereby a Free Share (or portion thereof) of another Fund is redeemed
and the Net Asset Value of such redeemed Share (or portion thereof) is invested
in a Share (or portion thereof) of such Fund.
"Sub-shareholder Account" shall have the meaning set forth in clause (B)(1)
hereof.
"Sub-transfer Agent" shall mean, in respect of each Omnibus Account, the
record owner thereof.
(B) RECORDS TO BE MAINTAINED BY THE TRANSFER AGENT FOR EACH FUND AND THE
RECORD OWNER OF EACH OMNIBUS ACCOUNT:
The Transfer Agent shall maintain Shareholder Accounts, and shall cause
each record owner of each Omnibus Account to maintain Sub-shareholder Accounts,
each in accordance with the following rules:
(1) SHAREHOLDER ACCOUNTS AND SUB-SHAREHOLDER ACCOUNTS. The Transfer Agent
shall maintain a separate account (a "Shareholder Account") for each record
owner of Shares of each Fund. Each Shareholder Account (other than Omnibus
Accounts) will represent a record owner of Shares of such Fund, the records of
which will be kept in accordance with this Schedule I. In the case of an Omnibus
Account, the Transfer Agent shall require that the record owner of the Omnibus
Account maintain a separate account (a "Sub-shareholder Account") for each
record owner of Shares which are reflected in the Omnibus Account, the records
of which will be kept in accordance with this Schedule I. Each such Shareholder
Account and Sub-shareholder Account shall relate solely to Shares of such Fund
and shall not relate to any other class of shares of such Fund.
(2) COMMISSION SHARES. For each Shareholder Account (other than an Omnibus
Account), the Transfer Agent shall maintain daily records of each Commission
Share of such Fund which records shall identify each Commission Share of such
Fund reflected in such Shareholder Account by the Month of Original Purchase of
such Commission Share.
For each Omnibus Account, the Transfer Agent shall require that the
Sub-transfer Agent in respect thereof maintain daily records of such
Sub-shareholder Account which records shall identify each Commission Share of
such Fund reflected in such Sub-shareholder Account by the Month of Original
Purchase; provided, that until the Sub-transfer Agent in respect of the ML
Omnibus Account develops the data processing capability to conform to the
foregoing requirements, such Sub-transfer Agent shall maintain daily records of
Sub-shareholder Accounts which identify each Commission Share of such Fund
reflected in such Sub-shareholder Account by the Date of Original Purchase. Each
such Commission Share shall be identified as either a Distributor Share or a
Post-distributor Share based upon the Month of Original Purchase of such
Commission Share (or in the case of a Sub-shareholder Account within the ML
Omnibus Account, based upon the Date of Original Purchase).
(3) FREE SHARES. The Transfer Agent shall maintain daily records of each
Shareholder Account (other than an Omnibus Account) in respect of any Fund so as
to identify each Free Share (including each Special Free Share) reflected in
such Shareholder Account by the Month of Original Purchase of such Free Share.
In addition, the Transfer Agent shall require that each Shareholder Account
(other than an Omnibus Account) have in effect separate elections relating to
reinvestment of Capital Gain Dividends and relating to reinvestment of Other
Dividends in respect of any Fund. Either such Shareholder Account shall have
elected to reinvest all Capital Gain Dividends or such Shareholder Account shall
have elected to have all Capital Gain Dividends distributed. Similarly, either
such Shareholder Account shall have elected to reinvest all Other Dividends or
such Shareholder Account shall have elected to have all Other Dividends
distributed.
The Transfer Agent shall require that the Sub-transfer Agent in respect of
each Omnibus Account maintain daily records for each Sub-shareholder Account in
the manner described in the immediately preceding paragraph for Shareholder
Accounts (other than Omnibus Accounts); provided, that until the Sub-transfer
Agent in respect of the ML Omnibus Account develops the data processing
capability to conform to the foregoing requirements, such Sub-transfer Agent
shall not be obligated to conform to the foregoing requirements. Each
Sub-shareholder Account shall also have in effect Dividend reinvestment
elections as described in the immediately preceding paragraph.
The Transfer Agent and each Sub-transfer Agent in respect of an Omnibus
Account shall identify each Free Share as either a Distributor Share or a
Post-distributor Share based upon the Month of Original Purchase of such Free
Share; provided, that until the Sub-transfer Agent in respect of the ML Omnibus
Account develops the data processing capability to conform to the foregoing
requirements, the Transfer Agent shall require such Sub-transfer Agent to
identify each Free Share of a given Fund in the ML Omnibus Account as a
Distributor Share, or Post-distributor Share, as follows:
(a) Free Shares of such Fund which are outstanding on the Distributor Last
Sale Cut-off Date for such Fund shall be identified as Distributor
Shares.
(b) Free Shares of such Fund which are issued (whether or not in
connection with an exchange for a Free Share of another Fund) to the
ML Omnibus Account during any calendar month (or portion thereof)
after the Distributor Last Sale Cut-off Date for such Fund shall be
identified as Distributor Shares in a number computed as follows:
A X (B/C)
where:
A = Free Shares of such Fund issued to the ML Omnibus Account
during such calendar month (or portion thereof)
B = Number of Commission Shares and Free Shares of such Fund in the
ML Omnibus Account identified as Distributor Shares and
outstanding as of the close of business in the last day of the
immediately preceding calendar month (or portion thereof)
C = Total number of Commission Shares and Free Shares of such Fund
in the ML Omnibus Account and outstanding as of the close of
business on the last day of the immediately preceding calendar
month (or portion thereof).
(c) Free Shares of such Fund which are issued (whether or not in
connection with an exchange for a free share of another Fund) to the
ML Omnibus Account during any calendar month (or portion thereof)
after the Distributor Last Sale Cut-off Date for such Fund shall be
identified as Post-distributor Shares in a number computed as follows:
(A X (B/C)
where:
A = Free Shares of such Fund issued to the ML Omnibus Account
during such calendar month (or portion thereof)
B = Number of Commission Shares and Free Shares of such Fund in the
ML Omnibus Account identified as Post-distributor Shares and
outstanding as of the close of business in the last day of the
immediately preceding calendar month (or portion thereof)
C = Total number of Commission Shares and Free Shares of such Fund
in the ML Omnibus Account and outstanding as of the close of
business on the last day of the immediately preceding calendar
month (or portion thereof).
(d) Free Shares of such Fund which are redeemed (whether or not in
connection with an exchange for Free Shares of another Fund or in
connection with the conversion of such Shares into a Class A Share of
such Fund) from the ML Omnibus Account in any calendar month (or
portion thereof) after the Distributor Last Sale Cut-off Date for such
Fund shall be identified as Distributor Shares in a number computed as
follows:
A X (B/C)
Where:
A = Free Shares of such Fund which are redeemed (whether or not in
connection with an exchange for Free Shares of another Fund or in
connection with the conversion of such Shares into a class A
share of such Fund) from the ML Omnibus Account during such
calendar month (or portion thereof)
B = Free Shares of such Fund in the ML Omnibus Account identified
as Distributor Shares and outstanding as of the close of business
on the last day of the immediately preceding calendar month.
C = Total number of Free Shares of such Fund in the ML Omnibus
Account and outstanding as of the close of business on the last
day of the immediately preceding calendar month.
(e) Free Shares of such Fund which are redeemed (whether or not in
connection with an exchange for Free Shares of another Fund or in
connection with the conversion of such Shares into a class A share of
such Fund) from the ML Omnibus Account in any calendar month (or
portion thereof) after the Distributor Last Sale Cut-off Date for such
Fund shall be identified as Post-distributor Shares in a number
computed as follows:
A X (B/C)
where:
A = Free Shares of such Fund which are redeemed (whether or not in
connection with an exchange for Free Shares of another Fund or in
connection with the conversion of such Shares into a class A
share of such Fund) from the ML Omnibus Account during such
calendar month (or portion thereof)
B = Free Shares of such Fund in the ML Omnibus Account identified
as Post-distributor Shares and outstanding as of the close of
business on the last day of the immediately preceding calendar
month.
C = Total number of Free Shares of such Fund in the ML Omnibus
Account and outstanding as of the close of business on the last
day of the immediately preceding calendar month.
(4) APPRECIATION AMOUNT AND COST ACCUMULATION AMOUNT. The Transfer Agent
shall maintain on a daily basis in respect of each Shareholder Account (other
than Omnibus Accounts) a Cost Accumulation Amount representing the total of the
Original Purchase Amounts paid by such Shareholder Account for all Commission
Shares reflected in such Shareholder Account as of the close of business on each
day. In addition, the Transfer Agent shall maintain on a daily basis in respect
of each Shareholder Account (other than Omnibus Accounts) sufficient records to
enable it to compute, as of the date of any actual or deemed redemption or Free
Exchange of a Commission Share reflected in such Shareholder Account an amount
(such amount an "Appreciation Amount") equal to the excess, if any, of the Net
Asset Value as of the close of business on such day of the Commission Shares
reflected in such Shareholder Account minus the Cost Accumulation Amount as of
the close of business on such day. In the event that a Commission Share (or
portion thereof) reflected in a Shareholder Account is redeemed or under these
rules is deemed to have been redeemed (whether in a Free Exchange or otherwise),
the Appreciation Amount for such Shareholder Account shall be reduced, to the
extent thereof, by the Net Asset Value of the Commission Share (or portion
thereof) redeemed, and if the Net Asset Value of the Commission Share (or
portion thereof) being redeemed equals or exceeds the Appreciation Amount, the
Cost Accumulation Amount will be reduced to the extent thereof, by such excess.
If the Appreciation Amount for such Shareholder Account immediately prior to any
redemption of a Commission Share (or portion thereof) is equal to or greater
than the Net Asset Value of such Commission Share (or portion thereof) deemed to
have been tendered for redemption, no CDSCs will be payable in respect of such
Commission Share (or portion thereof).
The Transfer Agent shall require that the Sub-transfer Agent in respect of
each Omnibus Account maintain on a daily basis in respect of each
Sub-shareholder Account reflected in such Omnibus Account a Cost Accumulation
Amount and sufficient records to enable it to compute, as of the date of any
actual or deemed redemption or Free Exchange of a Commission Share reflected in
such Sub-shareholder Account an Appreciation Amount in accordance with the
preceding paragraph and to apply the same to determine whether a CDSC is payable
(as though such Sub-shareholder Account were a Shareholder Account other than an
Omnibus Account; provided, that until the Sub-transfer Agent in respect of the
ML Omnibus Account develops the data processing capability to conform to the
foregoing requirements, such Sub-transfer Agent shall maintain for each
Sub-shareholder Account a separate Cost Accumulation Amount and a separate
Appreciation Amount for each Date of Original Purchase of any Commission Share
which shall be applied as set forth in the preceding paragraph as if each Date
of Original Purchase were a separate Month of Original Purchase.
(5) NASD CAP. On the date the distribution fees paid in respect of any
class of Shares equals the maximum amount thereon under the Rules of Fair
Practice, in respect of such class, all outstanding Shares of such class of such
Fund shall be converted into Class A shares of such Fund and will be deemed to
have been redeemed for their Net Asset Value for purposes of this Schedule I.
(6) IDENTIFICATION OF REDEEMED SHARES. If a Shareholder Account (other than
an Omnibus Account) tenders a Share of a Fund for redemption (other than in
connection with an exchange of such Share for a Share of another Fund or in
connection with the conversion of such Share pursuant to a Conversion Feature),
such tendered Share will be deemed to be a Free Share if there are any Free
Shares reflected in such Shareholder Account immediately prior to such tender.
If there is more than one Free Share reflected in such Shareholder Account
immediately prior to such tender, such tendered Share will be deemed to be the
Free Share with the earliest Month of Original Purchase. If there are no Free
Shares reflected in such Shareholder Account immediately prior to such tender,
such tendered Share will be deemed to be the Commission Share with the earliest
Month of Original Purchase reflected in such Shareholder Account.
If a Sub-shareholder Account reflected in an Omnibus Account tenders a
Share for redemption (other than in connection with an Exchange of such Share
for a Share of another Fund or in connection with the conversion of such Share
pursuant to a Conversion Feature), the Transfer Agent shall require that the
record owner of each Omnibus Account supply the Transfer Agent sufficient
records to enable the Transfer Agent to apply the rules of the preceding
paragraph to such Sub-shareholder Account (as though such Sub-shareholder
Account were a Shareholder Account other than an Omnibus Account); provided,
that until the Sub-transfer Agent in respect of the ML Omnibus Account develops
the data processing capability to conform to the foregoing requirements, such
Sub-transfer Agent shall not be required to conform to the foregoing rules
regarding Free Shares (and the Transfer Agent shall account for such Free Shares
as provided in (3) above) but shall apply the foregoing rules to each Commission
Share with respect to the Date of Original Purchase of any Commission Share as
though each such Date were a separate Month of Original Purchase.
(7) IDENTIFICATION OF EXCHANGED SHARES. When a Shareholder Account (other
than an Omnibus Account) tenders Shares of one Fund (the "Redeeming Fund") for
redemption where the proceeds of such redemption are to be automatically
reinvested in shares of another Fund (the "Issuing Fund") to effect an exchange
(whether or not pursuant to a Free Exchange) into Shares of the Issuing Fund:
(1) such Shareholder Account will be deemed to have tendered Shares (or portions
thereof) of the Redeeming Fund with each Month of Original Purchase represented
by Shares of the Redeeming Fund reflected in such Shareholder Account
immediately prior to such tender in the same proportion that the number of
Shares of the redeeming Fund with such Month of Original Purchase reflected in
such Shareholder immediately prior to such tender bore to the total number of
Shares of the Redeeming Fund reflected in such Shareholder Account immediately
prior to such tender, and on that basis the tendered Shares of the Redeeming
Fund will be identified as Distributor Shares or Post-distributor Shares; (2)
such Shareholder Account will be deemed to have tendered Commission Shares (or
portions thereof) and Free Shares (or portions thereof) of the Redeeming Fund of
each category (i.e., Distributor Shares or Post-distributor Shares) in the same
proportion that the number of Commission Shares or Free Shares (as the case may
be) of the Redeeming Fund in such category reflected in such Shareholder Account
bore to the total number of Shares of the Redeeming Fund in such category
reflected in such Shareholder Account immediately prior to such tender, (3) the
Shares (or portions thereof) of the Issuing Fund issued in connection with such
exchange will be deemed to have the same Months of Original Purchase as the
Shares (or portions thereof) of the Redeeming Fund so tendered and will be
categorized as Distributor Shares and Post-distributor Shares accordingly, and
(4) the Shares (or portions thereof) of each Category of the Issuing Fund issued
in connection with such exchange will be deemed to be Commission Shares and Free
Shares in the same proportion that the Shares of such Category of the Redeeming
Fund were Commission Shares and Free Shares.
The Transfer Agent shall require that each record owner of an Omnibus
Account maintain records relating to each Sub-shareholder Account in such
Omnibus Account sufficient to apply the foregoing rules to each such
Sub-shareholder Account (as though such Sub-shareholder Account were a
Shareholder Account other than an Omnibus Account); provided, that until the
Sub-transfer Agent in respect of the ML Omnibus Account develops the data
processing capability to conform to the foregoing requirements, such
Sub-transfer Agent shall not be required to conform to the foregoing rules
relating to Free Shares (and the Sub-transfer Agent shall account for such Free
Shares as provided in (3) above) and shall apply a first-in-first-out procedure
(based upon the Date of Original Purchase) to determine which Commission Shares
(or portions thereof) of a Redeeming Fund were redeemed in connection with an
exchange.
(8) IDENTIFICATION OF CONVERTED SHARES. The Transfer Agent records
maintained for each Shareholder Account (other than an Omnibus Account) will
treat each Commission Share of a Fund as though it were redeemed at its Net
Asset Value on the date such Commission Share converts into a class A share of
such Fund in accordance with an applicable Conversion Feature applied with
reference to its Month of Original Purchase and will treat each Free Share of
such Fund with a given Month of Original Purchase as though it were redeemed at
its Net Asset Value when it is simultaneously converted to a class A share at
the time the Commission Shares of such Fund with such Month of Original Purchase
are so converted.
The Transfer Agent shall require that each record owner of an
Omnibus Account maintain records relating to each Sub-shareholder Account in
such Omnibus Account sufficient to apply the foregoing rules to each such
Sub-shareholder Account (as though such Sub-shareholder Account were a
Shareholder Account other than an Omnibus Account) ; provided, that until the
Sub-transfer Agent in respect of the ML Omnibus Account develops the data
processing capability to conform to the foregoing requirements, such
Sub-transfer Agent shall apply the foregoing rules to Commission Shares with
reference to the Date of Original Issue of each Commission Share (as though each
such date were a separate Month of Original Issue) and shall not be required to
apply the foregoing rules to Free Shares (and the Sub-transfer Agent shall
account for such Free Shares as provided in (3) above).
(C) ALLOCATIONS OF ASSET BASED SALE CHARGES AND CDSCS AMONG DISTRIBUTOR
SHARES AND POST-DISTRIBUTOR SHARES:
The Transfer Agent shall use the following rules to allocate the amounts of
Asset Based Sales Charges and CDSCs payable by each Fund in respect of Shares
between Distributor Shares and Post-distributor Shares:
(1) RECEIVABLES CONSTITUTING CDSCS: CDSCs will be treated as relating to
Distributor Shares or Post-distributor Shares depending upon the Month of
Original Purchase of the Commission Share the redemption of which gives rise to
the payment of a CDSC by a Shareholder Account.
The Transfer Agent shall cause each Sub-transfer Agent to apply the
foregoing rule to each Sub-shareholder Account based on the records maintained
by such Sub-transfer Agent; provided, that until the Sub-transfer Agent in
respect of the ML Omnibus Account develops the data processing capability to
conform to the foregoing requirements, such Sub-transfer Agent shall apply the
foregoing rules to each Sub-shareholder Account with respect to the Date of
Original Purchase of any Commission Share as though each such date were a
separate Month of Original Purchase.
(2) RECEIVABLES CONSTITUTING ASSET BASED SALES CHARGES:
The Asset Based Sales Charges accruing in respect of each Shareholder
Account (other than an Omnibus Account) shall be allocated to each Share
reflected in such Shareholder Account as of the close of business on such day on
an equal per share basis. For example, the Asset Based Sales Charges
attributable to Distributor Shares on any day shall be computed and allocated as
follows:
A X (B/C)
where:
A. = Total amount of Asset Based Sales Charge accrued in respect of such
Shareholder Account (other than an Omnibus Account) on such day.
B. = Number of Distributor Shares reflected in such Shareholder Account
(other than an Omnibus Account) on the close of business on such day
C. = Total number of Distributor Shares and Post-Distributor Shares
reflected in such Shareholder Account (other than an Omnibus Account)
and outstanding as of the close of business on such day.
The Portion of the Asset Based Sales Charges of such Fund accruing in respect of
such Shareholder Account for such day allocated to Post-distributor Shares will
be obtained using the same formula but substituting for "B" the number of
Post-distributor Shares, as the case may be, reflected in such Shareholder
Account and outstanding on the close of business on such day. The foregoing
allocation formula may be adjusted from time to time by notice to the Fund and
the transfer agent for the Fund from the Seller and the Program Agent pursuant
to Section 8.18 of the Purchase Agreement.
The Transfer Agent shall, based on the records maintained by the record
owner of such Omnibus Account, allocate the Asset Based Sales Charge accruing in
respect of each Omnibus Account on each day among all Sub-shareholder Accounts
reflected in such Omnibus Account on an equal per share basis based upon the
total number of Distributor Shares and Post-distributor Shares reflected in each
such Sub-shareholder Account as of the close of business on such day. In
addition, the Transfer Agent shall apply the foregoing rules to each
Sub-shareholder Account (as though it were a Shareholder Account other than an
Omnibus Account), based on the records maintained by the record owner, to
allocate the Asset Based Sales Charge so allocated to any Sub-shareholder
Account among the Distributor Shares and Post-distributor Shares reflected in
each such Sub-shareholder Account in accordance with the rules set forth in the
preceding paragraph; provided, that until the Sub-transfer Agent in respect of
the ML Omnibus Account develops the data processing capacity to apply the rules
of this Schedule I as applicable to Sub-shareholder Accounts other than ML
Omnibus Accounts, the Transfer Agent shall allocate the Asset Based Sales Charge
accruing in respect of Shares of any Fund in the ML Omnibus Account during any
calendar month (or portion thereof) among Distributor Shares and
Post-distributor Shares as follows:
(a) The portion of such Asset Based Sales Charge allocable to Distributor
Shares shall be computed as follows:
A X ((B + C)/2)
((D + E)/2)
where:
A = Total amount of Asset Based Sales Charge accrued during such
calendar month (or portion thereof) in respect of Shares of such
Fund in the ML Omnibus Account
B = Shares of such Fund in the ML Omnibus Account and identified as
Distributor Shares and outstanding as of the close of business on
the last day of the immediately preceding calendar month (or
portion thereof), times Net Asset Value per Share as of such time
C = Shares of such Fund in the ML Omnibus Account and identified as
Distributor Shares and outstanding as of the close of business on
the last day of such calendar month (or portion thereof), times
Net Asset Value per Share as of such time
D = Total number of Shares of such Fund in the ML Omnibus Account
and outstanding as of the close of business on the last day of
the immediately preceding calendar month (or portion thereof),
times Net Asset Value per Share as of such time.
E = Total number of Shares of such Fund in the ML Omnibus Account
and outstanding as of the close of business on the last day of
such calendar month (or portion thereof), times Net Asset Value
per Share as of such time.
(b) The portion of such Asset Based Sales Charge allocable to
Post-distributor Shares shall be computed s follows:
A X ((B + C)/2)
-----------
((D + E)/2)
where:
A = Total amount of Asset Based Sales Charge accrued during such
calendar month (or portion thereof) in respect of Shares of such
Fund in the ML Omnibus Account
B = Shares of such Fund in the ML Omnibus Account and identified as
Post-distributor Shares and outstanding as of the close of
business on the last day of the immediately preceding calendar
month (or portion thereof), times Net Asset Value per Share as of
such time
C = Shares of such Fund in the ML Omnibus Account and identified as
Post-distributor Shares and outstanding as of the close of
business on the last day of such calendar month (or portion
thereof), times Net Asset Value per Share as of such time
D = Total number of Shares of such Fund in the ML Omnibus Account
and outstanding as of the close of business on the last day of
the immediately preceding calendar month (or portion thereof),
times Net Asset Value per Share as of such time.
E = Total number of Shares of such Fund in the ML Omnibus Account
outstanding as of the close of business on the last day of such
calendar month, times Net Asset Value per Share as of such time.
(3) PAYMENTS ON BEHALF OF EACH FUND.
On the close of business on each day the Transfer Agent shall cause payment to
be made of the amount of the Asset Based Sales Charge and CDSCs accruing on such
day in respect of the Shares of such Fund owned of record by Shareholder
Accounts (other than Omnibus Accounts) by two separate wire transfers, directly
from accounts of such Fund as follows:
1. The Asset Based Sales Charge and CDSCs accruing in respect of
Shareholder Accounts other than Omnibus Accounts and allocable to
Distributor Shares in accordance with the preceding rules shall be paid to
the Distributor's Account, unless the Distributor otherwise instructs the
Fund in any irrevocable payment instruction; and
2. The Asset Based Sales Charges and CDSCs accruing in respect of
Shareholder Accounts other than Omnibus Accounts and allocable to
Post-distributor Shares in accordance with the preceding rules shall be
paid in accordance with direction received from any future distributor of
Shares of the Instant Fund.
On each Omnibus CDSC Settlement Date, the Transfer Agent for each Fund
shall cause the applicable Sub-transfer Agent to cause payment to be made of the
amount of the CDSCs accruing during the period to which such Omnibus CDSC
Settlement Date relates in respect of the Shares of such Fund owned of record by
each Omnibus Account by two separate wire transfers directly from the account of
such Fund maintained by such Transfer Agent, as follows:
1. The CDSCs accruing in respect of such Omnibus Account and allocable to
Distributor Shares in accordance with the preceding rules shall be paid to
the Distributor's Account, unless the Distributor otherwise instructs the
Fund in any irrevocable payment instruction; and
2. The CDSCs accruing in respect of such Omnibus Account and allocable to
Post-distributor Shares in accordance with the preceding rules shall be
paid in accordance with direction received from any future distributor of
Shares of the Instant Fund.
On each Omnibus Asset Based Sales Charge Settlement Date the Transfer Agent
for each Fund shall cause payment to be made of the amount of the Asset Based
Sales Charge accruing for the period to which such Omnibus Asset Based Sales
Charge Settlement Date relates in respect of the Shares of such Fund owned of
record by each Omnibus Account by two separate wire transfers directly from
accounts of such Fund as follows:
1. The Asset Based Sales Charge accruing in respect of such Omnibus Account
and allocable to Distributor Shares shall be paid to the Distributor's
Collection Account, unless the Distributor otherwise instructs the Fund in
any irrevocable payment instruction; and
2. The Asset Based Sales Charge accruing in respect of such Omnibus Account
and allocable to Post-Distributor Shares shall be paid in accordance with
direction received from any future distributor of Shares of the Instant
Fund.
<PAGE>
EXHIBIT 99.6B
[LOGO] KEYSTONE
INVESTMENTS
200 Berkeley Street
Boston, Massachusetts 02116-5034
Dealer No._________________________________________________________
(Please indicate Exchange Membership(s), if any.)__________________
-------------------------------------------------------------------
Effective Date_____________________________________________________
CLASS A AND B SHARES
To Whom It May Concern:
Keystone Investment Distributors Company ("the Company"), principal
underwriter, invites you to participate in the distribution of shares of the
Keystone Fund Family, Classes A and B shares of the Keystone America Fund Family
and other Funds ("Funds") designated by us which are currently or hereafter
underwritten by the Company, subject to the following terms:
1. In the distribution and sale of shares, you shall not have authority to act
as agent for the issuer, the Company or any other dealer in any respect in such
transactions. All orders are subject to acceptance by us and become effective
only upon confirmation by us. The Company reserves the unqualified right not to
accept any specific order for the purchase or exchange of shares.
2. You will offer and sell shares of the Funds other than Class A shares of the
Keystone America Funds only at their respective net asset values in accordance
with the terms and conditions of a current prospectus of the Fund whose shares
you offer. With respect to Class A shares of the Keystone America Funds and
other Funds designated by us, you will offer and sell such shares at the public
offering price described in a current prospectus of the Fund whose shares you
offer. You will offer shares only on a forward pricing basis, i.e. orders for
the purchase or repurchase of shares accepted by you prior to the close of the
New York Stock Exchange and placed with us the same day prior to the close of
our business day, 5:00 p.m. Eastern Time, and orders to exchange shares of one
Fund for shares of another Fund eligible for exchange placed with us prior to
3:00 p.m. Eastern Time, shall be confirmed at the closing price for that
business day. You agree to place orders for shares only with us and at such
closing price. You further agree to confirm the transaction with your customer
at the price confirmed in writing by us. In the event of a difference between
verbal and written price confirmations, the written confirmations shall be
considered final. Prices of the Funds' shares are computed by and are subject to
withdrawal by the Funds in accordance with their current respective
prospectuses. You agree to place orders with us only through your central order
department unless we accept your written Power of Attorney authorizing others to
place orders on your behalf.
3. So long as this agreement remains in effect, we will pay you commissions on
sales of shares of the Funds and service fees, all in accordance with the
Schedule of Commissions and Service Fees ("Schedule") attached hereto and made a
part hereof, effective June 1, 1995, which Schedule may be modified from time to
time or rescinded by us, in either case without prior notice. You shall have no
vested right to receive any continuing service fees, other fees, or other
commissions which we may elect to pay to you from time to time on shares
previously sold by you. You agree not to share or rebate any portion of such
commissions or to otherwise grant any concessions, discounts or other allowances
to any person who is not a broker or dealer actually engaged in the investment
banking or securities business. You will receive commissions in accordance with
the attached Schedule on all purchase transactions in shareholder accounts
(excluding reinvestment of income dividends and capital gains distributions) for
which you are designated as Dealer of Record except where we determine that any
such purchase was made with the proceeds of a redemption or repurchase of shares
of the same Fund or another Fund whether or not the transaction constitutes the
exercise of the exchange privilege. Commissions will be paid to you twice a
month.
You hereby authorize us to act as your agent in connection with all
transactions in shareholder accounts in which you are designated as Dealer of
Record. All designations of Dealer of Record and all authorizations of the
Company to act as your Agent shall cease upon the termination of this Agreement,
or upon the shareholder's instruction to transfer his or her account to another
Dealer of Record.
4. Payment for all shares purchased from us shall be made to the Company and
shall be received by the Company within ten business days after the acceptance
of your order or such shorter time as may be required by law. If such payment is
not received by us, we reserve the right, without prior notice, forthwith to
cancel the sale, or, at our option, to sell the shares ordered by you back to
the Fund concerned in which latter case we may hold you responsible for any
loss, including loss of profit, suffered by us or by the Fund resulting from
your failure to make payment as aforesaid.
5. You agree to purchase shares of the Funds only from us or from your
customers. If you purchase shares from us, you agree that all such purchases
shall be made only to cover orders already received by you from your customers,
or for your own bonafide investment without a view to resale. If you purchase
shares from your customers, you agree to pay such customers the applicable net
asset value per share less any contingent deferred sales charge that would be
applicable if such shares were then tendered for redemption in accordance with
the then current applicable prospectus ("repurchase price").
6. You will sell shares only --
(a) to your clients at the prices described in paragraph 2 above; or
(b) to us as agent for the Funds at the repurchase price. In such a
sale to us, you may act either as principal for your own account or as
agent for your customer. If you act as principal for your own account
in purchasing shares for resale to us, you agree to pay your customer
not less than nor more than the repurchase price which you receive
from us. If you act as agent for your customer in selling shares to
us, you agree not to charge your customer more than a fair commission
for handling the transaction.
7. You shall not withhold placing with us orders received from your customers so
as to profit yourself as a result of such withholding.
8. We will not accept from you any conditional orders for shares.
9. If any shares sold to you under the terms of this agreement are repurchased
by a Fund, or are tendered for redemption, within seven business days after the
date of our confirmation of the original purchase by you, it is agreed that you
shall forfeit your right to any commissions on such sales even though the
shareholder may be charged a contingent deferred sales charge by the Fund.
We will notify you of any such repurchase or redemption within the next ten
business days after the date on which the certificate or written request for
redemption is delivered to us or to the Fund, and you shall forthwith refund to
us the full amount of any commission you received on such sale. We agree, in the
event of any such repurchase or redemption, to refund to the Fund any commission
we retained on such sale and, upon receipt from you of the commissions paid to
you, to pay such commissions forthwith to the Fund.
10. Shares sold to you hereunder shall not be issued in certificate form or
otherwise until payment has been received by the Fund concerned. If transfer
instructions are not received from you within 15 days after our acceptance of
your order, the Company reserves the right to instruct the transfer agent for
the Fund concerned to register a certificate for the shares sold to you in your
name and forward such certificate to you. You agree to hold harmless and
indemnify the Company, the Fund and its transfer agent for any loss or expense
resulting from such registration.
11. No person is authorized to make any representations concerning shares of the
Funds except those contained in the current applicable prospectuses and in sales
literature issued by us supplemental to such prospectuses. In purchasing shares
from us you shall rely solely on the representations contained in the
appropriate prospectus and in such sales literature. We will furnish additional
copies of the current prospectuses and such sales literature and other releases
and information issued by us in reasonable quantities upon request. You agree
that you will in all respects duly conform with all laws and regulations
applicable to the sale of shares of the Funds and will indemnify and hold
harmless the Funds, their directors and trustees and the Company from any damage
or expenses on account of any wrongful act by you, your representatives, agents
or sub-agents in connection with any orders or solicitation of orders of shares
of the Funds by you, your representatives, agents or sub-agents.
12. Each party hereto represents that it is a member of the National Association
of Securities Dealers, Inc., and agrees to notify the other should it cease to
be a member of such Association and agrees to the automatic termination of this
agreement at that time. It is further agreed that all rules or regulations of
said Association now in effect or hereafter adopted, which are binding upon
underwriters and dealers in the distribution of the securities of open-end
investment companies, shall be deemed to be a part of this agreement to the same
extent as if set forth in full herein.
13. You will not offer the Funds for sale in any State where they are not
qualified for sale under the Blue Sky Laws and regulations of such State or
where you are not qualified to act as a dealer, except for States in which they
are exempt from qualification.
14. This agreement supersedes and cancels any prior agreement with respect to
the sales of shares of any of the Funds underwritten by the Company and the
Company reserves the right to amend this agreement at any time and from time to
time.
15. This agreement shall be effective upon acceptance by us in Boston,
Massachusetts and all sales hereunder are to be made, and title to shares of the
Funds shall pass, in Boston. This agreement is made in the Commonwealth of
Massachusetts and shall be interpreted in accordance with the laws of
Massachusetts.
16. All communications to the Company should be sent to the above address. Any
notice to you shall be duly given if mailed or telegraphed to you at the address
specified by you below.
17. Either party may terminate this agreement at any time by written notice to
the other party.
Signed: Accepted:
- ---------------------------------- Boston, MA (USA) as of June 1, 1995
Dealer or Broker Name
- ---------------------------------- KEYSTONE INVESTMENT DISTRIBUTORS COMPANY
Address 200 Berkeley Street, Boston, MA 02116-5034
- ---------------------------------- -----------------------------------------
Authorized Signature Authorized Signature
<PAGE>
[LOGO] KEYSTONE
INVESTMENTS
200 Berkeley Street
Boston, Massachusetts 02116-5034
Dealer No._________________________________________________________
(Please indicate Exchange Membership(s), if any.)__________________
-------------------------------------------------------------------
Effective Date_____________________________________________________
CLASS C SHARES
To Whom It May Concern:
Keystone Investment Distributors Company ("the Company"), principal
underwriter, invites you to participate in the distribution of Class C shares of
the Keystone America Fund Family, Keystone Liquid Trust and other Funds
("Funds") designated by us which are currently or hereafter underwritten by the
Company, subject to the following terms:
1. In the distribution and sale of shares, you shall not have authority to act
as agent for the issuer, the Company or any other dealer in any respect in such
transactions. All orders are subject to acceptance by us and become effective
only upon confirmation by us. The Company reserves the unqualified right not to
accept any specific order for the purchase or exchange of shares.
2. You will offer and sell Class C shares of the Funds only at their respective
net asset values in accordance with the terms and conditions of a current
prospectus of the Fund whose shares you offer. You will offer shares only on a
forward pricing basis i.e. orders for the purchase or repurchase of shares
accepted by you prior to the close of the New York Stock Exchange and placed
with us the same day prior to the close of our business day, 5:00 p.m. Eastern
Time, and orders to exchange shares of one Fund for shares of another Fund
eligible for exchange placed with us prior to 3:00 p.m. Eastern Time, shall be
confirmed at the closing price for that business day. You agree to place orders
for shares only with us and at such closing price. You further agree to confirm
the transaction with your customer at the price confirmed in writing by us. In
the event of a difference between verbal and written price confirmations shall
be considered final. Prices of the Funds' shares are computed by and are subject
to withdrawal by the Funds in accordance with their current respective
prospectuses. You agree to place orders with us only through your central order
department unless we accept your written Power of Attorney authorizing others to
place orders on your behalf.
3. So long as this agreement remains in effect, we will pay you commissions on
sales of shares of the Funds and service fees, all in accordance with the
Schedule of Commissions and Service Fees ("Schedule") attached hereto and made a
part hereof, effective June 1, 1995, which Schedule may be modified from time to
time or rescinded by us, in either case without prior notice. You shall have no
vested right to receive any continuing service fees, other fees, or other
commissions which we may elect to pay to you from time to time on shares
previously sold by you. You agree not to share or rebate any portion of such
commissions or to otherwise grant any concessions, discounts or other allowances
to any person who is not a broker or dealer actually engaged in the investment
banking or securities business. You will receive commissions in accordance with
the attached Schedule on all purchase transactions in shareholder accounts
(excluding reinvestment of income dividends and capital gains distributions) for
which you are designated as Dealer of Record except where we determine that any
such purchase was made with the proceeds of a redemption or repurchase of shares
of the same Fund or another Fund whether or not the transaction constitutes the
exercise of the exchange privilege. Commissions will be paid to you twice a
month.
You hereby authorize us to act as your agent in connection with all
transaction in shareholder accounts in which you are designated as Dealer of
Record. All designations of Dealer of Record and all authorizations of the
Company to act as your Agent shall cease upon the termination of this Agreement,
or upon the shareholder's instruction to transfer his or her account to another
Dealer of Record.
4. Payment for all shares purchased from us shall be made to the Company and
shall be received by the Company within ten business days after the acceptance
of your order or such shorter time as may be required by law. If such payment is
not received by us, we reserve the right, without prior notice, forthwith to
cancel the sale, or, at our option, to sell the shares ordered by you back to
the Fund concerned in which latter case we may hold you responsible for any
loss, including loss of profit, suffered by us or by the Fund resulting from
your failure to make payment as aforesaid.
5. You agree to purchase shares of the Funds only from us or from your
customers. If you purchase shares from us, you agree that all such purchases
shall be made only to cover orders already received by you from your customers,
or for your own bonafide investment without a view to resale. If you purchase
shares from your customers, you agree to pay such customers the applicable net
asset value per share less any contingent deferred sales charge that would be
applicable if such shares were then tendered for redemption in accordance with
the then current applicable prospectus ("repurchase price").
6. You will sell share only --
(a) to your clients at the prices described in paragraph 2 above; or
(b) to us as agent for the Funds at the repurchase price. In such a
sale to us, you may act either as principal for your own account or as
agent for your customer. If you act as principal for your own account
in purchasing shares for resale to us, you agree to pay your customer
not less than nor more than the repurchase price which you receive
from us. If you act as agent for your customer in selling shares to
us, you agree not to charge your customer more than a fair commission
for handling the transaction.
7. You shall not withhold placing with us orders received from your customers so
as to profit yourself as a result of such withholding.
8. We will not accept from you any conditional orders for shares.
9. If any shares sold to you under the terms of this agreement are repurchased
by a Fund, or are tendered for redemption, within seven business days after the
date of our confirmation of the original purchase by you, it is agreed that you
shall forfeit your right to any commissions on such sales even though the
shareholder may be charged a contingent deferred sales charge by the Fund.
We will notify you of any such repurchase or redemption within the next ten
business days after the date on which the certificate or written request for
redemption is delivered to us or to the Fund, and you shall forthwith refund to
us the full amount of any commission you received on such sale. We agree, in the
event of any such repurchase or redemption, to refund to the Fund any commission
we retained on such sale and, upon receipt from you of the commissions paid to
you, to pay such commissions forthwith to the Fund.
10. Shares sold to you hereunder shall not be issued in certificate form or
otherwise until payment has been received by the Fund concerned. If transfer
instructions are not received from you within 15 days after our acceptance of
your order, the Company reserves the right to instruct the transfer agent for
the Fund concerned to register a certificate for the shares sold to you in your
name and forward such certificate to you. You agree to hold harmless and
indemnify the Company, the Fund and its transfer agent for any loss or expense
resulting from such registration.
11. No person is authorized to make any representations concerning shares of the
Funds except those contained in the current applicable prospectuses and in sales
literature issued by us supplemental to such prospectuses. In purchasing shares
from us you shall rely solely on the representations contained in the
appropriate prospectus and in such sales literature. We will furnish additional
copies of the current prospectuses and such sales literature and other releases
and information issued by us in reasonable quantities upon request. You agree
that you will in all respects duly conform with all laws and regulations
applicable to the sale of shares of the Funds and will indemnify and hold
harmless the Funds, their directors and trustees and the Company from any damage
or expenses on account of any wrongful act by you, your representatives, agents
or sub-agents in connection with any orders or solicitation of orders of shares
of the Funds by you, your representatives, agents or sub-agents.
12. Each party hereto represents that it is a member of the National Association
of Securities Dealers, Inc., and agrees to notify the other should it cease to
be a member of such Association and agrees to the automatic termination of this
agreement at that time. It is further agreed that all rules or regulations of
said Association now in effect or hereafter adopted, which are binding upon
underwriters and dealers in the distribution of the securities of open-end
investment companies, shall be deemed to be a part of this agreement to the same
extent as if set forth in full herein.
13. You will not offer the Funds for sale in any State where they are not
qualified for sale under the Blue Sky Laws and regulations of such State or
where you are not qualified to act as a dealer, except for States in which they
are exempt from qualification.
14. This agreement supersedes and cancels any prior agreement with respect to
the sales of shares of any of the Funds underwritten by the Company and the
Company reserves the right to amend this agreement at any time and from time to
time.
15. This agreement shall be effective upon acceptance by us in Boston,
Massachusetts and all sales hereunder are to be made, and title to shares of the
Funds shall pass, in Boston. This agreement is made in the Commonwealth of
Massachusetts and shall be interpreted in accordance with the laws of
Massachusetts.
16. All communications to the Company should be sent to the above address. Any
notice to you shall be duly given if mailed or telegraphed to you at the address
specified by you below.
17. Either party may terminate this agreement at any time by written notice to
the other party.
Signed: Accepted:
- ---------------------------------- Boston, MA (USA) as of June 1, 1995
Dealer or Broker Name
- ---------------------------------- KEYSTONE INVESTMENT DISTRIBUTORS COMPANY
Address 200 Berkeley Street, Boston, MA 02116-5034
- ---------------------------------- -----------------------------------------
Authorized Signature Authorized Signature
<PAGE>
EXHIBIT 99.8
CUSTODIAN CONTRACT
between
International Heritage Fund
and
STATE STREET BANK AND TRUST COMPANY
ASCGS 07/87
Revised 2/10/88
<PAGE>
TABLE OF CONTENTS
Page
1. Employment of Custodian and Property to be Held by It ........... 2
2. Duties of the Custodian with Respect to Property of the
Fund Held by the Custodian in the United States ................. 3
2.1 Holding Securities ....................................... 3
2.2 Delivery of Securities ................................... 4
2.3 Registration of Securities ............................... 9
2.4 Bank Accounts ............................................ 10
2.4A Payments For Shares ...................................... 10
2.5 Availability of Federal Funds ............................ 10
2.6 Collection of Income ..................................... 11
2.7 Payment of Fund Monies ................................... 11
2.8 Liability for Payment in Advance of
Receipt of Securities Purchased .......................... 14
2.9 Appointment of Agents .................................... 15
2.10 Deposit of Fund Assets in Securities System .............. 15
2.10A Fund Assets Held in the Custodian's Direct Paper System .. 18
2.11 Segregated Account ....................................... 20
2.12 Ownership Certificates for Tax Purposes .................. 25
2.13 Proxies .................................................. 26
2.14 Communications Relating Portfolio Securities ............. 26
3. Duties of the Custodian with Respect to Property of
the Fund Held Outside of the United States ...................... 27
3.1 Appointment of Foreign Sub-Custodians .................... 27
3.2 Assets to be Held ........................................ 27
3.3 Foreign Securities Depositories .......................... 28
3.4 Segregation of Securities ................................ 28
3.5 Agreements with Foreign Banking Institutions ............. 28
3.6 Access of Independent Accountants of the Fund ............ 29
3.7 Reports by Custodian ..................................... 30
3.8 Transactions in Foreign Custody Account .................. 30
3.9 Liability of Foreign Sub-Custodians ...................... 31
3.10 Monitoring Responsibilities .............................. 32
3.11 Branches of U.S. Banks ................................... 32
4. Payments for Repurchases or Redemptions and Sales
of Shares of the Fund ........................................... 33
5. Proper Instructions ............................................. 34
6. Actions Permitted Without Express Authority...................... 34
7. Evidence of Authority............................................ 35
8. Duties of Custodian With Respect to the Books of Account
and Calculation of Net Asset Value and Net Income ............... 35
9. Records ......................................................... 36
10. Opinion of Fund's Independent Accountant ........................ 37
11. Reports to Fund by Independent Public Accountant ................ 37
12. Compensation of Custodian ....................................... 37
13. Responsibility of Custodian ..................................... 38
14. Effective Period, Termination and Amendment ..................... 40
15. Successor Custodian ............................................. 41
15A. Special Provisions Concerning Repurchase Agreements ............. 43
16. Interpretive and Additional Provisions .......................... 43
17. Additional Funds ................................................ 44
18. Massachusetts Law to Apply ...................................... 44
19. Prior Contracts ................................................. 44
20. Names ........................................................... 44
<PAGE>
CUSTODIAN CONTRACT
This Contract between International Heritage Fund, a business trust
organized and existing under the laws of the Commonwealth of Massachusetts
having its principal place of business at Boston, Massachusetts, 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",
WITNESSETH:
WHEREAS, the Fund is authorized to issue shares in separate series,
with each such series representing interests in a separate portfolio of
securities and other assets; and
WHEREAS, the Fund intends to initially offer shares in five series:
-- International Heritage Government Portfolio
-- International Heritage High Yield Portfolio
-- International Heritage Growth and Income Portfolio
-- International Heritage Overseas Growth Portfolio
-- International Heritage Overseas Income Portfolio
(such series together with all other series subsequently established
by the Fund and made subject to this Contract in accordance with paragraph 17,
being herein referred to as the "Portfolio(s)");
NOW THEREFORE, in consideration of the mutual covenants and agreements
hereinafter contained, the parties hereto agree as follows:
1. Employment of Custodian and Property to be Held by It
The Fund hereby employs the Custodian as the custodian of the assets of
the Portfolios of the Fund, including securities which the Fund, on behalf of
the applicable Portfolio desires to be held in places within the United States
("domestic securities") and securities it desires to be held outside the United
States ("foreign securities") pursuant to the provisions of the Declaration of
Trust. The Fund on behalf of the Portfolio(s) agrees to deliver to the Custodian
all securities and cash of the Portfolios, and all payments of income, payments
of principal or capital distributions received by it with respect to all
securities owned by the Portfolio(s) from time to time, and the cash
consideration received by it for such new or treasury shares of beneficial
interest of the Fund representing interests in the Portfolios, ("Shares") as may
be issued or sold from time to time. The Custodian shall not be responsible for
any property of a Portfolio held or received by the Portfolio and not delivered
to the Custodian.
Upon receipt of "Proper Instructions" (within the meaning of Article
5), the Custodian shall on behalf of the applicable Portfolio(s) from time to
time employ one or more sub-custodians located in the United States, but only in
accordance with an applicable vote by the Board of Trustees of the Fund, on
behalf of the applicable Portfolio(s), and provided that the Custodian shall
have no more or less responsibility or liability to the Fund on account of any
actions or omissions of any sub-custodian so employed than any such
sub-custodian has to the Custodian. The Custodian may employ as sub-custodians
for the Fund's foreign securities on behalf of the applicable Portfolio(s) the
foreign banking institutions and foreign securities depositories designated in
Schedule A hereto but only in accordance with the provisions of Article 3.
The Fund may from time to time employ a special custodian in connection
with certain repurchase agreements entered into by the Fund, with the terms of
such employment to be governed by a special custodian agreement between the Fund
and the special custodian. However, the Fund agrees not to employ any such
special custodian until the Fund and the Custodian have entered into a master
repurchase agreement or other agreement which sets forth the terms governing the
relationship, including the method of transfer of securities and cash, between
the Custodian and such special custodian.
The Custodian acknowledges that additional Portfolios may be
established and that Portfolios may be terminated, from time to time by action
of the Trustees of the Fund.
2. Duties of the Custodian with Respect to Property of the Fund
Held By the Custodian in the United States
2.1 Holding Securities. The Custodian shall hold and physically segregate
for the account of each Portfolio all non-cash property, to be held by
it in the United States, including all domestic securities owned by
such Portfolio, other than (a) securities which are maintained pursuant
to Section 2.10 in a clearing agency which acts as a securities
depository or in a book-entry system authorized by the U.S. Department
of the Treasury, collectively referred to herein as "Securities System"
and (b) commercial paper of an issuer for which State Street Bank and
Trust Company acts as issuing and paying agent ("Direct Paper") which
is deposited and/or maintained in the Direct Paper System of the
Custodian pursuant to Section 2.10A.
2.2 Delivery of Securities. The Custodian shall release and deliver
domestic securities owned by a Portfolio held by the Custodian or in a
Securities System account of the Custodian or in the Custodian's Direct
Paper book entry system account ("Direct Paper System Account") only
upon receipt of Proper Instructions, with may be continuing
instructions when deemed appropriate by the parties, and only in the
following cases:
1) Upon sale of such securities for the account of the Portfolio and
receipt of payment therefor (as used in this subsection, the term
"sale" shall include without limitation the disposition of a
portfolio security upon the exercise of an option written by the
Portfolio);
2) Upon the receipt of payment in connection with any repurchase
agreement related to such securities entered into by the Portfolio;
3) In the case of a sale effected through a Securities System, in
accordance with the provisions of Section 2.10 hereof;
4) To the depository agent in connection with tender or other similar
offers for securities of the Portfolio;
5) 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 the Custodian;
6) To the issuer thereof, or its agent, for transfer into the name of
the Portfolio or into the name of any nominee or nominees of the
Custodian or into the name or nominee name of any agent appointed
pursuant to Section 2.9 or into the name or nominee name of any
sub-custodian appointed pursuant to Article 1; or for exchange for
a different number of bonds, certificates or other evidence
representing the same aggregate face amount or number of units;
provided that, in any such case, the new securities are to be
delivered to the Custodian;
7) Upon the sale of such securities for the account of the Portfolio,
to the broker or its clearing agent, against a receipt, for
examination in accordance with "street delivery" custom; provided
that the Custodian shall adopt such procedures, as the Fund from
time to time shall approve, to ensure their prompt return to the
Custodian by the broker in the event the broker elects not to
accept them;
8) For exchange or conversion pursuant to any plan of merger,
consolidation, recapitalization, reorganization or readjustment of
the securities of the issuer of such securities, or pursuant to
provisions for conversion contained in such securities, or pursuant
to any deposit agreement; provided that, in any such case, the new
securities and cash, if any, are to be delivered to the Custodian;
9) In the case of warrants, rights or similar securities, the
surrender thereof in the exercise of such warrants, rights or
similar securities or the surrender of interim receipts or
temporary securities for definitive securities; provided that, in
any such case, the new securities and cash, if any, are to be
delivered to the Custodian;
10) For delivery in connection with any loans of securities made by the
Portfolio, but only against receipt of adequate collateral as
agreed upon from time to time by the Custodian and the Fund on
behalf of the Portfolio, which may be in the form of cash or
obligations issued by the United States government, its agencies or
instrumentalities, except that in connection with any loans for
which collateral is to be credited to the Custodian's account in
the book-entry system authorized by the U.S. Department of the
Treasury, the Custodian may deliver securities prior to the credit
of such collateral, provided that the Custodian shall promptly
notify the Fund if such collateral is not credited;
11) For delivery as security in connection with any borrowings by the
Fund on behalf of the Portfolio requiring a pledge of assets by the
Fund on behalf of the Portfolio, but only against receipt of
amounts borrowed;
12) For delivery in accordance with the provisions of any agreement
among the Fund on behalf of the Portfolio, the Custodian and a
broker-dealer registered under the Securities Exchange Act of 1934
(the "Exchange Act.) and a member of The National Association of
Securities Dealers, Inc. ("NASD"), relating to compliance with the
rules of The Options Clearing Corporation and of any registered
national securities exchange, or of any similar organization or
organizations, regarding escrow or other arrangements in connection
with transactions by the Portfolio of the Fund;
13) For delivery in accordance with the provisions of any agreement
among the Fund on behalf of the Portfolio, 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 Portfolio of the Fund;
14) Upon receipt of instructions from the transfer agent for the Fund
("Transfer Agent"), for delivery to such Transfer Agent or to the
holders of shares in connection with distributions in kind, as may
be described from time to time in the currently effective
prospectus and statement of additional information of the Fund
("Prospectus") in satisfaction of requests by holders of Shares for
repurchase or redemption; and
15) For any other proper corporate purpose, but only upon receipt of,
in addition to Proper Instructions from the Fund on behalf of the
applicable Portfolio, a certified copy of a resolution of the Board
of Trustees or of the Executive Committee signed by an officer of
the Fund and certified by the Secretary or an Assistant Secretary,
specifying the securities of the Portfolio to be delivered, setting
forth the purpose for which such delivery is to be made, declaring
such purpose to be a proper corporate purpose, and naming the
person or persons to whom delivery of such securities shall be
made.
2.3 Reqistration of Securities. Domestic securities held by the Custodian
(other than bearer securities) shall be registered in the name of the
Portfolio or in the name of any nominee of the Fund on behalf of the
Portfolio or of any nominee of the Custodian which nominee shall be
assigned exclusively to the Portfolio, unless the Fund has authorized
in writing the appointment of a nominee to be used in common with other
registered investment companies having the same investment adviser as
the Portfolio, or in the name or nominee name of any agent appointed
pursuant to Section 2.9 or in the name or nominee name of any
sub-custodian appointed pursuant to Article 1. All securities accepted
by the Custodian on behalf of the Portfolio under the terms of this
Contract shall be in "street name" or other good delivery form.
2.4 Bank Accounts. The Custodian shall open and maintain a separate bank
account or accounts in the United States in the name of each Portfolio
of the Fund, subject only to draft or order by the Custodian acting
pursuant to the terms of this Contract, and shall hold in such account
or accounts, subject to the provisions hereof, all cash received by it
from or for the account of the Portfolio, other than cash maintained by
the Portfolio in a bank account established and used in accordance with
Rule 17f-3 under the Investment Company Act of 1940 as amended Funds
held by the Custodian for a Portfolio may be deposited by it to its
credit as Custodian in the Banking Department of the Custodian or in
each other or trust companies as it may in its discretion deem
necessary or desirable; provided, however, that every such bank or
trust company shall be qualified to act as custodian under the
Investment Company Act of 1940 and that each such bank or trust company
and the funds to be deposited with each such bank or trust company and
the shall on behalf of each applicable Portfolio be approved by vote of
a majority of the Board of Trustees of the Fund. Such funds shall be
deposited by the Custodian in its capacity as Custodian shall be
withdrawable by the Custodian only in its capacity.
2.4A Payments for Shares. The Custodian shall receive from the distributor
of the Fund's Shares or from the Transfer Agent and deposit into the
Fund's account such payments as are received for Shares of the Fund
issued or sold from time to time by the Fund. The Custodian will
provide timely notification to the Fund and the Transfer Agent of any
receipt by it of payments for Shares of the Fund.
2.5 Availability of Federal Funds. Upon mutual agreement between the Fund
on behalf of each applicable Portfolio and the Custodian, the Custodian
shall, upon the receipt of Proper Instructions from the Fund on behalf
of a Portfolio, make federal funds available to such Portfolio, as of
specified times agreed upon from time to time by the Fund and the
Custodian in the amount of checks received in payment for Shares of
such Portfolio which are deposited into the Portfolio's account.
2.6 Collection of Income. The Custodian shall collect on a timely basis all
income and other payments with respect to United States registered
securities held hereunder to which each Portfolio shall be entitled
either by law or pursuant to custom in the securities business, and
shall collect on a timely basis all income and other payments with
respect to United States bearer securities if, on the date of payment
by the issuer, such securities are held by the Custodian or its agent
thereof and shall credit such income, as collected, to such Portfolio's
custodian account. Without limiting the generality of the foregoing,
the Custodian shall detach and present for payment all coupons and
other income items requiring presentation as and when they become due
and shall collect interest when due on securities held hereunder.
Income due each Portfolio on securities loaned pursuant to the
provisions of Section 2.2 (10) shall be the responsibility of the Fund.
The Custodian will have no duty or responsibility in connection
therewith, other than to provide the Fund with such information or data
as may be necessary to assist the Fund in arranging for the timely
delivery to the Custodian of the income to which the Portfolio is
properly entitled.
2.7 Payment of Fund Monies. Upon receipt of Proper Instructions from the
Fund on behalf of the applicable Portfolio, which may be continuing
instructions when deemed appropriate by the parties, the Custodian
shall pay out monies of a Portfolio in the following cases only;
1) Upon the purchase of domestic securities, options, futures
contracts or options on futures contracts for the account of the
Portfolio but only (a) against the delivery of such securities, or
evidence of title to such options, futures contracts or options on
futures contracts, to the Custodian (or any bank, banking firm or
trust company doing business in the United States or abroad which
is qualified under the Investment Company Act of 1940 to act as a
custodian and has been designated by the Custodian as its agent for
this purpose) registered in the name of the Portfolio or in the
name of a nominee of the Custodian referred to in Section 2.3
hereof or in proper form for transfer; (b) in the case of a
purchase effected through a Securities System, in accordance with
the conditions set forth in Section 2.10 hereof or (c) in the case
of a purchase involving the Direct Paper System, in accordance with
the conditions set forth in Section 2.10A; or (d) in the case of
repurchase agreements entered into between the Fund on behalf of
the Portfolio and the Custodian, or another bank, or a
broker-dealer which is a member of NASD, (i) against delivery of
the securities either in certificate form or through an entry
crediting the Custodian's account at the Federal Reserve Bank with
such securities or (ii) against delivery of the receipt evidencing
purchase by the Portfolio of securities owned by the Custodian
along with written evidence of the agreement by the Custodian to
repurchase such securities from the Portfolio;
2) In connection with conversion, exchange or surrender of securities
owned by the Portfolio as set forth in Section 2.2 hereof;
3) For the redemption or repurchase of Shares issued by the Portfolio
as set forth in Article 4 hereof;
4) For the payment of any expense or liability incurred by the
Portfolio, including but not limited to the following payments for
the account of the Portfolio: interest, taxes, management,
accounting, transfer agent and legal fees, and operating expenses
of the Fund whether or not such expenses are to be in whole or part
capitalized or treated as deferred expenses;
5) For the payment of any dividends on Shares of the Portfolio
declared pursuant to the governing documents of the Fund;
6) For payment of the amount of dividends received in respect to
securities sold short;
7) For any other proper purpose, but only upon receipt of, in addition
to Proper Instructions from the Fund on behalf of the Portfolio, a
certified copy of a resolution of the Board of Trustees signed by
an officer of the Fund and certified by its Secretary or an
Assistant Secretary , specifying the amount of such payment,
setting forth the purpose for which such payment is to be made,
declaring such purpose to be a proper purpose, and naming the
person or persons to whom such payment is to be made.
2.8 Liability for Payment in Advance of Receipt of Securities Purchased. In
any and every case where payment for purchase of domestic securities
for the account of a Portfolio is made by the Custodian in advance of
receipt of the securities purchased in the absence of specific written
instructions from the Fund on behalf of such Portfolio to so pay in
advance, the Custodian shall be absolutely liable to the Fund for such
securities to the same extent as if the securities had been received by
the Custodian, 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, the Custodian 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 non-proprietary account of the Custodian maintained with the
Federal Reserve Bank of Boston or of the safe-keeping receipt, provided
that such securities have in fact been so transferred by book-entry.
2.9 Appointment of Aqents. The Custodian may at any time or times in its
discretion appoint (and may at any time remove) any other bank or trust
company which is itself qualified under the Investment Company Act of
1940, as amended, to act as a custodian, as its agent to carry out such
of the provisions of this Article 2 as the Custodian may from time to
time direct; provided, however, that the appointment of any agent shall
not relieve the Custodian of its responsibilities or liabilities
hereunder.
2.10 Deposit of Fund Assets in Securities Systems. The Custodian may deposit
and/or maintain domestic securities owned by a Portfolio in 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, referred
to herein as "Securities System" in accordance with applicable Federal
Reserve Board and Securities and Exchange Commission rules and
regulations, if any, and subject to the following provisions:
1) The Custodian may keep domestic securities of the Portfolio in a
Securities System provided that such securities are represented in
an account ("Account") of the Custodian of the Securities System
which shall not include any assets of the Custodian other than
assets held as a fiduciary, custodian or otherwise for customers;
2) The records of the Custodian with respect to securities of the
Portfolio which are maintained in a Securities System shall
identify by book-entry those securities belonging to the Portfolio;
3) The Custodian shall pay for securities purchased for the account of
the Portfolio 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 the Custodian to reflect
such payment and transfer for the account of the Portfolio. The
Custodian shall transfer securities sold for the account of the
Portfolio 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 the
Custodian to reflect such transfer and payment for the account of
the Portfolio. Copies of all advices from the Securities System of
transfers of securities for the account of the Portfolio shall
identify the Portfolio, be maintained for the Portfolio by the
Custodian and be provided to the Fund at its request. Upon request,
the Custodian shall furnish the Fund on behalf of the Portfolio
confirmation of each transfer to or from the account of the
Portfolio in the form of a written advice or notice and shall
furnish to the Fund on behalf of the Portfolio copies of daily
transactions in the Securities System for the account of the
Portfolio.
4) The Custodian shall provide the Fund for the Portfolio with any
report obtained by the Custodian on the Securities System's
accounting system, internal accounting control and procedures for
safeguarding securities deposited in the Securities System;
5) The Custodian shall have received from the Fund on behalf of the
Portfolio the initial or annual certificate, as the case may be,
required by Article 14 hereof;
6) Anything to the contrary in this Contract notwithstanding, the
Custodian shall be liable to the Fund for the benefit of the
Portfolio for any loss or damage to the Portfolio resulting from
use of the Securities System by reason of any negligence,
misfeasance or misconduct of the Custodian or any of its agents or
of any of its or their employees of from failure of the Custodian
or any such agent to enforce effectively such rights as it may have
against the Securities System; at the election of the Fund, it
shall be entitled to be subrogated to the rights of the Custodian
with respect to any claim against the Securities System or any
other person which the Custodian may have as a consequence of any
such loss or damage if and to the extent that the Portfolio has not
been made whole for any such loss or damage.
2.10A Fund Assets Held in the Custodian's Direct Paper System. The
Custodian may deposit and/or maintain securities owned by a
Portfolio in the Direct Paper System of the Custodian subject to
the following provisions:
1) No transaction relating to securities in the Direct Paper System
will be effected in the absence of Proper Instructions from the
Fund on behalf of the Portfolio;
2) The Custodian may keep securities of the Portfolio in the Direct
Paper System only if such securities are represented in an account
("Account") of the Custodian in the Direct Paper System which shall
not include any assets of the Custodian other than assets held as a
fiduciary, custodian or otherwise for customers;
3) The records of the Custodian with respect to securities of the
Portfolio which are maintained in the Direct Paper System shall
identify by book-entry those securities belonging to the Portfolio;
4) The Custodian shall pay for securities purchased for the account of
the Portfolio upon the making of any entry on the records of the
Custodian to reflect such payment and transfer of securities to the
account of the Portfolio. The Custodian shall transfer securities
sold for the account of the Portfolio upon the making of any entry
on the records of the Custodian to reflect such transfer and
receipt of payment for the account of the Portfolio;
5) The Custodian shall furnish the Fund on behalf of the Portfolio
confirmation of each transfer to or from the account of the
Portfolio, in the form of a written advice or notice, of Direct
Paper on the next business day following such transfer and shall
furnish to the Fund on behalf of the Portfolio copies of daily
transaction sheets reflecting each day's transaction in the Direct
Paper System for the account of the Portfolio;
6) The Custodian shall provide the Fund on behalf of the Portfolio
with any report on. its system of internal accounting control as
the Fund may reasonably request from time to time;
2.11 Segregated Account. The Custodian shall upon receipt of Proper
Instructions from the Fund on behalf of each applicable Portfolio
establish and maintain a segregated account of or accounts for and on
behalf of each such Portfolio, into which account or accounts may be
transferred cash and/or securities, including securities maintained in
an account by the Custodian pursuant to Section 2.10 hereof, (i) in
accordance with the provisions of any agreement among the Fund on
behalf of the Portfolio, 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
Portfolio, (ii) for purposes of segregating cash or government
securities in connection with options purchased, sold or written by the
Portfolio or commodity futures contracts or options thereon purchased
or sold by the Portfolio, (iii) for the purposes of compliance by the
Portfolio 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 from the Fund on
behalf of the applicable Portfolio, a certified copy of a resolution of
the Board of Trustees or of the Executive Committee 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.
Whenever the Fund writes a Covered Call Option, the Fund shall promptly
deliver to the Custodian proper instructions specifying with respect to such
Covered Call Option: (a) the name of the issuer and title and number of shares
for which the Covered Call Option was written and which underlie the same; (b)
the expiration date; (c) the exercise price; (d) the premium to be received by
the Fund; (e) the name of the person or broker from whom the premium is to be
received; and (f) the Fund for which the option was written. The Custodian shall
upon receipt of the proper instructions receive or cause to be received, the
premium specified in such proper instructions with respect to such Covered Call
Option, such receipts as are required in accordance with the customs prevailing
among dealers in such Covered Call Options, and shall impose, or direct the
Depository to impose upon the underlying securities specified in the proper
instructions such restrictions as may be required by such receipts.
Notwithstanding the forgoing, the Custodian has the right, upon prior written
notification to the Fund, at any time refuse to issue any receipts for
securities, in the possession of the Custodian and not deposited with the
Depository, underlying a Covered Call Option.
Whenever the Fund writes a Covered Put Option with respect to
securities, the Fund shall promptly deliver to the Custodian proper instructions
specifying with respect to each such Put Option written: (a) the name of the
issuer and title and number of shares for which the Put Option was written; (b)
the expiration date; (c) the exercise price; (d) the premium to be received by
the Fund; (e) the name of the person or broker from whom the premium is to be
received; (f) the amount of cash and/or the amount and kind of securities, if
any, to be deposited by the Custodian in a Segregated Account, and (9) the Fund
for which the option was written. The Custodian shall, upon receipt of the
premium specified in the Certificate, deposit in a Segregated Account the amount
of cash and the amount and kind of securities specified in such Certificate.
The Custodian shall from time to time make such additional deposits to
or withdrawals from, the Segregated Account as may be required by the proper
instructions. In the event that the Fund fails to specify in the proper
instructions the name of the issuer, the title and the number of shares or the
principal amount of any particular securities to be deposited in any Segregated
Account by the Custodian, the Custodian shall not be under any obligation to
make any such deposit and shall so notify the Fund.
Whenever a Covered Call Option described in this Section written by the
Fund is exercised, the Fund shall promptly deliver to the Custodian the proper
instructions instructing the Custodian to deliver, or to direct the Depository
to deliver, the securities subject to such Covered Call Option and specifying:
(a) the Fund for which the Call Option was written; (b) the name of the issuer
and the title and number of shares subject to the Covered Call option; (c) the
person or broker to whom the underlying securities are to be delivered; and (d)
the total amount payable to the Fund upon such exercise. The Custodian shall
deliver, or cause the Depository to deliver, the underlying securities as
specified in the proper instructions upon the return and/or cancellation of any
receipts delivered pursuant to paragraph 2 of this Section, and receipt of the
total amount payable to the Fund as specified in the proper instructions.
Whenever a Put Option described in this Section written by the Fund is
exercised, the Fund shall promptly deliver to the Custodian proper instructions
instructing the Custodian to pay the exercise price of the Put Option to the
holder thereof and specifying: (a) the Fund for which the Put Option was
written; (b) the name of the issuer and the title and number of shares which are
to be delivered to the Fund upon the exercise of the Put Option; (c) the total
dollar amount to be paid to the holder of the Put Option; (d) the person to whom
payment is to be made; (e) the amount of cash and/or the amount and kind of
securities, if any, to be withdrawn from a Segregated Account with respect to
such Put Option and (f) the name of the broker or dealer through whom the Put
Option is being exercised. The Custodian shall upon receipt of the securities
specified in the proper instructions make the payment and effect the withdrawals
from the related Segregated Account therein specified.
Whenever a Put Option or Covered Call Option described in this Section
written by the Fund expires, the Fund shall promptly deliver to the Custodian
proper instructions in accordance with paragraph 2 or 3 of this Section and
instructing the Custodian; (a) to delete such Option from the statements
delivered to the Fund; (b) with respect to Covered Call Options, to free, or
instruct the Depository to free, the securities underlying such Covered Call
Option from the restrictions imposed by receipts issued in connection therewith;
and (c) with respect to Put Options, to withdraw from the related Segregated
Account any and all moneys, securities and other assets of the Fund held with
respect to such Put Option.
Whenever the Fund purchases any option identical to a previously
written Put Option or Covered Call Option described in this Section in a
transaction expressly designated as a "Closing Purchase Transaction" in order to
liquidate its position as a writer of a Put Option or Covered Call Option, the
Fund shall promptly deliver to the Custodian proper instructions specifying with
respect to the Option or Covered Call Option being purchased: (a) that the
transaction is a Closing Purchase Transaction; (b) the name of the issuer and
the title and number of shares of the securities subject to the Put option or
Covered Call Option; (c) the exercise price; (d) the Fund for which the Option
was purchased; (e) the premium to be paid by the Fund; (f) the expiration date;
(g) the name of the person or broker to whom the premium is to be paid; and (h)
in case of a closing Purchase Transaction on a Put Option, the amount of cash
and/or the amount and kind of securities, if any, to be withdrawn from the
related Segregated Account upon completion of the Closing Purchase Transaction.
In the case of a covered Call Option liquidated through a Closing Purchase
Transaction, the Custodian shall, upon the return and/or cancellation of any
cancellation of any receipt issued pursuant to paragraph 2 of this Section, make
the payment and effect the withdrawals from the related Segregated Account
specified in the proper instructions, remove or direct the Depository to remove,
the previously imposed restrictions on the securities underlying the Covered
Call Option, and delete such option from statements delivered to the Fund by the
Custodian. In the case of any Put Option liquidated through a Closing Purchase
Transaction, upon the Custodian's receipt of a broker's or dealer's statement
confirming the liquidation of the Fund's position as writer of such Put Option,
the Custodian shall make the payment and effect the withdrawals from the related
Segregated Account specified in the proper instructions and shall delete such
Option from statements delivered to the Fund.
2.12 Ownership Certificates for Tax Purposes. The Custodian shall execute
ownership and other certificates and affidavits for all federal and
state tax purposes in connection with receipt of income or other
payments with respect to domestic securities of each Portfolio held by
it and in connection with transfers of such securities.
2.13 Proxies. The Custodian shall, with respect to the domestic securities
held hereunder, cause to be promptly executed by the registered holder
of such securities, if the securities are registered otherwise than in
the name of the Portfolio or a nominee of the Portfolio, all proxies,
without indication of the manner in which such proxies are to be voted,
and shall promptly deliver to the Portfolio such proxies, all proxy
soliciting materials and all notices relating to such securities.
2.14 Communications Relatinq to Fund Portfolio Securities. The Custodian
shall transmit promptly to the Fund for each Portfolio all written
information (including, without limitation, pendency of calls and
maturities of domestic securities and expirations of rights in
connection therewith and notices of exercise of call and put options
written by the Fund on behalf of the Portfolio and the maturity of
futures contracts purchased or sold by the Portfolio) received by the
Custodian from issuers of the securities being held for the Portfolio.
With respect to tender or exchange offers, the Custodian shall transmit
promptly to the Portfolio all written information received by the
Custodian from issuers of the domestic securities whose tender or
exchange is sought and from the party (or his agents) making the tender
or exchange offer. If the Portfolio desires to take action with respect
to any tender offer, exchange offer or any other similar transaction,
the Portfolio shall notify the Custodian at least three business days
prior to the date on which the Custodian is to take such action.
3. Duties of the Custodian with Respect to Property of the Fund Held
Outside of the United States
3.1 Appointment of Foreign Sub-Custodians. The Custodian is authorized and
instructed to employ as sub-custodians for the securities and other
assets of the Portfolios maintained outside of the United States the
foreign banking institutions and foreign securities depositories
designated on Schedule A hereto ("foreign sub-custodians). Upon receipt
of "Proper Instructions", together with a certified resolution of the
Fund's Board of Trustees on behalf of the applicable Portfolio(s), the
Custodian and the Fund may on behalf of the applicable Portfolio(s) to
amend Schedule A hereto from time to time to designate additional
foreign banking institutions and foreign securities depositories to act
as sub-custodians. Upon receipt of Proper Instructions from the Fund on
behalf of the applicable Portfolio(s) the Custodian shall cease the
employment of any one or more of such sub-custodians for maintaining
custody of the applicable Portfolio(s) assets.
3.2 Assets to be Held. The Custodian shall limit the securities and other
assets maintained in the custody of the foreign sub-custodians to: (a)
"foreign securities," as defined in paragraph (c)(l) of Rule 17f-5
under the Investment Company Act of 1940, and (b) cash and cash
equivalents in such amounts as the Custodian or the Fund may determine
to be reasonably necessary to effect the foreign securities
transactions of the applicable Portfolios.
3.3 Foreiqn Securities Depositories. Except as may otherwise be agreed upon
in writing by the Custodian and the Fund on behalf of the applicable
Portfolio, assets of the applicable Portfolios shall be maintained in
foreign securities depositories only through arrangements implemented
by the foreign banking institutions serving as sub-custodians pursuant
to the terms hereof.
3.4 Segregation of Securities. The Custodian shall identify on its books as
belonging to each applicable Portfolio of the Fund, the foreign
securities of such Portfolios held by each foreign sub-custodian. Each
agreement pursuant to which the Custodian employs a foreign banking
institution shall require that such institution establish custody
account(s) for the Custodians on behalf of the Fund for each applicable
Portfolio of the Fund and physically segregate in each such account
securities and other assets of the Portfolios, and, in the event that
such institution deposits the securities of one or more of the
Portfolios in a foreign securities depository, that it shall identify
on its books as belonging to the Custodian, as agent for each
applicable Portfolio, the securities so deposited (all collectively
referred to as the "Account").
3.5 Aqreements with Foreign Bankinq Institutions. Each agreement with a
foreign banking institution shall be substantially in the form set
forth in Exhibit 1 hereto and shall provide that: (a) the assets of
each Portfolio will not be subject to any right, charge, security
interest, lien or claim of any kind in favor of the foreign banking
institution or its creditors, except a claim of payment for their safe
custody or administration; (b) beneficial ownership for the assets of
each Portfolio; will be freely transferable without the payment of
money or value other than for custody or administration; (c) adequate
records will be maintained identifying the assets as belonging to the
each applicable Portfolio; (d) officers of or auditors employed by, or
other representatives of the Custodian, including to the extent
permitted under applicable law the independent public accountants for
the Fund, will be given access to the books and records of the foreign
banking institution relating to its actions under its agreement with
the Custodian; and (e) assets of the Portfolios held by the foreign
sub-custodian will be subject only to the instructions of the Custodian
or its agents.
3.6 Access of Independent Accountants of the Fund. Upon request of the
Fund, the Custodian will use its best efforts to arrange for the
independent accountants of the Fund to be afforded access to the books
and records of any foreign banking institution employed as a foreign
sub-custodian insofar as such books and records relate to the
performance of such foreign banking institutions under its agreement
with the Custodian.
3.7 Reports by Custodian. The Custodian will supply to the Fund from time
to time, as mutually agreed upon, statements in respect of the
securities and other assets of the Portfolio(s) held by foreign
sub-custodians, including but not limited to an identification of
entities having possession of the Portfolio(s) securities and other
assets and advices or notifications of any transfers of securities to
or from each custodial account maintained by a foreign banking
institution for the Custodian on behalf of each applicable Portfolio,
indicating, as to securities acquired for a Portfolio, the identity of
the entity having physical possession of such securities.
3.8 Transactions in Foreiqn Custody Account. (a) Upon receipt of Proper
Instructions, which may be continuing instructions when so stated by
the parties, the Custodian shall on behalf of each applicable Portfolio
make or cause its foreign sub-custodian to transfer, exchange or
deliver foreign securities owned by the Portfolio, but except to the
extent explicitly provided herein only in any of the cases specified in
Section 2.2 (b) Upon receipt of Proper Instructions, which may be
continuing instructions when so stated by the parties the Custodian
shall on behalf of each applicable Portfolio pay out or cause its
foreign sub-custodians to pay out monies of a Portfolio, but except to
the extent explicitly provided herein only in any of the cases
specified in Section 2.7.(c) Notwithstanding any provision of this
Contract to the contrary, settlement and payment for foreign securities
received for the account of each applicable Portfolio and delivery of
such securities maintained for the account of each applicable Portfolio
may be effected in accordance with the customary or established
securities trading or securities processing practices and procedures in
the jurisdiction or market in which the transaction occurs, including,
without limitation, delivering securities to the purchaser thereof or
to a dealer therefor (or an agent) for such purchaser or dealer
against a receipt with the exception of receiving later payment for
such securities from such purchaser or dealer.
(d) Securities maintained in the custody of a foreign sub-custodian may
be maintained in the name of such entity's nominee to the same extent
as set forth in Section 2.3 of this Contract and the Fund agrees to
hold any such nominee harmless from any liability as a holder of record
of such securities.
3.9 Liability of Foreign Sub-Custodians. Each agreement pursuant to which
the Custodian employs a foreign banking institution as a foreign
sub-custodian shall require the institution to exercise reasonable care
in the performance of its duties and to indemnify, and hold harmless,
the Custodian and Fund from and against any loss, damage, cost,
expense, liability or claim arising out of or in connection with the
institution's performance of such obligations. At the election of the
Fund, it shall be entitled to be subrogated to the rights of the
Custodian with respect to any claims against a foreign banking
institution as a consequence of any such loss, damage, cost, expense,
liability or claim if and to the extent that the Fund has not been made
whole for any such loss, damage, cost, expense, liability or claim.
3.10 Monitoring Responsibilities. The Custodian shall furnish annually to
the Fund, during the month of June, information concerning the foreign
sub-custodians employed by the Custodian. Such information shall be
similar in kind and scope to that furnished to the fund in connection
with the initial approval of this Contract. In addition, the Custodian
will promptly inform the Fund in the event that the Custodian learns of
a material adverse change in the financial condition of a foreign
sub-custodian or is notified by a foreign banking institution employed
as a foreign sub-custodian that there appears to be a substantial
likelihood that its shareholders' equity will decline below $200
million (U.S. dollars or the equivalent thereof) or that its
shareholders' equity has declined below $200 million (in each case
computed in accordance with generally accepted U.S. accounting
principles).
3.11 Branches of U.S. Banks. Except as otherwise set forth in this Contract,
the provisions hereof shall not apply where the custody of the Fund
assets maintained in a foreign branch of a banking institution which is
a "bank" as defined by Section 2(a) (5) of the Investment Company Act
of 1940 which meets the qualification set forth in Section 26(a) of
said Act. The appointment of any such branch as a sub-custodian shall
be governed by Article 1 of this Contract.
4. Payments for Sales or Repurchase or Redemptions of Shares of the Fund.
The Custodian shall receive from the distributor for the Shares or from
the Transfer Agent of the Fund and deposit into the account of the
appropriate Portfolio such payments as are received for Shares of that
Portfolio issued or sold from time to time by the Fund. The Custodian
will provide timely notification to the Fund on behalf of each such
Portfolio and the Transfer Agent of any receipt by it of payments for
Shares of such Portfolio.
From such funds as may be available for the purpose but subject to the
limitations of the Declaration of Trust and any applicable votes of the Board of
Trustees of the Fund pursuant thereto, the Custodian shall, upon receipt of
instructions from the Transfer Agent, make funds available for payment to
holders of Shares who have delivered to the Transfer Agent a request for
redemption or repurchase of their Shares. In connection with the redemption or
repurchase of Shares of a Portfolio, the Custodian is authorized upon receipt of
instructions from the Transfer Agent to wire funds to or through a commercial
bank designated by the redeeming shareholders. In connection with the redemption
or repurchase of Shares of the Fund, the Custodian shall honor checks drawn on
the Custodian by a holder of Shares, which checks have been furnished by the
Fund to the holder of Shares, when presented to the Custodian in accordance with
such procedures and controls as are mutually agreed upon from time to time
between the Fund and the Custodian.
5. Proper Instructions. Proper Instructions as used throughout this
Contract means a writing signed or initialled by one or more person or
persons as the Board of Trustees shall have from time to time
authorized. Each such writing shall set forth the specific transaction
or type of transaction involved, including a specific statement of the
purpose for which such action is requested. Oral instructions will be
considered Proper Instructions if the Custodian reasonably believes
them to have been given by a person so authorized to give such
instructions with respect to the transaction involved. The Fund shall
cause all oral instructions to be confirmed in writing. Upon receipt of
a certificate of the Secretary or an Assistant Secretary as to the
authorization by the Board of Trustees of the Fund accompanied by a
detailed description of procedures approved by the Board of Trustees,
Proper Instructions may include communications effected directly
between electro-mechanical or electronic devices provided that the
Board of Trustees and the Custodian are satisfied that such procedures
afford adequate safeguards for the Portfolio's assets.
6. Actions Permitted without Express Authority. The Custodian may in its
discretion, without express authority from the Fund on behalf of each
applicable Portfolio:
1) make payments to itself or others for minor expenses of handling
securities or other similar items relating to its duties under this
Contract, provided that all such payments shall be accounted for to
the Fund on behalf of the Portfolio;
2) surrender securities in temporary form for securities in definitive
form;
3) endorse for collection, in the name of the Portfolio, checks,
drafts and other negotiable instruments; and
4) in general, attend to all non-discretionary details in connection
vith the sale, exchange, substitution, purchase, transfer and other
dealings with the securities and property of the Portfolio except
as otherwise directed by the Board of Trustees of the Fund.
7. Evidence of Authority. The Custodian 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 have
been properly executed by or on behalf of the Fund. The Custodian may
receive and accept a certified copy of a vote of the Board of Trustees
of the Fund as conclusive evidence (a) of the authority of any person
to act in accordance with such vote or (b) of any determination or of
any action by the Board of Trustees pursuant to the Declaration of
Trust as described in such vote, and such vote may be considered as in
full force and effect until receipt by the Custodian of written notice
to the contrary.
8. Duties of Custodian with Respect to the Books of Account and
Calculation of Net Asset Value and Net Income
The Custodian shall cooperate with and supply necessary information to
the entity or entities appointed by the Board of Trustees of the Fund to keep
the books of account of each Portfolio and/or compute the net asset value per
share of the outstanding shares of each Portfolio or, if directed in writing to
do so by the Fund on behalf of the Portfolio, shall itself keep such books of
account and/or compute such net asset value per share. If so directed, the
Custodian shall also calculate daily the net income of the Portfolio as
described in the Fund's currently effective prospectus related to such Portfolio
and shall advise the Fund and the Transfer Agent daily of the total amounts of
such net income and, if instructed in writing by an officer of the Fund to do
so, shall advise the Transfer Agent periodically of the division of such net
income among its various components. The calculations of the net asset value per
share and the daily income of each Portfolio shall be made at the time or times
described from time to time in the Fund's currently effective prospectus related
to such Portfolio.
9. Records
The Custodian shall with respect to each Portfolio create and maintain
all records relating to its activities and obligations under this Contract in
such manner as will meet the obligations of the Fund under the Investment
Company Act of 1940, with particular attention to Section 31 thereof and Rules
31a-1 and 31a-2 thereunder, applicable federal and state tax laws and any other
law or administrative rules or procedures which may be applicable to the Fund.
All such records shall be the property of the Fund and shall at all times during
the regular business hours of the Custodian be open for inspection by duly
authorized officers, employees or agents of the Fund and employees and agents of
the Securities and Exchange Commission. The Custodian shall, at the Fund's
request, supply the Fund with a tabulation of securities owned by each Portfolio
and held by the Custodian and shall, when requested to do so by the Fund and for
such compensation as shall be agreed upon between the Fund and the Custodian,
include certificate numbers in such tabulations.
10. Opinion of Fund's Independent Accountant
The Custodian shall take all reasonable actions, as the Fund on behalf
of each applicable Portfolio may from time to time request, to obtain from year
to year favorable opinions from the Fund's independent accountants with respect
to its activities hereunder in connection with the preparation of the Fund's
Form N-1A, and Form N-SAR or other annual reports to the Securities and Exchange
Commission and with respect to any other requirements of such Commission.
11. Reports to Fund by Independent Public Accountants
The Custodian shall provide the Fund, on behalf of each of the
Portfolios at such time as the Fund may reasonably require, with reports by
independent public accountants on the accounting system, internal accounting
control and procedures for safeguarding securities, futures contracts and
options on futures contracts, including securities deposited and/or maintained
in a Securities System, relating to the services provided by the Custodian under
this Contract; such reports, shall be of sufficient scope and in sufficient
detail, as may reasonably be required by the Fund to provide reasonable
assurance that any material inadequacies would be disclosed by such examination,
and, if there are no such inadequacies, the reports shall so state.
12. Compensation of Custodian
The Custodian shall be entitled to reasonable compensation for its
services and expenses as Custodian, as agreed upon from time to time between the
Fund on behalf of each applicable Portfolio and the Custodian. (See Schedule B
attached)
13. Responsibility of Custodian
So long as and to the extent that it is in the exercise of reasonable
care, the Custodian shall not be responsible for the title, validity or
qenuineness of any property or evidence of title thereto received by it or
delivered by it pursuant to this Contract and shall be held harmless in actinq
upon any notice, request, consent, certificate or other instrument reasonably
believed by it to be genuine and to be signed by the proper party or parties.
The Custodian shall be held to the exercise of reasonable care in carrying out
the provisions of this Contract, but shall be kept indemnified by and shall be
without liability to the Fund for any action taken or omitted by it in good
faith without negligence. It shall be entitled to rely on and may act upon
advice of counsel (who may be counsel for the Fund) on all matters, and shall be
without liability for any action reasonably taken or omitted pursuant to such
advice. Notwithstanding the foregoing, the responsibility of the Custodian with
respect to redemptions effected by check shall be in accordance with a separate
Agreement entered into between the Custodian and the Fund.
The Custodian shall be liable for the acts or omissions of a foreign
banking institution appointed pursuant to the provisions of Article 3 to the
same extent as set forth in Article 1 hereof with respect to sub-custodians
located in the United States (except as specifically provided in Article 3.10)
and, regardless of whether assets are maintained in the custody of a foreian
banking institution, a foreign securities depository or a branch of a U.S. bank
as contemplated by paragraph 3.11 hereof, the Custodian shall not be liable for
any loss, damage, cost, expense, liability or claim resulting from, or caused
by, the direction of or authorization by the Fund to maintain custody or any
securities or cash of the Fund in a foreign country including, but not limited
to, losses resulting from nationalization, expropriation, currency restrictions,
or acts of war or terrorism.
If the Fund on behalf of a Portfolio requires the Custodian to take any
action with respect to securities, which action involves the payment of money or
which action may, in the opinion of the Custodian, result in the Custodian or
its nominee assigned to the Fund or the Portfolio being liable for the payment
of money or incurring liability of some other form, the Fund on behalf of the
Portfolio, as a prerequisite to requiring the Custodian to take such actions,
shall provide indemnity to the Custodian in an amount and form satisfactory to
it.
If the Fund requires the Custodian to advance cash or securities for
any purpose for the benefit of a Portfolio including the purchase or sale of
foreign exchange of contracts for foreign exchange or in the event that the
Custodian or its nominee shall incur or be assessed any taxes, charges,
expenses, assessments, claims or liabilities in connection with the performance
of this Contract, 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 applicable Portfolio shall be security
therefore and should the Fund fail to repay the Custodian promptly, the
Custodian shall be entitled to utilize available cash and to dispose of the such
Portfolio's assets to the extent necessary to obtain reimbursement.
14. Effective Period, Termination and Amendment
This Contract shall become effective as of its execution, shall
continue in full force and effect until terminated as hereinafter provided, may
be amended at any time by mutual agreement of the parties hereto and may be
terminated by either party by an instrument in writing delivered or mailed,
postage prepaid to the other party, such termination to take effect not sooner
than thirty (30) days after the date of such delivery or mailing; provided,
however that the Custodian shall not with respect to a Portfolio act under
Section 2.10 hereof in the absence of receipt of an initial certificate of the
Secretary or an Assistant Secretary that the Board of Trustees of the Fund has
approved the initial use of a particular Securities System by such Portfolio and
the receipt of an annual certificate of the Secretary or an Assistant Secretary
that the board of Trustees has reviewed the use such Portfolio of such
Securities System, as required in each case by Rule 17f-4 under the Investment
Company Act of 1940, as amended and that the Custodian shall not with respect to
a Portfolio act under Section 2.10A hereof in the absence of receipt of an
initial certificate of the Secretary or an Assistant Secretary that the Board of
Trustees has approved the initial use of the Direct Paper System by such
Portfolio and the receipt of an annual certificate of the Secretary or an
Assistant Secretary that the Board of Trustees has reviewed the use by such
Portfolio of the Direct Paper System; provided further, however, that the Fund
shall not amend or terminate this Contract in contravention of any applicable
federal or state regulations, or any provision of the Declaration of Trust, and
further provided, that the Fund on behalf of one or more of the Portfolios may
at any time by action of its Board of Trustees, (i) substitute another bank or
trust company for the Custodian by giving notice as described above to the
Custodian, or (ii) immediately terminate this Contract in the event of the
appointment of a conservator or receiver for the Custodian by the Comptroller of
the Currency or upon the happening of a like event at the direction of an
appropriate regulatory agency or court of competent jurisdiction.
Upon termination of the Contract, the Fund on behalf of each applicable
Portfolio shall pay to the Custodian such compensation as may be due as of the
date of such termination and shall likewise reimburse the Custodian for its
costs, expenses and disbursements.
15. Successor Custodian
If a successor custodian for the Fund, of one or more of the Portfolios
shall be appointed by the Board of Trustees of the Fund, the Custodian shall,
upon termination deliver to such successor custodian at the office of the
Custodian, duly endorsed and in the form for transfer, all securities of each
applicable Portfolio then held by it hereunder and shall transfer to an account
of the successor custodian all of the securities of each such Portfolio held in
a Securities System or in the Direct Paper System.
If no such successor custodian shall be appointed, the Custodian shall,
in like manner, upon receipt of a certified copy of a vote of the Board of
Trustees of the Fund, deliver at the office of the Custodian and transfer such
securities, funds and other properties in accordance with such vote.
In the event that no written order designating a successor custodian or
certified copy of a vote of the Board of Trustees shall have been delivered to
the Custodian on or before the date when such termination shall become
effective, then the Custodian shall have the right to deliver to a bank or trust
company, which is a "bank" as defined in the Investment Company Act of 1940,
doing business in Boston, Massachusetts, of its own selection, having any
aggregate capital, surplus, and undivided profits, as shown by its last
published report, of not less than $25,000,000, all securities, funds and other
properties held by the Custodian on behalf of each applicable Portfolio and all
instruments held by the Custodian relative thereto and all other property held
by it under this Contract and to transfer to an account of such successor
custodian all the the securities of each such Portfolio held in any Securities
System. Thereafter, such bank or trust company shall be the successor of the
Custodian under this Contract. In the event that securities, funds and other
properties remain in the possession of the Custodian after the date of
termination hereof owing to failure of the Fund to procure the certified copy of
the vote referred to or of the Board of Trustees to appoint a successor
custodian, the Custodian shall be entitled to fair compensation for its services
during such period as the Custodian retains possession of such securities, funds
and other properties and the provisions of this Contract relating to the duties
and obligations of the Custodian shall remain in full force and effect.
15A. Special Provisions Concerning Repurchase Aqreements.
Notwithstanding anything to the contrary in this Agreement, upon
receipt of proper instructions, which may be standing instructions, in
connection with repurchase agreements, the Custodian shall transmit, prior to
receipt on behalf of the Fund of any securities or other property, funds from
the Fund's custodian account to a special custodian approved by the Trustees of
the Fund, which funds shall be used to pay for securities to be purchased by the
Fund subject to the Fund's obligation to sell and the seller's obligation to
repurchase such securities. In such a case, the securities shall be held in the
custody of the special custodian.
16. Interpretive and Additional Provisions
In connection with the operation of this Contract, the Custodian and
the Fund on behalf of each of the Portfolios, may from time to time agree on
such provisions interpretive of or in addition to the provisions of this
Contract as may be in their joint opinion be consistent with the general tenor
of this Contract. Any such interpretive or additional provisions shall be in
writing signed by both parties and shall be annexed hereto, provided that no
such interpretive or additional provisions shall contravene any applicable
federal or state regulations or any provision of the Declaration of Trust of the
Fund. No interpretive or additional provisions made as provided in the preceding
sentence shall be deemed to be an amendment of this Contract.
17. Additional Funds
In the event that the Fund establishes one or more series of Shares in
addition to International Heritage Government Portfolio, International Heritage
High Yield Portfolio, International Heritage Growth and Income Portfolio,
International Heritage Overseas Growth Portfolio, and International Heritage
Overseas Income Portfolio with respect to which it desires to have the Custodian
render services as custodian under the terms hereof, it shall so notify the
Custodian in writing, and if the Custodian agrees in writing to provide such
services, such series of Shares shall become a Portfolio hereunder.
18. Massachusetts Law to Apply
This Contract shall be construed and the provisions thereof interpreted
under and in accordance with laws of the Commonwealth of Massachusetts.
19. Prior Contracts
This Contract supersedes and terminates, as of the date hereof, all
prior contracts between the Fund on behalf of each of the Portfolios and the
Custodian relating to the custody of the Fund's assets.
20. Names
The names International Heritage Fund and Trustees of International
Heritage Fund refer respectively to the Trust created and the Trustees, as
trustees but not individually or personally, acting from time to time under a
Declaration of Trust dated September 5, 1986 which is hereby referred to and a
copy of which is on file at the office of the State Secretary of the
Commonwealth of Massachusetts and at the principal office of the Trust. The
obligations of International Heritage Fund entered into in the name or on behalf
thereof by any of the Trustees, representatives or agents are made not
individually, but in such capacities, and are not binding upon any of the
Trustees, Shareholders, or representatives of the Trust personally, but bind
only the Trust Property, and all persons dealing with any class of shares of the
Trust must look solely to the Trust property belonging to such class for the
enforcement of any claims against the Trust.
IN WITNESS WHEREOF, each of the parties has caused this instrument to
be executed in its name and behalf by its duly authorized representative and its
seal to be hereunder affixed as of the thirty-first day of May, 1988.
International Heritage Fund
BY: [illegible] President
--------------------------------------------
ATTEST: [illegible], Secretary
- -------------------------------------------------
STATE STREET BANK AND TRUST COMPANY
BY: [illegible]
---------------------------------------------
Vice President
ATTEST:
[illegible]
- -------------------------------------------------
Assistant Secretary
<PAGE>
Schedule A
The following foreign banking institutions and foreign securities
depositories have been approved by the Board of Trustees of the International
Heritage Fund for the use as sub-custodians for the Fund's securities and other
assets:
1. ANZ Banking Group Ltd. (Australia)
2. Girozentrale Und Bank Der Osterreichischen (Austria)
3. Banque Bruxelles Lambert (Belgium)
4. Canada Trust Company (Canada)
5. Den Danske Bank (Denmark)
6. Credit Commercial De France (France)
7. Berliner Handels Und Frankfurter Bank (West Germany)
8. Standard Chartered Bank (Hong Kong)
9. Credito Italiano (Italy)
10. Monte Titoli S.P.A. (Italian central securities deposit)
11. Sumitomo Trust & Banking Company Limited (Japan)
12. Bank Mees & Hope, N.V. (The Netherlands)
13. Westpac Banking Corp. (New Zeland)
14. Christiania Bank Og Kreditkasse (Norway)
15. DBS Bank Ltd. (Singapore)
16. Banco Hispano Americano (Spain)
17. Skandinaviska Enskilda Banken (Sweden)
18. Union Bank of Switzerland (Switzerland)
19. State Street London Limited, State Street Boston Corp.
(United Kingdom)
<PAGE>
EXHIBIT 1
CUSTODIAN AGREEMENT
TO:
Gentlemen:
The undersigned ("State Street") hereby request that you (the Bank)
establish a custody account and a cash account for each custodian/employee
benefit plan identified in the Schedule attached to this Agreement and each
additional account which is identified to this Agreement. Each such custody or
cash account as applicable will be referred to herein as the "Account" and will
be subject to the following terms and conditions:
1. The Bank shall hold as agent for State Street and shall physically
segregate in the Account such cash, bullion, coin, stocks, shares,
bonds, debentures, notes and other securities and other property which
is delivered to the Bank for that State Street Account (the
"Property").
2. a. Without the prior approval of State Street it will not deposit
securities in any securities depository or utilize a clearing
agency, incorporated or organized under the laws of a country other
than the United States, unless such depository or clearing house
operates the central system for handling of securities or
equivalent book-entries in that country or operates a transnational
system for the central handling of securities or equivalent
book-entries;
b. When securities held for an Account are deposited in a securities
depository or clearing agency by the Bank, the Bank shall identify
on its books as belonging to State Street as agent for such
Account, the securities so deposited.
3. The Banks represents that either:
a. It currently has stockholders' equity in excess of $200 million
(U.S. dollars or the equivalent of U.S. dollars computed in
accordance with generally accepted U.S. accounting principles) and
will promptly inform State Street in the event that there appears
to be substantial likelihood that its stockholders' equity will
decline below $200 million, or in any event, at such time as its
stockholders' equity in fact decline below $200 million; or
b. It is the subject of an exemptive order issued by the United States
Securities and Exchange Commission, which such order permits State
Street to employ the Bank as a sub custodian, notwithstanding the
fact that the Bank's stockholders' equity is currently below $200
million or may in the future decline below $200 million due to
currency fluctuation.
4. Upon the written instructions of State Street, as permitted by
Paragraph 8, the Bank is authorized to pay cash from the Account and to
sell, assign, transfer, deliver or exchange, or to purchase for the
Account, any and all stocks, shares, bonds, debentures, notes and other
securities ("Securities"), bullion, coin and any other property, but
only as provided in such written instructions. The bank shall not be
held liable for any act or omission to act on instructions given or
purported to be given should there by any error in such instructions.
5. Unless the Bank receives written instructions of State Street to the
contrary, the Bank is authorized:
a. To promptly receive and collect all income and principal with
respect to the Property and to credit cash receipts to the Account;
b. To promptly exchange securities where the exchange is purely
ministerial (including, without limitation, the exchange of
temporary securities for those in definitive form and the exchange
of warrants, or other documents of entitlement to securities, for
the securities themselves);
c. To promptly surrender securities at maturity or when called for
redemption upon receiving payment therefor;
d. Whenever notification of a rights entitlement or a fractional
interest resulting from a rights issue, stock dividend or stock
split is received for the Account and such rights entitlement or
fractional interest bears an expiration date, the Bank will
endeavor to obtain State Street Bank's instructions, but should
these not be received in time for the Bank to take timely actions,
the Bank is authorized to sell such rights entitlements or
fractional interest and to credit the Account;
e. To hold registered in the name of the nominee of the Bank or its
agents such Securities as are ordinarily held in registered form;
f. To execute in State Street's name for the Account, whenever the
Bank deems it appropriate, such ownership on other certificates as
may be required to obtain the payment of income from the Property;
and
g. To pay or cause to be paid, from the Account any and all taxes and
levies in the nature of taxes imposed on such assets by any
governmental authority and shall use reasonable efforts, to
promptly reclaim any foreign withholding tax relating to the
Account.
6. If the Bank shall receive any proxies, notices, reports or other
communications relative to any of the Securities of the account in
connection with tender offers, reorganization, mergers, consolidations,
or similar events which may have an impact upon the issuer thereof, the
Bank shall promptly transmit any such communication to State Street
Bank by means as will permit State Street Bank to take timely action
with respect thereto.
7. The Bank is authorized in its discretion to appoint brokers and agents
in connection with the Bank's handling of transactions relating to the
Property provided that any such appointment shall not relieve the Bank
of any of its responsibilities or liabilities hereunder.
8. Written instructions shall include (i) instructions in writing signed
by such persons as are designated in writing by State Street; (ii)
telex or tested telex instructions of State Street; (iii) other forms
of instruction in computer readable form as shall be customarily
utilized for the transmission of like information; an (iv) such other
forms of communication as from time to time shall be agreed upon by
State Street and the Bank.
9. The Bank shall supply periodic reports with respect to the safekeeping
of assets held by it under this agreement. The content of such reports
shall include but not be limited to any transfer to or from any account
held by the Bank hereunder and such other information as State Street
may reasonably request.
10. In addition to its obligations under Section 2B hereof, the Bank shall
maintain such other records as may be necessary to identify the assets
hereunder as belonging to each custodian/employee benefit plan
identified in our Schedule attached to this agreement and each
additional account which is identified to this agreement.
11. The Bank agrees that its books and records relating to its actions
under this Agreement shall be opened to the physical, on-premises
inspection and audit at reasonable times by officers of, auditors
employed by or other representatives of State Street (including to the
extent permitted under law the independent public accountants for any
entity whose Property is being held hereunder) and shall be retained
for such period as shall be agreed by State Street and the Bank.
12. The Bank shall be entitled to reasonable compensation for its services
and expenses as custodian under this Agreement, as agreed upon from
time to time by the Bank and State Street.
13. The Bank shall exercise reasonable care in the performance of its
duties, as are set forth or contemplated herein or contained in
instructions given to the Bank which are not contrary to this
Agreement, shall maintain adequate insurance and agrees to indemnify
and hold harmless, State Street and each Account from and against any
loss, damage, cost, expense, liability or claim arising out of or in
connection with the Bank's performance of its obligations hereunder.
14. The Bank agrees (i) the property held hereunder is not subject to any
right, charge, security interest, lien or claim of any kind in favor of
the Bank or any of its agents or its creditors except a claim of
payment for their safe custody and administration and (ii) the
beneficial ownership of the property shall be freely transferable
without the payment of money or other value other than for safe custody
or administration.
15. The Bank agrees to meet State Street Operating Requirements (See
Exhibit A).
16. This Agreement may be terminated by the Bank or State Street by 60
days' written notice to the other, sent by registered mail or express
courier. The Bank, upon the date this Agreement terminate pursuant to
notice which has been given in a timely fashion, shall deliver the
Property to the beneficial owner unless the Bank has received from the
beneficial owner 60 days' prior to the date on which this Agreement is
to be terminated written instructions of State Street specifying the
name(s) of the person(s) to whom the Property shall be delivered.
17. The Bank and State Street shall each use its best efforts to maintain
the confidentiality of the Property in each Account, subject, however,
to the provisions of any laws requiring the disclosure of the Property.
18. Unless otherwise specified in this Agreement, all notices with respect
to matters contemplated by this Agreement, shall be deemed duly given
when received in writing or by confirmed telex by the Bank or State
Street at their respective addresses set forth below or at such other
address as be specified in each case in a notice similarly given:
To State Street Master Trust Division, Global Custody
STATE STREET BANK AND TRUST COMPANY
P.O. Box 1713
Boston, Massachusetts 02105
U.S.A.
To the Bank
19. This Agreement shall be governed by and construed in accordance with
the laws of except to the extent that such laws are preempted by the
laws of the United States of America.
Please acknowledge your agreement to the foregoing by executing a copy of this
letter,
Very truly yours,
STATE STREET BANK AND TRUST COMPANY
By:
---------------------------------
Vice President
Date:
-------------------------------
Agreed to by:
By:
------------------------------
Date:
------------------------------
0043k/4
<PAGE>
November 10, 1986
CUSTODIAN AGREEMENT -- SCHEDULE
MUTUAL FUNDS
CUSTODY CHARGES
CUSTODY, PORTFOLIO & FUND ACCOUNTING SERVICES
LEVEL II
Our asset charge for Custody, Portfolio, and Fund Accounting covers the
following services:
o Safekeeping Services
o General Ledger & Portfolio Fund Accounting
o Subsidiary Accounting
o Daily Cash Management Control
o Monthly Report Production
o Foreign Custodial Services
o Pricing Services for Mutual Funds
o Direct Account Liaison
Annual Asset Fees
GNMA,
Equity Bond International,
Funds Funds Tax Free Funds
First $20 million .00080 .00095 .00115
Next $80 mi11ion .00045 .00055 .00065
Excess .00020 .00025 .00030
There is a $3,000 per month minimum charge for fund servicing.
Supplemental charges are attached.
Earning Allowance Formula for Custody's Funds
Seventy-five percent of the average rate on thirteen week treasury bills
divided by twelve to determine the monthly percentage rate.
<PAGE>
CUSTODIAN AGREEMENT November 10, o 1986
SCHEDULE B
Supplemental Charges
o Transaction Charges
Shawmut Bank repo 14.00
Book entry transaction 13 00
Physical transaction 22.00
o Wire Charges
Incoming 4.00
Outgoing 5.00
o Holdings Charge
Monthly charge for each issue. 6.00
o Option Charges
Writing covered options charge 25.00
Expiration or exercise charge 15.00
o GNMA
Paydown/Payup charge 25.00
o Lending of Securities
Deliver loaned securities-versus cash collateral 25.00
Deliver loaned securities versus securities collateral 30.00
Receive/deliver additional cash collateral 6.00
Substitutions of securities collateral 30.00
Deliver cash collateral versus receipt of loaned
securities 15.00
Deliver securities collateral versus receipt of loaned
securities 25.00
Loaned administration - mark-to market per day, per
loan 3.00
Out-of-Pocket-Expenses
Monthly out-of-pocket expenses, such as telephone, postage, sub-custodian
charges, etc., will be billed at the end of each month.
AGREEMENT made by and between State Street Bank and Trust Company (the
"Custodian") and INTERNATIONAL HERITAGE FUND (the "Fund").
WHEREAS, the Custodian and the Fund are parties to a custodian contract
dated May 20, 1988 (the "Custodian Contract") governing the terms and conditions
under which the Custodian maintains custody of the securities and other assets
of the Fund, and
WHEREAS, the Custodian and the Fund desire to amend the Custodian Contract
to provide for the maintenance of the Fund's foreign securities, and cash
incidental to transactions in such securities, in the custody of certain foreign
banking institutions and foreign securities depositories acting as
sub-custodians in conformity with the requirements of Rule 17f-5 under the
Investment Company Act of 1940;
NOW THEREFORE, in consideration of the premises and covenants contained
herein, the Custodian and the Fund hereby amend the Custodian Contract by the
addition of the following terms and conditions;
1. Appointment of Foreign Sub-Custodians
The Fund hereby authorizes and instructs the Custodian to employ as
sub-custodians for the Fund's securities and other assets of the Portfolios
maintained outside the United States the foreign banking institutions and
foreign securities depositories designated on Schedule A hereto ("foreign
sub-custodians"). Upon receipt of "Proper Instructions", as defined in Section
2.17 of the Custodian Contract, together with a certified resolution of the
Fund's Board of Trustees, on behalf of the applicable Portfolio(s), the
Custodian and the Fund may agree to amend Schedule A hereto from time to time to
designate additional foreign banking institutions and foreign securities
depositories to act as sub-custodians. Upon receipt of Proper Instructions, the
Fund may, on behalf of the applicable Portfolio(s) instruct the Custodian to
cease the employment of any one or more of such sub-custodians for maintaining
custody of the Portfolio's assets.
2. Assets to be Held
The Custodian shall limit the securities and other assets maintained in
the custody of the foreign sub-custodians to: (a) "foreign securities", as
defined in paragraph (c)(1) of Rule 17f-5 under the Investment Company Act of
1940, and (b) cash and cash equivalents in such amounts as the Custodian or the
Fund may determine to be reasonably necessary to effect the Fund's foreign
securities transactions of the applicable Portfolios.
3. Foreiqn Securities Depositories
Except as may otherwise be agreed upon in writing by the Custodian and
the Fund, on behalf of the applicable Portfolio, assets of the applicable
Portfolios shall be maintained in foreign securities depositories only through
arrangements implemented by the foreign banking institutions serving as
sub-custodians pursuant to the terms hereof. Where possible, such arrangements
shall include entry into agreements containing the provisions set forth in
Section 5 hereof.
4. Segregation of Securities
The Custodian shall identify on its books as belonging to each
applicable Portfolio of the Fund, the foreign securities of such Portfolios
held by each foreign sub-custodian. Each agreement pursuant to which the
Custodian employs a foreign banking institution shall require that such
institution establish a custody account for the Custodian on behalf of the Fund
for each applicable Portfolio of the Fund and physically segregate in each such
account, securities and other assets of the Portfolios, and, in the event that
such institution deposits the Portfolio's securities of one or more of the
Portfolios in a foreign securities depository, that it shall identify on its
books as belonging to the Custodian, as agent for the Fund, the securities so
deposited.
5. Agreements with Foreiqn Banking Institutions
Each agreement with a foreign banking institution shall be substantially
in the form set forth in Exhibit 1 hereto and shall provide that: (a) the
assets of each Portfolio will not be subject to any right, charge, security
interest, lien or claim of any kind in favor of the foreign banking institution
or its creditors or agents, except a claim of payment for their safe custody or
administration; (b) beneficial ownership for the assets of each Portfolio will
be freely transferable without the payment of money or value other than for
custody or administration; (c) adequate records will be maintained identifying
the assets as belonging to each applicable Portfolio; (d) officers of or
auditors employed by, or other representatives of the Custodian, including to
the extent permitted under applicable law in the independent public accounts for
the Fund, will be given access to the books and records of the foreign banking
institution relating to its actions under its agreement with the Custodian; and
(e) assets of the Portfolios held by the foreign sub-custodian will be subject
only to the instructions of the Custodian or its agents.
6. Access of Independent Accounts of the Fund
Upon request of the Fund, the Custodian will use its best efforts to
arrange for the independent accounts of the Fund to be afforded access to the
books and records of any foreign banking institution employed as a foreign
sub-custodian insofar as such books and records relate to the performance of
such foreign banking institution under its agreement with the Custodian. 7.
7. Reports by Custodian
The Custodian will supply to the Fund from time to time, as mutually
agreed upon, statements in respect of the securities and other assets of the
Portfolio(s) held by foreign sub-custodians, including but not limited to an
identification of entities having possession of the Portfolio(s) securities and
other assets and advices or notifications of any transfers of securities to or
from each custodial account maintained by a foreign banking institution for the
Custodian on behalf of each applicable Portfolio, indicating, as to securities
acquired for a Portfolio, the identity of the entity having physical possession
of such securities.
8. Transactions in Foreign Custody Account
(a) Except as otherwise provided in paragraph (b) of this Section 8,
the provisions of Section 2.2 and 2.8 of the Custodian Contract shall
apply, mutatis mutandis to the foreign securities of the Fund held outside the
United States by foreign sub-custodians.
(b) Notwithstanding any provision of the Custodian Contract to the
contrary, settlement and payment for securities received for the account of each
applicable Portfolio of the Fund and delivery of such securities maintained for
the account of each applicable Portfolio of the Fund may be effected in
accordance with the customary or established securities trading or securities
processing practices and procedures in the jurisdiction or market in which the
transaction occurs, including, without limitation, delivering securities to the
purchaser thereof or to a dealer therefor (or an agent for such purchaser or
dealer) against a receipt with the exception of receiving later payment for such
securities from such purchaser or dealer.
(c) Securities maintained in the custody of a foreign sub-custodian may
be maintained in the name of such entity's nominee to the same extent as
set forth in Section 2.3 of the Custodian Contract, and the Fund agrees to hold
any such nominee harmless from any liability as a holder of record of such
securities.
9. Liability of Foreiqn Sub-Custodians
Each agreement pursuant to which the Custodian employs a foreign banking
institution as a foreign sub-custodian shall require the institution to exercise
reasonable care in the performance of its duties and to indemnify, and hold
harmless, the Custodian and each Fund from and against any loss, damage, cost,
expense, liability or claim arising out of or in connection with the
institution's performance of such obligations. At the election of the Fund, it
shall be entitled to be subrogated to the rights of the Custodian with respect
to any claims against a foreign banking institution as a consequence of any such
loss, damage, cost, expense, liability or claim if and to the extent that the
Fund has not been made whole for any such loss, damage, cost, expense, liability
or claim.
10. Liability of Custodian
The Custodian shall be liable for the acts or omissions of a foreign
banking institution to the same extent as set forth with respect to
sub-custodians generally in the Custodian Contract and, regardless of whether
assets are maintained in the custody of a foreign banking institution, a foreign
securities depository or a branch of a U.S. bank as contemplated by paragraph 13
hereof, the Custodian shall not be liable for any loss, damage, cost, expense,
liability or claim resulting from nationalization, expropriation, currency
restrictions, or acts or war or terrorism or otherwise resulting from any action
or omission by a foreign banking institution or a foreign securities depository
provided that any such act or omission shall not have resulted from or
constitute the failure to exercise reasonable care by such institution or
depository. Notwithstanding the foregoing provisions of this paragraph 10, in
delegating custody duties to State Street London Ltd., the Custodian shall not
be relieved of any responsibility to the Fund for any loss due to such
delegations, except such loss as may result from (a) political risk (including,
but not limited to, exchange control restrictions, confiscation, expropriation,
nationalization, insurrection, civil strife or armed hostilities) or (b) other
risk of loss (excluding bankruptcy or insolvency of State Street London Ltd. not
caused by political risk) for which neither the Custodian nor State Street
London Ltd. would be liable (including, but not limited to, losses due to Acts
of God, nuclear incident or other losses under circumstances where the Custodian
and State Street London Ltd. have exercised reasonable care).
11. Reimbursement for Advances
If the Fund requires the Custodian to advance cash or securities for
any purpose including the purchase or sale of foreign exchange or of
contracts for foreign exchange, or in the event that the Custodian or its
nominee shall incur or be assessed any taxes, charges, expenses, assessments,
claims or liabilities in connection with the performance of this Contract,
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 the Custodian promptly, the Custodian shall be entitled to utilize
available cash and to dispose of the Fund assets to the extent necessary to
obtain reimbursement.
12. Monitoring Responsibilities
The Custodian shall furnish annually to the Fund, during the month of
June, information concerning the foreign sub-custodians employed by the
Custodian. Such information shall be similar in kind and scope to that furnished
to the Fund in connection with the initial approval of this amendment to the
Custodian Contract. In addition, the Custodian will promptly inform the Fund in
the event that the Custodian learns of a material adverse change in the
financial condition of a foreign sub-custodian or any material loss of the
assets of the Fund or in the case of any foreign sub-custodian not the subject
of an exemptive order from the Securities and Exchange Commission is notified by
such foreign sub-custodian that there appears to be a substantial likelihood
that its shareholders' equity will decline below $200 million (U.S. dollars or
the equivalent thereof) or that its shareholders' equity has declined below $200
million (in each case computed in accordance with generally accepted U.S.
accounting principles).
13. Branches of U.S. Banks
(a) Except as otherwise set forth in this amendment to the Custodian
Contract, the provisions hereof shall not apply where the custody of the Fund
assets is maintained in a foreign branch of a banking institution which is a
"bank" as defined by Section 2(a)(5) of the Investment Company Act of 1940
meeting the qualification set forth in Section 26(a) of said Act. The
appointment of any such branch as a sub-custodian shall be governed by paragraph
1 of the Custodian Contract.
(b) Cash held for the Fund in the United Kingdom shall be maintained in
an interest bearing account established for the Fund with the Custodian's London
Branch, which account shall be subject to the direction of the Custodian, State
Street London Ltd. or both.
14. Applicability of Custodian Contract
Except as specifically superseded or modified herein, the terms and
provisions of the Custodian Contract shall continue to apply with full force and
effect.
IN WITNESS WHEREOF, each of the parties has caused this instrument to be
executed in its name and behalf by its duly authorized representative and its
seal to be hereunder affixed as of the 31st day of May, 1988.
INTERNATIONAL HERITAGE FUND
ATTEST:
[illegible] By: [illegible]
- --------------------- ---------------------------------
(Title) Secretary (Title) President
STATE STREET BANK AND TRUST COMPANY
ATTEST:
[illegible] By: [illegible]
- ---------------------- ---------------------------------
Assistant Secretary Vice President
<PAGE>
Schedule A
The following foreign banking institutions and foreign securities
depositories have been approved by the Board of Trustees of the International
Heritage Fund for use as subcustodians for the Fund's securities and other
assets.
1. ANZ Banking Group Ltd. (Australia)
2. Girozentrale Und Bank Der Osterreichischen (Austria)
3. Banque Bruxelles Lambert (Belgium)
4. Canada Trust Company (Canada)
5. Den Danske Bank (Denmark)
6. Credit Commercial De France (France)
7. Erliner Handels Und Frankfurter Bank (West Germany)
8. Standard Chartered Bank (Hong Kong)
9. Credito Italiano (Italy)
10. Monte Titoli S.P.A. (Italian central securities deposit)
11. Sumitomo Trust & Banking Company Limited (Japan)
12. Bank Mees & Hope, N.V. (The Netherlands)
13. Westpac Banking Corp. (New Zealand)
14. Christiania Bank Og Kreditkasse (Norway)
15. DBS Bank Ltd. (Singapore)
16. Banco Hispano Americano (Spain)
17. Skandinaviska Enskilda Banken (Sweden)
18. Union Bank of Switzerland (Switzerland)
19. State Street London Limited, State Street Boston Corp.
(United Kingdom)
<PAGE>
FIRST
AMENDMENT
TO
CUSTODIAN, FUND ACCOUNTING AND RECORDKEEPING AGREEMENT
BY AND BETWEEN
KEYSTONE AMERICA WORLD BOND FUND
AND
STATE STREET BANK AND TRUST COMPANY
This First Amendment to the Custodian, Fund Accounting and Recordkeeping
Agreement by and between KEYSTONE AMERICA WORLD BOND FUND ("Fund") and STATE
STREET BANK AND TRUST COMPANY ("State Street"), dated May 31, 1988 ("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 12 and by inserting the
following as Paragraph 12:
" 12. 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 12."
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 AMERICA WORLD BOND FUND
/s/ Illegible /s/ Illegible
- -------------------------- By: --------------------------
ATTEST: STATE STREET BANK AND
TRUST COMPANY
/s/ Illegible /s/ Illegible
- -------------------------- By: --------------------------
Vice President
<PAGE>
SECOND
AMENDMENT
TO
CUSTODIAN, FUND ACCOUNTING AND RECORDKEEPING AGREEMENT
BY AND BETWEEN
KEYSTONE AMERICA WORLD BOND FUND
AND
STATE STREET BANK AND TRUST COMPANY
This Second Amendment to the Custodian, Fund Accounting and Recordkeeping
Agreement by and between KEYSTONE AMERICA WORLD BOND FUND, a Massachusetts
business trust organized 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 May 31, 1988, (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 2.11 (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.
<PAGE>
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 AMERICA WORLD BOND FUND
/s/ Illegible /s/ Illegible
- -------------------------- By: --------------------------
ATTEST: STATE STREET BANK AND
TRUST COMPANY
/s/ Illegible /s/ Illegible
- -------------------------- By: --------------------------
Assistant Secretary Vice President
EXHIBIT 99.10
December 29, 1995
Keystone World Bond Fund
200 Berkeley Street
Boston, Massachusetts 02116-5034
Gentlemen:
I am a Senior Vice President of and General Counsel to Keystone
Investment Management Company (formerly named Keystone Custodian Funds, Inc.),
investment adviser to Keystone World Bond Fund (formerly named Keystone America
World Bond Fund (the "Fund"). You have asked for my opinion with respect to the
proposed issuance of 613,632 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.
17 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 Amended and Restated Declaration of Trust, as further amended
("Declaration of Trust") and offering Prospectus, will be legally issued, fully
paid, and nonassessable by the Fund, entitling the holders thereof to the rights
set forth in the Declaration of Trust and subject to the limitations set forth
therein.
My opinion is based upon my examination of the Fund's Declaration of
Trust and By-Laws; a review of the minutes of the Fund's Board of Trustees
authorizing the issuance of such additional shares; and the Fund's Prospectus.
In my examination of such documents, I have assumed the genuineness of all
signatures and the conformity of copies to originals.
I hereby consent to the use of this opinion in connection with
Post-Effective Amendment No. 19 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
EXHIBIT 99.11
CONSENT OF INDEPENDENT AUDITORS
The Trustees
Keystone World Bond Fund
(formerly Keystone America World Bond Fund)
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.
/s/ KPMG Peat Marwick LLP
KPMG Peat Marwick LLP
Boston, Massachusetts
December 29, 1995
<PAGE>
EXHIBIT 99.15
KEYSTONE AMERICA WORLD BOND FUND
CLASS A DISTRIBUTION PLAN
SECTION 1. Keystone America World Bond Fund ("Fund") may act as the
distributor of securities of which it is the issuer, pursuant to Rule 12b-1
under the Investment Company Act of 1940 ("1940 Act") according to the terms of
this Distribution Plan ("Plan").
SECTION 2. The Fund may expend daily amounts at an annual rate of 0.75% of
the average daily net asset value of Class A shares of the Fund to finance any
activity which is principally intended to result in the sale of Class A shares
of the Fund, including, without limitation, expenditures consisting of payments
to a principal underwriter of the Fund ("Principal Underwriter") in order (i) to
enable the Principal Underwriter to pay to others commissions in respect of
sales of Class A shares since inception of the Plan; (ii) to enable the
Principal Underwriter to pay or to have paid to others who sell Class A shares a
maintenance or other fee, at such intervals as the Principal Underwriter may
determine, in respect of Class A shares previously sold by any such others and
remaining outstanding during the period in respect of which such fee is or has
been paid; and/or (iii) to compensate the Principal Underwriter for its efforts
in respect of sales of Class A shares since inception of the Plan.
SECTION 3. This Plan shall not take effect until it has been approved by a
vote of at least a majority (as defined in the 1940 Act) of the outstanding
Class A shares of the Fund.
SECTION 4. This Plan shall not take effect until it has been approved
together with any related agreements of the Fund by votes of a majority of both
(a) the Board of Trustees of the Fund and (b) those Trustees of the Fund who are
not "interested persons" of the Fund (as defined in the 1940 Act) and who have
no direct or indirect financial interest in the operation of this Plan or any
agreements of the Fund or any other person related to this Plan ("Rule 12b-1
Trustees"), cast in person at a meeting called for the purpose of voting on this
Plan or such agreements.
SECTION 5. Unless sooner terminated pursuant to Section 7, this Plan shall
continue in effect for a period of one year from the date it takes effect and
thereafter shall continue in effect so long as such continuance is specifically
approved at least annually in the manner provided for approval of this Plan in
Section 4.
SECTION 6. Any person authorized to direct the disposition of monies paid
or payable by the Fund pursuant to this Plan or any related agreement shall
provide to the Fund's Board and the Board shall review at least quarterly a
written report of the amounts so expended and the purposes for which such
expenditures were made.
SECTION 7. This Plan may be terminated at any time by vote
of a majority of the Rule 12b-1 Trustees, or by vote of a majority of the Fund's
outstanding Class A shares.
SECTION 8. Any agreement of the Fund related to this Plan shall be in
writing, and shall provide:
A. That such agreement may be terminated at any time, without payment of
any penalty, by vote of a majority of the Rule 12b-1 Trustees or by a
vote of a majority of the Fund's outstanding Class A shares on not
more than sixty days written notice to any other party to the
agreement; and
B. That such agreement shall terminate automatically in the event of its
assignment.
SECTION 9. This Plan may not be amended to increase materially the amount
of distribution expenses provided for in Section 2 hereof unless such amendment
is approved in the manner provided in Section 3 hereof and no material amendment
to this Plan shall be made unless approved in the manner provided for in Section
4 hereof.
<PAGE>
DISTRIBUTION PLAN
FOR
CLASS B-1 SHARES
OF
KEYSTONE WORLD BOND FUND
Section 1. Keystone World Bond Fund, individually and/or on behalf of its
series, if any, referred to above in the title of this 12b-1 Plan (the "Plan"),
to which series this Plan shall then relate, as applicable (the "Fund"), may act
as the distributor of certain securities of which it is the issuer pursuant to
Rule 12b-1 under the Investment Company Act of 1940 (the "1940 Act") according
to the terms of this Distribution Plan.
Section 2. The Fund may expend daily amounts at an annual rate of up to
1.00% of the average daily net asset value of the Fund attributable to the
Fund's Class B-1 shares (the "Shares"). Such amounts may be expended to finance
any activity that is principally intended to result in the sale of Shares,
including, without limitation, expenditures consisting of payments to a
principal underwriter of the Fund or others as sales commissions or other
compensation for services provided or to be provided ("Distribution Fees") or as
reimbursement for expenses that are incurred or accrued at any time during which
this Plan is in effect, together with interest on any such amounts, at rates
approved by the Rule 12b-1 Directors (as defined below) in the manner referred
to below, all whether or not this Plan has been otherwise terminated, if such
payment of such expenditures is for services theretofore provided or for
reimbursement of expenses theretofore incurred or accrued prior to termination
of this Plan in other respects and if such payment is or has been so approved by
such Rule 12b-1 Directors, or agreed to by the Fund with such approval, all
subject to such specific implementation as such 12b-1 Directors may approve;
provided that, at the time any such payment is made, whether or not this Plan
has been otherwise terminated, the making of such payment will not cause the
limitation upon such payments set forth in the preceding sentence to be
exceeded. Without limiting the generality of the foregoing, the Fund may pay to,
or on the order of, any person who has served from time to time as principal
underwriter (a "Principal Underwriter") amounts for distribution services
pursuant to a principal underwriting agreement or otherwise. No principal
underwriting agreement or other agreement shall be an agreement related to this
Plan, as referred to in Rule 12b-1 of the Securities and Exchange Commission,
unless it specifically states that it is such a related agreement. Any such
principal underwriting agreement may, but need not, provide that such Principal
Underwriter may be paid for distribution services to Class B-1 Shares
and/or other specified classes of shares of the Fund (together the
"B-Class-of-Shares"), a fee which may be designated a Distribution Fee and may
be paid at a rate per annum up to .75% of the average daily net asset value of
such B-Class-of-Shares of the Fund and may, but need not, also provide: (I) that
a Principal Underwriter will be deemed to have fully earned its "Allocable
Portion" of the Distribution Fee upon the sale of the Commission Shares (as
defined in the Allocation Schedule) taken into account in determining its
Allocable Portion; (II) that the Fund's obligation to pay such Principal
Underwriter its Allocable Portion of the Distribution Fees shall be absolute and
unconditional and shall not be subject to dispute, offset, counterclaim or any
defense whatsoever (it being understood that such provision is not a waiver of
the Fund's right to pursue such Principal Underwriter and enforce such claims
against the assets of such Principal Underwriter other than its right to its
Allocable Portion of the Distribution Fees and CDSCs (as defined below) (III)
that the Fund's obligation to pay such Principal Underwriter its Allocable
Portion of the Distribution Fees shall not be changed or terminated except to
the extent required by any change in applicable law, including without
limitation, the Investment Company Act of 1940, the Rules promulgated thereunder
by the Securities and Exchange Commission and the Rules of Fair Practice of the
National Association of Securities Dealers, Inc., in each case enacted or
promulgated after June 1, 1995, or in connection with a "Complete Termination"
(as hereinafter defined); (IV) that the Fund will not waive or change any
contingent deferred sales charge ("CDSC") in respect of the Distributor's
Allocable Portion thereof, except as provided in the Fund's prospectus or
statement of additional information without the consent of the Principal
Underwriter or any assignee of such Principal Underwriter's rights to its
Allocable Portion; (V) that the termination of the Principal Underwriter, the
principal underwriting agreement or this Plan will not terminate such Principal
Underwriter's rights to its Allocable Portion of the CDSCs; and (VI) that any
Principal Underwriter may assign its rights to its Allocable Portion of the
Distribution Fees and CDSCs (but not such Principal Underwriter's obligations to
the Fund under its principal underwriting agreement) to raise funds to make
expenditures described in Section 2 above and in connection therewith, and upon
receipt of notice of such assignment, the Fund shall pay to the assignee such
portion of the Principal Underwriter's Allocable Portion of the Distribution
Fees and CDSCs so assigned. For purposes of such principal underwriting
agreement, the term Allocable Portion of Distribution Fees as applied to any
Principal Underwriter may mean the portion of the Distribution Fee allocable to
Distributor Shares in accordance with the "Allocation Schedule" attached to such
Principal Underwriter's principal underwriting agreement. For purposes of such
principal underwriting agreement, the term Allocable Portion of CDSCs as applied
to any Principal Underwriter may mean the portion of the CDSCs allocable to
Distributor Shares in accordance with the Allocation Schedule attached to such
Principal Underwriter's principal underwriting agreement. For purposes of such
principal underwriting agreement, the term "Complete Termination" may mean a
termination of this Plan involving the cessation of payments of the Distribution
Fees thereunder, the cessation of payments of distribution fees pursuant to
every other rule 12b-1 plan of the Fund for every existing or future
B-Class-of-Shares and the cessation of the offering by the Fund of existing or
future B-Class-of-Shares, which conditions shall be deemed to be satisfied when
they are first complied with and so long thereafter as they are complied with
prior to the earlier of (i) the date upon which all of the B-2 Shares which are
Distributor Shares pursuant to the Allocation Schedule shall have been redeemed
or converted or (ii) a specified date, after either of which times such
conditions need no longer be complied with. For purposes of such principal
underwriting agreement, the term "B-Class-of-Shares" may mean each of the B-1
Class of Shares of the Fund, the B-2 Class of Shares of the Fund and each other
class of shares of the Fund hereafter issued which would be treated as "Shares"
under such Allocation Schedule or which has economic characteristics
substantially similar to those of the B-1 or B-2 Classes of Shares taking into
account the total sales charge, CDSC or other similar charges borne directly or
indirectly by the holder of the shares of such classes. The parties may agree
that the existing C Class of Shares of the Fund does not have substantially
similar economic characteristics to the B-1 or B-2 Classes of Shares taking into
account the total sales charge, CDSC or other similar charges borne directly or
indirectly by the holder of such shares. For purposes of clarity the parties to
such principal underwriting agreement may state that they intend that a new
installment load class of shares which may be authorized by amendments to Rule
6(c)-10 under the 1940 Act will be considered to be a B-Class-of-Shares if it
has economic characteristics substantially similar to the economic
characteristics of the existing B-1 or B-2 Classes of Shares taking into account
the total sales charge, CDSC or other similar charges borne directly or
indirectly by the holder of such shares and will not be considered to be a
B-Class-of-Shares if it has economic characteristics substantially similar to
the economic characteristics of the existing C Class of shares of the Fund
taking into account the total sales charge, CDSC or other similar charges borne
directly or indirectly by the holder of such shares. For purposes of such
principal underwriting agreement, "Allocation Schedule" may mean a schedule
which shall be approved by Directors (as defined below) in connection with their
required approval of such principal underwriting agreement as assigning to each
Principal Underwriter of Shares the portion of the total Distribution Fees
payable by the Fund under such principal underwriting agreement which has been
earned by such Principal Underwriter to the extent necessary so that the
continued payments thereof if such Principal Underwriter ceases to serve in that
capacity does not penalize the Fund by requiring it to pay for services that
have not been earned.
Section 3. This Plan shall not take effect until it has been approved by a
vote of at least a majority (as defined in the 1940 Act) of the outstanding
Shares.
Section 4. This Plan, and the specific implementation of expenditures
provided for under this Plan, shall not take effect until this Plan, and such
implementation, have been approved, together with any related agreements of the
Fund, by votes of both (a) a majority of the Board of Trustees or Directors
(together the "Directors") of the Fund and (b) a majority of those Directors of
the Fund who are not "interested persons" of the Fund (as said term is defined
in the 1940 Act) and who have no direct or indirect financial interest in the
operation of this Plan or any agreements of the Fund or any other person related
to this Plan (the "Rule 12b-1 Directors"), cast in person at a meeting called
for the purpose of voting on this Plan or such agreements.
Section 5. Unless sooner terminated pursuant to Section 7 hereof, this Plan
shall continue in effect for a period of one year from the date it takes effect
and thereafter shall continue in effect so long as such continuance is
specifically approved at least annually in the manner provided for approval of
this Plan in Section 4 hereof, except that, if terminated except for payments
provided to be made after termination of other aspects of this Plan, such
payments may be made pursuant to approvals made, and or agreements approved, as
provided above.
Section 6. Any person authorized to direct the disposition of monies paid
or payable by the Fund pursuant to this Plan or any related agreement shall
provide to the Fund's Board of Directors, and the Board shall review, at least
quarterly a written report of the amounts so expended and the purposes for which
such expenditures were made.
Section 7. This Plan may be terminated, in whole or in part, at any time by
vote of a majority of the Rule 12b-1 Directors or by vote of a majority of the
outstanding Shares, with the effects provided for in Section 2, as applicable.
Section 8. Any agreement of the Fund related to this Plan shall be in
writing, and shall provide as follows:
(a) That such agreement may be terminated at any time, without payment of
any penalty, by vote of a majority of the Rule 12b-1 Directors or by a
vote of a majority of the outstanding Shares on not more than sixty
days written notice to any other party to the agreement; and
(b) That such agreement shall terminate automatically in the event of its
assignment.
Section 9. This Plan may not be amended to increase materially the amount
of distribution expenses provided for in Section 2 hereof unless such amendment
is approved in the manner provided in Section 3 hereof, and no material
amendment to this Plan shall be made unless approved in the manner provided for
in Section 4 hereof.
<PAGE>
DISTRIBUTION PLAN
FOR
CLASS B-2 SHARES
OF
KEYSTONE WORLD BOND FUND
Section 1. Keystone World Bond Fund, individually and/or on behalf of its
series, if any, referred to above in the title of this 12b-1 Plan (the "Plan"),
to which series this Plan shall then relate, as applicable (the "Fund"), may act
as the distributor of certain securities of which it is the issuer pursuant to
Rule 12b-1 under the Investment Company Act of 1940 (the "1940 Act") according
to the terms of this Distribution Plan.
Section 2. The Fund may expend daily amounts at an annual rate of up to
1.00% of the average daily net asset value of the Fund attributable to the
Fund's Class B-2 shares (the "Shares"). Such amounts may be expended to finance
any activity that is principally intended to result in the sale of Shares,
including, without limitation, expenditures consisting of payments to a
principal underwriter of the Fund or others as sales commissions or other
compensation for services provided or to be provided ("Distribution Fees") or as
reimbursement for expenses that are incurred or accrued at any time during which
this Plan is in effect, together with interest on any such amounts, at rates
approved by the Rule 12b-1 Directors (as defined below) in the manner referred
to below, all whether or not this Plan has been otherwise terminated, if such
payment of such expenditures is for services theretofore provided or for
reimbursement of expenses theretofore incurred or accrued prior to termination
of this Plan in other respects and if such payment is or has been so approved by
such Rule 12b-1 Directors, or agreed to by the Fund with such approval, all
subject to such specific implementation as such 12b-1 Directors may approve;
provided that, at the time any such payment is made, whether or not this Plan
has been otherwise terminated, the making of such payment will not cause the
limitation upon such payments set forth in the preceding sentence to be
exceeded. Without limiting the generality of the foregoing, the Fund may pay to,
or on the order of, any person who has served from time to time as principal
underwriter (a "Principal Underwriter") amounts for distribution services
pursuant to a principal underwriting agreement or otherwise. No principal
underwriting agreement or other agreement shall be an agreement related to this
Plan, as referred to in Rule 12b-1 of the Securities and Exchange Commission,
unless it specifically states that it is such a related agreement. Any such
principal underwriting agreement may, but need not, provide that such Principal
Underwriter may be paid for distribution services to Class B-2 Shares
and/or other specified classes of shares of the Fund (together the
"B-Class-of-Shares"), a fee which may be designated a Distribution Fee and may
be paid at a rate per annum up to .75% of the average daily net asset value of
such B-Class-of-Shares of the Fund and may, but need not, also provide: (I) that
a Principal Underwriter will be deemed to have fully earned its "Allocable
Portion" of the Distribution Fee upon the sale of the Commission Shares (as
defined in the Allocation Schedule) taken into account in determining its
Allocable Portion; (II) that the Fund's obligation to pay such Principal
Underwriter its Allocable Portion of the Distribution Fees shall be absolute and
unconditional and shall not be subject to dispute, offset, counterclaim or any
defense whatsoever (it being understood that such provision is not a waiver of
the Fund's right to pursue such Principal Underwriter and enforce such claims
against the assets of such Principal Underwriter other than its right to its
Allocable Portion of the Distribution Fees and CDSCs (as defined below); (III)
that the Fund's obligation to pay such Principal Underwriter its Allocable
Portion of the Distribution Fees shall not be changed or terminated except to
the extent required by any change in applicable law, including without
limitation, the Investment Company Act of 1940, the Rules promulgated thereunder
by the Securities and Exchange Commission and the Rules of Fair Practice of the
National Association of Securities Dealers, Inc., in each case enacted or
promulgated after June 1, 1995, or in connection with a "Complete Termination"
(as hereinafter defined); (IV) that the Fund will not waive or change any
contingent deferred sales charge ("CDSC") in respect of the Distributor's
Allocable Portion thereof, except as provided in the Fund's prospectus or
statement of additional information without the consent of the Principal
Underwriter or any assignee of such Principal Underwriter's rights to its
Allocable Portion; (V) that the termination of the Principal Underwriter, the
principal underwriting agreement or this Plan will not terminate such Principal
Underwriter's rights to its Allocable Portion of the CDSCs; and (VI) that any
Principal Underwriter may assign its rights to its Allocable Portion of the
Distribution Fees and CDSCs (but not such Principal Underwriter's obligations to
the Fund under its principal underwriting agreement) to raise funds to make
expenditures described in Section 2 above and in connection therewith, and upon
receipt of notice of such assignment, the Fund shall pay to the assignee such
portion of the Principal Underwriter's Allocable Portion of the Distribution
Fees and CDSCs so assigned. For purposes of such principal underwriting
agreement, the term Allocable Portion of Distribution Fees as applied to any
Principal Underwriter may mean the portion of the Distribution Fee allocable to
Distributor Shares in accordance with the "Allocation Schedule" attached to such
Principal Underwriter's principal underwriting agreement. For purposes of such
principal underwriting agreement, the term Allocable Portion of CDSCs as applied
to any Principal Underwriter may mean the portion of the CDSCs allocable to
Distributor Shares in accordance with the Allocation Schedule attached to such
Principal Underwriter's principal underwriting agreement. For purposes of such
principal underwriting agreement, the term "Complete Termination" may mean a
termination of this Plan involving the cessation of payments of the Distribution
Fees thereunder, the cessation of payments of distribution fees pursuant to
every other rule 12b-1 plan of the Fund for every existing or future
B-Class-of-Shares and the cessation of the offering by the Fund of existing or
future B-Class-of-Shares, which conditions shall be deemed to be satisfied when
they are first complied with and so long thereafter as they are complied with
prior to the earlier of (i) the date upon which all of the B-2 Shares which are
Distributor Shares pursuant to the Allocation Schedule shall have been redeemed
or converted or (ii) a specified date, after either of which times such
conditions need no longer be complied with. For purposes of such principal
underwriting agreement, the term "B-Class-of-Shares" may mean each of the B-1
Class of Shares of the Fund, the B-2 Class of Shares of the Fund and each other
class of shares of the Fund hereafter issued which would be treated as "Shares"
under such Allocation Schedule or which has economic characteristics
substantially similar to those of the B-1 or B-2 Classes of Shares taking into
account the total sales charge, CDSC or other similar charges borne directly or
indirectly by the holder of the shares of such classes. The parties may agree
that the existing C Class of Shares of the Fund does not have substantially
similar economic characteristics to the B-1 or B-2 Classes of Shares taking into
account the total sales charge, CDSC or other similar charges borne directly or
indirectly by the holder of such shares. For purposes of clarity the parties to
such principal underwriting agreement may state that they intend that a new
installment load class of shares which may be authorized by amendments to Rule
6(c)-10 under the 1940 Act will be considered to be a B-Class-of-Shares if it
has economic characteristics substantially similar to the economic
characteristics of the existing B-1 or B-2 Classes of Shares taking into account
the total sales charge, CDSC or other similar charges borne directly or
indirectly by the holder of such shares and will not be considered to be a
B-Class-of-Shares if it has economic characteristics substantially similar to
the economic characteristics of the existing C Class of shares of the Fund
taking into account the total sales charge, CDSC or other similar charges borne
directly or indirectly by the holder of such shares. For purposes of such
principal underwriting agreement, "Allocation Schedule" may mean a schedule
which shall be approved by Directors (as defined below) in connection with their
required approval of such principal underwriting agreement as assigning to each
Principal Underwriter of Shares the portion of the total Distribution Fees
payable by the Fund under such principal underwriting agreement which has been
earned by such Principal Underwriter to the extent necessary so that the
continued payments thereof if such Principal Underwriter ceases to serve in that
capacity does not penalize the Fund by requiring it to pay for services that
have not been earned.
Section 3. This Plan shall not take effect until it has been approved by a
vote of at least a majority (as defined in the 1940 Act) of the outstanding
Shares.
Section 4. This Plan, and the specific implementation of expenditures
provided for under this Plan, shall not take effect until this Plan, and such
implementation, have been approved, together with any related agreements of the
Fund, by votes of both (a) a majority of the Board of Trustees or Directors
(together the "Directors") of the Fund and (b) a majority of those Directors of
the Fund who are not "interested persons" of the Fund (as said term is defined
in the 1940 Act) and who have no direct or indirect financial interest in the
operation of this Plan or any agreements of the Fund or any other person related
to this Plan (the "Rule 12b-1 Directors"), cast in person at a meeting called
for the purpose of voting on this Plan or such agreements.
Section 5. Unless sooner terminated pursuant to Section 7 hereof, this Plan
shall continue in effect for a period of one year from the date it takes effect
and thereafter shall continue in effect so long as such continuance is
specifically approved at least annually in the manner provided for approval of
this Plan in Section 4 hereof, except that, if terminated except for payments
provided to be made after termination of other aspects of this Plan, such
payments may be made pursuant to approvals made, and or agreements approved, as
provided above.
Section 6. Any person authorized to direct the disposition of monies paid
or payable by the Fund pursuant to this Plan or any related agreement shall
provide to the Fund's Board of Directors, and the Board shall review, at least
quarterly a written report of the amounts so expended and the purposes for which
such expenditures were made.
Section 7. This Plan may be terminated, in whole or in part, at any time by
vote of a majority of the Rule 12b-1 Directors or by vote of a majority of the
outstanding Shares, with the effects provided for in Section 2, as applicable.
Section 8. Any agreement of the Fund related to this Plan shall be in
writing, and shall provide as follows:
(a) That such agreement may be terminated at any time, without payment of
any penalty, by vote of a majority of the Rule 12b-1 Directors or by a
vote of a majority of the outstanding Shares on not more than sixty
days written notice to any other party to the agreement; and
(b) That such agreement shall terminate automatically in the event of its
assignment.
Section 9. This Plan may not be amended to increase materially the amount
of distribution expenses provided for in Section 2 hereof unless such amendment
is approved in the manner provided in Section 3 hereof, and no material
amendment to this Plan shall be made unless approved in the manner provided for
in Section 4 hereof.
<PAGE>
KEYSTONE AMERICA WORLD BOND FUND
CLASS C DISTRIBUTION PLAN
SECTION 1. Keystone America World Bond Fund (the "Fund") may act as the
distributor of securities of which it is the issuer pursuant to Rule 12b-1 under
the Investment Company Act of 1940 (the "1940 Act") according to the terms of
this Distribution Plan ("Plan").
SECTION 2. The Fund may expend daily amounts at an annual rate of 1.00% of
the average daily net asset value of the Fund attributable to the Fund's Class C
shares to finance any activity that is principally intended to result in the
sale of Class C shares, including, without limitation, expenditures consisting
of payments to a principal underwriter of the Fund ("Principal Underwriter") or
others as sales commissions or other compensation for their services that have
been earned or as reimbursement for expenses that have been incurred or accrued
at any time during which this Plan has been in effect together with interest at
a rate approved from time to time by the Rule 12b-1 Trustees/Directors (as
defined below) on any such amounts.
SECTION 3. This Plan shall not take effect until it has been approved by a
vote of at least a majority (as defined in the 1940 Act) of the outstanding
Class C shares.
SECTION 4. This Plan shall not take effect until it has been approved
together with any related agreements of the Fund by votes of a majority of both
(a) the Board of Trustees/Directors of the Fund and (b) those Trustees/Directors
of the Fund who are not "interested persons" of the Fund (as said term is
defined in the 1940 Act) and who have no direct or indirect financial interest
in the operation of this Plan or any agreements of the Fund or any other person
related to this Plan (the "Rule 12b-1 Trustees/Directors"), cast in person at a
meeting called for the purpose of voting on this Plan or such agreements.
SECTION 5. Unless sooner terminated pursuant to Section 7 hereof, this Plan
shall continue in effect for a period of one year from the date it takes effect
and thereafter shall continue in effect so long as such continuance is
specifically approved at least annually in the manner provided for approval of
this Plan in Section 4 hereof.
SECTION 6. Any person authorized to direct the disposition of monies paid
or payable by the Fund pursuant to this Plan or any related agreement shall
provide to the Fund's Board of Trustees/Directors and the Board shall review at
least quarterly a written report of the amounts so expended and the purposes for
which such expenditures were made.
SECTION 7. This Plan may be terminated at any time by vote of a majority of
the Rule 12b-1 Trustees/Directors or by vote of a majority of the outstanding
Class C shares.
SECTION 8. Any agreement of the Fund related to this Plan shall be in
writing, and shall provide as follows:
(a) That such agreement may be terminated at any time, without payment of
any penalty, by vote of a majority of the Rule 12b-1 Trustees/Directors
or by a vote of a majority of the outstanding Class C shares on not
more than sixty days written notice to any other party to the
agreement; and
(b) That such agreement shall terminate automatically in the event of its
assignment.
SECTION 9. This Plan may not be amended to increase materially the amount
of distribution expenses provided for in Section 2 hereof unless such amendment
is approved in the manner provided in Section 3 hereof and no material amendment
to this Plan shall be made unless approved in the manner provided for in Section
4 hereof.
<PAGE>
EXHIBIT 99.16
<TABLE>
<CAPTION>
KAWBF CLASS A MTD YTD ONE YEAR THREE YEAR THREE YEAR
31-Oct-95 TOTAL RETURN COMPOUNDED
<S> <C> <C> <C> <C> <C>
4.75% LOAD 5.28% 2.51% 11.96% 3.84%
no load 1.32% 10.53% 7.62% 17.54% 5.54%
Beg dates 29-Sep-95 30-Dec-94 31-Oct-94 30-Oct-92 30-Oct-92
Beg Value (LOAD) 18,491 16,951 17,408 15,939 15,939
Beg Value (no load) 17,613 16,146 16,581 15,182 15,182
End Value 17,845 17,845 17,845 17,845 17,845
TIME 3
INCEPTION DATE 09-Jan-87
<CAPTION>
KAWBF CLASS A [continued] FIVE YEAR FIVE YEAR TEN YEAR TEN YEAR
31-Oct-95 TOTAL RETURN COMPOUNDED TOTAL RETURN COMPOUNDED
<S> <C> <C> <C> <C>
4.75% LOAD 31.93% 5.70% 69.97% 6.21%
no load 38.51% 6.73% 78.45% 6.79%
Beg dates 31-Oct-90 31-Oct-90 09-Jan-87 09-Jan-87
Beg Value (LOAD) 13,526 13,526 10,499 10,499
Beg Value (no load) 12,883 12,883 10,000 10,000
End Value 17,845 17,845 17,845 17,845
TIME 5 8.8111111111
<PAGE>
<CAPTION>
KAWBF-B MTD YTD ONE YEAR THREE YEAR THREE YEAR
31-Oct-95 TOTAL RETURN COMPOUNDED
<S> <C> <C> <C> <C> <C>
with cdsc N/A 4.68% 2.69% 0.24% 0.10
W/O CDSC 1.25% 9.68% 6.68% 2.91% 1.29
Beg dates 29-Sep-95 30-Dec-94 31-Oct-94 02-Aug-93 02-Aug-9
Beg Value (no load) 10,164 9,383 9,647 10,000 10,000
End Value (W/O CDSC) 10,291 10,291 10,291 10,291 10,291
End Value (with cdsc) 9,822 9,906 10,024 10,024
beg nav 8.39 8.14 8.46 9.47 9.47
end nav 8.45 8.45 8.45 8.45 8.45
shares originally purchased 1,211.42 1,152.73 1,140.27 1,055.97 1,055.97
5% cdsc thru date 31-Jul-94
TIME 4% cdsc thru date 31-Jul-95 2.2472222222
KAWBF-B [continued] FIVE YEAR FIVE YEAR TEN YEAR TEN YEAR
31-Oct-95 TOTAL RETURN COMPOUNDED TOTAL RETURN COMPOUNDED
<S> <C> <C> <C> <C>
with cdsc NA NA NA NA
W/O CDSC NA NA NA NA
Beg dates 02-Aug-93 02-Aug-93 02-Aug-93 02-Aug-93
Beg Value (no load) 10,000 10,000 10,000 10,000
End Value (W/O CDSC) 10,291 10,291 10,291 10,291
End Value (with cdsc) 10,202 10202.0180726 10,291 10291.2472173
beg nav 9.47 9.47 9.47 9.47
end nav 8.45 8.45 8.45 8.45
shares originally purchased 1,055.97 1,055.97 1,055.97 1,055.97
TIME 2.2472222222 2.2472222222
<PAGE>
<CAPTION>
KAWBF-C MTD YTD ONE YEAR THREE YEAR THREE YEAR
31-Oct-95 TOTAL RETURN COMPOUNDED
<S> <C> <C> <C> <C> <C>
with cdsc N/A 8.85% 6.83% 2.59% 1.14
W/O CDSC 1.26% 9.85% 6.83% 2.59% 1.14
Beg dates 29-Sep-95 30-Dec-94 31-Oct-94 02-Aug-93 02-Aug-93
Beg Value (no load) 10,131 9,339 9,602 10,000 10,000
End Value (W/O CDSC) 10,259 10,259 10,259 10,259 10,259
End Value (with cdsc) 10,165 10,259 10,259 10,259
beg nav 8.36 8.10 8.42 9.47 9.47
end nav 8.42 8.42 8.42 8.42 8.42
shares originally purchased 1,211.87 1,152.94 1,140.42 1,055.97 1,055.97
TIME 2.2472222222
KAWBF-C [continued] FIVE YEAR FIVE YEAR TEN YEAR TEN YEAR
31-Oct-95 TOTAL RETURN COMPOUNDED TOTAL RETURN COMPOUNDED
<S> <C> <C> <C> <C>
with cdsc NA NA NA NA
W/O CDSC NA NA NA NA
Beg dates 02-Aug-93 02-Aug-93 02-Aug-93 02-Aug-93
Beg Value (no load) 10,000 10,000 10,000 10,000
End Value (W/O CDSC) 10,259 10,259 10,259 10,259
End Value (with cdsc) 10,259 10258.6367057 10,259 10258.6367057
beg nav 9.47 9.47 9.47 9.47
end nav 8.42 8.42 8.42 8.42
shares originally purchased 1,055.97 1,055.97 1,055.97 1,055.97
TIME 2.2472222222 2.2472222222
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------
STATE STREET BANK & TRUST COMPANY SEC STANDARDIZED ADVERTISING YIELD
4280 Keystone World Bond Fund CLASS A #NAME? PHASE II-ROLLING
- -----------------------------------------------------------------------------------------------------------------
A
PRICING DATE 10/26/95
............
30 DAY YTM 6.08698%
............
............................................................................................................
PRICE ST VARIABLE LONG TERM AMORTIATION TOTAL DIV
DATE INCOME INCOME INCOME INCOME FACTOR
............................................................................................................
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1 09/27/95 45.75 3,631.41 3,677.16 66.41837098
2 09/28/95 41.82 3,650.68 3,692.50 66.38173975
3 09/29/95 19.35 3,646.60 3,665.95 66.99846362
4 09/30/95 19.35 3,646.60 3,665.95 66.99846362
5 10/01/95 19.35 3,646.60 3,665.95 66.99846362
6 10/02/95 17.21 3,624.85 3,642.06 66.94014345
7 10/03/95 123.42 3,624.28 3,747.70 67.37900801
8 10/04/95 122.68 3,624.99 3,747.67 67.45462602
9 10/05/95 121.92 3,621.95 3,743.87 67.30973807
10 10/06/95 93.94 3,624.32 3,718.26 67.21098936
11 10/07/95 93.94 3,624.32 3,718.26 67.21098936
12 10/08/95 93.94 3,624.32 3,718.26 67.21098936
13 10/09/95 93.94 3,634.89 3,728.83 67.20059527
14 10/10/95 90.15 3,634.41 3,724.56 67.20104330
15 10/11/95 86.74 3,634.04 3,720.78 67.17139981
16 10/12/95 85.46 3,633.62 3,719.08 67.17185377
17 10/13/95 84.05 3,613.52 3,697.57 67.14772383
18 10/14/95 84.05 3,613.52 3,697.57 67.14772383
19 10/15/95 84.05 3,613.52 3,697.57 67.14772383
20 10/16/95 85.73 3,616.19 3,701.92 67.14894090
21 10/17/95 84.36 3,616.70 3,701.06 67.10624941
22 10/18/95 83.48 3,610.07 3,693.55 67.10583855
23 10/19/95 78.12 3,618.50 3,696.62 67.08190631
24 10/20/95 79.69 3,625.46 3,705.15 67.23676919
25 10/21/95 79.69 3,625.46 3,705.15 67.23676919
26 10/22/95 79.69 3,625.46 3,705.15 67.23676919
27 10/23/95 77.26 3,644.29 3,721.55 67.18677477
28 10/24/95 68.87 3,635.17 3,704.04 67.19877531
29 10/25/95 59.45 3,630.69 3,690.14 67.12504334
30 10/26/95 63.53 3,632.25 3,695.78 67.14469564
31 10/27/95 0.00 0.00000000
2,013.50858066
2,260.98 0.00 108,848.68 0.00 0.00 0.00 111,109.66
<PAGE>
<CAPTION>
[CLASS A continued]
TOTAL INCOME FOR PERIOD 74,574.36
TOTAL EXPENSES FOR PERIOD 21,902.13
AVERAGE SHARES OUTSTANDING 1,193,510.44
LAST PRICE DURING PERIOD 8.81
..........................................................................................................................
PRICE ADJUSTED DAILY DAILY DAILY ACCUMULATED ACCUMULATED ACCUMULATED
DATE INCOME EXPENSES SHARES PRICE INCOME EXPENSES SHARES
..........................................................................................................................
<S> <C> <C> <C> <C> <C> <C> <C> <C>
1 09/27/95 2,442.31 635.75 1,211,044.874 8.75 2,442.31 635.75 1,211,044.874
2 09/28/95 2,451.15 725.57 1,208,404.075 8.75 4,893.46 1,361.32 2,419,448.949
3 09/29/95 2,456.13 713.40 1,209,862.987 8.78 7,349.59 2,074.72 3,629,311.936
4 09/30/95 2,456.13 713.40 1,209,862.987 8.78 9,805.72 2,788.13 4,839,174.923
5 10/01/95 2,456.13 713.40 1,209,862.987 8.78 12,261.85 3,501.53 6,049,037.910
6 10/02/95 2,438.00 811.00 1,206,599.110 8.81 14,699.85 4,312.53 7,255,637.020
7 10/03/95 2,525.16 741.89 1,206,599.110 8.81 17,225.01 5,054.42 8,462,236.130
8 10/04/95 2,527.98 745.51 1,206,599.110 8.83 19,752.99 5,799.93 9,668,835.240
9 10/05/95 2,519.99 740.30 1,198,652.437 8.83 22,272.98 6,540.23 10,867,487.677
10 10/06/95 2,499.08 715.92 1,193,655.335 8.83 24,772.06 7,256.15 12,061,143.012
11 10/07/95 2,499.08 715.92 1,193,655.335 8.83 27,271.14 7,972.08 13,254,798.347
12 10/08/95 2,499.08 715.92 1,193,655.335 8.83 29,770.22 8,688.00 14,448,453.682
13 10/09/95 2,505.80 807.51 1,193,133.748 8.85 32,276.02 9,495.51 15,641,587.430
14 10/10/95 2,502.94 739.70 1,193,134.308 8.83 34,778.96 10,235.21 16,834,721.738
15 10/11/95 2,499.30 739.02 1,191,147.119 8.83 37,278.26 10,974.23 18,025,868.857
16 10/12/95 2,498.17 738.64 1,191,147.119 8.84 39,776.43 11,712.87 19,217,015.976
17 10/13/95 2,482.83 712.85 1,191,135.243 8.86 42,259.26 12,425.72 20,408,151.219
18 10/14/95 2,482.83 712.85 1,191,135.243 8.86 44,742.09 13,138.57 21,599,286.462
19 10/15/95 2,482.83 712.85 1,191,135.243 8.86 47,224.92 13,851.42 22,790,421.705
20 10/16/95 2,485.80 815.91 1,191,135.243 8.88 49,710.72 14,667.33 23,981,556.948
21 10/17/95 2,483.64 739.10 1,187,402.641 8.88 52,194.36 15,406.43 25,168,959.589
22 10/18/95 2,478.59 738.06 1,187,356.372 8.88 54,672.95 16,144.49 26,356,315.961
23 10/19/95 2,479.76 738.11 1,186,045.783 8.90 57,152.71 16,882.60 27,542,361.744
24 10/20/95 2,491.22 714.30 1,184,618.803 8.89 59,643.93 17,596.90 28,726,980.547
25 10/21/95 2,491.22 714.30 1,184,618.803 8.89 62,135.15 18,311.19 29,911,599.350
26 10/22/95 2,491.22 714.30 1,184,618.803 8.89 64,626.37 19,025.49 31,096,218.153
27 10/23/95 2,500.39 816.15 1,179,524.429 8.87 67,126.76 19,841.64 32,275,742.582
28 10/24/95 2,489.07 681.56 1,179,165.500 8.88 69,615.83 20,523.20 33,454,908.082
29 10/25/95 2,477.01 689.70 1,175,204.795 8.88 72,092.84 21,212.90 34,630,112.877
30 10/26/95 2,481.52 689.23 1,175,200.311 8.81 74,574.36 21,902.13 35,805,313.188
31 10/27/95 0.00 0.00 0.00 35,805,313.188
21,902.13 1,194,141.823
74,574.36
<PAGE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------
STATE STREET BANK & TRUST COMPANY SEC STANDARDIZED ADVERTISING YIELD
4280 Keystone World Bond Fund CLASS B #NAME? PHASE II-ROLLING
- -----------------------------------------------------------------------------------------------------------------
B
PRICING DATE 10/26/95
..............
30 DAY YTM 5.62728%
..............
............................................................................................................
PRICE ST VARIABLE LONG TERM TOTAL DIV
DATE INCOME INCOME INCOME FACTOR
............................................................................................................
1 09/27/95 45.75 0.00 3,631.41 0.00 0.00 3,677.16 25.44666341
2 09/28/95 41.82 0.00 3,650.68 0.00 0.00 3,692.50 25.46581130
3 09/29/95 19.35 0.00 3,646.60 0.00 0.00 3,665.95 24.81385600
4 09/30/95 19.35 0.00 3,646.60 0.00 0.00 3,665.95 24.81385600
5 10/01/95 19.35 0.00 3,646.60 0.00 0.00 3,665.95 24.81385600
6 10/02/95 17.21 0.00 3,624.85 0.00 0.00 3,642.06 24.85769092
7 10/03/95 123.42 0.00 3,624.28 0.00 0.00 3,747.70 24.36521469
8 10/04/95 122.68 0.00 3,624.99 0.00 0.00 3,747.67 24.39227569
9 10/05/95 121.92 0.00 3,621.95 0.00 0.00 3,743.87 24.50075031
10 10/06/95 93.94 0.00 3,624.32 0.00 0.00 3,718.26 24.57742658
11 10/07/95 93.94 0.00 3,624.32 0.00 0.00 3,718.26 24.57742658
12 10/08/95 93.94 0.00 3,624.32 0.00 0.00 3,718.26 24.57742658
13 10/09/95 93.94 0.00 3,634.89 0.00 0.00 3,728.83 24.58299611
14 10/10/95 90.15 0.00 3,634.41 0.00 0.00 3,724.56 24.58266316
15 10/11/95 86.74 0.00 3,634.04 0.00 0.00 3,720.78 24.61283812
16 10/12/95 85.46 0.00 3,633.62 0.00 0.00 3,719.08 24.61249471
17 10/13/95 84.05 0.00 3,613.52 0.00 0.00 3,697.57 24.63966938
18 10/14/95 84.05 0.00 3,613.52 0.00 0.00 3,697.57 24.63966938
19 10/15/95 84.05 0.00 3,613.52 0.00 0.00 3,697.57 24.63966938
20 10/16/95 85.73 0.00 3,616.19 0.00 0.00 3,701.92 24.63879888
21 10/17/95 84.36 0.00 3,616.70 0.00 0.00 3,701.06 24.70052712
22 10/18/95 83.48 0.00 3,610.07 0.00 0.00 3,693.55 24.70085224
23 10/19/95 78.12 0.00 3,618.50 0.00 0.00 3,696.62 24.71882212
24 10/20/95 79.69 0.00 3,625.46 0.00 0.00 3,705.15 24.80521955
25 10/21/95 79.69 0.00 3,625.46 0.00 0.00 3,705.15 24.80521955
26 10/22/95 79.69 0.00 3,625.46 0.00 0.00 3,705.15 24.80521955
27 10/23/95 77.26 0.00 3,644.29 0.00 0.00 3,721.55 24.81843289
28 10/24/95 68.87 0.00 3,635.17 0.00 0.00 3,704.04 24.79824130
29 10/25/95 59.45 0.00 3,630.69 0.00 0.00 3,690.14 24.85397872
30 10/26/95 63.53 0.00 3,632.25 0.00 0.00 3,695.78 24.85866835
31 10/27/95 0.00 0.00 0.00 0.00 0.00 0.00
742.0162346
2,260.98 0.00 108,848.68 0.00 0.00 111,109.66
<PAGE>
<CAPTION>
[CLASS B continued]
TOTAL INCOME FOR PERIOD 27,480.72
TOTAL EXPENSES FOR PERIOD 10,377.05
AVERAGE SHARES OUTSTANDING 438,222.45
LAST PRICE DURING PERIOD 8.42
..........................................................................................................................
PRICE ADJUSTED DAILY DAILY DAILY ACCUMULATED ACCUMULATED ACCUMULATED
DATE INCOME EXPENSES SHARES PRICE INCOME EXPENSES SHARES
..........................................................................................................................
<S> <C> <C> <C> <C> <C> <C> <C> <C>
1 09/27/95 935.71 329.52 462,114.806 8.36 935.71 329.52 462,114.806
2 09/28/95 940.33 365.00 461,719.923 8.37 1,876.04 694.52 923,834.729
3 09/29/95 909.66 344.50 446,306.052 8.39 2,785.70 1,039.02 1,370,140.781
4 09/30/95 909.66 344.50 446,306.052 8.39 3,695.36 1,383.52 1,816,446.833
5 10/01/95 909.66 344.50 446,306.052 8.39 4,605.02 1,728.02 2,262,752.885
6 10/02/95 905.33 377.73 446,315.584 8.42 5,510.35 2,105.75 2,709,068.469
7 10/03/95 913.14 346.19 434,632.584 8.42 6,423.49 2,451.94 3,143,701.053
8 10/04/95 914.14 344.80 434,633.445 8.44 7,337.63 2,796.74 3,578,334.498
9 10/05/95 917.28 344.67 434,633.445 8.45 8,254.91 3,141.41 4,012,967.943
10 10/06/95 913.85 337.11 434,821.457 8.45 9,168.76 3,478.52 4,447,789.400
11 10/07/95 913.85 337.11 434,821.457 8.45 10,082.61 3,815.62 4,882,610.857
12 10/08/95 913.85 337.11 434,821.457 8.45 10,996.46 4,152.73 5,317,432.314
13 10/09/95 916.66 370.85 434,824.683 8.46 11,913.12 4,523.58 5,752,256.997
14 10/10/95 915.60 346.18 434,825.495 8.45 12,828.72 4,869.76 6,187,082.492
15 10/11/95 915.79 346.21 434,834.962 8.44 13,744.51 5,215.97 6,621,917.454
16 10/12/95 915.36 346.08 434,834.962 8.45 14,659.87 5,562.05 7,056,752.416
17 10/13/95 911.07 337.04 435,476.109 8.47 15,570.94 5,899.09 7,492,228.525
18 10/14/95 911.07 337.04 435,476.109 8.47 16,482.01 6,236.14 7,927,704.634
19 10/15/95 911.07 337.04 435,476.109 8.47 17,393.08 6,573.18 8,363,180.743
20 10/16/95 912.11 375.15 435,479.327 8.49 18,305.19 6,948.33 8,798,660.070
21 10/17/95 914.18 347.92 435,488.255 8.49 19,219.37 7,296.25 9,234,148.325
22 10/18/95 912.34 347.67 435,488.255 8.49 20,131.71 7,643.92 9,669,636.580
23 10/19/95 913.76 347.90 435,488.255 8.51 21,045.47 7,991.82 10,105,124.835
24 10/20/95 919.07 339.61 435,488.255 8.50 21,964.54 8,331.43 10,540,613.090
25 10/21/95 919.07 339.61 435,488.255 8.50 22,883.61 8,671.03 10,976,101.345
26 10/22/95 919.07 339.61 435,488.255 8.50 23,802.68 9,010.64 11,411,589.600
27 10/23/95 923.63 377.51 434,195.664 8.48 24,726.31 9,388.15 11,845,785.264
28 10/24/95 918.54 327.15 433,641.967 8.49 25,644.85 9,715.30 12,279,427.231
29 10/25/95 917.15 330.94 433,641.967 8.49 26,562.00 10,046.24 12,713,069.198
30 10/26/95 918.72 330.81 433,604.166 8.42 27,480.72 10,377.05 13,146,673.364
31 10/27/95 0.00 0.00 0.000 0.00 27,480.72 10,377.05 13,146,673.364
10,377.05 438,381.696
27,480.72
<PAGE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------
STATE STREET BANK & TRUST COMPANY SEC STANDARDIZED ADVERTISING YIELD
4280 Keystone World Bond Fund CLASS C #NAME? PHASE II-ROLLING
- -----------------------------------------------------------------------------------------------------------------
C
PRICING DATE 10/26/95
..............
30 DAY YTM 5.62576%
..............
.............................................................................................................
PRICE ST FIXED ZERO COUPON LONG TERM TOTAL DIV
DATE INCOME AND DIV INC INCOME INCOME FACTOR
.............................................................................................................
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1 09/27/95 45.75 0.00 3,631.41 0.00 0.00 0.00 3,677.16 8.13496561
2 09/28/95 41.82 0.00 3,650.68 0.00 0.00 0.00 3,692.50 8.15244895
3 09/29/95 19.35 0.00 3,646.60 0.00 0.00 0.00 3,665.95 8.18768038
4 09/30/95 19.35 0.00 3,646.60 0.00 0.00 0.00 3,665.95 8.18768038
5 10/01/95 19.35 0.00 3,646.60 0.00 0.00 0.00 3,665.95 8.18768038
6 10/02/95 17.21 0.00 3,624.85 0.00 0.00 0.00 3,642.06 8.20216562
7 10/03/95 123.42 0.00 3,624.28 0.00 0.00 0.00 3,747.70 8.25577729
8 10/04/95 122.68 0.00 3,624.99 0.00 0.00 0.00 3,747.67 8.15309829
9 10/05/95 121.92 0.00 3,621.95 0.00 0.00 0.00 3,743.87 8.18951162
10 10/06/95 93.94 0.00 3,624.32 0.00 0.00 0.00 3,718.26 8.21158406
11 10/07/95 93.94 0.00 3,624.32 0.00 0.00 0.00 3,718.26 8.21158406
12 10/08/95 93.94 0.00 3,624.32 0.00 0.00 0.00 3,718.26 8.21158406
13 10/09/95 93.94 0.00 3,634.89 0.00 0.00 0.00 3,728.83 8.21640862
14 10/10/95 90.15 0.00 3,634.41 0.00 0.00 0.00 3,724.56 8.21629354
15 10/11/95 86.74 0.00 3,634.04 0.00 0.00 0.00 3,720.78 8.21576207
16 10/12/95 85.46 0.00 3,633.62 0.00 0.00 0.00 3,719.08 8.21565151
17 10/13/95 84.05 0.00 3,613.52 0.00 0.00 0.00 3,697.57 8.21260679
18 10/14/95 84.05 0.00 3,613.52 0.00 0.00 0.00 3,697.57 8.21260679
19 10/15/95 84.05 0.00 3,613.52 0.00 0.00 0.00 3,697.57 8.21260679
20 10/16/95 85.73 0.00 3,616.19 0.00 0.00 0.00 3,701.92 8.21226021
21 10/17/95 84.36 0.00 3,616.70 0.00 0.00 0.00 3,701.06 8.19322347
22 10/18/95 83.48 0.00 3,610.07 0.00 0.00 0.00 3,693.55 8.19330921
23 10/19/95 78.12 0.00 3,618.50 0.00 0.00 0.00 3,696.62 8.19927158
24 10/20/95 79.69 0.00 3,625.46 0.00 0.00 0.00 3,705.15 7.95801125
25 10/21/95 79.69 0.00 3,625.46 0.00 0.00 0.00 3,705.15 7.95801125
26 10/22/95 79.69 0.00 3,625.46 0.00 0.00 0.00 3,705.15 7.95801125
27 10/23/95 77.26 0.00 3,644.29 0.00 0.00 0.00 3,721.55 7.99479234
28 10/24/95 68.87 0.00 3,635.17 0.00 0.00 0.00 3,704.04 8.00298340
29 10/25/95 59.45 0.00 3,630.69 0.00 0.00 0.00 3,690.14 8.02097794
30 10/26/95 63.53 0.00 3,632.25 0.00 0.00 0.00 3,695.78 7.99663601
31 10/27/95 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00
244.4751847
2,260.98 0.00 108,848.68 0.00 0.00 0.00 111,109.66
<PAGE>
<CAPTION>
[CLASS C continued]
TOTAL INCOME FOR PERIOD 9,054.61
TOTAL EXPENSES FOR PERIOD 3,419.79
AVERAGE SHARES OUTSTANDING 144,927.66
LAST PRICE DURING PERIOD 8.39
...........................................................................................................................
PRICE ADJUSTED DAILY DAILY DAILY ACCUMULATED ACCUMULATED ACCUMULATED
DATE INCOME EXPENSES SHARES PRICE INCOME EXPENSES SHARES
...........................................................................................................................
<S> <C> <C> <C> <C> <C> <C> <C> <C>
1 09/27/95 299.14 105.38 148,289.372 8.33 299.14 105.38 148,289.372
2 09/28/95 301.03 116.81 148,369.372 8.33 600.17 222.19 296,658.744
3 09/29/95 300.16 112.64 147,820.356 8.36 900.33 334.83 444,479.100
4 09/30/95 300.16 112.64 147,820.356 8.36 1,200.49 447.46 592,299.456
5 10/01/95 300.16 112.64 147,820.356 8.36 1,500.65 560.10 740,119.812
6 10/02/95 298.73 124.73 147,820.356 8.39 1,799.38 684.83 887,940.168
7 10/03/95 309.40 116.39 147,820.356 8.39 2,108.78 801.22 1,035,760.524
8 10/04/95 305.55 115.70 145,821.356 8.41 2,414.33 916.92 1,181,581.880
9 10/05/95 306.60 115.21 145,824.328 8.41 2,720.93 1,032.13 1,327,406.208
10 10/06/95 305.33 112.64 145,824.328 8.41 3,026.26 1,144.77 1,473,230.536
11 10/07/95 305.33 112.64 145,824.328 8.41 3,331.59 1,257.41 1,619,054.864
12 10/08/95 305.33 112.64 145,824.328 8.41 3,636.92 1,370.05 1,764,879.192
13 10/09/95 306.38 123.93 145,877.993 8.43 3,943.30 1,493.98 1,910,757.185
14 10/10/95 306.02 115.70 145,877.993 8.41 4,249.32 1,609.68 2,056,635.178
15 10/11/95 305.69 115.60 145,692.993 8.41 4,555.01 1,725.28 2,202,328.171
16 10/12/95 305.55 115.51 145,692.993 8.42 4,860.56 1,840.79 2,348,021.164
17 10/13/95 303.67 112.38 145,692.993 8.44 5,164.23 1,953.17 2,493,714.157
18 10/14/95 303.67 112.38 145,692.993 8.44 5,467.90 2,065.56 2,639,407.150
19 10/15/95 303.67 112.38 145,692.993 8.44 5,771.57 2,177.94 2,785,100.143
20 10/16/95 304.01 125.03 145,692.993 8.46 6,075.58 2,302.97 2,930,793.136
21 10/17/95 303.24 115.57 144,994.993 8.46 6,378.82 2,418.54 3,075,788.129
22 10/18/95 302.62 115.32 144,994.993 8.45 6,681.44 2,533.86 3,220,783.122
23 10/19/95 303.10 115.41 144,994.993 8.47 6,984.54 2,649.27 3,365,778.115
24 10/20/95 294.86 110.06 140,238.261 8.47 7,279.40 2,759.33 3,506,016.376
25 10/21/95 294.86 110.06 140,238.261 8.47 7,574.26 2,869.39 3,646,254.637
26 10/22/95 294.86 110.06 140,238.261 8.47 7,869.12 2,979.45 3,786,492.898
27 10/23/95 297.53 121.47 140,391.261 8.44 8,166.65 3,100.92 3,926,884.159
28 10/24/95 296.43 105.53 140,470.174 8.46 8,463.08 3,206.45 4,067,354.333
29 10/25/95 295.99 106.82 140,470.174 8.46 8,759.07 3,313.27 4,207,824.507
30 10/26/95 295.54 106.52 140,005.174 8.39 9,054.61 3,419.79 4,347,829.681
31 10/27/95 0.00 0.00 0.000 0.00 9,054.61 3,419.79 4,347,829.681
3,419.79 145,097.397
9,054.61
</TABLE>
<PAGE>
Exhibit 99.19
POWER OF ATTORNEY
I, the undersigned, hereby constitute Roger T. Wickers, Rosemary D. Van
Antwerp, Jean S. Loewenberg, Dorothy E. Bourassa, James M. Wall and Melina M. T.
Murphy, each of them singly, my true and lawful attorneys, with full power to
them and each of them to sign for me and in my name in the capacity indicated
below any and all registration statements, including, but not limited to, Forms
N-8A, N-8B-1, S-5, N-1 and N-1A, as amended from time to time, and any and all
amendments thereto to be filed with the Securities and Exchange Commission for
the purpose of registering from time to time all investment companies of which I
am now or hereafter a Director or Trustee and/or Chairman of the Board and Chief
Executive Officer and for which Keystone Custodian Funds, Inc. serves as Adviser
or Manager and registering from time to time the shares of such companies, and
generally to do all such things in my name and in my behalf to enable such
investment companies to comply with the provisions of the Securities Act of
1933, as amended, the Investment Company Act of 1940, as amended, and all
requirements and regulations of the Securities and Exchange Commission
thereunder, hereby ratifying and confirming my signature as it may be signed by
my said attorneys to any and all registration statements and amendments thereto.
/s/ George S. Bissell
George S. Bissell
Director/Trustee,
Chairman of the Board
Dated: December 14, 1994
<PAGE>
POWER OF ATTORNEY
I, the undersigned, hereby constitute Roger T. Wickers, Rosemary D. Van
Antwerp, Jean S. Loewenberg, Dorothy E. Bourassa, James M. Wall and Melina M. T.
Murphy, each of them singly, my true and lawful attorneys, with full power to
them and each of them to sign for me and in my name in the capacity indicated
below any and all registration statements, including, but not limited to, Forms
N-8A, N-8B-1, S-5, N-1 and N-1A, as amended from time to time, and any and all
amendments thereto to be filed with the Securities and Exchange Commission for
the purpose of registering from time to time all investment companies of which I
am now or hereafter a Director or Trustee and/or Chief Executive Officer and for
which Keystone Custodian Funds, Inc. serves as Adviser or Manager and
registering from time to time the shares of such companies, and generally to do
all such things in my name and in my behalf to enable such investment companies
to comply with the provisions of the Securities Act of 1933, as amended, the
Investment Company Act of 1940, as amended, and all requirements and regulations
of the Securities and Exchange Commission thereunder, hereby ratifying and
confirming my signature as it may be signed by my said attorneys to any and all
registration statements and amendments thereto.
/s/ Albert H. Elfner, III
Albert H. Elfner, III
Director/Trustee,
President and Chief
Executive Officer
Dated: December 14, 1994
<PAGE>
POWER OF ATTORNEY
I, the undersigned, hereby constitute 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 WORLD BOND 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> 13,165,963
<INVESTMENTS-AT-VALUE> 13,733,721
<RECEIVABLES> 1,370,313
<ASSETS-OTHER> 8,352
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 15,112,386
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 293,439
<TOTAL-LIABILITIES> 293,439
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 10,242,090
<SHARES-COMMON-STOCK> 1,182,807
<SHARES-COMMON-PRIOR> 718,267
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> (38,900)
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> (894,729)
<ACCUM-APPREC-OR-DEPREC> 648,006
<NET-ASSETS> 9,956,467
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 956,303
<OTHER-INCOME> 0
<EXPENSES-NET> (241,438)
<NET-INVESTMENT-INCOME> 714,865
<REALIZED-GAINS-CURRENT> (411,532)
<APPREC-INCREASE-CURRENT> 547,776
<NET-CHANGE-FROM-OPS> 851,109
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (653,425)
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> (65,389)
<NUMBER-OF-SHARES-SOLD> 832,457
<NUMBER-OF-SHARES-REDEEMED> (425,398)
<SHARES-REINVESTED> 57,481
<NET-CHANGE-IN-ASSETS> 3,909,394
<ACCUMULATED-NII-PRIOR> (25,432)
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> (105,477)
<GROSS-ADVISORY-FEES> (64,047)
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> (241,437)
<AVERAGE-NET-ASSETS> 9,884,496
<PER-SHARE-NAV-BEGIN> 8.42
<PER-SHARE-NII> 0.61
<PER-SHARE-GAIN-APPREC> (0.01)
<PER-SHARE-DIVIDEND> (0.54)
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> (0.06)
<PER-SHARE-NAV-END> 8.42
<EXPENSE-RATIO> 2.46
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM ACCOUNTING
RECORDS AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH ACCOUNTING
RECORDS.
</LEGEND>
<SERIES>
<NUMBER> 102
<NAME> KEYSTONE WORLD BOND FUND CLASS B
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> OCT-31-1995
<PERIOD-START> NOV-01-1994
<PERIOD-END> OCT-31-1995
<INVESTMENTS-AT-COST> 13,165,963
<INVESTMENTS-AT-VALUE> 13,733,721
<RECEIVABLES> 1,370,313
<ASSETS-OTHER> 8,352
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 15,112,386
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 293,439
<TOTAL-LIABILITIES> 293,439
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 3,979,110
<SHARES-COMMON-STOCK> 435,713
<SHARES-COMMON-PRIOR> 405,562
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 4,359
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> (244,633)
<ACCUM-APPREC-OR-DEPREC> (58,959)
<NET-ASSETS> 3,679,877
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 308,228
<OTHER-INCOME> 0
<EXPENSES-NET> (102,715)
<NET-INVESTMENT-INCOME> 205,513
<REALIZED-GAINS-CURRENT> (114,533)
<APPREC-INCREASE-CURRENT> 98,661
<NET-CHANGE-FROM-OPS> 189,641
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (187,676)
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> (24,167)
<NUMBER-OF-SHARES-SOLD> 166,499
<NUMBER-OF-SHARES-REDEEMED> (156,895)
<SHARES-REINVESTED> 20,548
<NET-CHANGE-IN-ASSETS> 250,550
<ACCUMULATED-NII-PRIOR> 13,757
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> (23,391)
<GROSS-ADVISORY-FEES> (20,712)
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> (102,715)
<AVERAGE-NET-ASSETS> 3,185,331
<PER-SHARE-NAV-BEGIN> 8.46
<PER-SHARE-NII> 0.52
<PER-SHARE-GAIN-APPREC> 0.01
<PER-SHARE-DIVIDEND> (0.48)
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> (0.06)
<PER-SHARE-NAV-END> 8.45
<EXPENSE-RATIO> 3.21
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM ACCOUNTING
RECORDS AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH ACCOUNTING
RECORDS.
</LEGEND>
<SERIES>
<NUMBER> 103
<NAME> KEYSTONE WORLD BOND FUND CLASS C
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> OCT-31-1995
<PERIOD-START> NOV-01-1994
<PERIOD-END> OCT-31-1995
<INVESTMENTS-AT-COST> 13,165,963
<INVESTMENTS-AT-VALUE> 13,733,721
<RECEIVABLES> 1,370,313
<ASSETS-OTHER> 8,352
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 15,112,386
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 293,439
<TOTAL-LIABILITIES> 293,439
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 1,373,831
<SHARES-COMMON-STOCK> 140,478
<SHARES-COMMON-PRIOR> 188,915
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 10,328
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> (140,261)
<ACCUM-APPREC-OR-DEPREC> (61,296)
<NET-ASSETS> 1,182,602
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 135,019
<OTHER-INCOME> 0
<EXPENSES-NET> (44,391)
<NET-INVESTMENT-INCOME> 90,629
<REALIZED-GAINS-CURRENT> (57,350)
<APPREC-INCREASE-CURRENT> 38,983
<NET-CHANGE-FROM-OPS> 72,262
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (82,887)
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> (7,767)
<NUMBER-OF-SHARES-SOLD> 27,481
<NUMBER-OF-SHARES-REDEEMED> (83,800)
<SHARES-REINVESTED> 7,882
<NET-CHANGE-IN-ASSETS> (407,913)
<ACCUMULATED-NII-PRIOR> 11,697
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> (54,591)
<GROSS-ADVISORY-FEES> (9,047)
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> (44,392)
<AVERAGE-NET-ASSETS> 1,391,982
<PER-SHARE-NAV-BEGIN> 8.42
<PER-SHARE-NII> 0.56
<PER-SHARE-GAIN-APPREC> (0.02)
<PER-SHARE-DIVIDEND> (0.48)
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> (0.06)
<PER-SHARE-NAV-END> 8.42
<EXPENSE-RATIO> 3.21
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
