AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION DECEMBER 30, 1996.
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. 20 [X]
and
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940
Amendment No. 21 [X]
KEYSTONE 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)
[ ] 60 days after filing pursuant to paragraph (a)(1)
[X] on February 28, 1996 pursuant to paragraph (a)(1)
[ ] 75 days after filing pursuant to paragraph (a)(2)
[ ] on (date) pursuant to paragraph (a)(2) of Rule 485
Pursuant to Rule 24f-2 under the Investment Company Act of 1940,
Registrant has elected to register an indefinite number of its securities under
the Securities Act of 1933. The Rule 24f-2 Notice for Registrant's fiscal year
ended October 31, 1996 was filed December 13, 1996.
<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 535,434 $9.15 $329,994 $100
Value
- -------------------------------------------------------------------------------
*Computed under Rule 457(d) on the basis of the offering price per share at the
close of business on December 18, 1996.
** The calculation of the maximum aggregate offering price is made pursuant to
Rule 24e-2 under the Investment Company Act of 1940. 499,369 shares of the Fund
were redeemed during its fiscal year ended October 31, 1996. All of such shares
are being used for a reduction in this filing.
<PAGE>
KEYSTONE WORLD BOND FUND
CONTENTS OF
POST-EFFECTIVE AMENDMENT NO. 20
to
REGISTRATION STATEMENT
This Post-Effective Amendment No. 20 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
Listing of Exhibits
PART C - OTHER INFORMATION - ITEMS 25-32 - AND SIGNATURE PAGES
Number of Holders of Securities
Indemnification
Business and Other Connections of Investment Adviser
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 Expense Information
Performance Data
3 Financial Highlights
4 Additional Investment Information
Cover Page
The Fund
Investment Objective and Policies
Investment Restrictions
Risk Factors
5 Fund Management and Expenses
5A Not applicable
6 Alternative Sales Options
Dividends and Taxes
The Fund
Fund Shares
Shareholder Services
7 Alternative Sales Options
Distribution Plans and Agreements
How to Buy Shares
Pricing Shares
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 Appendix
The Fund
Investment Restrictions
14 Trustees and Officers
15 Additional Information
16 Distribution Plans
Investment Adviser
Principal Underwriter
Sales Charges
Service Providers
17 Brokerage
18 The Fund
Declaration of Trust
19 Distribution Plans
Sales Charges
Valuation of Securities
20 Dividends and Taxes
21 Principal Underwriter
22 Standardized Total Return and Yield Calculations
23 Financial Statements
<PAGE>
KEYSTONE WORLD BOND FUND
PART A
PROSPECTUS
<PAGE>
KEYSTONE WORLD BOND FUND
PROSPECTUS FEBRUARY 28, 1997
Keystone 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.
The Portfolio currently offers Class A, B and C shares. Information on share
classes and their fee and sales charge structures may be found in the "Expense
Information," "Alternative Sales Options," "Contingent Deferred Sales Charge and
Waiver of Sales Charges," "Distribution Plans and Agreements" 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 28, 1997, 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
SHARES OF THE FUND ARE NOT DEPOSITS OR OBLIGATIONS OF, OR GUARANTEED OR
ENDORSED BY, ANY BANK, AND SHARES ARE NOT INSURED OR OTHERWISE PROTECTED BY THE
U.S. GOVERNMENT, THE FEDERAL DEPOSIT INSURANCE CORPORATION, THE FEDERAL RESERVE
BOARD OR ANY OTHER GOVERNMENT AGENCY AND INVOLVE RISK, INCLUDING THE POSSIBLE
LOSS OF PRINCIPAL.
TABLE OF CONTENTS
Page
Expense Information ............................................... 2
Financial Highlights .............................................. 3
The Fund .......................................................... 6
Investment Objectives and Policies ................................ 6
Investment Restrictions ........................................... 8
Risk Factors ...................................................... 8
Pricing Shares .................................................... 11
Dividends and Taxes ............................................... 12
Fund Management and Expenses ...................................... 13
Distribution Plans and Agreements ................................. 15
How to Buy Shares ................................................. 19
Alternative Sales Options ......................................... 19
Contingent Deferred Sales Charge and Waiver of Sales Charges ...... 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
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>
EXPENSE INFORMATION
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 Agreements"; 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>
Maximum Sales Load Imposed on Purchases ........... 4.75%(3) None None
(as a percentage of offering price)
Deferred Sales Load ............................... 0.00%(4) 5.00% in the first year 1.00% in the first year
(as a percentage of the original purchase price declining to 1.00% in and 0.00% thereafter
or redemption proceeds, as applicable) the sixth year and 0.00%
thereafter
Exchange Fee ...................................... None None None
ANNUAL FUND OPERATING EXPENSES(5)
(as a percentage of average net assets)
Management Fees ................................... 0.64% 0.64% 0.64%
12b-1 Fees ........................................ 0.23% 1.00%(6) 1.00%(6)
Other Expenses .................................... 1.14% 1.12% 1.14%
---- ---- ----
Total Fund Operating Expenses ..................... 2.01% 2.76% 2.78%
==== ==== ====
<CAPTION>
EXAMPLES(7) 1 YEAR 3 YEARS 5 YEARS 10 YEARS
------ ------- ------- --------
<S> <C> <C> <C> <C>
You would pay the following expenses on a $1,000 investment, assuming (1) 5%
annual return and (2) redemption at the end of each period:
Class A .................................................................. $67 $108 $151 $270
Class B .................................................................. $78 $116 $166 $282
Class C .................................................................. $38 $ 86 $147 $311
You would pay the following expenses on the same investment, assuming no
redemption at the end of each period:
Class A .................................................................. $67 $108 $151 $270
Class B .................................................................. $28 $ 86 $146 $282
Class C .................................................................. $28 $ 86 $147 $311
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 after January 1, 1997, convert tax free to Class A shares after seven years. See "Class B Shares" for
more information.
(2) Class C shares are available only through broker-dealers who have entered into special distribution agreements with Evergreen
Keystone Distributor, Inc., 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 made after January 1, 1997, in the amount of $1,000,000 or more are not subject to a sales charge
at the time of purchase, 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) Expense ratios shown above are for the fiscal year ended October 31, 1996. Total Fund Operating Expenses include indirectly
paid expenses.
(6) 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").
(7) 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%.
</FN>
</TABLE>
<PAGE>
FINANCIAL HIGHLIGHTS
KEYSTONE WORLD BOND FUND -- WORLD BOND PORTFOLIO CLASS A SHARES
(FOR A SHARE OUTSTANDING THROUGHOUT EACH YEAR)
The following table contains important financial information relating 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 other 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 incorporated by reference
into 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>
YEAR ENDED PERIOD FROM JANUARY 9, 1987
OCTOBER 31, JANUARY 1, 1994 YEAR ENDED DECEMBER 31, (COMMENCEMENT OF
----------------- TO OCTOBER 31, ----------------------------------------------------- OPERATIONS) TO
1996 1995 1994 1993 1992 1991 1990 1989 1988 DECEMBER 31, 1987
------ ------- --------------- ------- ------- ------- ------ ------ ----- ----------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE
BEGINNING OF YEAR $ 8.42 $ 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 ............ 0.54 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 ...... 0.59 (0.01) (0.96) 1.03 (0.79) 0.99 0.31 (0.27) (0.92) 1.27
------ ------ ------ ------ ------ ------ ------ ------ ------ ------
Total from
investment
operations ..... 1.13 0.60 (0.64) 1.47 (0.15) 1.65 0.94 0.34 (0.38) 1.83
------ ------ ------ ------ ------ ------ ------ ------ ------ ------
LESS DISTRIBUTIONS FROM
Net investment
income ............ (0.60) (0.54) 0 (0.43) (0.96) (0.45) (0.52) (0.62) (0.54) (0.56)
In excess of net
investment income 0 0 0 (0.17) (0.28) 0 (0.04) 0 0 0
Tax basis return of
capital ........... 0 (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 (0.69) (0.25) (0.32) 0 (0.06) (0.25)
------ ------ ------ ------ ------ ------ ------ ------ ------ ------
Total
distributions ... (0.60) (0.60) (0.50) (0.60) (1.93) (0.70) (0.88) (0.62) (0.60) (0.81)
------ ------ ------ ------ ------ ------ ------ ------ ------ ------
NET ASSET VALUE END
OF YEAR $ 8.95 $ 8.42 $ 8.42 $ 9.56 $ 8.69 $10.77 $ 9.82 $ 9.76 $10.04 $11.02
====== ====== ====== ====== ====== ====== ====== ====== ====== ======
TOTAL RETURN (c) ... 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) 2.01%(d) 2.46%(d) 2.20%(b) 2.20% 2.20% 2.00% 2.00% 1.81% 1.19% 1.88%(b)
Net investment
income .......... 7.14% 7.21% 4.66%(b) 4.62% 5.44% 6.43% 6.48% 5.81% 5.34% 5.68%(b)
Portfolio turnover
rate ............. 58% 108% 100% 107% 185% 204% 154% 73% 335% 171%
NET ASSETS END OF
YEAR (THOUSANDS) $8,618 $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) Excluding applicable sales charges.
(d) The expense ratio includes indirectly paid expenses. Excluding indirectly paid expenses the expense ratio would have been
2.00% and 2.44% for the years ended October 31, 1996 and 1995, respectively.
</FN>
</TABLE>
<PAGE>
FINANCIAL HIGHLIGHTS
KEYSTONE WORLD BOND FUND
WORLD BOND PORTFOLIO
CLASS B SHARES
(FOR A SHARE OUTSTANDING THROUGHOUT EACH YEAR)
The following table contains important financial information relating to
the Fund and has been audited by KPMG Peat Marwick LLP, the Fund's independent
auditors. The table appears in the Fund's Annual Report and should be read in
conjunction with the Fund's financial statements and related notes, which also
appear, together with the independent auditors' report, in the Fund's Annual
Report. The Fund's financial statements, related notes and independent
auditors' report are incorporated by reference into 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
YEAR ENDED OCTOBER 31, PERIOD FROM (DATE OF INITIAL
----------------------------------------- JANUARY 1, 1994 TO PUBLIC OFFERING) TO
1996 1995 OCTOBER 31, 1994 DECEMBER 31, 1993
---- ---- ---------------- -----------------
<S> <C> <C> <C> <C>
NET ASSET VALUE BEGINNING
OF YEAR ....................... $ 8.45 $ 8.46 $ 9.58 $ 9.47
------ ------ ------ ------
INCOME FROM INVESTMENT OPERATIONS
Net investment income ............ 0.55 0.52 0.31 0.16
Net realized and unrealized gain
(loss) on investment and
foreign currency related
transactions ................... 0.51 0.01 (0.99) 0.21
------ ------ ------ ------
Total from investment operations . 1.06 0.53 (0.68) 0.37
------ ------ ------ ------
LESS DISTRIBUTIONS FROM
Net investment income ............ (0.54) (0.48) 0 (0.11)
In excess of net investment income 0 0 0 (0.15)
Tax basis return of capital ...... 0 (0.06) (0.44) 0
------ ------ ------ ------
Total distributions .............. (0.54) (0.54) (0.44) (0.26)
------ ------ ------ ------
NET ASSET VALUE END OF YEAR ...... $ 8.97 $ 8.45 $ 8.46 $ 9.58
====== ====== ====== ======
TOTAL RETURN (c) ................. 13.04% 6.68% (7.18%) 3.93%
RATIOS/SUPPLEMENTAL DATA
RATIOS TO AVERAGE NET ASSETS:
Total expenses (a) ............. 2.76%(d) 3.21%(d) 2.95%(b) 2.95%(b)
Net investment income .......... 6.40% 6.43% 4.05%(b) 3.79%(b)
Portfolio turnover rate .......... 58% 108% 100% 107%
NET ASSETS END OF YEAR
(THOUSANDS) .................... $4,917 $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) Excluding applicable sales charges.
(d) The expense ratio includes indirectly paid expenses. Excluding indirectly paid expenses, the expense ratio would have been
2.74% and 3.19% for the years ended October 31, 1996 and 1995, respectively.
</FN>
</TABLE>
<PAGE>
FINANCIAL HIGHLIGHTS
KEYSTONE WORLD BOND FUND
WORLD BOND PORTFOLIO
CLASS C SHARES
(FOR A SHARE OUTSTANDING THROUGHOUT EACH YEAR)
The following table contains important financial information relating to
the Fund and has been audited by KPMG Peat Marwick LLP, the Fund's independent
auditors. The table appears in the Fund's Annual Report and should be read in
conjunction with the Fund's financial statements and related notes, which also
appear, together with the independent auditors' report, in the Fund's Annual
Report. The Fund's financial statements, related notes and independent
auditors' report are incorporated by reference into 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 YEAR ENDED JANUARY 1, 1994 TO PUBLIC OFFERING) TO
OCTOBER 31, 1996 OCTOBER 31, 1995 OCTOBER 31, 1994 DECEMBER 31, 1993
---------------- ---------------- ---------------- -----------------
<S> <C> <C> <C> <C>
NET ASSET VALUE BEGINNING
OF YEAR ......................... $ 8.42 $ 8.42 $ 9.58 $ 9.47
------ ------ ------ ------
INCOME FROM INVESTMENT OPERATIONS
Net investment income ............ 0.56 0.56 0.30 0.18
Net realized and unrealized gain
(loss) on investment and
foreign currency related
transactions ................... 0.51 (0.02) (1.02) 0.19
------ ------ ------ ------
Total from investment operations . 1.07 0.54 (0.72) 0.37
------ ------ ------ ------
LESS DISTRIBUTIONS FROM
Net investment income .... (0.54) (0.48) 0 (0.12)
In excess of net investment income 0 0 0 (0.14)
Tax basis return of capital ...... 0 (0.06) (0.44) 0
------ ------ ------ ------
Total distributions .............. (0.54) (0.54) (0.44) (0.26)
------ ------ ------ ------
NET ASSET VALUE END OF YEAR ...... $ 8.94 $ 8.42 $ 8.42 $ 9.58
====== ====== ====== ======
TOTAL RETURN (c) ................. 13.09% 6.83% (7.61%) 3.93%
RATIOS/SUPPLEMENTAL DATA
RATIOS TO AVERAGE NET ASSETS:
Total expenses (a) ............. 2.78%(d) 3.21%(d) 2.95%(b) 2.95%(b)
Net investment income .......... 6.37% 6.49% 3.94%(b) 3.79%(b)
Portfolio turnover rate .......... 58% 108% 100% 107%
NET ASSETS END OF YEAR
(THOUSANDS) .................... $1,057 $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) Excluding applicable sales charges.
(d) The expense ratio includes indirectly paid expenses. Excluding indirectly paid expenses, the expense ratio would have been
2.77% and 3.19% for the years ended October 31, 1996 and 1995, respectively.
</FN>
</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 more than thirty funds advised and managed by Keystone
Investment Management Company ("Keystone"), the Fund's investment adviser.
INVESTMENT OBJECTIVES AND POLICIES
INVESTMENT OBJECTIVES
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.
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.
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.
Any investment involves risk, and there is no assurance that the Portfolio
will achieve its investment objectives.
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 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.
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.
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 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 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 25% or more 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.
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.
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" and in
the Statement of Additional Information.
FUND RISK
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.
FOREIGN RISK
Investing in securities of foreign issuers generally involves more risk than
investing in a portfolio consisting solely of securities of domestic issuers for
the following reasons: publicly available information on issuers and securities
may be scarce; many foreign countries do not follow the same accounting,
auditing, and financial reporting standards as are used in the U.S.; market
trading volumes may be smaller, resulting in less liquidity and more price
volatility compared to U.S. securities of comparable quality; there may be less
regulation of securities trading and its participants; the possibility may exist
for expropriation, confiscatory taxation, nationalization, establishment of
exchange controls, political or social instability or negative diplomatic
developments; and dividend or interest withholding may be imposed at the source.
Investing in securities of issuers in emerging markets countries involves
exposure to economic systems that are generally less mature and political
systems that are generally less stable than those of developed countries. In
addition, investing in companies in emerging markets countries may also involve
exposure to national policies that may restrict investment by foreigners and
undeveloped legal systems governing private and foreign investments and private
property. The typically small size of the markets for securities issued by
companies in emerging markets countries and the possibility of a low or
nonexistent volume of trading in those securities may also result in a lack of
liquidity and in price volatility of those securities. Furthermore, investing in
securities of companies in the formerly communist countries of Eastern Europe
and the People's Republic of China involves additional risks to those associated
with investments in companies in non-formerly communist emerging markets
countries. Specifically, those countries could convert back to a single economic
system, and the claims of property owners prior to the expropriation by the
communist regime could be settled in favor of the former property owners, in
which case the Portfolio could lose its entire investment in those countries.
These risks are carefully considered by Keystone prior to the purchase of these
securities.
Fluctuations in foreign exchange rates impose an additional level of risk,
possibly affecting the value of the Fund's foreign investments and earnings, as
well as gains and losses realized through trades, and the unrealized
appreciation or depreciation of investments. The Fund may also incur costs when
it shifts assets from one country to another.
BELOW-INVESTMENT 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 below investment 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.
PRICING SHARES
The Fund computes its net asset value as of the close of trading (currently
4:00 p.m. eastern time) on each day that the New York Stock Exchange (the
"Exchange") is open. However, the Fund does not compute its net asset value 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 investments maturing in 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 investments maturing in 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;
(10) short-term investments 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;
(11) 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;
(12) 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;
(13) 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
(14) 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 (a "RIC") under the Internal Revenue Code of 1986,
as amended (the "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 RIC 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.
If the Portfolio qualifies as a RIC 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 will make distributions from the Portfolio's net investment income to
shareholders monthly and net capital gains, if any, 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.
Dividends and distributions are taxable whether they are received in cash or
in shares. Income dividends and net short-term gains distributions are taxable
as ordinary income. 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. 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.
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 provides
investment advice, management and administrative services to the Fund.
INVESTMENT ADVISER
Keystone has provided investment advisory and management services to
investment companies and private accounts since 1932. Keystone is a wholly-owned
subsidiary of Keystone Investments, Inc. ("Keystone Investments"). Keystone
Investments provides accounting, bookkeeping, legal, personnel and general
corporate services to Keystone, its affiliates, and the Keystone Investments
Families of Funds. Both Keystone and Keystone Investments are located at 200
Berkeley Street, Boston, Massachusetts 02116-5034.
On December 11, 1996, Keystone Investments succeeded to the business of a
corporation with the same name, but under different ownership. Keystone
Investments is a wholly-owned subsidiary of First Union National Bank of North
Carolina ("FUNB"). FUNB is a subsidiary of First Union Corporation ("First
Union"), the sixth largest bank holding company in the U.S. based on total
assets as of September 30, 1996.
First Union is headquartered in Charlotte, North Carolina, and had $133.9
billion in consolidated assets as of September 30, 1996. First Union and its
subsidiaries provide a broad range of financial services to individuals and
businesses throughout the U.S. The Capital Management Group of FUNB, together
with Lieber & Company and Evergreen Asset Management Corp., wholly-owned
subsidiaries of FUNB, manage or otherwise oversee the investment of over $50
billion in assets belonging to a wide range of clients, including the Evergreen
Family of Funds.
Pursuant to its Investment Advisory and Management Agreement with the Fund
(the "Advisory Agreement"), Keystone manages the investment and reinvestment of
the Fund's assets, supervises the operation of the Fund and provides all
necessary office space, facilities and equipment.
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 each business day and
payable daily.
The Advisory Agreement continues in effect for two years from its effective
date and, thereafter, from year to year only so long as such continuance is
specifically approved at least annually by the Fund's Board of Trustees or by
vote of shareholders of the Fund. In either case, the terms of the Advisory
Agreement and continuance thereof must be approved by the vote of a majority of
the Fund's Independent Trustees (Trustees who are not "interested persons" of
the Fund, as defined in the 1940 Act, and who have no direct or indirect
financial interest in the Fund's Distribution Plans or any agreement related
thereto) cast in person at a meeting called for the purpose of voting on such
approval. The Advisory Agreement may be terminated, without penalty, on 60 days'
written notice by the Fund or Keystone or may be terminated by a vote of
shareholders of the Fund. The Advisory Agreement will terminate automatically
upon its assignment.
PRINCIPAL UNDERWRITER
Evergreen Keystone Distributors, Inc. (formerly Evergreen Funds Distributor,
Inc.) ("EKD"), a wholly-owned subsidiary of BISYS Fund Services ("BISYS"), which
is not affiliated with First Union, is now the Fund's principal underwriter (the
"Principal Underwriter"). EKD replaces Evergreen Keystone Investment Services,
Inc. (formerly Keystone Investment Distributors Company) ("EKIS") as the Fund's
principal underwriter. EKIS may no longer act as principal underwriter of the
Fund due to regulatory restrictions imposed by the Glass-Steagall Act upon
national banks such as FUNB and their affiliates, that prohibit such entities
from acting as the underwriters or distributors of mutual fund shares. While
EKIS may no longer act as principal underwriter of the Fund as discussed above,
EKIS may continue to receive compensation from the Fund or the Principal
Underwriter in respect of underwriting and distribution services performed prior
to the termination of EKIS as principal underwriter. In addition, EKIS may also
be compensated by the Principal Underwriter for the provision of certain
marketing support services to the Principal Underwriter at an annual rate of up
to .75% of the average daily net assets of the Fund, subject to certain
restrictions. EKD is located at 230 Park Avenue, New York, New York 10169.
SUB-ADMINISTRATOR
BISYS provides officers and certain administrative services to the Fund
pursuant to a sub-administration agreement. For its services under that
agreement, BISYS receives a fee from Keystone at the maximum annual rate of .01%
of the average daily net assets of the Fund.
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.
FUND EXPENSES
The Fund will pay all of its expenses. In addition to the investment advisory
and distribution plan fees discussed in this prospectus, the principal expenses
that the Fund is expected to pay include, but are not limited to, expenses of
its Independent Trustees; transfer, dividend disbursing, and shareholder
servicing agent expenses; custodian expenses; fees of its independent auditors;
fees of legal counsel to the Fund and its Independent 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 Fund also pays its brokerage commissions, interest charges, and
taxes.
For the fiscal year ended October 31, 1996, the Fund paid or accrued to
Keystone investment management and administrative services fees of $3,944,
(0.64% of the Fund's average daily net asset value on an annualized basis).
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.
For the fiscal year ended October 31, 1996, the Fund paid or accrued $48,155
to Evergreen Keystone Service Company (formerly Keystone Investor Resource
Center, Inc.) ("EKSC") for services rendered as the Fund's transfer agent and
dividend disbursing agent, and $20,918 to Keystone for certain accounting and
printing services. EKSC, located at 200 Berkeley Street, Boston, Massachusetts
02116-5034, is a wholly-owned subsidiary of Keystone.
For the fiscal year ended October 31, 1996, including indirectly paid
expenses, the Portfolio's Class A, Class B, and Class C shares paid 2.01%,
2.76%, and 2.78%, respectively, of such class' average net assets in expenses.
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 the number of shares of the Portfolio sold by
the broker-dealer. In addition, broker-dealers executing portfolio transactions
may, from time to time, be affiliated with the Fund, Keystone, the 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 fiscal years ended October 31, 1995 and
1996, were 108% and 58%, 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.
CODE OF ETHICS
The Fund has adopted a Code of Ethics incorporating policies on personal
securities trading as recommended by the Investment Company Institute.
DISTRIBUTION PLANS AND AGREEMENTS
CLASS A DISTRIBUTION PLAN
The Fund has adopted a Distribution Plan with respect to its Class A shares
(the "Class A Distribution Plan") that provides for expenditures by the Fund
currently limited to 0.25% annually of the average daily net asset value of
Class A shares, in connection with the distribution of Class A shares. Payments
under the Class A Distribution Plan are currently made to the Principal
Underwriter (which may reallow all or part to others, such as broker-dealers),
as service fees at an annual rate of up to 0.25% of the average daily net asset
value of Class A shares maintained by the recipient and outstanding on the books
of the Fund for specified periods.
CLASS B DISTRIBUTION PLANS
The Fund has adopted Distribution Plans with respect to its Class B shares
(the "Class B Distribution Plans") that provide for expenditures by the Fund at
an annual rate of up to 1.00% of the average daily net asset value of Class B
shares to pay expenses 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 broker-dealers) and to EKIS,
the predecessor to the Fund's Principal Underwriter, (1) as commissions for
Class B shares sold, (2) as shareholder service fees and (3) as interest.
Amounts paid or accrued to the Principal Underwriter or EKIS in the aggregate
may not exceed the annual limitation referred to above.
The Principal Underwriter generally reallows to broker-dealers or others a
commission equal to 4.00% of the price paid for each Class B share sold. The
broker-dealer or other party will also receive service fees at an annual rate of
0.25% of the value of Class B shares maintained by the recipient and outstanding
on the books of the Fund for specified periods. See "Distribution Plans
Generally" below.
CLASS C DISTRIBUTION PLAN
The Fund has adopted a Distribution Plan with respect to Class C shares (the
"Class C Distribution Plan") that provides for expenditures by the Fund at an
annual rate of up to 1.00% of the average daily net asset value of Class C
shares to pay expenses of the Distribution of Class C shares. Payments under the
Class C Distribution Plan are currently made to the Principal Underwriter (which
may reallow all or part to others, such as broker-dealers) and to EKIS, the
predecessor to the Fund's Principal Underwriter, (1) as commissions for Class C
shares sold, (2) as shareholder service fees, and (3) as interest. Amounts paid
or accrued to the Principal Underwriter or EKIS in the aggregate may not exceed
the annual limitation referred to above.
The Principal Underwriter generally reallows to broker-dealers 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 Generally") plus service fees which are paid at the
annual rate of 0.25%, respectively, of the value of Class C shares maintained by
the recipient and outstanding on the books of the Fund for specified periods.
See "Distribution Plans Generally" below.
DISTRIBUTION PLANS GENERALLY
As discussed above, the Fund bears some of the costs of selling its shares
under Distribution Plans adopted with respect to its Class A, Class B and Class
C shares pursuant to Rule 12b-1 under the 1940 Act.
The NASD limits the amount that the Fund may pay annually in distribution
costs for the sale of its shares and shareholder service fees. The NASD limits
annual expenditures to 1% of the aggregate average daily net asset value of its
shares, of which 0.75% may be used to pay distribution costs and 0.25% may be
used to pay shareholder service fees. The NASD also limits the aggregate amount
that the Fund may pay for such distribution costs to 6.25% of gross share sales
since the inception of the 12b-1 Distribution Plan, plus interest at the prime
rate plus 1% on such amounts (less any contingent deferred sales charges
("CDSCs") paid by shareholders to the Principal Underwriter) remaining unpaid
from time to time.
In connection with financing its distribution costs, including commission
advances to broker-dealers and others, EKIS, the predecessor to the Principal
Underwriter, sold to a financial institution substantially all of its 12b-1 fee
collection rights and CDSC collection rights in respect of Class B shares sold
during the period beginning approximately June 1, 1995 through November 30,
1996. 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.
The financing of payments made by the Principal Underwriter to compensate
broker-dealers or other persons for distributing shares of the Fund will be
provided by FUNB or its affiliates.
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. If a Distribution Plan is terminated, the Principal
Underwriter and EKIS will ask the Independent Trustees to take whatever action
they deem appropriate under the circumstances with respect to payment of
Advances (as defined below).
Unpaid distribution costs at October 31, 1995 were: $251,498 for Class B
shares purchased prior to June 1, 1995 (5.10% of net class assets for such Class
B shares); $54,841 for Class B shares purchased on or after June 1, 1995 (1.10%
of net class assets for such Class B shares); and $128,839 for Class C shares
(12.2% of net class assets).
Broker-dealers or others may receive different levels of compensation
depending on which class of shares they sell. Payments pursuant to a
Distribution Plan are included in the operating expenses of the class.
DISTRIBUTION AGREEMENTS
The Fund has entered into principal underwriting agreements with the Principal
Underwriter (each a "Distribution Agreement") with respect to each class.
Pursuant to its Distribution Agreements, the Fund will compensate the Principal
Underwriter for its services as distributor at an annual rate that may not
exceed .25 of 1% of the Fund's average daily net assets attributable to Class A
shares, .75 of 1% of the Fund's average daily net assets attributable to the
Class B shares, subject to certain restrictions, and .75 of 1% of the Fund's
average daily net assets attributable to the Class C shares.
The Fund may also make payments under its Distribution Plans, in amounts of up
to .25 of 1% of its average daily net assets on an annual basis, attributable to
Class A, B and C shares, respectively, to compensate organizations, which may
include, among others, the Principal Underwriter and Keystone or their
respective affiliates, for services rendered to shareholders and/or the
maintenance of shareholder accounts.
The Fund may not pay any distribution or servicing fees during any fiscal
period in excess of NASD limits. Since the Principal Underwriter's compensation
under the Distribution Agreements is not directly tied to the expenses incurred
by the Principal Underwriter, the amount of compensation received by it under
the Distribution Agreements during any year may, subject to certain conditions,
be more than its actual expenses and may result in a profit to the Principal
Underwriter. Distribution expenses incurred by the Principal Underwriter in one
fiscal year that exceed the level of compensation paid to the Principal
Underwriter for that year may be paid from distribution fees received from a
Fund in subsequent fiscal years.
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 ("Advances"). The Principal Underwriter
intends to seek full reimbursement for such Advances from the Fund (together
with annual interest thereon at the prime rate plus 1%) at such time in the
future as, and to the extent that, payment thereof by the Fund would be within
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.
In states where the Principal Underwriter is not registered as a
broker-dealer, shares of the Fund will only be sold through other broker-dealers
or other financial institutions that are registered.
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
broker-dealers whose representatives have sold or are expected to sell
significant amounts of Fund shares. In addition, broker-dealers may, from time
to time, receive additional cash payments. The Principal Underwriter may also
provide written information to those broker-dealers with whom it has dealer
agreements that relates to sales incentive campaigns conducted by such
broker-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. Broker-dealers to whom substantially the entire sales charge on Class A
shares is reallowed may be deemed to be underwriters as that term is defined
under the 1933 Act.
The Principal Underwriter may, at its own expense, pay concessions in addition
to those described above to broker-dealers including, from time to time, to
First Union Brokerage Services, Inc., an affiliate of Keystone, 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
broker-dealer's satisfaction of the required conditions, be periodic and may be
up to 1.00% of the value of shares sold by such broker-dealer.
The Principal Underwriter may also pay a transaction fee (up to the level of
payments allowed to broker-dealers for the sale of shares, as described above)
to banks and other financial services firms that facilitate transactions in
shares of the Fund for their clients.
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 broker-dealers pursuant to state laws.
EFFECTS OF BANKING LAWS
The Glass-Steagall Act currently limits the ability of depository institutions
(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.
The Glass-Steagall Act and other banking laws and regulations also presently
prohibit member banks of the Federal Reserve System ("Member Banks") or their
non-bank affiliates from sponsoring, organizing, controlling, or distributing
the shares of registered open-end investment companies such as the Fund. Such
laws and regulations also prohibit banks from issuing, underwriting or
distributing securities in general. However, under the Glass-Steagall Act and
such other laws and regulations, a Member Bank or an affiliate thereof may act
as investment adviser transfer agent or custodian to a registered open-end
investment company and may also act as agent in connection with the purchase of
shares of such an investment company upon the order of its customer. Keystone
and its affiliates, since they are direct or indirect subsidiaries of FUNB, are
subject to and in compliance with the aforementioned laws and regulations.
Changes to applicable laws and regulations or future judicial or
administrative decisions could prevent Keystone Investments or its affiliates
from performing the services required under the investment advisory contract or
from acting as agent in connection with the purchase of shares of a fund by its
customers. In such event, it is expected that the Trustees would identify, and
call upon each Fund's shareholders to approve, a new investment adviser. If this
were to occur, it is not anticipated that the shareholders of any Fund would
suffer any adverse financial consequences.
HOW TO BUY SHARES
You may purchase shares of the Fund from any broker-dealer that has a selling
agreement with the Principal Underwriter. In addition, you may purchase shares
of the Fund by mailing to the Fund, c/o Evergreen Keystone Service Company, P.O.
Box 2121, Boston, Massachusetts 02106-2121, a completed account application and
a check payable to the Fund. You may also telephone 1-800-343-2898 to obtain the
number of an account to which you can wire or electronically transfer funds and
then send in a completed account application. Subsequent investments in any
amount may be made by check, by wiring Federal funds, by direct deposit or by an
electronic funds transfer ("EFT").
Orders for the purchase of shares of the Fund will be confirmed at the public
offering price, which is equal to the net asset value per share next determined
after receipt of the order in proper form by the Principal Underwriter
(generally as of the close of the Exchange on that day) plus, in the case of
Class A shares, the applicable sales charge. Orders received by broker-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.
Broker-dealers and other financial services firms are obligated to transmit
orders promptly.
Orders for shares received other than as stated above will receive the public
offering price, which is equal to the net asset value per share next determined
(generally, the next business day's offering price) plus, in the case of Class A
shares, the applicable sales charge.
The Fund reserves the right to determine the net asset value more frequently
than once a day if deemed desirable.
The initial purchase must be at least $1,000. There is no minimum amount for
subsequent purchases.
The Fund reserves the right to withdraw all or any part of the offering made
by this prospectus and to reject purchase orders.
Shareholder inquiries should be directed to EKSC by calling toll free
1-800-343-2898 or writing to EKSC or to the firm from which you received this
prospectus.
ALTERNATIVE SALES OPTIONS
This prospectus provides information regarding the Class A, B, and C shares
offered by the Fund:
CLASS A SHARES -- FRONT-END LOAD OPTION
With certain exceptions, Class A shares are sold with a sales charge at the
time of purchase. Class A shares are not subject to a CDSC when they are
redeemed except as follows: Class A shares purchased after January 1, 1997, in
an amount equal to or exceeding $1 million, without a front-end sales charge,
will be subject to a CDSC during the month of purchase and the 12-month period
following the month of purchase.
CLASS B SHARES -- BACK-END LOAD OPTION
Class B shares purchased after January 1, 1997, are sold without a sales
charge at the time of purchase, but are, with certain exceptions, subject to a
CDSC if redeemed during the month of purchase and the 72-month period following
the month of purchase. Class B shares purchased after January 1, 1997, that have
been outstanding for seven years after the month of purchase, will automatically
convert to Class A shares without the imposition of a front-end sales charge or
exchange fee.
CLASS C SHARES -- LEVEL LOAD OPTION
Class C shares purchased after January 1, 1997, are sold without a sales
charge at the time of purchase, but are subject to a CDSC if they are redeemed
during the month of purchase and the 12-month period following the month of
purchase. Class C shares are available only through broker-dealers who have
entered into special distribution agreements with the Principal Underwriter.
Each class of shares, pursuant to its Distribution Plan, pays an annual
service fee of 0.25% of the Fund's average daily net assets attributable to that
class. In addition to the 0.25% service fee, the Class B and C Distribution
Plans provide for the payment of an annual distribution fee of up to 0.75% of
the average daily 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. Other investors might consider Class B or Class C shares (in which case,
100% of the purchase price is invested immediately), depending on the amount of
the purchase and the intended length of investment.
The Fund will not normally accept any purchase of Class B shares in the amount
of $250,000 or more and will not normally accept any purchase of Class C shares
in the amount of $500,000 or more.
----------------------------------------------
CLASS A SHARES
Class A shares are currently offered at the public offering price, which is
equal to net asset value plus an initial sales charge as follows:
AS A % OF CONCESSION TO
AS A % OF NET AMOUNT DEALERS AS A % OF
AMOUNT OF PURCHASE OFFERING PRICE INVESTED* OFFERING PRICE
- ------------------------------------------------------------------------------
Less than $50,000 ................ 4.75% 4.99% 4.25%
$50,000 but less than $100,000 ... 4.50% 4.71% 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% 2.00%
$500,000 but less than $1,000,000 2.00% 2.04% 1.75%
- ----------
*Rounded to the nearest one-hundredth percent.
----------------------------------------------
Purchases of the Fund's Class A shares made after January 1, 1997, (i) in the
amount of $1 million or more; (ii) by a corporate or certain other qualified
retirement plan or a non-qualified deferred compensation plan or a Title I tax
sheltered annuity or TSA plan sponsored by an organization having 100 or more
eligible employees (a "Qualifying Plan"), or a TSA plan sponsored by a public
educational entity having 5,000 or more eligible employees (an "Educational TSA
Plan"); or (iii) by (a) institutional investors, which may include bank trust
departments and registered investment advisers; (b) investment advisers,
consultants or financial planners who place trades for their own accounts or the
accounts of their clients and who charge such clients a management, consulting,
advisory or other fee; (c) clients of investment advisers or financial planners
who place trades for their own accounts if the accounts are linked to the master
account of such investment advisers or financial planners on the books of the
broker-dealer through whom shares are purchased; (d) institutional clients of
broker-dealers, including retirement and deferred compensation plans and the
trusts used to fund these plans, which place trades through an omnibus account
maintained with the Fund by the broker-dealer; and (e) employees of FUNB and its
affiliates, EKD and any broker-dealer with whom EKD has entered into an
agreement to sell shares of the Fund, and members of the immediate families of
such employees, will each be at net asset value without the imposition of a
front-end sales charge. Certain broker-dealers or other financial institutions
may impose a fee on transactions in shares of the Funds.
With respect to purchases of the Fund's Class A shares made after January 1,
1997, in the amount of $1 million or more, the Principal Underwriter will pay
broker-dealers or others concessions 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 respect to purchases of the Fund's Class A shares made after January 1,
1997, by Qualifying Plans and Educational TSA Plans, the Principal Underwriter
will pay broker-dealers and others concessions at the rate of 0.50% of the net
asset value of the shares purchased. These payments are subject to reclaim in
the event the shares are redeemed within twelve months after purchase.
Purchases of the Fund's Class A shares made after January 1, 1997, in the
amount of $1 million or more, are subject to a CDSC of 1.00% upon redemption
during the month of purchase and the 12-month period following the month of
purchase.
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 value of Class A shares maintained by such recipient and outstanding on the
books of the Fund for specified periods.
Upon written notice to broker-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 offered in connection with certain fee based programs, such as wrap
accounts sponsored or managed by broker-dealers, investment advisers, or others
who have entered into special agreements with the Principal Underwriter. Initial
sales charges may be reduced or eliminated for persons or organizations
purchasing Class A shares of the Fund alone or in combination with Class A
shares of other Keystone America Funds. See Exhibit A to this prospectus.
Upon prior notification to the Principal Underwriter, Class A shares may be
purchased at net asset value by clients of registered representatives within 30
days 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 CDSC with respect to
the redemption proceeds.
Upon prior notification to the Principal Underwriter, Class A shares may be
purchased at net asset value by clients of registered representatives within 30
days 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 CDSC
with respect to the redemption proceeds. This special net asset value purchase
is currently being offered on a calendar month-by-month basis and may be
modified or terminated in the future.
CLASS B SHARES
Class B shares are offered at net asset value, without an initial sales
charge. With respect to shares purchased after January 1, 1997, the Fund, with
certain exceptions, imposes a CDSC on Class B shares redeemed as follows:
CDSC
REDEMPTION TIMING IMPOSED
- ----------------- -------
Month of purchase and the first twelve-month
period following the month of purchase ..... 5.00%
Second twelve-month period following the month
of purchase ............................... 4.00%
Third twelve-month period following the month
of purchase ................................ 3.00%
Fourth twelve-month period following the month
of purchase ................................ 3.00%
Fifth twelve-month period following the month
of purchase ................................ 2.00%
Sixth twelve-month period following the month
of purchase ............................... 1.00%
No CDSC is imposed on amounts redeemed thereafter.
When imposed, the CDSC is deducted from the redemption proceeds otherwise
payable to you. The CDSC is retained by the Principal Underwriter or its
predecessor. Amounts received by the Principal Underwriter or its predecessor
under the Class B Distribution Plans are reduced by CDSCs retained by the
Principal Underwriter or its predecessor. See "Contingent Deferred Sales Charge
and Waiver of Sales Charges" below.
Class B shares purchased after January 1, 1997, that have been outstanding for
seven years after the month of purchase, will automatically convert to Class A
shares (which are subject to a lower Distribution Plan charge) without
imposition of a front-end sales charge or exchange fee. (Conversion of Class B
shares represented by stock certificates will require the return of the stock
certificates to EKSC.) The Class B shares so converted will no longer be subject
to the higher distribution expenses and other expenses, if any, borne by Class B
shares. Because the net asset value per share of 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
interest of such Class B shareholders.
CLASS C SHARES
Class C shares are offered only through broker-dealers who have special
distribution agreements with the Principal Underwriter. Class C shares are
offered at net asset value, without an initial sales charge. With certain
exceptions, the Fund imposes a CDSC of 1.00% on shares redeemed during the month
of purchase and the 12-month period following the month of purchase. No CDSC is
imposed on amounts redeemed thereafter. If imposed, the CDSC is deducted from
the redemption proceeds otherwise payable to you. The CDSC is retained by the
Principal Underwriter or its predecessor. See "Contingent Deferred Sales Charge
and Waiver of Sales Charges" below.
CONTINGENT DEFERRED SALES CHARGE AND WAIVER OF SALES CHARGES
Any CDSC 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.
With respect to shares purchased after January 1, 1997, no CDSC is imposed
when you redeem amounts derived from (1) increases in the value of shares
redeemed above the net cost of such shares; (2) certain shares with respect to
which the Fund did not pay a commission on issuance, including shares acquired
through reinvestment of dividend income and capital gains distributions; (3)
certain Class A shares held for more than 12 months after the month of purchase;
(4) Class B shares held for more than 72 months after the month of purchase; or
(5) Class C shares held for more than one year after the month of purchase. Upon
request for redemption, shares not subject to the CDSC will be redeemed first.
Thereafter, shares held the longest will be the first to be redeemed.
With respect to Class C shares purchased by a Qualifying Plan, no CDSC 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 CDSC 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 the Systematic Income Plan of up to 1.0% 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 may also sell Class A, Class B or Class C shares at net asset value
without any initial sales charge or a CDSC to certain Directors, Trustees,
officers and employees of the Fund, Keystone, the Principal Underwriter and
certain of their affiliates, and to members of the immediate families of such
persons; to registered representatives of firms with dealer agreements with the
Principal Underwriter; and to a bank or trust company acting as a trustee for a
single account. See the statement of additional information.
HOW TO REDEEM SHARES
You may redeem Fund shares for cash at their net redemption value by writing
to the Fund, c/o EKSC, and presenting a properly endorsed share certificate (if
certificates have been issued) to the Fund. Your signature(s) on the written
order and certificates must be guaranteed as described below. In order to redeem
by telephone or to engage in telephone transactions generally, you must complete
the authorization in your account application. Proceeds for shares redeemed on
telephone order will be deposited by wire or EFT only to the bank account
designated in your account application.
You may also redeem your shares through your broker-dealer. The Principal
Underwriter, acting as agent for the Fund, stands ready to repurchase Fund
shares upon orders from broker-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 CDSC, to the broker-dealer placing the order
within seven days thereafter. The Principal Underwriter charges no fee for this
service. Your broker-dealer, however, may charge a service fee.
The redemption value equals the net asset value per share adjusted for
fractions of a cent and may be more or less than your cost depending upon
changes in the value of the Fund's portfolio securities between purchase and
redemption. A CDSC may be imposed by the Fund at the time of redemption of
certain shares as explained in "How to Buy Shares." If imposed, the CDSC 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 15 days or more.
Any delay may be avoided by purchasing shares either with a certified check, by
Federal Reserve or bank wire of funds, by direct deposit 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 CDSC (as described above),
will be made within seven days thereafter except as discussed herein.
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 EKSC'S POLICIES. The Fund or EKSC may waive this
requirement or may require additional documents in certain cases. Currently, the
requirement for a signature guarantee has been waived on redemptions of $50,000
or less when the account address of record has been the same for a minimum
period of 30 days. The Fund and EKSC 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. As mentioned above, 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 EKSC 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 you cannot reach the Fund by telephone, you should follow the procedures
for redeeming by mail or through a broker-dealer as set forth herein.
SMALL ACCOUNTS
Due to the high cost of maintaining small accounts, the Fund reserves the
right to redeem your account if its value has fallen below $1,000, the current
minimum investment level, as a result of your redemptions (but not as a result
of market action). You will be notified in writing and allowed 60 days to
increase the value of your account to the minimum investment level. No CDSCs are
applied to such redemptions.
GENERAL
The Fund reserves the right at any time to terminate, suspend, or change the
terms of any redemption method described in this prospectus, except redemption
by mail, and to impose fees.
Except as otherwise noted, neither the Fund, EKSC, 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. EKSC will employ reasonable
procedures to confirm that instructions received over KARL or by telephone are
genuine. Neither the Fund, EKSC, nor the Principal Underwriter will be liable
when following instructions received over KARL or by telephone that EKSC
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 EKSC by writing or by
calling toll free 1-800-343-2898.
KEYSTONE AUTOMATED RESPONSE LINE
KARL offers you specific fund account information and price and yield
quotations as well as the ability to do account transactions, including
investments, exchanges and redemptions. You may access KARL by dialing toll free
1-800-346-3858 on any touch-tone telephone, 24 hours a day, seven days a week.
EXCHANGES
If you have obtained the appropriate prospectus, you may exchange shares of
the Fund for shares of certain other Keystone America Funds and Keystone Liquid
Trust ("KLT") as follows:
Class A shares may be exchanged for Class A shares of other Keystone America
Funds and Class A shares of KLT;
Class B shares 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.
The exchange of Class B shares and Class C shares will not be subject to a
CDSC. However, if the shares being tendered for exchange are
(1) Class A shares acquired without a front-end sales charge,
(2) Class B shares that have been held for less than 72 months, or
(3) Class C shares that have been held for less than one year,
and are still subject to a CDSC, such charge will carry over to the shares being
acquired in the exchange transaction.
You may exchange shares for another Keystone fund by calling or writing to
EKSC or by using KARL. As noted above, if the shares being tendered for exchange
are still subject to a CDSC, such charge will carry over to the shares being
acquired in the exchange transaction. The Fund reserves the right to terminate
this exchange offer or to change its terms, including the right to charge for
exchanges.
Orders to exchange a certain class of shares of the Fund for the corresponding
class of shares of KLT will be executed by redeeming the shares of the Fund and
purchasing the corresponding class of shares of KLT at the net asset value of
such shares next determined after the proceeds from such redemption become
available, which may be up to seven days after such redemption. In all other
cases, orders for exchanges received by the Fund prior to 4:00 p.m. eastern time
on any day the Fund is open for business will be executed at the respective net
asset values determined as of the close of business that day. Orders for
exchanges received after 4:00 p.m. eastern time on any business day will be
executed at the respective net asset values determined at the close of the next
business day.
An excessive number of exchanges may be disadvantageous to the Fund.
Therefore, the Fund, in addition to its right to reject any exchange, reserves
the right to terminate the exchange privilege of any shareholder who makes more
than five exchanges of shares of the funds in a year or three in a calendar
quarter.
An exchange order must comply with the requirements for a redemption or
repurchase order and must specify the dollar value or number of shares to be
exchanged. 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.
AUTOMATIC INVESTMENT PLAN
With a Keystone Automatic Investment Plan, you can automatically transfer as
little as $25 per month or $75 per quarter from your bank account or KLT to the
Keystone fund of your choice. Your bank account will be debited for each
transfer. You will receive confirmation with your next account statement.
To establish or terminate an Automatic Investment Plan or to change the amount
or schedule of your automatic investments, you may write to or call EKSC. Please
include your account numbers. Termination may take up to 30 days.
RETIREMENT PLANS
The Fund has various retirement plans available to you, including Individual
Retirement Accounts (IRAs); Rollover IRAs; Simplified Employee Pension Plans
(SEPs); Salary Reduction Plans (SARSEPs); Tax Sheltered Annuity Plans; 403(b)
(7) Plans; 401(k) Plans; Keogh Plans; Corporate Profit-Sharing Plans; and Money
Purchase Plans. For details, including fees and application forms, call toll
free 1-800-247-4075 or write to EKSC.
SYSTEMATIC INCOME PLAN
Under a Systematic Income 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 $75 and may be as much as 1.0% per month
or 3.0% per quarter of the total net asset value of the Fund shares in your
account when the Systematic Income Plan was opened. Fixed withdrawal payments
are not subject to a CDSC. Excessive withdrawals may decrease or deplete the
value of your account. Moreover, because of the effect of the applicable sales
charge, a Class A investor should not make continuous purchases of the Fund's
shares while participating in a Systematic Income Plan.
DOLLAR COST AVERAGING
Through dollar cost averaging you can invest a fixed dollar amount each month
or each quarter in any Keystone America Fund. This results in more shares being
purchased when the selected fund's net asset value is relatively low and fewer
shares being purchased when the fund's net asset value is relatively high and
may result in a lower average cost per share than a less systematic investment
approach.
Prior to participating in dollar cost averaging, you must establish an account
in a Keystone America Fund or a money market fund managed or advised by
Keystone. You should designate on the application (1) the dollar amount of each
monthly or quarterly investment you wish to make and (2) the fund in which the
investment is to be made. Thereafter, on the first day of the designated month,
an amount equal to the specified monthly or quarterly investment will
automatically be redeemed from your initial account and invested in shares of
the designated fund.
If you are a Class A investor and paid a sales charge on your initial
purchase, the shares purchased will be eligible for Rights of Accumulation and
the sales charge applicable to the purchase will be determined accordingly. In
addition, the value of shares purchased will be included in the total amount
required to fulfill a Letter of Intent. If a sales charge was not paid on the
initial purchase, a sales charge will be imposed at the time of subsequent
purchases, and the value of shares purchased will become eligible for Rights of
Accumulation and Letters of Intent. See Exhibit A -- "Reduced Sales Charges" at
the back of the prospectus.
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. See Exhibit A --
"Reduced Sales Charges" at the back of the prospectus.
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 RESULTS 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 Class A, B and C 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
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 reduced sales
charge programs.
For purposes of qualifying for reduced sales charges on purchases made
pursuant to Rights of Accumulation or Letters of Intent, the term "Purchaser"
includes the following persons: an individual; an individual, his or her spouse
and children under the age of 21; a trustee or other fiduciary of a single trust
estate or single fiduciary account established for their benefit; an
organization exempt from federal income tax under Section 501 (c)(3) or (13) of
the Internal Revenue Code; a pension, profit-sharing or other employee benefit
plan whether or not qualified under Section 401 of the Internal Revenue Code; or
other organized groups of persons, whether incorporated or not, provided the
organization has been in existence for at least six months and has some purpose
other than the purchase of redeemable securities of a registered investment
company at a discount. In order to qualify for a lower sales charge, all orders
from an organized group will have to be placed through a single investment
dealer or other firm and identified as originating from a qualifying purchaser.
CONCURRENT PURCHASES
For purposes of qualifying for a reduced sales charge, a Purchaser may combine
concurrent direct purchases of Class A shares of two or more of the "Eligible
Funds," as defined below. For example, if a Purchaser concurrently invested
$75,000 in one of the other "Eligible Funds" and $75,000 in the Fund, the sales
charge would be that applicable to a $150,000 purchase, i.e., 3.75% of the
offering price, as indicated in the Sales Charge Schedule in the prospectus.
RIGHT OF ACCUMULATION
In calculating the sales charge applicable to current purchases of the Fund's
Class A shares, a Purchaser is entitled to accumulate current purchases with the
current value of previously purchased Class A shares of the Fund and Class A
shares of certain other eligible funds that are still held in (or exchanged for
shares of and are still held in) the same or another eligible fund ("Eligible
Fund(s)"). The Eligible Funds are the Keystone America Funds and Keystone Liquid
Trust.
For example, if a Purchaser held shares valued at $99,999 and purchased an
additional $5,000, the sales charge for the $5,000 purchase would be at the next
lower sales charge of 3.75% of the offering price as indicated in the Sales
Charge schedule. EKSC must be notified at the time of purchase that the
Purchaser is entitled to a reduced sales charge, which reduction will be granted
subject to confirmation of the Purchaser's holdings. The Right of Accumulation
may be modified or discontinued at any time.
LETTER OF INTENT
A Purchaser may qualify for a reduced sales charge on a purchase of Class A
shares of the Fund alone or in combination with purchases of Class A shares of
any of the other Eligible Funds by completing the Letter of Intent section of
the application. By so doing, the Purchaser agrees to invest within a
thirteen-month period a specified amount which, if invested at one time, would
qualify for a reduced sales charge. Each purchase will be made at a public
offering price applicable to a single transaction of the dollar amount specified
on the application, as described in this prospectus. The Letter of Intent does
not obligate the Purchaser to purchase, nor the Fund to sell, the amount
indicated.
After the Letter of Intent is received by EKSC, 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 EKSC 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, EKSC 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 EKSC. Any redemptions made by the Purchaser during the
thirteen-month period will be subtracted from the amount of the purchases for
purposes of determining whether the Letter of Intent has been completed. In the
event of a total redemption of the account prior to completion of the Letter of
Intent, the additional sales charge due will be deducted from the proceeds of
the redemption and the balance will be forwarded to the Purchaser.
By signing the application, the Purchaser irre-
vocably constitutes and appoints EKSC 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 EKSC that
a Letter of Intent is in effect each time a purchase is made.
<PAGE>
---------------------------------------
KEYSTONE AMERICA
FUND FAMILY
()
Balanced Fund II
Capital Preservation and Income Fund
Government Securities Fund
Intermediate Term Bond Fund
Strategic Income Fund
World Bond Fund
Tax Free Income Fund
California Tax Free Fund
Florida Tax Free Fund
Massachusetts Tax Free Fund
Missouri Tax Free Fund
New York Tax Free Fund
Pennsylvania Tax Free Fund
Fund for Total Return
Global Opportunities Fund
Hartwell Emerging Growth Fund, Inc.
Omega Fund
Fund of the Americas
Global Resources and Development Fund
Small Company Growth Fund II
---------------------------------------
- ---------------------------------
Evergreen Keystone
[logo] FUNDS [logo]
- ---------------------------------
Evergreen Keystone Distributor, Inc.
230 Park Avenue
New York, New York 10169
WBP-P Sup. 2/97 [recycle logo]
---------------------------------------
KEYSTONE
[graphic omitted]
WORLD
BOND FUND
---------------------------------------
---------------------------------
Evergreen Keystone
[logo] FUNDS [logo]
---------------------------------
PROSPECTUS AND
APPLICATION
<PAGE>
KEYSTONE WORLD BOND FUND
PART B
STATEMENT OF ADDITIONAL INFORMATION
<PAGE>
KEYSTONE WORLD BOND FUND
STATEMENT OF ADDITIONAL INFORMATION
FEBRUARY 28, 1997
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 dated February 28, 1997. You may obtain a copy of the prospectus from
the Fund's principal underwriter, Evergreen Keystone Distributor, Inc. or your
broker-dealer. Evergreen Keystone Distributor, Inc. is located at 230 Park
Avenue, New York, New York 10169.
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TABLE OF CONTENTS
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PAGE
The Fund.....................................................................2
Service Providers............................................................2
Investment Restrictions......................................................3
Distributions and Taxes......................................................4
Valuation of Securities......................................................5
Brokerage....................................................................6
Sales Charge.................................................................8
Distribution Plans..........................................................11
Trustees and Officers.......................................................13
Investment Adviser..........................................................17
Principal Underwriter.......................................................18
Sub-administrator...........................................................19
Declaration of Trust........................................................19
Expenses....................................................................21
Standardized Total Return and Yield Quotations..............................23
Financial Statements........................................................23
Additional Information......................................................23
Appendix...................................................................A-1
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THE FUND
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The Fund is an open-end, diversified 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.
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SERVICE PROVIDERS
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SERVICE PROVIDER
- ---------------------------- ----------------------------------------------
Investment adviser (referred Keystone Investment Management Company, 200
to in this SAI as "Keystone") Berkeley Street, Boston, Massachusetts 02116
(Keystone is a wholly-0wned subsidiary of
Keystone Investments, Inc., ("Keystone
Investments")also located at 200 Berkeley
Street, Boston, Massachusetts 02116)
Principal underwriter Evergreen Keystone Distributor, Inc.
(referred to in this SAI (formerly Evergreen Funds Distributor, Inc.),
as "EKD") 230 Park Avenue, New York, New York 10169.
Marketing services agent and Evergreen Keystone Investment Services, Inc.
predecessor to EKD (referred to (formerly Keystone Investment Distributors
in this SAI as "EKIS") Company), 200 Berkeley Street, Boston,
Massachusetts 02116
Sub-administrator(referred to BISYS Group, Inc., 3435 Stelzer Road,
in this SAI as "BISYS") Columbus, Ohio 43219
Transfer and dividend Evergreen Keystone Service Company, 200
disbursing agent (referred to Berkeley Street, Boston, Massachusetts 02116
in this SAI as "EKSC") (EKSC is a wholly-owned subsidiary of
Keystone)
Independent auditors KPMG Peat Marwick LLP, 99 High Street, Boston,
Massachusetts 02110, Certified Public
Accountants
Custodian State Street Bank and Trust Company, 225
Franklin Street, Boston, Massachusetts 02110
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INVESTMENT RESTRICTIONS
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FUNDAMENTAL 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 (as defined in the
Investment Company Act of 1940, as amended (the "1940 Act"). 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.
NON-FUNDAMENTAL INVESTMENT RESTRICTIONS
With respect to illiquid securities, the Fund intends to follow the
policies of the Securities and Exchange Commission. Currently, the Fund will not
invest more than 15% of its net assets in illiquid securities. Also, the Fund
will treat securities as illiquid if it may not sell or dispose of the security
in the ordinary course of business within seven days at approximately the value
at which the Fund has valued such securities on its books.
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DISTRIBUTIONS AND TAXES
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You will ordinarily receive distributions in shares, unless you elect
before the record date to receive them as cash. Unless the Fund receives
instructions to the contrary, it will assume that you wish to receive that
distribution and future gains and income distributions in shares. Your
instructions continue in effect until changed in writing. If you have not opted
to receive cash, the Fund will determine the number of shares that you should
receive based on its net asset value per share as computed at the close of
business on the ex-dividend date after adjustment for the distribution. The Fund
will mail your account statement and/or check to you within seven days after it
pays the distribution.
Capital gains distributions that reduce the net asset value of your shares
below your cost are, to the extent of the reduction, a return of your
investment. Since distributions of capital gains depend upon profits realized
from the sale of the Fund's portfolio securities, they may or may not occur.
Distributions are taxable whether you receive them in cash or additional
shares. Long-term capital gains distributions are taxable as such regardless of
(1) how long you have held the shares or (2) whether you receive them in cash or
in additional shares. If, however, you hold the Fund's shares for less than six
months and redeem them at a loss, you will recognize a long-term capital loss to
the extent of the long-term capital gain distribution received in connection
with such shares. The Fund intends to distribute only such net capital gains and
income as it has predetermined, to the best of its ability, to be taxable as
ordinary income. Since the Fund's income distributions are largely derived from
interest on bonds and thus are not to any significant degree eligible in whole
or in part for the corporate 70% dividends received deduction. Distributions
designated by the Fund as capital gains are not eligible for the corporate 70%
dividends received deduction
The Fund will advise you annually as to the federal income tax status of
your distributions. These comments relating to the taxation of dividends and
distributions paid on the Fund's shares relate solely to federal income
taxation. Your dividends and distributions may also be subject to state and
local taxes.
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.
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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 National
Association of Securities Dealers, Inc. ("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.
(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 investments maturing in 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 investments maturing in sixty days or less are valued at
amortized cost (original purchase cost as adjusted for amortization of premium
or accretion of discount), which, when combined with accrued interest,
approximates market.
(10) Short-term investments maturing in more than sixty days when
purchased that are held on the sixtieth day prior to maturity are valued at
amortized cost (market value on the sixtieth day adjusted for amortization of
premium or accretion of discount), which, when combined with accrued interest,
approximates market.
(11) 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.
(12) 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.
(13) 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.
(14) All other assets are valued at fair market value as determined by or
under the direction of the Fund's Board of Trustees.
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BROKERAGE
- ------------------------------------------------------------------------------
SELECTION OF BROKERS
In effecting transactions in portfolio securities for the Fund, Keystone
seeks the best execution of orders at the most favorable prices. Keystone
determines whether a broker has provided the Fund with best execution and price
in the execution of a securities transaction by evaluating, among other things:
1. overall direct net economic result to the Fund,
2. the efficiency with which they effect the transaction,
3. the broker's ability to effect the transaction where a large block
is involved,
4. the broker's readiness to execute potentially difficult transactions
in the future,
5. the financial strength and stability of the broker, and
6. the receipt of research services, such as analyses and reports
concerning issuers, industries, securities, economic factors and
trends and other statistical and factual information ("research
services").
The Fund's management weighs these considerations in determining the
overall reasonableness of the brokerage commissions paid.
The Fund considers the receipt of research services by the Fund or
Keystone to be in addition to, and not instead of, the services Keystone is
required to perform under the Advisory Agreement (as defined below). Keystone
believes that it cannot determine or practically allocate the cost, value and
specific application of such research services between the Fund and its other
clients, who may indirectly benefit from the availability of such services.
Similarly, the Fund may indirectly benefit from information made available from
transactions effected for Keystone's other clients. The Advisory Agreement also
permits Keystone to pay higher brokerage commissions for brokerage and research
services in accordance with Section 28(e) of the Securities Exchange Act of
1934; if Keystone does so on a basis that is fair and equitable to the Fund.
Neither the Fund nor Keystone intends on placing securities transactions
with any particular broker-dealer. The Fund's Board of Trustees has determined,
however, that the Fund may consider sales of Fund shares when selecting of
broker-dealers to execute portfolio transactions, subject to the requirements of
best execution described above.
BROKERAGE COMMISSIONS
The Fund expects to purchase and sell its securities and temporary
instruments through principal transactions. The Fund normally purchases bonds
and money market instruments directly from the issuer or from an underwriter or
market maker for the securities. In general, the Fund will not pay brokerage
commissions 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.
GENERAL BROKERAGE POLICIES
Keystone makes investment decisions for the Fund independently from those
of its other clients. It may frequently develop, however, that Keystone will
make the same investment decision for more than one client. Simultaneous
transactions are inevitable when the same security is suitable for the
investment objective of more than one account. When two or more of its clients
are engaged in the purchase or sale of the same security, Keystone will allocate
the transactions according to a formula that is equitable to each of its
clients. Although, in some cases, this system could have a detrimental effect on
the price or volume of the Fund's securities, the Fund believes that in other
cases its ability to participate in volume transactions will produce better
executions. In order to take advantage of the availability of lower purchase
prices, the Fund may occasionally participate in group bidding for the direct
purchase from an issuer of certain securities.
The Fund does not purchase portfolio securities from or sell portfolio
securities to Keystone, EKD, or any of their affiliated persons, as defined in
the 1940 Act.
The Board of Trustees periodically reviews the Fund's brokerage policy.
Because of the possibility of further regulatory developments affecting the
securities exchanges and brokerage practices generally, the Board of Trustees
may change, modify or eliminate any of the foregoing practices.
- ------------------------------------------------------------------------------
SALES CHARGE
- ------------------------------------------------------------------------------
The Fund three offers classes of shares that differ primarily with respect
to sales charges and distribution fees. As described below, depending upon the
class of shares that you purchase, the Fund will impose a sales charge when you
purchase Fund shares, a contingent deferred sales charge (a "CDSC") when you
redeem Fund shares or no sales charges at all. The Fund charges a CDSC as
reimbursement for certain expenses, such as commissions or shareholder servicing
fees, that it has incurred in connection with the sale of its shares (see
"Distribution Plans"). If imposed, the Fund deducts CDSCs from the redemption
proceeds you would otherwise receive. CDSCs attributable to your shares are, to
the extent permitted by the NASD, paid to EKD or its predecessor. See the
prospectus for additional information on a particular class.
CLASS DISTINCTIONS
CLASS A SHARES
With certain exceptions, when you purchase Class A shares after January 1,
1997, you will pay a maximum sales charge of 4.75%, payable at the time of
purchase. (The prospectus contains a complete table of applicable sales charges
and a discussion of sales charge reductions or waivers that may apply to
purchases.) If you purchase Class A shares in the amount of $1 million or more,
without an initial sales charge, the Fund will charge a CDSC of 1.00% if you
redeem during the month of your purchase and the 12-month period following the
month of your purchase. See "Calculation of Contingent Deferred Sales Charge"
below.
CLASS B SHARES
The Fund offers Class B shares at net asset value (without an initial
sales charge). With respect to Class B shares purchased after January 1, 1997,
the Fund charges a CDSC on shares redeemed as follows:
REDEMPTION TIMING CDSC RATE
Month of purchase and the first twelve-month
period following the month of purchase..............5.00%
Second twelve-month
period following the month of purchase..............4.00%
Third twelve-month
period following the month of purchase..............3.00%
Fourth twelve-month
period following the month of purchase..............3.00%
Fifth twelve-month
period following the month of purchase..............2.00%
Sixth twelve-month
period following the month of purchase..............1.00%
Thereafter.............................................0.00%
Class B shares purchased after January 1, 1997, that have been outstanding
for seven years after the month of purchase, will automatically convert to Class
A shares without imposition of a front-end sales charge or exchange fee.
(Conversion of Class B shares represented by stock certificates will require the
return of the stock certificate to Evergreen Keystone Service Company (formerly
Keystone Investor Resource Center, Inc.) ("EKSC") the Fund's transfer and
dividend disbursing agent.) See "Calculation of Contingent Deferred Sales
Charge" below.
CLASS C SHARES
Class C shares are available only through broker-dealers who have entered
into special distribution agreements with the Underwriter. The Fund offers Class
C shares at net asset value (without an initial sales charge). With certain
exceptions, however, the Fund will charge a CDSC of 1.00%, if you redeem shares
purchased after January 1, 1997, during the month of your purchase and the
12-month period following the month of your purchase. See "Calculation of
Contingent Deferred Sales Charge" below.
CALCULATION OF CONTINGENT DEFERRED SALES CHARGE
Any CDSC 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. Upon request for redemption, the Fund will
redeem shares not subject to the CDSC first. Thereafter, the Fund will redeem
shares held the longest first.
SHARES THAT ARE NOT SUBJECT TO A SALES CHARGE OR CDSC
EXCHANGES
The Fund does not charge a CDSC when you exchange your shares for the
shares of the same class of another Keystone America Fund. However, if you are
exchanging shares that are still subject to a CDSC, the CDSC will carry over to
the shares you acquire by the exchange. Moreover, the Fund will compute any
future CDSC based upon the date you originally purchased the shares you tendered
for exchange.
WAIVER OF SALES CHARGES
The Fund may sell its shares at net asset value without an initial sales
charge to:
1. purchases of shares in the amount of $1 million or more;
2. a corporate or certain other qualified retirement plan or a non-qualified
deferred compensation plan or a Title 1 tax sheltered annuity or TSA plan
sponsored by an organization having 100 or more eligible employees (a
"Qualifying Plan") or a TSA plan sponsored by a public educational entity
having 5,000 or more eligible employees (an "Educational TSA Plan");
3. institutional investors, which may include bank trust departments and
registered investment advisers;
4. investment advisers, consultants or financial planners who place trades
for their own accounts or the accounts of their clients and who charge
such clients a management, consulting, advisory or other fee;
5. clients of investment advisers or financial planners who place trades for
their own accounts if the accounts are linked to the master account of
such investment advisers or financial planners on the books of the
broker-dealer through whom shares are purchased;
6. institutional clients of broker-dealers, including retirement and deferred
compensation plans and the trusts used to fund these plans, which place
trades through an omnibus account maintained with the Fund by the
broker-dealer;
7. employees of First Union National Bank of North Carolina ("FUNB") and its
affiliates, EKD and any broker-dealer with whom EKD has entered into an
agreement to sell shares of the Fund, and members of the immediate
families of such employees, will be at net asset value without the
imposition of a front-end sales charge.
8. certain Directors, Trustees, officers employees of the Fund, Keystone, EKD
or their affiliates and to the immediate families of such persons; or
9. a bank or trust company in a single account in the name of such bank or
trust company as trustee if the initial investment in shares of the Fund
or any fund in the Keystone Investments Families of Funds purchased
pursuant to this waiver is at least $500,000 and any commission paid at
the time of such purchase is not more than 1% of the amount invested.
With respect to items 8 and 9 above, the Fund will only sell shares to
these parties upon the purchasers written assurance that he or she is buying the
shares for investment purposes only. Such purchasers may not resell the
securities except through redemption by the Fund. In addition, the Fund will not
charge a CDSC on redemptions by such purchasers.
WAIVER OF CDSCS
With respect to shares purchased after January 1, 1997, the Fund does not
impose a CDSC when the shares you are redeeming represent:
1. an increase in the value of the shares you redeem above the net cost of
such shares;
2. certain shares for which the Fund did not pay a commission on issuance,
including shares acquired through reinvestment of dividend income and
capital gains distributions;
3. shares that are in the accounts of a shareholder who has died or become
disabled;
4. a lump-sum distribution from a 401(k) plan or other benefit plan qualified
under the Employee Retirement Income Security Act of 1974 ("ERISA");
5. automatic withdrawals from the ERISA plan of a shareholder who is a least
59 1/2 years old;
6. shares in an account that we have closed because the account has an
aggregate net asset value of less than $1,000;
7. automatic withdrawals under an Systematic Income Plan of up to 1.0% per
month of your initial account balance;
8. withdrawals consisting of loan proceeds to a retirement plan participant;
9. financial hardship withdrawals made by a retirement plan participant;
10. withdrawals consisting of returns of excess contributions or excess
deferral amounts made to a retirement plan; or
11. a redemption by an individual participant in a Qualifying Plan that
purchased Class C shares (this waiver is not available in the event a
Qualifying Plan, as a whole, redeems substantially all of its assets).
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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 (a "Distribution Plan").
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, and who have no
direct or indirect financial interest in the Distribution Plans or any agreement
related thereto (the "Independent Trustees").
The NASD limits the amount that the Fund may pay annually in distribution
costs for sale of its shares and shareholder service fees. The NASD limits
annual expenditures to 1.00% 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 Distribution Plan, plus interest at the prime
rate plus 1% on such amounts (less any CDSCs paid by shareholders to EKD)
remaining unpaid from time to time.
CLASS A DISTRIBUTION PLAN
The Class A Distribution Plan provides that the Fund may expend daily
amounts at an annual rate, which is currently limited to 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 EKD of the
Fund to enable EKD to pay or to have paid to others who sell Class A shares a
service or other fee, at any such intervals as EKD may determine, in respect of
Class A shares maintained by any such recipient and outstanding 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 broker-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 outstanding on the books of the Fund for specified periods.
CLASS B DISTRIBUTION PLANS
The Class B Distribution Plans 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 EKD and/or its predecessor. Payments are
made to the Principal Underwriter (1) to enable EKD to pay to others
(broker-dealers) commissions in respect of Class B shares sold since inception
of a Distribution Plan; (2) to enable EKD to pay or to have paid to others a
service fee, at such intervals as EKD may determine, in respect of Class B
shares maintained by any such recipient and outstanding on the books of the Fund
for specified periods; and (3) as interest.
EKD generally reallows to broker-dealers or others a commission equal to
4.00% of the price paid for each Class B share sold. The broker-dealer or other
party may also 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 and
outstanding on the books of the Fund for specified periods.
EKD 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 EKD from the
Fund ("Advances"). EKD intends to seek full reimbursement of such Advances from
the Fund (together with annual interest thereon at the prime rate plus 1%) at
such time in the future as, and to the extent that, payment thereof by the Fund
would be within the permitted limits. If the Fund's Independent Trustees
authorize such reimbursements of Advances, the effect would be to extend the
period of time during which the Fund incurs the maximum amount of costs allowed
by the Class B Distribution Plans.
In connection with financing its distribution costs, including commission
advances to broker-dealers and others, EKIS, the predecessor to EKD sold to a
financial institution substantially all of its 12b-1 fee collection rights and
CDSC collection rights in respect of Class B shares sold during the period
beginning with the Fund's initial public offering through November 30, 1996. 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 Plans, the Fund may be subject to
adverse distribution consequences.
The financing of payments made by EKD to compensate broker-dealers or
other persons for distributing shares of the Fund will be provided by FUNB or
its affiliates.
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 EKD and/or its predecessor. Payments are
made to (1) to enable EKD to pay to others (broker-dealers) commissions in
respect of Class C shares sold since inception of the Distribution Plan; (2) to
enable EKD to pay or to have paid to others a service fee, at such intervals as
EKD may determine, in respect of Class C shares maintained by any such recipient
and outstanding on the books of the Fund for specified periods; and (3) as
interest.
EKD generally reallows to broker-dealers 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,
broker-dealers 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%,
respectively, of the average daily net asset value of each Class C share
maintained by the recipient and outstanding on the books of the Fund for
specified periods.
DISTRIBUTION PLANS - GENERAL
The total amounts paid by the Fund under the foregoing arrangements may
not exceed the maximum Distribution Plan limits specified above. The amounts and
purposes of expenditures under a Distribution Plan must be reported to the
Independent Trustees quarterly. The Independent 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 such Distribution Plan
as stated above.
Each of the Distribution Plans may be terminated at any time by a vote of
the Independent Trustees, or by vote of a majority of the outstanding voting
shares of the respective class of Fund shares. If the Class B Distribution Plan
is terminated, EKD and EKIS will ask the Independent Trustees to take whatever
action they deem appropriate under the circumstances with respect to payment of
Advances.
Any change in a Distribution Plan that would materially increase the
distribution expenses of the Fund provided for in a Distribution Plan requires
shareholder approval. Otherwise, a Distribution Plan may be amended by votes of
the majority of both (1) the Fund's Trustees and (2) the Independent Trustees
cast in person at a meeting called for the purpose of voting on each amendment.
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 Independent Trustees of the Fund have determined that the sales of the
Fund's shares resulting from payments under the Distribution Plans have
benefited the Fund.
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TRUSTEES AND OFFICERS
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Trustees and officers of the Fund, their principal occupations and some of
their affiliations over the last five years are as follows:
FREDERICK AMLING: Trustee of the Fund; Trustee or Director of all other
funds in the Keystone Investments Families of Funds;
Professor, Finance De partment, George Washington
University; President, Amling & Company (investment
advice); and former Member, Board of Advis ers,
Credito Emilano (banking).
LAURENCE B. ASHKIN: Trustee of the Fund; Trustee or Director of all other
funds in the Keystone Investments Families of Funds;
Trustee of all the Evergreen funds other than
Evergreen Investment Trust; real estate developer and
construction consultant; and President of Centrum
Equities and Centrum Properties, Inc.
CHARLES A. AUSTIN III: Trustee of the Fund; Trustee or Director of all other
funds in the Keystone Investments Families of Funds;
Investment Counselor to Appleton Partners, Inc.; and
former Managing Director, Seaward Management
Corporation (investment advice).
FOSTER BAM: Trustee of the Fund; Trustee or Director of all other
funds in the Keystone Investments Families of Funds;
Trustee of all the Evergreen funds other than
Evergreen Investment Trust; Partner in the law firm
of Cummings & Lockwood; Director, Symmetrix, Inc.
(sulphur company) and Pet Practice, Inc. (veterinary
services); and former Director, Chartwell Group Ltd.
(Manufacturer of office furnishings and accessories),
Waste Disposal Equipment Acquisition Corporation and
Rehabilitation Corporation of America (rehabilitation
hospitals).
*GEORGE S. BISSELL: Chairman of the Board, Chief Executive Officer and
Trustee of the Fund; Chairman of the Board, Chief
Executive Officer and Trustee or Director of all
other funds in the Keystone Investments Families of
Funds; Chairman of the Board and Trustee of Anatolia
College; Trustee of University Hospital (and Chairman
of its Investment Committee); former Director and
Chairman of the Board of Hartwell Keystone; and
former Chairman of the Board, Director and Chief
Executive Officer of Keystone Investments.
EDWIN D. CAMPBELL: Trustee of the Fund; Trustee or Director of all other
funds in the Keystone Investments Families of Funds;
Principal, Padanaram Associates, Inc.; and former
Executive Director, Coalition of Essen tial Schools,
Brown University.
CHARLES F. CHAPIN: Trustee of the Fund; Trustee or Director of all other
funds in the Keystone Investments Families of Funds;
and former Director, Peoples Bank (Charlotte, NC).
K. DUN GIFFORD: Trustee of the Fund; Trustee or Director of all other
funds in the Keystone Investments Families of Funds;
Trustee, Treasurer and Chairman of the Finance
Committee, Cambridge College; Chairman Emeritus and
Director, American Institute of Food and Wine;
Chairman and President, Oldways Preservation and
Exchange Trust (education); former Chairman of the
Board, Director, and Executive Vice President, The
London Harness Company; former Managing Partner,
Roscommon Capital Corp.; former Chief Executive
Officer, Gifford Gifts of Fine Foods; former
Chairman, Gifford, Drescher & Associates
(environmental consulting); and former Director,
Keystone Investments and Keystone.
JAMES S. HOWELL: Trustee of the Fund; Trustee or Director of all other
funds in the Keystone Investments Families of Funds;
Chairman and Trustee of the Evergreen funds; former
Chairman of the Distribution Foundation for the
Carolinas; and former Vice President of Lance Inc.
(food manufacturing).
LEROY KEITH, JR.: Trustee of the Fund; Trustee or Director of all other
funds in the Keystone Investments Families of Funds;
Chairman of the Board and Chief Executive Officer,
Carson Products Company; Director of Phoenix Total
Return Fund and Equifax, Inc.; Trustee of Phoenix
Series Fund, Phoenix Multi-Portfolio Fund, and The
Phoenix Big Edge Series Fund; and former President,
Morehouse College.
F. RAY KEYSER, JR.: Trustee of the Fund; Trustee or Director of all other
funds in the Keystone Investments Families of Funds;
Chairman and 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 Lahey
Hitchcock Clinic; Director, Vermont Yankee Nuclear
Power Corporation, Grand Trunk Corporation, Grand
Trunk Western Railroad, Union Mutual Fire Insurance
Company, New England Guaranty Insurance Company,
Inc., and the Investment Company Institute; former
Director and President, Associated Industries of
Vermont; former Director of Keystone, Central Vermont
Railway, Inc., S.K.I. Ltd., and Arrow Financial
Corp.; and former Director and Chairman of the Board,
Proctor Bank and Green Mountain Bank.
GERALD M. MCDONELL: Trustee of the Fund; Trustee or Director of all other
funds in the Keystone Investments Families of Funds;
Trustee of the Evergreen funds; and Sales
Representative with Nucor-Yamoto, Inc. (Steel
producer).
THOMAS L. MCVERRY: Trustee of the Fund; Trustee or Director of all other
funds in the Keystone Investments Families of Funds;
Trustee of the Evergreen funds; former Vice President
and Director of Rexham Corporation; and former
Director of Carolina Cooperative Federal Credit
Union.
*WILLIAM WALT PETTIT: Trustee of the Fund; Trustee or Director of all other
funds in the Keystone Investments Families of Funds;
Trustee of the Evergreen funds; and Partner in the
law firm of Holcomb and Pettit, P.A.
DAVID M. RICHARDSON: Trustee of the Fund; Trustee or Director of all other
funds in the Keystone Investments Families of Funds;
Vice Chair and former 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.
RUSSELL A. SALTON, III MD: Trustee of the Fund; Trustee or Director of all other
funds in the Keystone Investments Families of Funds;
Trustee of the Evergreen funds; Medical Director,
U.S. Health Care/Aetna Health Services; and former
Managed Health Care Consultant; former President,
Primary Physician Care.
MICHAEL S. SCOFIELD: Trustee of the Fund; Trustee or Director of all other
funds in the Keystone Investments Families of Funds;
Trustee of the Evergreen funds; and Attorney, Law
Offices of Michael S. Scofield.
RICHARD J. SHIMA: Trustee of the Fund; Trustee or Director of all other
funds in the Keystone Investments Families of Funds;
Chairman, Environmental Warranty, Inc. (Insurance
agency); Executive Consultant, Drake Beam Morin, Inc.
(executive outplacement); Director of Connecticut
Natural Gas Corporation, Hartford Hospital, Old State
House Association, Middlesex Mutual Assurance
Company, and Enhance Financial Services, Inc.;
Chairman, Board of Trustees, Hartford Graduate
Center; Trustee, Greater Hartford YMCA; former
Director, Vice Chairman and Chief Investment Officer,
The Travelers Corporation; former Trustee,
Kingswood-Oxford School; and former Managing Director
and Consultant, Russell Miller, Inc.
*ANDREW J. SIMONS: Trustee of the Fund; Trustee or Director of all other
funds in the Keystone Investments Families of Funds;
Partner, Farrell, Fritz, Caemmerer, Cleary, Barnosky
& Armentano, P.C.; Adjunct Professor of Law and
former Associate Dean, St. John's University School
of Law; Adjunct Professor of Law, Touro College
School of Law; and former President, Nassau County
Bar Association.
JOHN J. PILEGGI: President and Treasurer of the Fund; President and
Treasurer of all other funds in the Keystone
Investments Families of Funds; President and
Treasurer of the Evergreen funds; Senior Managing
Director, Furman Selz LLC since 1992; Managing
Director from 1984 to 1992; 230 Park Avenue, Suite
910, New York, NY.
GEORGE O. MARTINEZ: Secretary of the Fund; Secretary of all other funds
in the Keystone Investments Families of Funds; Senior
Vice President and Director of Administration and
Regulatory Services, BISYS Fund Services, 3435
Stelzer Road, Columbus, Ohio.
* This Trustee may be considered an "interested person" of the Fund within the
meaning of the 1940 Act.
Mr. Bissell is deemed an "interested person" of the Fund by virtue of his
ownership of stock of First Union Corporation ("First Union"), of which Keystone
is an indirect wholly-owned subsidiary. See "Investment Adviser." Mr. Pettit and
Mr. Simons may each be deemed an "interested person" as a result of certain
legal services rendered to a subsidiary of First Union by their respective law
firms, Holcomb and Pettit, P.A. and Farrell, Fritz, Caemmerer, Cleary, Barnosky
& Armentano, P.C. As of the date hereof, Mr. Pettit and Mr. Simons are each
applying for an exemption from the SEC which would allow them to retain their
status as an Independent Trustee.
All of the officers of the Fund are officers and/or employees of BISYS
Fund Services ("BISYS"), 3435 Stelzer Road, Columbus, Ohio.. See
"Sub-administrator."
During the fiscal year ended October 31, 1995, no Trustee affiliated with
Keystone or any officer received any direct remuneration from the Fund. During
the same period, the unaffiliated Trustees, as a group, received $12,419 for
expenses incurred. Annual retainers and meeting fees paid by all funds in the
Keystone Investments Families of Funds (which includes more than thirty mutual
funds) for the calendar year ended December 31, 1995 totaled approximately
$450,716. As of November 30, 1995, the Trustees and officers beneficially owned
less than 1.0% of the Fund's then outstanding Class A, Class B and Class C
shares, respectively.
Except as set forth above, the address of all of the Fund's Trustees and
officers and the address of the Fund is 200 Berkeley Street, Boston,
Massachusetts 02116-5034.
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INVESTMENT ADVISER
- ------------------------------------------------------------------------------
Subject to the general supervision of the Fund's Board of Trustees,
Keystone provides investment advise, management and administrative services to
the Fund.
On December 11, 1996, the predecessor corporation to Keystone Investments
and indirectly each subsidiary of Keystone Investments, including Keystone, were
acquired (the "Acquisition") by FUNB, a wholly-owned subsidiary of First Union.
The predecessor corporation to Keystone Investments was acquired by FUNB by
merger into a wholly-owned subsidiary of FUNB, which entity then succeeded to
the business of the predecessor corporation. Contemporaneously with the
Acquisition, the Fund entered into a new investment advisory agreement with
Keystone and into a principal underwriting agreement with EKD, a wholly-owned
subsidiary of BISYS. The new investment advisory agreement (the "Advisory
Agreement") was approved by the shareholders of the Fund on December 9, 1996,
and became effective on December 11, 1996.
Keystone Investments and each of its subsidiaries, including Keystone, are
now indirectly owned by First Union. First Union is headquartered in Charlotte,
North Carolina, and had $133.9 billion in consolidated assets as of September
30, 1996. First Union and its subsidiaries provide a broad range of financial
services to individuals and businesses throughout the United States. The Capital
Management Group of FUNB, together with Lieber & Company and Evergreen Asset
Management Corp., wholly-owned subsidiaries of FUNB, manage or otherwise oversee
the investment of over $50 billion in assets belonging to a wide range of
clients, including the Evergreen Family of Funds.
Pursuant to the Advisory Agreement and subject to the supervision of the
Fund's Board of Trustees, Keystone furnishes to the Fund investment advisory,
management and administrative services, office facilities, and equipment in
connection with its services for managing the investment and reinvestment of the
Portfolio's assets. Keystone pays for all of the expenses incurred in connection
with the provision of its services.
The Fund pays for all charges and expenses, other than those specifically
referred to as being borne by Keystone, including, but not limited to, (1)
custodian charges and expenses; (2) bookkeeping and auditors' charges and
expenses; (3) transfer agent charges and expenses; (4) fees of Independent
Trustees; (5) brokerage commissions, brokers' fees and expenses; (6) issue and
transfer taxes;(7) costs and expenses under the Distribution Plan; (8) taxes and
trust fees payable to governmental agencies; (9) the cost of share
certificates;(10) fees and expenses of the registration and qualification of the
Fund and its shares with the SEC or under state or other securities laws; (11)
expenses of preparing, printing and mailing prospectuses, statements of
additional information, notices, reports and proxy materials to shareholders of
the Fund; (12) expenses of shareholders' and Trustees' meetings; (13) charges
and expenses of legal counsel for the Fund and for the Independent Trustees of
the Fund on matters relating to the Fund; and (14) charges and expenses of
filing annual and other reports with the SEC and other authorities, and all
extraordinary charges and expenses of the Fund.
The Fund pays Keystone a fee for its services at the annual rate of:
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 each business day and
payable daily.
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 for two years from its
effective date and, thereafter, from year to year only if approved at least
annually by the Board of Trustees of the Fund or by a vote of a majority of the
Fund's outstanding shares (as defined in the 1940 Act). In either case, the
terms of the Advisory Agreement and continuance thereof must be approved by the
vote of a majority of the Independent Trustees cast in person at a meeting
called for the purpose of voting on such approval. The Advisory Agreement may be
terminated, without penalty, on 60 days' written notice by the Fund's Board of
Trustees or by a vote of a majority of outstanding shares. The Advisory
Agreement will terminate automatically upon its "assignment" as that term is
defined in the 1940 Act.
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PRINCIPAL UNDERWRITER
- ------------------------------------------------------------------------------
The Fund has entered into Principal Underwriting Agreements (each an
"Underwriting Agreement") with EKD with respect to each class. EKD, which is not
affiliated with First Union, replaces EKIS as the Fund's principal underwriter.
EKIS may no longer act as principal underwriter of the Fund due to regulatory
restrictions imposed by the Glass-Steagall Act upon national banks such as FUNB
and their affiliates, that prohibit such entities from acting as the
underwriters of mutual fund shares. While EKIS may no longer act as principal
underwriter of the Fund as discussed above, EKIS may continue to receive
compensation from the Fund or EKD in respect of underwriting and distribution
services performed prior to the termination of EKIS as principal underwriter. In
addition, EKIS may also be compensated by EKD for the provision of certain
marketing support services to EKD at an annual rate of up to .75% of the average
daily net assets of the Fund, subject to certain restrictions.
EKD, as agent, has agreed to use its best efforts to find purchasers for
the shares. EKD may retain and employ representatives to promote distribution of
the shares and may obtain orders from broker-dealers, and others, acting as
principals, for sales of shares to them. The Underwriting Agreements provide
that EKD will bear the expense of preparing, printing, and distributing
advertising and sales literature and prospectuses used by it. EKD or EKIS, its
predecessor, may receive payments from the Fund pursuant to the Fund's
Distribution Plans.
All subscriptions and sales of shares by EKD are at the public offering
price of the shares, which is determined in accordance with the provisions of
the Fund's Declaration of Trust, By-Laws, current prospectuses and statement of
additional information. All orders are subject to acceptance by the Fund and the
Fund reserves the right, in its sole discretion, to reject any order received.
Under the Underwriting Agreements, the Fund is not liable to anyone for failure
to accept any order.
The Fund has agreed under the Underwriting Agreements to pay all expenses
in connection with the registration of its shares with the SEC and auditing and
filing fees in connection with the registration of its shares under the various
state "blue-sky" laws.
EKD has agreed that it will, in all respects, duly conform with all state
and federal laws applicable to the sale of the shares. EKD has also agreed that
it 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, 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 EKD
or any other person for whose acts EKD is responsible or is alleged to be
responsible, unless such misrepresentation or omission was made in reliance upon
written information furnished by the Fund.
Each Underwriting Agreement provides that it will remain in effect as long
as its terms and continuance are approved annually (i) by a vote of a majority
of the Fund's Independent Trustees, and (ii) by vote of a majority of the Fund's
Trustees, in each case, cast in person at a meeting called for that purpose.
Each Underwriting Agreement may be terminated, without penalty, on 60
days' written notice by the Board of Trustees or by a vote of a majority of
outstanding shares subject to such agreement. Each Underwriting Agreement will
terminate automatically upon its "assignment," as that term is defined in the
1940 Act.
From time to time, if, in EKD's judgment, it could benefit the sales of
Fund shares, EKD may provide to selected broker-dealers promotional materials
and selling aids, including, but not limited to, personal computers, related
software, and Fund data files.
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SUB-ADMINISTRATOR
- ------------------------------------------------------------------------------
BISYS provides officers and certain administrative services to the Fund
pursuant to a sub-administration agreement. For its services under that
agreement BISYS will receive from Keystone an annual fee at the maximum annual
rate of .01% of the average daily net assets of the Fund.
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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; (2) requires that notice of
such disclaimer be given in each agreement, obligation or instrument entered
into or executed by the Fund or the Trustees; and (3) 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.
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EXPENSES
- ------------------------------------------------------------------------------
INVESTMENT ADVISORY FEES
For each of the Fund's last three fiscal years, the table below lists the
total dollar amounts paid by the Fund to Keystone for services rendered under
the Advisory Agreement. For more information, see "Investment Adviser."
Fee Paid to Keystone for
Fiscal Period Services Rendered under the Percentage of Fund
Ended October 31, Advisory Agreement Average Net Assets
- ----------------- --------------------------- ------------------------
1996
1995 $93,806 0.65%
1994 $61,697 0.64%
DISTRIBUTION PLAN EXPENSES
Listed below are the amounts paid by each class of shares under its
respective Distribution Plan to the Principal Underwriter for the fiscal year
ended October 31, 1996. For more information, see "Distribution Plans."
Class B Shares Sold Class B Shares Sold on
Class A Shares Prior to June 1, 1995 or after June 1, 1995 Class C Shares
- --------------- -------------------- ---------------------- --------------
UNDERWRITING COMMISSIONS
For each of the Fund's last three fiscal years, the table below lists the
aggregate dollar amounts of underwriting commissions (front-end sales charges,
plus distribution fees, plus CDSCs) paid with respect to the public distribution
of the Fund's shares. The table also indicates the aggregate dollar amount of
underwriting commissions retained by the Principal Underwriter. For more
information, see "Principal Underwriter" and "Sales Charges."
Aggregate Dollar Amount of
Underwriting Commissions
Fiscal Year Ended Aggregate Dollar Amount of Retained by the Principal
October 31, Underwriting Commissions Underwriter
- ------------------ ---------------------------- --------------------------
1996 $ $
1995 $ $
1994 $ $
BROKERAGE COMMISSIONS
For the Fiscal Period Aggregate Dollar Amount of
Ended October 31, Brokerage Commissions Paid
- ------------------- ----------------------------
1996
1995 $6,695
1994 $9,000
- ------------------------------------------------------------------------------
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, 1996 were ______% and _____%, 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, 1996 was _____%
(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, 1996 was ____% (including any applicable sales
charge). The Portfolio's Class A compounded average rate of return for the five
year period ended October 31, 1996 was ____% (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, 1996
were ____% and ____%, 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.
- --------------------------------------------------------------------------------
FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
The following financial statements of the Fund are incorporated by
reference herein from the Fund's Annual Report, as filed with the SEC:
Schedule of Investments as of October 31, 1995;
Financial Highlights for the year ended October 31, 1995, the period
from January 1, 1994 to October 31, 1994, each of the years in the
six-year period ended December 31, 1993, and the period from January 9,
1987 to December 31, 1987 for Class A shares;
Financial Highlights for the year ended October 31, 1995, the period
from January 1, 1994 to October 31, 1994, and the period from August
21, 1993 to Dewcember 31, 1993 for Class B and C shares;
Statement of Assets and Liabilities as of October 31, 1995;
Statement of Operations for the year ended October 31, 1995;
Statements of Changes in Net Assets for the year ended October 31, 1995
and the period January 1, 1994 to October 31, 1994;
Notes to Financial Statements; and
Independent Auditors' Report dated December 8, 1995.
The following financial statements of the Fund are incorporated by
reference herein from the Fund's Semi-Annual Report, as filed with the SEC:
Schedule of Investments as of April 30, 1996 (unaudited);
Financial Highlights for the six-month period ended April 30, 1996
(unaudited), the year ended October 31, 1995, the period from January
1, 1994 to October 31, 1994, each of the years in the six-year period
ended December 31, 1993, and the period from January 9, 1987 to
December 31, 1987 for Class A shares;
Financial Highlights for the six-month period ended April 30, 1996
(unaudited) year ended October 31, 1995, the period from January 1,
1994 to October 31, 1994, and the period from August 21, 1993 to
Dewcember 31, 1993 for Class B and C shares;
Statement of Assets and Liabilities as of April 30, 1996 (unaudited);
Statement of Operations for the six months ended April 30, 1996
(unaudited);
Statements of Changes in Net Assets for the year ended October 31, 1995
and the six months ended April 30, 1996 (unaudited) and;
Notes to Financial Statements (unaudited).
Copies of the Fund's Annual and Semi-Annual Reports will be furnished upon
request and without charge. Requests may be made in writing to EKSC, P.O. Box
2121, Boston, Massachusetts 02106-2121, or by calling EKSC toll free at
1-800-343-2898.
- ------------------------------------------------------------------------------
ADDITIONAL INFORMATION
- ------------------------------------------------------------------------------
If conditions arise that would make it undesirable for the Fund to pay for
all redemptions in cash, the Fund may authorized payment to be made in portfolio
securities or other property. The Fund has obligated itself, however, under the
1940 Act, to redeem for cash all shares presented for redemption by any one
shareholder up to the lesser of $250,000 or 1% of the Fund's net assets in any
90-day period. Securities delivered in payment of redemptions would be valued at
the same value assigned to them in computing the net asset value per share and
would, to the extent permitted by law, be readily marketable. Shareholders
receiving such securities would incur brokerage costs upon the securities' sale.
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.
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 EKD, 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 16 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 BALANCED FUND II - Seeks current income and capital appreciation
consistent with the preservation of capital.
KEYSTONE CAPITAL PRESERVATION AND INCOME FUND - Seeks high current income,
consistent with low volatility of principal, by investing in adjustable rate
securities issued by the U.S. government, its agencies or instrumentalities.
KEYSTONE FUND FOR TOTAL RETURN - Seeks total return from a combination of
capital growth and income from dividend paying common stocks, preferred stocks,
convertible bonds, other fixed-income securities and foreign securities (up to
50%).
KEYSTONE FUND OF THE AMERICAS - Seeks long-term growth of capital through
investments in equity and debt securities in North America (the United States
and Canada), and Latin America (Mexico and countries in South and Central
America).
KEYSTONE GLOBAL OPPORTUNITIES FUND - Seeks long-term capital growth from foreign
and domestic securities.
KEYSTONE GLOBAL RESOURCES AND DEVELOPMENT FUND - Seeks long-term capital growth
by investing primarily in equity securities.
KEYSTONE GOVERNMENT SECURITIES FUND - Seeks income and capital preservation from
U.S. government securities.
KEYSTONE AMERICA HARTWELL EMERGING GROWTH FUND, INC. - Seeks capital
appreciation by investment primarily in small and medium-sized companies in a
relatively early stage of development that are principally traded in the
over-the-counter market.
KEYSTONE INTERMEDIATE TERM BOND FUND - Seeks income, capital preservation and
price appreciation potential from investment grade corporate bonds.
KEYSTONE OMEGA FUND - Seeks maximum capital growth from common stocks and
securities convertible into common stocks.
KEYSTONE SMALL COMPANY GROWTH FUND II - Seeks long-term growth of capital by
investing primarily in equity securities with small market capitalizations.
KEYSTONE STATE TAX FREE FUND - A mutual fund consisting of four 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.
<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>
KEYSTONE WORLD BOND FUND
PART C
OTHER INFORMATION
ITEM 24. FINANCIAL STATEMENTS AND EXHIBITS
ITEM 24(A). FINANCIAL STATEMENTS
The Audited Financial Statements listed below are incorporated by reference to
the Registrant's Annual Report dated October 31, 1995:
Schedule of Investments October 31, 1995
Financial Highlights
Class A Shares For the year ended October 31, 1995, the
period from January 1, 1994, to October
31, 1994, each of the years in the
six-year period ended December 31, 1993,
and the period from January 9, 1987,
(Commencement of Operations) to December
31, 1987
Class B Shares For the year ended October 31, 1995, the
ten-month period from January 1, 1994, to
October 31, 1994, and the period from
August 2, 1993, (Date of Initial Public
Offering) to December 31, 1993
Class C Shares For the year ended October 31, 1995, the
ten-month period from January 1, 1994, to
October 31, 1994, and the period from
August 2, 1993, (Date of Initial Public
Offering) to December 31, 1993
Statement of Assets and Liabilities October 31, 1995
Statement of Operations Year ended
October 31, 1995
Statements of Changes in Net Assets Ten-month period ended October 31,
1994, and year ended December 31, 1995
Notes to Financial Statements
Independent Auditors' Report December 8, 1995
The Unaudited Financial Statements listed below are incorporated by reference to
the Registrant's Semi-Annual Report dated April 30, 1996:
Schedule of Investments April 30, 1996
Financial Highlights
Class A Shares For the six months ended April 30, 1996,
year ended October 31, 1995, the period
from January 1, 1994, to October 31, 1994,
and each of the years in the four-year
period ended December 31, 1993
Class B Shares For the six months ended April 30, 1996,
the year ended October 31, 1995, the
ten-month period from January 1, 1994 to
October 31, 1994 and the period from
August 2, 1993 (Date of Initial Public
Offering) to December 31, 1993
Class C Shares For the six months ended April 30, 1996,
the year ended October 31, 1995, the
ten-month period from January 1, 1994, to
October 31, 1994, and the period from
August 2, 1993, (Date of Initial Public
Offering) to December 31, 1993
Statement of Assets and Liabilities April 30, 1995
Statement of Operations Six months ended April 30, 1996
Statements of Changes in Net Assets Six months ended April 30, 1996 and
year ended October 31, 1995
Notes to Financial Statements
ITEM 24(B). EXHIBITS
(1) Registrant's Declaration of Trust, as amended and restated (the
"Declaration of Trust")(1)
(2) Registrant's By-Laws(1)
(3) Not applicable.
(4)(a) Copy of the form of registrant's share certificate(2)
(b) The Declaration of Trust, Articles III, V, VI, and VIII(1)
(c) Registrant's By-Laws, Article 2, Section 2.5(1)
(5) Investment Advisory and Management Agreement between Registrant and
Keystone Investment Management Company (the "Advisory Agreement")(3)
(6)(a) Form of Principal Underwriting Agreements with Evergreen Keystone
Distributor, Inc. ("EKD") (the "Principal Underwriting Agreement") (3)
(b) Form of Dealer Agreement used by EKD (3)
(7) Not applicable.
(8) Custodian, Fund Accounting and Recordkeeping Agreement, between
Registrant and State Street Bank and Trust Company, as amended(1)
(9)(a) Form of Marketing Services Agreement between Evergreen Keystone
Distributor, Inc. and Evergreen Keystone Investment Services,
Inc.("EKIS")(3)
(b) Form of Sub-administrator Agreement between Keystone Investment
Management Company and Furman Selz LLC(3)
(c) Form of Principal Underwriting Agreements with EKIS (each a
"Continuation Agreement")(3)
(10) An opinion and consent of counsel(3)
(11) Consent as to use of Independent Auditors' Report(3)
(12) Not applicable.
(13) Not applicable.
(14) Copies of model plans used in the establishment of retirement
plans(4)
(15) Class A, Class B and Class C Distribution Plans(3)
(16) Not applicable
(17) Financial data schedules(3)
(18) Multiple Class Plan(3)
(19) Powers of Attorney(3)
- ---------------------------
(1) Filed with Post-Effective Amendment No. 19 ("Post-Effective Amendment
No. 19") to the Registration Statement No.33-8515/811-4830 and
incorporated by reference herein.
(2) Filed with Post-Effective Amendment No. 4 to the Registration Statement
and incorporated by reference herein.
(3) Filed herewith.
(4) Filed with Post-Effective Amendment No. 66 to the Registration Statement
No. 2-10527/811-96 and incorporated by reference herein.
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, 1996
- -------------- ------------------------
Shares of Beneficial Interest
$.01 par value
Class A 782
Class B 291
Class C 79
ITEM 27. INDEMNIFICATION
Provisions for the indemnification of the Fund's Trustees and officers
are contained in Article VIII of the Declaration Trust, a copy of which was
filed with Post-Effective Amendment No. 19 and is incorporated by reference
herein.
Provisions for the indemnification of EKD, the Registrant's principal
underwriter, are contained in Section 9 of the Class B-2 Principal Underwriting
Agreement, a copy of the form of which are filed herewith.
Provisions for the indemnification of EKD are contained in Section 10 of
the Class A and C Principal Underwriting Agreement, a copy of the form of which
is filed herewith.
Provisions for the indemnification of EKIS are contained in Section 5 of
the Class A and C Continuation Agreement, a copy of the form of which is filed
herewith.
Provisions for the indemnification of EKIS are contained in Section 9 of
the Class B Continuation Agreements, a copies of the forms of which are filed
herewith.
Provisions for the indemnification of Keystone Investment Management
Company, Registrant's investment adviser, are contained in Section 5 of the
Advisory Agreement, a copy of which is filed herewith.
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.
LIST OF OFFICERS AND DIRECTORS OF
KEYSTONE INVESTMENT MANAGEMENT COMPANY
<TABLE>
<CAPTION>
Position with
Keystone
Investment
Name Management Company Other Business Affiliations
- ---- ------------------ ---------------------------
<S> <C> <C>
Albert H. Chairman of Chairman of the Board,
Elfner, III the Board, Chief Executive Officer,
Chief Executive President and Director:
Officer First Union Keystone
Investments, 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:
Evergreen Keystone Investment Services, Inc.
Evergreen Keystone Service Company
Boston Children's Services Associates
Middlesex School
Middlebury College
Formerly:
Chairman of the Board,
Chief Executive Officer,
President and Director:
Keystone Management, Inc.
Keystone Software, Inc.
Trustee or Director:
Neworld Bank
Robert Van Partners, Inc.
Fiduciary Investment Company, Inc.
Barbara J. Colvin Director Chief Operating Officer
Evergreen Keystone Investment Services, Inc.
Senior Vice President
First Union Corporation
William M. Ennis II Director President
Evergreen Keystone Investment Services, Inc.
Senior Vice President
First Union Corporation
Donald McMullen Director Executive Vice President
First Union Corporation
Philip M. Byrne Senior Vice Senior Vice President:
President First Union Keystone Investments, Inc.
Formerly:
President and Director:
Keystone Institutional Company, Inc.
Herbert L. Senior Vice None
Bishop, Jr. President
Donald C. Dates Senior Vice None
President
Gilman Gunn Senior Vice None
President
Edward F. Chief Operating Officer Director, Senior Vice President,
Godfrey Chief Financial Officer and Treasurer:
First Union Keystone Investments, Inc.
Evergreen Keystone Investment Services, Inc.
Formerly:
Treasurer:
Keystone Institutional Company, Inc.
Keystone Management, Inc.
Keystone Software, Inc.
Fiduciary Investment Company, Inc.
Treasurer and Director:
Hartwell Keystone Advisers, Inc.
James R. McCall President None
Rosemary D. Senior Vice General Counsel, Senior Vice President and Secretary:
Van Antwerp President, First Union Keystone Investments, Inc.
General Counsel Senior Vice President, General Counsel and Director:
and Secretary Evergreen Keystone Service Company
Evergreen Keystone Investment Services, Inc.
Formerly:
Senior Vice President and General Counsel:
Keystone Institutional Company, Inc.
Senior Vice President, General Counsel and Director:
Fiduciary Investment Company, Inc.
Senior Vice President, General Counsel, Director and Secretary:
Keystone Management, Inc.
Keystone Software, Inc.
Senior Vice President and Secretary:
Hartwell Keystone Advisers, Inc.
Vice President and Secretary:
Keystone Fixed Income Advisers, Inc.
J. Kevin Kenely Vice President Vice President:
First Union Keystone Investments, Inc.
Evergreen Keystone Investment Services, Inc.
Formerly:
Controller
Keystone Investments, Inc.
Keystone Investment Management Company
Keystone Investment Distributors Company
Keystone Institutional Company, Inc.
Keystone Management, Inc.
Keystone Software, Inc.
Fiduciary Investment Company, Inc.
Vice President:
Keystone Institutional Company, Inc.
Keystone Management, Inc.
Keystone Software, Inc.
Fiduciary Investment Company, Inc.
John D. Rogol Vice President Vice President and
Controller:
First Union Keystone Investments, Inc.
Evergreem Keystone Investment Services, Inc.
Formerly:
Controller:
Keystone Institutional Company, Inc.
Keystone Management, Inc.
Keystone Software, Inc.
Fiduciary Investment Company, Inc.
John Addeo Vice President None
Andrew Baldassarre Vice President None
David Benhaim Vice President None
Donald Bisson Vice President None
Francis X. Claro Vice President None
Kristine R. Vice President None
Cloyes
Christopher P. Senior Vice None
Conkey President
J. Gary Craven Senior Vice None
President
Richard Cryan Senior Vice None
President
Maureen E. Senior Vice None
Cullinane President
Betsy Hutchings Sr. Vice President None
Walter T. Senior Vice None
McCormick President
George F. Wilkins Senior Vice None
President
Andrew G. Baldassare Vice President None
George E. Dlugos Vice President None
Antonio T. Docal Vice President None
Dana E. Erikson Vice President None
Sami J. Karam Vice President None
George J. Kimball Vice President None
JoAnn L. Lyndon Vice President None
John C. Vice President None
Madden, Jr.
Eleanor H. Marsh Vice President None
James D. Medredeff Vice President None
Stanley M. Niksa Vice President None
Jonathan A. Noonan Vice President None
Robert E. O'Brien Vice President None
Margery C. Parker Vice President None
Joyce W. Petkovich Vice President None
Daniel A. Rabasco Vice President None
Harlen R. Sanderling Vice President None
Kathy K. Wang Vice President None
Judith A. Warners Vice President None
Peter Willis Vice President None
Richard A. Wisentaner Vice President None
Cheryle E. Wanble Vice President None
Walter Zagrobski Vice President None
</TABLE>
ITEM 29. PRINCIPAL UNDERWRITER
(a) Evergreen Keystone Distributor, Inc., which acts as Registrant's
principal underwriter, also acts as principal underwriter for the
following entities:
Keystone Quality Fund (B-1)
Keystone Diversified Bond Fund (B-2)
Keystone High Income Bond Fund (B-4)
Keystone Balanced Fund (K-1)
Keystone Strategic Growth Fund (K-2)
Keystone Growth and Income Fund (S-1)
Keystone Mid-Cap Growth Fund (S-3)
Keystone Small Company Growth Fund (S-4)
Keystone Balanced Fund II
Keystone Capital Preservation and Income Fund
Keystone Fund for Total Return
Keystone Fund of the Americas
Keystone Global Opportunities Fund
Keystone Global Resources and Development Fund
Keystone Government Securities Fund
Keystone America Hartwell Emerging Growth Fund, Inc.
Keystone Institutional Adjustable Rate Fund
Keystone Institutional Trust
Keystone Intermediate Term Bond Fund
Keystone International Fund Inc.
Keystone Liquid Trust
Keystone Omega Fund
Keystone Precious Metals Holdings, Inc.
Keystone Small Company Growth Fund II
Keystone State Tax Free Fund
Keystone State Tax Free Fund - Series II
Keystone Strategic Income Fund
Keystone Tax Free Fund
Keystone Tax Free Income Fund
Evergreen Trust
The Evergreen Equity Trust
The Evergreen Limited Market Fund, Inc.
Evergreen Growth and Income Fund
The Evergreen Total Return Fund
The Evergreen American Retirement Trust
The Evergreen Foundation Trust
The Evergreen Municipal Trust
The Evergreen Money Market Fund
Evergreen Investment Trust
Evergreen Lexicon Trust
Evergreen Tax Free Trust
Evergreen Variable Trust
(b) Information with respect to each officer and director of
Registrant's principal underwriter follows.
POSITION WITH POSITION WITH
NAME DIRECTOR REGISTRANT
- --------------- ------------------ ---------------
Robert A. Hering* President None
Michael C. Petrycki* Vice President None
Gordon M. Forrester* Vice President None
Lawrence Wagner* Vice President,
Chief Financial Officer None
Steven D. Blecher* Vice President,
Treasurer, Secretary None
Elizabeth Q. Solazzo* Assistant Secretary None
Thalia M. Cody* Assistant Secretary None
* Located at 230 Park Avenue, New York, New York 10169
ITEM 29(C). - Not applicable
ITEM 30. LOCATION OF ACCOUNTS AND RECORDS
First Union Keystone Investments, Inc.
200 Berkeley Street
Boston, Massachusetts 02116-5034
State Street Bank and Trust Company
1776 Heritage Drive
Quincy, Massachusetts 02171
Iron Mountain
3431 Sharpslot Road
Swansea, Massachusetts 02277
ITEM 31. MANAGEMENT SERVICES
Not applicable.
ITEM 32. UNDERTAKINGS
Upon request and without charge, Registrant hereby undertakes to
furnish to each person to whom a copy of the Registrant's prospectus is
delivered with a copy of the Registrant's latest annual report to
shareholders.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933 and the Investment
Company Act of 1940, the Registrant 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, and The Commonwealth of Massachusetts, on
the 30th day of December, 1996.
KEYSTONE WORLD BOND FUND
By: /s/ George S. Bissell
-----------------------------
George S. Bissell
Chief Executive Officer
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 30th day of December, 1996.
<TABLE>
<S> <C> <C>
/s/ George S. Bissell /s/ Charles F. Chapin
- ------------------------ ------------------------- -------------------------
George S. Bissell Charles F. Chapin* William Walt Pettit
Chairman of the Board of Trustees Trustee Trustee
and Chief Executive Officer
/s/ John J. Pileggi /s/ K. Dun Gifford /s/ David M. Richardson
- ------------------------- ------------------------- -------------------------
John J. Pileggi K. Dun Gifford* David M. Richardson*
President amd Treasurer (Principal Trustee Trustee
Financial and Accounting Officer)
/s/ Frederick Amling
- ------------------------- ------------------------- -------------------------
Frederick Amling* James S. Howell Russell A. Salton, III MD
Trustee Trustee Trustee
/s/ Laurence B. Ashkin /s/ Leroy Keith, Jr.
- ------------------------- ------------------------- -------------------------
Laurence B. Ashkin Leroy Keith, Jr.* Michael S. Scofield
Trustee Trustee Trustee
/s/ Charles A. Austin, III /s/ F. Ray Keyser, Jr. /s/ Richard J. Shima
- ------------------------- ------------------------- -------------------------
Charles A. Austin, III* F. Ray Keyser, Jr.* Richard J. Shima*
Trustee Trustee Trustee
/s/ Andrew J. Simons
- ------------------------- ------------------------- -------------------------
Foster Bam Gerald M. McDonell Andrew J. Simons*
Trustee Trustee Trustee
/s/ Edwin D. Campbell
- ------------------------- -------------------------
Edwin D. Campbell* Thomas L. McVerry
Trustee Trustee
</TABLE>
*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
Exhibit Number Exhibit
1 Declaration of Trust(1)
2 By-Laws(1)
4 Copy of the form of Registrant's share certificate(2)
5 Advisory Agreement(3)
6 (a) Form of Principal Underwriting Agreements
(b) Form of Dealers Agreement
8 Custodian, Fund Accounting and Recordkeeping Agreement,
as amended(1)
9 (a) Form of Marketing Services Agreement(3)
(b) Form of Sub-administration Agreement(3)
(c) Form of Continuation Agreements(3)
10 Opinion and Consent of Counsel(3)
11 Consent of Independent Auditors(3)
14 Model Retirement Plans(4)
15 Class A, B and C Distribution Plans(3)
17 Financial Data Schedule (filed as Exhibit 27(3)
18 Multiple Class Plan(3)
19 Powers of Attorney(3)
- --------------------------------------------------------
(1)Incorporated by reference herein to Post-Effective Amendment No. 19
(2)Incorporated by reference herein to Post-Effective Amendment No. 4 to
the Registration Statement
(3)Filed herewith
(4)Incorporated by reference herein to Post-Effective Amendment No. 66 to
Registration Statement No. 2-10527/811-96.
<PAGE>
INVESTMENT ADVISORY AND MANAGEMENT AGREEMENT
AGREEMENT made the 11th day of December, 1996, by and between KEYSTONE
WORLD BOND FUND, a Massachusetts business trust (the "Fund"), and KEYSTONE
INVESTMENT MANAGEMENT COMPANY, a Delaware corporation (the "Adviser").
WHEREAS, the Fund and the Adviser wish to enter into an Agreement setting
forth the terms on which the Adviser will perform certain services for the
Fund.
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, or with any adviser
retained by the Adviser, and of all officers of the Fund as such, and (2) all
expenses of the Adviser incurred in connection with its services hereunder.
The Fund assumes and shall pay all other expenses of the Fund, including,
without limitation: (1) all charges and expenses of any custodian or
depository appointed by the Fund for the safekeeping of its cash, securities
and other property; (2) all charges and expenses for bookkeeping and auditors;
(3) all charges and expenses of any transfer agents and registrars appointed
by the Fund; (4) all fees of all Trustees of the Fund who are not affiliated
with the Adviser or any of its affiliates, or with any adviser retained by the
Adviser; (5) all brokers' fees, expenses and commissions and issue and
transfer taxes chargeable to the Fund in connection with transactions
involving securities and other property to which the Fund is a party; (6) all
costs and expenses of distribution of its shares incurred pursuant to a Plan
of Distribution adopted under Rule 12b-1 under the Investment Company Act of
1940 ("1940 Act"); (7) all taxes and 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, 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 FEE OF THE SHARES OF THE FUND
- -------------------------------------------------------------------------------
1.5% of gross dividend and interest 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 Fund's fee shall be payable in arrears at the
end of each day or calendar month as the Adviser may from time to time specify
to the Fund. If and when this Agreement terminates, any compensation payable
hereunder for the period ending with the date of such termination shall be
payable upon such termination. Amounts payable hereunder shall be promptly
paid when due.
5. The Adviser may enter into an agreement to retain, at its own expense,
a firm or firms ("SubAdviser") to provide the Fund all of the services to be
provided by the Adviser hereunder, if such agreement is approved as required
by law. Such agreement may delegate to such SubAdviser all of Adviser's
rights, obligations and duties hereunder.
6. The Adviser shall not be liable for any error of judgment or mistake of
law or for any loss suffered by the Fund in connection with the performance of
this Agreement, except a loss resulting from the Adviser's willful
misfeasance, bad faith, gross negligence or from reckless disregard by it of
its obligations and duties under this Agreement. Any person, even though also
an officer, Director, partner, employee, or agent of the Adviser, who may be
or become an officer, Trustee, employee or agent of the Fund, shall be deemed,
when rendering services to the Fund or acting on any business of the Fund
(other than services or business in connection with the Adviser's duties
hereunder), to be rendering such services to or acting solely for the Fund and
not as an officer, Director, partner, employee, or agent or one under the
control or direction of the Adviser even though paid by it. The Fund agrees to
indemnify and hold the Adviser harmless from all taxes, charges, expenses,
assessments, claims and liabilities (including, without limitation,
liabilities arising under the Securities Act of 1933, the 1934 Act, the 1940
Act, and any state and foreign securities and blue sky laws, as amended from
time to time) and expenses, including (without limitation) attorneys' fees and
disbursements, arising directly or indirectly from any action or thing which
the Adviser takes or does or omits to take or do hereunder provided that the
Adviser shall not be indemnified against any liability to the Fund or to its
shareholders (or any expenses incident to such liability) arising out of a
breach of fiduciary duty with respect to the receipt of compensation for
services, willful misfeasance, bad faith, or gross negligence on the part of
the Adviser in the performance of its duties, or from reckless disregard by it
of its obligations and duties under this Agreement.
7. The Fund shall cause its books and accounts to be audited at least once
each year by a reputable independent public accountant or organization of
public accountants who shall render a report to the Fund.
8. Subject to and in accordance with the Declaration of Trust of the Fund,
the Articles of Incorporation of the Adviser and the governing documents of
any SubAdviser, it is understood that Trustees, Directors, officers, agents
and shareholders of the Fund or any Adviser are or may be interested in the
Adviser (or any successor thereof) as Directors and officers of the Adviser or
its affiliates, as stockholders of Keystone Investments, Inc. or otherwise;
that Directors, officers and agents of the Adviser and its affiliates or
stockholders of Keystone Investments, Inc. are or may be interested in the
Fund or any Adviser as Trustees, Directors, officers, shareholders or
otherwise; that the Adviser (or any such successor) is or may be interested in
the Fund or any SubAdviser as shareholder, or otherwise; and that the effect
of any such adverse interests shall be governed by said Declaration of Trust
of the Fund, Articles of Incorporation of the Adviser and governing documents
of any SubAdviser.
9. This Agreement shall continue in effect after December 10, 1998, only
so long as (1) such continuance is specifically approved at least annually by
the Board of Trustees of the Fund or by a vote of a majority of the
outstanding voting securities of the Fund, and (2) such renewal has been
approved by the vote of a majority of Trustees of the Fund who are not
interested persons, as that term is defined in the 1940 Act, of the Adviser or
of the Fund, cast in person at a meeting called for the purpose of voting on
such approval.
10. On sixty 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.
11. This Agreement may be amended at any time by an instrument in writing
executed by both parties hereto or their respective successors, provided that
with regard to amendments of substance such execution by the Fund shall have
been first approved by the vote of the holders of a majority of the
outstanding voting securities of the Fund and by the vote of a majority of
Trustees of the Fund who are not interested persons (as that term is defined
in the 1940 Act) of the Adviser, any predecessor of the Adviser, or of the
Fund, cast in person at a meeting called for the purpose of voting on such
approval. A "majority of the outstanding voting securities of the Fund" shall
have, for all purposes of this Agreement, the meaning provided therefor in the
1940 Act.
12. Any compensation payable to the Adviser hereunder for any period other
than a full year shall be proportionately adjusted.
13. The provisions of this Agreement shall be governed, construed and
enforced in accordance with the laws of The Commonwealth of Massachusetts.
<PAGE>
IN WITNESS WHEREOF, the parties hereto have duly executed this Agreement
on the day and year first above written.
KEYSTONE WORLD BOND FUND
By: /s/ George S. Bissell
--------------------------------------
Name: GEORGE S. BISSELL
Title: Chairman of the Board
KEYSTONE INVESTMENT MANAGEMENT COMPANY
By: /s/ Rosemary D. Van Antwerp
--------------------------------------
Name: ROSEMARY D. VAN ANTWERP
Title: Senior Vice President
FORM OF
PRINCIPAL UNDERWRITING AGREEMENT
KEYSTONE AMERICA FUND FAMILY
CLASS A AND C SHARES
AGREEMENT effective this 11th day of December, 1996 by and between each
of the parties listed on Exhibit A attached hereto and made a part hereof, each
for itself and not jointly (each a "Fund"), and Evergreen Keystone Distributor,
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 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, 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 broker,
dealer or other person shall have any authority to act as agent for the Fund;
such broker, dealer 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 commission
payments for sales of the Class A and C Shares (as set forth on Exhibit B
attached hereto and made a part hereof) sold on or after December 11, 1996 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 for Shares sold on or after
December 11, 1996. In accordance with the assignment made between Evergreen
Keystone Investment Services, Inc. ("EKIS") and Principal Underwriter dated
December 11, 1996, Principal Underwriter is to be entitled to receive commission
payments for sales of the Class A and C Shares sold on or after December 1, 1996
but before December 11, 1996 by EKIS 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 for
Shares sold on or after December 1, 1996 but before December 11, 1996. For
purposes of this Principal Underwriting Agreement, all Shares sold after
December 1, 1996 and for which the Principal Underwriter may receive commissions
and contingent deferred sales charges shall be deemed "Post-Acquisition Shares."
The determination of which shares of the Fund are Post-Acquisition Shares shall
be made in accordance with Schedule I attached to the Principal Underwriting
Agreement between each Fund which is a party to this Agreement and EKIS dated
December 11, 1996 and shall be the same as the "Post-distributor Shares" defined
therein, calculated as though the Distributor Last Sale Cut-Off Date, as such
term is defined in Schedule I, was November 30, 1996. Principal Underwriter may
reallow all or a part of such commissions and the sales charges to such brokers,
dealers or other persons as Principal Underwriter may determine.
5. The payment provisions of this Agreement shall be applicable to the
extent necessary to enable the Fund to comply with the obligation of the Fund to
pay Principal Underwriter in accordance with this Agreement in respect of Class
C 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 under the
Master Sale Agreement between Principal Underwriter and Mutual Fund Funding
1994-1 dated as of December 6, 1996 (the "Master Sale Agreement").
6. 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.
7. 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 will be supplied by the Fund to Principal Underwriter in
reasonable quantities upon request.
8. Principal Underwriter agrees to comply with the Business Conduct
Rules of the National Association of Securities Dealers, Inc.
9. 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.
10. 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, pros pectus 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.
11. The Principal Underwriter agrees to indemnify and hold harmless the
Fund, its officers, 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.
12. 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.
13. To the extent required by the Fund's 12b-1 Plans, Principal
Underwriter shall provide to the Board of Trustees of the Fund in connection
with such 12b-1 Plans, not less than quarterly, a written report of the amounts
expended pursuant to such 12b-1 Plans and the purposes for which such
expenditures were made.
14. 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 Plans 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 any Rule 12b-1 Trustees or by a vote of a
majority of the Fund's outstanding Shares on not more than sixty (60) days
written notice to any other party to the Agreement; and shall terminate
automatically in the event of its assignment (as defined in the 1940 Act).
15. This Agreement shall be construed in accordance with the laws
of The Commonwealth of 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 BALANCED FUND II KEYSTONE CAPITAL
PRESERVATION AND INCOME FUND KEYSTONE FUND
FOR TOTAL RETURN KEYSTONE FUND OF THE
AMERICAS KEYSTONE GLOBAL OPPORTUNITIES FUND
KEYSTONE GLOBAL RESOURCES AND DEVELOPMENT
FUND KEYSTONE GOVERNMENT SECURITIES FUND
KEYSTONE INTERMEDIATE TERM BOND FUND
KEYSTONE LIQUID TRUST KEYSTONE OMEGA FUND
KEYSTONE SMALL COMPANY GROWTH FUND II
KEYSTONE STATE TAX FREE FUND
FLORIDA TAX FREE FUND
MASSACHUSETTS TAX FREE FUND
NEW YORK TAX FREE FUND
PENNSYLVANIA TAX FREE FUND
KEYSTONE STATE TAX FREE FUND SERIES II
CALIFORNIA TAX FREE FUND
MISSOURI TAX FREE FUND
KEYSTONE STRATEGIC INCOME FUND
KEYSTONE TAX FREE INCOME FUND
KEYSTONE WORLD BOND FUND
each for itself and not jointly
By:
EVERGREEN KEYSTONE DISTRIBUTOR, INC.
By:________________________________
<PAGE>
EXHIBIT A
TO
PRINCIPAL UNDERWRITING AGREEMENT
DATED DECEMBER 11, 1996
BETWEEN EVERGREEN KEYSTONE DISTRIBUTOR, INC.
AND
KEYSTONE AMERICA FUND FAMILY
KEYSTONE BALANCED FUND II
KEYSTONE CAPITAL PRESERVATION AND INCOME FUND
KEYSTONE FUND FOR TOTAL RETURN
KEYSTONE FUND OF THE AMERICAS
KEYSTONE GLOBAL OPPORTUNITIES FUND
KEYSTONE GLOBAL RESOURCES AND DEVELOPMENT FUND
KEYSTONE GOVERNMENT SECURITIES FUND
KEYSTONE INTERMEDIATE TERM BOND FUND
KEYSTONE LIQUID TRUST
KEYSTONE OMEGA FUND
KEYSTONE SMALL COMPANY GROWTH FUND II
KEYSTONE STATE TAX FREE FUND
FLORIDA TAX FREE FUND
MASSACHUSETTS TAX FREE FUND
NEW YORK TAX FREE FUND
PENNSYLVANIA TAX FREE FUND
KEYSTONE STATE TAX FREE FUND-SERIES II
CALIFORNIA TAX FREE FUND
MISSOURI TAX FREE FUND
KEYSTONE STRATEGIC INCOME FUND
KEYSTONE TAX FREE INCOME FUND
KEYSTONE WORLD BOND FUND
<PAGE>
EXHIBIT B
TO
PRINCIPAL UNDERWRITING AGREEMENT
BETWEEN
KEYSTONE AMERICA FUND FAMILY
AND
EVERGREEN KEYSTONE DISTRIBUTOR, INC.
DATED DECEMBER 11, 1996
SCHEDULE OF COMMISSIONS
Class A Shares Up to 0.25% annually of the average
daily net asset value of Class A shares
of a Fund
Class C Shares Up to 1.00% annually of the average
daily net asset value of Class C shares
of a Fund, consisting of commissions at
the annual rate of 0.75% of the average
daily net asset value of a Fund and
service fees of 0.25% of the average
daily net asset value of a Fund
<PAGE>
FORM OF
PRINCIPAL UNDERWRITING AGREEMENT
FOR CLASS B-2 SHARES
OF
KEYSTONE [FUND NAME] FUND
AGREEMENT made effective this ____ day of December 1996 by and between
Keystone [FUND NAME] Fund, a Massachusetts business trust, ("Fund"),and
Evergreen Keystone Distributor, Inc., 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 Principal Underwriter and
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
Evergreen Keystone Investment Services Company ("EKISC") 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
D:\JPW\LIEBER\LONESTAR\FINALDIS\KAFDIST\LONEDIS2.KAF
1
<PAGE>
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 National
Association of Securities Dealers, Inc. ("NASD") Business Conduct Rule 2830 (d)
(2) (the "Business Conduct Rules") or any successor rule (which succeeds the
Rules of Fair Practice of the NASD defined in the Purchase and Sale Agreement,
dated as of May 31, 1995 (the "Citibank Purchase Agreement"), between Evergreen
Keystone Investment Services Company (formerly Keystone Investment Distributors
Company), Citibank, N.A. and Citicorp North America, Inc., as agent).
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.
D:\JPW\LIEBER\LONESTAR\FINALDIS\KAFDIST\LONEDIS2.KAF
2
<PAGE>
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 1940 Act, of any such party and who have no direct
or indirect financial interest in the operation of the Fund's Rule 12b-l 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
D:\JPW\LIEBER\LONESTAR\FINALDIS\KAFDIST\LONEDIS2.KAF
3
<PAGE>
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 Allocable Portion of Distribution Fees (as
hereinafter defined) and Allocable Portion of CDSCs 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 B-2 Shares and also permit the Fund to pay, pursuant to the Principal
Underwriting Agreement dated as of December 11, 1996, between the Fund and EKISC
in respect of Class B-2 Shares, the Allocable Portion of Distribution Fees due
EKISC in respect of B-2 Shares and, pursuant to the Principal Underwriting
Agreement dated as of December 11, 1996 between the Fund and EKISC in respect of
Class B-1 Shares, the Allocable Portion of Distribution Fees due EKISC in
respect of B-1 Shares (together the "EKISC Underwriting Agreements"), and shall
remain in effect so long as any payments are required to be made by the Fund
pursuant to the irrevocable payment instructions pursuant to the Citibank
Purchase Agreement and the Master Sale Agreement between the Principal
Underwriter and Mutual Fund Funding 1994-1 dated as of December 6, 1996 (the
"Master Sale Agreement") (the "Irrevocable Payment Instructions")).
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 Business Conduct Rules 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 mean 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 (the "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 subclasses 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
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<PAGE>
Underwriter's Allocable Portion of said CDSCs paid in respect of Shares which
shall mean 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 Business Conduct Rules, in each case enacted or promulgated
after December 1, 1996, 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-l 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
date upon which all of the B-2 Shares which are Distributor Shares pursuant to
Schedule I hereto shall have been redeemed or converted. 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 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
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<PAGE>
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, sell or otherwise transfer
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, provided, however, the Principal Underwriter may delegate and
subcontract certain functions to other broker-dealers so long as it remains
employed by the Fund) 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 Business Conduct Rules, 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.
14.8 Notwithstanding anything contained herein in this Agreement to the
contrary, the Fund shall comply with its obligations under the EKISC
Underwriting Agreements and the attached Schedule I and any replacement
Agreement, provided that such replacement agreement does not increase the
Allocable Portion currently payable to EKISC, to pay to EKISC its Allocable
Portion (as defined in the EKISC Underwriting Agreement) of the Distribution
Fees (as defined in the EKISC Underwriting Agreement) in respect of Class B-2
Shares as required therein and to comply with its obligations under the
Irrevocable Payment Instructions (as defined in the Citibank Purchase Agreement,
as defined therein).
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.
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<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this agreement to be
executed by their respective officers thereunto duly authorized at Boston,
Massachusetts, on the day and year first written above.
EVERGREEN FUND EVERGREEN KEYSTONE DISTRIBUTOR, INC.
By: _____________________________ By:____________________________
Title: Title:
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<PAGE>
EXHIBIT A TO PRINCIPAL UNDERWRITING AGREEMENT
DATED DECEMBER 11, 1996 BETWEEN
KEYSTONE [FUND NAME] FUND AND EVERGREEN KEYSTONE DISTRIBUTOR, INC.
Keystone [FUND NAME] Fund (the "Fund") and Evergreen
Keystone Distributor, Inc. ("EKDI") agree that the Collection Rights of
EKDI, as such term is defined in the Principal Underwriting Agreement
dated as of December 11, 1996 between the Fund and EKDI (the
"Agreement"), paid by the Fund pursuant to the Agreement with respect
to Distributor Shares, as that term is defined in Schedule I to the
Agreement, sold on or after December 1, 1996 will be utilized by EKDI
as follows:
(a) to the extent that the total amount of Collection Rights recieved
by EKDI with respect to Distributor Shares of all Funds, as that term
is defined in Schedule I, does not exceed 4.25% (except that in the
case of Keystone Capital Preservation Fund, the amount shall be 3%) of
the aggregate net asset value at the time of sale of the Distributor
Shares sold on or after December 1, 1996, plus any interest and other
fees, costs and expenses that may be paid in accordance with the
financing of commissions paid to selling brokers regarding such
Distributor Shares of such Funds (the "Brokers Commission and
Expenses"), the entire amount of the Collection Rights with respect to
such Distributor Shares may only be used by the Principal Underwriter
for payment of the Brokers Commission and Expenses and may not be used
for any other purpose.
(b) to the extent that there is no longer any unrecovered Brokers
Commission and Expenses with respect to the Distributor Shares sold on
or after December 1, 1996 (including shares purchased in connection
with the reinvestment of dividends on such Distributor Shares as
determined in accordance with Sechedule I ) as provided in (a), above,
the Fund will pay the Principal Underwriter a fee in an amount up to
the remaining Collection Rights attributable to such Shares to
compensate Evergreen Keystone Investment Services, Inc., as marketing
services agent for the Principal Underwriter (the "Marketing Services
Agent").
The foregoing calculations shall be the responsibility of the Transfer
Agent and Administrator and not the resonsibility of the Principal Underwriter.
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<PAGE>
SCHEDULE I
TO
PRINCIPAL UNDERWRITING AGREEMENT
RELATING TO CLASS B-2 SHARES
OF
KEYSTONE [FUND NAME] 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.
Notwithstanding anything herein to the contrary, no amounts relating
to the EKISC Allocable Portion (as defined in the EKISC Underwriting Agreements)
shall be allocated hereunder and no Shares attributable to EKISC pursuant to the
EKISC Underwriting Agreements shall constitute Distributor Shares or
Post-distributor Shares or otherwise be allocated to any person or entity except
as contemplated by the EKISC Underwriting Agreements and the Irrevocable Payment
Instructions.
(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 December 11, 1996 between the Instant
Fund and the Distributor.
"Asset Based Sales Charge" shall have the meaning set forth in National
Association of Securities Dealers, Inc. ("NASD") Business Conduct Rule 2830 (d)
(2) or any successor rule (the "Business Conduct Rules) it being understood that
for purposes of this Schedule I such term does not include the Service Fee.
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<PAGE>
"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 or the
State of North Carolina.
"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 Evergreen Keystone Distributor, Inc.,
its successors and assigns.
"Distributor's Account" shall mean the account designated in the
Irrevocable Payment Instructions of the Distributor.
"Distributor Inception Date" shall mean, in respect of any Fund and
solely for the purpose of making the calculations contained herein, December 1,
1996.
"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
Distributor Inception Date 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.
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"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 Exhibit J to the
Master Sale Agreement, as the same may be amended from time to time in
accordance with the terms thereof.
"Instant Fund" shall mean Keystone [FUND NAME] 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
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<PAGE>
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.
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"Buyer" shall mean Mutual Fund Funding, as Buyer under the Master Sale
Agreement, and its successors and assigns in such capacity.
"Master Sale Agreement" shall mean that certain Master Sale Agreement
dated as of December 6, 1996 between Evergreen Keystone Distributors, Inc., as
Seller, and Mutual Fund Funding, as Buyer.
"Share" shall mean in respect of any Fund any share of the classes of
shares specified in Exhibit G to the Master Sale Agreement under the designation
"Keystone America Funds", as the same may be amended from time to time by notice
from the Distributor and the Buyer 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 Exhibit G to the Master Sale
Agreement or (ii) the shares of which class may be exchanged for shares of
another Fund of the classes of shares specified in Exhibit G to the Master Sale
Agreement under the designation "Keystone America Funds" 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 Exhibit G to the
Master Sale Agreement 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)(l) 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.
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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 Cutoff Date for such Fund shall be
identified as Distributor Shares.
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(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 Cutoff Date
for such Fund shall be identified as Distributor Shares in a
number computed as follows:
A * (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 Cutoff Date
for such Fund shall be identified as Post-distributor Shares
in a number computed as follows:
(A * (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:
D:\JPW\LIEBER\LONESTAR\FINALDIS\KAFDIST\LONEDIS2.KAF
15
<PAGE>
A * (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 Cutoff Date for such Fund shall be identified as
Post-distributor Shares in a number computed as follows:
A * (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 to 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
D:\JPW\LIEBER\LONESTAR\FINALDIS\KAFDIST\LONEDIS2.KAF
16
<PAGE>
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) 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
D:\JPW\LIEBER\LONESTAR\FINALDIS\KAFDIST\LONEDIS2.KAF
17
<PAGE>
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.
(6) 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
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18
<PAGE>
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.
(7) 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 * (B/C)
where:
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19
<PAGE>
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 Buyer.
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 * ((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
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20
<PAGE>
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 as follows:
A * ((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 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.
(3) Payments on behalf of each Fund.
On the close of business on each day, or to the extent the parties agree less
frequently, 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
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21
<PAGE>
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 he 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.
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22
- ---------------------
EVERGREEN KEYSTONE
- ---------------------
[logo] FUNDS [logo]
- ---------------------
EVERGREEN KEYSTONE DISTRIBUTOR, INC.
230 PARK AVENUE
NEW YORK, NEW YORK 10169
December 12, 1996
Effective January 1, 1997
To Whom It May Concern:
You currently have a dealer agreement ("Agreement") with Evergreen
Keystone Distributor, Inc. ("Company"). Effective January 1, 1997 the
Agreement is amended and restated in its entirety as set forth below.
The Company, principal underwriter, invites you to participate in the
distribution of shares, including separate classes of shares, ("Shares") of
the Keystone Fund Family, the Keystone America Fund Family, the Evergreen Fund
Family and to the extent applicable their separate investment series
(collectively "Funds" and each individually a "Fund") designated by us which
are currently or hereafter underwritten by the Company, subject to the
following terms:
1. You will offer and sell Shares of the Funds at the public offering price
with respect to the applicable class described in the then current prospectus
and/or statement of additional information ("Prospectus") of the Fund whose
Shares you offer. You will offer Shares only on a forward pricing basis, i.e.
orders for the purchase, repurchase or exchange 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, 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. In the event of a
difference between verbal and written price confirmation, the written
confirmations shall be considered final. Prices of a Fund's Shares are
computed by and are subject to withdrawal by each Fund in accordance with its
Prospectus. 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. This Agreement on your part runs to us and the
respective Fund and is for the benefit and enforceable by each.
2. In the distribution and sale of Shares, you shall not have authority to act
as agent for the Fund, 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.
3. In addition to the distribution services provided by you with respect to a
Fund you may be asked to render administrative, account maintenance and other
services as necessary or desirable for shareholders of such Fund ("Shareholder
Services").
4. Notwithstanding anything else contained in this Agreement or in any other
agreement between us, the Company hereby acknowledges and agrees that any
information received from you concerning your customer in the course of this
arrangement is confidential. Except as requested by the customer or as
required by law and except for the respective Fund, its officers, directors,
employees, agents or service providers, the Company will not provide nor
permit access to such information by any person or entity, including any First
Union Corporation bank or First Union Brokerage Services, Inc.
5. So long as this Agreement remains in effect, we will pay you commissions on
sales of Shares of the Funds and service fees for Shareholder Services, in
accordance with the Schedule of Commissions and Service Fees ("Schedule")
attached hereto and made a part hereof, which Schedule may be modified from
time to time or rescinded by us, in either case without prior notice. You 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 or by 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 will
receive service fees for shareholder accounts for which you are designated
Dealer of Record as provided in the Schedule. You hereby represent that
receipt of such service fees by you will be disclosed to your customers.
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.
6. Payment for all Shares purchased from us shall be made to the Company and
shall be received by the Company within three 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 such Shares
back to the respective Fund in which case we may hold you responsible for any
loss, including loss of profit, suffered by us or by such Fund resulting from
your failure to make payment as aforesaid.
7. 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
("CDSC") that would be applicable under the Prospectus ("repurchase price").
8. You will sell Shares only (a) to your customers at the prices described in
paragraph 2 above; or (b) to us as agent for a Fund 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 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. You shall not withhold placing with us orders received
from your customers so as to profit yourself as a result of such
withholding.
10. We will not accept from you any conditional orders for Shares.
11. 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 CDSC 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.
12. Shares sold to you hereunder shall not be issued 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
Shares sold to you in your name and notify you of such. You agree to hold
harmless and indemnify the Company, the Fund and its transfer agent for any
loss or expense resulting from such registration.
13. You agree to comply with any compliance standards that may be furnished to
you by us regarding when each class of Shares of a Fund may appropriately be
sold to particular customers.
14. No person is authorized to make any representations concerning Shares of a
Fund except those contained in the Prospectus and in sales literature issued
by us supplemental to such Prospectus. 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 such
Prospectuses and 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 sales 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 or orders of Shares of the Funds by
you, your representatives, agents or sub-agents.
15. Each party hereto represents that it is (1) 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 or (2) excluded from the definition
of broker-dealer under the Securities Exchange Act of 1934. It is further
agreed that all rules or regulations of the Association now in effect or
hereafter adopted, including its Business Conduct Rule 2830(d), 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.
16. 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.
17. This Agreement supersedes and cancels any prior agreement with respect to
the sales of Shares of any of the Funds underwritten by the Company. The
Agreement may be amended by us at any time upon written notice to you.
18. This amendment to the Agreement shall be effective on January 1, 1997 and
all sales hereunder are to be made, and title to Shares of the Funds shall
pass in The Commonwealth of Massachusetts. This Agreement shall be interpreted
in accordance with the laws of The Commonwealth of Massachusetts.
19. 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
addressed specified by you.
20. Either part may terminate this Agreement at any time by written notice to
the other party.
- --------------------------- EVERGREEN KEYSTONE DISTRIBUTOR, INC.
Dealer or Broker Name
- --------------------------- /s/ Robert A. Hering
Address
ROBERT A. HERING, President
<PAGE>
- ---------------------
EVERGREEN KEYSTONE
- ---------------------
[logo] FUNDS [logo]
- ---------------------
EVERGREEN KEYSTONE DISTRIBUTOR, INC. ROBERT A. HERING
230 PARK AVENUE President
NEW YORK, NEW YORK 10169
December 12, 1996
Effective January 1, 1997
Dear Financial Professional:
This Schedule of Commissions and Service Fees ("Schedule") supersedes any
previous Schedules, is hereby made part of our dealer agreement ("Agreement")
with you effective January 1, 1997 and will remain in effect until modified or
rescinded by us. Capitalized terms used in this Schedule and not defined
herein have the same meaning as such terms have in the Agreement. All
commission rates and service fee rates set forth in this Schedule may be
modified by us from time to time without prior notice.
I. KEYSTONE FUNDS
KEYSTONE QUALITY BOND FUND (B-1) KEYSTONE MID-CAP GROWTH FUND (S-3)
KEYSTONE DIVERSIFIED BOND FUND (B-2) KEYSTONE SMALL COMPANY GROWTH FUND (S-4)
KEYSTONE HIGH INCOME BOND FUND (B-4) KEYSTONE INTERNATIONAL FUND INC.
KEYSTONE BALANCED FUND (K-1) KEYSTONE PRECIOUS METALS HOLDINGS, INC.
KEYSTONE STRATEGIC GROWTH FUND (K-2) KEYSTONE TAX FREE FUND
KEYSTONE GROWTH AND INCOME FUND (S-1) (COLLECTIVELY "KEYSTONE FUNDS")
1. COMMISSIONS FOR THE KEYSTONE FUNDS (OTHER THAN KEYSTONE PRECIOUS METALS
HOLDINGS, INC.)
Except as otherwise provided in our Agreement, we will pay you commissions
on your sales of Shares of such Keystone Funds rtds d such er tv amrr
rdKeystone Fundat the rate of 4.0% of the aggregate public offering price of
such Shares as described in the Fund's Prospectus ("Offering Price") when sold
in an eligible sale.
2. COMMISSIONS FOR KEYSTONE PRECIOUS METALS HOLDINGS, INC.
Except as otherwise provided for in our Agreement, we will pay you
commissions on your sale of Shares of Keystone Precious Metals Holdings, Inc.
as the rate of the Offering Price when sold in an eligible sale as follows:
AMOUNT OF PURCHASE COMMISSION AMOUNT OF PURCHASE COMMISSION
Less than $100,000 4% $250,000-$499,999 1%
$100,000-$249,999 2% $500,000 and above 0.5%
3. SERVICE FEES
We will pay you service fees based on the aggregate net asset value of
Shares of the Keystone Funds (other than Keystone Precious Metals Holdings,
Inc.) you have sold on or after June 1, 1983 and of Keystone Precious Metals
Holdings, Inc. you have sold on or after November 19, 1984, which remain
issued and outstanding on the books of such Funds on the fifteenth day of the
third month of each calendar quarter (March 15, June 15, September 15 and
December 15, each hereinafter a "Service Fee Record Date") and which are
registered in the names of customers for whom you are dealer of record
("Eligible Shares"). Such service fees will be calculated quarterly at the
rate of 0.0625% per quarter of the aggregate net asset value of all such
Eligible Shares (approximately 0.25% annually) on the Service Fee Record Date;
provided, however, that in any calendar quarter in which service fees earned
by you on Eligible Shares of all Funds (except Keystone Liquid Trust Class A
Shares) are less than $50.00 in the aggregate, no service fees will be paid to
you nor will such amounts be carried over for payment in a future quarter.
Service fees will be payable within five business days after the Service Fee
Record Date. Service fees will only be paid by us to the extent that such
amounts have been paid to us by the Funds.
4. PROMOTIONAL INCENTIVES
We may, from time to time, provide promotional incentives, including
reallowance and/or payment of additional commissions to certain dealers. Such
incentives may, at our discretion, be limited to dealers who allow their
individual selling representatives to participate in such additional
commissions.
<TABLE>
<CAPTION>
II. KEYSTONE AMERICA FUNDS AND EVERGREEN FUNDS
KEYSTONE AMERICA FUNDS
<S> <C>
KEYSTONE GOVERNMENT SECURITIES FUND KEYSTONE OMEGA FUND
KEYSTONE STATE TAX FREE FUND KEYSTONE SMALL COMPANY GROWTH FUND - II
KEYSTONE STATE TAX FREE FUND - SERIES II KEYSTONE FUND FOR TOTAL RETURN
KEYSTONE STRATEGIC INCOME FUND KEYSTONE BALANCED FUND - II
KEYSTONE TAX FREE INCOME FUND (COLLECTIVELY "KEYSTONE EQUITY AND LONG TERM INCOME FUNDS")
KEYSTONE WORLD BOND FUND KEYSTONE CAPITAL PRESERVATION AND INCOME FUND
KEYSTONE FUND OF THE AMERICAS KEYSTONE INTERMEDIATE TERM BOND FUND
KEYSTONE GLOBAL OPPORTUNITIES FUND (COLLECTIVELY "KEYSTONE INTERMEDIATE INCOME FUNDS")
KEYSTONE AMERICA HARTWELL EMERGING GROWTH FUND, INC. KEYSTONE LIQUID TRUST
KEYSTONE GLOBAL RESOURCES AND DEVELOPMENT FUND
EVERGREEN FUNDS
EVERGREEN U.S. GOVERNMENT FUND EVERGREEN AMERICAN RETIREMENT FUND
EVERGREEN HIGH GRADE TAX FREE FUND EVERGREEN FOUNDATION FUND
EVERGREEN FLORIDA MUNICIPAL BOND FUND EVERGREEN TAX STRATEGIC FOUNDATION FUND
EVERGREEN GEORGIA MUNICIPAL BOND FUND EVERGREEN UTILITY FUND
EVERGREEN NEW JERSEY MUNICIPAL BOND FUND EVERGREEN TOTAL RETURN FUND
EVERGREEN NORTH CAROLINA MUNICIPAL BOND FUND EVERGREEN SMALL CAP EQUITY INCOME FUND
EVERGREEN SOUTH CAROLINA MUNICIPAL BOND FUND (COLLECTIVELY "EVERGREEN EQUITY AND LONG TERM INCOME FUNDS")
EVERGREEN VIRGINIA MUNICIPAL BOND FUND
EVERGREEN FLORIDA HIGH INCOME MUNICIPAL BOND FUND EVERGREEN MONEY MARKET FUND
EVERGREEN FUND EVERGREEN TAX EXEMPT MONEY MARKET FUND
EVERGREEN U.S. REAL ESTATE EQUITY FUND EVERGREEN TREASURY MONEY MARKET FUND
EVERGREEN LIMITED MARKET FUND EVERGREEN PENNSYLVANIA TAX FREE MONEY MARKET FUND
EVERGREEN AGGRESSIVE GROWTH FUND (COLLECTIVELY "EVERGREEN MONEY MARKET FUNDS")
EVERGREEN INTERNATIONAL EQUITY FUND EVERGREEN SHORT-INTERMEDIATE BOND FUND
EVERGREEN GLOBAL LEADERS FUND EVERGREEN INTERMEDIATE-TERM BOND FUND
EVERGREEN EMERGING MARKETS FUND EVERGREEN INTERMEDIATE-TERM GOVERNMENT SECURITIES FUND
EVERGREEN GLOBAL REAL ESTATE EQUITY FUND EVERGREEN SHORT-INTERMEDIATE MUNICIPAL FUND
EVERGREEN BALANCED FUND EVERGREEN SHORT-INTERMEDIATE MUNICIPAL FUND -- CALIFORNIA
EVERGREEN GROWTH & INCOME FUND (COLLECTIVELY "EVERGREEN INTERMEDIATE INCOME AND
EVERGREEN VALUE FUND MONEY MARKET FUNDS")
</TABLE>
A. CLASS A SHARES
1. COMMISSIONS
Except as otherwise provided in our Agreement, in paragraph 2 below or in
connection with certain types of purchases at net asset value which are
described in the Prospectuses for the Keystone America Funds and the Evergreen
Funds, we will pay you commissions on your sales of Shares of such Funds in
accordance with the following sales charge schedules* on sales where we
receive a commission from the shareholder:
KEYSTONE AMERICA AND EVERGREEN EQUITY AND LONG TERM INCOME FUNDS
SALES CHARGE AS COMMISSION AS
AMOUNT OF A PERCENTAGE OF A PERCENTAGE OF
PURCHASE OFFERING PRICE OFFERING PRICE
Less than $50,000 4.75% 4.25%
$50,000-$99,999 4.50% 4.25%
$100,000-$249,999 3.75% 3.25%
$250,000-$499,999 2.50% 2.00%
$500,000-$999,999 2.00% 1.75%
Over $1,000,000 None See paragraph 2
KEYSTONE AMERICA AND EVERGREEN INTERMEDIATE INCOME FUNDS
SALES CHARGE AS COMMISSION AS
AMOUNT OF A PERCENTAGE OF A PERCENTAGE OF
PURCHASE OFFERING PRICE OFFERING PRICE
Less than $50,000 3.25% 2.75%
$50,000-$99,999 3.00% 2.75%
$100,000-$249,999 2.50% 2.25%
$250,000-$499,999 2.00% 1.75%
$500,000-$999,999 1.50% 1.25%
Over $1,000,000 None See paragraph 2
KEYSTONE LIQUID TRUST AND EVERGREEN MONEY MARKET FUNDS
No sales charge for any amount of purchase.
2. COMMISSIONS FOR CERTAIN TYPES OF PURCHASES
With respect to (a) purchases of Class A Shares in the amount of $1 million
or more and/or (b) purchases of Class A Shares made by a corporate or certain
other qualified retirement plan or a non-qualified deferred compensation plan
or a Title I tax sheltered annuity or TSA Plan sponsored by an organization
having 100 or more eligible employees (a "Qualifying Plan"), (each such
purchase a "NAV Purchase"), we will pay you commissions as follows:
<TABLE>
<CAPTION>
a. Purchases described in 2(a) above
AMOUNT OF COMMISSION AS A PERCENTAGE
PURCHASE OF OFFERING PRICE
<S> <C>
$1,000,000-$2,999,999 1.00% of the first $2,999,999, plus
$3,000,000-$4,999,999 0.50% of the next $2,000,000, plus
$5,000,000 0.25% of amounts equal to or over $5,000,000
b. Purchases described in 2(b) above .50% of amount of purchase (subject to recapture
upon early redemption)
</TABLE>
* These sales charge schedules apply to purchases made at one time or pursuant
to Rights of Accumulation or Letters of Intent. Any purchase which is made
pursuant to Rights of Accumulation or Letter of Intent is subject to the
terms described in the Prospectus(es) for the Fund(s) whose Shares are being
purchased.
3. PROMOTIONAL INCENTIVES
We may, from time to time, provide promotional incentives, including
reallowance and/or payment of up to the entire sales charge to certain
dealers. Such incentives may, at our discretion, be limited to dealers who
allow their individual selling representatives to participate in such
additional commissions.
4. SERVICE FEES FOR EVERGREEN FUNDS (OTHER THAN EVERGREEN MONEY MARKET FUNDS)
AND KEYSTONE AMERICA FUNDS (OTHER THAN KEYSTONE STATE TAX FREE FUND,
KEYSTONE STATE TAX FREE FUND - SERIES II, KEYSTONE CAPITAL PRESERVATION AND
INCOME FUND AND KEYSTONE LIQUID TRUST)
a. Keystone America Funds Only. Until March 31, 1997, we will pay you
service fees based on the aggregate net asset value of Shares of such Funds
you have sold which remain issued and outstanding on the books of such Funds
on the fifteenth day of the third month of each calendar quarter (March 15,
June 15, September 15 and December 15, each hereinafter a "Service Fee Record
Date") and which are registered in the names of customers for whom you are
dealer of record ("Eligible Shares"). Such service fees will be calculated
quarterly at the rate of 0.0625% per quarter of the aggregate net asset value
of all such Eligible Shares (approximately 0.25% annually) on the Service Fee
Record Date; provided, however, that in any calendar quarter in which total
service fees earned by you on Eligible Shares of all Keystone Funds (except
Keystone Liquid Trust Class A Shares) are less than $50.00 in the aggregate,
no service fees will be paid to you nor will such amounts be carried over for
payment in a future quarter. Service fees will be paid within five days after
the Service Fee Record Date. Service fees will only be paid by us to the
extent that such amounts have been paid to us by the Funds.
b. Evergreen Funds and Keystone America Funds (after March 31, 1997). We
will pay you service fees based on the average daily net asset value of Shares
of such Funds you have sold which are issued and outstanding on the books of
such Funds during each calendar quarter and which are registered in the names
of customers for whom you are dealer of record ("Eligible Shares"). Such
service fees will be calculated quarterly at the rate of 0.0625% per quarter
of the daily average net asset value of all such Eligible Shares
(approximately 0.25% annually) during such quarter; provided, however, that in
any calendar quarter in which total service fees earned by you on Eligible
Shares of all Funds (except Keystone Liquid Trust Class A Shares) are less
than $50.00 in the aggregate, no service fees will be paid to you nor will
such amounts be carried over for payment in a future quarter. Service fees
will be paid by the twentieth day of the month before the end of the
respective quarter. Service fees will only be paid by us to the extent that
such amounts have been paid to us by the Funds.
5. SERVICE FEES FOR KEYSTONE STATE TAX FREE FUND AND KEYSTONE STATE TAX FREE
FUND - SERIES II
a. Until March 31, 1997, we will pay you service fees based on the aggregate
net asset value of Shares of such Funds you have sold which remain issued and
outstanding on the books of the Funds on the fifteenth day of the third month
of each calendar quarter (March 15, June 15, September 15 and December 15,
each hereinafter a "Service Fee Record Date") and which are registered in the
names of customers for whom you are dealer of record ("Eligible Shares"). Such
service fees will be calculated quarterly at the rate of 0.0375% per quarter
of the aggregate net asset value of all such Eligible Shares (approximately
0.15% annually) on the Service Fee Record Date; provided, however, that in any
calendar quarter in which total service fees earned by you on Eligible Shares
of all Funds (except Keystone Liquid Trust Class A Shares) are less than
$50.00 in the aggregate, no service fees will be paid to you nor will such
amounts be carried over for payment in a future quarter. Service fees will be
paid within five days after the Service Fee Record Date. Service fees will
only be paid by us to the extent that such amounts have been paid to us by the
Funds.
b. After March 31, 1997 we will pay you service fees calculated as provided
in section II (A)(4)(b) except that the quarterly rate will be 0.0375%
(approximately 0.15% annually).
c. After June 30, 1997, we will pay you service fees calculated as provided
in section II (A)(4)(b) above on Shares sold on or after July 1, 1997.
6. SERVICE FEES FOR KEYSTONE CAPITAL PRESERVATION AND INCOME FUND
a. Until March 31, 1997, we will pay you service fees calculated as provided
in section II (A)(4)(a) except that for Eligible Shares sold after January 1,
1997 the quarterly rate will be 0.025% (approximately 0.10% annually).
b. After March 31, 1997 we will pay you service fees calculated as provided
in section II (A)(4)(b) except that for Eligible Shares sold after January 1,
1997 the quarterly rate will be 0.025% (approximately 0.10% annually).
7. SERVICE FEES FOR KEYSTONE LIQUID TRUST
We will pay you service fees based on the aggregate net asset value of all
Shares of such Fund you have sold which remain issued and outstanding on the
books on the Fund on the fifteenth day of the third month of each calendar
quarter (March 15, June 15, September 15 and December 15, each hereinafter a
"Service Fee Record Date") and which are registered in the names of customers
for whom you are dealer of record ("Eligible Shares"). Such service fees will
be calculated at the rates set forth below and based on the aggregate net
asset value of all such Eligible Shares on the Service Fee Record Date;
provided, however, that no such service fees will be paid to you for any
quarter if the aggregate net asset value of such Eligible Shares on the last
business day of the quarter is less than $2 million; and provided further,
however, that service fees will only be paid to us to the extent that such
amounts have been paid to us by the Fund. Service fees will be paid within 5
days after the Service Fee Record Date. The quarterly rates at which such
service fees are payable and the net asset value to which such rates will be
applied are set forth below:
ANNUAL QUARTERLY AGGREGATE NET ASSET
RATE PAYMENT RATE VALUE OF SHARES
0.00000% 0.00000% of the first $1,999,999, plus
0.15000% 0.03750% of the next $8,000,000, plus
0.20000% 0.05000% of the next $15,000,000, plus
0.25000% 0.06250% of the next $25,000,000, plus
0.30000% 0.07500% of amounts over $50,000,000
8. SERVICE FEES FOR EVERGREEN MONEY MARKET FUNDS
We will pay you service fees calculated as provided in section II (A)(4)(b)
except that the quarterly rate will be 0.075% (approximately 0.30% annually.)
<PAGE>
B. CLASS B SHARES
ALL KEYSTONE AMERICA AND EVERGREEN FUNDS
1. COMMISSIONS
Except as otherwise provided in our Agreement, we will pay you commissions
on your sales of Class B Shares of the Keystone America Funds and the
Evergreen Funds at the rate of 4.00% of the aggregate Offering Price of such
Shares, when sold in an eligible sale.
2. PROMOTIONAL INCENTIVES
We may, from time to time, provide promotional incentives, including
reallowance and/or payment of additional commissions, to certain dealers. Such
incentives may, at our discretion, be limited to dealers who allow their
individual selling representatives to participate in such additional
commissions.
3. SERVICE FEES FOR EVERGREEN FUNDS AND KEYSTONE AMERICA FUNDS (OTHER THAN
KEYSTONE STATE TAX FREE FUND AND KEYSTONE STATE TAX FREE FUND - SERIES II)
a. Keystone America Funds - Until March 31, 1997, we will pay you service
fees calculated as provided in section II (A)(4)(a) above.
b. Evergreen Funds and Keystone America Funds (after March 31. 1997). We
will pay you service fees calculated as provided in section II (A)(4)(b)
above.
4. SERVICE FEES FOR KEYSTONE STATE TAX FREE FUND AND KEYSTONE STATE TAX FREE
FUND - SERIES II
a. Until March 31, 1997, we will pay you service fees calculated as provided
in section II (A)(5)(a) above.
b. After March 31, 1997, we will pay you service fees calculated as provided
in section II (A)(5)(b) above.
c. After June 30, 1997, we will pay you service fees calculated as provided
in section II (A)(5)(c) above.
C. CLASS C SHARES
ALL KEYSTONE AMERICA AND EVERGREEN FUNDS
1. COMMISSIONS
Except as provided in our Agreement, we will pay you initial commissions on
your sales of Class C Shares of the Keystone America and the Evergreen Funds
at the rate of 0.75% of the aggregate Offering Price of such Shares sold in
each eligible sale.
We will also pay you commissions based on the average daily net asset value
of Shares of such Funds you have sold which have been on the books of the
Funds for a minimum of 14 months from the date of purchase (plus any
reinvested distributions attributable to such Shares), which have been issued
and outstanding on the books of such Funds during the calendar quarter and
which are registered in the names of customers for whom you are dealer of
record ("Eligible Shares"). Such commissions will be calculated quarterly at
the rate of 0.1875% per quarter of the average daily net asset value of all
such Eligible Shares (approximately 0.75% annually) during such quarter. Such
commissions will be paid by the twentieth day of the month before the end of
the respective quarter. Such commissions will continue to be paid to you
quarterly so long as aggregate payments do not exceed applicable NASD
limitations and other governing regulations.
2. SERVICE FEES
We will pay you a full year's service fee in advance on your sales of Class
C Shares of such Funds at the rate of 0.25% of the aggregate net asset value
of such Shares.
We will pay you service fees based on the average daily net asset value of
Shares of such Funds you have sold which have been on the books of the Funds
for a minimum of 14 months from the date of purchase (plus any reinvested
distributions attributable to such Shares), which have been issued and
outstanding during the respective quarter and which are registered in the
names of customers for whom you are the dealer of record ("Eligible Shares").
Such service fees will be calculated quarterly at the rate of 0.0625% per
quarter of the average daily net asset value of all such Eligible Shares
(approximately 0.25% annually); provided, however, that in any calendar
quarter in which total service fees earned by you on Eligible Shares of Funds
(except Keystone Liquid Trust Class A Shares) are less than $50.00 in the
aggregate, no service fees will be paid to you nor will such amounts be
carried over for payment in a future quarter. Service fees will be paid by the
twentieth day of the month before the end of the respective quarter. Service
fees other than those paid in advance will only be paid by us to the extent
that such amounts have been paid to us by the Funds.
FORM OF
MARKETING SERVICES AGREEMENT
AGREEMENT made this __th day of December 1996 by and between Evergreen
Keystone Distributor, Inc., a Delaware corporation (the "Principal
Underwriter"), and Evergreen Keystone Investment Services, Inc. ("Marketing
Services Agent").
WHEREAS, the Keystone ________ Fund (the "Fund"), has adopted one or
more Plans of Distribution (each a "Plan", or collectively the "Plans") with
respect to certain Classes of shares of the Fund and to the extent applicable
certain Classes of shares of its separate investment series (the "Shares"),
pursuant to Rule 12b-1 under the Investment Company Act of 1940, as amended (the
"1940 Act") which Plans authorize the Fund to enter into agreements regarding
the distribution of such Shares set forth on Exhibit A; and
WHEREAS, the Fund has entered into a principal underwriting agreement
with the Principal Underwriter pursuant to which the Principal Underwriter has
agreed to facilitate the distribution of the Shares; and
WHEREAS, the Fund has authorized the Principal Underwriter under the
terms of the principal underwriting agreement to enter into a marketing services
agreement with the Marketing Services Agent pursuant to which the Principal
Underwriter has agreed to facilitate the distribution of the Shares;
NOW, THEREFORE, in consideration of the agreements hereinafter
contained, it is agreed as follows:
1. Services as Marketing Services Agent.
1.1. The Marketing Services Agent shall assist the Principal
Underwriter in promoting Shares of the Fund and will undertake such advertising
and marketing services as it believes reasonable in connection therewith. In the
event that the Fund establishes additional investment series with respect to
which it has retained the Principal Underwriter to act as principal underwriter
for one or more Classes hereunder, the Principal Underwriter shall promptly
notify the Marketing Services Agent in writing. If the Marketing Services Agent
is willing to render such services it shall notify the Principal Underwriter in
writing whereupon the applicable Class or Classes of shares of such investment
series shall become "Shares" hereunder.
1.2. All activities by the Marketing Services Agent and its agents and
employees as the Marketing Services Agent shall comply with all applicable laws,
rules and regulations, including, without limitation, all rules and regulations
made or adopted pursuant to the 1940 Act by the Securities and Exchange
Commission (the "Commission") or any securities association registered under the
Securities Exchange Act of 1934, as amended (the "1934 Act").
1.3. In assisting the Principal Underwriter in promoting shares of the
Fund and undertaking any advertising and marketing services on behalf of the
Fund, the Marketing Services Agent shall use its best efforts in all respects
duly to conform with the requirements of all Federal and state laws
1
<PAGE>
relating to the sale of such securities. Neither the Marketing Services Agent,
Principal Underwriter, any selected dealer or any other person is authorized by
the Fund to give any information or to make any representations, other than
those contained in the Fund's registration statement (the "Registration
Statement") or related prospectus and statement of additional information
("Prospectus" and "Statement of Additional Information") and any sales
literature specifically approved by the Fund.
2. Duties of the Principal Underwriter.
2.1. The Principal Underwriter shall furnish from time to time, for use
in connection with the sale of Shares such information with respect to the
Shares as the Marketing Services Agent may reasonably request; and the Principal
Underwriter warrants that any such information shall be true and correct.
3. Representations of the Principal Underwriter.
3.1. The Principal Underwriter represents to the Marketing Services
Agent that it is a broker-dealer registered with the ^ Commission, is a member
of the National Association of Securities Dealers, Inc. ("NASD") and that the
Fund is registered under the 1940 Act and that the Shares have been registered
under the Securities Act of 1933, as amended (the "Securities Act").
3.2 That the principal underwriting agreement between the Fund and the
Principal Underwriter has been duly approved and continues in full force and
effect.
4. Indemnification.
4.1. The Marketing Services Agent agrees to indemnify and hold harmless
the Principal Underwriter and each of its directors, officers, employees, agents
and each person, if any, who controls the Principal Underwriter within the
meaning of the Securities Act ^ against any losses, claims, damages or
liabilities to which the Principal Underwriter ^ may become subject, insofar as
such losses, claims, damages, ^ liabilities, or expense (or actions in respect
thereof) (i) arise out of or are based upon the actions of the Marketing
Services Agent or (ii) result from a breach of a material provision of this
Agreement by the Marketing Services Agent. The Marketing Services Agent will
reimburse any legal or other expenses reasonably incurred by the Principal
Underwriter or any such ^ controlling person in connection with investigating or
defending any such loss, claim, damage, liability or action; provided, however,
that the Marketing Services Agent will not be liable for indemnification
hereunder to the extent that any such loss, claim, damage or liability arises
out of or is based upon the gross negligence or willful misconduct of the
Principal Underwriter, its respective directors, officers, employees, agents or
any controlling person herein defined in performing their obligations under this
Agreement.
(b) The Principal Underwriter agrees to indemnify and hold harmless the
Marketing Services Agent, and each of its directors, officers, employees, agents
and each person, if any, who controls the Marketing Services Agent within the
meaning of the 1933 Act against any losses, claims, damages or liabilities to
which the Marketing Services Agent, or any such director, officer, employee,
agent or
2
<PAGE>
controlling person may become subject, insofar as such losses, claims, damages
or liabilities (or actions in respect thereof) (i) arise out of or are based
upon any untrue statement or alleged untrue statement of any material fact
contained in the Registration Statement ^ or sales literature of the Fund
prepared or approved in writing by the Principal Underwriter or arise out of, or
are based upon, the omission or the alleged omission to state therein a material
fact required to be stated therein or necessary to make the statements therein
not misleading, or (ii) result from a breach by it of a material provision of
this Agreement. The Principal Underwriter will reimburse any legal or other
expenses reasonably incurred by the Marketing Services Agent, or any such
director, officer, employee, agent, or controlling person in connection with
investigating or defending any such loss, claim, damage, liability or action;
provided, however, that the Principal Underwriter will not be liable for
indemnification hereunder to the extent that any such loss, claim, damage or
liability arises out of, or is based upon, the gross negligence or willful
misconduct of the Marketing Services Agent, or its respective directors,
officers, employees, agents or any controlling person herein defined in the
performance of their obligations under this Agreement.
(c) Promptly after receipt by an indemnified party hereunder of notice
of the commencement of an action, such indemnified party will, if a claim in
respect thereof is to be made against the indemnifying party hereunder, notify
the indemnifying party of the commencement thereof; but the omission so to
notify the indemnifying party will not relieve it from any liability that it may
have to any indemnified party otherwise than under this Section 4. In case any
such action is brought against any indemnified party, and it notifies the
indemnifying party of the commencement thereof, the indemnifying party will be
entitled to participate therein and, to the extent that it may wish to, assume
the defense thereof, with counsel satisfactory to such indemnified party, and
after notice from the indemnifying party to such indemnified party of its
election to assume the defense thereof, the indemnifying party will not be
liable to such indemnified party under this Section 4 for any legal or other
expenses subsequently incurred by such indemnified party in connection with the
defense thereof other than reasonable costs of investigation.
5. Amendments to Registration Statement and Other Material Events.
5.1. The Principal Underwriter agrees to advise the Marketing Services
Agent as soon as reasonably practical by a notice in writing delivered to the
Marketing Services Agent: (a) of any request or action taken by the Commission
which is material to the Marketing Services Agent's obligations or rights
hereunder or (b) any material fact of which the Principal Underwriter becomes
aware which affects the Marketing Services Agent's obligations or rights
hereunder.
For purposes of this section, informal requests by or acts of the Staff
of the Commission shall not be deemed actions of or requests by the Commission.
6. Compensation of Marketing Services Agent.
6.1. (a) As promptly as possible after the first Business Day (as
defined in the Prospectus) of each month this Agreement is in effect, the
Principal Underwriter shall compensate the Marketing Services Agent for its
services rendered during the previous month (but not prior to the commencement
date of this Agreement); by making payment to the Marketing Services Agent in
the
3
<PAGE>
amounts set forth on Exhibit A annexed hereto with respect to each Class of
Shares of the Fund or, if applicable, each of its separate investment series to
which this Agreement relates. In connection therewith the Principal Underwriter
hereby agrees that it is obligated under this Agreement to comply with Paragraph
7 of the principal underwriting agreement. The compensation by the Principal
Underwriter of the Marketing Services Agent is authorized pursuant to the Plan
or Plans adopted by the Fund pursuant to Rule 12b-l under the 1940 Act.
(b) Under this Agreement, the Marketing Services Agent shall: (i) incur
the expense of obtaining such support services, telephone facilities and
shareholder services as may reasonably be required in connection with its duties
hereunder; (ii) formulate and implement marketing and promotional activities,
including, but not limited to, direct mail promotions and television, radio,
newspaper, magazine and other mass media advertising; (iii) prepare, print and
distribute sales literature; (iv) prepare, print and distribute Prospectuses of
the Series and reports for recipients other than existing shareholders of the
Series; and (v) provide to the Fund such information, analyses and opinions with
respect to marketing and promotional activities as the Fund may, from time to
time, reasonably request.
(c) The Marketing Services Agent shall prepare and deliver reports to
the Principal Underwriter on a regular, at least monthly, basis, showing the
distribution expenditures incurred by the Principal Underwriter in connection
with its services rendered pursuant to this Agreement and the Plan and the
purposes therefor, as well as any supplemental reports to the Fund's Board, from
time to time, as the Principal Underwriter may reasonably request.
7. Confidentiality, Non-Exclusive Agency.
7.1. The Marketing Services Agent agrees on behalf of itself and its
employees to treat confidentially and as proprietary information of the
Principal Underwriter all records and other information relative to the or, if
applicable, each of its separate investment series, and its prior, present or
potential shareholders, and not to use such records and information for any
purpose other than performance of its responsibilities and in connection with
the financing described in Paragraph 7 (f) to obtain approval in writing by the
Principal Underwriter, which approval shall not be unreasonably withheld and may
not be withheld where the Marketing Services Agent may be exposed to civil or
criminal contempt proceedings for failure to comply, when requested to divulge
such information by duly constituted authorities.
7.2. Nothing contained in this Agreement shall prevent the Marketing
Services Agent, or any affiliated person of the Marketing Services Agent, from
performing services similar to those to be performed hereunder for any other
person, firm, or corporation or for its or their own accounts or for the
accounts of others.
8. Term.
8.1. This Agreement shall continue until December __, 1998 and
thereafter for successive annual periods, provided such continuance is
specifically approved with respect to the Fund or, if applicable, each of its
separate investment series at least annually by vote cast in person at a meeting
4
<PAGE>
called for the purpose of voting on such approval by (i) a vote of the majority
of the members of the Fund's Board and (ii) a vote of a majority of the members
who are not " interested persons" of the Fund, as that term is defined in the ^
1940 Act or who do not have any direct or indirect financial interest in the
Fund's Distribution Plan or any related agreements, voting separately. This
Agreement is terminable at any time, with respect to the Fund or, if applicable,
each of its separate investment series, without penalty, (a) on not less than 60
days' written notice by vote of a majority of the Independent Trustees, or by
vote of the holders of a majority of the outstanding voting securities of the
Fund or, if applicable, each of its separate investment series, or (b) upon not
less than 60 days' written notice by the Marketing Services Agent. This
Agreement may remain in effect with respect to a separate investment series even
if it has been terminated in accordance with this paragraph with respect to one
or more other separate investment series of the Fund. This Agreement will also
terminate automatically in the event of its assignment. (As used in this
Agreement, the terms "majority of the outstanding voting securities",
"interested persons", and "assignment" shall have the same meaning as such terms
have in the 1940 Act.)
9. Miscellaneous.
9.1. This Agreement shall be governed by the laws of the State
of New York.
9.2. The captions in this Agreement are included for convenience of
reference only and in no way define or delimit any of the provisions hereof or
otherwise affect their constructions or effect.
IN WITNESS WHEREOF, the parties hereto have caused this instrument to
be executed by their officers designated below as of the __th day of December,
1996.
EVERGREEN KEYSTONE DISTRIBUTOR, INC. EVERGREEN KEYSTONE INVESTMENT
SERVICES, INC.
By: _____________________________ By:____________________________
Title: Title:
5
<PAGE>
EXHIBIT A
To Marketing Services Agreement between Evergreen Funds Distributor, Inc.
and KEYSTONE INVESTMENT DISTRIBUTORS COMPANY
SERIES AND CLASSES COVERED BY THIS AGREEMENT:
[KEYSTONE][EVERGREEN] _________ FUND
CLASS B[-2] SHARES
Marketing Services Fees
The Principal Underwriter agrees to pay the Marketing Servicing Agent a fee
at the rate of up to .75 of 1% of average daily net assets of the shares of each
Class set forth above, provided however that the payment of such fee shall: (i)
be subject and subordinate to the obligation of the Fund to make payments to the
Principal Underwriter pursuant to the provisions of the Distribution Agreement
dated ___________, 1996 between the Fund and its Principal Underwriter,
Evergreen Keystone Funds Distributor Inc.; (ii) be subject and subordinate to
the obligation of the Fund to make payments to any entity with respect to shares
sold prior to December 1, 1996; and (ii) not result in an aggregate fee being
paid to the Marketing Service Agent and Principal Underwriter that would exceed
.75 of 1% of the Fund's average daily net assets on an annual basis or otherwise
exceed the limit imposed on asset based and deferred sales charges under
subsection (d) of Section 26 of Article III of the Rules of Fair Practice of the
National Association of Securities Dealers, Inc.
IN WITNESS WHEREOF, the parties hereto have caused this Exhibit A to
the Distribution Agreement between the parties dated December __, 1996 to be
executed by their officers designated below as of the __th day of December,
1996.
EVERGREEN KEYSTONE DISTRIBUTOR, INC. EVERGREEN KEYSTONE INVESTMENT
SERVICES, INC.
By: _____________________________ By:____________________________
Title: Title:
6
FORM OF
SUB-ADMINISTRATOR AGREEMENT
This Sub-Administrator Agreement is made as of this 1st day of
January, 1997 between Keystone Investment Management Company, a Delaware
corporation (herein called "KIMCO"), and Furman Selz LLC, a Delaware limited
liability corporation (herein called "Furman Selz").
WHEREAS, KIMCO has been appointed as investment adviser to
certain open-end management investment companies, or to one or more separate
investment series thereof, listed on Schedule A, as the same may be amended from
time to time to reflect additions or deletions of such companies or series,
which are registered under the Investment Company Act of 1940 (the "Funds");
WHEREAS, in its capacity as investment adviser to the Funds,
KIMCO has the obligation to provide, or engage others to provide, certain
administrative services to the Funds; and
WHEREAS, KIMCO desires to retain Furman Selz as
Sub-Administrator to the Funds for the purpose of providing the Funds with
personnel to act as officers of the Funds and to provide certain administrative
services in addition to those provided by KIMCO ("Sub-Administrative Services"),
and Furman Selz is willing to render such services;
NOW, THEREFORE, in consideration of the premises and mutual
covenants set forth herein, the parties hereto agree as follows:
1. Appointment of Sub-Administrator. KIMCO hereby appoints Furman Selz as
Sub-Administrator for the Funds on the terms and conditions set forth in this
Agreement and Furman Selz hereby accepts such appointment and agrees to perform
the services and duties set forth in Section 2 of this Agreement in
consideration of the compensation provided for in Section 4 hereof.
2. Services and Duties. As Sub-Administrator, and subject to the supervision and
control of KIMCO and the Trustees or Directors of the Funds, Furman Selz will
hereafter provide facilities, equipment and personnel to carry out the following
Sub-Administrative services to assist in the operation of the business and
affairs of the Funds:
(a) provide individuals reasonably acceptable to the Funds for
nomination, appointment or election as officers of the Funds and who
will be responsible for the management of certain of each Fund's
affairs as determined from time to time by the Trustees or Directors of
the Funds;
(b) review filings with the Securities and Exchange Commission and
state securities authorities that have been prepared on behalf of the
Funds by the administrator and take such actions as may be reasonably
requested by the administrator to effect such filings;
(c) verify, authorize and transmit to the custodian, transfer agent and
dividend disbursing agent of each Fund all necessary instructions for
the disbursement of cash, issuance of shares, tender and receipt of
portfolio securities, payment of expenses and payment of dividends; and
(d) advise the Trustees or Directors of the Funds on matters
concerning the Funds and their affairs.
Furman Selz may, in addition, agree in writing to perform additional
Sub-Administrative Services for the Funds. Sub-Administrative Services shall not
include investment advisory services or any duties, functions, or services to be
performed for the Funds by their distributor, custodian or transfer agent
pursuant to their agreements with the Funds.
3. Expenses. Furman Selz shall be responsible for expenses incurred in providing
office space, equipment and personnel as may be necessary or convenient to
provide the Sub-Administrative Services to the Funds. KIMCO and/or the Funds
shall be responsible for all other expenses incurred by Furman Selz on behalf of
the Funds pursuant to this Agreement at the direction of KIMCO, including
without limitation postage and courier expenses, printing expenses, registration
fees, filing fees, fees of outside counsel and independent auditors, insurance
premiums, fees payable to Trustees or Directors who are not Furman Selz
employees, and trade association dues.
4. Compensation. For the Sub-Administrative Services provided, KIMCO hereby
agrees to pay and Furman Selz hereby agrees to accept as full compensation for
its services rendered hereunder a sub-administrative fee,calculated daily and
payable monthly at an annual rate based on the aggregate average daily net
assets of the Funds, or separate series thereof, set forth on Schedule A and
determined in accordance with the table below.
Aggregate Daily Net Assets of Funds For
Which KIMCO, Evergreen Asset Management
Sub-Administrative Corp., First Union National Bank of North
Fee as a % of Carolina or any Affiliates Thereof Serve as
Average Annual Investment Adviser or Administrator And For
Daily Net Assets Which Furman Selz Serves as Sub-Administrator
.0100% on the first $7 billion
.0075% on the next $3 billion
.0050% on the next $15 billion
.0040% on assets in excess of $25 billion
5. Indemnification and Limitation of Liability of Furman Selz. The duties of
Furman Selz shall be limited to those expressly set forth herein or later agreed
to in writing by Furman Selz, and no implied duties are assumed by or may be
asserted against Furman Selz hereunder. Furman Selz shall not be liable for any
error of judgment or mistake of law or for any loss arising out of any act or
omission in carrying out its duties hereunder, except a loss resulting from
willful misfeasance, bad faith or negligence in the performance of its duties,
or by reason of reckless disregard of its obligations and duties hereunder,
except as may otherwise be provided under provisions of applicable law which
cannot be waived or modified hereby. (As used in this Section, the term "Furman
Selz" shall include partners, officers, employees and other agents of Furman
Selz as well as Furman Selz itself)
So long as Furman Selz acts in good faith and with due diligence and
without negligence, KIMCO shall indemnify Furman Selz and hold it harmless from
any and all actions, suits and claims, and from any and all losses, damages,
costs, charges, reasonable counsel fees and disbursements, payments, expenses
and liabilities (including reasonable investigation expenses) arising directly
or indirectly out of Furman Selz' actions taken or nonactions with respect to
the performance of services hereunder. The indemnity and defense provisions set
forth herein shall survive the termination of this Agreement for a period of
three years.
The rights hereunder shall include the right to reasonable advances of
defense expenses in the event of any pending or threatened litigation with
respect to which indemnification hereunder may ultimately be merited. In order
that the indemnification provision contained herein shall apply, however, it is
understood that if in any case KIMCO may be asked to indemnify or hold Furman
Selz harmless, KIMCO shall be fully and promptly advised of all pertinent facts
concerning the situation in question, and it is further understood that Furman
Selz will use all reasonable care to identify and notify KIMCO promptly
concerning any situation which presents or appears likely to present the
probability of such a claim for indemnification against KIMCO.
KIMCO shall be entitled to participate at its own expense or, if it so
elects, to assume the defense of any suit brought to enforce any claims subject
to this indemnity provision. If KIMCO elects to assume the defense of any such
claim, the defense shall be conducted by counsel chosen by KIMCO and
satisfactory to Furman Selz, whose approval shall not be unreasonably withheld.
In the event that KIMCO elects to assume the defense of any suit and retain
counsel, Furman Selz shall bear the fees and expenses of any additional counsel
retained by it. If KIMCO does not elect to assume the defense of a suit, it will
reimburse Furman Selz for the reasonable fees and expenses of any counsel
retained by Furman Selz.
Furman Selz may apply to KIMCO at any time for instructions and may
consult counsel for KIMCO or its own counsel and with accountants and other
experts with respect to any matter arising in connection with Furman Selz'
duties, and Furman Selz shall not be liable or accountable for any action taken
or omitted by it in good faith in accordance with such instruction or with the
opinion of such counsel, accountants or other experts.
Any person, even though also an officer, director, partner, employee or
agent of Furman Selz, who may be or become an officer, trustee, employee or
agent of the Funds, shall be deemed, when rendering services to a Fund or acting
on any business of a Fund (other than services or business in connection with
the duties of Furman Selz 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 Furman Selz even though paid by Furman
Selz.
6. Duration and Termination.
(a) The initial term of this Agreement (the "Initial Term") shall
commence on the date this Agreement is executed by both parties, shall continue
until April 30, 1998, and shall continue in effect for a Fund from year to year
thereafter, provided it is approved, at least annually, by a vote of a majority
of Directors/Trustees of the Funds, including a majority of the disinterested
Directors/Trustees. Notwithstanding the foregoing, this Agreement shall only
become effective if (i) Keystone Investments, the parent of KIMCO, has
previously been acquired by First Union National Bank of North Carolina, and
(ii) the Funds have appointed Evergreen Funds Distributor, Inc. as their
Principal Underwriter. In the event of any breach of this Agreement by either
party, the non-breaching party shall notify the breaching party in writing of
such breach and upon receipt of such notice, the breaching party shall have 45
days to remedy the breach except in the case of a breach resulting from fraud or
other acts which materially and adversely affects the operations or financial
position of the Funds. In the event any material breach is not remedied within
such time period, the nonbreaching party may immediately terminate this
Agreement.
Notwithstanding the foregoing, after such termination for so long as
Furman Selz, with the written consent of KIMCO, in fact continues to perform any
one or more of the services contemplated by this Agreement or any schedule or
exhibit hereto, the provisions of this Agreement, including without limitation
the provisions dealing with indemnification, shall continue in full force and
effect. Compensation due Furman Selz and unpaid by KIMCO upon such termination
shall be immediately due and payable upon and notwithstanding such termination.
Furman Selz shall be entitled to collect from KIMCO, in addition to the
compensation described herein, all costs reasonably incurred in connection with
Furman Selz's activities in effecting such termination, including without
limitation, the delivery to the Funds and/or their designees of each Fund's
property, records, instruments and documents, or any copies thereof. To the
extent that Furman Selz may retain in its possession copies of any Fund
documents or records subsequent to such termination which copies had not been
requested by or on behalf of a Fund in connection with the termination process
described above, Furman Selz will provide such Fund with reasonable access to
such copies; provided, however, that, in exchange therefor, KIMCO shall
reimburse Furman Selz for all costs reasonably incurred in connection therewith.
(b) Subject to (c) below, this Agreement may be terminated at any time,
without payment of any penalty, on sixty (60) day's prior written notice by
KIMCO, or by Furman Selz and, with respect to one or more of the Funds a vote of
a majority of such Fund's or Funds' Directors/Trustees.
(c) If, during the first six months this Agreement is in effect it is
terminated for a Fund or Funds in accordance with (b) above, for any reason
other than a material breach of this Agreement, the merger of a Fund or Funds
for which KIMCO, Evergreen Asset Management Corp., First Union National Bank of
North Carolina or any affiliates thereof act as investment adviser, or any other
event that leads to the termination of the existence of a Fund or Funds, and
Furman Selz is replaced as sub-administrator, then KIMCO shall make a one-time
cash payment to Furman Selz equal to the unpaid balance due Furman Selz for the
first six-months this Agreement in effect, assuming for purposes of calculation
of the payment that the asset level of each Fund on the date Furman Selz is
replaced will remain constant for the balance of such term. Once this Agreement
has been in effect for more than six months from the commencement date, this
paragraph (c) shall be null, void and of no further effect.
7. Amendment. No provision of this Agreement may be changed, waived, discharged
or terminated orally, but only by an instrument in writing signed by the party
against which an enforcement of the change, waiver, discharge or termination is
sought.
8. Notices. Notices of any kind to be given to KIMCO hereunder by Furman Selz
shall be in writing and shall be duly given if delivered to KIMCO at the
following address: Keystone Investment Management Company, 200 Berkeley Street,
Boston, Massachusetts 02116 ATT: General Counsel. Notices of any kind to be
given to Furman Selz hereunder by EAMC or the Funds shall be in writing and
shall be duly given if delivered to Furman Selz at 3435 Stelzer Road, Columbus,
Ohio 43219 Attention: George O. Martinez, Senior Vice President.
9. Limitation of Liability. Furman Selz is hereby expressly put on notice of the
limitations of liability as set forth in the Declarations of Trust of the Funds
that are Massachusetts business trusts or series thereof and agrees that the
obligations pursuant to this Agreement of a particular Fund be limited solely to
the assets of that particular Fund, and Furman Selz shall not seek satisfaction
of any such obligation from the assets of any other Fund, the shareholders of
any Fund, the Trustees, officers, employees or agents of any Fund, or any of
them.
10. Miscellaneous. The captions in this Agreement are included for convenience
of reference only and in no way define or delimit any of the provisions hereof
or otherwise affect their construction or effect. If any provision of this
Agreement shall be held or made invalid by a court or regulatory agency
decision, statute, rule or otherwise, the remainder of this Agreement shall not
be affected thereby. Subject to the provisions of Section 5 hereof, this
Agreement shall be binding upon and shall inure to the benefit of the parties
hereto and their respective successors and shall be governed by New York law;
provided, however, that nothing herein shall be construed in a manner
inconsistent with the Investment Company Act of 1940 or any rule or regulation
promulgated by the Securities and Exchange Commission thereunder.
IN WITNESS WHEREOF, the parties hereto have caused this instrument to
be executed by their officers designated below as of the day and year first
above written.
KEYSTONE INVESTMENT MANAGEMENT COMPANY
By______________________________________
Its:____________________________________
Attest:________________________
FURMAN SELZ LLC
By______________________________________
its_____________________________________
Attest:________________________
D:\JPW\LIEBER\AGREMENT\SUBADMIN\SUBADM1.KEY
6
<PAGE>
SCHEDULE A
SUB-ADMINISTRATOR AGREEMENT
Keystone America Hartwell Emerging Growth Fund ("Emerging Growth")
Keystone Balanced Fund II ("Balanced Fund")
Keystone Capital Preservation and
Income Fund ("Capital Preservation and Income")
Keystone Emerging Markets Fund ("Emerging Markets")
Keystone Fund For Total Return ("Total Return")
Keystone Fund of the Americas ("Fund of the Americas")
Keystone Global Opportunities Fund ("GlobalOpportunities")
Keystone Global Resources and Development Fund ("GlobalResources")
Keystone Government Securities Fund ("Government Securities")
Keystone Intermediate Term Bond Fund ("Intermediate Term")
Keystone Liquid Trust("Liquid Trust")
Keystone Omega Fund ("Omega")
Keystone Small Company Growth Fund II ("Small Company Growth")
Keystone State Tax Free Fund ("State Tax Free")
- Florida Tax Free Fund ("Florida Tax Free")
- Massachusetts Tax Free Fund ("Massachusetts Tax Free")
- Pennsylvania Tax Free Fund ("Pennsylvania Tax Free")
- New York Insured Tax Free Fund ("New York Insured")
Keystone State Tax Free Fund-Series II ("State Tax Free II")
- California Insured Tax Free Fund ("California Insured")
- Missouri Tax Free Fund ("Missouri Tax Free")
Keystone Strategic Income Fund ("Strategic Income")
Keystone Tax Free Income Fund ("Tax Free Income")
Keystone Quality Bond Fund (B-1) ("B-1") Keystone
Diversified Bond Fund (B-2) ("B-2")
Keystone High Income Bond Fund (B-4) ("B-4")
Keystone Balanced Fund (K-1) ("K-1")
Keystone Strategic Growth Fund (K-2)("K-2")
Keystone Growth and Income Fund (S-1) ("S-1")
Keystone Mid-Cap Growth Fund (S-3) ("S-3")
Keystone Small Company Growth Fund (S-4) ("S-4")
Keystone Institutional Adjustable Rate Fund ("Adjustable Rate")
Keystone Institutional Trust ("Institutional")
Keystone International Fund Inc. ("International")
Keystone Precious Metals Holdings, Inc. ("Precious Metals")
Keystone Tax Free Fund ("Tax Free")
D:\JPW\LIEBER\AGREMENT\SUBADMIN\SUBADM1.KEY
7
FORM OF
PRINCIPAL UNDERWRITING AGREEMENT
KEYSTONE AMERICA FUND FAMILY
CLASS A AND C SHARES
AGREEMENT made this ____ day of December, 1996 by and between each of
the parties listed on Exhibit A attached hereto and made a part hereof, each for
itself and not jointly (each a "Fund"), and Evergreen Keystone Investment
Services, 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 Class A and Class C shares of beneficial interest of the Fund
sold prior to December 11, 1996 ("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. Having assigned all rights to commission payments for Shares sold on
or after December 1, 1996 but before December 11, 1996 to Evergreen Keystone
Distributor, Inc., Principal Underwriter will not be entitled to commissions on
such Shares. Principal Underwriter shall be entitled to receive commission
payments for sales of the Class A and C shares (as set forth on Exhibit B
attached hereto and made a part hereof) with respect to all Class A and C shares
sold prior to December 1, 1996 and outstanding as of the opening of business on
such date ("Pre-Acquisition Shares") and to receive contingent deferred sales
charges on such Pre-Acquisition Shares as set forth in the then current
prospectus and/or statement of additional information of the Fund. For purposes
of this Principal Underwriting Agreement, Pre-Acquisition Shares shall be such
shares which are defined in Schedule I attached hereto as Distributor Shares
calculated as though the Distributor Last Sale Cut-Off Date, as such term is
defined in Schedule I, was November 30, 1996. Principal Underwriter may reallow
all or a part of such commissions to such brokers, dealers or other persons as
Principal Underwriter may determine.
3. Principal Underwriter shall not make 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.
4. Principal Underwriter agrees to comply with the Business Conduct
Rules of the National Association of Securities Dealers, Inc.
5. 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, pros
pectus 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.
6. The Principal Underwriter agrees to indemnify and hold harmless the
Fund, its officers, 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.
7. To the extent required by the Fund's 12b-1 Plans, Principal
Underwriter shall provide to the Board of Trustees of the Fund in connection
with such 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.
8. 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 Plans 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 any Rule 12b-1 Trustees or by a vote of
a majority of the Fund's outstanding Shares on not more than sixty (60) days
written notice to any other party to the Agreement; and shall terminate
automatically in the event of its assignment (as defined in the 1940 Act).
9. This Agreement shall be construed in accordance with the laws
of The Commonwealth of Massachusetts.
10. 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 BALANCED FUND II
KEYSTONE CAPITAL PRESERVATION AND INCOME FUND
KEYSTONE FUND FOR TOTAL RETURN
KEYSTONE FUND OF THE AMERICAS
KEYSTONE GLOBAL OPPORTUNITIES FUND
KEYSTONE GLOBAL RESOURCES AND DEVELOPMENT FUND
KEYSTONE GOVERNMENT SECURITIES FUND
KEYSTONE INTERMEDIATE TERM BOND FUND
KEYSTONE LIQUID TRUST
KEYSTONE OMEGA FUND
KEYSTONE SMALL COMPANY GROWTH FUND II
KEYSTONE STATE TAX FREE FUND
FLORIDA TAX FREE FUND
MASSACHUSETTS TAX FREE FUND
NEW YORK TAX FREE FUND
PENNSYLVANIA TAX FREE FUND
KEYSTONE STATE TAX FREE FUND-SERIES II
CALIFORNIA TAX FREE FUND
MISSOURI TAX FREE FUND
KEYSTONE STRATEGIC INCOME FUND
KEYSTONE TAX FREE INCOME FUND
KEYSTONE WORLD BOND FUND
each for itself and not jointly
By:
George S. Bissell
Chairman
EVERGREEN KEYSTONE INVESTMENT SERVICES, INC.
By:________________________________
Rosemary D. Van Antwerp
Senior Vice President
<PAGE>
FORM OF
PRINCIPAL UNDERWRITING AGREEMENT
FOR CLASS B-1 SHARES
OF
KEYSTONE WORLD BOND FUND
AGREEMENT made this ____ day of December 1996 by and between Keystone
World Bond Fund, a Massachusetts business trust, ("Fund"), and Evergreen
Keystone Investment Services, Inc., 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 broker, dealer or other person shall have any authority to act
as agent for the Fund; such broker, dealer 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-1 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 contingent deferred sales charges ("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 Business Conduct
Rules of the National Association of Securities Dealers, Inc. (formerly Rules of
Fair Practice) (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 "Business Conduct
Rules")).
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, 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 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 purposes
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 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 Allocable Portion of
Distribution Fees (as hereinafter defined) and its Allocable Portion of CDSCs
(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 to the Principal
Underwriting Agreement, of even date herewith, in respect of Class B-1 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 Business Conduct Rules 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) 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
payment of such Distribution Fees. The 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
Business Conduct Rules, 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-1 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-1 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 Business
Conduct Rules, 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:_____________________________
Title:
EVERGREEN KEYSTONE INVESTMENT
SERVICES, INC.
By:_____________________________
Title:
18508
<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-2 Shares of the Instant Fund dated as of May 31, 1995 and the successor
Agreement dated December 11, 1996 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 prior to Deceember 11, 1996 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 issued prior to December 11, 1996 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>
FORM OF
PRINCIPAL UNDERWRITING AGREEMENT
FOR CLASS B-2 SHARES
OF
KEYSTONE WORLD BOND FUND
AGREEMENT made this 11th day of December, 1996 by and between Keystone
World Bond Fund, a Massachusetts business trust ("Fund"), and Evergreen
Keystone Investment Services Inc., 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 broker, dealer or other person shall have any authority to act
as agent for the Fund; such broker, dealer 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 contingent deferred sales charges ("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 Business Conduct
Rules of the National Association of Securities Dealers, Inc. (formerly the
"Rules of Fair Practice") (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
"Business Conduct Rules")).
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, 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 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 purposes
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 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 Allocable Portion of
distribution fees (as hereinafter defined) and its Allocable Portion of CDSCs
(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 to 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 Business Conduct Rules 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) 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 CDSCs 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
payment of such Distribution Fees. The 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
Business Conduct Rules, 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 Business
Conduct Rules, 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:________________________________
Title:
EVERGREEN KEYSTONE INVESTMENT
SERVICES, INC.
By:________________________________
Title:
17976
<PAGE>
SCHEDULE I
TO
PRINCIPAL UNDERWRITING AGREEMENT
FOR CLASS B-2 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-2 Shares of the Instant Fund dated as of May 31, 1995 and the successor
Agreement dated December 11, 1996 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 prior to Deceember 11, 1996 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 issued prior to December 11, 1996 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.
December 30, 1996
Keystone World Bond Fund
200 Berkeley Street
Boston, Massachusetts 02116-5034
Gentlemen:
I am Senior Vice President of and General Counsel to Keystone
Investment Management Company, investment adviser to Keystone World Bond Fund
(the "Fund"). You have asked for my opinion with respect to the proposed
issuance of 535,434 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.
19 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 Declaration of Trust (the "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. 20 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
The Trustees and Shareholders
Keystone World Bond Fund
We consent to the use of our report dated December 8, 1995 incorporated by
reference herein and to the references to our firm under the caption "Financial
Highlights" in the prospectus.
/s/ KPMG Peat Marwick LLP
KPMG Peat Marwick LLP
Boston, Massachusetts
December 30, 1996
<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
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> OCT-31-1996
<PERIOD-START> NOV-01-1995
<PERIOD-END> APR-30-1996
<INVESTMENTS-AT-COST> 13,238,796
<INVESTMENTS-AT-VALUE> 13,749,038
<RECEIVABLES> 1,045,968
<ASSETS-OTHER> 8,164
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 14,803,170
<PAYABLE-FOR-SECURITIES> 270,037
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 45,261
<TOTAL-LIABILITIES> 315,298
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 9,104,475
<SHARES-COMMON-STOCK> 1,049,905
<SHARES-COMMON-PRIOR> 1,182,807
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> (37,941)
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> (774,378)
<ACCUM-APPREC-OR-DEPREC> 679,294
<NET-ASSETS> 8,971,450
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 437,823
<OTHER-INCOME> 0
<EXPENSES-NET> (103,681)
<NET-INVESTMENT-INCOME> 334,142
<REALIZED-GAINS-CURRENT> 120,693
<APPREC-INCREASE-CURRENT> 31,288
<NET-CHANGE-FROM-OPS> 486,123
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (333,167)
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 9,933
<NUMBER-OF-SHARES-REDEEMED> (168,991)
<SHARES-REINVESTED> 26,156
<NET-CHANGE-IN-ASSETS> (985,017)
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> (38,900)
<OVERDIST-NET-GAINS-PRIOR> (894,729)
<GROSS-ADVISORY-FEES> (30,499)
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> (104,265)
<AVERAGE-NET-ASSETS> 9,603,270
<PER-SHARE-NAV-BEGIN> 8.42
<PER-SHARE-NII> 0.30
<PER-SHARE-GAIN-APPREC> 0.13
<PER-SHARE-DIVIDEND> (0.30)
<PER-SHARE-DISTRIBUTIONS> 0.00
<RETURNS-OF-CAPITAL> 0.00
<PER-SHARE-NAV-END> 8.55
<EXPENSE-RATIO> 2.21
<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> 102
<NAME> KEYSTONE WORLD BOND FUND CLASS B
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> OCT-31-1996
<PERIOD-START> NOV-01-1995
<PERIOD-END> APR-30-1996
<INVESTMENTS-AT-COST> 13,238,796
<INVESTMENTS-AT-VALUE> 13,749,038
<RECEIVABLES> 1,045,968
<ASSETS-OTHER> 8,164
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 14,803,170
<PAYABLE-FOR-SECURITIES> 270,037
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 45,261
<TOTAL-LIABILITIES> 315,298
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 4,658,216
<SHARES-COMMON-STOCK> 513,948
<SHARES-COMMON-PRIOR> 435,713
<ACCUMULATED-NII-CURRENT> 1,898
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> (192,960)
<ACCUM-APPREC-OR-DEPREC> (62,035)
<NET-ASSETS> 4,405,119
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 194,676
<OTHER-INCOME> 0
<EXPENSES-NET> (62,188)
<NET-INVESTMENT-INCOME> 132,488
<REALIZED-GAINS-CURRENT> 51,434
<APPREC-INCREASE-CURRENT> (3,076)
<NET-CHANGE-FROM-OPS> 180,846
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (134,960)
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 132,888
<NUMBER-OF-SHARES-REDEEMED> (66,726)
<SHARES-REINVESTED> 12,073
<NET-CHANGE-IN-ASSETS> 725,241
<ACCUMULATED-NII-PRIOR> 4,359
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> (244,633)
<GROSS-ADVISORY-FEES> (13,587)
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> (62,446)
<AVERAGE-NET-ASSETS> 4,265,459
<PER-SHARE-NAV-BEGIN> 8.45
<PER-SHARE-NII> 0.26
<PER-SHARE-GAIN-APPREC> 0.11
<PER-SHARE-DIVIDEND> (0.27)
<PER-SHARE-DISTRIBUTIONS> 0.00
<RETURNS-OF-CAPITAL> 0.00
<PER-SHARE-NAV-END> 8.55
<EXPENSE-RATIO> 2.96
<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
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> OCT-31-1996
<PERIOD-START> NOV-01-1995
<PERIOD-END> APR-30-1996
<INVESTMENTS-AT-COST> 13,238,796
<INVESTMENTS-AT-VALUE> 13,749,038
<RECEIVABLES> 1,045,968
<ASSETS-OTHER> 8,164
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 14,803,170
<PAYABLE-FOR-SECURITIES> 270,037
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 45,261
<TOTAL-LIABILITIES> 315,298
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 1,286,454
<SHARES-COMMON-STOCK> 130,165
<SHARES-COMMON-PRIOR> 140,478
<ACCUMULATED-NII-CURRENT> 9,050
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> (125,442)
<ACCUM-APPREC-OR-DEPREC> (58,759)
<NET-ASSETS> 1,111,303
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 54,756
<OTHER-INCOME> 0
<EXPENSES-NET> (17,546)
<NET-INVESTMENT-INCOME> 37,210
<REALIZED-GAINS-CURRENT> 14,715
<APPREC-INCREASE-CURRENT> 2,537
<NET-CHANGE-FROM-OPS> 54,462
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (38,495)
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 16,471
<NUMBER-OF-SHARES-REDEEMED> (29,624)
<SHARES-REINVESTED> 2,840
<NET-CHANGE-IN-ASSETS> (71,299)
<ACCUMULATED-NII-PRIOR> 10,328
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> (140,261)
<GROSS-ADVISORY-FEES> (3,818)
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> (17,620)
<AVERAGE-NET-ASSETS> 1,200,674
<PER-SHARE-NAV-BEGIN> 8.42
<PER-SHARE-NII> 0.27
<PER-SHARE-GAIN-APPREC> 0.12
<PER-SHARE-DIVIDEND> (0.27)
<PER-SHARE-DISTRIBUTIONS> 0.00
<RETURNS-OF-CAPITAL> 0.00
<PER-SHARE-NAV-END> 8.54
<EXPENSE-RATIO> 2.96
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
MULTIPLE CLASS PLAN FOR KEYSTONE WORLD BOND FUND
Keystone World Bond Fund (the "Fund") currently offers three classes of shares
with the following class provisions and current offering and exchange
characteristics. Additional classes of shares (such classes being shares having
characteristics referred to in Rule 18f-3 under the Investment Company Act of
1940, as amended (the "1940 Act")), when created, may have characteristics that
differ from those described.
1. CLASSES
a. Class A Shares
i. Class A Shares have a distribution plan adopted pursuant to
Rule 12b-1 under the 1940 Act (a "12b-1 Distribution Plan")
and/or a shareholder services plan. The plans provide for
annual payments of distribution and/or shareholder services
fees that are based on a percentage of average daily net
assets of Class A shares, as described in the Fund's current
prospectus.
ii. Class A Shares are offered with a front-end sales load, except
that purchases of Class A Shares made under certain
circumstances may not be subject to a front-end sales load or
a contingent deferred sales charge ("CDSC"), as described in
the Fund's current prospectus.
iii. Shareholders may exchange Class A Shares of the Fund for Class
A Shares of any other fund described in the Fund's prospectus.
b. Class B Shares
i. Class B Shares have adopted a 12b-1 Distribution Plan and/or a
shareholder services plan. The plans provide for annual
payments of distribution and/or shareholder services fees that
are based on a percentage of average daily net assets of Class
B shares, as described in the Fund's current prospectus.
ii. Class B Shares are offered at net asset value without a
front-end sales load, but may be subject to a CDSC as
described in the Fund's current prospectus.
iii. Class B Shares automatically convert to Class A Shares without
a sales load or exchange fee after designated periods.
iv. Shareholders may exchange Class B Shares of the Fund for Class
B Shares of any other fund described in the Fund's prospectus.
c. Class C Shares
i. Class C Shares have adopted a 12b-1 Distribution Plan and/or a
shareholder services plan. The plans provide for annual
payments of distribution and/or shareholder services fees that
are based on a percentage of average daily net assets of Class
C shares, as described in the Fund's current prospectus.
ii. Class C Shares are offered at net asset value without a
front-end sales load, but may be subject to a CDSC as
described in the Fund's current prospectus.
iii. Shareholders may exchange Class C Shares of the Fund for Class
C Shares of any other fund described in the Fund's prospectus.
2. CLASS EXPENSES
Each class bears the expenses of its 12b-1 Distribution Plan and/or
shareholder services plan. There currently are no other class specific
expenses.
3. EXPENSE ALLOCATION METHOD
All income, realized and unrealized capital gains and losses and expenses
not assigned to a class will be allocated to each class based on the
relative net asset value of each class.
4. VOTING RIGHTS
a. Each class will have exclusive voting rights on any matter submitted
to its shareholders that relates solely to its class arrangement.
b. Each class will have separate voting rights on any matter submitted
to shareholders where the interests of one class differ from the
interests of any other class.
c. In all other respects, each class has the same rights and
obligations as each other class.
5. EXPENSE WAIVERS OR REIMBURSEMENTS
Any expense waivers or reimbursements will be in compliance with Rule
18f-3 issued under the 1940 Act.
<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 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
