AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION FEBRUARY 28, 1997
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. 21 [X]
and
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940
Amendment No. 22 [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:
[X] immediately upon filing pursuant to paragraph (b)
[ ] on (date) pursuant to paragraph (b)(1)
[ ] 60 days after filing pursuant to paragraph (a)(1)
[ ] on (date) pursuant to paragraph (a)(1)
[ ] 75 days after filing pursuant to paragraph (a)(2)
[ ] on (date) pursuant to paragraph (a)(2) of Rule 485
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>
KEYSTONE WORLD BOND FUND
CONTENTS OF
POST-EFFECTIVE AMENDMENT NO. 21
to
REGISTRATION STATEMENT
This Post-Effective Amendment No. 21 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
nondiversified portfolio 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" sections of this prospectus.
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 provided on
this page.
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 ..................................................... 24
Performance Data ......................................................... 27
Fund Shares .............................................................. 27
Additional Information ................................................... 27
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 - WORLD BOND PORTFOLIO
The purpose of this fee table is to assist investors in understanding the
costs and expenses that an investor in each class of shares of the portfolio
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 Charge Imposed on Purchases ......... 4.75%(3) None None
(as a percentage of offering price)
Deferred Sales Charge ............................. 0.00%(4) 5.00% in the first year 1.00% in the first
(as a percentage of the original purchase price declining to 1.00% in year
or redemption proceeds, as applicable) the and 0.00% thereafter
sixth year and 0.00%
thereafter
<CAPTION>
ANNUAL FUND OPERATING EXPENSES(5)
(as a percentage of average net assets)
<S> <C> <C> <C>
Management Fees ................................... 0.64% 0.64% 0.64%
12b-1 Fees ........................................ 0.24% 1.00%(6) 1.00%(6)
Other Expenses .................................... 1.13% 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) a 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
</TABLE>
AMOUNTS SHOWN IN THE EXAMPLE SHOULD NOT BE CONSIDERED A REPRESENTATION OF PAST
OR FUTURE EXPENSES. ACTUAL EXPENSES MAY BE GREATER OR LESS THAN THOSE SHOWN.
- ------------
(1) 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. (the "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%.
<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 years ended October 31, 1996, 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 from 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 PERIOD $ 8.95 $ 8.42 $ 8.42 $ 9.56 $ 8.69 $10.77 $ 9.82 $ 9.76 $10.04 $11.02
====== ====== ====== ====== ====== ====== ====== ====== ====== ======
TOTAL RETURN (c) ... 13.99% 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
- ------------
(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 ratio of total expenses to average net assets 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.
</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
- ------------
(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 ratio of total expenses to average net assets 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.
</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
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 ....................... $ 8.42 $ 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 ................. 0.50 (0.02) (1.02) 0.19
------ ------ ------ ------
Total from investment operations ........................ 1.06 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
- ------------
(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 ratio of total expenses to average net assets 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.
</TABLE>
<PAGE>
THE FUND
The Fund is an open-end, management investment company, commonly known as a
mutual fund. 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 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 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. 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.
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.
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 (the "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 the
holders of a majority (as defined in the 1940 Act), which means the lesser of
(1) 67% of the shares represented at a meeting at which more than 50% of the
outstanding shares are represented or (2) more than 50% of the outstanding
shares. 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 Portfolio involves an element of
risk. Before you invest in the Portfolio, you should carefully evaluate your
ability to assume the risks your investment in the Portfolio poses. YOU CAN
LOSE MONEY BY INVESTING IN THE PORTFOLIO. YOUR INVESTMENT IS NOT GUARANTEED. A
DECREASE IN THE VALUE OF THE PORTFOLIO'S PORTFOLIO SECURITIES CAN RESULT IN A
DECREASE IN THE VALUE OF YOUR INVESTMENT.
Certain risks related to the Portfolio 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.
PORTFOLIO 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. 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 resale 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, 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 (2)
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. Dividends and distributions may also be
subject to state and local taxes.
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 First Union Keystone, Inc. ("First Union Keystone"). First
Union Keystone provides accounting, bookkeeping, legal, personnel and general
corporate services to Keystone, its affiliates, and the Keystone Families of
Funds. Both Keystone and First Union Keystone are located at 200 Berkeley
Street, Boston, Massachusetts 02116-5034.
On December 11, 1996, First Union Keystone succeeded to the business of a
corporation under different ownership. First Union Keystone 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 December 31, 1996.
First Union is headquartered in Charlotte, North Carolina, and had $140
billion in consolidated assets as of December 31, 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, and
Evergreen Asset Management Corp., wholly-owned subsidiaries of FUNB, manage or
otherwise oversee the investment of over $60 billion in assets as of December
31, 1996 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 Portfolio's assets, supervises the operation of the Portfolio 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 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.
Keystone's fee is computed as of the close of business each business day.
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) 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" as
defined in the 1940 Act.
PRINCIPAL UNDERWRITER
Evergreen Keystone Distributor, Inc. (formerly Evergreen Funds Distributor,
Inc.) ("EKD"), subsidiary of The BISYS Group, Inc. ("BISYS"), which is not
affiliated with First Union, is the Fund's principal underwriter (the
"Principal Underwriter"). EKD replaced 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 125 W. 55th Street, New
York, New York 10019.
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
Richard A. Wisentaner, a Vice President of Keystone, has been the Fund's
Portfolio Manager since September, 1996. He has more than six years of
experience in fixed income research and analysis. Prior to joining Keystone in
1994, Mr. Wisentaner was an analyst with State Street Research and Management
Co. in Boston, Massachusetts.
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, fees 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 $93,944,
(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, 1996
and 1995, were 58% and 108%, respectively. High portfolio turnover involves
correspondingly greater brokerage commissions and other transaction costs,
which will be borne directly by the Portfolio as well as additional gains and/
or losses. For further information on the tax consequences of such realized
gains and/or losses, see the "Dividends and Taxes" section of this prospectus.
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 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 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, 1996 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 so 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 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 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, including the right to suspend sales, 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 attribut-
able 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:
<TABLE>
<CAPTION>
AS A % OF CONCESSION TO
AS A % OF NET AMOUNT DEALERS AS A % OF
AMOUNT OF PURCHASE OFFERING PRICE INVESTED* OFFERING PRICE
- -----------------------------------------------------------------------------------------
<S> <C> <C> <C>
Less than $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%
</TABLE>
- ------------
*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. (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, First Union Keystone, 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 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, upon notice to shareholders pursuant to applicable
law.
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.
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 shareholders of the Fund, 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.
o 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.
o 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.
o 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.
o 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.
o 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.
o 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 irrevocably 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.
125 W. 55th Street
New York, New York 10019
WBP-P Sup. 2/97 [recycle logo]
12M
540094
---------------------------------------
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. See "Service Providers" below.
- --------------------------------------------------------------------------------
TABLE OF CONTENTS
- --------------------------------------------------------------------------------
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............................................16
Principal Underwriter.........................................18
Sub-administrator.............................................19
Declaration of Trust..........................................19
Expenses .....................................................21
Standardized Total Return and Yield Quotations................22
Financial Statements..........................................22
Additional Information........................................23
Appendix ....................................................A-1
17732
<PAGE>
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THE FUND
- --------------------------------------------------------------------------------
The Fund is an open-end, management investment company commonly known
as a mutual fund. The Fund is authorized to issue series of shares representing
portfolios of its assets. At this time, the Fund issues shares of one portfolio,
the World Bond Portfolio (the "Portfolio"). The Portfolio seeks current income
by investing primarily in a nondiversified portfolio 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.
- --------------------------------------------------------------------------------
SERVICE PROVIDERS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Service Provider
- ------------------------------------- ---------------------------------------------------------
<S> <C>
Investment adviser (referred to Keystone Investment Management Company, 200 Berkeley
in this SAI as "Keystone") Street, Boston, Massachusetts 02116. (Keystone is a
wholly-owned subsidiary of First Union Keystone, Inc.
(formerly, Keystone Investments, Inc.) ("First Union
Keystone"), also located at 200 Berkeley Street, Boston,
Massachusetts 02116.)
Principal underwriter ( referred Evergreen Keystone Distributor, Inc. (formerly, Evergreen
to in this SAI as "EKD" or the Funds Distributor, Inc.), 125 W. 55th Street, New York,
"Principal Underwriter") New York 10019.
Marketing services agent and Evergreen Keystone Investment Service, Inc. (formerly,
predecessor to EKD (referred to Keystone Investment Distributors Company), 200 Berkeley
in this SAI as "EKIS") Street, Boston, Massachusetts 02116.
Sub-administrator (referred to in The BISYS Group, Inc., 3435 Stelzer Road, Columbus, Ohio
this SAI as "BISYS") 43219.
Transfer and dividend Evergreen Keystone Service Company (formerly, Keystone
disbursing agent (referred to in Investor Resource Center, Inc.), 200 Berkeley Street,
this SAI as "EKSC") Boston, Massachusetts 02116. (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.
</TABLE>
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INVESTMENT RESTRICTIONS
- --------------------------------------------------------------------------------
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.
- --------------------------------------------------------------------------------
DISTRIBUTIONS AND TAXES
- --------------------------------------------------------------------------------
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.
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 how long you have held the 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, they are not to
any significant degree eligible 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
actual dividends and the amount the Fund advises him is his pro rata portion of
income taxes withheld by foreign governments from interest and dividends paid on
the Portfolio's investments. The shareholder will be entitled, however, to take
his share of the amount of such foreign taxes withheld as a credit against his
U.S. income tax, or to treat his share of the foreign tax withheld as an
itemized deduction from his gross income, if that should be to his advantage. In
substance, this policy enables the shareholder to benefit from the same foreign
tax credit or deduction that he would have received if he had been the
individual owner of foreign securities and had paid foreign income tax on the
income therefrom. As in the case of individuals receiving income directly from
foreign sources, the above described tax credit and deductions are subject to
certain limitations.
- -------------------------------------------------------------------------------
VALUATION OF SECURITIES
- --------------------------------------------------------------------------------
Current values for the Portfolio's securities are determined as
follows:
(1) Common stock, preferred stock and other equity securities listed on
the New York Stock Exchange (the "Exchange") are valued on the basis of the last
sale price on the Exchange. In the absence of any sales, such securities are
valued at the mean between the closing asked price and the closing bid price.
(2) Common stock, preferred stock and other equity securities listed on
other U.S. or foreign exchanges will be valued as described in (1) above using
quotations on the exchange on which the security is most extensively traded.
(3) Common stock, preferred stock and other equity securities unlisted
and quoted on the National Market System ("NMS") are valued at the last sale
price, provided a sale has occurred. In the absence of any sales, such
securities are valued at the high or "inside" bid, which is the bid supplied by
the 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.
- --------------------------------------------------------------------------------
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 the transaction is effected;
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 offers three 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 National Association of Securities
Dealers, Inc. ("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 EKSC.) 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 EKD. 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, First
Union Keystone, 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 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).
- --------------------------------------------------------------------------------
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 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 EKD (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 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 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 EKD (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
- --------------------------------------------------------------------------------
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 Families of Funds;
Professor, Finance Department, George Washington
University; President, Amling & Company (investment
advice); and former Member, Board of Advisers,
Credito Emilano (banking).
LAURENCE B. ASHKIN: Trustee of the Fund; Trustee or Director of all
other funds in the Keystone Families of Funds;
Trustee of all the funds in the Evergreen Family of
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 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 Families of Funds;
Trustee of all the funds in the Evergreen Family of
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 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,
Inc.
EDWIN D. CAMPBELL: Trustee of the Fund; Trustee or Director of all
other funds in the Keystone Families of Funds;
Principal, Padanaram Associates, Inc.; and former
Executive Director, Coalition of Essential Schools,
Brown University.
CHARLES F. CHAPIN: Trustee of the Fund; Trustee or Director of all
other funds in the Keystone 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 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 Presi dent, The
London Harness Company; former Managing Partner,
Roscommon Capital Corp.; former Chief Executive
Officer, Gifford Gifts of Fine Foods; former
Chairman, Gifford, Drescher & Asso ciates
(environmental consulting); and former Director,
Keystone Investments, Inc. and Keystone.
JAMES S. HOWELL: Trustee of the Fund; Trustee or Director of all
other funds in the Keystone Families of Funds;
Chairman and Trustee of all the funds in the
Evergreen Family of 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 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 Families of Funds;
Chairman and Of Counsel, Keyser, Crowley & Meub,
P.C.; Member, Governor's (VT) Council of Eco nomic
Advisers; Chairman of the Board and Director,
Central Vermont Public Service Corporation and Lahey
Hitchcock Clinic; Di rector, 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. MCDONNELL: Trustee of the Fund; Trustee or Director of all
other funds in the Keystone Families of Funds;
Trustee of all the funds in the Evergreen Family of
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 Families of Funds;
Trustee of all the funds in the Evergreen Family of
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 Families of Funds;
Trustee of all the funds in the Evergreen Family of
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 Families of Funds; Vice
Chair and former Executive Vice President, DHR
International, Inc. (executive recruitment); former
Senior Vice President, Boyden International Inc.
(executive recruit ment); 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 Families of Funds;
Trustee of all the funds in the Evergreen Family of
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 Families of Funds;
Trustee of all the funds in the Evergreen Family of
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 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 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
Families of Funds; President and Treasurer of all
the funds in the Evergreen Family of Funds; Senior
Managing Director, Furman Selz LLC since 1992;
Managing Director from 1984 to 1992; Consultant to
BISYS Fund Services since 1996; 230 Park Avenue,
Suite 910, New York, NY.
GEORGE O. MARTINEZ: Secretary of the Fund; Secretary of all other funds
in the Keystone Families of Funds; Secretary of all
the funds in the Evergreen Family of Funds; Senior
Vice President and Director of Administration and
Regulatory Services, BISYS Fund Services since 1995;
Vice President/Assistant General Counsel, Alliance
Capital Management from 1988-1995; 3435 Stelzer
Road, Columbus, Ohio.
* This Trustee may be considered an "interested person" of the Fund within the
meaning of the 1940 Act.
During the fiscal year ended October 31, 1996, no Trustee or officer
received any direct remuneration from the Fund. Annual retainers and meeting
fees paid by all funds in the Keystone Families of Funds (which includes more
than thirty mutual funds) for the fiscal year ended October 31, 1996 totaled
approximately $411,000. As of January 31, 1997, 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 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 First Union
Keystone, Keystone Investments, Inc. ("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 First Union Keystone 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.
First Union Keystone and each of its subsidiaries, including Keystone,
are now indirectly owned by First Union. First Union is headquartered in
Charlotte, North Carolina, and had $140 billion in consolidated assets as of
December 31, 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 and Evergreen Asset Management Corp.,
wholly-owned subsidiaries of FUNB, manage or otherwise oversee the investment of
over $60 billion in assets as of December 31, 1996, 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 and expenses 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 (15) all
extraordinary charges and expenses of the Fund.
The Fund, on behalf of the Portfolio, 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 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.
Keystone's fee is computed as of the close of business each business day and
payable monthly.
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.
- --------------------------------------------------------------------------------
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, replaced 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.
- --------------------------------------------------------------------------------
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.
- -------------------------------------------------------------------------------
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.
- -------------------------------------------------------------------------------
EXPENSES
- --------------------------------------------------------------------------------
Investment Advisory Fees
For each of the Portfolio's last three fiscal years, the table below lists the
total dollar amounts paid by the Fund, on behalf of the Portfolio, to Keystone
for services rendered under the Advisory Agreement.
For more information, see "Investment Adviser."
Fee Paid to Keystone for
Fiscal Year Ended Services Rendered under the Percentage of Portfolio
October 31, Advisory Agreement Average Net Assets
- -------------------- ------------------------------ -----------------------
1996 $93,994 0.64%
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 EKIS 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
- ----------------- ---------------------- ------------------------ --------------
$21,291 $30,767 $13,709 $11,245
Underwriting Commissions
For each of the Portfolio'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 Portfolio's shares. The table also indicates the aggregate dollar amount
of underwriting commissions retained by EKIS. For more information, see
"Principal Underwriter" and "Sales Charges."
Aggregate Dollar Amount of
Fiscal Year Ended Aggregate Dollar Amount of Underwriting Commissions
October 31, Underwriting Commissions Retained by EKIS
- ------------------ ----------------------------- ---------------------------
1996 $57,562 $26,779
1995 $55,036 $12,298
1994 $67,005 ($44,771)
Brokerage Commissions
For the Fiscal Period Aggregate Dollar Amount of
Ended October 31, Brokerage Commissions Paid
- ---------------------- ----------------------------
1996 $0
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 annual total return for the one year period
ended October 31, 1996 was 8.58%. The Class A average annual total return for
the five year period ended October 31, 1996 , and for the period of January 9,
1987 (commencement of operations) to October 31, 1996 were 6.10% and 6.97%,
respectively, (including any applicable sales charge). The annual total returns
for Class B and Class C of the Portfolio for the one year period ended October
31, 1996 was 9.04% and 13.09%, respectively, (including any applicable sales
charge). The average annual 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 3.97% and 4.68%, 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, 1996;
Financial Highlights for each of the the years in the two-year period
ended October 31, 1996, 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 each of the years in the two-year period ended
October 31, 1996, the period from January 1, 1994 to October 31, 1994,
and the period from August 2, 1993 to December 31, 1993 for Class B and
C shares;
Statement of Assets and Liabilities as of October 31, 1996;
Statement of Operations for the year ended October 31, 1996;
Statements of Changes in Net Assets for each of the years in the
two-year period ended October 31, 1996;
Notes to Financial Statements; and
Independent Auditors' Report dated November 29, 1996.
Copies of the Fund's Annual Report 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
- --------------------------------------------------------------------------------
Redemptions in Kind
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.
General
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
January 31, 1997.
As of January 31, 1997, Merrill Lynch Pierce Fenner & Smith, For Sole
Benefit of Its Customers, Attn: Fund Administration, 4800 Deer Lake Dr. E, 3rd
Floor, Jacksonville, FL 32246-6484 owned 611.601% of the Portfolio's outstanding
Class B shares.
As of January 31, 1997, Merrill Lynch Pierce Fenner & Smith, For Sole
Benefit of Its Customers, Attn: Fund Administration, 4800 Deer Lake Dr. E, 3rd
Floor, Jacksonville, FL 32246-6484 Robert Samuel Klepper, Susan Leslie Klepper
Comm Property House Account, 424 Keel Lane, Redwood Shoes, CA 94065-1107;
PaineWebber for the Benefit of PaineWebber Cdn., FBO: Howard I. Richert, PO Box
3321, Weehawken, NJ 07087-8154; Susan T. Fox TTEE, Susan T. Fox Trust, U/A DTD
11/2/95, 117 Ryan Avenue, Mill Valley, CA 94941; 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 18.411%, 8.998%,7.160%,
7.15%, 5.864% and 5.360%, 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>
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, 1996:
Schedule of Investments October 31, 1996
Financial Highlights Class A Shares For the each of
the years in the two-year period ended
October 31, 1996, 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 each of the years in the
two-year period ended October 31, 1996,
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 each of the years in the
two-year period ended October 31, 1996,
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, 1996
Statement of Operations Year ended October 31, 1996
Statements of Changes in Net Assets Two years ended December 31, 1996
Notes to Financial Statements
Independent Auditors' Report November 29, 1996
ITEM 24(B). EXHIBITS
(1) Declaration of Trust, as amended and restated (the
"Declaration of Trust")(1)
(2) By-Laws(1)
(3) Not applicable.
(4)(a) Copy of the form of share certificate(2)
(b) The Declaration of Trust, Articles III, V, VI, and VIII(1)
(c) 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 The BISYS Group, Inc.(4)
(c) Principal Underwriting Agreements with EKIS (each a
"Continuation Agreement")(4)
(10) Opinion and Consent of Counsel (3)
(11) Consent as to use of Independent Auditors' Report(4)
(12) Not applicable.
(13) Not applicable.
(14) Copies of model plans used in the establishment of retirement
plans(5)
(15) Class A, Class B and Class C Distribution Plans(3)
(16) Performance Calculations(4)
(17) Financial data schedules(4)
(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 (the
"Registration Statement") and incorporated by reference herein.
(2) Filed with Post-Effective Amendment No. 4 ("Post-Effective Amendment No.
4") to the Registration Statement and incorporated by reference herein.
(3) Filed with Post-Effective Amendment No. 20 ("Post-Effective Amendment
No. 20") to the Registration Statement and incorporated by reference
herein.
(4) Filed herewith.
(5) 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 January 31, 1997
- -------------- ------------------------
Shares of Beneficial Interest
$.01 par value
Class A 1,056
Class B 391
Class C 129
ITEM 27. INDEMNIFICATION
Provisions for the indemnification of the Fund's Trustees and officers are
contained in Article VIII of the Declaration of 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 which is 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 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 which is filed herewith.
Provisions for the indemnification of EKIS are contained in Section 9 of
the Class B Continuation Agreements, copies 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 was filed with Post-Effective Amendment
No. 20 and incorporated by reference herein.
ITEM 28. BUSINESSES AND OTHER CONNECTIONS OF INVESTMENT ADVISER
The following table lists the names of the various officers and
directors of Keystone Investment Management Company, Registrant's investment
adviser, and their respective positions. For each named individual, the table
lists, for at least the past two fiscal years, (i) any other organizations
(excluding investment advisory clients) with which the officer and/or director
has had or has substantial involvement; and (ii) positions held with such
organizations.
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.
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.
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.
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 125 W. 55th Street, New York, New York 10019
ITEM 29(C). - Not applicable
ITEM 30. LOCATION OF ACCOUNTS AND RECORDS
First Union Keystone, 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 certifies that it meets all of the
requirements for the effectiveness of this Amendment to its Registration
Statement pursuant to Rule 485(b) under the Securities Act of 1933 and has duly
caused this Amendment to its Registration Statement to be signed on its behalf
by the undersigned, thereunto duly authorized in the City of Boston, and The
Commonwealth of Massachusetts, on the 28th day of February, 1997.
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 28th day of February, 1997.
<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(3)
(b) Form of Dealers Agreement(3)
8 Custodian, Fund Accounting and Recordkeeping Agreement,
as amended(1)
9 (a) Form of Marketing Services Agreement(3)
(b) Form of Sub-administration Agreement(4)
(c) Continuation Agreements(4)
10 Opinion and Consent of Counsel(3)
11 Consent of Independent Auditors(4)
14 Model Retirement Plans(4)
15 Class A, B and C Distribution Plans(3)
16 Performance Calculations(4)
17 Financial Data Schedule (filed as Exhibit 27)(4)
18 Multiple Class Plan(3)
19 Powers of Attorney(4)
- --------------------------------------------------------
(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)Incorporated by reference herein to Post-Effective Amendment No. 20.
(4)Filed herewith.
(5)Incorporated by reference herein to Post-Effective Amendment No. 66 to
Registration Statement No. 2-10527/811-96.
FORM OF
SUB-ADMINISTRATOR AGREEMENT
This Sub-Administrator Agreement is made as of this st day of ,
1997 between Keystone Investment Management Company, a Delaware corporation
(herein called "KIMCO"), and The BISYS Group Inc., a Delaware limited liability
corporation (herein called "BISYS").
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 BISYS 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 BISYS 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 BISYS as
Sub-Administrator for the Funds on the terms and conditions set forth in this
Agreement and BISYS 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, BISYS 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.
BISYS 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. BISYS 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 BISYS 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 BISYS employees, and
trade association dues.
4. Compensation. For the Sub-Administrative Services provided, KIMCO hereby
agrees to pay and BISYS 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 BISYS 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 BISYS. The duties of BISYS
shall be limited to those expressly set forth herein or later agreed to in
writing by BISYS, and no implied duties are assumed by or may be asserted
against BISYS hereunder. BISYS 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 "BISYS" shall include partners,
officers, employees and other agents of BISYS as well as BISYS itself).
So long as BISYS acts in good faith and with due diligence and without
negligence, KIMCO shall indemnify BISYS 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 BISYS' 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 BISYS
harmless, KIMCO shall be fully and promptly advised of all pertinent facts
concerning the situation in question, and it is further understood that BISYS
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 BISYS, whose approval shall not be unreasonably withheld. In the
event that KIMCO elects to assume the defense of any suit and retain counsel,
BISYS 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 BISYS
for the reasonable fees and expenses of any counsel retained by BISYS.
BISYS 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 BISYS' duties, and BISYS 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 BISYS, 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 BISYS 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 BISYS even though paid by BISYS.
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
BISYS, 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 BISYS and unpaid by
KIMCO upon such termination shall be immediately due and payable upon
and notwithstanding such termination. BISYS shall be entitled to
collect from KIMCO, in addition to the compensation described herein,
all costs reasonably incurred in connection with BISYS'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
BISYS 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, BISYS will provide such Fund with reasonable
access to such copies; provided, however, that, in exchange therefor,
KIMCO shall reimburse BISYS 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 BISYS 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 BISYS is replaced as
sub-administrator, then KIMCO shall make a one-time cash payment to
BISYS equal to the unpaid balance due BISYS 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 BISYS 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 BISYS 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
BISYS hereunder by EAMC or the Funds shall be in writing and shall be duly given
if delivered to BISYS at 3435 Stelzer Road, Columbus, Ohio 43219 Attention:
George O. Martinez, Senior Vice President.
9. Limitation of Liability. BISYS 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 BISYS 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:________________________
The BISYS Group, Inc.
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
PRINCIPAL UNDERWRITING AGREEMENT
KEYSTONE AMERICA FUND FAMILY
CLASS A AND C SHARES
AGREEMENT made 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 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.
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed by their respective officers thereunto duly authorized at Boston,
Massachusetts, on the day and year first written above.
KEYSTONE 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: /s/ George S. Bissell
-------------------------
George S. Bissell
Chairman
EVERGREEN KEYSTONE INVESTMENT SERVICES, INC.
By: /s/ Rosemary D. Van Antwerp
---------------------------
Rosemary D. Van Antwerp
Senior Vice President
<PAGE>
PRINCIPAL UNDERWRITING AGREEMENT
FOR CLASS B-1 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-1 shares of beneficial interest of the Fund ("B-1
Shares") as an independent contractor upon the terms and conditions hereinafter
set forth. The general term "Shares" as used herein has the same meaning as is
provided therefor in Schedule I hereto. Except as the Fund may from time to time
agree, the Principal Underwriter will act as agent for the Fund and not as
principal.
2. The Principal Underwriter will use its best efforts to find
purchasers for the B-1 Shares and to promote distribution of the B-1 Shares and
may obtain orders from brokers, dealers or other persons for sales of B-1 Shares
to them. No such dealer, broker or other person shall have any authority to act
as agent for the Fund; such dealer, broker or other person shall act only as
principal in the sale of B-1 Shares.
3. Sales of B-1 Shares by Principal Underwriter shall be at the public
offering price determined in the manner set forth in the prospectus and/or
statement of additional information of the Fund current at the time of the
Fund's acceptance of the order for B-2 Shares. All orders shall be subject to
acceptance by the Fund and the Fund reserves the right in its sole discretion to
reject any order received. The Fund shall not be liable to anyone for failure to
accept any order.
4. On all sales of B-1 Shares made prior to December 11, 1996. Fund
shall pay the Principal Underwriter Distribution Fees (as defined in Section 14
hereof), as commissions for the sale of B-1 Shares and other Shares, which shall
be paid in conjunction with distribution fees paid to the Principal Underwriter
by other classes of Shares of the Fund to the extent required in order to comply
with Section 14 hereof, and shall pay over to the Principal Underwriter CDSCs
(as defined in Section 14 hereof) as set forth in the Fund's current prospectus
and statement of additional information, and as required by Section 14 hereof.
The Principal Underwriter shall also receive payments consisting of shareholder
service fees ("Service Fees") at the rate of .25% per annum of the average daily
net asset value of the Class B-1 Shares outstanding prior to December 11, 1996.
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
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 the B-1
Shares any representations concerning the B-1 Shares except those contained in
the then current prospectus and/or statement of additional information covering
the Shares and in printed information approved by the Fund as information
supplemental to such prospectus and statement of additional information. [Copies
of the then current prospectus and statement of additional information and any
such printed supplemental information will be supplied by the Fund to the
Principal Underwriter in reasonable quantities upon request.]
7. The Principal Underwriter agrees to comply with the Rules of Fair
Practice of the National Association of Securities Dealers, Inc. (as defined in
the Purchase and Sale Agreement, dated as of December 11, 1996 (the "Purchase
Agreement"), between the Principal Underwriter, Citibank, N.A. and Citicorp
North America, Inc., as agent (the "Rules of Fair Practice")).
8. The Fund appoints the Principal Underwriter as its agent to accept
orders for redemptions and repurchases of B-1 Shares at values and in the manner
determined in accordance with the then current prospectus and/or statement of
additional information of the Fund.
9. The Fund agrees to indemnify and hold harmless the Principal
Underwriter, its officers and Directors and each person, if any, who controls
the Principal Underwriter within the meaning of Section 15 of the Securities Act
of 1933 ("1933 Act"), against any losses, claims, damages, liabilities and
expenses (including the cost of any legal fees incurred in connection therewith)
which the Principal Underwriter, its officers, Directors or any such controlling
person may incur under the 1933 Act, under any other statute, at common law or
otherwise, arising out of or based upon
a. any untrue statement or alleged untrue statement of a material
fact contained in the Fund's registration statement, prospectus or
statement of additional information (including amendments and
supplements thereto) or
b. any omission or alleged omission to state a material fact required
to be stated in the Fund's registration statement, prospectus or
statement of additional information necessary to make the
statements therein not misleading, provided, however, that insofar
as losses, claims, damages, liabilities or expenses arise out of
or are based upon any such untrue statement or omission or alleged
untrue statement or omission made in reliance and in conformity
with information furnished to the Fund by the Principal
Underwriter for use in the Fund's registration statement,
prospectus or statement of additional information, such
indemnification is not applicable. In no case shall the Fund
indemnify the Principal Underwriter or its controlling person as
to any amounts incurred for any liability arising out of or based
upon any action for which the Principal Underwriter, its officers
and Directors or any controlling person would otherwise be subject
to liability by reason of willful misfeasance, bad faith, or gross
negligence in the performance of its duties or by reason of the
reckless disregard of its obligations and duties under this
Agreement.
10. The Principal Underwriter agrees to indemnify and hold harmless
the Fund, its officers and Trustees and each person, if any, who controls the
Fund within the meaning of Section 15 of the 1933 Act against any loss, claims,
damages, liabilities and expenses (including the cost of any legal fees incurred
in connection therewith) which the Fund, its officers, Directors or any such
controlling person may incur under the 1933 Act, under any other statute, at
common law or otherwise arising out of the acquisition of any Shares by any
person which (a) may be based upon any wrongful act by the Principal Underwriter
or any of its employees or representatives, or (b) may be based upon any untrue
statement or alleged untrue statement of a material fact contained in the Fund's
registration statement, prospectus or statement of additional information
(including amendments and supplements thereto), or any omission or alleged
omission to state a material fact required to be stated therein or necessary to
make the statements therein not misleading, if such statement or omission was
made in reliance upon information furnished or confirmed in writing to the Fund
by the Principal Underwriter.
11. The Fund agrees to execute such papers and to do such acts and
things as shall from time to time be reasonably requested by the Principal
Underwriter for the purpose of qualifying the B-1 Shares for sale under the
so-called "blue sky" laws of any state or for registering B-1 Shares under the
1933 Act or the Fund under the Investment Company Act of 1940 ("1940 Act"). The
Principal Underwriter shall bear the expenses of preparing, printing and
distributing advertising, sales literature, prospectuses, and statements of
additional information. The Fund shall bear the expense of registering B-1
Shares under the 1933 Act and the Fund under the 1940 Act, qualifying B-1 Shares
for sale under the so-called "blue sky" laws of any state, the preparation and
printing of prospectuses, statements of additional information and reports
required to be filed with the Securities and Exchange Commission and other
authorities, the preparation, printing and mailing of prospectuses and
statements of additional information to holders of B-1 Shares, and the direct
expenses of the issue of B-1 Shares.
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 not less than quarterly a written report of the
amounts received from the Fund hereunder and the purpose for which such
expenditures by the Fund were made.
The term of this Agreement shall begin on the date hereof and, unless
sooner terminated or continued as provided below, shall expire after one year.
This Agreement shall continue in effect after such term if its continuance is
specifically approved by a majority of the outstanding voting securities of
Class B-1 of the Fund or by a majority of the Directors of the Fund and a
majority of the Directors who are not parties to this Agreement or "interested
persons", as defined in the Investment Company Act of 1940 (the "1940 Act"), of
any such party and who have no direct or indirect financial interest in the
operation of the Fund's Rule 12b-1 plan for Class B-1 Shares or in any
agreements related to the plan at least annually in accordance with the 1940 Act
and the rules and regulations thereunder.
This Agreement may be terminated at any time, without payment of any
penalty, by vote of a majority of the Directors of the Fund, or a majority of
such Directors who are not parties to this Agreement or "interested persons", as
defined in the 1940 Act, of any such party and who have no direct or indirect
financial interest in the operation of the Fund's Rule 12b-1 plan for Class B-1
Shares or in any agreement related to the plan or by a vote of a majority of the
outstanding voting securities of Class B-1 on not more than sixty days written
notice to any other party to the agreement; and shall terminate automatically in
the event of its assignment (as defined in the 1940 Act), which shall not
include assignment of the Principal Underwriter's (as hereinafter defined)
provided for hereunder and/or rights related to such Allocable Portions.
14. The provisions of this Section 14 shall be applicable to the
extent necessary to enable the Fund to comply with the obligation of the Fund to
pay the Principal Underwriter its Allocable Portion of Distribution Fees paid in
respect of Shares while the Fund is required to do so pursuant 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 Fund Shares sold prior to December 11, 1996, subject to the
limitation on the maximum aggregate amount of such fees under the Rules of Fair
Practice as applicable to such Distribution Fee on the date hereof.
14.2 The Principal Underwriter's Allocable Portion of Distribution
Fees paid by the Fund in respect of Shares sold prior to December 11, 1996 shall
be equal to the portion of the Asset Based Sales Charge allocable to Distributor
Shares (as defined in Schedule I hereto to this Agreement) in accordance with
Schedule I hereto. The Fund agrees to cause its transfer agent to maintain the
records and arrange for the payments on behalf of the Fund at the times and in
the amounts and to the accounts required by Schedule I hereto, as the same may
be amended from time to time. It is acknowledged and agreed that by virtue of
the operation of Schedule I hereto the Principal Underwriter's Allocable Portion
of Distribution Fees paid by the Fund in respect of Shares, may, to the extent
provided in Schedule I hereto, take into account Distribution Fees payable by
the Fund in respect of other existing 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 made prior to December 11, 1996 shall be the Distribution Fees
attributable to B-1 Shares sold prior to December 11, 1996 which are Distributor
Shares (as defined in Schedule I hereto) and all other amounts constituting the
Principal Underwriter's Allocable Portion of Distribution Fees shall be the
Distribution Fees related to the sale of other Shares which are Distributor
Shares (as defined in Schedule I hereto).
The Fund shall cause its transfer agent and sub-transfer agents to
withhold from redemption proceeds payable to holders of Shares on redemption
thereof the contingent deferred sales charges payable upon redemption thereof as
set forth in the then current prospectus and/or statement of additional
information of the Fund ("CDSCs") and to pay over to the Principal Underwriter
The Principal Underwriter's Allocable Portion of said CDSCs paid in respect of
Shares which shall be equal to the portion thereof allocable to Distributor
Shares (as defined in Schedule I hereto) in accordance with Schedule I hereto.
14.3 The Principal Underwriter shall be considered to have completely
earned the right to the payment of its Allocable Portion of the Distribution Fee
and the right to payment over to it of its' Allocable Portion of the CDSC in
respect of Shares as provided for hereby upon the completion of the sale of each
Commission Share (as defined in Schedule I hereto) taken into account as a
Distributor Share in computing the Principal Underwriter's Allocable Portion in
accordance with Schedule I hereto.
14.4 Except as provided in Section 14.5 hereof in respect of
Distribution Fees only, the Fund's obligation to pay the Principal Underwriter
the Distribution Fees and to pay over to the Principal Underwriter CDSCs
provided for hereby shall be absolute and unconditional and shall not be subject
to dispute, offset, counterclaim or any defense whatsoever (it being understood
that nothing in this sentence shall be deemed a waiver by the Fund of its right
separately to pursue any claims it may have against the Principal Underwriter
and enforce such claims against any assets (other than the Principal
Underwriter's right to its Allocable Portion of the Distribution Fees and CDSCs
(the "Collection Rights") of the Principal Underwriter).
14.5 Notwithstanding anything in this Agreement to the contrary, the
Fund shall pay to the Principal Underwriter its Allocable Portion of
Distribution Fees provided for hereby notwithstanding its termination as
Principal Underwriter for the Shares or any termination of this Agreement and
such payment of such Distribution Fees, and that obligation and the method of
computing such payment, shall not be changed or terminated except to the extent
required by any change in applicable law, including, without limitation, the
1940 Act, the Rules promulgated thereunder by the Securities and Exchange
Commission and the Rules of Fair Practice, in each case enacted or promulgated
after June 1, 1995, or in connection with a Complete Termination (as hereinafter
defined). For the purposes of this Section 14.5, "Complete Termination" means a
termination of the Fund's Rule 12b-1 plan for B-2 Shares involving the cessation
of payments of the Distribution Fees, and the cessation of payments of
distribution fees pursuant to every other Rule 12b-1 plan of the Fund for every
existing or future B-Class-of-Shares (as hereinafter defined) and the Fund's
discontinuance of the offering of every existing or future B-Class-of- Shares,
which conditions shall be deemed satisfied when they are first complied with
hereafter and so long thereafter as they are complied with prior to the earlier
of (i) the date upon which all of the B-2 Shares which are Distributor Shares
pursuant to Schedule I hereto shall have been redeemed or converted or (ii) June
1, 2005. For purposes of this Section 14.5, the term B-Class- of-Shares means
each of the B-1 Class of Shares of the Fund, the B-2 Class of Shares of the Fund
and each other class of shares of the Fund hereafter issued which would be
treated as Shares under Schedule I hereto or which has substantially similar
economic characteristics to the B-1 or B-2 Classes of Shares taking into account
the total sales charge, CDSC or other similar charges borne directly or
indirectly by the holder of the shares of such class. The parties agree that the
existing C Class of Shares of the Fund does not have substantially similar
economic characteristics to the B-1 or B-2 Classes of Shares taking into account
the total sales charge, CDSC or other similar charges borne directly or
indirectly by the holder of such shares. For purposes of clarity the parties to
this agreement hereby state that they intend that a new installment load class
of shares which may be authorized by amendments to Rule 6(c)-10 under the 1940
Act will be considered to be a B-Class-of-Shares if it has economic
characteristics substantially similar to the economic characteristics of the
existing B-1 or B-2 Classes of Shares taking into account the total sale charge,
CDSC or other similar charges borne directly or indirectly by the holder of such
shares and will not be considered to be a B-Class-of-Shares if it has economic
characteristics substantially similar to the economic characteristics of the
existing C Class of shares of the Fund taking into account the total sales
charge, CDSC or other similar charges borne directly or indirectly by the holder
of such shares.
14.6 The Principal Underwriter may assign any part of its Allocable
Portions and obligations of the Fund related thereto (but not the Principal
Underwriter's obligations to the Fund provided for in this Agreement) to any
person (an "Assignee") and any such assignment shall be effective as to the Fund
upon written notice to the Fund by the Principal Underwriter. In connection
therewith the Fund shall pay all or any amounts in respect of its Allocable
Portions directly to the Assignee thereof as directed in a writing by the
Principal Underwriter in the Irrevocable Payment Instruction, as the same may be
amended from time to time with the consent of the Fund, and the Fund shall be
without liability to any person if it pays such amounts when and as so directed,
except for underpayments of amounts actually due, without any amount payable as
consequential or other damages due to such underpayment and without interest
except to the extent that delay in payment of Distribution Fees and CDSCs
results in an increase in the maximum Sales Charge allowable under the Rules of
Fair Practice, which increases daily at a rate of prime plus one percent per
annum.
14.7 The Fund will not, to the extent it may otherwise be empowered to
do so, change or waive any CDSC with respect to B-1 Shares, except as provided
in the Fund's prospectus or statement of additional information without the
Principal Underwriter's or Assignee's consent, as applicable. Notwithstanding
anything to the contrary in this Agreement or any termination of this Agreement
or the Principal Underwriter as principal underwriter for the Shares of the
Fund, the Principal Underwriter shall be entitled to be paid its Allocable
Portion of the CDSCs whether or not the Fund's Rule 12b-1 plan for B-1 Shares is
terminated and whether or not any such termination is a Complete Termination, as
defined above.
15. This Agreement shall be construed in accordance with the laws of
The Commonwealth of Massachusetts. All sales hereunder are to be made, and title
to the Shares shall pass, in Boston, Massachusetts.
16. The Fund is a Massachusetts business trust established under a
Declaration of Trust, as it may be amended from time to time. The obligations of
the Fund are not personally binding upon, nor shall recourse be had against the
private property of any of the Trustees, shareholders, officers, employees or
agents of the Fund, but only the property of the Fund shall be bound.
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this agreement to be
executed by their respective officers thereunto duly authorized at Boston,
Massachusetts, on the day and year first written above.
KEYSTONE WORLD BOND FUND
By: /s/ George S. Bissell
----------------------------
Title: Chairman
EVERGREEN KEYSTONE INVESTMENT
SERVICES, INC.
By: /s/ Rosemary D. Van Antwerp
---------------------------
Title: Senior Vice President
<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 DISTRI
BUTOR SHARES AND POST-DISTRIBUTOR SHARES:
The Transfer Agent shall use the following rules to allocate the
amounts of Asset Based Sales Charges and CDSCs payable by each Fund in respect
of Shares between Distributor Shares and Post-distributor Shares:
(1) Receivables Constituting CDSCs: CDSCs will be treated as relating
to Distributor Shares or Post-distributor Shares depending upon the Month of
Original Purchase of the Commission Share the redemption of which gives rise to
the payment of a CDSC by a Shareholder Account.
The Transfer Agent shall cause each Sub-transfer Agent to apply the
foregoing rule to each Sub-shareholder Account based on the records maintained
by such Sub-transfer Agent; provided, that until the Sub-transfer Agent in
respect of the ML Omnibus Account develops the data processing capability to
conform to the foregoing requirements, such Sub-transfer Agent shall apply the
foregoing rules to each Sub-shareholder Account with respect to the Date of
Original Purchase of any Commission Share as though each such date were a
separate Month of Original Purchase.
(2) Receivables Constituting Asset Based Sales Charges:
The Asset Based Sales Charges accruing in respect of each Shareholder
Account (other than an Omnibus Account) shall be allocated to each Share
reflected in such Shareholder Account as of the close of business on such day on
an equal per share basis. For example, the Asset Based Sales Charges
attributable to Distributor Shares on any day shall be computed and allocated as
follows:
A X (B/C)
where:
A. = Total amount of Asset Based Sales Charge accrued in
respect of such Shareholder Account (other than an
Omnibus Account) on such day.
B. = Number of Distributor Shares reflected in such
Shareholder Account (other than an Omnibus Account) on
the close of business on such day
C. = Total number of Distributor Shares and
Post-Distributor Shares reflected in such Shareholder
Account (other than an Omnibus Account) and outstanding
as of the close of business on such day.
The Portion of the Asset Based Sales Charges of such Fund accruing in respect of
such Shareholder Account for such day allocated to Post-distributor Shares will
be obtained using the same formula but substituting for "B" the number of
Post-distributor Shares, as the case may be, reflected in such Shareholder
Account and outstanding on the close of business on such day. The foregoing
allocation formula may be adjusted from time to time by notice to the Fund and
the transfer agent for the Fund from the Seller and the Program Agent pursuant
to Section 8.18 of the Purchase Agreement.
The Transfer Agent shall, based on the records maintained by the
record owner of such Omnibus Account, allocate the Asset Based Sales Charge
accruing in respect of each Omnibus Account on each day among all
Sub-shareholder Accounts reflected in such Omnibus Account on an equal per share
basis based upon the total number of Distributor Shares and Post-distributor
Shares reflected in each such Sub-shareholder Account as of the close of
business on such day. In addition, the Transfer Agent shall apply the foregoing
rules to each Sub-shareholder Account (as though it were a Shareholder Account
other than an Omnibus Account), based on the records maintained by the record
owner, to allocate the Asset Based Sales Charge so allocated to any Sub-
shareholder Account among the Distributor Shares and Post-distributor Shares
reflected in each such Sub-shareholder Account in accordance with the rules set
forth in the preceding paragraph; provided, that until the Sub-transfer Agent in
respect of the ML Omnibus Account develops the data processing capacity to apply
the rules of this Schedule I as applicable to Sub-shareholder Accounts other
than ML Omnibus Accounts, the Transfer Agent shall allocate the Asset Based
Sales Charge accruing in respect of Shares of any Fund in the ML Omnibus Account
during any calendar month (or portion thereof) among Distributor Shares and
Post-distributor Shares as follows:
(a) The portion of such Asset Based Sales Charge allocable to
Distributor Shares shall be computed as follows:
A X ((B + C)/2)
((D + E)/2)
where:
A = Total amount of Asset Based Sales Charge accrued
during such calendar month (or portion thereof) in
respect of Shares of such Fund in the ML Omnibus
Account
B = Shares of such Fund in the ML Omnibus Account and
identified as Distributor Shares and outstanding as of
the close of business on the last day of the
immediately preceding calendar month (or portion
thereof), times Net Asset Value per Share as of such
time
C = Shares of such Fund in the ML Omnibus Account and
identified as Distributor Shares and outstanding as of
the close of business on the last day of such calendar
month (or portion thereof), times Net Asset Value per
Share as of such time
D = Total number of Shares of such Fund in the ML Omnibus
Account and outstanding as of the close of business on
the last day of the immediately preceding calendar
month (or portion thereof), times Net Asset Value per
Share as of such time.
E = Total number of Shares of such Fund in the ML Omnibus
Account and outstanding as of the close of business on
the last day of such calendar month (or portion
thereof), times Net Asset Value per Share as of such
time.
(b) The portion of such Asset Based Sales Charge allocable to
Post-distributor Shares shall be computed s follows:
A X ((B + C)/2)
((D + E)/2)
where:
A = Total amount of Asset Based Sales Charge accrued
during such calendar month (or portion thereof) in
respect of Shares of such Fund in the ML Omnibus
Account
B = Shares of such Fund in the ML Omnibus Account and
identified as Post-distributor Shares and outstanding
as of the close of business on the last day of the
immediately preceding calendar month (or portion
thereof), times Net Asset Value per Share as of such
time
C = Shares of such Fund in the ML Omnibus Account and
identified as Post-distributor Shares and outstanding
as of the close of business on the last day of such
calendar month (or portion thereof), times Net Asset
Value per Share as of such time
D = Total number of Shares of such Fund in the ML Omnibus
Account and outstanding as of the close of business on
the last day of the immediately preceding calendar
month (or portion thereof), times Net Asset Value per
Share as of such time.
E = Total number of Shares of such Fund in the ML Omnibus
Account outstanding as of the close of business on the
last day of such calendar month, times Net Asset Value
per Share as of such time.
(3) Payments on behalf of each Fund.
On the close of business on each day the Transfer Agent shall cause payment to
be made of the amount of the Asset Based Sales Charge and CDSCs accruing on such
day in respect of the Shares of such Fund owned of record by Shareholder
Accounts (other than Omnibus Accounts) by two separate wire transfers, directly
from accounts of such Fund as follows:
1. The Asset Based Sales Charge and CDSCs accruing in respect
of Shareholder Accounts other than Omnibus Accounts and
allocable to Distributor Shares in accordance with the
preceding rules shall be paid to the Distributor's Account,
unless the Distributor otherwise instructs the Fund in any
irrevocable payment instruction; and
2. The Asset Based Sales Charges and CDSCs accruing in respect
of Shareholder Accounts other than Omnibus Accounts and
allocable to Post-distributor Shares in accordance with the
preceding rules shall be paid in accordance with direction
received from any future distributor of Shares of the Instant
Fund.
On each Omnibus CDSC Settlement Date, the Transfer Agent for each Fund
shall cause the applicable Sub-transfer Agent to cause payment to be made of the
amount of the CDSCs accruing during the period to which such Omnibus CDSC
Settlement Date relates in respect of the Shares of such Fund owned of record by
each Omnibus Account by two separate wire transfers directly from the account of
such Fund maintained by such Transfer Agent, as follows:
1. The CDSCs accruing in respect of such Omnibus Account and allocable
to Distributor Shares in accordance with the preceding rules shall be paid to
the Distributor's Account, unless the Distributor otherwise instructs the Fund
in any irrevocable payment instruction; and
2. The CDSCs accruing in respect of such Omnibus Account and allocable
to Post-distributor Shares in accordance with the preceding rules shall be paid
in accordance with direction received from any future distributor of Shares of
the Instant Fund.
On each Omnibus Asset Based Sales Charge Settlement Date the Transfer
Agent for each Fund shall cause payment to be made of the amount of the Asset
Based Sales Charge accruing for the period to which such Omnibus Asset Based
Sales Charge Settlement Date relates in respect of the Shares of such Fund owned
of record by each Omnibus Account by two separate wire transfers directly from
accounts of such Fund as follows:
1. The Asset Based Sales Charge accruing in respect of such Omnibus
Account and allocable to Distributor Shares shall be paid to the Distributor's
Collection Account, unless the Distributor otherwise instructs the Fund in any
irrevocable payment instruction; and
2. The Asset Based Sales Charge accruing in respect of such Omnibus
Account and allocable to Post-Distributor Shares shall be paid in accordance
with direction received from any future distributor of Shares of the Instant
Fund.
<PAGE>
PRINCIPAL UNDERWRITING AGREEMENT
FOR CLASS B-2 SHARES
OF
KEYSTONE WORLD BOND FUND
AGREEMENT made this 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 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 made prior to December 11, 1996. Fund
shall pay the Principal Underwriter Distribution Fees (as defined in Section 14
hereof), as commissions for the sale of B-2 Shares and other Shares, which shall
be paid in conjunction with distribution fees paid to the Principal Underwriter
by other classes of Shares of the Fund to the extent required in order to comply
with Section 14 hereof, and shall pay over to the Principal Underwriter CDSCs
(as defined in Section 14 hereof) as set forth in the Fund's current prospectus
and statement of additional information, and as required by Section 14 hereof.
The Principal Underwriter shall also receive payments consisting of shareholder
service fees ("Service Fees") at the rate of .25% per annum of the average daily
net asset value of the Class B-2 Shares outstanding prior to December 11, 1996.
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
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 the B-2
Shares any representations concerning the B-2 Shares except those contained in
the then current prospectus and/or statement of additional information covering
the Shares and in printed information approved by the Fund as information
supplemental to such prospectus and statement of additional information. [Copies
of the then current prospectus and statement of additional information and any
such printed supplemental information will be supplied by the Fund to the
Principal Underwriter in reasonable quantities upon request.]
7. The Principal Underwriter agrees to comply with the Rules of Fair
Practice of the National Association of Securities Dealers, Inc. (as defined in
the Purchase and Sale Agreement, dated as of December 11, 1996 (the "Purchase
Agreement"), between the Principal Underwriter, Citibank, N.A. and Citicorp
North America, Inc., as agent (the "Rules of Fair Practice")).
8. The Fund appoints the Principal Underwriter as its agent to accept
orders for redemptions and repurchases of B-2 Shares at values and in the manner
determined in accordance with the then current prospectus and/or statement of
additional information of the Fund.
9. The Fund agrees to indemnify and hold harmless the Principal
Underwriter, its officers and Directors and each person, if any, who controls
the Principal Underwriter within the meaning of Section 15 of the Securities Act
of 1933 ("1933 Act"), against any losses, claims, damages, liabilities and
expenses (including the cost of any legal fees incurred in connection therewith)
which the Principal Underwriter, its officers, Directors or any such controlling
person may incur under the 1933 Act, under any other statute, at common law or
otherwise, arising out of or based upon
a. any untrue statement or alleged untrue statement of a material
fact contained in the Fund's registration statement,
prospectus or statement of additional information (including
amendments and supplements thereto) or
b. any omission or alleged omission to state a material fact
required to be stated in the Fund's registration statement,
prospectus or statement of additional information necessary to
make the statements therein not misleading, provided, however,
that insofar as losses, claims, damages, liabilities or
expenses arise out of or are based upon any such untrue
statement or omission or alleged untrue statement or omission
made in reliance and in conformity with information furnished
to the Fund by the Principal Underwriter for use in the Fund's
registration statement, prospectus or statement of additional
information, such indemnification is not applicable. In no
case shall the Fund indemnify the Principal Underwriter or its
controlling person as to any amounts incurred for any
liability arising out of or based upon any action for which
the Principal Underwriter, its officers and Directors or any
controlling person would otherwise be subject to liability by
reason of willful misfeasance, bad faith, or gross negligence
in the performance of its duties or by reason of the reckless
disregard of its obligations and duties under this Agreement.
10. The Principal Underwriter agrees to indemnify and hold harmless the
Fund, its officers and Trustees and each person, if any, who controls the Fund
within the meaning of Section 15 of the 1933 Act against any loss, claims,
damages, liabilities and expenses (including the cost of any legal fees incurred
in connection therewith) which the Fund, its officers, Directors or any such
controlling person may incur under the 1933 Act, under any other statute, at
common law or otherwise arising out of the acquisition of any Shares by any
person which
(a) may be based upon any wrongful act by the Principal
Underwriter or any of its employees or representatives, or
(b) may be based upon any untrue statement or alleged untrue
statement of a material fact contained in the Fund's
registration statement, prospectus or statement of additional
information (including amendments and supplements thereto), or
any omission or alleged omission to state a material fact
required to be stated therein or necessary to make the
statements therein not misleading, if such statement or
omission was made in reliance upon information furnished or
confirmed in writing to the Fund by the Principal Underwriter.
11. The Fund agrees to execute such papers and to do such acts and
things as shall from time to time be reasonably requested by the Principal
Underwriter for the purpose of qualifying the B-2 Shares for sale under the
so-called "blue sky" laws of any state or for registering B-2 Shares under the
1933 Act or the Fund under the Investment Company Act of 1940 ("1940 Act"). The
Principal Underwriter shall bear the expenses of preparing, printing and
distributing advertising, sales literature, prospectuses, and statements of
additional information. The Fund shall bear the expense of registering B-2
Shares under the 1933 Act and the Fund under the 1940 Act, qualifying B-2 Shares
for sale under the so-called "blue sky" laws of any state, the preparation and
printing of prospectuses, statements of additional information and reports
required to be filed with the Securities and Exchange Commission and other
authorities, the preparation, printing and mailing of prospectuses and
statements of additional information to holders of B-2 Shares, and the direct
expenses of the issue of B-2 Shares.
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 not less than quarterly a written report of the amounts
received from the Fund hereunder and the purpose for which such expenditures by
the Fund were made.
The term of this Agreement shall begin on the date hereof and, unless
sooner terminated or continued as provided below, shall expire after one year.
This Agreement shall continue in effect after such term if its continuance is
specifically approved by a majority of the outstanding voting securities of
Class B-2 of the Fund or by a majority of the Directors of the Fund and a
majority of the Directors who are not parties to this Agreement or "interested
persons", as defined in the Investment Company Act of 1940 (the "1940 Act"), of
any such party and who have no direct or indirect financial interest in the
operation of the Fund's Rule 12B-2 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-2 plan for Class B-2
Shares or in any agreement related to the plan or by a vote of a majority of the
outstanding voting securities of Class B-2 on not more than sixty days written
notice to any other party to the agreement; and shall terminate automatically in
the event of its assignment (as defined in the 1940 Act), which shall not
include assignment of the Principal Underwriter's (as hereinafter defined)
provided for hereunder and/or rights related to such Allocable Portions.
14. The provisions of this Section 14 shall be applicable to the extent
necessary to enable the Fund to comply with the obligation of the Fund to pay
the Principal Underwriter its Allocable Portion of Distribution Fees paid in
respect of Shares while the Fund is required to do so pursuant 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 Fund Shares sold prior to December 11, 1996, subject to the
limitation on the maximum aggregate amount of such fees under the Rules of Fair
Practice as applicable to such Distribution Fee on the date hereof.
14.2 The Principal Underwriter's Allocable Portion of Distribution Fees
paid by the Fund in respect of Shares sold prior to December 11, 1996 shall be
equal to the portion of the Asset Based Sales Charge allocable to Distributor
Shares (as defined in Schedule I hereto to this Agreement) in accordance with
Schedule I hereto. The Fund agrees to cause its transfer agent to maintain the
records and arrange for the payments on behalf of the Fund at the times and in
the amounts and to the accounts required by Schedule I hereto, as the same may
be amended from time to time. It is acknowledged and agreed that by virtue of
the operation of Schedule I hereto the Principal Underwriter's Allocable Portion
of Distribution Fees paid by the Fund in respect of Shares, may, to the extent
provided in Schedule I hereto, take into account Distribution Fees payable by
the Fund in respect of other existing 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 made prior to December 11, 1996 shall be the Distribution Fees
attributable to B-2 Shares sold prior to December 11, 1996 which are Distributor
Shares (as defined in Schedule I hereto) and all other amounts constituting the
Principal Underwriter's Allocable Portion of Distribution Fees shall be the
Distribution Fees related to the sale of other Shares which are Distributor
Shares (as defined in Schedule I hereto).
The Fund shall cause its transfer agent and sub-transfer agents to
withhold from redemption proceeds payable to holders of Shares on redemption
thereof the contingent deferred sales charges payable upon redemption thereof as
set forth in the then current prospectus and/or statement of additional
information of the Fund ("CDSCs") and to pay over to the Principal Underwriter
The Principal Underwriter's Allocable Portion of said CDSCs paid in respect of
Shares which shall be equal to the portion thereof allocable to Distributor
Shares (as defined in Schedule I hereto) in accordance with Schedule I hereto.
14.3 The Principal Underwriter shall be considered to have completely
earned the right to the payment of its Allocable Portion of the Distribution Fee
and the right to payment over to it of its' Allocable Portion of the CDSC in
respect of Shares as provided for hereby upon the completion of the sale of each
Commission Share (as defined in Schedule I hereto) taken into account as a
Distributor Share in computing the Principal Underwriter's Allocable Portion in
accordance with Schedule I hereto.
14.4 Except as provided in Section 14.5 hereof in respect of
Distribution Fees only, the Fund's obligation to pay the Principal Underwriter
the Distribution Fees and to pay over to the Principal Underwriter CDSCs
provided for hereby shall be absolute and unconditional and shall not be subject
to dispute, offset, counterclaim or any defense whatsoever (it being understood
that nothing in this sentence shall be deemed a waiver by the Fund of its right
separately to pursue any claims it may have against the Principal Underwriter
and enforce such claims against any assets (other than the Principal
Underwriter's right to its Allocable Portion of the Distribution Fees and CDSCs
(the "Collection Rights") of the Principal Underwriter).
14.5 Notwithstanding anything in this Agreement to the contrary, the
Fund shall pay to the Principal Underwriter its Allocable Portion of
Distribution Fees provided for hereby notwithstanding its termination as
Principal Underwriter for the Shares or any termination of this Agreement and
such payment of such Distribution Fees, and that obligation and the method of
computing such payment, shall not be changed or terminated except to the extent
required by any change in applicable law, including, without limitation, the
1940 Act, the Rules promulgated thereunder by the Securities and Exchange
Commission and the Rules of Fair Practice, in each case enacted or promulgated
after June 1, 1995, or in connection with a Complete Termination (as hereinafter
defined). For the purposes of this Section 14.5, "Complete Termination" means a
termination of the Fund's Rule 12B-2 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-2 plan of the Fund for every
existing or future B-Class-of-Shares (as hereinafter defined) and the Fund's
discontinuance of the offering of every existing or future B-Class-of- Shares,
which conditions shall be deemed satisfied when they are first complied with
hereafter and so long thereafter as they are complied with prior to the earlier
of (i) the date upon which all of the B-2 Shares which are Distributor Shares
pursuant to Schedule I hereto shall have been redeemed or converted or (ii) June
1, 2005. For purposes of this Section 14.5, the term B-Class- of-Shares means
each of the B-2 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-2 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-2 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-2 or B-2 Classes of Shares taking into account the total sale charge,
CDSC or other similar charges borne directly or indirectly by the holder of such
shares and will not be considered to be a B-Class-of-Shares if it has economic
characteristics substantially similar to the economic characteristics of the
existing C Class of shares of the Fund taking into account the total sales
charge, CDSC or other similar charges borne directly or indirectly by the holder
of such shares.
14.6 The Principal Underwriter may assign any part of its Allocable
Portions and obligations of the Fund related thereto (but not the Principal
Underwriter's obligations to the Fund provided for in this Agreement) to any
person (an "Assignee") and any such assignment shall be effective as to the Fund
upon written notice to the Fund by the Principal Underwriter. In connection
therewith the Fund shall pay all or any amounts in respect of its Allocable
Portions directly to the Assignee thereof as directed in a writing by the
Principal Underwriter in the Irrevocable Payment Instruction, as the same may be
amended from time to time with the consent of the Fund, and the Fund shall be
without liability to any person if it pays such amounts when and as so directed,
except for underpayments of amounts actually due, without any amount payable as
consequential or other damages due to such underpayment and without interest
except to the extent that delay in payment of Distribution Fees and CDSCs
results in an increase in the maximum Sales Charge allowable under the Rules of
Fair Practice, which increases daily at a rate of prime plus one percent per
annum.
14.7 The Fund will not, to the extent it may otherwise be empowered to
do so, change or waive any CDSC with respect to B-2 Shares, except as provided
in the Fund's prospectus or statement of additional information without the
Principal Underwriter's or Assignee's consent, as applicable. Notwithstanding
anything to the contrary in this Agreement or any termination of this Agreement
or the Principal Underwriter as principal underwriter for the Shares of the
Fund, the Principal Underwriter shall be entitled to be paid its Allocable
Portion of the CDSCs whether or not the Fund's Rule 12B-2 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.
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this agreement to be
executed by their respective officers thereunto duly authorized at Boston,
Massachusetts, on the day and year first written above.
KEYSTONE WORLD BOND FUND
By: /s/ George S. Bissell
----------------------------
Title: Chairman
EVERGREEN KEYSTONE INVESTMENT
SERVICES, INC.
By: /s/ Rosemary D. Van Antwerp
---------------------------
Title: Senior Vice President
<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 DISTRI
BUTOR 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.
The Trustees and Shareholders
Keystone World Bond Fund
We consent to the use of our report dated November 29, 1996 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
February 28, 1997
<TABLE>
<CAPTION>
KAWBF CLASS A MTD YTD ONE YEAR THREE YEAR THREE YEAR FIVE YEAR FIVE YEAR
31-Oct-96 TOTAL RETURN COMPOUNDED TOTAL RETURN COMPOUNDED
<S> <C> <C> <C> <C> <C> <C> <C>
4.75% LOAD 4.70% 8.58% 10.48% 3.38% 34.43% 6.10%
no load 2.18% 9.93% 13.99% 15.99% 5.07% 41.13% 7.13%
Beg dates 30-Sep-96 29-Dec-95 31-Oct-95 29-Oct-93 29-Oct-93 31-Oct-91 31-Oct-91
Beg Value (LOAD) 20,901 19,428 18,735 18,413 18,413 15,132 15,132
Beg Value (no load) 19,908 18,505 17,845 17,538 17,538 14,414 14,414
End Value 20,342 20,342 20,342 20,342 20,342 20,342 20,342
TIME 3 5
TEN YEAR TEN YEAR
TOTAL RETURN COMPOUNDED
<S> <C> <C>
4.75% LOAD 93.76% 6.97%
no load 103.42% 7.51%
Beg dates 09-Jan-87 09-Jan-87
Beg Value (LOAD) 10,499 10,499
Beg Value (no load) 10,000 10,000
End Value 20,342 20,342
9.8111111111
</TABLE>
<TABLE>
<CAPTION>
KAWBF-B MTD YTD ONE YEAR THREE YEAR THREE YEAR FIVE YEAR FIVE YEAR
31-Oct-96 TOTAL RETURN COMPOUNDED TOTAL RETURN COMPOUNDED
<S> <C> <C> <C> <C> <C> <C> <C>
with cdsc N/A 4.14% 9.04% 10.53% 3.39% 13.49% 3.97%
W/O CDSC 2.00% 9.14% 13.04% 13.33% 4.26% 16.33% 4.77%
Beg dates 30-Sep-96 29-Dec-95 31-Oct-95 29-Oct-93 29-Oct-93 02-Aug-93 02-Aug-93
Beg Value (no load) 11,404 10,658 10,291 10,264 10,264 10,000 10,000
End Value (W/O CDSC) 11,633 11,633 11,633 11,633 11,633 11,633 11,633
End Value (with cdsc) 11,100 11,221 11,345 11,345 11,349 11348.6517663
beg nav 8.84 8.66 8.45 9.59 9.59
end nave 8.97 8.97 8.97 8.97 8.97 8.97 8.97
shares originally purhased 1,290.07 1,230.75 1,217.90 1,070.31 1,070.31 1,055.97 1,055.97
TEN YEAR TEN YEAR
TOTAL RETURN COMPOUNDED
<S> <C> <C>
with cdsc NA NA
W/O CDSC NA NA
Beg dates 02-Aug-93 02-Aug-93
Beg Value (no load) 10,000 10,000
End Value (W/O CDSC) 11,633 11,633
End Value (with cdsc) 11,633 11632.8122732
beg nav 9.47 9.47
end nav 8.97 8.97
shares originally purhased 1,055.97 1,055.97
</TABLE>
<TABLE>
<CAPTION>
5% cdsc thru 31-Jul-94
TIME 4% cdsc thru 31-Jul-95 3 3.2472222222
INCEPTION DATE 02-Aug-93 3% cdsc effe 31-Jul-97 31-Dec-96
KAWBF-C MTD YTD ONE YEAR THREE YEAR THREE YEAR FIVE YEAR FIVE YEAR
31-Oct-96 TOTAL RETURN COMPOUNDED TOTAL RETURN COMPOUNDED
<S> <C> <C> <C> <C> <C> <C> <C>
with cdsc N/A 8.18% 13.09% 13.02% 4.17% 16.01% 4.68%
W/O CDSC 2.13% 9.18% 13.09% 13.02% 4.17% 16.01% 4.68%
Beg dates 30-Sep-96 29-Dec-95 31-Oct-95 29-Oct-93 29-Oct-93 02-Aug-93 02-Aug-93
Beg Value (no load) 11,359 10,626 10,259 10,264 10,264 10,000 10,000
End Value (W/O CDSC) 11,601 11,601 11,601 11,601 11,601 11,601 11,601
End Value (with cdsc) 11,495 11,601 11,601 11,601 11,601 11601.0919383
beg nav 8.80 8.63 8.42 9.59 9.59 9.47 9.47
end nav 8.94 8.94 8.94 8.94 8.94 8.94 8.94
shares originally purhased 1,290.84 1,231.27 1,218.37 1,070.31 1,070.31 1,055.97 1,055.97
TIME 3 3.2472222222
INCEPTION DATE 02-Aug-93 1% cdsc effe 01-Jan-96 31-Dec-96
3.2472222222
TEN YEAR TEN YEAR
TOTAL RETURN COMPOUNDED
<S> <C> <C>
NA NA
with cdsc NA NA
W/O CDSC
02-Aug-93 02-Aug-93
Beg dates 10,000 10,000
Beg Value (no load) 11,601 11,601
End Value (W/O CDSC) 11,601 11601.0919383
End Value (with cdsc) 9.47 9.47
beg nav 8.94 8.94
end nav 1,055.97 1,055.97
shares originally purhased
3.2472222222
</TABLE>
<TABLE>
<CAPTION>
STATE STREET BANK & TRUST COMPANY SEC STANDARDIZED ADVERTISING YIELD
4280 Keystone World Bond Fund CLASS A PHASE II-ROLLING
A
PRICING DATE 10/28/96
TOTAL INCOME FOR PERIOD 58,771.39
TOTAL EXPENSES FOR PERIOD 13,151.46
30 DAY YTM 6.13056% AVERAGE SHARES OUTSTANDING 967,172.03
LAST PRICE DURING PERIOD 9.35
PRICE ST VARIABLE LONG TERM AMORTIZ TOTAL DIV ADJUSTED
DATE INCOME INCOME INCOME INCOME FACTOR INCOME
<S> <C> <C> <C> <C> <C>
09/29/96 0.00 3,381.95 3,381.95 58.82018090 1,989.27
09/30/96 0.00 3,381.40 3,381.40 58.68176578 1,984.27
10/01/96 0.00 3,379.07 3,379.07 58.64177892 1,981.55
10/02/96 34.22 3,315.02 3,349.24 58.64176008 1,964.05
10/03/96 32.87 3,309.25 3,342.12 58.63140206 1,959.53
10/04/96 25.04 3,294.32 3,319.36 58.74680387 1,950.02
10/05/96 25.04 3,294.32 3,319.36 58.74680387 1,950.02
10/06/96 25.04 3,294.32 3,319.36 58.74680387 1,950.02
10/07/96 104.71 3,156.69 3,261.40 58.73761699 1,915.67
10/08/96 99.84 3,161.38 3,261.22 58.65190260 1,912.77
10/09/96 33.32 3,306.35 3,339.67 58.66215747 1,959.12
10/10/96 29.81 3,306.68 3,336.49 58.68712654 1,958.09
10/11/96 26.65 3,307.75 3,334.40 58.65845070 1,955.91
10/12/96 26.65 3,307.75 3,334.40 58.65845070 1,955.91
10/13/96 26.65 3,307.75 3,334.40 58.65845070 1,955.91
10/14/96 26.65 3,313.15 3,339.80 58.61916667 1,957.76
10/15/96 29.82 3,298.94 3,328.76 58.58082483 1,950.02
10/16/96 24.97 3,312.03 3,337.00 58.73966603 1,960.14
10/17/96 25.64 3,320.86 3,346.50 58.73977912 1,965.73
10/18/96 19.11 3,310.47 3,329.58 58.77401603 1,956.93
10/19/96 19.11 3,310.47 3,329.58 58.77401603 1,956.93
10/20/96 19.11 3,310.47 3,329.58 58.77401603 1,956.93
10/21/96 20.76 3,314.73 3,335.49 58.77647914 1,960.48
10/22/96 19.84 3,311.57 3,331.41 58.77847242 1,958.15
10/23/96 17.32 3,335.17 3,352.49 58.79617864 1,971.14
10/24/96 15.87 3,327.54 3,343.41 58.74671305 1,964.14
10/25/96 15.39 3,333.45 3,348.84 58.73519098 1,966.95
10/26/96 15.39 3,333.45 3,348.84 58.73519098 1,966.95
10/27/96 15.39 3,333.45 3,348.84 58.73519098 1,966.95
10/28/96 14.05 3,340.89 3,354.94 58.72169515 1,970.08
788.26 99,310.64 100,098.90 1,761.39805113 58,771.3
DAILY DAILY DAILY ACCUMULATED ACCUMULATED ACCUMULATED
EXPENSES SHARES PRICE INCOME EXPENSES SHARES
<C> <C> <C> <C> <C> <C>
454.94 979,105.756 9.25 1,989.27 454.94 979,105.756
456.76 973,812.771 9.25 3,973.54 911.70 1,952,918.527
405.27 972,186.302 9.26 5,955.09 1,316.97 2,925,104.829
463.99 972,186.302 9.30 7,919.14 1,780.96 3,897,291.131
464.07 971,751.302 9.31 9,878.67 2,245.03 4,869,042.433
443.49 971,751.302 9.34 11,828.69 2,688.52 5,840,793.735
443.49 971,751.302 9.34 13,778.71 3,132.01 6,812,545.037
443.49 971,751.302 9.34 15,728.73 3,575.50 7,784,296.339
529.84 971,397.657 9.34 17,644.40 4,105.34 8,755,693.996
464.17 969,108.121 9.35 19,557.17 4,569.51 9,724,802.117
427.31 969,108.121 9.35 21,516.29 4,996.82 10,693,910.238
428.24 969,024.469 9.36 23,474.38 5,425.06 11,662,934.707
406.54 967,401.099 9.36 25,430.29 5,831.60 12,630,335.806
406.54 967,401.099 9.36 27,386.20 6,238.13 13,597,736.905
406.54 967,401.099 9.36 29,342.11 6,644.67 14,565,138.004
492.39 967,764.347 9.39 31,299.87 7,137.06 15,532,902.351
427.95 966,216.818 9.36 33,249.89 7,565.01 16,499,119.169
428.33 966,372.535 9.34 35,210.03 7,993.34 17,465,491.704
429.77 966,372.535 9.33 37,175.76 8,423.11 18,431,864.239
405.95 964,721.050 9.38 39,132.69 8,829.06 19,396,585.289
405.95 964,721.050 9.38 41,089.62 9,235.02 20,361,306.339
405.95 964,721.050 9.38 43,046.55 9,640.97 21,326,027.389
492.85 963,104.331 9.41 45,007.03 10,133.82 22,289,131.720
492.88 962,758.534 9.42 46,965.18 10,626.70 23,251,890.254
364.30 962,463.728 9.41 48,936.32 10,991.00 24,214,353.982
428.41 960,496.631 9.39 50,900.46 11,419.41 25,174,850.613
405.80 960,218.309 9.41 52,867.41 11,825.21 26,135,068.922
405.80 960,218.309 9.41 54,834.36 12,231.02 27,095,287.231
405.80 960,218.309 9.41 56,801.31 12,636.82 28,055,505.540
514.64 959,655.309 9.35 58,771.39 13,151.46 29,015,160.849
13,151.46 967,172.028
</TABLE>
<TABLE>
<CAPTION>
STATE STREET BANK & TRUST COMPANY STATE STREET BANK & TRUST COMPANY SEC STANDARDIZED ADVERTISING YIELD
4280 Keystone World Bond Fund CLASS B PHASE II-ROLLING
B
PRICING DATE 10/28/96
TOTAL INCOME FOR PERIOD 34,029.11
TOTAL EXPENSES FOR PERIOD 10,726.16
30 DAY YTM 5.67087% AVERAGE SHARES OUTSTANDING 558,681.57
LAST PRICE DURING PERIOD 8.93
PRICE ST VARIABLE LONG TERM TOTAL DIV ADJUSTED
DATE INCOME INCOME INCOME FACTOR INCOME
<S> <C> <C> <C> <C> <C> <C> <C> <C>
09/29/96 0.00 0.00 3,381.95 0.00 0.00 3,381.95 33.87202210 1,145.53
09/29/96 0.00 0.00 3,381.40 0.00 0.00 3,381.40 33.98830999 1,149.28
09/29/96 0.00 0.00 3,379.07 0.00 0.00 3,379.07 34.02119007 1,149.60
09/29/96 34.22 0.00 3,315.02 0.00 0.00 3,349.24 34.02142470 1,139.46
09/29/96 32.87 0.00 3,309.25 0.00 0.00 3,342.12 34.02994300 1,137.32
09/29/96 25.04 0.00 3,294.32 0.00 0.00 3,319.36 33.90014098 1,125.27
09/29/96 25.04 0.00 3,294.32 0.00 0.00 3,319.36 33.90014098 1,125.27
09/29/96 25.04 0.00 3,294.32 0.00 0.00 3,319.36 33.90014098 1,125.27
09/29/96 104.71 0.00 3,156.69 0.00 0.00 3,261.40 33.90813909 1,105.88
09/29/96 99.84 0.00 3,161.38 0.00 0.00 3,261.22 33.98750040 1,108.41
09/29/96 33.32 0.00 3,306.35 0.00 0.00 3,339.67 33.97559173 1,134.67
09/29/96 29.81 0.00 3,306.68 0.00 0.00 3,336.49 33.94699870 1,132.64
09/29/96 26.65 0.00 3,307.75 0.00 0.00 3,334.40 33.96376636 1,132.49
09/29/96 26.65 0.00 3,307.75 0.00 0.00 3,334.40 33.96376636 1,132.49
09/29/96 26.65 0.00 3,307.75 0.00 0.00 3,334.40 33.96376636 1,132.49
09/29/96 26.65 0.00 3,313.15 0.00 0.00 3,339.80 34.01121222 1,135.91
09/29/96 29.82 0.00 3,298.94 0.00 0.00 3,328.76 34.04272580 1,133.20
09/29/96 24.97 0.00 3,312.03 0.00 0.00 3,337.00 34.06327137 1,136.69
09/29/96 25.64 0.00 3,320.86 0.00 0.00 3,346.50 34.06333677 1,139.93
09/29/96 19.11 0.00 3,310.47 0.00 0.00 3,329.58 34.01258303 1,132.48
09/29/96 19.11 0.00 3,310.47 0.00 0.00 3,329.58 34.01258303 1,132.48
09/29/96 19.11 0.00 3,310.47 0.00 0.00 3,329.58 34.01258303 1,132.48
09/29/96 20.76 0.00 3,314.73 0.00 0.00 3,335.49 33.99561016 1,133.92
09/29/96 19.84 0.00 3,311.57 0.00 0.00 3,331.41 33.98898045 1,132.31
09/29/96 17.32 0.00 3,335.17 0.00 0.00 3,352.49 34.00908592 1,140.15
09/29/96 15.87 0.00 3,327.54 0.00 0.00 3,343.41 34.05001718 1,138.43
09/29/96 15.39 0.00 3,333.45 0.00 0.00 3,348.84 34.06102071 1,140.65
09/29/96 15.39 0.00 3,333.45 0.00 0.00 3,348.84 34.06102071 1,140.65
09/29/96 15.39 0.00 3,333.45 0.00 0.00 3,348.84 34.06102071 1,140.65
09/29/96 14.05 0.00 3,340.89 0.00 0.00 3,354.94 34.07238220 1,143.11
788.26 0.00 99,310.64 0.00 0.00 100,098.90 1019.8602751 34,029.11
DAILY DAILY DAILY ACCUMULATED ACCUMULATED ACCUMULATED
EXPENSES SHARES PRICE INCOME EXPENSES SHARES
<C> <C> <C> <C> <C> <C>
368.31 562,313.221 8.83 1,145.53 368.31 562,313.221
371.60 562,553.656 8.84 2,294.81 739.91 1,124,866.877
370.96 562,553.656 8.85 3,444.41 1,110.87 1,687,420.533
371.18 562,573.484 8.88 4,583.87 1,482.05 2,249,994.017
371.69 562,573.484 8.90 5,721.19 1,853.74 2,812,567.501
358.66 559,338.103 8.92 6,846.46 2,212.40 3,371,905.604
358.66 559,338.103 8.92 7,971.73 2,571.05 3,931,243.707
358.66 559,338.103 8.92 9,097.00 2,929.71 4,490,581.810
408.09 559,383.240 8.93 10,202.88 3,337.80 5,049,965.050
371.18 560,199.865 8.93 11,311.29 3,708.98 5,610,164.915
349.99 559,917.830 8.93 12,445.96 4,058.97 6,170,082.745
350.21 559,171.423 8.94 13,578.60 4,409.18 6,729,254.168
337.78 558,795.336 8.94 14,711.09 4,746.96 7,288,049.504
337.78 558,795.336 8.94 15,843.58 5,084.73 7,846,844.840
337.78 558,795.336 8.94 16,976.07 5,422.51 8,405,640.176
387.97 560,195.252 8.96 18,111.98 5,810.48 8,965,835.428
351.51 560,195.252 8.94 19,245.18 6,161.99 9,526,030.680
351.11 559,118.957 8.92 20,381.87 6,513.10 10,085,149.637
351.40 559,130.589 8.91 21,521.80 6,864.50 10,644,280.226
337.05 557,029.573 8.95 22,654.28 7,201.55 11,201,309.799
337.05 557,029.573 8.95 23,786.76 7,538.59 11,758,339.372
337.05 557,029.573 8.95 24,919.24 7,875.64 12,315,368.945
387.22 555,830.336 8.98 26,053.16 8,262.86 12,871,199.281
387.30 555,514.474 8.99 27,185.47 8,650.16 13,426,713.755
313.01 555,517.255 8.98 28,325.62 8,963.17 13,982,231.010
350.41 555,527.472 8.96 29,464.05 9,313.58 14,537,758.482
337.34 555,666.814 8.97 30,604.70 9,650.92 15,093,425.296
337.34 555,666.814 8.97 31,745.35 9,988.27 15,649,092.110
337.34 555,666.814 8.97 32,886.00 10,325.61 16,204,758.924
400.55 555,688.184 8.93 34,029.11 10,726.16 16,760,447.108
10,726.16 558,681.570
</TABLE>
<TABLE>
<CAPTION>
STATE STREET BANK & TRUST COMPANY SEC STANDARDIZED ADVERTISING YIELD
4280 Keystone World Bond Fund CLASS C PHASE II-ROLLING
C
PRICING DATE 10/28/96
TOTAL INCOME FOR PERIOD 7,298.42
TOTAL EXPENSES FOR PERIOD 2,301.20
30 DAY YTM 5.66673% AVERAGE SHARES OUTSTANDING 120,297.54
LAST PRICE DURING PERIOD 8.90
PRICE ST FIXED ZERO COUPON LONG TERM TOTAL DIV
DATE INCOME AND DIV INC INCOME INCOME FACTOR
<S> <C> <C> <C> <C> <C> <C> <C> <C>
09/29/96 0.00 0.00 3,381.95 0.00 0.00 0.00 3,381.95 7.30779700
09/29/96 0.00 0.00 3,381.40 0.00 0.00 0.00 3,381.40 7.32992423
09/29/96 0.00 0.00 3,379.07 0.00 0.00 0.00 3,379.07 7.33703101
09/29/96 34.22 0.00 3,315.02 0.00 0.00 0.00 3,349.24 7.33681522
09/29/96 32.87 0.00 3,309.25 0.00 0.00 0.00 3,342.12 7.33865494
09/29/96 25.04 0.00 3,294.32 0.00 0.00 0.00 3,319.36 7.35305514
09/29/96 25.04 0.00 3,294.32 0.00 0.00 0.00 3,319.36 7.35305514
09/29/96 25.04 0.00 3,294.32 0.00 0.00 0.00 3,319.36 7.35305514
09/29/96 104.71 0.00 3,156.69 0.00 0.00 0.00 3,261.40 7.35424392
09/29/96 99.84 0.00 3,161.38 0.00 0.00 0.00 3,261.22 7.36059700
09/29/96 33.32 0.00 3,306.35 0.00 0.00 0.00 3,339.67 7.36225079
09/29/96 29.81 0.00 3,306.68 0.00 0.00 0.00 3,336.49 7.36587476
09/29/96 26.65 0.00 3,307.75 0.00 0.00 0.00 3,334.40 7.37778294
09/29/96 26.65 0.00 3,307.75 0.00 0.00 0.00 3,334.40 7.37778294
09/29/96 26.65 0.00 3,307.75 0.00 0.00 0.00 3,334.40 7.37778294
09/29/96 26.65 0.00 3,313.15 0.00 0.00 0.00 3,339.80 7.36962111
09/29/96 29.82 0.00 3,298.94 0.00 0.00 0.00 3,328.76 7.37644937
09/29/96 24.97 0.00 3,312.03 0.00 0.00 0.00 3,337.00 7.19706260
09/29/96 25.64 0.00 3,320.86 0.00 0.00 0.00 3,346.50 7.19688411
09/29/96 19.11 0.00 3,310.47 0.00 0.00 0.00 3,329.58 7.21340094
09/29/96 19.11 0.00 3,310.47 0.00 0.00 0.00 3,329.58 7.21340094
09/29/96 19.11 0.00 3,310.47 0.00 0.00 0.00 3,329.58 7.21340094
09/29/96 20.76 0.00 3,314.73 0.00 0.00 0.00 3,335.49 7.22791070
09/29/96 19.84 0.00 3,311.57 0.00 0.00 0.00 3,331.41 7.23254713
09/29/96 17.32 0.00 3,335.17 0.00 0.00 0.00 3,352.49 7.19473544
09/29/96 15.87 0.00 3,327.54 0.00 0.00 0.00 3,343.41 7.20326978
09/29/96 15.39 0.00 3,333.45 0.00 0.00 0.00 3,348.84 7.20378831
09/29/96 15.39 0.00 3,333.45 0.00 0.00 0.00 3,348.84 7.20378831
09/29/96 15.39 0.00 3,333.45 0.00 0.00 0.00 3,348.84 7.20378831
09/29/96 14.05 0.00 3,340.89 0.00 0.00 0.00 3,354.94 7.20592265
788.26 0.00 99,310.64 0.00 0.00 0.00 100,098.90 218.7416738
ADJUSTED DAILY DAILY DAILY ACCUMULATED ACCUMULATED ACCUMULATED
INCOME EXPENSES SHARES PRICE INCOME EXPENSES SHARES
<C> <C> <C> <C> <C> <C> <C>
247.15 79.52 121,787.329 8.80 247.15 79.52 121,787.329
247.85 80.12 121,790.238 8.80 495.00 159.64 243,577.567
247.92 80.00 121,790.238 8.81 742.92 239.64 365,367.805
245.73 80.04 121,790.238 8.84 988.65 319.68 487,158.043
245.27 80.15 121,790.238 8.86 1,233.92 399.83 608,948.281
244.07 77.62 121,791.967 8.89 1,477.99 477.45 730,740.248
244.07 77.62 121,791.967 8.89 1,722.06 555.07 852,532.215
244.07 77.62 121,791.967 8.89 1,966.13 632.69 974,324.182
239.85 88.52 121,793.696 8.89 2,205.98 721.21 1,096,117.878
240.05 80.43 121,791.967 8.89 2,446.03 801.64 1,217,909.845
245.87 75.83 121,800.609 8.90 2,691.90 877.47 1,339,710.454
245.76 75.95 121,800.609 8.90 2,937.66 953.42 1,461,511.063
246.00 73.34 121,855.251 8.90 3,183.66 1,026.76 1,583,366.314
246.00 73.34 121,855.251 8.90 3,429.66 1,100.10 1,705,221.565
246.00 73.34 121,855.251 8.90 3,675.66 1,173.44 1,827,076.816
246.13 84.14 121,855.251 8.93 3,921.79 1,257.58 1,948,932.067
245.54 76.17 121,855.251 8.91 4,167.33 1,333.75 2,070,787.318
240.17 74.92 118,591.961 8.88 4,407.50 1,408.67 2,189,379.279
240.84 74.25 118,591.961 8.87 4,648.34 1,482.92 2,307,971.240
240.18 71.37 118,594.264 8.91 4,888.52 1,554.29 2,426,565.504
240.18 71.37 118,594.264 8.91 5,128.70 1,625.67 2,545,159.768
240.18 71.37 118,594.264 8.91 5,368.88 1,697.04 2,663,754.032
241.09 82.25 118,635.913 8.94 5,609.97 1,779.29 2,782,389.945
240.95 82.28 118,667.741 8.95 5,850.92 1,861.57 2,901,057.686
241.20 66.49 117,978.093 8.94 6,092.12 1,928.06 3,019,035.779
240.83 74.33 117,978.093 8.93 6,332.95 2,002.39 3,137,013.872
241.24 71.30 117,978.093 8.94 6,574.19 2,073.69 3,254,991.965
241.24 71.30 117,978.093 8.94 6,815.43 2,144.99 3,372,970.058
241.24 71.30 117,978.093 8.94 7,056.67 2,216.29 3,490,948.151
241.75 84.91 117,978.093 8.90 7,298.42 2,301.20 3,608,926.244
7,298.42 2,301.20 120,297.541
</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> 101
<NAME> KEYSTONE WORLD BOND FUND CLASS A
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> OCT-31-1996
<PERIOD-START> NOV-01-1995
<PERIOD-END> OCT-31-1996
<INVESTMENTS-AT-COST> 13,086,165
<INVESTMENTS-AT-VALUE> 14,174,874
<RECEIVABLES> 479,456
<ASSETS-OTHER> 7,474
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 14,661,804
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 69,552
<TOTAL-LIABILITIES> 69,552
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 9,014,321
<SHARES-COMMON-STOCK> 963,162
<SHARES-COMMON-PRIOR> 1,182,807
<ACCUMULATED-NII-CURRENT> 32,702
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> (663,294)
<ACCUM-APPREC-OR-DEPREC> 689,207
<NET-ASSETS> 9,072,936
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 835,616
<OTHER-INCOME> 0
<EXPENSES-NET> (183,156)
<NET-INVESTMENT-INCOME> 652,460
<REALIZED-GAINS-CURRENT> 173,566
<APPREC-INCREASE-CURRENT> 361,070
<NET-CHANGE-FROM-OPS> 1,872,516
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (635,884)
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 22,718
<NUMBER-OF-SHARES-REDEEMED> (291,986)
<SHARES-REINVESTED> 49,623
<NET-CHANGE-IN-ASSETS> (651,490)
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> (38,900)
<OVERDIST-NET-GAINS-PRIOR> (894,729)
<GROSS-ADVISORY-FEES> (58,404)
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> (183,156)
<AVERAGE-NET-ASSETS> 9,142,878
<PER-SHARE-NAV-BEGIN> 8.42
<PER-SHARE-NII> 0.54
<PER-SHARE-GAIN-APPREC> 0.59
<PER-SHARE-DIVIDEND> (0.60)
<PER-SHARE-DISTRIBUTIONS> 0.00
<RETURNS-OF-CAPITAL> 0.00
<PER-SHARE-NAV-END> 8.95
<EXPENSE-RATIO> 2.01
<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> 12-MOS
<FISCAL-YEAR-END> OCT-31-1996
<PERIOD-START> NOV-01-1995
<PERIOD-END> OCT-31-1996
<INVESTMENTS-AT-COST> 13,086,165
<INVESTMENTS-AT-VALUE> 14,174,874
<RECEIVABLES> 479,456
<ASSETS-OTHER> 7,474
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 14,661,804
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 69,552
<TOTAL-LIABILITIES> 69,552
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 4,375,531
<SHARES-COMMON-STOCK> 548,173
<SHARES-COMMON-PRIOR> 435,713
<ACCUMULATED-NII-CURRENT> 15,873
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> (321,962)
<ACCUM-APPREC-OR-DEPREC> 334,539
<NET-ASSETS> 4,403,981
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 405,636
<OTHER-INCOME> 0
<EXPENSES-NET> (121,801)
<NET-INVESTMENT-INCOME> 283,835
<REALIZED-GAINS-CURRENT> 79,701
<APPREC-INCREASE-CURRENT> 175,263
<NET-CHANGE-FROM-OPS> 538,799
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (279,243)
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 235,196
<NUMBER-OF-SHARES-REDEEMED> (147,436)
<SHARES-REINVESTED> 24,700
<NET-CHANGE-IN-ASSETS> 1,233,173
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 4,359
<OVERDIST-NET-GAINS-PRIOR> (244,633)
<GROSS-ADVISORY-FEES> (28,407)
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> (121,801)
<AVERAGE-NET-ASSETS> 4,437,933
<PER-SHARE-NAV-BEGIN> 8.45
<PER-SHARE-NII> 0.55
<PER-SHARE-GAIN-APPREC> 0.51
<PER-SHARE-DIVIDEND> (0.54)
<PER-SHARE-DISTRIBUTIONS> 0.00
<RETURNS-OF-CAPITAL> 0.00
<PER-SHARE-NAV-END> 8.97
<EXPENSE-RATIO> 2.76
<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> 12-MOS
<FISCAL-YEAR-END> OCT-31-1996
<PERIOD-START> NOV-01-1995
<PERIOD-END> OCT-31-1996
<INVESTMENTS-AT-COST> 13,086,165
<INVESTMENTS-AT-VALUE> 14,174,874
<RECEIVABLES> 479,456
<ASSETS-OTHER> 7,474
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 14,661,804
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 69,552
<TOTAL-LIABILITIES> 69,552
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 1,108,130
<SHARES-COMMON-STOCK> 118,324
<SHARES-COMMON-PRIOR> 140,478
<ACCUMULATED-NII-CURRENT> 4,020
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> (81,539)
<ACCUM-APPREC-OR-DEPREC> 84,724
<NET-ASSETS> 1,115,335
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 102,716
<OTHER-INCOME> 0
<EXPENSES-NET> (31,132)
<NET-INVESTMENT-INCOME> 71,584
<REALIZED-GAINS-CURRENT> 21,239
<APPREC-INCREASE-CURRENT> 44,386
<NET-CHANGE-FROM-OPS> 137,209
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (71,306)
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 32,761
<NUMBER-OF-SHARES-REDEEMED> (59,947)
<SHARES-REINVESTED> 5,032
<NET-CHANGE-IN-ASSETS> (122,958)
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 10,328
<OVERDIST-NET-GAINS-PRIOR> (140,261)
<GROSS-ADVISORY-FEES> (7,183)
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> (31,132)
<AVERAGE-NET-ASSETS> 1,123,934
<PER-SHARE-NAV-BEGIN> 8.42
<PER-SHARE-NII> 0.56
<PER-SHARE-GAIN-APPREC> 0.50
<PER-SHARE-DIVIDEND> (0.54)
<PER-SHARE-DISTRIBUTIONS> 0.00
<RETURNS-OF-CAPITAL> 0.00
<PER-SHARE-NAV-END> 8.94
<EXPENSE-RATIO> 2.78
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<PAGE>
Exhibit 99.19
POWER OF ATTORNEY
I, the undersigned, hereby constitute Roger T. Wickers, Rosemary D. Van
Antwerp, Jean S. Loewenberg, Dorothy E. Bourassa, James M. Wall and Melina M. T.
Murphy, each of them singly, my true and lawful attorneys, with full power to
them and each of them to sign for me and in my name in the capacity indicated
below any and all registration statements, including, but not limited to, Forms
N-8A, N-8B-1, S-5, N-1 and N-1A, as amended from time to time, and any and all
amendments thereto to be filed with the Securities and Exchange Commission for
the purpose of registering from time to time all investment companies of which I
am now or hereafter a Director or Trustee and/or Chairman of the Board and Chief
Executive Officer and for which Keystone Custodian Funds, Inc. serves as Adviser
or Manager and registering from time to time the shares of such companies, and
generally to do all such things in my name and in my behalf to enable such
investment companies to comply with the provisions of the Securities Act of
1933, as amended, the Investment Company Act of 1940, as amended, and all
requirements and regulations of the Securities and Exchange Commission
thereunder, hereby ratifying and confirming my signature as it may be signed by
my said attorneys to any and all registration statements and amendments thereto.
/s/ George S. Bissell
George S. Bissell
Director/Trustee,
Chairman of the Board
Dated: December 14, 1994
<PAGE>
POWER OF ATTORNEY
I, the undersigned, hereby constitute Roger T. Wickers, Rosemary D. Van
Antwerp, Jean S. Loewenberg, Dorothy E. Bourassa, James M. Wall and Melina M. T.
Murphy, each of them singly, my true and lawful attorneys, with full power to
them and each of them to sign for me and in my name in the capacity indicated
below any and all registration statements, including, but not limited to, Forms
N-8A, N-8B-1, S-5, N-1 and N-1A, as amended from time to time, and any and all
amendments thereto to be filed with the Securities and Exchange Commission for
the purpose of registering from time to time all investment companies of which I
am now or hereafter a Director or Trustee and 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
