<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON DECEMBER 5, 1995.
File Nos. 33-
and 811-
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-1A
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 X
Pre-Effective Amendment No. --- ---
Post-Effective Amendment No --- ---
and
REGISTRATION STATEMENT UNDER THE
INVESTMENT COMPANY ACT OF 1940 X
Amendment No. --- ---
KEYSTONE INSTITUTIONAL TRUST
Keystone Institutional Small Capitalization Growth 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) 338-3200
Rosemary D. Van Antwerp, Esq., 200 Berkeley Street,
Boston, MA 02116-5034
(Name and Address of Agent for Service)
Registrant declares that it hereby elects pursuant to Rule 24f-2 promulgated
under the Investment Company Act of 1940 to register by this Registration
Statement an indefinite number or amount of its securities under the Securities
Act of 1933, as amended.
Approximate Date of Proposed Public Offering:
As soon as possible after the effective date of
Registration Statement.
It is proposed that this filing will become effective:
- --- immediately upon filing pursuant to paragraph (b) of Rule 485
- --- on (date) pursuant to paragraph (b) of Rule 485
X 60 days after filing pursuant to paragraph (a) of Rule 485 on (date)
- --- pursuant to paragraph (a) of Rule 485
The Registrant hereby amends this Registration Statement on such date
or dates as may be necessary to delay its effective date until the Registrant
shall file a further amendment that specifically states that this Registration
Statement shall thereafter become effective in accordance with Section 8(a) of
the Securities Act of 1933 or until this Registration Statement shall become
effective on such date as the Commission, acting pursuant to said Section 8(a),
may determine.
<PAGE>
KEYSTONE INSTITUTIONAL TRUST
KEYSTONE INSTITUTIONAL SMALL CAPITALIZATION GROWTH FUND
CONTENTS OF
REGISTRATION STATEMENT
This Registration Statement consists of the
following pages, items of information and documents:
The Facing Sheet
The Contents Page
The Cross-Reference Sheet
PART A
Prospectus
PART B
Statement of Additional Information
PART C
PART C - OTHER INFORMATION - ITEMS 24 (a) and (b)
Financial Statements
Report of Independent Auditors
Exhibit Listing
PART C - OTHER INFORMATION - ITEMS 25-32- AND SIGNATURE PAGES
Number of Holders of Securities
Indemnification
Business and Other Connections
Principal Underwriter
Location of Accounts and Records
Undertakings
Signatures
Exhibits (including Powers of Attorney)
<PAGE>
KEYSTONE INSTITUTIONAL TRUST
KEYSTONE INSTITUTIONAL SMALL CAPITALIZATION GROWTH FUND
Cross-Reference Sheet pursuant to Rule 495 under the Securities Act of 1933.
Items in
Part A of
Form N-1A Prospectus Caption
- --------- ------------------
1 Cover Page
2 Fee Table
3 Performance Data
4 Cover Page
The Trust
Investment Objective and Strategies
Investment Restrictions
Risk Factors
5 Trust Management and Expenses
6 The Trust
Dividends and Taxes
Trust Shares
Shareholder Services
Pricing Shares
7 How to Buy Shares
Pricing Shares
Shareholder Services
8 How to Redeem Shares
9 Not Applicable
<PAGE>
KEYSTONE INSTITUTIONAL TRUST
KEYSTONE INSTITUTIONAL SMALL CAPITALIZATION GROWTH FUND
Cross-Reference Sheet continued.
Items in
Part B of
Form N-1A Statement of Additional Information Caption
- --------- -------------------------------------------
10 Cover Page
11 Table of Contents
12 Not applicable
13 Investment Objective and Policies
Investment Restrictions
Valuation of Securities
Appendix
14 Trustees and Officers
15 Additional Information
16 Investment Manager and Adviser
Principal Underwriter
Additional Information
17 Brokerage
18 Declaration of Trust
19 Valuation of Securities
20 Distributions and Taxes
21 Principal Underwriter
22 Standardized Total Return and Yield Quotations
23 Financial Statements (to be filed by amendment)
<PAGE>
KEYSTONE INSTITUTIONAL TRUST
Keystone Institutional Small Capitalization Growth Fund
PART A
PROSPECTUS
<PAGE>
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PROSPECTUS FEBRUARY __, 1996
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KEYSTONE INSTITUTIONAL TRUST
KEYSTONE INSTITUTIONAL SMALL CAPITALIZATION
GROWTH FUND
200 BERKELEY STREET, BOSTON, MASSACHUSETTS 02116-5034
CALL TOLL FREE 1-800-633-4200 X3621
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Keystone Institutional Trust (the "Trust") is a mutual fund that is
authorized to issue more than one series of shares. At this time, the Trust
issues only one series of shares, the Keystone Institutional Small
Capitalization Growth Fund (the "Fund"), whose goal is long-term growth of
capital.
The Fund invests, under normal circumstances, at least 65% of its total
assets in equity securities of companies with small market capitalizations.
Generally, the Fund intends to invest at least 80% of its total assets in small
cap stocks.
The Fund is designed primarily for institutional investors, and certain
existing investment advisory clients of Keystone Investment Management Company,
Fiduciary Investment Company, Inc., or any of their affiliates. Fund shares are
sold at net asset value without an initial sales charge at the time of purchase
and are not subject to a sales charge when they are redeemed. Furthermore, there
is no provision for 12b-1 expenses in an effort to minimize fund expenses for
shareholders.
This prospectus sets forth concisely the information about the Fund
that you should know before investing. Please read it and retain it for future
reference.
Additional information about the Fund is contained in a statement of
additional information dated February __, 1996, which has been filed with the
Securities and Exchange Commission and is incorporated by reference into this
prospectus. For a free copy, or for other information about the Fund, write to
the address or call the telephone number listed above.
Shares of the Fund are not deposits or obligations of, or guaranteed or
endorsed by, any bank, and shares are not federally insured by the Federal
Deposit Insurance Corporation, the Federal Reserve Board, or any other agency.
<PAGE>
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TABLE OF CONTENTS
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Page
Fee Table ......................................................... 3
The Fund .......................................................... 5
Investment Objective and Policies ................................. 5
Investment Restrictions ........................................... 6
Risk Factors ...................................................... 7
Pricing Shares .................................................... 8
Dividends and Taxes ............................................... 9
Fund Management and Expenses ...................................... 10
How to Buy Shares ................................................. 12
How to Redeem Shares .............................................. 14
Shareholder Services .............................................. 16
Performance Data .................................................. 17
Fund Shares ....................................................... 18
Additional Information ............................................ 18
Additional Investment Information ................................. (i)
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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.
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<PAGE>
FEE TABLE
Keystone Institutional Small Capitalization Growth Fund
The purpose of the fee table is to assist investors in understanding
the costs and expenses that an investor in the Fund will bear directly or
indirectly. For more complete descriptions of the various costs and expenses,
see the following sections of this prospectus: "Fund Management and Expenses";
"How to Buy Shares"; "Distribution Plan"; and "Shareholder Services."
Shareholder Transaction Expenses
Sales Charge ............................. None
Contingent Deferred Sales Charge ......... None
Exchange Fee ............................ None
Annual Fund Operating Expenses(1)
(as a percentage of average net assets)
Management Fee ........................... 0.80%
12b-1 Fees ............................... None
Other Expenses ........................... 0.20%
-----
Total Fund Operating Expenses ............ 1.00%
=====
Example(2)
You would pay the following expenses on a $1,000 investment, assuming (1) 5%
annual return and (2) redemption at the end of each period:
1 Year 3 Years 5 Years 10 Years
$10 $32 $55 $122
You would pay the following expenses on the same investment, assuming no
redemption:
1 Year 3 Years 5 Years 10 Years
$10 $32 $55 $122
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) Expense ratios are estimated for the Fund's fiscal period ending
December 31, 1996.
(2) 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%.
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THE FUND
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The Trust is an open-end, diversified management investment company,
commonly known as a mutual fund. The Trust was formed as a Massachusetts
business trust on November __, 1995. The Fund is managed or advised by Keystone
Investment Management Company ("Keystone"), the Fund's investment adviser.
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INVESTMENT OBJECTIVE AND POLICIES
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The Fund's investment objective is to provide shareholders with
long-term growth of capital. The Fund invests, under normal circumstances, at
least 65% of its total assets in equity securities of companies with small
market capitalizations. Generally, the Fund intends to invest at least 80% of
its total assets in small cap stocks. For this purpose, companies with small
market capitalizations are generally those with market capitalization of less
than $1 billion and more than $100 million at the time of the Fund's investment.
Companies whose capitalization falls outside this range after the purchase
continue to be considered small cap for this purpose; however, the Fund intends
to sell securities of companies whose capitalizations fall below $50 million or
rise above $2 billion.
Under normal economic conditions, the strategy is to remain essentially
fully invested with cash reserves below 5% of the market value of the Fund.
However, if market conditions warrant, the Fund may adopt a more defensive
strategy to preserve shareholder's capital by investing in money market
investments. Such instruments, which must mature within one year of their
purchase, consist of United States ("U.S.") government securities; instruments,
including certificates of deposit, demand and time deposits and bankers'
acceptances, of banks that are members of the Federal Deposit Insurance
Corporation and have at least $1 billion in assets as of the date of their most
recently published financial statements; and prime commercial paper.
The Fund intends to follow policies of the Securities and Exchange
Commission as they are adopted from time to time with respect to illiquid
securities, including, at this time, (1) treating as illiquid, securities which
may not be sold or disposed of in the ordinary course of business within seven
days at approximately the value at which the Fund has valued the investment on
its books and (2) limiting its holdings of such securities to 10% of the Fund's
net assets.
The Fund may invest in restricted securities, including securities
eligible for resale pursuant to Rule 144A under the Securities Act of 1933 (the
"1933 Act"). Generally, Rule 144A establishes a safe harbor from the
registration requirements of the 1933 Act for resales by large institutional
investors of securities not publicly traded in the U.S. The Fund may purchase
Rule 144A securities when such securities present an attractive investment
opportunity and otherwise meet the Fund's selection criteria. The Board of
Trustees has adopted guidelines and procedures pursuant to which Keystone
determines the liquidity of the Fund's Rule 144A securities. The Board monitors
Keystone's implementation of such guidelines and procedures.
At the present time, the Fund cannot accurately predict exactly how the
market for Rule 144A securities will develop. A Rule 144A security that was
readily marketable upon purchase may subsequently become illiquid. In such an
event, the Board of Trustees will consider what action, if any, is appropriate.
The Fund may enter into repurchase agreements for the purpose of
investing cash balances held by the Fund. In addition, the Fund may lend its
portfolio securities. The Fund retains the right to buy stock index futures as a
means for increasing or decreasing market exposure but not for leverage
purposes.
For further information about the types of investments and investment
techniques available to the Fund, and the risks associated therewith, see the
"Risk Factors" and "Additional Investment Information" sections of this
prospectus and the statement of additional information.
Of course, there can be no assurance that the Fund will achieve its
investment objective since there is uncertainty in every investment.
The investment objective of the Fund cannot be changed without a vote
of the holders of a majority (as defined in the Investment Company Act of 1940
("1940 Act")) of the Fund's outstanding shares.
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INVESTMENT RESTRICTIONS
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The Fund has adopted the fundamental investment restrictions set forth
below, which may not be changed without the approval of a majority (as defined
in the 1940 Act) of the Fund's outstanding shares. These restrictions and
certain other fundamental restrictions are set forth in the statement of
additional information.
The Fund may not do the following: (1) invest more than 5% of its total
assets in the securities of any one issuer (other than U.S. government
securities); and (2) borrow money, except that the Fund may borrow money from
banks for temporary or emergency purposes in aggregate amounts up to one-third
of the value of the Fund's net assets (computed at cost) or enter into reverse
repurchase agreements provided that bank borrowings and reverse repurchase
agreements, in aggregate, shall not exceed one-third of the value of the Fund's
net assets.
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RISK FACTORS
- --------------------------------------------------------------------------------
Like any investment, your investment in the Fund involves some degree
of risk. Before you buy shares of the Fund, you should carefully evaluate your
ability to assume the risks your investment in the Fund poses. YOU CAN LOSE
MONEY BY INVESTING IN THE FUND. YOUR INVESTMENT IS NOT GUARANTEED. A DECREASE IN
THE VALUE OF THE FUND'S PORTFOLIO SECURITIES CAN RESULT IN A DECREASE IN THE
VALUE OF YOUR INVESTMENTS.
The Fund seeks to provide long-term growth of capital by investing
principally in equity securities of companies with small market capitalizations.
The Fund is best suited to institutional investors who can afford to maintain
their investments over a relatively long period of time, and who are seeking a
fund which is aggressive and has the potential for high returns. The Fund
involves a high degree of risk and is not an appropriate investment for
conservative investors who are seeking preservation of capital and/or income.
Certain risks related to the Fund are discussed below. To the extent
not discussed in this section, specific risks attendant to individual securities
or investment practices are discussed in "Additional Investment Information".
FUND RISKS. Investing in growth companies with small market
capitalizations involves greater risk than investing in larger companies. Their
stock prices can rise very quickly and drop dramatically in a short period of
time. This volatility results from a number of factors, including reliance by
these companies on limited product lines, markets, and financial and management
resources. These and other factors may make small cap companies more susceptible
to setbacks or downturns. These companies may experience higher rates of
bankruptcy or other failures than larger companies. They may be more likely to
be negatively affected by changes in management. In addition, the stock of small
cap companies may be less marketable than older, larger companies.
A need for cash due to large liquidations from the Fund when the prices
of small cap stocks are declining could result in losses to the Fund.
Investing in the Fund involves the risk common to investing in any
security, that the value of the securities held by the Fund will fluctuate in
response to changes in economic conditions or expectations about those
securities. The net asset value of the Fund's shares will change accordingly.
OTHER CONSIDERATIONS
The Fund, which normally invests at least 65% of its assets in small
cap stocks does not, by itself, constitute a balanced investment plan. The Fund
may be appropriate as part of an overall investment program. Investors may wish
to consult their financial advisers or consultants when considering what portion
of their total assets to invest in small cap stocks.
Past performance should not be considered representative of results for
any future period of time.
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PRICING SHARES
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The net asset value of a Fund share is computed each day on which the
New York Stock Exchange (the "Exchange") is open as of the close of trading on
the Exchange (currently 4:00 p.m. Eastern time for the purpose of pricing Fund
shares) except on days on which changes in the value of the Fund's portfolio
securities will not materially 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 is arrived at by determining the
value of all of the Fund's assets, subtracting all liabilities and dividing the
result by the number of shares outstanding.
Current values for the Fund's securities are generally determined as follows:
1. securities that are traded on a national securities exchange or on the
over-the-counter National Market System ("NMS") are valued on the basis of the
last sales price on the exchange where primarily traded or NMS prior to the
time of the valuation, provided that a sale has occurred and that this price
reflects current market value according to procedures established by the Board
of Trustees;
2. securities traded in the over-the-counter market, other than NMS, for
which market quotations are readily available, are valued at the mean of the
bid and asked prices at the time of valuation;
3. instruments having maturities of more than sixty days for which market
quotations are readily available are valued at current market value; where
market quotations are not available, such instruments are valued at fair value
as determined by the Board of Trustees;
4. instruments purchased with maturities of sixty days or less (including
all master demand notes) are valued at amortized cost (original purchase cost
as adjusted for amortization of premium or accretion of discount), which, when
combined with accrued interest, approximates market; instruments maturing in
more than sixty days when purchased that are held on the sixtieth day prior to
maturity are valued at amortized cost (market value on the sixtieth day
adjusted for amortization of premium or accretion of discount), which, when
combined with accrued interest, approximates market; and which, in either
case, reflects fair value as determined by the Fund's Board of Trustees; and
5. the following securities are valued at prices deemed in good faith to be
fair under procedures established by the Board of Trustees: (a) securities,
including restricted securities, for which complete quotations are not readily
available, (b) listed securities or those on NMS if, in the Fund's opinion,
the last sales price does not reflect a current market value or if no sale
occurred, and (c) other assets.
The Fund values portfolio securities traded on an established exchange
on the basis of the last sales price. Securities traded in the over-the-counter
market, for which complete quotations are available, are valued at the mean of
the bid and the asked prices.
The Fund values the short-term investments it purchases as follows:
short-term investments purchased with maturities of sixty days or less are
valued at amortized cost (original purchase cost as adjusted for amortization of
premium or accretion of discount), which, when combined with accrued interest,
approximates market value; short-term investments maturing in more than sixty
days for which market quotations are readily available are valued at current
market value; and 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 value and, in any case reflects fair value as determined by
the Trust's Board of Trustees.
All other investments are valued at market value or, where market
quotations are not readily available, at fair value as determined in good faith
by the Trust's Board of Trustees. See "Valuation of Securities" in the Fund's
statement of additional information.
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DIVIDENDS AND TAXES
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The Fund has qualified and intends to qualify in the future as a
regulated investment company under the Internal Revenue Code. The Fund qualifies
if, among other things, it distributes to its shareholders at least 90% of its
net investment income for its fiscal year. The Fund also intends to make timely
distributions, if necessary, sufficient in amount to avoid the nondeductible 4%
excise tax imposed on a regulated investment company when it fails to
distribute, with respect to each calendar year, at least 98% of its ordinary
income for such calendar year and 98% of its net capital gains for the one-year
period ending on October 31 of such calendar year. Any taxable dividend declared
in October, November, or December to shareholders of record in such month, and
paid by the following January 31 will be includable in the taxable income of the
shareholders as if paid on December 31 of the year in which the dividend was
declared. If the Fund qualifies and if it distributes all of its net investment
income and net capital gains, if any, to shareholders, it will be relieved of
any federal income tax liability. The Fund distributes its net income and net
capital gains to its shareholders at least annually.
Distributions are payable in shares of the Fund or, at the
shareholder's option (which must be exercised before the record date for the
distribution), in cash. Fund distributions in the form of additional shares are
made at net asset value without the imposition of a sales charge. Income
dividends and net short-term gains distributions are taxable as ordinary income,
and net long-term gains dividends are taxable as capital gains regardless of how
long the Fund's shares are held. If Fund shares held for less than six months
are sold at a loss, however, such loss will be treated for tax purposes as a
long-term capital loss to the extent of any long-term capital gains dividends
received. Dividends and distributions may also be subject to state and local
taxes. The Fund advises its shareholders annually as to the federal tax status
of all distributions made during the year.
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FUND MANAGEMENT AND EXPENSES
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BOARD OF TRUSTEES
Under Massachusetts law, the Trust'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 Trust's Board of Trustees, Keystone, the Fund's
investment adviser, provides investment advice, management and administrative
services to the Trust and the Fund.
INVESTMENT ADVISER
Keystone, located at 200 Berkeley Street, Boston, Massachusetts
02116-5034, has provided investment advisory and management services to
investment companies and private accounts since it was organized in 1932.
Keystone is a wholly-owned subsidiary of Keystone Investments, Inc. ("Keystone
Investments"), located at 200 Berkeley Street, Boston, Massachusetts 02116-5034.
Keystone Investments is a corporation privately owned by current and
former members of management and certain employees of Keystone and its
affiliates. The shares of Keystone Investments common stock beneficially owned
by management are held in a number of voting trusts, the Trustees of which are
George S. Bissell, Albert H. Elfner, III, Edward F. Godfrey and Ralph J.
Spuehler, Jr. Keystone Investments provides accounting, bookkeeping, legal,
personnel and general corporate services to Keystone, its affiliates and the
Keystone Investments Family of Funds.
Pursuant to its Investment Advisory and Management Agreement (the
"Advisory Agreement") with the Trust with respect to the Fund, Keystone manages
the investment and reinvestment of the Fund's assets, supervises the operation
of the Fund, provides all necessary office space, facilities, equipment and
personnel and arranges, at the request of the Trust and the Fund, for its
employees to serve as officers or agents of the Trust and the Fund.
The Fund pays Keystone a fee for its services at the annual rates set
forth below:
Aggregate Net Asset
Management Value of the Shares
Fee of the Fund
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0.80% of the first $ 100,000,000, plus
0.75% of the next $ 150,000,000, plus
0.65% of amounts over $ 250,000,000.
Keystone's fee is computed as of the close of business each business day and
payable daily.
The Advisory Agreement continues in effect from year to year only so
long as such continuance is specifically approved at least annually by the
Trust's Board of Trustees or by vote of a majority of the outstanding shares of
the Fund. In either case, the terms of the Advisory Agreement and continuance
thereof must be approved by the vote of a majority of Independent Trustees in
person at a meeting called for the purpose of voting on such approval. The
Advisory Agreement may be terminated, without penalty, on 60 days' written
notice by the Trust on behalf of the Fund or Keystone. The Advisory Agreement
will terminate automatically upon its assignment.
The Trust has adopted a Code of Ethics incorporating policies on
personal securities trading as recommended by the Investment Company Institute.
PORTFOLIO MANAGER
Keystone's Small Cap Growth Team has been the Fund's Portfolio Manager
since its inception. Members of the team are Christopher R. Ely, Philip C. Fine
and David L. Smith. Mr. Ely is a Senior Vice President and Senior Portfolio
Manager and has more than 15 years' investment experience. Mr. Fine is a Vice
President and Portfolio Manager and has more than 7 years' investment
experience. Mr. Smith is a Keystone Vice President and Portfolio Manager and has
more than 10 years' investment experience. He is also a Chartered Financial
Analyst.
FUND EXPENSES
The Fund will pay all of its expenses. In addition to the investment
advisory and management fees discussed above, the principal expenses that the
Fund is expected to pay include, but are not limited to, expenses of its
transfer, dividend disbursing and shareholder servicing agent and its custodian,
fees of its independent auditors and legal counsel to the Independent Trustees;
fees of its Independent Trustees; expenses of shareholders' and Trustees'
meetings; fees payable to government agencies, including registration and
qualification fees of the Fund and its shares under federal and state securities
laws; expenses of preparing, printing and mailing Fund reports, prospectuses,
notices, and proxy material; and certain extraordinary expenses. In addition to
such expenses, the Fund pays its brokerage commissions, interest charges and
taxes.
SECURITIES TRANSACTIONS
Under policies established by the Board of Trustees, Keystone selects
broker-dealers to execute transactions subject to the receipt of best execution.
Due to the limited marketability of small cap stocks, the portfolio manager and
trading desk employees may also utilize crossing networks to minimize
transaction costs, especially in Over-The-Counter securities.
Under certain circumstances, the Fund may pay higher commissions to
broker-dealers that provide research services beneficial to the Fund. Keystone
may use these services in advising the Fund as well as in advising its other
clients.
PORTFOLIO TURNOVER
High portfolio turnover may involve correspondingly greater brokerage
commissions and other transaction costs, which would be borne directly by the
Fund, as well as additional realized gains and/or losses to shareholders. For
further information about brokerage and distributions, see the statement of
additional information.
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HOW TO BUY SHARES
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You may purchase shares of the Fund through Fiduciary Investment
Company, Inc. ("FICO" or the "Principal Underwriter"), the Fund's principal
underwriter. The Principal Underwriter, an affiliate of Keystone, is located at
200 Berkeley Street, Boston, Massachusetts 02116-5034.
The Fund's shares are sold at the net asset value per share next
computed after the Fund receives the purchase order on each day on which the
Exchange is open for business. The initial purchase must be at least $2 million.
The Fund will accommodate multiple shareholder accounts for an investor as small
as $25,000 provided that the investor's aggregate investment in the Fund is at
least $2 million or that the investor is an existing advisory client of
Keystone. This provision for client subaccounts is intended to accommodate
certain investors that require separate subaccounts for tax purposes. Subsequent
purchases by an investor must be at least $100,000. Purchase payments are fully
invested at net asset value. Shares of the Fund are sold without a sales charge
at the time of purchase and are not subject to any charge at the time of
redemption.
Shares of the Fund are available only to institutional investors, and
certain existing investment advisory clients of Keystone, FICO, or any of their
affiliates.
Shares are held in "open accounts," i.e., they are credited to the
shareholder's account on the Fund's books. No certificates are issued. All
orders for the purchase of shares are subject to acceptance by the Fund, which
has the right to reject any order.
Shares become entitled to income distributions declared on the first
business day following receipt by the Fund's transfer agent of payment for the
shares.
PURCHASES IN KIND
The Fund may, in its discretion, require that proposed investments of
$5 million or more in the Fund, be made in kind. This requirement is intended to
minimize the effect of transaction costs on existing shareholders of the Fund.
Such transaction costs, which may include broker's commissions and taxes or
governmental fees, may, in such event, be borne by the proposed investor in
shares of the Fund. Under these circumstances, the Fund would inform the
investor of the securities and amounts that are acceptable to the Fund. The
securities would then be purchased and then accepted by the Fund at their then
market value in return for shares in the Fund of an equal value.
OPENING AN ACCOUNT
First, telephone Keystone Investor Resource Center, Inc. ("KIRC"), the
Fund's transfer agent and dividend disbursing agent, toll free at 1-800-633-2700
to open an account and obtain an account or wire identification number.
Second, for more technical questions relating to Fund investment
policies or current strategy, call Keystone Institutional Company, Inc. toll
free at (800) 633-4200.
Third, arrange with your bank to wire federal funds to KIRC's agent at
the following address. (Please include your account number.)
State Street Bank and Trust Company
Boston, Massachusetts
ABA 011000028 Attn: Mutual Fund Division
For incoming wire A/C
For credit to Keystone Institutional Small
Capitalization Growth Fund
Client Name and/or Account Number:
Fourth, complete and sign the Account Application and mail it to:
Keystone Investor Resource Center, Inc.
P.O. Box 2121
Boston, Massachusetts 02106-2121
If KIRC deems it appropriate, additional documentation or verification
of authority may be required, especially with respect to trust funds and taxable
investors.
Information on how to wire federal funds is available at any national
bank or any state bank that is a member of the Federal Reserve System. The bank
may charge for these services. Presently, there is no fee for receipt by KIRC of
federal funds wired, but the right to charge for this service is reserved.
For additional assistance with sales or account information, contact:
Keystone Institutional Company, Inc.
200 Berkeley Street
Boston, Massachusetts 02116-5034
TEL: 1-800-633-4200
FAX: 1-617-338-3366
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HOW TO REDEEM SHARES
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Shares of the Fund may be redeemed at net asset value by mail or by
using the telephone or telecommunication redemption privilege.
MAIL REDEMPTIONS
Shares may be redeemed on each day on which the Exchange is open by
mailing a written request to KIRC at the following address:
Keystone Investor Resource Center, Inc.
P.O. Box 2121
Boston, Massachusetts 02106-2121
The signatures on the written request must be PROPERLY GUARANTEED by a
U.S. stock exchange member, a bank or other persons eligible to guarantee
signatures under the Securities Exchange Act of 1934 and KIRC's policies when
the circumstances of such redemptions indicate that guaranteed signatures are
appropriate, in the judgment of the Fund or KIRC, for the protection of the
Fund, its shareholders and KIRC.
TELEPHONE OR TELECOMMUNICATION REDEMPTIONS
Shares may be redeemed on each day on which the Exchange is open for
business by telephone (toll free 1-800-633-2700), mailgram, facsimile or other
request not bearing a signature and a signature guarantee to KIRC.
Shareholders must complete and sign the Account Application, including
the Redemption Authorization.
Redemption proceeds will be wired in federal funds only to the
commercial bank (and account number) designated by the shareholder on the
Account Application form. CONSEQUENTLY, SHAREHOLDERS MUST COMPLETE AN ACCOUNT
APPLICATION, INCLUDING THE REDEMPTION AUTHORIZATION. If KIRC deems it
appropriate, additional documentation may be required. Although at present KIRC
pays the wire costs involved, it reserves the right at any time to require the
shareholder to pay such costs.
Except as otherwise noted, neither the Fund, KIRC nor FICO assumes
responsibility for the authenticity of any instructions received by any of them
from a shareholder in writing or by telephone. KIRC will employ reasonable
procedures to confirm that instructions received over the telephone are genuine
including recording verbal instructions. Neither the Fund, KIRC nor FICO will be
liable when following instructions received by telephone that KIRC reasonably
believes to be genuine.
The Fund computes the amount due a shareholder at the close of the
Exchange at the end of the day on which it has received all proper
documentation. Payment will be made promptly and, in any event, within seven
days after a properly completed redemption request is received, subject to
suspension of the right of redemption or extension of the date for payment 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.
Any change in the bank account designated to receive redemption
proceeds must be made in another Account Application signed by the shareholder
(WITH SIGNATURES PROPERLY GUARANTEED IN THE MANNER DESCRIBED ABOVE) and
delivered to KIRC at the address above.
If a shareholder redeems all the shares in an account, the shareholder
will receive, in addition to the value thereof, all declared but unpaid
distributions thereon.
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.
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SHAREHOLDER SERVICES
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Details on all shareholder services may be obtained from KIRC by
calling toll free 1-800-633-2700 or from FICO by writing FICO at 200 Berkeley
Street, Boston, Massachusetts 02116-5034.
SHAREHOLDER ACCOUNTS
Each investor will automatically have established an account under
which it will receive a statement showing details of all transactions, including
the current balance of full and fractional shares in the account.
SUBACCOUNTS
Special processing has been arranged with KIRC for banks and other
institutions that wish to open multiple accounts (a master account and
subaccounts). An investor wishing to avail itself of KIRC's subaccounting
facilities will be required to enter into a separate agreement, with the charges
to be determined on the basis of the level of services to be rendered.
Subaccounts may be opened with the initial investment or at a later date and may
be established by an investor with registration either by name or by number.
EXCHANGES
A shareholder who has obtained the appropriate prospectus may exchange
shares of the Fund for shares of any of the funds in the Keystone Institutional
Fund Family, on the basis of their respective net asset values by calling toll
free 1-800-343-2898 or by writing KIRC at Box 2121, Boston, Massachusetts
02106-2121. (See "How to Redeem Shares" for additional information with respect
to telephone transactions.)
Fund shares purchased by check may be exchanged for shares of the named
funds. You may exchange your shares for another Keystone Institutional Fund by
calling or writing to Keystone or FICO. The Fund reserves the right to terminate
this exchange offer or to change its terms.
Orders for exchanges received by the Fund prior to 4:00 p.m. on any day
the funds are open for business will be executed at the respective net asset
values determined as of the close of business that day. Orders for exchanges
received after 4:00 p.m. 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 both purchase and exchange privileges of any shareholder
who attempts to market time or implement tactical asset allocation programs that
generate excessive transactions.
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.
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PERFORMANCE DATA
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From time to time, the Fund may discuss "total return" and "current
yield." BOTH FIGURES ARE BASED ON HISTORICAL RESULTS AND ARE NOT INTENDED TO
INDICATE FUTURE PERFORMANCE. Total return refers to the fund's average annual
compounded rate of return over specified periods determined by comparing the
initial amount invested to the ending redeemable value of that amount. The
resulting figure assumes reinvestment of all dividends and distributions and
deduction of 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. Due to the nature of this Fund, dividends and current yield
will be minimal.
The Fund may also include comparative performance information in
advertising or marketing the Fund's shares, such as data from Lipper Analytical
Services, Inc., Morningstar, Inc., PIPER, Nelson Publications, Inc., or other
industry sources.
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FUND SHARES
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The Trust currently issues shares of only one series of shares, those
of the Fund. The Fund currently issues one class of shares, which participate
equally in dividends and distributions and have equal voting, liquidation and
other rights. When issued and paid for, the shares will be fully paid and
nonassessable by the Fund. Shares may be exchanged as explained under
"Shareholder Services," but will have no other preference, conversion, exchange
or preemptive rights. Shares are redeemable, transferable and freely assignable
as collateral. The Trust is authorized to issue additional series or 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 series or class. The Trust is not
required by its Declaration of Trust to hold annual meetings. However, the Trust
intends to hold meetings at least annually. The Trust will have special meetings
from time to time as required under its Declaration of Trust and under the 1940
Act. As provided in the Declaration of Trust of the Trust, shareholders have the
right to remove Trustees by an affirmative vote of two-thirds of the outstanding
shares. A special meeting of the shareholders will be held when 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.
Under Massachusetts law, it is possible that a Fund shareholder may be
held personally liable for the Trust's obligations. The Trust's Declaration of
Trust provides, however, that shareholders shall not be subject to any personal
liability for the Trust's obligations and provides indemnification from Fund
assets for any shareholder held personally liable for the Trust's obligations.
Disclaimers of such liability are included in each Trust and Fund agreement.
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ADDITIONAL INFORMATION
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KIRC, located at 101 Main Street, Cambridge, Massachusetts 02142-1519,
is a wholly-owned subsidiary of Keystone and serves as the Fund's transfer agent
and dividend disbursing agent.
When the Fund determines from its records that more than one account in
the Fund is registered in the name of a shareholder or shareholders having the
same address, upon written notice to those shareholders, the Fund intends, when
an annual report or semi-annual report of the Fund is required to be furnished,
to mail one copy of such report to that address.
Except as otherwise stated in this prospectus or required by law, the
Fund reserves the right to change the terms of the offer stated in this
prospectus without shareholder approval, including the right to impose or change
fees for services provided.
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ADDITIONAL INVESTMENT INFORMATION
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The Fund may engage in the following investment practices to the extent
described in the prospectus and the statement of additional information.
REPURCHASE AGREEMENTS
The Fund may enter into repurchase agreements with member banks of the
Federal Reserve System having at least $1 billion in assets, primary dealers in
U.S. government securities or other financial institutions believed by Keystone
to be credit-worthy. Such persons must be registered as U.S. government
securities dealers with an appropriate regulatory organization. Under such
agreements, the bank, primary dealer or other financial institution agrees upon
entering into the contract to repurchase the security at a mutually agreed upon
date and price, thereby determining the yield during the term of the agreement.
This results in a fixed rate of return insulated from market fluctuations during
such period. Under a repurchase agreement, the seller must maintain the value of
the securities subject to the agreement at not less than the repurchase price,
such value being determined on a daily basis by marking the underlying
securities to their market value. Although the securities subject to the
repurchase agreement might bear maturities exceeding a year, the Fund intends
only to enter into repurchase agreements that provide for settlement within a
year and usually within seven days. Securities subject to repurchase agreements
will be held by the Fund's custodian or in the Federal Reserve book entry
system. The Fund does not bear the risk of a decline in the value of the
underlying security unless the seller defaults under its repurchase obligation.
In the event of a bankruptcy or other default of a seller of a repurchase
agreement, the Fund could experience both delays in liquidating the underlying
securities and losses, including (1) possible declines in the value of the
underlying securities during the period while the Fund seeks to enforce its
rights thereto; (2) possible subnormal levels of income and lack of access to
income during this period; and (3) expenses of enforcing its rights. The Board
of Trustees has established procedures to evaluate the creditworthiness of each
party with whom the Fund enters into repurchase agreements by setting guidelines
and standards of review for Keystone and monitoring Keystone's actions with
regard to repurchase agreements.
LOANS OF SECURITIES TO BROKER-DEALERS
The Fund may lend its portfolio securities to brokers and dealers
pursuant to agreements requiring that the loans be continuously secured by cash
or securities of the U.S. government, its agencies or instrumentalities, or any
combination of cash and such securities, as collateral at all times at least
equal in value to the market value of the securities loaned. Such securities
loans will not be made with respect to the Fund if, as a result, the aggregate
of all outstanding securities loans exceeds 50% of the value of the Fund's total
assets taken at their current value. The Fund continues to receive interest or
dividends on the securities loaned and simultaneously earns interest on the
investment of the cash loan collateral in U.S. Treasury notes, certificates of
deposit, other high-grade, short-term obligations or interest bearing cash
equivalents. Although voting rights attendant to securities loaned pass to the
borrower, such loans may be called at any time and will be called so that the
securities may be voted by the Fund if, in the opinion of the Fund, a material
event affecting the investment is to occur. There may be risks of delay in
receiving additional collateral or in recovering the securities loaned or even
loss of rights in the collateral should the borrower of the securities fail
financially. Loans may only be made to borrowers deemed to be of good standing,
under standards approved by the Board of Trustees, when the income to be earned
from the loan justifies the attendant risks.
DERIVATIVES
The Fund may use derivatives in furtherance of its investment objective.
Derivatives are financial contracts whose value depends on, or is derived from,
the value of an underlying asset, reference rate or index. These assets, rates,
and indices may include bonds, stocks, mortgages, commodities, interest rates,
currency exchange rates, bond indices and stock indices. Derivatives can be used
to earn income or protect against risk, or both. For example, one party with
unwanted risk may agree to pass that risk to another party who is willing to
accept the risk, the second party being motivated, for example, by the desire
either to earn income in the form of a fee or premium from the first party, or
to reduce its own unwanted risk by attempting to pass all or part of that risk
to the first party.
Derivatives can be used by investors such as the Fund to earn income and
enhance returns, to hedge or adjust the risk profile of the portfolio, and
either in place of more traditional direct investments or to obtain exposure to
otherwise inaccessible markets. The Fund is permitted to use derivatives for one
or more of these purposes, although the Fund generally uses derivatives
primarily as direct investments in order to enhance yields and broaden portfolio
diversification. Each of these uses entails greater risk than if derivatives
were used solely for hedging purposes. The Fund uses futures contracts and
related options for hedging purposes. Derivatives are a valuable tool which,
when used properly, can provide significant benefit to Fund shareholders.
Keystone is not an aggressive user of derivatives with respect to the Fund.
However, the Fund may take positions in those derivatives that are within its
investment policies if, in Keystone's judgement, this represents an effective
response to current or anticipated market conditions. Keystone's use of
derivatives is subject to continuous risk assessment and control from the
standpoint of the Fund's investment objectives and policies.
Derivatives may be (1) standardized, exchange-traded contracts or (2)
customized, privately negotiated contracts. Exchange-traded derivatives tend to
be more liquid and subject to less credit risk than those that are privately
negotiated.
There are four principal types of derivative instruments -- options, futures,
forwards and swaps -- from which virtually any type of derivative transaction
can be created. Further information regarding options and futures, is provided
later in this section and is provided in the Fund's statement of additional
information. The Fund does not presently engage in the use of forwards or swaps.
While the judicious use of derivatives by experienced investment managers such
as Keystone can be beneficial, derivatives also involve risks different from,
and, in certain cases, greater than, the risks presented by more traditional
investments. Following is a general discussion of important risk factors and
issues concerning the use of derivatives that investors should understand before
investing in the Fund.
* Market Risk -- This is the general risk attendant to all investments that the
value of a particular investment will decline or otherwise change in a way
detrimental to the Fund's interest.
* Management Risk -- Derivative products are highly specialized instruments
that require investment techniques and risk analyses different from those
associated with stocks and bonds. The use of a derivative requires an
understanding not only of the underlying instrument, but also of the
derivative itself, without the benefit of observing the performance of the
derivative under all possible market conditions. In particular, the use and
complexity of derivatives require the maintenance of adequate controls to
monitor the transactions entered into, the ability to assess the risk that a
derivative adds to the Fund's portfolio and the ability to forecast price,
interest rate or currency exchange rate movements correctly.
* Credit Risk -- This is the risk that a loss may be sustained by the Fund as a
result of the failure of another party to a derivative (usually referred to
as a "counterparty") to comply with the terms of the derivative contract. The
credit risk for exchange traded derivatives is generally less than for
privately negotiated derivatives, since the clearing house, which is the
issuer or counterparty to each exchange-traded derivative, provides a
guarantee of performance. This guarantee is supported by a daily payment
system (i.e., margin requirements) operated by the clearing house in order to
reduce overall credit risk. For privately negotiated derivatives, there is no
similar clearing agency guarantee. Therefore, the Fund considers the
creditworthiness of each counterparty to a privately negotiated derivative in
evaluating potential credit risk.
* Liquidity Risk -- Liquidity risk exists when a particular instrument is
difficult to purchase or sell. If a derivative transaction is particularly
large or if the relevant market is illiquid (as is the case with many
privately negotiated derivatives), it may not be possible to initiate a
transaction or liquidate a position at an advantageous price.
OPTIONS TRANSACTIONS
WRITING COVERED OPTIONS. The Fund may write (i.e., sell) covered call and put
options for hedging purposes. By writing a call option, the Fund becomes
obligated during the term of the option to deliver the securities underlying the
option upon payment of the exercise price. By writing a put option, the Fund
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 Fund may only write "covered" options. This means that so long as the Fund
is obligated as the writer of a call option it will own the underlying
securities subject to the option or, in the case of call options on U.S.
Treasury bills, the Fund might own substantially similar U.S. Treasury bills.
Such securities will be maintained in a segregated account with the Fund's
custodian. If the Fund has written options against all of its securities which
are eligible for writing options, the Fund may be unable to write additional
options unless it sells a portion of its portfolio holdings to obtain new
securities against which it can write options. If this were to occur, higher
portfolio turnover and correspondingly greater brokerage commissions and other
transaction costs may result. The Fund does not expect, however, that this will
occur.
The Fund 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 Fund 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 Fund might lose the potential for gain on the underlying
security while the option is open, and by writing a put option, the Fund might
become obligated to purchase the underlying security for more than its current
market price upon exercise.
PURCHASING OPTIONS. The Fund may purchase call and put options. The Fund would
normally purchase call options to hedge against an increase in the market value
of the Fund's securities. The purchase of a call option would entitle the Fund,
in return for the premium paid, to purchase specified securities at a specified
price, upon exercise of the option, during the option period. The Fund 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 Fund would realize a loss on the purchase of
the call option.
The Fund 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 Fund is unable to effect a closing purchase transaction
with respect to covered options it has written, the Fund will not be able to
sell the underlying securities until the options expire or are exercised.
The Fund would normally purchase put options to hedge against a decline in the
market value of securities in its portfolio (protective puts). The Fund will not
engage in such transactions for speculation. The purchase of a put option would
entitle the Fund, 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 Fund 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 Fund
would realize a loss on the purchase of the put option.
The Fund 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
Fund'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
Fund'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 Fund will generally write only those options
for which there appears to be an active secondary market, there is no assurance
that a liquid secondary market will exist for any particular option at any
particular time, and for some options no secondary market may exist. In such
event it might not be possible to effect a closing transaction in a particular
option.
Options on some securities are relatively new, and it is impossible to predict
the amount of trading interest that will exist in such options. There can be no
assurance that viable markets will develop or continue. The failure of such
markets to develop or continue could significantly impair the Fund's ability to
use such options to achieve its investment objective.
OPTIONS TRADING MARKETS. Options in which the Fund 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 Fund. The use of options traded in the
over-the-counter market may be subject to limitations imposed by certain state
securities authorities.
The Securities and Exchange Commission is of the view that the premiums that
the Fund pays for the purchase of unlisted options and the value of securities
used to cover unlisted options written by the Fund are considered to be invested
in illiquid securities or assets for the purpose of calculating whether the Fund
is in compliance with its investment policies pertaining to illiquid securities.
The Fund currently complies with the position taken by the Securities and
Exchange Commission that the premiums that the Fund pays for the purchase of
unlisted options and the value of securities used to cover unlisted options
written by the Fund are considered to be invested in illiquid securities or
assets.
FUTURES TRANSACTIONS
The Fund may enter into futures contracts based on securities indices and may
write options on such contracts. The Fund intends to enter into such contracts
and put and call options thereon for hedging purposes. The Fund may enter into
other types of futures contracts that may become available and relate to the
securities held by the Fund. A futures contract is an agreement to buy or sell
securities or currencies at a specified price during a designated month. The
Fund does not make payment or deliver securities upon entering into a futures
contract. Instead, it puts down a margin deposit, which is adjusted to reflect
changes in the value of the contract and which continues until the contract is
terminated. The Fund will "cover" its futures contract obligations by
maintaining in a segregated account with its custodian the securities or
currencies underlying the contract or liquid assets, such as cash, U.S.
Government securities or other appropriate high grade debt obligations,
sufficient in amount to satisfy the Fund's contract obligations.
The Fund may sell or purchase futures contracts. When a futures contract is
sold by the Fund, the value of the contract will tend to rise when the value of
the underlying securities or currencies declines and to fall when the value of
such securities or currencies increases. Thus, the Fund 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 Fund, 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 Fund intends to purchase futures contracts in order to fix what is
believed by its portfolio manager to be a favorable price and rate of return for
securities or favorable exchange rate for currencies the Fund intends to
purchase.
The Fund also may purchase put and call options on securities and currency
futures contracts for hedging purposes. A put option purchased by the Fund would
give it the right to assume a position as the seller of a futures contract. A
call option purchased by the Fund would give it the right to assume a position
as the purchaser of a futures contract. The purchase of an option on a futures
contract requires the Fund to pay a premium. In exchange for the premium, the
Fund becomes entitled to exercise the benefits, if any, provided by the futures
contract, but is not required to take any action under the contract. If the
option cannot be exercised profitably before it expires, the Fund's loss will be
limited to the amount of the premium and any transaction costs.
The Fund may 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 Fund intends to purchase. However, the Fund 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 Fund's assets.
By writing a call option, the Fund becomes obligated, in exchange for the
premium, to sell a futures contract, which may have a value higher than the
exercise price.
The Fund may enter into closing purchase and sale transactions in order to
terminate a futures contract and may sell put and call options for the purpose
of closing out its options positions. The Fund's ability to enter into closing
transactions depends on the development and maintenance of a liquid secondary
market. There is no assurance that a liquid secondary market will exist for any
particular contract or at any particular time. As a result, there can be no
assurance that the Fund will be able to enter into an offsetting transaction
with respect to a particular contract at a particular time. If the Fund is not
able to enter into an offsetting transaction, the Fund will continue to be
required to maintain the margin deposits on the contract and to complete the
contract according to its terms, in which case it would continue to bear market
risk on the transaction.
Although futures and options transactions are intended to enable the Fund to
manage market, interest rate or exchange rate risk, unanticipated changes in
interest rates, exchange rates or market prices could result in poorer
performance than if it had not entered into these transactions. Even if Keystone
correctly predicts interest or exchange rate movements, a hedge could be
unsuccessful if changes in the value of the Fund's futures position did not
correspond to changes in the value of its investments. This lack of correlation
between the Fund's futures and securities positions may be caused by differences
between the futures and securities markets or by differences between the
securities underlying the Fund's futures position and the securities held by or
to be purchased for the Fund. 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. Keystone will attempt to minimize
these risks through careful selection and monitoring of the Fund's futures and
options positions.
The Fund does not intend to use futures transactions for speculation or
leverage.
<PAGE>
KEYSTONE INSTITUTIONAL TRUST
KEYSTONE INSTITUTIONAL SMALL CAPITALIZATION GROWTH FUND
PART B
STATEMENT OF ADDITIONAL INFORMATION
<PAGE>
STATEMENT OF ADDITIONAL INFORMATION
KEYSTONE INSTITUTIONAL TRUST
KEYSTONE INSTITUTIONAL SMALL CAPITALIZATION GROWTH FUND
FEBRUARY __, 1996
This statement of additional information is not a prospectus, but
relates to, and should be read in conjunction with, the prospectus of Keystone
Institutional Trust (the "Trust") relating to its series of shares named
Keystone Institutional Small Capitalization Growth Fund (the "Fund") dated
February __, 1996. A copy of the prospectus may be obtained from Fiduciary
Investment Company ("FICO" or the "Principal Underwriter"), the Fund's principal
underwriter, located at 200 Berkeley Street, Boston, Massachusetts, 02116-5034
or your broker-dealer.
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TABLE OF CONTENTS
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Page
Investment Objective and Policies 2
Investment Restrictions 2
Valuation of Securities 5
Distributions and Taxes 5
Declaration of Trust 6
Investment Manager and Adviser 8
Trustees and Officers 10
Principal Underwriter 14
Brokerage 15
Standardized Total Return
and Yield Quotations 16
Additional Information 17
Appendix A-1
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INVESTMENT OBJECTIVE AND POLICIES
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The Trust is an open-end, diversified management investment company
that is authorized to issue more than one series of shares. At this time, the
Trust issues only one series of shares, the Keystone Institutional Small
Capitalization Growth Fund (the "Fund"). The Fund's investment objective is to
provide shareholders with long-term growth of capital. It is the Fund's policy
to invest its assets as fully as practicable.
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INVESTMENT RESTRICTIONS
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FUNDAMENTAL INVESTMENT RESTRICTIONS
The Fund has adopted the fundamental investment restrictions set forth
below, which may not be changed without the vote of a majority (as defined in
the Investment Company Act of 1940 ("1940 Act")) of the Fund's outstanding
voting shares. Unless otherwise stated, all references to Fund assets are in
terms of current market value.
The Fund may not do the following:
(1) with respect to 75% of its total assets, invest more than 5% of the
value of its total assets, determined at market or other fair value at the time
of purchase, in the securities of any one issuer, or invest in more than 10% of
the outstanding voting securities of any one issuer, all as determined at the
time of purchase; provided that these limitations do not apply to investments in
securities issued or guaranteed by the United States ("U.S.") government or its
agencies or instrumentalities;
(2) concentrate its investments in the securities of issuers in any one
industry other than securities issued or guaranteed by the U.S. government or
its agencies or instrumentalities;
(3) borrow money, except that the Fund may (a) borrow from any bank,
provided that, immediately after any such borrowing there is asset coverage of
at least 300% for all borrowings; (b) borrow for temporary purposes only and in
an amount not exceeding 5% of the value of the Fund's total assets, computed at
the time of borrowing; or (c) enter into reverse repurchase agreements, provided
that, immediately after entering into any such agreements, there is asset
coverage of at least 300% of all bank borrowings and reverse repurchase
agreements;
(4) issue senior securities, except that the Fund may (a) make
permitted borrowings of money; (b) enter into firm commitment agreements and
collateral arrangements with respect to the writing of options on securities and
engage in permitted transactions in futures and options thereon and forward
contracts; and (c) issue shares of any additional permitted classes or series;
(5) invest in real estate or commodities, except that the Fund may (a)
invest in securities directly or indirectly secured by real estate and interests
therein and securities of companies that invest in real estate and interests
therein, including mortgages and other liens; and (b) enter into financial
futures contracts and options thereon for hedging purposes and enter into
forward contracts; or
(6) make loans, except that the Fund may make, purchase, or hold
publicly and nonpublicly offered debt securities (including convertible
securities) and other debt investments, including loans, consistent with its
investment objective; (b) lend its portfolio securities to broker-dealers; and
(c) enter into repurchase agreements.
NON-FUNDAMENTAL INVESTMENT POLICIES
It is the position of the staff of the Securities and Exchange
Commission that investment (including holdings of debt securities) of more than
25% of the value of the Fund's assets in any one industry or group of industries
represents concentration, it being understood that securities issued by the U.S.
government or state governments or political subdivisions thereof are excluded
from the calculation because these issuers are not considered by the staff of
the Securities and Exchange Commission to be members of any industry.
The Fund intends to follow the policies of the Securities and Exchange
Commission as they are adopted from time to time with respect to illiquid
securities, including (1) treating as illiquid securities that may not be
disposed of in the ordinary course of business within seven days at
approximately the value at which the Fund has valued the investment on its
books; and (2) limiting its holdings of such securities to 10% of its net
assets. The purchase of restricted securities is not to be deemed engaging in
underwriting.
In order to permit the sale of Fund shares in certain states or foreign
countries, the Fund may make commitments more restrictive than the investment
restrictions described above. Should the Fund determine that any such commitment
is no longer in the best interests of the Fund, it may revoke the commitment by
terminating sales of its shares in the state or country involved.
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VALUATION OF SECURITIES
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Current values for the Fund's securities are generally determined as
follows:
(1) securities that are traded on a national securities exchange or the
over-the-counter National Market System ("NMS") are valued on the basis of the
last sales price on the exchange where primarily traded or NMS prior to the time
of the valuation, provided that a sale has occurred and that this price reflects
current market value according to procedures established by the Board of
Trustees;
(2) securities traded in the over-the-counter market, other than on NMS,
for which market quotations are readily available, are valued at the mean of the
bid and asked prices at the time of valuation;
(3) instruments having maturities of more than sixty day 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 Board of Trustees;
(4) instruments purchased with maturities of sixty days or less (including
all master demand notes) are valued at amortized cost (original purchase cost as
adjusted for amortization of premium or accretion of discount), which, when
combined with accrued interest, approximates market; instruments maturing in
more than sixty days when purchased that are held on the sixtieth day prior to
maturity are valued at amortized cost (market value on the sixtieth day adjusted
for amortization of premium or accretion of discount), which, when combined with
accrued interest, approximates market; and which, in either case, reflects fair
value as determined by the Board of Trustees; and
(5) the following securities are valued at prices deemed in good faith to
be fair under procedures established by the Board of Trustees: (a) securities,
including restricted securities, for which complete quotations are not readily
available; (b) listed securities or those on NMS if, in the Fund's opinion, the
last sales price does not reflect a current market value or if no sale occurred;
and (c) other assets.
Foreign securities for which market quotations are not readily available
are valued on the basis of valuations provided by a pricing service, approved by
the Fund's Board of Trustees, which uses information with respect to
transactions in such securities, quotations from broker-dealers, market
transactions in comparable securities and various relationships between
securities and yield to maturity in determining value.
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DISTRIBUTIONS AND TAXES
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The Fund distributes to its shareholders dividends from net investment
income and net realized long-term and short-term capital gains annually in
shares or, at the option of the shareholder, in cash. (Distributions of ordinary
income may be eligible in whole or in part for the corporate 70% dividends
received deduction.) Shareholders who have not opted, prior to the record date
for any distribution, to receive cash will have the number of distributed shares
determined on the basis of the Fund's net asset value per share computed at the
end of the day on the record date after adjustment for the distribution. Net
asset value is used in computing the number of shares in both gains and income
distribution reinvestments. Account statements and/or checks as appropriate will
be mailed to shareholders by the 15th of the appropriate month. Unless the Fund
receives instructions to the contrary from a shareholder before the record date,
it will assume that the shareholder wishes to receive that distribution and
future gains and income distributions in shares. Instructions continue in effect
until changed in writing.
Distributed long-term capital gains are taxable as such to the
shareholder regardless of the period of time Fund shares have been held by the
shareholder. However, if such shares are held less than six months and redeemed
at a loss, the shareholder will recognize a long-term capital loss on such
shares to the extent of the long-term capital gain distribution received in
connection with such shares. If the net asset value of the Fund's shares is
reduced below a shareholder's cost by a capital gains distribution, such
distribution, to the extent of the reduction, would be a return of investment
though taxable as stated above. Since distributions of capital gains depend upon
profits actually realized from the sale of securities by the Fund, they may or
may not occur. The foregoing comments relating to the taxation of dividends and
distributions paid on the Fund's shares relate solely to federal income
taxation. Such dividends and distributions may also be subject to state and
local taxes.
When the Fund makes a distribution, it intends to distribute only the
Fund's net capital gains and such income as has been predetermined to the best
of the Fund's ability to be taxable as ordinary income. Shareholders of the Fund
will be advised annually of the federal income tax status of distributions.
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DECLARATION OF TRUST
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MASSACHUSETTS BUSINESS TRUST
The Trust is a Massachusetts business trust established under a
Declaration of Trust dated November 30, 1995. The Trust is similar in most
respects to a business corporation. The principal distinction between the Trust
and a corporation relates to the shareholder liability described below. A copy
of the Declaration of Trust (the "Declaration of Trust") is filed as an exhibit
to the 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.
DESCRIPTION OF SHARES
The Declaration of Trust authorizes the issuance of an unlimited number
of shares of beneficial interest of series and classes of shares. Each share of
a Fund represents an equal proportionate interest with each other share of that
series and class. Upon liquidation, shares are entitled to a pro rata share of
the Trust based on the relative net assets of each series and class.
Shareholders have no preemptive or conversion rights. Shares are redeemable and
transferable. The Trust is authorized to issue additional classes or series of
shares. The Trust currently issues one series and one class of shares, but may
issue additional series or classes of shares at a later date.
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. If the Trust were held to be a partnership, the possibility of the
shareholders' incurring financial loss for that reason appears remote because
(1) the Trust's Declaration of Trust contains an express disclaimer of
shareholder liability for obligations of the Trust and requires that notice of
such disclaimer be given in each agreement, obligation or instrument entered
into or executed by the Trust or the Trustees; and (2) the Declaration of Trust
provides for indemnification out of the Trust's property for any shareholder
held personally liable for the obligations of the Trust.
VOTING RIGHTS
Under the terms of the Declaration of Trust, the Trust is not required
to hold annual meetings. However, the Trust intends to hold meetings at least
annually. At meetings called for the initial election of Trustees or to consider
other matters, shares are entitled to one vote per share. Shares generally vote
together as one class on all matters. Classes of shares of a Fund have equal
voting rights. No amendment may be made to the Declaration of Trust which
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, unless and 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 will not be liable for
errors of judgment or mistakes of fact or law, but nothing in the Declaration of
Trust protects a Trustee against any liability to which he would otherwise be
subject by reason of willful misfeasance, bad faith, gross negligence or
reckless disregard of his duties involved in the conduct of his office.
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INVESTMENT MANAGER AND ADVISER
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Subject to the general supervision of the Trust's Board of Trustees,
Keystone, located at 200 Berkeley Street, Boston, Massachusetts 02116-5034,
provides investment advice, management and administrative services to the Fund.
Keystone, organized in 1932, is a wholly-owned subsidiary of Keystone
Investments, 200 Berkeley Street, Boston, Massachusetts 02116-5034.
Keystone Investments is a corporation privately owned by current and
former members of management and certain employees of Keystone and its
affiliates. The shares of Keystone Investments common stock beneficially owned
by management are held in a number of voting trusts, the trustees of which are
George S. Bissell, Albert H. Elfner, III, Edward F. Godfrey, and Ralph J.
Spuehler, Jr. Keystone Investments provides accounting, bookkeeping, legal,
personnel and general corporate services to Keystone, its affiliates and the
Keystone Investments Family of Funds.
Except as otherwise noted below, pursuant to an Investment Advisory and
Management Agreement with the Trust with resect to the Fund (the "Advisory
Agreement") and subject to the supervision of the Trust's Board of Trustees,
Keystone manages and administers the Fund's operation and manages the investment
and reinvestment of the Fund's assets in conformity with the Fund's investment
objective and restrictions. The Advisory Agreement stipulates that Keystone
shall provide office space, all necessary office facilities, equipment and
personnel in connection with its services under the Advisory Agreement and pay
or reimburse the Fund for the compensation of officers and Trustees of the Trust
who are affiliated with the investment adviser as well as pay all expenses of
Keystone incurred in connection with the provision of its services. All charges
and expenses other than those specifically referred to as being borne by
Keystone will be paid by the Fund, including, but not limited to, custodian
charges and expenses; bookkeeping and auditors' charges and expenses; transfer
agent charges and expenses; fees of Independent Trustees; brokerage commissions;
brokers' fees and expenses; issue and transfer taxes; taxes and trust fees
payable to governmental agencies; fees and expenses of the registration and
qualification of the Fund and its shares with the Securities and Exchange
Commission (sometimes referred herein as the "SEC" or the "Commission") or under
state or other securities laws, expenses of preparing, printing and mailing
reports, prospectuses, statements of additional information, notices, and proxy
materials to shareholders of the Fund; expenses of shareholders' and Trustees'
meetings; charges and expenses of legal counsel for the Trust and for the
Trustees of the Trust on matters relating to the Fund; charges and expenses of
filing annual and other reports with the SEC and other authorities; and all
extraordinary charges and expenses of the Fund.
As compensation for its services to the Fund, Keystone is entitled to a
fee at the annual rate set forth below:
Management Aggregate Net Asset Value
Fee of the Shares of the Fund
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0.80% of the first $100,000,000, plus
0.75% of the next $150,000,000, plus
0.65% of amounts over $250,000,000
computed as of the close of business on each business day and paid daily.
As a continuing condition of registration of shares in a state,
Keystone has agreed to reimburse the Fund annually for certain operating
expenses incurred by the Fund in excess of certain percentages of the Fund's
average daily net assets. However, Keystone is not required to make such
reimbursements to an extent which would result in the Fund's inability to
qualify as a regulated investment company under provisions of the Internal
Revenue Code. This condition may be modified or eliminated in the future.
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 only if approved at least
annually by the Board of Trustees of the Trust or by a vote of a majority of the
outstanding shares, and such renewal has been approved by the vote of a majority
of the Independent 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 Trust's Board of Trustees or by a vote
of a majority of outstanding shares. The Advisory Agreement will terminate
automatically upon its "assignment" as that term is defined in the 1940 Act.
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TRUSTEES AND OFFICERS
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Trustees and officers of the Trust, their principal occupations and
some of their affiliations over the last five years are as follows:
*ALBERT H. ELFNER, III: President, Chief Executive Officer and Trustee of the
Fund; Chairman of the Board, President, Director and Chief Executive
Officer of Keystone Investments, Inc. ("Keystone Investments");
President, Chief Executive Officer and Trustee or Director of all 30
Funds in the Keystone Investments Family of Funds; Director and
Chairman of the Board, Chief Executive Officer and Vice Chairman of
Keystone Investment Management Company ("Keystone"); Chairman of the
Board and Director of Keystone Institutional Company, Inc. ("Keystone
Institutional") (formerly named Keystone Investment Management
Corporation), and Keystone Fixed Income Advisors ("KFIA"); Director,
Chairman of the Board, Chief Executive Officer and President of
Keystone Management, Inc. ("Keystone Management"), Keystone Software
Inc. ("Keystone Software"); Director and President of Keystone Asset
Corporation, Keystone Capital Corporation, and Keystone Trust Company;
Director of Keystone Investment Distributors Company ("the Principal
Underwriter"), Keystone Investor Resource Center, Inc. ("KIRC"), and
Fiduciary Investment Company, Inc. ("FICO"); Director of Boston
Children's Services Association; Trustee of Anatolia College, Middlesex
School, and Middlebury College; Member, Board of Governors, New England
Medical Center; former Director and President of Hartwell Keystone
Advisers, Inc. ("Hartwell Keystone"); former Director and Vice
President of Robert Van Partners, Inc.; and former Trustee of Neworld
Bank.
FREDERICK AMLING: Trustee of the Fund; Trustee or Director of all other Keystone
Investments Funds; Professor, Finance Department, George Washington
University; President, Amling & Company (investment advice); Member,
Board of Advisers, Credito Emilano (banking); and former Economics and
Financial Consultant, Riggs National Bank.
CHARLES A. AUSTIN III: Trustee of the Fund; Trustee or Director of all other
Keystone Investments Funds; Investment Counselor to Appleton Partners,
Inc.; former Managing Director, Seaward Management Corporation
(investment advice) and former Director, Executive Vice President and
Treasurer, State Street Research & Management Company (investment
advice).
*GEORGE S. BISSELL: Chairman of the Board and Trustee of the Fund; Director of
Keystone Investments; Chairman of the Board and Trustee or Director of
all other Keystone Investments Funds; Director and Chairman of the
Board of Hartwell Keystone; Chairman of the Board and Trustee of
Anatolia College; Trustee of University Hospital (and Chairman of its
Investment Committee); former Chairman of the Board and Chief Executive
Officer of Keystone Investments; and former Chief Executive Officer of
the Fund.
EDWIN D. CAMPBELL: Trustee of the Fund; Trustee or Director of all other
Keystone Investments Funds; Executive Director, Coalition of Essential
Schools, Brown University; Director and former Executive Vice
President, National Alliance of Business; former Vice President,
Educational Testing Services; and former Dean, School of Business,
Adelphi University.
CHARLES F. CHAPIN: Trustee of the Fund; Trustee or Director of all other
Keystone Investments Funds; former Group Vice President, Textron Corp.;
and former Director, Peoples Bank (Charlotte, N.C).
LEROY KEITH, JR.: Trustee of the Fund; Trustee or Director of all other
Keystone Investments Funds; Director of Phoenix Total Return Fund and
Equifax, Inc.; Trustee of Phoenix Series Fund, Phoenix Multi-Portfolio
Fund and The Phoenix Big Edge Series Fund; and former President,
Morehouse College.
K. DUN GIFFORD: Trustee of the Fund; Trustee or Director of all other
Keystone Investments Funds; Chairman of the Board, Director and
Executive Vice President, The London Harness Company; Managing Partner,
Roscommon Capital Corp.; Trustee, Cambridge College; Chairman Emeritus
and Director, American Institute of Food and Wine; Chief Executive
Officer, Gifford Gifts of Fine Foods; Chairman, Gifford, Drescher &
Associates (environmental consulting); President, Oldways Preservation
and Exchange Trust (education); and former Director, Keystone
Investments and Keystone.
F. RAY KEYSER, JR.: Trustee of the Fund; Trustee or Director of all other
Keystone Investments Funds; Of Counsel, Keyser, Crowley & Meub, P.C.;
Member, Governor's (VT) Council of Economic Advisers; Chairman of the
Board and Director, Central Vermont Public Service Corporation and
Hitchcock Clinic; Director, Vermont Yankee Nuclear Power Corporation,
Vermont Electric Power Company, Inc., Grand Trunk Corporation, Central
Vermont Railway, Inc., S.K.I. Ltd., Sherburne Corporation, Union Mutual
Fire Insurance Company, New England Guaranty Insurance Company, Inc.
and the Investment Company Institute; former Governor of Vermont;
former Director and President, Associated Industries of Vermont; former
Chairman and President, Vermont Marble Company; former Director of
Keystone; and former Director and Chairman of the Board, Green Mountain
Bank.
DAVID M. RICHARDSON: Trustee of the Fund; Trustee or Director of all other
Keystone Investments Funds; Executive Vice President, DHR
International, Inc. (executive recruitment); former Senior Vice
President, Boyden International Inc. (executive recruitment); and
Director, Commerce and Industry Association of New Jersey, 411
International, Inc. and J & M Cumming Paper Co.
RICHARD J. SHIMA: Trustee of the Fund; Trustee or Director of all other
Keystone Investments Funds; Chairman, Environmental Warranty, Inc., and
Consultant, Drake Beam Morin, Inc. (executive outplacement); Director
of Connecticut Natural Gas Corporation, Trust Company of Connecticut,
Hartford Hospital, Old State House Association and Enhanced Financial
Services, Inc.; Member, Georgetown College Board of Advisors; Chairman,
Board of Trustees, Hartford Graduate Center; Trustee, Kingswood-Oxford
School and Greater Hartford YMCA; former Director, Executive Vice
President and Vice Chairman of The Travelers Corporation; and former
Managing Director of Russell Miller, Inc.
ANDREW J. SIMONS: Trustee of the Fund; Trustee or Director of all other
Keystone Investments Funds; Partner, Farrell, Fritz, Caemmerer, Cleary,
Barnosky & Armentano, P.C.; former President, Nassau County Bar
Association; former Associate Dean and Professor of Law, St. John's
University School of Law.
EDWARD F. GODFREY: Senior Vice President of the Fund; Senior Vice President of
all other Keystone Investments Funds; Director, Senior Vice President,
Chief Financial Officer and Treasurer of Keystone Investments, the
Principal Underwriter, Keystone Asset Corporation, Keystone Capital
Corporation, Keystone Trust Company; Treasurer of Keystone
Institutional, and FICO; Treasurer and Director of Keystone Management,
and Keystone Software; Vice President and Treasurer of KFIA; and
Director of KIRC; former Treasurer and Director of Hartwell Keystone;
former Treasurer of Robert Van Partners, Inc.
JAMES R. McCALL: Senior Vice President of the Fund; Senior Vice President of
all other Keystone Investments Funds; and President of Keystone.
KEVIN J. MORRISSEY: Treasurer of the Fund; Treasurer of all other Keystone
Investments Funds; Vice President of Keystone Investments; Assistant
Treasurer of FICO and Keystone; and former Vice President and Treasurer
of KIRC.
ROSEMARY D. VAN ANTWERP: Senior Vice President and Secretary of the Fund; Senior
Vice President and Secretary of all other Keystone Investments Funds;
Senior Vice President, General Counsel and Secretary of Keystone;
Senior Vice President, General Counsel, Secretary and Director of the
Principal Underwriter, Keystone Management and Keystone Software;
Senior Vice President and General Counsel of Keystone Institutional;
Senior Vice President, General Counsel and Director of FICO and KIRC;
Vice President and Secretary of KFIA; Senior Vice President, General
Counsel and Secretary of Keystone Investments, Keystone Asset
Corporation, Keystone Capital Corporation and Keystone Trust Company;
former Senior Vice President and Secretary of Hartwell Keystone and
Robert Van Partners, Inc.
* This Trustee may be considered an "interested person" within the meaning of
the 1940 Act.
Mr. Elfner and Mr. Bissell are "interested persons" by virtue of their
positions as officers and/or Directors of Keystone Investments and several of
its affiliates including Keystone, the Principal Underwriter and KIRC. Mr.
Elfner and Mr. Bissell own shares of Keystone Investments. Mr. Elfner is
Chairman of the Board, Chief Executive Officer and a Director of Keystone
Investments. Mr. Bissell is a Director of Keystone Investments.
Annual retainers and meeting fees paid by all funds in the Keystone
Investments Family of Funds (which includes over 30 mutual funds) for the fiscal
period ended October 31, 1995, totalled approximately $477,480. On October 31,
1995, the Trustees and officers beneficially owned less than 1.0% of the Fund's
then outstanding shares.
The address of all the Trust's Trustees and officers and the address of
the Trust is 200 Berkeley Street, Boston, Massachusetts 02116-5034.
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PRINCIPAL UNDERWRITER
- --------------------------------------------------------------------------------
The Trust has entered into a Distribution Agreement with FICO (the
"Distribution Agreement"). FICO is a wholly-owned subsidiary of Keystone.
The Trust has appointed FICO to act as Principal Underwriter of the
Fund's shares in such states as the Fund may, from time to time, designate. FICO
will act as agent for the Fund and not as principal. FICO will have the right to
obtain subscriptions for and to sell shares as agent of the Fund.
All subscriptions and sales of shares by FICO are at the offering price
of the shares in accordance with the provisions of the Trust's Declaration of
Trust and By-Laws, and the current prospectus and statement of additional
information. All orders are subject to acceptance by the Fund, and the Fund
reserves the right in its sole discretion to reject any order received. Under
the Distribution Agreement, the Fund is not liable to anyone for failure to
accept any order.
FICO has agreed that it will, in all respects, duly conform with all
state and federal laws applicable to the sale of the shares and will indemnify
and hold harmless the Trust, and each person who has been, is or may be a
Trustee or officer of the Trust or the Fund, against expenses reasonably
incurred by any of them in connection with any claim or in connection with any
action, suit or proceeding to which any of them may be a party, that arises out
of or is alleged to arise out of any misrepresentation or omission to state a
material fact on the part of FICO or any other person for whose acts FICO is
responsible or is alleged to be responsible, unless such misrepresentation or
omission was made in reliance upon written information furnished by the Trust.
The Distribution Agreement provides that it will remain in
effect for two years and from year to year thereafter as long as its terms and
continuance are approved by a majority of the Trust's Independent Trustees at
least annually at a meeting called for that purpose, and if its continuance is
approved annually by vote of a majority of Trustees, or by vote of a majority of
the outstanding shares of the Fund.
The Distribution Agreement may be terminated, without penalty, on 60
days' written notice by the Trust or on 90 days' written notice by FICO. The
Distribution Agreement will terminate automatically upon its "assignment" as
that term is defined in the 1940 Act.
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BROKERAGE
- --------------------------------------------------------------------------------
It is the policy of the Fund, in effecting transactions in portfolio
securities, to seek best execution of orders at the most favorable prices. The
determination of what may constitute best execution and price in the execution
of a securities transaction by a broker involves a number of considerations,
including, without limitation, the overall direct net economic result to the
Fund, involving both price paid or received and any commissions and other costs
paid, the efficiency with which the transaction is effected, the ability to
effect the transaction at all where a large block is involved, the availability
of the broker to stand ready to execute potentially difficult transactions in
the future and the financial strength and stability of the broker. Such
considerations are judgmental and are weighed by management in determining the
overall reasonableness of brokerage commissions paid.
Subject to the foregoing, a factor in the selection of brokers is the
receipt of research services, such as analyses and reports concerning issuers,
industries, securities, economic factors and trends and other statistical and
factual information. Any such research and other statistical and factual
information provided by brokers to the Fund or Keystone is considered to be in
addition to and not in lieu of services required to be performed by Keystone
under the Advisory Agreement. The cost, value and specific application of such
information are indeterminable and cannot be practically allocated among the
Fund and other clients of Keystone or any of its affiliates who may indirectly
benefit from the availability of such information. Similarly, the Fund may
indirectly benefit from information made available as a result of transactions
effected for such other clients. Under the Advisory Agreement, Keystone is
permitted to pay higher brokerage commissions for brokerage and research
services in accordance with Section 28(e) of the Securities Exchange Act of
1934. In the event Keystone does follow such a practice, it will do so on a
basis which is fair and equitable to the Fund.
The Fund expects that purchases and sales of securities usually will be
effected through brokerage transactions for which commissions are payable.
Purchases from underwriters will include the underwriting commission or
concession, and purchases from dealers serving as market makers will include a
dealer's mark-up or reflect a dealer's mark-down. Where transactions are made in
the over-the-counter market, the Fund will deal with primary market makers
unless more favorable prices are otherwise obtainable.
The Fund may participate, if and when practicable, in group bidding for
the direct purchase from an issuer of certain securities for the Fund's
portfolio thereby taking advantage of the lower purchase price available to
members of such a group.
Neither Keystone nor the Fund intends to place securities transactions
with any particular broker-dealer or group thereof.
The policy of the Fund with respect to trading and brokerage is and
will be reviewed by the Trust's Board of Trustees from time to time. Because of
the possibility of further regulatory developments affecting the securities
exchanges and brokerage practices generally, the foregoing practices may be
changed, modified or eliminated.
Investment decisions for the Fund are made independently by Keystone
from those of the other funds and investment accounts managed by Keystone or any
of its affiliates. It may frequently develop that the same investment decision
is made for more than one such fund or account. Simultaneous transactions are
inevitable when the same security is suitable for the investment objective of
more than one such fund or account. When two or more such funds or accounts are
engaged in the purchase or sale of the same security, the transactions are
allocated as to amount in accordance with a formula which is equitable to each
fund or account. It is recognized that in some cases this system could have a
detrimental effect on the price or volume of the security with respect to the
Fund. In other cases, however, it is believed that the ability of the Fund to
participate in volume transactions will produce better executions for the Fund.
In no instance are portfolio securities purchased from or sold to
Keystone, the Principal Underwriter or any of their affiliated persons, as
defined in the 1940 Act and rules and regulations issued thereunder.
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STANDARDIZED TOTAL RETURN
- --------------------------------------------------------------------------------
Total return figures for the Fund as they may appear, from time to
time, in marketing materials are calculated by finding the average annual
compounded rates of return over one, five and ten year periods on a hypothetical
$1,000 investment that would equate the initial amount invested to the ending
redeemable value. To the initial investment, all dividends and distributions are
added, and all recurring fees charged to all shareholder accounts are deducted.
The ending redeemable value assumes a complete redemption at the end of the one,
five or ten year periods.
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ADDITIONAL INFORMATION
- --------------------------------------------------------------------------------
SMALL ACCOUNTS
The Fund reserves the right to redeem shares in any account in which
the value of shares is less than $25,000 or aggregate of $1,000,000. The
redemption proceeds will be promptly paid to the shareholder. Shareholders will
be notified if their accounts are less than such amount and given 60 days to
bring the account up to such amount before the redemption is made.
REDEMPTIONS IN KIND
If conditions arise that would make it undesirable for the Fund to pay
for all redemptions in cash, the Fund may authorize payment to be made in
portfolio securities or other property. The Fund has obligated itself under the
1940 Act, however, to redeem for cash all shares presented for redemption by any
one shareholder in any 90-day period up to the lesser of $250,000 or 1% of the
Fund's net assets. Securities delivered in payment of redemptions would be
valued at the same value assigned to them in computing the net asset value per
share and would, to the extent permitted by law, be readily marketable.
Shareholders receiving such securities would incur brokerage costs when these
securities are sold.
OTHER INFORMATION
State Street Bank and Trust Company, located at 225 Franklin Street,
Boston, Massachusetts 02110, is custodian of all securities and cash of the Fund
(the "Custodian"). The Custodian performs no investment management functions for
the Fund, but, in addition to its custodial services, is responsible for
accounting and related recordkeeping on behalf of the Fund.
KPMG Peat Marwick LLP, located at One Boston Place, Boston,
Massachusetts 02108, Certified Public Accountants, are the independent auditors
for the Fund.
Keystone Investor Resource Center, Inc., located at 101 Main Street,
Cambridge, Massachusetts 02142-1519, is a wholly-owned subsidiary of Keystone
and acts as transfer agent and dividend disbursing agent for the Trust and the
Fund.
As of December 1, 1995, Keystone Investment Management Company owned of
record 100% of the Fund's outstanding 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 salesman or other person is authorized to give any information or to
make any representation not contained in the Fund's prospectus, this statement
of additional information or in supplemental sales literature issued by the Fund
or the Principal Underwriter. No person is entitled to rely on any information
or representation not contained therein.
The Fund's prospectus and this statement of additional information omit
certain information contained in its registration statement filed with the
Securities and Exchange Commission (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.
<PAGE>
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APPENDIX
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MONEY MARKET INSTRUMENTS
The Fund's investments in commercial paper are limited to those rated
A-1 by Standard & Poor's Corporation, PRIME-1 by Moody's Investors Service, Inc.
or F-1 by Fitch Investors Service, Inc. These ratings and other money market
instruments are described as follows:
COMMERCIAL PAPER RATINGS
Commercial paper rated A-1 by Standard & Poor's has the following
characteristics: Liquidity ratios are adequate to meet cash requirements. The
issuer's long-term senior debt is rated "A" or better, although in some cases
"BBB" credits may be allowed. The issuer has access to at least two additional
channels of borrowing. Basic earnings and cash flow have an upward trend with
allowance made for unusual circumstances. Typically, the issuer's industry is
well established and the issuer has a strong position within the industry.
The rating PRIME-1 is the highest commercial paper rating assigned by
Moody's. Among the factors considered by Moody's in assigning ratings are the
following: (1) evaluation of the management of the issuer; (2) economic
evaluation of the issuer's industry or industries and an appraisal of
speculative-type risks which may be inherent in certain areas; (3) evaluation of
the issuer's products in relation to competition and customer acceptance; (4)
liquidity; (5) amount and quality of long-term debt; (6) trend of earnings over
a period of ten years; (7) financial strength of a parent company and the
relationships which exist with the issuer; and (8) recognition by the management
of obligations which may be present or may arise as a result of public
preparations to meet such obligations. Relative strength or weakness of the
above factors determines how the issuer's commercial paper is rated within
various categories.
The rating F-1 is the highest rating assigned by Fitch. Among the
factors considered by Fitch in assigning this rating are: (1) the issuer's
liquidity; (2) its standing in the industry; (3) the size of its debt; (4) its
ability to service its debt; (5) its profitability; (6) its return on equity;
(7) its alternative sources of financing; and (8) its ability to access the
capital markets. Analysis of the relative strength or weakness of these factors
and others determines whether an issuer's commercial paper is rated F-1.
UNITED STATES GOVERNMENT SECURITIES
Securities issued or guaranteed by the United States Government include
a variety of Treasury securities that differ only in their interest rates,
maturities and dates of issuance. Treasury bills have maturities of one year or
less. Treasury notes have maturities of one to ten years and Treasury bonds
generally have maturities of greater than ten years at the date of issuance.
Securities issued or guaranteed by the United States Government or its
agencies or instrumentalities include direct obligations of the United States
Treasury and securities issued or guaranteed by the Federal Housing
Administration, Farmers Home Administration, Export-Import Bank of the United
States, Small Business Administration, Government National Mortgage Association,
General Services Administration, Central Bank for Cooperatives, Federal Home
Loan Banks, Federal Loan Mortgage Corporation, Federal Intermediate Credit
Banks, Federal Land Banks, Maritime Administration, The Tennessee Valley
Authority, District of Columbia Armory Board and Federal National Mortgage
Association.
Some obligations of United States Government agencies and
instrumentalities, such as Treasury bills and Government National Mortgage
Association pass-through certificates, are supported by the full faith and
credit of the United States; others, such as securities of Federal Home Loan
Banks, by the right of the issuer to borrow from the Treasury; still others,
such as bonds issued by the Federal National Mortgage Association, a private
corporation, are supported only by the credit of the instrumentality. Because
the United States Government is not obligated by law to provide support to an
instrumentality it sponsors, the Fund will invest in the securities issued by
such an instrumentality only when Keystone determines that the credit risk with
respect to the instrumentality does not make its securities unsuitable
investments. United States Government securities will not include international
agencies or instrumentalities in which the United States Government, its
agencies or instrumentalities participate, such as the World Bank, the Asian
Development Bank or the Inter-American Development Bank, or issues insured by
the Federal Deposit Insurance Corporation.
DERIVATIVE INSTRUMENTS
Derivatives have been variously defined to include forwards, futures, options,
mortgage-backed securities, other asset-backed securities and structured
securities, such as interest rate swaps, equity swaps, index swaps, currency
swaps and caps and floors. These basic vehicles can also be combined to create
more complex products, called hybrid derivatives. The following discussion
addresses options and futures.
OPTIONS TRANSACTIONS
WRITING COVERED OPTIONS
The Fund writes only covered options. Options written by the Fund will
normally have expiration dates of not more than nine months from the date
written. The exercise price of the options may be below, equal to, or above the
current market values of the underlying securities at the times the options are
written.
Unless the option has been exercised, the Fund may close out an option it has
written by effecting a closing purchase transaction, whereby it purchases an
option covering the same underlying security and having the same exercise price
and expiration date ("of the same series") as the one it has written. If the
Fund desires to sell a particular security on which it has written a call
option, it will effect a closing purchase transaction prior to or concurrently
with the sale of the security. If the Fund is able to enter into a closing
purchase transaction, the Fund will realize a profit (or loss) from such
transaction if the cost of such transaction is less (or more) than the premium
received from the writing of the option.
An option position may be closed out only in a secondary market for an option
of the same series. Although the Fund will generally write only those options
for which there appears to be an active secondary market, there is no assurance
that a liquid secondary market will exist for any particular option at any
particular time, and for some options no secondary market may exist. In such
event it might not be possible to effect a closing transaction in a particular
option. If the Fund as a covered call option writer is unable to effect a
closing purchase transaction, it will not be able to sell the underlying
securities until the option expires or it delivers the underlying securities
upon exercise.
Because the Fund intends to qualify as a regulated investment company under
the Internal Revenue Code, the extent to which the Fund may write covered call
options and enter into so-called "straddle" transactions involving put and call
options may be limited.
Many options are traded on registered securities exchanges. Options traded on
such exchanges are issued by the Options Clearing Corporation ("OCC"), a
clearing corporation which assumes responsibility for the completion of options
transactions.
OPTION WRITING AND RELATED RISKS
The Fund may write covered call and put options. A call option gives the
purchaser of the option the right to buy, and the writer the obligation to sell,
the underlying security at the exercise price during the option period.
Conversely, a put option gives the purchaser the right to sell, and the writer
the obligation to buy, the underlying security at the exercise price during the
option period.
So long as the obligation of the writer continues, the writer may be assigned
an exercise notice by the broker-dealer through whom the option was sold. The
exercise notice would require the writer to deliver, in the case of a call, or
take delivery of, in the case of a put, the underlying security against payment
of the exercise price. This obligation terminates upon expiration of the option,
or at such earlier time as the writer effects a closing purchase transaction by
purchasing an option of the same series as the one previously sold. Once an
option has been exercised, the writer may not execute a closing purchase
transaction. For options traded on national securities exchanges ("Exchanges"),
to secure the obligation to deliver the underlying security in the case of a
call option, the writer of the option is required to deposit in escrow the
underlying security or other assets in accordance with the rules of the OCC, an
institution created to interpose itself between buyers and sellers of options.
Technically, the OCC assumes the order side of every purchase and sale
transaction on an Exchange and, by doing so, gives its guarantee to the
transaction.
The principal reason for writing options on a securities portfolio is to
attempt to realize, through the receipt of premiums, a greater return than would
be realized on the underlying securities alone. In return for the premium, the
covered call option writer has given up the opportunity for profit from a price
increase in the underlying security above the exercise price so long as the
option remains open, but retains the risk of loss should the price of the
security decline. Conversely, the put option writer gains a profit, in the form
of a premium, so long as the price of the underlying security remains above the
exercise price, but assumes an obligation to purchase the underlying security
from the buyer of the put option at the exercise price, even though the price of
the security may fall below the exercise price, at any time during the option
period. If an option expires, the writer realizes a gain in the amount of the
premium. Such a gain may, in the case of a covered call option, be offset by a
decline in the market value of the underlying security during the option period.
If a call option is exercised, the writer realizes a gain or loss from the sale
of the underlying security. If a put option is exercised, the writer must
fulfill his obligation to purchase the underlying security at the exercise
price, which will usually exceed the then market value of the underlying
security. In addition, the premium paid for the put effectively increases the
cost of the underlying security, thus reducing the yield otherwise available
from such securities.
Because the Fund can write only covered options, it may at times be unable to
write additional options unless it sells a portion of its portfolio holdings to
obtain new securities against which it can write options. This may result in
higher portfolio turnover and correspondingly greater brokerage commissions and
other transaction costs.
To the extent that a secondary market is available the covered option
writer may close out options it has written prior to the assignment of an
exercise notice by purchasing, on a closing purchase transaction, an option of
the same series as the option previously written. If the cost of such a closing
purchase, plus transaction costs, is greater than the premium received upon
writing the original option, the writer will incur a loss in the transaction.
PURCHASING PUT AND CALL OPTIONS
The Fund can close out a put option it has purchased by effecting a closing
sale transaction; for example, the Fund may close out a put option it has
purchased by selling a put option. If, however, a secondary market does not
exist at a time the Fund wishes to effect a closing sale transaction, the Fund
will have to exercise the option to realize any profit. In addition, in a
transaction in which the Fund does not own the security underlying a put option
it has purchased, the Fund would be required, in the absence of a secondary
market, to purchase the underlying security before it could exercise the option.
In each such instance, the Fund would incur additional transaction costs. The
Fund may also purchase call options for the purpose of offsetting previously
written call options of the same series.
The Fund would normally purchase call options in anticipation of an increase
in the market value of securities of the type in which the Fund may invest. The
purchase of a call option would entitle the Fund, in return for the premium
paid, to purchase specified securities at a specified price during the option
period. The Fund would ordinarily realize a gain if, during the option period,
the value of such securities exceeded the sum of the exercise price, the premium
paid and transaction costs; otherwise the Fund would realize a loss on the
purchase of the call option.
The Fund would normally purchase put options in anticipation of a decline in
the market value of securities in its portfolio (protective puts) or securities
of the type in which it is permitted to invest. The purchase of a put option
would entitle the Fund, in exchange for the premium paid, to sell specified
securities at a specified price during the option period. The purchase of
protective puts is designed merely to offset or hedge against a decline in the
market value of the Fund's securities. Gains and losses on the purchase of
protective put options would tend to be offset by countervailing changes in the
value of underlying portfolio securities. Put options may also be purchased by
the Fund for the purpose of affirmatively benefitting from a decline in the
price of securities which the Fund does not own. The Fund would ordinarily
realize a gain if, during the option period, the value of the underlying
securities decreased below the exercise price sufficiently to cover the premium
and transaction costs; otherwise the Fund would realize a loss on the purchase
of the put option.
The Fund may purchase put and call options on securities indices for the same
purposes as the purchase of options on securities. Options on securities indices
are similar to options on securities, except that the exercise of securities
index options requires cash payments and does not involve the actual purchase or
sale of securities. In addition, securities index options are designed to
reflect price fluctuations in a group of securities or segment of the securities
market rather than price fluctuations in a single security.
OPTIONS TRADING MARKETS
Options in which the Fund will trade are generally listed on Exchanges.
Exchanges on which such options currently are traded include the Chicago Board
Options Exchange and the New York, American, Pacific, and Philadelphia Stock
Exchanges. Options on some securities may not be listed on any Exchange, but
traded in the over-the-counter market. Options traded in the over-the-counter
market involve the additional risk that securities dealers participating in such
transactions would fail to meet their obligations to the Fund. The use of
options traded in the over-the-counter market may be subject to limitations
imposed by certain state securities authorities. In addition to the limits on
its use of options discussed herein, the Fund is subject to the investment
restrictions described in the prospectus and the statement of additional
information.
The staff of the Commission currently is of the view that the premiums which
the Fund pays for the purchase of unlisted options, and the value of securities
used to cover unlisted options written by the Fund are considered to be invested
in illiquid securities or assets for the purpose of the Fund's compliance with
its policies pertaining to illiquid securities.
RISKS PERTAINING TO THE SECONDARY MARKET. An option position may be closed out
only in a secondary market for an option of the same series. Although the Fund
will generally purchase or write only those options for which there appears to
be an active secondary market, there is no assurance that a liquid secondary
market will exist for any particular option at any particular time, and for some
options no secondary market may exist. In such event, it might not be possible
to effect closing transactions in particular options, with the result that the
Fund would have to exercise its options in order to realize any profit and might
incur transaction costs in connection therewith. If the Fund as a covered call
option writer is unable to effect a closing purchase transaction in a secondary
market, it will not be able to sell the underlying security until the option
expires or it delivers the underlying security upon exercise.
Reasons for the absence of a liquid secondary market include the following:
(i) insufficient trading interest in certain options; (ii) restrictions imposed
on transactions (iii) trading halts, suspensions or other restrictions imposed
with respect to particular classes or series of options or underlying
securities; (iv) interruption of the normal operations on an Exchange or by a
broker; (v) inadequacy of the facilities of an Exchange, the OCC or a broker to
handle current trading volume; or (vi) a decision by one or more Exchanges or a
broker to discontinue the trading of options (or a particular class or series of
options), in which event the secondary market in that class or series of options
would cease to exist, although outstanding options that had been issued as a
result of trades would generally continue to be exercisable in accordance with
their terms.
The hours of trading for options on U.S. government securities may not conform
to the hours during which the underlying securities are traded. To the extent
that the option markets close before the markets for the underlying securities,
significant price and rate movements can take place in the underlying markets
that cannot be reflected in the option markets.
FUTURES CONTRACTS AND RELATED OPTIONS TRANSACTIONS
The Fund intends to enter into currency and other financial futures contracts
as a hedge against changes in prevailing levels of interest or currency exchange
rates to seek relative stability of principal and to establish more definitely
the effective return on securities held or intended to be acquired by the Fund
or as a hedge against changes in the prices of securities or currencies held by
the Fund or to be acquired by the Fund. The Fund's hedging may include sales of
futures as an offset against the effect of expected increases in interest or
currency exchange rates or securities prices and purchases of futures as an
offset against the effect of expected declines in interest or currency exchange
rates.
The Fund intends to engage in options transactions that are related to
currency and other financial futures contracts for hedging purposes and in
connection with the hedging strategies described above.
Although techniques other than sales and purchases of futures contracts and
related options transactions could be used to reduce the Fund's exposure to
interest rate and/or market fluctuations, the Fund may be able to hedge its
exposure more effectively and perhaps at a lower cost through using futures
contracts and related options transactions. While the Fund does not intend to
take delivery of the instruments underlying futures contracts it holds, the Fund
does not intend to enter into such futures contracts for speculation.
FUTURES CONTRACTS
Futures contracts are transactions in the commodities markets rather than in
the securities markets. A futures contract creates an obligation by the seller
to deliver to the buyer the commodity specified in the contract at a specified
future time for a specified price. The futures contract creates an obligation by
the buyer to accept delivery from the seller of the commodity specified at the
specified future time for the specified price. In contrast, a spot transaction
creates an immediate obligation for the seller to deliver and the buyer to
accept delivery of and pay for an identified commodity. In general, futures
contracts involve transactions in fungible goods such as wheat, coffee and
soybeans. However, in the last decade an increasing number of futures contracts
have been developed which specify currencies, financial instruments or
financially based indexes as the underlying commodity.
U.S. futures contracts are traded only on national futures exchanges and are
standardized as to maturity date and underlying financial instrument. The
principal financial futures exchanges in the U.S. are The Board of Trade of the
City of Chicago, the Chicago Mercantile Exchange, the International Monetary
Market (a division of the Chicago Mercantile Exchange), the New York Futures
Exchange and the Kansas City Board of Trade. Each exchange guarantees
performance under contract provisions through a clearing corporation, a
nonprofit organization managed by the exchange membership, which is also
responsible for handling daily accounting of deposits or withdrawals of margin.
A futures commission merchant ("Broker") effects each transaction in connection
with futures contracts for a commission. Futures exchanges and trading are
regulated under the Commodity Exchange Act by the Commodity Futures Trading
Commission ("CFTC") and National Futures Association ("NFA").
OPTIONS ON CURRENCY AND OTHER FINANCIAL FUTURES
The Fund intends to purchase call and put options on currency and other
financial futures contracts and sell such options. Options on currency and other
financial futures contracts are similar to options on stocks except that an
option on a currency or other financial futures contract gives the purchaser the
right, in return for the premium paid, to assume a position in a futures
contract (a long position if the option is a call and a short position if the
option is a put) rather than to purchase or sell stock, currency or other
financial instruments at a specified exercise price at any time during the
period of the option. Upon exercise of the option, the delivery of the futures
position by the writer of the option to the holder of the option will be
accompanied by delivery of the accumulated balance in the writer's futures
margin account. This amount represents the amount by which the market price of
the futures contract at exercise exceeds, in the case of a call, or is less
than, in the case of a put, the exercise price of the option on the futures
contract. If an option is exercised the last trading day prior to the expiration
date of the option, the settlement will be made entirely in cash equal to the
difference between the exercise price of the option and value of the futures
contract.
The Fund intends to use options on currency and other financial futures
contracts in connection with hedging strategies. In the future the Fund may use
such options for other purposes.
PURCHASE OF PUT OPTIONS ON FUTURES CONTRACTS
The purchase of protective put options on financial futures contracts is
analogous to the purchase of protective puts on individual stocks, where an
absolute level of protection is sought below which no additional economic loss
would be incurred by the Fund. Put options may be purchased to hedge a portfolio
of stocks or debt instruments or a position in the futures contract upon which
the put option is based.
PURCHASE OF CALL OPTIONS ON FUTURES CONTRACTS
The purchase of call options on currency and other financial futures contracts
represents a means of obtaining temporary exposure to market appreciation at
limited risk. It is analogous to the purchase of a call option on an individual
stock which can be used as a substitute for a position in the stock itself.
Depending on the pricing of the option compared to either the futures contract
upon which it is based, or upon the price of the underlying financial instrument
or index itself, the purchase of a call option may be less risky than the
ownership of the interest rate or index based futures contract or the underlying
securities. Call options on currency or other financial futures contracts may be
purchased to hedge against an interest rate increase or a market advance when
the Fund is not fully invested.
USE OF NEW INVESTMENT TECHNIQUES INVOLVING CURRENCY AND OTHER FINANCIAL FUTURES
CONTRACTS OR RELATED OPTIONS
The Fund may employ new investment techniques involving currency and other
financial futures contracts and related options. The Fund intends to take
advantage of new techniques in these areas which may be developed from time to
time and which are consistent with the Fund's investment objective. The Fund
believes that no additional techniques have been identified for employment by
the Fund in the foreseeable future other than those described above.
LIMITATIONS ON PURCHASE AND SALE OF FUTURES CONTRACTS AND RELATED OPTIONS ON
SUCH FUTURES CONTRACTS
The Fund intends that its futures contracts and related options transactions
will be entered into for traditional hedging purposes. That is, futures
contracts will be sold to protect against a decline in the price of securities
that the Fund owns or futures contracts will be purchased to protect the Fund
against an increase in the price of securities it intends to purchase. The Fund
does not intend to enter into futures contracts for speculation.
In instances involving the purchase or sale of futures contracts by the Fund,
an amount of cash and cash equivalents or securities equal to the market value
of the futures contracts will be deposited in a segregated account with the
Fund's custodian. In addition, in the case of a purchase, the Fund may be
required to make a deposit to a margin account with a Broker to collateralize
the position, and in the case of a sale, the Fund may be required to make daily
deposits to the buyer's margin account. The Fund would make such deposits in
order to insure that the use of such futures is unleveraged.
FEDERAL INCOME TAX TREATMENT
For federal income tax purposes, the Fund is required to recognize as income
for each taxable year its net unrealized gains and losses on futures contracts
as of the end of the year as well as those actually realized during the year.
Any gain or loss recognized with respect to a futures contract is considered to
be 60% long term and 40% short term, without regard to the holding period of the
contract. In the case of a futures transaction classified as a "mixed straddle,"
the recognition of losses may be deferred to a later taxable year. The federal
income tax treatment of gains or losses from transactions in options on futures
is unclear.
In order for the Fund to continue to qualify for federal income tax treatment
as a regulated investment company, at least 90% of its gross income for a
taxable year must be derived from qualifying income. Any net gain realized from
the closing out of futures contracts, for purposes of the 90% requirement, will
be qualifying income. In addition, gains realized on the sale or other
disposition of securities held for less than three months must be limited to
less than 30% of the Fund's annual gross income. The Internal Revenue Code
effectively treats both positions in certain hedging transactions as a single
transaction for the purpose of the 30% requirement. The provision provides that,
in the case of any "designated hedge," increases and decreases in the value of
positions of the hedge are to be netted for the purposes of the 30% requirement.
However, in certain situations, in order to avoid realizing a gain within a
three month period, the Fund may be required to defer the closing out of a
contract beyond the time when it would otherwise be advantageous to do so.
RISKS OF FUTURES CONTRACTS
Currency and other financial futures contracts prices are volatile and are
influenced, among other things, by changes in stock prices, market conditions,
prevailing interest rates and anticipation of future stock prices, market
movements or interest rate changes, all of which in turn are affected by
economic conditions, such as government fiscal and monetary policies and
actions, and national and international political and economic events.
At best, the correlation between changes in prices of futures contracts and of
the securities being hedged can be only approximate. The degree of imperfection
of correlation depends upon circumstances, such as variations in speculative
market demand for futures contracts and for securities, including technical
influences in futures contracts trading; differences between the securities
being hedged and the financial instruments and indexes underlying the standard
futures contracts available for trading, in such respects as interest rate
levels, maturities and creditworthiness of issuers, or identities of securities
comprising the index and those in the Fund's portfolio. A decision of whether,
when and how to hedge involves the exercise of skill and judgment, and even a
well-conceived hedge may be unsuccessful to some degree because of market
behavior or unexpected interest rate trends.
Because of the low margin deposits required, futures trading normally involves
an extremely high degree of leverage. As a result, a relatively small price
movement in a futures contract may result in immediate and substantial loss, as
well as gain, to the investor. For example, if at the time of purchase, 10% of
the value of the futures contract is deposited as margin, a 10% decrease in the
value of the futures contract would result in a total loss of the margin
deposit, before any deduction for the transaction costs, if the account were
then closed out, and a 15% decrease would result in a loss equal to 150% of the
original margin deposit. Thus, a purchase or sale of a futures contract may
result in losses in excess of the amount invested in the futures contract.
However, the Fund would presumably have sustained comparable losses if, instead
of entering into the futures contract, it had invested in the underlying
financial instrument. In order to be certain that the Fund has sufficient assets
to satisfy its obligations under a futures contract, the Fund will establish a
segregated account in connection with its futures contracts which will hold cash
or cash equivalents equal in value to the current value of the underlying
instruments or indices less the margins on deposit.
Most U.S. futures exchanges limit the amount of fluctuation permitted in
futures contract prices during a single trading day. The daily limit establishes
the maximum amount that the price of a futures contract may vary either up or
down from the previous day's settlement price at the end of a trading session.
Once the daily limit has been reached in a particular type of contract, no
trades may be made on that day at a price beyond that limit. The daily limit
governs only price movement during a particular trading day and therefore does
not limit potential losses because the limit may prevent the liquidation of
unfavorable positions. Futures contract prices have occasionally moved to the
daily limit for several consecutive trading days with little or no trading,
thereby preventing prompt liquidation of futures positions and subjecting some
futures traders to substantial losses.
RISKS OF OPTIONS ON FUTURES CONTRACTS
In addition to the risks described above for currency and other financial
futures contracts, there are several special risks relating to options on
futures contracts. The ability to establish and close out positions on such
options will be subject to the development and maintenance of a liquid secondary
market. There is no assurance that a liquid secondary market will exist for any
particular option or at any particular time. The Fund will not purchase options
on any futures contract unless and until it believes that the market for such
options has developed sufficiently that the risks in connection with such
options are not greater than the risks in connection with the futures contracts.
Compared to the use of futures contracts, the purchase of options on such
futures involves less potential risk to the Fund because the maximum amount at
risk is the premium paid for the options (plus transaction costs). However,
there may be circumstances when the use of an option on a futures contract would
result in a loss to the Fund, even though the use of a futures contract would
not, such as when there is no movement in the level of the futures contract.
FOREIGN CURRENCY TRANSACTIONS
The Fund may invest in securities of foreign issuers. When the Fund invests in
foreign securities they usually will be denominated in foreign currencies and
the Fund temporarily may hold funds in foreign currencies. Thus, the Fund's
share value will be affected by changes in exchange rates.
#10160670
<PAGE>
KEYSTONE INSTITUTIONAL TRUST
KEYSTONE INSTITUTIONAL SMALL CAPITALIZATION GROWTH FUND
PART C
OTHER INFORMATION
Item 24. Financial Statements and Exhibits
(to be filed by pre-effective amendment)
Item 24(a). Financial Statements:
Financial Highlights Not Applicable
Statement of Investments Not Applicable
Statement of Assets and Liabilities November 30, 1995
Statement of Operations Not Applicable
Statement of Change in Net Assets Not Applicable
Notes to Financial Statements November 30, 1995
Report of Independent Auditors
dated November 30, 1995
SUPPORTING SCHEDULES
All schedules are omitted as the required information is inapplicable.
<PAGE>
(24)(b) Exhibits
(1) A copy of the Registrant's Declaration of Trust is filed with this
Registration Statement as Exhibit 24(b)(1).
(2) A copy of the Registrant's By-Laws is filed with this Registration
Statement as Exhibit 24(b)(2).
(3) Not applicable.
(4) Not applicable.
(5) A copy of the form of Investment Management and Advisory Agreement between
Registrant and Keystone Investment Management Company is filed with this
Registration Statement as Exhibit 24(b)(5).
(6) A copy of the form of Principal Underwriting Agreement between Registrant
and Keystone Investment Management Company is filed with this Registration
Statement as Exhibit 24(b)(6).
(7) Not applicable.
(8) A copy of the form of Custodian, Fund Accounting and Recordkeeping
Agreement between Registrant and State Street Bank and Trust Company is
filed with this Registration Statement as Exhibit 24(b)(8).
(9) Not applicable.
(10) Opinion of counsel as to the legality of the shares being registered is
filed with this Registration Statement as Exhibit 24(b)(10).
(11) Consent as to use of Report of Registrant's independent auditors will be
filed by pre-effective amendment to this Registration Statement as Exhibit
24(b)(17).
(12) Not applicable.
(13) A copy of the Subscription Agreement between Registrant and Keystone
Investment Management Company is filed with this Registration Statement as
Exhibit 24(b)(13).
(14) Not applicable.
(15) Not applicable.
(16) Not applicable.
(17) Financial Data Schedules will be filed by pre-effective amendment as
Exhibit 27.
(18) Not applicable.
(19) Not applicable.
<PAGE>
Item 25. Persons Controlled by or Under Common Control With Registrant
Not applicable.
Item 26. Number of Holders of Securities
Number of Record Holders
Title of Class as of November 30, 1995
-------------- ------------------------
Shares of Beneficial 1
Interest
Item 27. Indemnification
Provisions for the indemnification of the Registrant's Trustees and
officers are contained in Article VIII of Registrant's Declaration of Trust, a
copy of the form of which is filed with this Registration Statement as Exhibit
24(b)(1) and is incorporated by reference herein.
Provisions for the indemnification of Fiduciary Investment Company,
Inc., the Registrant's Principal Underwriter, are contained in Section 7 of the
Principal Underwriting Agreement between the Registrant and Fiduciary Investment
Company, Inc., a copy of the form of which is filed with this Registration
Statement as Exhibit 24(b)(6) and is incorporated by reference herein.
Provisions for the indemnification of Keystone Investment Management
Company, Registrant's investment adviser, are contained in Section 5 of the
Investment Advisory and Management Agreement between Registrant and Keystone
Investment Management Company, a copy of the form of which is filed with this
Registration Statement as Exhibit 24(b)(5) and is incorporated by reference
herein.
<PAGE>
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, the Registrant's
investment adviser, and their respective positions. For each named
individual, the table lists, for at least the past two fiscal years,
(i) any other organizations (excluding investment advisory clients)
with which the officer and/or director has had or has substantial
involvement; and (ii) positions held with such organizations.
<PAGE>
LIST OF OFFICERS AND DIRECTORS OF
KEYSTONE INVESTMENT MANAGEMENT COMPANY
Position with
Keystone
Investment
Name Management Company Other Business Affiliations
- ---- ------------------ ---------------------------
Albert H. Elfner, III Chairman of Chairman of the Board,
the Board, Chief Executive Officer,
Chief Executive President and Director:
Officer,and Keystone Investments, Inc.
Director Keystone Management, Inc.
Keystone Software, Inc.
Keystone Asset Corporation
Keystone Capital Corporation
Chairman of the Board and
Director:
Keystone Fixed Income
Advisers, Inc.
Keystone Institutional
Company, Inc.
President and Director:
Keystone Trust Company
Director or Trustee:
Fiduciary Investment
Company, Inc.
Keystone Investment
Distributors Company
Keystone Investor
Resource Center, Inc.
Boston Children's
Services Associates
Middlesex School
Middlebury College
Former Trustee or Director:
Neworld Bank
Robert Van Partners, Inc.
Philip M. Byrne Director President and Director:
Keystone Institutional
Company, Inc.
Senior Vice President:
Keystone Investments, Inc.
<PAGE>
Position with
Keystone
Investment
Name Management Company Other Business Affiliations
- ---- ------------------ ---------------------------
Herbert L. Bishop, Jr. Senior Vice None
President
Donald C. Dates Senior Vice None
President
Gilman Gunn Senior Vice None
President
Edward F. Godfrey Director, Director, Senior Vice
Senior Vice President
President, Chief Financial Officer and
Treasurer and Treasurer:
Chief Financial Keystone Investments, Inc.
Officer Keystone Investment
Distributors Company
Treasurer:
Keystone Institutional
Company, Inc.
Keystone Management,
Inc.
Keystone Software, Inc.
Fiduciary Investment
Company, Inc.
Former Treasurer and
Director: Hartwell
Keystone Advisers, Inc.
James R. McCall Director and None
President
Ralph J. Spuehler, Jr. Director President and Director:
Keystone Investment
Distributors Company
Senior Vice President and
Director:
Keystone Investments, Inc.
Chairman and Director:
Keystone Investor
Resource Center, Inc.
Keystone Management, Inc.
Formerly President:
Keystone Management, Inc.
Formerly Treasurer:
The Kent Funds
Keystone Investments, Inc.
Keystone Investment
Management Company
<PAGE>
Position with
Keystone
Investment
Name Management Company Other Business Affiliations
- ---- ------------------ ---------------------------
Rosemary D. Van Antwerp Senior Vice General Counsel, Senior
President, Vice President and
General Counsel Secretary:
and Secretary Keystone Investments, Inc.
Senior Vice President and
General Counsel:
Keystone Institutional
Company, Inc.
Senior Vice President,
General Counsel and
Director:
Keystone Investor
Resource Center, Inc.
Fiduciary Investment
Company, Inc.
Keystone Investment
Distributors Company
Senior Vice President,
General Counsel, Director
and Secretary:
Keystone Management, Inc.
Keystone Software, Inc.
Former Senior Vice
President and Secretary:
Hartwell Keystone
Advisers, Inc.
Vice President and
Secretary:
Keystone Fixed Income
Advisers, Inc.
Harry Barr Vice President None
Robert K. Baumback Vice President None
Betsy A. Blacher Senior Vice None
President
Francis X. Claro Vice President None
Kristine R. Cloyes Vice President None
<PAGE>
Position with
Keystone
Investment
Name Management Company Other Business Affiliations
- ---- ------------------ ---------------------------
Christopher P. Conkey Senior Vice None
President
Richard Cryan Senior Vice None
President
Maureen E. Cullinane Senior Vice None
President
George E. Dlugos Vice President None
Antonio T. Docal Vice President None
Christopher R. Ely Senior Vice None
President
Robert L. Hockett Vice President None
Sami J. Karam Vice President None
Donald M. Keller Senior Vice None
President
George J. Kimball Vice President None
JoAnn L. Lyndon Vice President None
John C. Madden, Jr. Vice President None
Stephen A. Marks Vice President None
Eleanor H. Marsh Vice President None
Walter T. McCormick Senior Vice None
President
Barbara McCue Vice President None
Stanley M. Niksa Vice President None
Robert E. O'Brien Vice President None
Margery C. Parker Vice President None
<PAGE>
Position with
Keystone
Investment
Name Management Company Other Business Affiliations
- ---- ------------------ ---------------------------
William H. Parsons Vice President None
Daniel A. Rabasco Vice President None
David L. Smith Vice President None
Kathy K. Wang Vice President None
Judith A. Warners Vice President None
J. Kevin Kenely Vice President None
and Controller
Joseph J. Decristofaro Asst. Vice President None
<PAGE>
Item 29. Principal Underwriter
(a) Fiduciary Investment Company, Inc., the Trust's principal
underwriter, also acts as principal underwriter or distributor
for:
Keystone Institutional Adjustable Rate Fund
Master Reserves Trust
(b) For information with respect to each officer and Director of
Registrant's principal underwriter, see the following table:
Position and Offices Position and
Name and Principal with Fiduciary Offices with
Business Address Investment Company, Inc. the Trust
- ------------------ ------------------------ -------------
Ralph J. Spuehler, Jr. President and Director None
Rosemary D. Van Antwerp Senior Vice President, Senior Vice
General Counsel and President and
Director Secretary
Edward F. Godfrey Treasurer Senior Vice
President
Jean S. Loewenberg Clerk Assistant
Secretary
J. Kevin Kenely Vice President and None
Controller
Kevin J. Morrissey Assistant Treasurer Treasurer
The business address of the above-listed persons is 200 Berkeley
Street, Boston, Massachusetts 02116-5034.
<PAGE>
Item 30. Location of Accounts and Records
200 Berkeley Street
Boston, Massachusetts 02116-5034
Keystone Investor Resource Center, Inc.
101 Main Street
Cambridge, Massachusetts 02142
State Street Bank and Trust Company
1776 Heritage Drive
Quincy, Massachusetts 02171
Data Vault Inc.
3431 Sharp Slot Road
Swansea, Massachusetts 02777
Item 31. Management Services
Not applicable.
Item 32. Undertakings
See attached undertakings.
<PAGE>
UNDERTAKING
Insofar as indemnification for liability arising under the Securities
Act of 1933 may be permitted to Trustees, officers and controlling persons of
the Registrant, the Registrant has been advised that in the opinion of the
Securities and Exchange Commission such indemnification is against public policy
as expressed in the 1933 Act and is, therefore, unenforceable. In the event that
a claim for indemnification against such liabilities (other than the payment by
the Registrant of expenses incurred or paid by a Trustee, officer, or
controlling person of the registrant in the successful defense of any action,
suit or proceeding) is asserted by such Trustee, officer or controlling person
in connection with the securities being registered, the Registrant will, unless
in the opinion of its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question whether
such indemnification by it is against public policy as expressed in the Act and
will be governed by the final adjudication of such issue.
<PAGE>
UNDERTAKING TO FILE REPORTS
Subject to the terms and conditions of Section 15(d) of the Securities
Exchange Act of 1934, the undersigned Registrant hereby undertakes to file with
the Securities and Exchange Commission such supplementary and periodic
information, documents, and reports as may be prescribed by any rule or
regulation of the Commission heretofore or thereafter duly adopted pursuant to
authority conferred in that section.
<PAGE>
UNDERTAKING TO FILE POST-EFFECTIVE AMENDMENT
The undersigned, Registrant, hereby undertakes to file with the
Securities and Exchange Commission a Post-Effective Amendment to this
Registration Statement using financial statements which need not be audited,
within four to six months from the effective date of Registrant's Registration
Statement.
<PAGE>
UNDERTAKING TO COMPLY WITH SECTION 16(c) OF THE INVESTMENT COMPANY ACT OF 1940
APPLICABLE TO SHAREHOLDER COMMUNICATIONS
So long as Registrant is not required by its Declaration of Trust or
otherwise to hold annual meetings, Registrant hereby undertakes to comply with
the provisions of Section 16(c) of the Investment Company Act of 1940 applicable
to shareholder communications.
<PAGE>
UNDERTAKING FOR DELIVERY OF ANNUAL REPORTS
Upon request and without charge, the Registrant hereby undertakes to
furnish 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 has duly caused this
Registration Statement to be signed on its behalf by the undersigned, thereunto
duly authorized, in the City of Boston, in The Commonwealth of Massachusetts, on
the 6th day of December, 1995.
KEYSTONE INSTITUTIONAL TRUST
Keystone Institutional Small
Capitalization Growth Fund
*By: /s/ Melina M.T. Murphy
------------------------
Melina M.T. Murphy**
Attorney-in-Fact
Pursuant to the requirements of the Securities Act of 1933, this Registration
Statement has been signed below by the following persons in the capacities
indicated on the 6th day of December, 1995.
SIGNATURES TITLE
- ---------- -----
/s/ Albert H. Elfner,III Chief Executive Officer, President
- --------------------------- and Trustee
Albert H. Elfner, III*
/s/ Edward F. Godfrey Treasurer (Principal Financial
- --------------------------- and Accounting Officer)
Edward F. Godfrey
*By: /s/ Melina M.T. Murphy
------------------------
Melina M.T. Murphy**
Attorney-in-Fact
<PAGE>
SIGNATURES TITLE
- ---------- -----
/s/ Rosemary D. Van Antwerp Trustee
- ---------------------------
Rosemary D. Van Antwerp
/s/ Jean S. Loewenberg Trustee
- ---------------------------
Jean S. Loewenberg
/s/ Melina M.T. Murphy Trustee
- ---------------------------
Melina M.T. Murphy
/s/ James M. Wall Trustee
- ---------------------------
James M. Wall
<PAGE>
INDEX TO EXHIBITS
Page Number
in Sequential
Exhibit Number Exhibit Numbering System
- -------------- ------------ ----------------
1 Declaration of Trust
2 By-Laws
5 Investment Advisory and
Management Agreement
6 Principal Underwriting Agreement
8 Custodian, Trust Accounting
and Recordkeeping Agreement
10 Opinion and Consent of Counsel
13 Subscription Agreement
<PAGE>
EXHIBIT 99.1
KEYSTONE INSTITUTIONAL TRUST
DECLARATION OF TRUST
DATED: NOVEMBER 30, 1995
This DECLARATION OF TRUST of Keystone Institutional Trust, made at
Boston, Massachusetts on November 30, 1995 by Rosemary D. Van Antwerp, Jean S.
Loewenberg, Melina M.T. Murphy, and James M. Wall (hereinafter with their
successors referred to as the "Trustees").
WITNESSETH:
WHEREAS, the Trustees have agreed to manage all property received by
them as Trustees in accordance with the provisions hereinafter set forth.
NOW, THEREFORE, the Trustees hereby declare that they will hold all
cash, securities and other assets which they may from time to time acquire in
any manner as Trustees hereunder IN TRUST to manage and dispose of the same upon
the following terms and conditions for the pro rata benefit of the holders from
time to time of Shares in this Trust as hereinafter set forth.
ARTICLE I
NAME AND DEFINITIONS
Section 1. Name. This Trust shall be known as Keystone Institutional
Trust and the Trustees shall conduct the business of this Trust under that name
or any other name as they may from time to time determine.
Section 2. Definitions. Whenever used herein, unless otherwise required
by the context or specifically provided
(a) The terms "Affiliated Person," "Assignment," "Commission",
"Interested Person" and "Principal Underwriter" shall have the meanings
given them in the 1940 Act;
(b) The "Trust" refers to the Massachusetts business trust
established by and under this Declaration of Trust;
(c) "Declaration of Trust" shall mean this Declaration of
Trust as amended or restated from time to time;
(d) "Net Asset Value Per Share" means the net asset value per
share of the Trust determined in the manner provided or authorized in
Article VI, Section 4;
(e) "Shareholder" means a record owner of Shares of the Trust;
(f) "Shares" means the equal proportionate units of interest
into which the beneficial interest in the Trust shall be divided from
time to time or, if more than one series ("Series") or more than one
class ("Class") of Shares is authorized by the Trustees, the equal
proportionate units into which each such Series or Class of Shares
shall be divided from time to time, and includes where appropriate
fractions of a Share as well as a whole Share, unless the Trustees
provide that there shall be no fractions of any particular Shares;
(g) "Trustees" refers to the Trustee or Trustees of the Trust
who become such in accordance with Article IV and where appropriate
means a majority or other portion of them acting in accordance with
this Declaration of Trust or the By-laws of the Trust; and
(h) The "1940 Act" refers to the Investment Company Act of
1940 and the Rules and Regulations thereunder, all as amended from time
to time.
ARTICLE II
PURPOSE OF TRUST
The purpose of the Trust is to provide investors a continuous source of
managed investments.
ARTICLE III
BENEFICIAL INTEREST
Section 1. Shares of Beneficial Interest. The beneficial interest in
the Trust shall at all times be divided into transferable Shares, without par
value, each of which shall represent an equal proportionate interest in the
Trust with each other Share outstanding, none having priority or preference over
another, except to the extent modified by the Trustees under the provisions of
this Section. The number of Shares which may be issued is unlimited. The
Trustees may from time to time divide or combine the outstanding Shares into a
greater or lesser number without thereby changing the proportionate beneficial
interests in the Trust. Contributions to the Trust may be accepted for, and
Shares shall be redeemed as, whole Shares and/or fractions.
From time to time, as they deem appropriate, the Trustees may create
additional Series and/or Classes of Shares, in addition to the Shares initially
created under this instrument ("Original Series"). References in this
Declaration of Trust to Shares of the Trust shall apply, as appropriate, to each
such Series of Shares and to each such Class of Shares.
Any additional Series of Shares created hereunder shall represent the
beneficial interest in the assets (and related liabilities) allocated by the
Trustees to such Series of Shares and acquired by the Trust only after creation
of the respective Series of Shares and only on account of such Series. If the
Trustees create any additional Series of Shares hereunder, then the Original
Series shall be deemed a separate Series of Shares. Upon creation of each Series
of Shares, the Trustees may designate it appropriately and determine the
investment policies with respect to the assets allocated to such Series of
Shares, redemption rights, dividend policies, conversion rights, liquidation
rights, voting rights, and such other rights and restrictions as the Trustees
deem appropriate, to the extent not inconsistent with the provisions of this
Declaration of Trust.
The Trustees may divide any Series (including the Original Series) into
more than one Class of Shares. Upon creation of each additional Class of Shares,
the Trustees may designate it appropriately and determine its rights and
restrictions (including, without limitation, such redemption rights, dividend
rights, conversion rights, liquidation rights, voting rights and such other
rights and restrictions as the Trustees deem appropriate).
Section 2. Ownership of Shares. The ownership of Shares shall be
recorded on the books of the Trust or a transfer agent or a similar agent. The
Trustees may make such rules as they consider appropriate for the transfer of
Shares and similar matters. The record books of the Trust as kept by the Trust
or any transfer agent or similar agent, as the case may be, shall be conclusive
as to who are the holders of Shares of each Series or Class and as to the number
of Shares of each Series or Class held from time to time by each.
Section 3. Investments in the Trust. The Trustees shall accept
investments in the Trust from such persons and on such terms and, subject to any
requirements of law, for such consideration as the Trustees from time to time
authorize and may cease offering Shares to the public at any time. After such
acceptance, the number of Shares of the appropriate Series or Class to represent
the contribution may, in the Trustees' discretion, be considered as outstanding,
and the amount receivable by the Trustees on account of the contribution may be
treated as an asset of the Series or Class.
Section 4. No Preemptive Rights. Shareholders shall have no preemptive
or other right to subscribe to any additional Shares or other securities issued
by the Trust.
Section 5. Provisions Relating to Series or Classes of Shares. Whenever
no Shares of a Series or Class are outstanding, then the Trustees may abolish
such Series or Class. Whenever more than one Series or Class of Shares is
outstanding, then the following provisions shall apply:
(a) Assets Belonging to Each Series or Class. All
consideration received by the Trust for the issue or sale of Shares of
a particular Series or Class, together with all assets in which such
consideration is invested or reinvested, all income, earnings and
proceeds thereof, and any funds derived from any reinvestment of such
proceeds, shall, except to the extent specifically otherwise provided
in the provisions adopted by the Board of Trustees establishing the
Series or Class, irrevocably belong to that Series or Class for all
purposes, subject only to the rights of creditors, and shall be so
recorded upon the books of the Trust. In the event there are assets,
income, earnings and proceeds thereof which are not readily
identifiable as belonging to a particular Series or Class, then the
Trustees shall allocate such items to the various Series or Classes
then existing, in such manner and on such basis as they, in their sole
discretion, deem fair and equitable. The amount of each such item
allocated to a particular Series or Class by the Trustees shall then
belong to that Series or Class, and each such allocation shall be
conclusive and binding upon the Shareholders of all Series or Classes
for all purposes.
(b) Liabilities Belonging to Each Series or Class. The assets
belonging to each particular Series or Class shall, except to the
extent specifically otherwise provided in the provisions adopted by the
Board of Trustees establishing the Series or Class, be charged with the
liabilities, expenses, costs and reserves of the Trust attributable to
that Series or Class; and any general liabilities, expenses, costs and
reserves of the Trust which are not readily identifiable as
attributable to a particular Series or Class shall be allocated by the
Trustees to the various Series or Classes then existing, in such manner
and on such basis as they, in their sole discretion, deem fair and
equitable. Each such allocation shall be conclusive and binding upon
the Shareholders of all Series or Classes for all purposes.
(c) Series or Classes of Shares, Dividends and Liquidation.
Each Share of each respective Series or Class shall, except to the
extent specifically otherwise provided in the provisions adopted by the
Board of Trustees establishing the Series or Class, have the same
rights and pro rata beneficial interest in the assets and liabilities
of the Series or Class as any other such Share. Any dividends paid on
the Shares of any Series or Class shall, except to the extent
specifically otherwise provided in the provisions adopted by the Board
of Trustees establishing the Series or Class, only be payable from and
to the extent of the assets (net of liabilities) belonging to that
Series or Class. In the event of liquidation of a Series or Class, only
the assets (less provision for liabilities) of that Series or Class
shall be distributed to the holders of the Shares of that Series or
Class.
(d) Voting by Series or Class. Except as provided in this
Section or as limited by the rights and restrictions of any Series or
Class, each Share of the Trust may vote with and in the same manner as
any other Share on matters submitted to a vote of the Shareholders
entitled to vote thereon, without differentiation among votes from the
separate Series or Classes; provided, however, that (i) as to any
matter with respect to which a separate vote of any Series or Class is
required by the 1940 Act, or otherwise by applicable law, such
requirement as to a separate vote shall apply in lieu of the voting
described above; (ii) in the event that the separate vote requirements
referred to in (i) above apply with respect to one or more Series or
Classes, then, subject to (iii) below, the Shares of all other Series
or Classes shall vote without differentiation among their votes; and
(iii) as to any matter which does not affect the interest of any
particular Series or Class, only the holders of Shares of the one or
more affected Series or Classes shall be entitled to vote.
Section 6. Limitation of Personal Liability. The Trustees shall have no
power to bind any Shareholder personally or to call upon any Shareholder for the
payment of any sum of money or assessment whatsoever other than such as the
Shareholder may at any time personally agree to pay by way of subscription to
any Shares or otherwise. Every note, bond, contract or other undertaking issued
by or on behalf of the Trust or the Trustees relating to the Trust shall include
a recitation limiting the obligation represented thereby to the Trust and its
assets (but the omission of such a recitation shall not operate to bind any
Shareholder).
ARTICLE IV
THE TRUSTEES
Section 1. Number of Trustees. The number of Trustees shall initially
be such number as shall be elected as such by a vote of the shareholders of the
Trust and thereafter shall be such number as shall be fixed from time to time by
action of a majority of the Trustees.
Section 2. Election or Appointment and Term. The initial Trustees shall
be the individuals signing this Declaration in that capacity and any other
trustees who shall be elected as initial trustees by a vote of the shareholders
of the Trust. Thereafter, subject to Section 16(a) of the 1940 Act, the Trustees
may elect themselves or their successors at such intervals, as they deem proper,
and may appoint Trustees to fill vacancies as provided in Section 4 hereof;
provided, that Trustees shall be elected by vote of a majority of Shares voting
thereon at such time or times as the Trustees shall determine that such action
is advisable. Subject to Section 3 hereof, the Trustees shall have the power to
set and alter the terms of office of the Trustees, and they may at any time
lengthen or shorten their own terms or make their terms of unlimited duration;
provided, that the term of office of any incumbent Trustee shall continue until
terminated, as provided in Section 4 hereof or, if not so terminated, until the
election of such Trustee's successor in office has become effective in
accordance with this Section 2.
Section 3. Resignation and Removal. Any Trustee may resign his trust
(without need for prior or subsequent accounting) by an instrument in writing
signed by him and delivered to the other Trustees, and such resignation shall be
effective upon such delivery or at any later date according to the terms of the
instrument. Any Trustee may be removed by the action of two-thirds of the
remaining Trustees. Upon the resignation or removal of a Trustee, or his
otherwise ceasing to be a Trustee, he shall execute and deliver such documents
as the remaining Trustees shall require for the purpose of conveying to the
Trust or the remaining Trustees any Trust property held in his name. Upon the
incapacity or death of any Trustee, his legal representative shall execute and
deliver on his behalf such documents as the remaining Trustees shall require as
provided in the preceding sentence. However, the execution and delivery of such
documents by a former Trustee or his legal representative shall not be requisite
to the vesting of title to the Trust property in the remaining Trustees.
Section 4. Vacancies. The term of office of a Trustee shall terminate
and a vacancy shall occur in the event of such Trustee's death, resignation,
removal, bankruptcy, adjudicated incompetence or other incapacity to perform the
duties of the office of Trustee. No such vacancy shall operate to annul this
Declaration of Trust or to revoke any existing agency created pursuant to the
terms of this Declaration of Trust. In the case of an existing vacancy,
including a vacancy existing by reason of an increase in the number of Trustees,
subject to applicable law, the remaining Trustees or, if only one Trustee shall
then remain in office, the sole remaining Trustee, shall appoint such individual
to fill such vacancy as they or he, in their or his discretion, shall see fit.
An appointment of a Trustee may be made in anticipation of a vacancy to occur at
a later date by reason of retirement or resignation of a Trustee or an increase
in the number of Trustees; provided, that such appointment shall not become
effective prior to such retirement or resignation or such increase in the number
of Trustees. Whenever a vacancy in the number of Trustees shall occur, until
such vacancy is filled as provided in this Section 4, the Trustees in office,
regardless of their number, shall have all the powers granted to the Trustees
and shall discharge all the duties imposed upon the Trustees by this Declaration
of Trust in the manner provided by this Declaration of Trust. A written
instrument certifying the existence of such vacancy signed by a majority of the
Trustees shall be conclusive evidence of the existence of such vacancy.
Section 5. Management of the Trust. Subject to the provisions of this
Declaration of Trust, the business and affairs of the Trust shall be managed by
the Trustees, and they shall have all powers necessary and desirable to carry
out that responsibility. Action by the Trustees may be taken by majority vote of
the Trustees at a meeting at which a quorum (which shall be a majority of the
Trustees then in office) shall be present, or by a writing signed by a majority
of the Trustees in office.
Without limiting the foregoing, the Trustees may adopt By-Laws not
inconsistent with this Declaration of Trust providing for the conduct of the
business of the Trust and may amend and repeal them to the extent that they do
not reserve that right to any Shareholders; they may elect and remove such
officers and appoint and terminate such agents as they consider appropriate;
they may appoint from their own number and terminate any one or more committees;
they may employ one or more custodians of the assets of the Trust and may
authorize such custodians to employ subcustodians and to deposit all or any part
of such assets in a system or systems for the central handling of securities,
retain a transfer agent or a Shareholder servicing agent, or both, provide for
the distribution of Shares by the Trust, through one or more principal
underwriters or otherwise, set, or otherwise provide for the setting of, record
dates, and in general delegate such authority to do any or all things which the
Trustees may do in the operation of the business of the Trust as they consider
desirable to any officers of the Trust and committees of the Trustees and to any
agent or employee, custodian or underwriter. Any action relating to the
operation of the Trust provided for herein to be taken by the Trustees may be
taken by any other person under authority granted by the Trustees whether or not
specifically so stated, and unless specifically so stated to the contrary. A
specific statement indicating that the Trustees may delegate any authority shall
not give rise to any contrary implication with respect to any provision of this
Declaration of Trust.
Without limiting the foregoing, the Trustees in addition to all powers
granted by law shall have power and authority:
(a) To invest and reinvest cash, and to hold cash uninvested,
without in anywise being bound or limited by any present or future law
or custom in regard to investments by trustees;
(b) To sell, exchange, lend, pledge, mortgage, hypothecate or
lease any or all of the assets of the Trust;
(c) To vote or give assent, or exercise any rights of
ownership, with respect to stock or other securities or property, and
to execute and deliver proxies or powers of attorney to such person or
persons as the Trustees shall deem proper, granting to such person or
persons such power and discretion with relation to securities or
property as the Trustees shall deem proper;
(d) To exercise powers and rights of subscription or otherwise
which in any manner arise out of ownership of securities;
(e) To hold any security or property in a form not indicating
any trust, whether in bearer, unregistered or other negotiable form, or
in the Trust's own name or in the name of a custodian or subcustodian
or a nominee or nominees or otherwise;
(f) To consent to or participate in any plan for the
reorganization, consolidation or merger of any corporation or concern,
any security of which is held in the Trust; to consent to any contract,
lease, mortgage, purchase or sale of property by such corporation or
concern, and to pay calls or subscriptions with respect to any security
held in the Trust;
(g) To join with other security holders in acting through a
committee, depository, voting trustee or otherwise, and in that
connection to deposit any security with, or transfer any security to,
any such committee, depository or trustee, and to delegate to them such
power and authority with relation to any security (whether or not so
deposited or transferred) as the Trustees shall deem proper, and to
agree to pay, and to pay, such portion of the expenses and compensation
of such committee, depository or trustee as the Trustees shall deem
proper;
(h) To compromise, arbitrate, or otherwise adjust claims in
favor of or against the Trust for any matter in controversy, including,
but not limited to, claims for taxes; and
(i) To borrow funds.
The Trustees shall not be required to obtain any court order to deal
with any assets of the Trust or take any other action hereunder.
Section 6. Ownership of Assets of the Trust. The assets of the Trust
shall be held separate and apart from any assets now or hereafter held in any
capacity other than as Trustee hereunder by the Trustees or by any successor
Trustees. All of the assets of the Trust shall at all times be considered as
vested in the Trustees. No Shareholder shall be deemed to have a severable
ownership in any individual asset of the Trust or any right of partition or
possession thereof, but each Shareholder shall have a proportionate undivided
beneficial interest in the assets of the Series or Class of Shares of which he
is a holder, subject to any rights or restrictions applicable to any Series or
Class of Shares of which he is a holder.
Section 7. Payment of Expenses. The Trustees shall pay or cause to be
paid out of the principal or income of the Trust, or partly out of principal and
partly out of income, as they deem fair, all expenses, charges, taxes and
liabilities incurred or arising in connection with the Trust, or in connection
with the management thereof, including, but not limited to, the Trustees'
compensation and such expenses and charges for the services of the Trust's
investment adviser or manager, administrator, auditor, counsel, custodian,
transfer agent, Shareholder servicing agent, and such other agents or
independent contractors and such other expenses and charges as the Trustees may
deem necessary or proper to incur.
Section 8. Investment Management and Other Services. Without limiting
the generality of the powers of the Trustees, subject to applicable law, the
Trustees may enter into a contract with any person or persons, including any
firm, corporation, trust or association in which any Trustee, Shareholder or
officer of the Trust may be interested, to act as investment advisers and/or
managers of the Trust and to provide such investment advice and/or management as
the Trustees may from time to time consider appropriate ("Adviser"). Any such
contract may authorize the Adviser to determine from time to time what
securities shall be acquired, held or disposed of by the Trust and what portion
of the assets of the Trust shall be held uninvested and to take, on behalf of
the Trust, actions which the Adviser deems necessary to implement the investment
policies of the Trust, including the placement of all orders for the purchase,
sale or loan of portfolio securities for the Trust's account with brokers or
dealers or others selected by the Adviser and the giving of instructions to the
custodian of the Trust's assets as to deliveries of securities and payments of
cash for the account of the Trust.
Without limiting the generality of the powers of the Trustees, subject
to applicable law, the Adviser may enter into an agreement to retain at its own
expense any person or persons, including any firm, corporation, trust or
association in which any Trustee, Shareholder or officer of the Trust may be
interested, to provide the Trust investment advice and/or management, and any
person or persons so retained may be granted all authority which has been
granted to the Adviser under the contract which the Adviser entered into
pursuant to the preceding paragraph.
Without limiting the generality of the powers of the Trustees, the
Trustees may enter into a contract with any person or persons, including any
firm, corporation, trust or association in which any Trustee, Shareholder or
officer of the Trust may be interested, to act as principal underwriter for the
Shares.
Section 9. Affiliations of Trustees or Officers, Etc. The fact that (i)
any of the Shareholders, Trustees or officers of the Trust is a shareholder,
Director, officer, partner, Trustee, employee, manager, adviser or distributor
of or for any partnership, corporation, trust, association or other organization
or for any parent or affiliate of any organization with which any contract,
including, without limitation, contracts for services as manager, investment
adviser, distributor, principal underwriter, custodian, transfer agent or
dividend disbursing agent or for related services may have been or may hereafter
be made, or that any such organization, or any parent or affiliate thereof, is a
Shareholder of or has an interest in the Trust, or that (ii) any partnership,
corporation, trust, association or other organization with which a contract
referred to in (i) above may have been or may hereafter be made also has any one
or more of such contracts with one or more other partnerships, corporations,
trusts, associations or other organizations, or has other business or interests,
shall not affect the validity of any such contract or disqualify any
Shareholder, Trustee or officer of the Trust from voting upon or executing the
same or create any liability or accountability to the Trust or its Shareholders.
ARTICLE V
SHAREHOLDERS' VOTING POWERS AND MEETINGS
Section 1. Voting Powers. The Shareholders shall have power to vote
only (i) for the election of Trustees as provided in Section 2 of Article IV
hereof and the removal of Trustees to the extent provided in Section 16(c) of
the 1940 Act, (ii) with respect to approval or termination in accordance with
the 1940 Act of any investment advisory or management agreement described in
Article IV hereof, (iii) with respect to any amendment of this Declaration of
Trust to the extent and as provided in Section 7 of Article IX hereof, (iv) to
the same extent as the stockholders of a Massachusetts corporation as to whether
or not a court action, proceeding or claim should or should not be brought or
maintained derivatively or as a class action on behalf of the Trust or the
Shareholders, and (v) with respect to such additional matters relating to the
Trust as may be required by this Declaration of Trust or the By-Laws, or as to
which the Trustees in their discretion shall determine such Shareholder vote to
be required by law or otherwise to be necessary, appropriate or advisable.
Each whole Share shall be entitled to one vote as to any matter on
which it is entitled to vote and each fractional Share shall be entitled to a
proportionate fractional vote. There shall be no cumulative voting in the
election of Trustees. Shares may be voted in person or by proxy. A proxy with
respect to Shares held in the name of two or more persons shall be valid if
executed by any one of them unless at or prior to exercise of the proxy the
Trust receives a specific written notice to the contrary from any one of them. A
proxy purporting to be executed by or on behalf of a Shareholder shall be deemed
valid unless challenged at or prior to its exercise, and the burden of proving
invalidity shall rest on the challenger. Until Shares are issued, the Trustees
may exercise all rights of Shareholders and may take any action required by law,
this Declaration of Trust or any By-Laws of the Trust to be taken by
Shareholders.
Section 2. Meetings. Meetings of Shareholders shall be held at such
times at the principal office of the Trust or such other place as the Trustees
may designate. Meetings of the Shareholders may be called by the Trustees or
such other person or persons as may be specified in the By-laws. Shareholders
shall be entitled to at least seven days' notice of any meeting.
Section 3. Quorum and Required Vote. Except as otherwise provided by
law, to constitute a quorum for the transaction of business at a Shareholders'
meeting there must be present, in person or by proxy, holders of a majority of
the total number of Shares of the Trust then outstanding and entitled to vote at
the meeting, but any lesser number shall be sufficient for adjournment, and any
adjourned session or sessions may be held within 90 days after the date set for
the original meeting without the necessity of further notice. Subject to any
applicable requirements of law, a majority of the Shares present and entitled to
vote on a question or election shall decide such question or election, except
when a larger vote is required by any provision of this Declaration of Trust,
the By-Laws of the Trust or any applicable provision of law.
Section 4. Action by Written Consent. Except as otherwise required by
law, any action required or permitted to be taken at any meeting may be taken
without a meeting if a consent in writing setting forth such action is signed by
the Shareholders entitled to vote on the subject matter thereof holding a
majority of the Shares entitled to vote thereon.
Section 5. Additional Provisions. The By-Laws may include further
provisions for Shareholders' votes and meetings and related matters.
ARTICLE VI
DISTRIBUTIONS AND REDEMPTIONS
Section 1. Distributions. The Trustees may, but need not, each year
distribute to the Shareholders of each Series or Class such income and gains as
the Trustees may determine, after providing for actual and accrued expenses and
liabilities (including such reserves as the Trustees may establish) determined
in accordance with generally accepted accounting practices. The Trustees shall
have full discretion to determine which items shall be treated as income and
which items as capital and their determination shall be binding upon the
Shareholders. Distributions of each year's income of each Series or Class, if
any be made, may be made in one or more payments, which shall be in Shares, in
cash or otherwise and on a date or dates and as of a record date or dates
determined by or under the authority of the Trustees. At any time and from time
to time in their discretion the Trustees may distribute to the Shareholders of
any one or more Series or Class as of a record date or dates determined by or
under the authority of the Trustees, in Shares, in cash or otherwise, all or
part of any gain realized on the sale or disposition of property of the Trust or
otherwise, or all or part of any other principal of the Trust. Each distribution
pursuant to this Section 1 shall be made ratably according to the number of
Shares of the Series or Class held by the several Shareholders on the applicable
record date thereof, provided that no distribution need be made on Shares
purchased pursuant to orders received or for which payment is made after such
time or times as may be determined by or under the authority of the Trustees.
Any such distribution paid in Shares will be paid at the net asset value thereof
as determined in accordance with Section 4 hereof.
Section 2. Redemptions. Upon offer by any Shareholder of all or part of
the Shares held by the Shareholder for redemption hereunder, in accordance with
such methods, upon such terms and subject to such conditions as from time to
time may be determined by or under the authority of the Trustees, the Trust
shall redeem the Shares so offered by distributing to the Shareholder the Net
Asset Value per Share thereof determined as of a time fixed by or under the
authority of the Trustees. The Trust shall have the right at its option and at
any time to redeem the Shares of any Shareholder for their Net Asset Value per
Share if the Shareholder owns Shares of a Series or Class having an aggregate
net asset value of less than such minimum amount as may from time to time be
prescribed by or under the authority of the Trustees or if ownership of such
Shares by the Shareholder could create adverse tax consequences for the Trust or
any Series or Class thereof. With respect to all Shares or any Series or Class
of Shares, the right to redemption or the date for payment may, however, be
delayed or suspended by the Trustees if there is an extraordinary closing or
restriction of trading on the New York Stock Exchange as determined under rules
and regulations of the Commission, or an emergency exists as a result of which
it is not reasonably practicable for the Trust to dispose of securities or
fairly to determine the value of its net assets, or as the Commission may
permit. The completion of such distribution on redemption of Shares shall
constitute a full discharge of the Trust and Trustees with respect to such
Shares, and the Trustees may require that any certificate or certificates issued
by the Trust to evidence the ownership of the Shares shall be surrendered to the
Trustees for cancellation or notation. Shares so redeemed shall be cancelled or
held by the Trust for reissue, as the Trustees may from time to time determine.
Section 3. Payment in Kind. Subject to any generally applicable
limitation imposed by the Trustees, any distribution on redemption may, if
authorized by the Trustees, be made wholly or partly in kind, instead of in
cash. Such distribution in kind shall be made by distributing investments
constituting, in the opinion of the Trustees, a fair representation of the
various types of securities then held by the Series or Class of Shares being
redeemed (but not necessarily including a portion of each particular investment)
and in each case having an aggregate value equal to the amount of cash instead
of which such distribution in kind is made.
Section 4. Determination of Net Asset Value per Share. Subject to
applicable law, the Net Asset Value per Share of each Series or Class shall be
computed as of such times as may be determined by or under authority of the
Trustees by determining the value of all the investments of such Series or Class
in such manner as may be determined by or under authority of the Trustees,
adding any other assets of such Series or Class, subtracting all liabilities of
such Series or Class and dividing the result by the number of Shares of such
Series or Class outstanding.
Determination of Net Asset Value per Share so made in good faith and
pursuant to the provisions of the 1940 Act shall be binding on all parties
concerned.
Section 5. Automatic Redemption from Small Accounts. The Trustees shall
have the power to redeem shares at a redemption price determined in accordance
with Section 4 of this Article if at any time the total investment in an account
does not have a value of at least $1,000 or such other minimum amount as the
Trustees may from time to time determine. Before redeeming such Shares, the
Shareholder will be notified that the value of his account is less than the
required minimum amount and be allowed 60 days or such period as is permitted by
law to make an additional investment to bring the total value of such account to
such amount or more.
Section 6. Power to Modify Foregoing Procedures. Notwith- standing any
of the foregoing provisions of this Article VI, the Trustees may prescribe, in
their absolute discretion, such other bases and times for the declaration and
payment of dividends and distributions as they may deem desirable or necessary
to enable the Trust to comply with any provision of the 1940 Act or the Internal
Revenue Code, including any rule or regulation adopted by the Commission or any
securities association registered under the Securities Exchange Act of 1934, or
any order of exemption issued by the Commission or any rule or regulation issued
under the Internal Revenue Code, all as in effect now or as hereafter amended or
modified.
ARTICLE VII
COMPENSATION AND LIMITATION OF LIABILITY OF TRUSTEES
Section 1. Compensation. The Trustees shall be entitled to reasonable
compensation from the Trust; they may fix the amount of their compensation.
Section 2. Limitation of Liability. Provided they have exercised
reasonable care in their selection, the Trustees shall not be responsible or
liable in any event for any neglect or wrongdoing of any officer, agent,
employee or Adviser of the Trust nor shall any Trustee be responsible for the
act or omission of any other Trustee, but nothing herein contained shall protect
any Trustee against any liability to which he would otherwise be subject by
reason of willful misfeasance, bad faith, gross negligence or reckless disregard
of the duties involved in the conduct of his office.
Every note, bond, contract, instrument, certificate, share or
undertaking and every other act or thing whatsoever executed or done by or on
behalf of the Trust or the Trustees or any of them in connection with the Trust
shall be conclusively deemed to have been executed or done only in their or his
capacity as Trustees or Trustee, and such Trustees or Trustee shall not be
personally liable thereon.
The Trustees shall use their best efforts to ensure that every note,
bond, contract, instrument, certificate or undertaking made or issued by the
Trustees or by any officers shall give notice of the existence of this
Declaration of Trust and shall recite to the effect that the same was executed
or made by or on behalf of the Trust or by them as Trustees or officers, and not
individually, and is not binding upon any of them or the Shareholders
individually, but is binding only upon the Trust property, or the assets of the
particular Series or Class in question, as the case may be, but the omission
thereof shall not operate to bind any Trustee or officer or Shareholder
individually, or to subject the assets of any Series or Class to the obligations
of any other Series or Class.
ARTICLE VIII
INDEMNIFICATION
Section 1. Trustees, Officers, etc. The Trust shall indemnify each of
its present and former Trustees and officers and may indemnify any of its
present or former employees or agents, and shall indemnify any persons who serve
or have served at the Trust's request as Directors, officers or Trustees of
another organization, and may indemnify persons who serve or have served at the
Trust's request as employees or agents of another organization in which the
Trust has any interest as a shareholder, creditor or otherwise (hereinafter
referred to as a "Covered Person") against all liabilities and expenses,
including, but not limited to, amounts paid in satisfaction of judgments, in
compromise or as fines and penalties, and counsel fees reasonably incurred by
any such Covered Person in connection with the defense or disposition of any
action, suit or other proceeding, whether civil or criminal, before any court or
administrative or legislative body, in which such Covered Person may be or may
have been involved as a party or otherwise or with which such person may be or
may have been threatened, while in office, employed or acting as agent, or
thereafter, by reason of being or having been such a Trustee, officer, Director,
employee or agent, except with respect to any matter as to which such Covered
Person shall have been finally adjudicated in any such action, suit or other
proceeding not to have acted in good faith in the reasonable belief that such
Covered Person's action was in the best interest of the Trust and except that no
person shall be indemnified against any liability to the Trust or its
Shareholders to which such Covered Person shall otherwise be subject by reason
of willful misfeasance, bad faith, gross negligence or reckless disregard of the
duties involved in the conduct of his office. Expenses, including counsel fees
so incurred by any Covered Person, may in the discretion of the Trustees be paid
from time to time by the Trust in advance of the final disposition of any such
action, suit or proceeding upon receipt of an undertaking by or on behalf of
such Covered Person to repay amounts so paid to the Trust if it is ultimately
determined that indemnification against such expenses is not authorized under
this Article.
Except as otherwise provided by law, the Trust shall have power to
purchase and maintain insurance on behalf of a Covered Person against any
liability asserted against him and incurred by him in his capacity as a Covered
Person, or arising out of his status as such, whether or not the Trust would
have the power to indemnify him against the liability under the provisions of
this Section.
Section 2. Compromise Payment. As to any matter disposed of by a
compromise payment by any Covered Person referred to in Section 1 above,
pursuant to a consent decree or otherwise, no such indemnification either for
such payment or for any other expenses shall be provided unless such compromise
shall be approved as in the best interests of the Trust, after notice that it
involved such indemnification, (a) by a disinterested majority of the Trustees
then in office; or (b) by a majority of the disinterested Trustees then in
office; or (c) by any disinterested person or persons to whom the question may
be referred by the Trustees, provided that in the case of approval pursuant to
clause (b) or (c) there has been obtained an opinion in writing of independent
legal counsel to the effect that such Covered Person appears to have acted in
good faith in the reasonable belief that his action was in the best interests of
the Trust and that such indemnification would not protect such person against
any liability to the Trust to which such person would otherwise be subject by
reason of wilful misfeasance, bad faith, gross negligence or reckless disregard
of the duties involved in the conduct of his office; or (d) by vote of a
majority of the Shares voting thereon, exclusive of any Shares beneficially
owned by any interested Covered Person. Approval by the Trustees pursuant to
clause (a) or (b) or any disinterested person or persons pursuant to clause (c)
of this Section shall not prevent the recovery from any Covered Person of any
amount paid to such Covered Person in accordance with any such clauses as
indemnification if such Covered Person is subsequently adjudicated by a court of
competent jurisdiction not to have acted in good faith in the reasonable belief
that such person's action was in the best interests of the Trust or to have been
liable to the Trust or its Shareholders by reason of willful misfeasance, bad
faith, gross negligence or reckless disregard of the duties involved in the
conduct of his office.
Section 3. Indemnification Not Exclusive. The right of indemnification
hereby provided shall not be exclusive or affect any other rights to which any
such Covered Person may be entitled. As used in this Article VIII, the term
"Covered Person" shall include such person's heirs, executors and
administrators. An "interested Covered Person" is one against whom the action,
suit or other proceeding in question or another action, suit or other proceeding
on the same or similar grounds is then or has been pending, and a "disinterested
person" is a person against whom none of such actions, suits or other
proceedings or another action, suit or other proceeding on the same or similar
grounds is then or has been pending. Nothing contained in this Article shall
affect any rights to indemnification to which personnel of the Trust other than
Trustees and officers or other persons may be entitled by contract or otherwise
under law.
Section 4. Shareholders. In case any Shareholder or former Shareholder
shall be held to be personally liable solely by reason of his being or having
been a Shareholder and not because of his acts or omissions or for some other
reason, the Shareholder or former Shareholder (or his heirs, executors,
administrators or other legal representatives or in the case of a corporation or
other entity, its corporate or other successor) shall be entitled out of the
assets of the Trust to be held harmless from and indemnified against all loss
and expense arising from such liability.
ARTICLE IX
MISCELLANEOUS
Section 1. Trust Not a Partnership. It is hereby expressly declared
that a trust and not a partnership is created hereby. Neither the Trust nor the
Trustees, nor any officer, employee or agent of the Trust shall have any power
to bind personally either the Trust's Trustees or officers or any Shareholders.
All persons extending credit to, contracting with or having any claim against
the Trust shall look only to the assets of the Trust for payment under such
credit, contract or claim, and neither the Shareholders nor the Trustees, nor
any of the Trust's officers, employees or agents, whether past, present or
future, shall be personally liable therefor. Nothing in this Declaration of
Trust shall protect any Trustee against any liability to which such Trustee
would otherwise be subject by reason of willful misfeasance, bad faith, gross
negligence or reckless disregard of the duties involved in the conduct of the
office of Trustee hereunder.
Section 2. Trustee's Good Faith Action, Expert Advice, No Bond or
Surety. The exercise by the Trustees of their powers and discretions hereunder
in good faith and with reasonable care under the circumstances then prevailing
shall be binding upon everyone interested. Subject to the provisions of Section
1 of this Article IX, a Trustee shall be liable for his own willful defaults,
and for nothing else, and shall not be liable for errors of judgment or mistakes
of fact or law. The Trustees may take advice of counsel or other experts with
respect to the meaning and operation of this Declaration of Trust and, subject
to the provisions of said Section 1, shall be under no liability for any act or
omission in accordance with such advice or for failing to follow such advice.
The Trustees shall not be required to give any bond as such, nor any surety if a
bond is required.
Section 3. Liability of Third Persons Dealing with Trustees. No person
dealing with the Trustees shall be bound to make any inquiry concerning the
validity of any transaction made or to be made by the Trustees pursuant hereto
or to see to the application of any payments made or property transferred to the
Trust or upon its order.
Section 4. Duration; Termination of Trust; Amendments; Mergers, etc.
(a) This Trust shall continue without limitation of time but
subject to the provisions of this Section 4.
(b) The Trust (as used in this Section 4 the term "Trust"
specifically also means any Series or Class) may be terminated by
action of the Trustees.
(c) Upon the termination of the Trust:
(i) The Trust shall carry on no business except for the
purpose of winding up its affairs.
(ii) The Trustees shall proceed to wind up the affairs of
the Trust and all of the powers of the Trustees under this
Declaration of Trust shall continue until the affairs of the
Trust shall have been wound up, including the power to fulfill
or discharge the contracts of the Trust, collect its assets,
sell, convey, assign, exchange, transfer or otherwise dispose
of all or any part of the remaining Trust property to one or
more persons at public or private sale for consideration which
may consist in whole or in part of cash, securities or other
property of any kind, discharge or pay its liabilities, and to
do all other acts appropriate to liquidate its business.
(iii) After paying or adequately providing for the payment
of all liabilities, and upon receipt of such releases,
indemnities and refunding agreements as they deem necessary
for their protection, the Trusteees shall distribute the
remaining Trust property, in cash or in kind or partly each,
among the Shareholders according to their respective rights
and interests.
(d) After termination of the Trust and distribution to the
Shareholders as herein provided, a majority of the Trustees shall
execute and lodge among the records of the Trust an instrument in
writing setting forth the fact of such termination, and the Trustees
shall thereupon be discharged from all further liabilities and duties
hereunder, and the rights and interests of all Shareholders shall
thereupon cease.
(e) Upon completion of the distribution of the remaining
proceeds or the remaining assets as provided in paragraphs (c) and (d),
the Trust shall terminate and the Trustees shall be discharged of any
and all further liabilities and duties hereunder and the right, title
and interest of all parties shall be cancelled and discharged.
Section 5. Filing of Copies, References, Headings. The original or a
copy of this instrument and of each Declaration of Trust supplemental hereto or
Amendment hereof shall be kept at the office of the Trust where it may be
inspected by any Shareholder. Anyone dealing with the Trust may rely on a
certificate by an officer of the Trust as to whether or not any Supplemental
Declaration of Trust or Amendments have been made and as to any matters in
connection with the trust hereunder; and, with the same effect as if it were the
original, may rely on a copy certified by an officer of the Trust to be a copy
of this instrument or of any such Supplemental Declaration of Trust or
Amendment. In this instrument or in any such Amendment or Supplemental
Declaration of Trust, references to this instrument, and all expressions such as
"herein," "hereof," and "hereunder," shall be deemed to refer to this instrument
as amended or affected by any such Supplemental Declaration of Trust or
Amendment. Headings are placed herein for convenience of reference only and in
case of any conflict, the text of this instrument, rather than the headings,
shall control. This instrument may be executed in any number of counterparts
each of which shall be deemed an original.
Section 6. Applicable Law. The Trust set forth in this instrument is
made in The Commonwealth of Massachusetts, and it is created under and is to be
governed by and construed and administered according to the laws of such
Commonwealth. The Trust shall be of the type commonly called a Massachusetts
business trust, and, without limiting the provisions hereof, the Trust may
exercise all powers which are ordinarily exercised by such a trust.
Section 7. Amendments. (a) This Declaration of Trust may be amended by
a vote or written consent of the Trustees. However, if such amendment adversely
affects the rights of any Shares of any Series or any Class with respect to
matters to which such amendment is applicable, such amendment shall be subject
to approval by holders of a majority of the Shares of such Series or Class. An
amendment or other action which provides for an additional Series of Shares
(and/or Class thereof), which Series (and/or Classes thereof) may vote together
with Shares of other Series (and/or Classes thereof) and makes other provisions
with respect to such Series (and/or Class thereof) and its relation to existing
Series (and/or Classes thereof), shall not be deemed to adversely affect the
rights of any other Series of Shares or Class thereof. The Trustees may also
amend this Declaration of Trust without any Shareholder approval to change the
name of the Trust, to supply any omission, to cure, correct or supplement any
ambiguous, defective or inconsistent provision hereof, or, if they deem it
necessary, to conform this Declaration of Trust to the requirements of
applicable federal laws or regulations or the requirements of the Internal
Revenue Code, or to eliminate or reduce any federal, state or local taxes which
are or may be payable by the Trust or the Shareholders, but the Trustees shall
not be liable for failing to do so.
(b) Nothing contained in this Declaration of Trust shall permit the
amendment of this Declaration of Trust to impair the exemption from personal
liability of the Shareholders, Trustees, officers, employees and agents of the
Trust or to permit assessments upon Shareholders.
(c) A certificate signed by a majority of the Trustees or by the
Secretary or any Assistant Secretary of the Trust, setting forth an amendment by
reciting that it was duly adopted by the Shareholders or by the Trustees as
aforesaid, or a copy of the Declaration of Trust as amended, and executed by a
majority of the Trustees or certified by the Secretary or any Assistant
Secretary of the Trust, shall be conclusive evidence of such amendment when
lodged among the records of the Trust.
Section 8. Merger, Consolidation and Sale of Assets. The Trust may
merge into or consolidate with any other corporation, association, trust or
other organization or may sell, lease or exchange all or substantially all of
the Trust property, including its good will, upon such terms and conditions and
for such consideration when and as authorized by the Trustees.
Section 9. Incorporation. The Trustees may cause to be organized or
assist in organizing a corporation or corporations under the laws of any
jurisdiction or any other trust, partnership, association or other organization
to take over all the Trust property or to carry on any business in which the
Trust shall directly or indirectly have any interest, and to sell, convey and
transfer the Trust property to any such corporation, trust, partnership,
association or organization in exchange for the shares or securities thereof or
otherwise, and to lend money to, subscribe for the shares or securities of, and
enter into any contracts with any such corporation, trust, partnership,
association or organization in which the Trust holds or is about to acquire
shares or any other interest. The Trustees may also cause a merger or
consolidation between the Trust or any successor thereto and any corporation,
trust, partnership, association or other organization if and to the extent
permitted by law, as provided under the law then in effect. Nothing contained
herein shall be construed as requiring approval of Shareholders for the Trustees
to organize or assist in organizing one or more corporations, trusts,
partnerships, associations or other organizations and selling, conveying or
transferring the Trust property to such organizations or entities.
<PAGE>
IN WITNESS WHEREOF, the undersigned have hereunto set their hands and
seals in the City of Boston, Massachusetts, for themselves and their assigns, as
of the day and year first above written.
-----------------------------
Rosemary D. Van Antwerp
-----------------------------
Jean S. Loewenberg
-----------------------------
Melina M.T. Murphy
-----------------------------
James M. Wall
#1016067b
EXHIBIT 99.2
FORM OF
BY-LAWS
KEYSTONE INSTITUTIONAL TRUST
ARTICLE 1.
Trust Agreement and Principal Office
1.1 Trust Agreement. These By-laws are adopted pursuant to and are subject to
the terms of the Declaration of Trust ("Trust Agreement") of Keystone
Institutional Trust ("Trust").
1.2 Principal Office of the Trust. The principal office of the Trust shall be
located in Boston, Massachusetts, or such other place as the Trustees may
designate from time to time.
ARTICLE 2.
Meetings of Shareholders
2.1 Meetings. Meetings may be called by the Trustees or by the President or by
any other officers designated for the purpose by the Trustees. The portion of
this Section 2.1 relating to special meetings to be called by shareholders may
be altered, amended or repealed by the Trustees without action by the
shareholders.
2.2 Business to be Transacted. At any meeting of shareholders, such business may
be transacted as is referred to in the notice of the meeting, and any other
business considered appropriate by or under authority of the Trustees.
2.3 Notice. A written notice of each meeting of the shareholders, specifying the
time, place and purposes thereof, shall be given as hereinafter provided by the
Secretary of the Trust or any Assistant Secretary or by a person or persons
designated by either of them, to each shareholder who is entitled to vote
thereat at least seven (7) days (including Sundays and holidays) before such
meeting. Notice of a meeting need not be given to any shareholder if a written
waiver of notice, executed by the shareholder or his attorney thereunto duly
authorized before or after the meeting, is filed with the records of the
meeting, or to any shareholder who attends the meeting either in person or by
proxy without protesting, prior thereto or at its commencement, the lack of
notice to such shareholder. Every notice to any shareholder required or provided
for herein may be given to him personally or by mailing it to him postage
prepaid, addressed to him at his address specified in the records of the Trust.
Notice shall be deemed to have been given at the time when it is so mailed. In
respect of any share held jointly by several persons notice so given to any one
of them shall be sufficient notice to all of them.
Any notice so sent to the address of any shareholder shall be deemed to
have been duly sent in respect of any such share whether held by him solely or
jointly with others, notwithstanding he be then deceased or be bankrupt or
insolvent or legally incompetent, and whether or not the Trustees or any person
sending such notice have knowledge of his death, bankruptcy or insolvency or
legal incompetence, until some other person or persons shall be registered as
holders. The certificate of the person or persons giving such notice shall be
sufficient evidence thereof, and shall protect all persons acting in good faith
in reliance on such certificate.
2.5 Voting. Shares may be voted in person by the shareholder or by proxy in form
reasonably acceptable to the Trust. If the holder of any share is a minor or a
person of unsound mind, or subject to guardianship or to the legal control of
any other person as regards the charge or management of such share, he may vote
by his guardian or such other person appointed or having such control, and such
vote may be given in person or by proxy.
2.6 Record Dates. For the purpose of determining the shareholders who are
entitled to vote or act at any meeting or any adjournment thereof, or who are
entitled to receive payment of any dividend or of any other distribution, the
Trustees may from time to time fix or authorize the fixing by others of a time
as the record date for determining the shareholders having the right to notice
of and to vote at such meeting and any adjournment thereof or the right to
receive such dividend or distribution, and in such case only shareholders of
record on such record date shall have such right, notwithstanding any transfer
of shares on the books of the Trust after the record date; or without fixing
such record date the Trustees may for any of such purposes close the register or
transfer books for all or any part of such period.
ARTICLE 3.
Meetings of Trustees
3.1 Regular Meetings. Regular meetings of the Trustees may be held without call
or notice at such places and at such times as the Trustees may from time to time
determine.
3.2 Special Meetings. Special meetings of the Trustees may be held at any time
and at any place designated in the call of the meeting when called by the
Chairman, the President or the Treasurer, or by any other officer authorized by
the Trustees to do so, or by two or more Trustees, sufficient notice thereof
being given to each Trustee by the Secretary or an Assistant Secretary or by the
officer or one of the Trustees calling the meeting.
3.3 Notice. It shall be sufficient notice to a Trustee of a special meeting to
send notice by mail at least forty-eight hours or by telegram at least
twenty-four hours before the meeting addressed to him at his usual or last known
business or residence address or to give notice to him in person or by telephone
at least twenty-four hours before the meeting. Notice of a meeting need not be
given to any Trustee if a written waiver of notice, executed by him before or
after the meeting, is filed with the records of the meeting, or to any Trustee
who attends the meeting without protesting prior thereto or at its commencement
the lack of notice to him. Neither notice of a meeting nor a waiver of a notice
need specify the purposes of the meeting.
3.4 Quorum. At any meeting of the Trustees a majority of the Trustees then in
office shall constitute a quorum. Any meeting may be adjourned from time to time
by a majority of the votes cast upon the question, whether or not a quorum is
present and the meeting may be held as adjourned without further notice.
3.5 Action by Vote. When a quorum is present at any meeting, a majority of the
Trustees present may take any action, except when a larger vote is required by
the Trust Agreement or any applicable law.
3.6 Participation by Conference Telephone. The Trustees may participate in a
meeting of the Trustees by means of conference telephone or similar
communications equipment. Participation by such means shall constitute presence
in person at a meeting.
3.7 Action by Writing. The Trustees may act without a meeting, and the action of
a majority of the Trustees then in office evidenced by a writing signed by such
a majority shall be valid and binding as the action of the Trustees.
ARTICLE 4.
Trustees
4.1 Term. A Trustee shall serve until his death, retirement, resignation or
removal from office or until his successor is elected and qualifies.
ARTICLE 5.
Officers
5.1 Election. The President, the Treasurer and the Secretary shall be elected
annually by the Trustees and shall serve until their successors are elected and
qualified or until their earlier deaths, resignations or removals. Other
officers, if any, including if desired a Controller, may be elected or appointed
by the Trustees at the meeting or at any other time. A Chairman of the Board may
be elected or appointed by the Trustees at the meeting or at any other time.
Vacancies in any office may be filled at any time by the Trustees.
<PAGE>
5.2 Tenure. Each officer and each agent shall hold office at the pleasure of the
Trustees.
5.3 Powers. Subject to law and to the other provisions of these By-laws, each
officer shall have, in addition to any duties and powers set forth herein and in
the Trust Agreement, such duties and powers as are commonly incident to the
office occupied by him as if the Trust were organized as a Pennsylvania business
corporation and such other duties and powers as the Trustees may from time to
time designate.
5.4 President. Unless the Trustees otherwise provide, the President shall
preside at all meetings of shareholders and of the Trustees and the President
shall be the chief executive officer.
5.5 Treasurer. The Treasurer shall be the chief financial officer of the Trust.
In the absence of the Treasurer, or if there is then no person serving in such
office, the Controller of the Trust shall be the chief financial officer of the
Trust. He shall, subject to the provisions of the Trust Agreement and subject to
any arrangement made by the Trustees with a bank or other trust company or
organization as custodian, be in charge of valuable papers, books of account and
accounting records, and shall have such other duties and powers as may be
designated from time to time by the Trustees or by the President.
5.6 Secretary. The Secretary shall record all proceedings of the shareholders
and Trustees in books to be kept therefor, which books shall be kept at the
principal office of the Trust. In the absence of the Secretary, an Assistant
Secretary, or if there be none or if he is absent, a temporary Secretary chosen
by the shareholders or the Trustees, as the case may be, shall record the
proceedings in the aforesaid books.
5.7 Resignation and Removals. Any Trustee or officer may resign at any time by
written instrument signed by him and deposited with the Trustees by delivering
such resignation to the President or the Secretary or to a meeting of the
Trustees. Such resignation shall be effective upon receipt unless specified to
be effective at some other time. The Trustees may remove any officer elected by
them with or without cause by vote of a majority of the Trustees then in office.
Except to the extent expressly provided in a written agreement with the Trust,
no Trustee or officer resigning and no officer removed shall have any right to
compensation for any period following his resignation or removal, or any right
to damages on account of such removal.
ARTICLE 6.
Committees
6.1 General. The Trustees may appoint from their number an executive committee
to serve during their pleasure. The executive committee may, when the Trustees
are not in session at a meeting, exercise such of the powers and authority of
the Trustees as may be conferred from time to time by the Trustees. Rules
governing the actions of the executive committee may be adopted by the Trustees
from time to time as they deem appropriate. The Trustees may appoint from their
number such other committees from time to time as they deem appropriate. The
number composing such committees, the powers and authority conferred upon such
committees and the rules governing the actions of such committees shall be
determined by the Trustees at their discretion.
6.2 Quorum; Voting. A majority of the members of any committee of the Trustees
shall constitute a quorum for the transaction of business, and any action of
such a committee may be taken at a meeting by a vote of a majority of the
members present (a quorum being present) or evidenced by one or more writings
signed by such a majority. Members of a committee may participate in a meeting
of such committee by means of conference telephone or similar communications
equipment. Participation by such means shall constitute presence in person at a
meeting.
ARTICLE 7.
Fiscal Year and Seal
7.1 Fiscal Year. The fiscal year of the Trust shall end on the last day of June
in each year.
7.2 Seal. The seal of the Trust shall consist of a flat-faced die with the name
of the Trust and 1995 cut or engraved thereon.
ARTICLE 8.
Amendments
8.1 Amendment by Trustees. These By-laws may also be altered, amended or
repealed by the Trustees, except with respect to any provision which by law, the
Trust Agreement or these By-laws requires action by the shareholders.
<PAGE>
EXHIBIT 99.5
KEYSTONE INSTITUTIONAL TRUST
FORM OF
INVESTMENT ADVISORY AND MANAGEMENT AGREEMENT
AGREEMENT made the ____ day of ____________ 1995, by and between KEYSTONE
INSTITUTIONAL TRUST, a Massachusetts business trust ("Trust"), and KEYSTONE
INVESTMENT MANAGEMENT COMPANY, a Delaware corporation ("Adviser").
WHEREAS, the Trust and the Adviser wish to enter into an Agreement setting
forth the terms on which the Adviser will perform certain services for the Trust
and its series of shares named Keystone Institutional Small Capitalization
Growth Fund and each series of shares subsequently issued by the Trust (each
singly a "Fund" or collectively the "Funds").
THEREFORE, in consideration of the promises and the mutual agreements
hereinafter contained, the Trust and the Adviser agree as follows:
1. (a) the trust hereby employs the adviser to manage and administer the
operation of the trust, to supervise the provision of services to the trust and
each of its funds by others, and to manage the investment and reinvestment of
the assets of each fund of the trust in conformity with such fund's investment
objectives and restrictions as may be set forth from time to time in the trust's
and/or fund's then current prospectus and statement of additional information,
if any, and other governing documents, all subject to the supervision of the
board of trustees of the trust, for the period and on the terms set forth in
this agreement. the adviser hereby accepts such employment and agrees during
such period, at its own expense, to render the services and to assume the
obligations set forth herein, for the compensation provided herein. the adviser
shall for all purposes herein be deemed to be an independent contractor and
shall, unless otherwise expressly provided or authorized, have no authority to
act for or represent the trust in any way or otherwise be deemed and agent of
the trust.
(b) In the event that the Trust establishes one or more Funds, in addition
to the Keystone Institutional Small Capitalization Growth Fund, for which it
wishes the Adviser to perform services hereunder, it shall notify the Adviser in
writing. If the Adviser is willing to render such services, it shall notify the
Trust in writing and such Fund shall become a Fund hereunder and the
compensation payable to the Adviser by the new Fund will be as agreed in writing
at the time.
2. the adviser shall place all orders for the purchase and sale of
portfolio securities for the account each fund of the trust with broker-dealers
selected by the adviser. in executing portfolio transactions and selecting
broker-dealers, the adviser will use its best efforts to seek best execution on
behalf of each fund. in assessing the best execution available for any
transaction, the adviser shall consider all factors it deems relevant, including
the breadth of the market in the security, the price of the security, the
financial condition and execution capability of the broker-dealer, and the
reasonableness of the commission, if any (all for the specific transaction and
on a continuing basis). in evaluating the best execution available, and in
selecting the broker-dealer to execute a particular transaction, the adviser may
also consider the brokerage and research services (as those terms are used in
section 28(e) of the securities exchange act of 1934 ("1934 act") provided to
each fund and/or other accounts over which the adviser, an affiliate of the
adviser (to the extent permitted by law) or another investment adviser of the
trust exercises investment discretion. the adviser is authorized to cause the
fund to pay a broker-dealer who provides such brokerage and research services a
commission for executing a portfolio transaction for the fund which is in excess
of the amount of commission another broker-dealer would have charged for
effecting that transaction if, but only if, the adviser determines in good faith
that such commission was reasonable in relation to the value of the brokerage
and research services provided by such broker-dealer viewed in terms of that
particular transaction or in terms of all of the accounts over which investment
discretion is so exercised.
3. the adviser, at its own expense, shall furnish to the trust office space
in the offices of the adviser or in such other place as may be agreed upon by
the parties from time to time, all necessary office facilities, equipment and
personnel in connection with its services hereunder, and shall arrange, if
desired by the trust, for members of the adviser's organization to serve without
salaries from the trust as officers or, as may be agreed from time to time, as
agents of the trust. the adviser assumes and shall pay or reimburse the trust
for: (1) the compensation (if any) of the trustees of the trust who are
affiliated with the adviser or with its affiliates and of all officers of the
trust as such, and (2) all expenses of the adviser incurred in connection with
its services hereunder. the trust assumes and shall pay all other expenses of
the trust and its funds, including, without limitation: (1) all charges and
expenses of any custodian or depository appointed by the trust for the
safekeeping of its cash, securities and other property; (2) all charges and
expenses for bookkeeping and auditors; (3) all charges and expenses of any
transfer agents and registrars appointed by the trust; (4) all fees of all
trustees of the trust who are not affiliated with the adviser or any of its
affiliates; (5) all broker's fees, expenses and commissions and issue and
transfer taxes chargeable to the trust in connection with transactions involving
securities and other property to which the trust is a party; (6) all costs and
expenses of distribution of its shares of common stock ("shares") incurred
pursuant to a plan of distribution adopted under rule 12b-1 under the investment
company act of 1940 ("1940 act"), if any; (7) all taxes and corporation fees
payable by the trust or any of its funds to federal, state or other governmental
agencies; (8) all costs of certificates representing shares of the trust or any
of its funds; (9) all fees and expenses involved in registering and maintaining
registrations of the trust and of its shares with the securities and exchange
commission ("commission") and registering or qualifying its shares under state
or other securities laws, including, without limitation, the preparation and
printing of registration statements, prospectuses and statements of additional
information for filing with the commission and other authorities; (10) expenses
of preparing, printing and mailing prospectuses and statements of additional
information to shareholders of the trust; (11) all expenses of shareholders' and
trustees' meetings and of preparing, printing and mailing notices, reports and
proxy materials to shareholders of the trust; (12) all charges and expenses of
legal counsel for the trust and for trustees of the trust in connection with
legal matters relating to the trust, including, without limitation, legal
services rendered in connection with the trust's existence, corporate and
financial structure and relations with its shareholders, registrations and
qualifications of securities under federal, state and other laws, issues of
securities, expenses which the trust has herein assumed, whether customary or
not, and extraordinary matters, including, without limitation, any litigation
involving the trust, its trustees, officers, employees or agents; (13) all
charges and expenses of filing annual and other reports with the commission and
other authorities; and (14) all extraordinary expenses and charges of the trust.
in the event that the adviser provides any of these services or pays any of
these expenses, the trust will promptly reimburse the adviser therefor.
The services of the Adviser to the Trust hereunder are not to be deemed
exclusive, and the Adviser shall be free to render similar services to others.
4. as compensation for the adviser's services to the trust with respect to
each of its funds during the period of this agreement, each fund will pay to the
adviser a fee at the annual rate set forth on schedule a attached hereto
computed as of the close of business on each business day.
A pro rata portion of the fee shall be payable in arrears at the end of
each day or calendar month as the Manager may from time to time specify to the
Trust with respect to a Fund. If and when this Agreement terminates, any
compensation payable hereunder for the period ending with the date of such
termination shall be payable upon such termination. Amounts payable hereunder
shall be promptly paid when due.
5. the adviser shall not be liable for any error of judgment or mistake of
law or for any loss suffered by the trust or any of its funds in connection with
the performance of this agreement, except a loss resulting from the adviser's
willful misfeasance, bad faith, gross negligence or from reckless disregard by
it of its obligations and duties under this agreement. any person, even though
also an officer, director, partner, employee, or agent of the adviser, who may
be or become an officer, trustee, employee or agent of the trust or any of its
funds, shall be deemed, when rendering services to the trust or any of its funds
acting on any business of the trust or any of its funds (other than services or
business in connection with the adviser's duties hereunder), to be rendering
such services to or acting solely for the trust or any of its funds and not as
an officer, director, partner, employee, or agent or one under the control or
direction of the adviser even though paid by it. the fund(s) of the trust
agree(s) to indemnify and hold the adviser harmless from all taxes, charges,
expenses, assessments, claims and liabilities (including, without limitation,
liabilities arising under the securities act of 1933, the 1934 act, the 1940
act, and any applicable state and foreign securities and blue sky laws, as
amended from time to time) and expenses, including (without limitation)
attorneys' fees and disbursements, arising directly or indirectly from any
action or thing which the adviser takes or does or omits to take or do hereunder
provided that the adviser shall not be indemnified against any liability to the
affected fund(s) of the trust or its shareholders (or any expenses incident to
such liability) arising out of a breach of fiduciary duty with respect to the
receipt of compensation for services, willful misfeasance, bad faith, or gross
negligence on the part of the adviser in the performance of its duties, or from
reckless disregard by it of its obligations and duties under this agreement.
6. the trust shall cause its books and accounts to be audited at least once
each year by a reputable independent public accountant or organization of public
accountants who shall render a report to the trust.
7. subject to and in accordance with the declaration of trust of the trust
and the certificate of incorporation of the adviser, it is understood that
trustees or directors, officers, agents and shareholders of the trust and its
funds or the adviser are or may be interested in the adviser (or any successor
thereof) as directors and officers of the adviser or its affiliates, as
stockholders of keystone investments, inc., or otherwise; that directors,
officers and agents of the adviser and its affiliates, or stockholders of
keystone investments, inc. are or may be interested in the trust or its adviser
as trustees or directors, officers, shareholders or otherwise; that the adviser
(or any such successor) is or may be interested in the trust as shareholder, or
otherwise; and that the effect of any such adverse interests shall be governed
by said declaration of trust of the trust of the trust and certificate of
incorporation of the adviser.
8. the adviser may enter into an agreement to retain at its own expense any
other firm or firms to provide the trust and any of its funds investment
advisory services, if such agreement is approved by a vote of a majority of the
outstanding voting securities of the affected fund(s) of the trust and by the
vote of a majority of the trustees of the trust who are not parties to such
agreement or interested persons (as that term is defined in the investment
company act of 1940 ("1940 act")) of the trust or of any such party, cast in
person at a meeting called for the purpose of voting on such approval.
9. this agreement shall continue in effect for two years from the date set
forth above and after such date only so long as (1) such continuance is
specifically approved at least annually by the board of trustees of the trust or
by a vote of a majority of the outstanding voting securities of the affected
fund(s) of the trust, and (2) such renewal has been approved by the vote of a
majority of trustees of the trust who are not interested persons (as that term
is defined in the 1940 act) of the adviser or of the trust, cast in person at a
meeting called for the purpose of voting on such approval.
10. on sixty (60) days' written notice to the adviser, this agreement may
be terminated at any time without the payment of any penalty by the board of
trustees of the trust or by vote of the holders of a majority of the outstanding
voting securities of the affected fund(s) of the trust; and on sixty (60) days'
written notice to the trust, this agreement may be terminated at any time
without the payment of any penalty by the adviser. this agreement shall
automatically terminate upon its assignment (as that term is defined in the 1940
act). any notice under this agreement shall be given in writing, addressed and
delivered, or mailed postage prepaid, to the other party at the main office of
such party.
11. this agreement may be amended at any time by an instrument in writing
executed by both parties hereto or their respective successors, provided that
with regard to amendments of substance such execution by the trust shall have
been first approved by the vote of the holders of a majority of the outstanding
voting securities of the affected fund(s) and by the vote of a majority of the
trustees of the trust who are not interested persons (as that term is defined in
the 1940 act) of the adviser or of any predecessor of the adviser, or of the
trust, cast in person at a meeting called for the purpose of voting on such
approval. a "majority of the outstanding voting securities of the trust" shall
have, for all purposes of this agreement, the meaning provided therefor in the
1940 act.
12. any compensation payable to the adviser hereunder for any period other
than a full year shall be proportionately adjusted.
13. the provisions of this agreement shall be governed, construed and
enforced in accordance with the laws of the commonwealth of massachusetts.
<PAGE>
IN WITNESS WHEREOF, the parties hereto have duly executed this Agreement on
the day and year first above written.
KEYSTONE INSTITUTIONAL TRUST
By:
------------------------------------
Kevin J. Morrissey
Treasurer
KEYSTONE INVESTMENT MANAGEMENT COMPANY
By:
------------------------------------
Albert H. Elfner, III
Chairman
#10160682
<PAGE>
SCHEDULE A
KEYSTONE INSTITUTIONAL TRUST
KEYSTONE INSTITUTIONAL SMALL CAPITALIZATION GROWTH FUND:
Aggregate Net asset Value
Management Fee of the Shares of the Fund
- -------------- --------------------------
0.75% of the first $ 250,000,000, plus
0.675% of the next $ 250,000,000, plus
0.60% of the next $ 500,000,000, plus
0.50% of amounts over $ 1,000,000,000
<PAGE>
EXHIBIT 99.6
KEYSTONE INSTITUTIONAL TRUST
FORM OF
PRINCIPAL UNDERWRITING AGREEMENT
AGREEMENT made as of this day of , 1995 by and
between KEYSTONE INSTITUTIONAL TRUST, a Massachusetts business trust ("Trust"),
and FIDUCIARY INVESTMENT COMPANY, INC., a Massachusetts corporation
("Distributor").
WHEREAS, the Trust wishes to arrange for the sale of shares of beneficial
interest ("Shares") of the Trust and its series of shares named Keystone
Institutional Small Capitalization Growth Fund and each series of shares
subsequently issued by the Trust (each singly a "Fund" or collectively "Funds");
and
The Distributor, an affiliate of the Investment Adviser for the Trust and
its Funds, wishes to act as a principal underwriter of the Shares:
NOW, THEREFORE, in consideration of the mutual promises and undertakings
herein provided for, the Trust and the Distributor hereby agree as follows:
1. The Trust appoints the Distributor to act as principal underwriter of
the Shares as an independent contractor in such states as the Trust may from
time to time designate and on the terms and conditions herein contained. Except
as the Trust may from time to time agree, the Distributor will act as agent for
the Trust and not as principal.
2. The Distributor will have the right to obtain subscriptions for and to
sell Shares as agent of the Trust and in so doing may retain and employ
representatives to promote distribution of the Shares and may obtain orders from
brokers or dealers or others for sales of Shares to them. No such
representative, dealer or broker shall have any authority to act as agent for
the Trust. The Distributor does not undertake hereby to buy or to find
purchasers for any specific number of Shares.
3. All subscriptions and sales of Shares by the Distributor hereunder shall
be at the net asset value of the Shares in accordance with the provisions of the
Declaration of Trust, By-laws and the current prospectus and statement of
additional information of the Trust. All orders shall be subject to acceptance
by the Trust, and the Trust reserves the right in its sole discretion to reject
any order received. The Trust shall not be liable to anyone for failure to
accept any order.
4. Payment for Shares shall be in cash, check, money order or Federal
Trusts received by the Distributor within seven (7) days after notice of
acceptance of the purchase order and notice of the amount of the applicable
public offering price has been given to the purchaser. If such payment is not
received within such seven-day period, the Trust reserves the right, without
further notice, forth-with to cancel its acceptance of any such order. The Trust
shall pay such issue taxes as may be required by law in connection with the
issue of the Shares.
5. Nothing herein shall prevent the Trust from issuing, or issuing and
selling, or transferring Shares to holders of Shares as dividends or as
distributions of realized capital gains through one or more other principal
underwriters or otherwise for not less than net asset value.
6. The Distributor shall not make, or permit any representative, broker or
dealer to make, in connection with any sale or solicitation of a sale of the
Shares, any representations concerning the Shares except those contained in the
then current prospectus and statement of additional information covering the
Shares and in printed information approved by the Trust as information
supplemental to such prospectus and statement of additional information. Copies
of the then effective prospectus and statement of additional information and any
such printed supplemental information will be supplied by the Trust to the
Distributor in reasonable quantities upon request.
7. The Distributor covenants and agrees that it will in all respects duly
conform with all state and federal laws applicable to the sale of the Shares and
will indemnify and hold harmless the Trust, and each person who has been, is or
may hereafter be a Trustee or officer of the Trust against expenses reasonably
incurred by any of them in connection with any claim or in connection with any
action, suit or proceeding to which any of them may be a party, which arises out
of or is alleged to arise out of any misrepresentation or omission to state a
material fact, on the part of the Distributor or any other person for whose acts
the Distributor is responsible or is alleged to be responsible, unless such
misrepresentation or omission was made in reliance upon written information
furnished by the Trust. The term "expenses" includes amounts paid in
satisfaction of judgments or in settlement. The foregoing right of
indemnification shall be in addition to any other rights to which the Trust or
any such Trustee or officer may be entitled as a matter of law.
8. The Trust agrees to execute such papers and to do such acts and things
as shall from time to time be reasonably requested by the Distributor for the
purpose of qualifying the Shares for sale under the so-called "blue sky" laws of
any state or for registering and maintaining the registration of the Trust and
of the Shares under the Securities Act of 1933 and the Investment Company Act of
1940. The Distributor shall bear the expenses of preparing, printing and
distributing advertising and sales literature and prospectuses used by it (apart
from expenses of registering Shares under the Securities Act and Investment
Company Act, qualifying Shares for sale under the so-called "blue sky" laws of
any state and the preparation and printing of prospectuses and statements of
additional information and reports required to be filed with the Securities and
Exchange Commission by such Acts and the direct expenses of the issuance of
Shares).
9. This Agreement shall continue in effect for two years from the date set
forth above and from year to year thereafter if its terms and its continuance
are approved annually by a vote of a majority of the Trustees who are not
parties to this Agreement or "interested persons" of any such party cast in
person at a meeting called for the purpose of voting on such approval and if
such continuance is also approved annually by the Board of Trustees of the Trust
or by a vote of a majority of the outstanding voting Shares of the Trust;
provided, however, that (1) this Agreement may at any time be terminated without
the payment of any penalty by the Trust on 60 days' written notice to the
Distributor, (2) this Agreement shall immediately terminate in the event of its
assignment (within the meaning of the Investment Company Act of 1940) and (3)
this Agreement may be terminated by the Distributor on 90 days' written notice
to the Trust. Any notice under this Agreement shall be given in writing,
addressed and delivered, or mailed postpaid, to the other party at any office of
such party. This Agreement may be amended at any time by mutual consent of the
parties.
10. This Agreement shall be construed in accordance with the laws of The
Commonwealth of Massachusetts.
11. A copy of the Declaration of Trust of the Trust is on file with the
Secretary of The Commonwealth of Massachusetts and notice is hereby given that
this instrument is executed on behalf of the Trustees of the Trust as Trustees
and not individually and that the obligations of this instrument are not binding
upon the Trustees or holders of shares of the Trust individually but are binding
only upon the assets and property of the Trust.
<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 INSTITUTIONAL TRUST
By:
----------------------------------------
Title:
FIDUCIARY INVESTMENT COMPANY, INC.
By:
----------------------------------------
Title:
#1016067E
<PAGE>
EXHIBIT 99.8
FORM OF
CUSTODIAN, FUND ACCOUNTING AND RECORDKEEPING AGREEMENT
BY AND BETWEEN
KEYSTONE INSTITUTIONAL TRUST
AND
STATE STREET BANK AND TRUST COMPANY
Agreement made as of this day of December, 1995 by and between
KEYSTONE INSTITUTIONAL TRUST, a Massachusetts business trust, ("Trust") having
its principal place of business at 200 Berkeley Street, Boston, Massachusetts,
02116, and STATE STREET BANK AND TRUST COMPANY, a Massachusetts banking
corporation ("State Street"), having its principal place of business at 225
Franklin Street, Boston, Massachusetts 02110.
WITNESSETH
WHEREAS, the Trust is authorized to issue shares in separate series, with
each such series representing interests in a separate portfolio of securities
and other assets; and
WHEREAS, the Trust intends to initially offer shares in one series,
Keystone Institutional Small Capitalization Growth Fund, (such series together
with all other series subsequently established by the Trust and made subject to
this Agreement in accordance with paragraph 13, being herein referred to as the
Fund(s));
NOW THEREFORE, in consideration of the mutual agreements herein contained,
the Trust and State Street agree as follows:
1. The Trust appoints State Street as Custodian for each of its Funds,
subject to the provisions hereof. State Street hereby accepts such appointment
as Custodian. As such Custodian, State Street shall retain all securities, cash
and other assets now owned or hereafter acquired by each Fund of the Trust, and
each Fund of the Trust shall deliver and pay or cause to be delivered and paid
to State Street, as Custodian, all securities, cash and other assets now owned
or hereafter acquired by such Fund during the period of this Agreement.
2. All securities delivered to State Street (other than in bearer form)
shall be properly endorsed and in proper form for transfer into or in the name
of the appropriate Fund of the Trust, of a nominee of State Street for the
exclusive use of such Fund of the Trust or of such other nominee as may be
mutually agreed upon by State Street and the Trust.
3. The Trust shall deliver to State Street certified or authenticated
copies of its Declaration of Trust and By-Laws, all amendments thereto, a
certified copy of the resolution of the Trust's Board of Trustees appointing
State Street to act in the capacities covered by this Agreement and authorizing
the signing of this Agreement and copies of such resolutions of its Board of
Trustees, contracts and other documents as may be reasonably required by State
Street in the performance of its duties hereunder.
4. As Custodian, State Street shall promptly:
A. Safekeeping. Keep safely in a separate account the securities and
other assets of each Fund, including without limitation all securities in bearer
form, other than (a) securities which are maintained pursuant to paragraph 4B in
a Securities System (as defined in paragraph 4B) and (b) commercial paper of an
issuer for which State Street Bank and Trust Company acts as issuing and paying
agent ("Direct Paper") which is deposited and/or maintained in the Direct Paper
System of State Street pursuant to paragraph 4C, and, on behalf of each Fund,
receive delivery of certificates, including without limitation all securities in
bearer form, for safekeeping and keep such certificates physically segregated at
all times from those of any other person. State Street shall maintain records of
all receipts, deliveries and locations of such securities, together with a
current inventory thereof and shall conduct periodic physical inspections of
certificates representing bonds and other securities held by it under this
Agreement at least annually in such manner as State Street shall determine from
time to time to be advisable in order to verify the accuracy of such inventory.
State Street shall provide the Trust with copies of any reports of its internal
count or other verification of the securities of each Fund held in its custody,
including reports on its own system of internal accounting control. In addition,
if and when independent certified public accountants retained by State Street
shall count or otherwise verify the securities of each Fund held in State
Street's custody, State Street shall provide the Trust with a copy of the report
of such accountants. With respect to securities held by any agent or
Subcustodian appointed pursuant to paragraph 7C hereof, State Street may rely
upon certificates from such agent or Subcustodian as to the holdings of such
agent or Subcustodian, it being understood that such reliance in no way releases
State Street of its responsibilities or liabilities under this Agreement. State
Street shall promptly report to the Trust the results of such inspections,
indicating any shortages or discrepancies uncovered thereby, and take
appropriate action to remedy any such shortages or discrepancies.
B. Deposit of Fund Assets in Securities Systems. Notwithstanding any
other provision of this Agreement, State Street may deposit and/or maintain
securities owned by each Fund in Depository Trust Company, a clearing agency
registered with the Securities and Exchange Commission ("Commission") under
Section 17A of the Securities Exchange Act of 1934 ("Exchange Act"), which acts
as a securities depository, in any other clearing agency registered under
Section 17A of the Exchange Act and which has been authorized by the Trust's
Board of Trustees, in the book-entry system authorized by the U.S. Department of
the Treasury and certain federal agencies or in any other book entry system
which the Commission has authorized for use by investment companies as a
securities depository by order or interpretive or no-action letter and which has
been authorized by the Trust's Board of Trustees, collectively referred to
herein as "Securities System(s)," in accordance with applicable Federal Reserve
Board and Commission rules and regulations, if any, and subject to the following
provisions:
1) State Street may keep securities of each Fund in a Securities System
provided that such securities are deposited in an account ("Account") of State
Street in the Securities System which shall not include any assets of State
Street other than assets held as a fiduciary, custodian or otherwise for
customers;
2) The records of State Street with respect to securities of each Fund
which are maintained in a Securities System shall identify by book entry those
securities belonging to such Fund;
3) State Street shall pay for securities purchased for the account of
each Fund upon (i) receipt of advice from the Securities System that such
securities have been transferred to the Account, and (ii) the making of an entry
on the records of State Street to reflect such payment and transfer for the
account of each Fund. State Street shall transfer securities sold for the
account of each Fund upon (i) receipt of advice from the Securities System that
payment for such securities has been transferred to the Account, and (ii) the
making of an entry on the records of State Street to reflect such transfer and
payment for the account of each Fund. Copies of all advises from the Securities
System of transfers of securities for the account of each Fund shall identify
the Fund, be maintained for the Fund by State Street and be provided to the
Trust at its request. State Street shall furnish the Trust confirmation of each
transfer to or from the account of the Trust in the form of a written advice or
notice and shall furnish to the Trust copies of daily transaction sheets
reflecting each day's transactions in the Securities System for the account of
each Fund on the next business day;
4) State Street shall promptly provide the Trust with any report
obtained by State Street on the Securities System's accounting system, internal
accounting control and procedures for safeguarding securities deposited in the
Securities System. State Street shall promptly provide the Trust with any report
on State Street's accounting system, internal accounting control and procedures
for safeguarding securities deposited with State Street which is reasonably
requested by the Trust;
5) Anything to the contrary in this Agreement notwithstanding, State
Street shall be liable to the Trust or its Funds for any claim, loss, liability,
damage or expense to the Trust, including attorney's fees, resulting from use of
a Securities System by reason of any negligence, misfeasance or misconduct of
State Street, its agents or any of its or their employees or from failure of
State Street or any such agent to enforce effectively such rights as it may have
against a Securities System. At the election of the Trust, it shall be entitled
to be subrogated to the rights of State Street or its agents with respect to any
claim against the Securities System or any other person which State Street or
its agents may have as a consequence of any such claim, loss, liability, damage
or expense if and to the extent that the Trust has not been made whole for any
such loss or damage.
C. Assets Held in State Street's Direct Paper System. State Street may
deposit and/or maintain securities owned by each Fund in the Direct Paper System
of State Street subject to the following provisions:
1) No transaction relating to securities in the Direct Paper System will
be effected in the absence of Proper Instructions;
2) State Street may keep securities of each Fund in the Direct Paper
System only if such securities are represented in an account ("Account") of
State Street in the Direct Paper System which shall not include any assets of
State Street other than assets held as a fiduciary, custodian or otherwise for
customers;
3) The records of State Street with respect to securities of each Fund
which are maintained in the Direct Paper System shall identify by book-entry
those securities belonging to the Fund;
4) State Street shall pay for securities purchased for the account of
each Fund upon the making of an entry on the records of State Street to reflect
such payment and transfer of securities to the account of the Fund. State Street
shall transfer securities sold for the account of each Fund upon the making of
an entry on the records of State Street to reflect such transfer and receipt of
payment for the account of such Fund;
5) State Street shall furnish the Trust confirmation of each transfer to
or from the account of each Fund, in the form of a written advice or notice, of
Direct Paper on the next business day following such transfer and shall furnish
to the Trust copies of daily transaction sheets reflecting each day's
transaction in the Securities System for the account of each Fund;
6) State Street shall provide the Trust with any report on its system of
internal accounting control as the Trust may reasonably request from time to
time.
D. State Street's Records. The records of State Street (and its agents
and Subcustodians) with respect to its services for the Trust shall at all times
during the regular business hours of State Street (or its agents or
Subcustodians) be open for inspection by duly authorized officers, employees or
agents of the Trust and employees and agents of the Commission.
E. Delivery of Securities. State Street shall release and deliver
securities owned by each Fund held by State Street or in a Securities System
account of State Street or in State Street's Direct Paper book entry system
account ("Direct Paper System Account") only upon receipt of Proper
Instructions, which may be continuing instructions when deemed appropriate by
the parties, and only in the cases specified in paragraphs 4F, 4G, 4H, 4I, 4J,
4K, 4L, 4M, 4N and 4O hereof.
F. Registered Name, Nominee. Register securities of each Fund held by
State Street in the name of the Fund, of a nominee of State Street for the
exclusive use of such Fund, or of such other nominee as may be mutually agreed
upon, or of any mutually acceptable nominee of any agent or Subcustodian
appointed pursuant to paragraph 7C hereof.
G. Purchases. Upon receipt of proper instructions (as defined in
paragraph 6A hereof; hereafter "Proper Instructions") and insofar as cash is
available for the purpose, pay for and receive all securities purchased for the
account of each Fund, payment being made only upon receipt of the securities by
State Street (or any bank, banking firm, responsible commercial agent or trust
company doing business in the United States and appointed pursuant to paragraph
7C hereof as State Street's agent or Subcustodian for this purpose) registered
as provided in paragraph 4F hereof or in form for transfer satisfactory to State
Street, or, in the case of repurchase agreements entered into between a Fund and
a bank or a dealer, delivery of the securities either in certificate form or
through an entry crediting State Street's account at the Federal Reserve Bank
with such securities, or, upon receipt by State Street of a facsimile copy of a
letter of understanding with respect to a time deposit account of a Fund signed
by any bank, whether domestic or foreign, and pursuant to Proper Instructions
from the Trust, for transfer to the time deposit account of the Fund in such
bank; such transfer may be effected prior to receipt of a confirmation from a
broker and/or the applicable bank or in the case of a purchase involving the
Direct Paper System, in accordance with the conditions set forth in paragraph
4C. All securities accepted by State Street shall be accompanied by payment of,
or a "due bill" for, any dividends, interest or other distributions of the
issuer due the purchaser. In any and every case of a purchase of securities for
the account of a Fund where payment is made by State Street in advance of
receipt of the securities purchased, State Street shall be absolutely liable to
the Trust and its Funds for such securities to the same extent as if the
securities had been received by State Street, except that in the case of
repurchase agreements entered into by a Fund with a bank which is a member of
the Federal Reserve System, State Street may transfer funds to the account of
such bank prior to the receipt of written evidence that the securities subject
to such repurchase agreement have been transferred by book-entry into a
segregated nonproprietary account of State Street maintained with the Federal
Reserve Bank of Boston, provided that such securities have in fact been so
transferred by book-entry; provided, further, however, that State Street and the
Trust agree to use their best efforts to insure receipt by State Street of
copies of documentation for each such transaction as promptly as possible.
H. Exchanges. Upon receipt of Proper Instructions, exchange securities,
interim receipts or temporary securities held by it or by any agent or
Subcustodian appointed by it pursuant to paragraph 7C hereof for the account of
each Fund for other securities alone or for other securities and cash, and
expend cash insofar as cash is available in connection with any merger,
consolidation, reorganization, recapitalization, split-up of shares, changes of
par value, conversion or in connection with the exercise of warrants,
subscription or purchase rights, or otherwise, and deliver securities to the
designated depository or other receiving agent or Subcustodian in response to
tender offers or similar offers to purchase received in writing; provided that
in any such case the securities and/or cash to be received as a result of any
such exchange, expenditure or delivery are to be delivered to State Street (or
its agents or Subcustodians). State Street shall give notice as provided under
paragraph 14 hereof to the Trust in connection with any transaction specified in
this paragraph and at the same time shall specify to the Trust whether such
notice relates to securities held by an agent or Subcustodian appointed pursuant
to paragraph 7C hereof, so that the Trust may issue to State Street Proper
Instructions for State Street to act thereon prior to any expiration date (which
shall be presumed to be two business days prior to such date unless State Street
has previously advised the Trust of a different period). The Trust shall give to
State Street full details of the time and method of submitting securities in
response to any tender or similar offer, exercising any subscription or purchase
right or making any exchange pursuant to this paragraph. When such securities
are in the possession of an agent or Subcustodian appointed by State Street
pursuant to paragraph 7C hereof, the Proper Instructions referred to in the
preceding sentence must be received by State Street in timely enough fashion
(which shall be presumed to be three business days unless State Street has
advised the Trust in writing of a different period) for State Street to notify
the agent or Subcustodian in sufficient time to permit such agent to act prior
to any expiration date.
I. Sales. Upon receipt of Proper Instructions and upon receipt of full
payment therefor, release and deliver securities which have been sold for the
account of a Fund. At the time of delivery all such payments are to be made in
cash, by a certified check upon or a treasurer's or cashier's check of a bank,
by effective bank wire transfer through the Federal Reserve Wire System or, if
appropriate, outside of the Federal Reserve Wire System and subsequent credit to
such Fund's custodian account, or, in case of delivery through a stock clearing
company, by book-entry credit by the stock clearing company in accordance with
the then current "street" custom.
J. Purchases by Issuer. Upon receipt of Proper Instructions, release and
deliver securities owned by a Fund to the issuer thereof or its agent when such
securities are called, redeemed, retired or otherwise become payable; provided
that in any such case, the cash or other consideration is to be delivered to
State Street.
K. Changes of Name and Denomination. Upon receipt of Proper
Instructions, release and deliver securities owned by a Fund to the issuer
thereof or its agent for transfer into the name of the Trust or of a nominee of
State Street or of the Trust for the exclusive use of the Fund or for exchange
for a different number of bonds, certificates or other evidence representing the
same aggregate face amount or number of units bearing the same interest rate,
maturity date and call provisions if any; provided that in any such case, the
new securities are to be delivered to State Street.
L. Street Delivery. In connection with delivery in New York City and
upon receipt of Proper Instructions, which in the case of registered securities
may be standing instructions, release securities owned by a Fund upon receipt of
a written receipt for such securities to the broker selling the same for
examination in accordance with the existing "street delivery" custom. In every
instance, either payment in full for such securities shall be made or such
securities shall be returned to State Street that same day. In the event
existing "street delivery" custom is modified, State Street shall obtain
authorization from the Board of Trustees of the Trust prior to any use of such
modified "street delivery" custom.
M. Release of Securities for Use as Collateral. Upon receipt of Proper
Instructions and subject to the Declaration of Trust, release securities
belonging to a Fund to any bank or trust company for the purpose of pledge,
mortgage or hypothecation to secure any loan incurred by the Fund; provided,
however, that securities shall be released only upon payment to State Street of
the monies borrowed, except that in cases where additional collateral is
required to secure a borrowing already made, subject to proper prior
authorization from the Trust, further securities may be released for that
purpose. Upon receipt of Proper Instructions, pay such loan upon redelivery to
it of the securities pledged or hypothecated therefor and upon surrender of the
note or notes evidencing the loan.
N. Compliance with Applicable Rules and Regulations of The Options
Clearing Corporation and National Securities or Commodities Exchanges or
Commissions. Upon receipt of Proper Instructions, deliver securities of a Fund
in accordance with the provisions of any agreement among the Trust, State Street
and a broker-dealer registered under the Exchange Act and a member of the
National Association of Securities Dealers, Inc. ("NASD") relating to compliance
with the rules of The Options Clearing Corporation and of any registered
national securities exchange, or of any similar organization or organizations,
regarding escrow or other arrangements in connection with transactions by a
Fund; or, upon receipt of Proper Instructions, deliver securities in accordance
with the provisions of any agreement among the Trust, State Street, and a
Futures Commission Merchant registered under the Commodity Exchange Act relating
to compliance with the rules of the Commodity Futures Trading Commission and/or
any contract market, or any similar organization or organizations, regarding
account deposits in connection with transactions by a Fund.
O. Release or Delivery of Securities for Other Purposes. Upon receipt of
Proper Instructions, release or deliver any securities held by it for the
account of a Fund for any other purpose (in addition to those specified in
paragraphs 4E, 4F, 4G, 4H, 4I, 4J, 4K, 4L, 4M and 4N hereof) which the Trust
declares is a proper corporate purpose pursuant to Proper Instructions.
P. Proxies, Notices, Etc. State Street shall, upon receipt, promptly
forward to the Trust all forms of proxies and all notices of meetings and any
other notices or announcements affecting or relating to the securities,
including without limitation, notices relating to class action claims and
bankruptcy claims, and upon receipt of Proper Instructions execute and deliver
or cause its nominee to execute and deliver such proxies or other authorizations
as may be required. State Street, its nominee or its agents or Subcustodian
shall not vote upon any of the securities or execute any proxy to vote thereon
or give any consent or take any other action with respect thereto (except as
otherwise herein provided) unless ordered to do so by Proper Instructions. State
Street shall require its agents and Subcustodians appointed pursuant to
paragraph 7C hereof to forward any such announcements and notices to State
Street upon receipt.
Q. Segregated Account. State Street shall, upon receipt of Proper
Instructions, establish and maintain a segregated account or accounts for and on
behalf of each Fund, into which account or accounts may be transferred cash
and/or securities, including securities maintained in an account by State Street
pursuant to paragraph 4B hereof, (i) in accordance with the provisions of any
agreement among the Trust, State Street and a broker-dealer registered under the
Exchange Act and a member of the NASD (or any futures commission merchant
registered under the Commodity Exchange Act), relating to compliance with the
rules of The Options Clearing Corporation and of any registered national
securities exchange (or the Commodity Futures Trading Commission or any
registered contract market), or of any similar organization or organizations,
regarding escrow or other arrangements in connection with transactions by each
Fund, (ii) for purposes of segregating cash or government securities in
connection with options purchased, sold or written by each Fund or commodity
futures contracts or options thereon purchased or sold by such Funds, (iii) for
the purposes of compliance by the Trust with the procedures required by
Investment Company Act Release No. 10666, or any subsequent release or releases
of the Commission relating to the maintenance of segregated accounts by
registered investment companies and (iv) for other proper corporate purposes,
but only, in the case of clause (iv), upon receipt of, in addition to Proper
Instructions, a certified copy of a resolution of the Board of Trustees signed
by an officer of the Trust and certified by the Secretary or an Assistant
Secretary, setting forth the purpose or purposes of such segregated account and
declaring such purposes to be proper corporate purposes.
R. Property of a Fund Held Outside of the United States.
(1) Appointment of Foreign Subcustodians. State Street is authorized and
instructed to employ as Subcustodians for each Fund's securities and other
assets maintained outside of the United States, the foreign banking institutions
and foreign securities depositories designated on Schedule B hereto as revised
from time to time ("Foreign Subcustodians"). Upon receipt of Proper
Instructions, together with a certified resolution of the Trust's Board of
Trustees, State Street and the Trust may agree to amend Schedule B hereto from
time to time to designate additional foreign banking institutions and foreign
securities depositories to act as Foreign Subcustodians. Upon receipt of Proper
Instructions, the Trust may instruct State Street to cease the employment of any
one or more of such Subcustodians for maintaining custody of a Fund's assets.
(2) Assets to be Held. State Street shall limit the securities and other
assets maintained in the custody of the Foreign Subcustodians to: (a) "foreign
securities," as defined in paragraph (c)(1) of Rule 17f-5 under the Investment
Company Act of 1940 ("1940 Act"), and (b) cash and cash equivalents in such
amounts as State Street or the Trust may determine to be reasonably necessary to
effect each Fund's foreign securities transactions.
(3) Foreign Securities Depositories. Except as may otherwise be agreed upon
in writing by State Street and the Trust, assets of each Fund shall be
maintained in foreign securities depositories only through arrangements
implemented by the foreign banking institutions serving as Foreign Subcustodians
pursuant to the terms hereof.
(4) Segregation of Securities. State Street shall identify on its books as
belonging to each Fund the foreign securities of such Fund held by each Foreign
Subcustodian. Each agreement pursuant to which State Street employs a foreign
banking institution shall require that such institution establish a custody
account for State Street on behalf of each Fund and physically segregate in that
account securities and other assets of such Fund, and, in the event that such
institution deposits a Fund's securities in a foreign securities depository,
that it shall identify on its books as belonging to State Street, as agent for
the Trust, the securities so deposited (all collectively referred to as the
"account").
(5) Agreements with Foreign Banking Institutions. Each agreement with a
foreign banking institution shall be substantially in the form set forth in
Schedule C hereto and shall provide that: (a) each Fund's assets will not be
subject to any right, charge, security interest, lien or claim of any kind in
favor of the foreign banking institution or its creditors or agent, except a
claim of payment for their safe custody or administration; (b) the Foreign
Subcustodian shall maintain insurance covering each Fund's assets; (c)
beneficial ownership of a Fund's assets will be freely transferable without the
payment of money or value other than for custody or administration; (d) adequate
records will be maintained identifying the assets as belonging to the Fund; (e)
officers or auditors employed by, or other representatives of State Street,
including, to the extent permitted under applicable law, the independent public
accountants for the Trust, will be given access to the books and records of the
foreign banking institution relating to its actions under its agreement with
State Street; (f) assets of a Fund held by the Foreign Subcustodian will be
subject only to the instructions of State Street or its agents; and (g) the
Foreign Subcustodian will provide periodic reports with respect to the
safekeeping of each Fund's assets, including notification of any transfer to or
from a Fund's account.
(6) Access of Independent Accountants of the Trust. Upon request of the
Trust, State Street will use its best efforts to arrange for the independent
accountants of the Trust to be afforded access to the books and records of any
foreign banking institution employed as a Foreign Subcustodian insofar as such
books and records relate to the performance of such foreign banking institution
under its agreement with State Street.
(7) Reports by State Street. State Street will supply to the Trust from
time to time, as mutually agreed upon, statements in respect of the securities
and other assets of each Fund held by Foreign Subcustodians, including, but not
limited to, an identification of entities having possession of a Fund's
securities and other assets and advices or notifications of any transfers of
securities to or from each custodial account maintained by a foreign banking
institution for State Street on behalf of a Fund indicating, as to securities
acquired for the Trust, the identity of the entity having physical possession of
such securities.
(8) Transactions in Foreign Custody Account. (a) Upon receipt of Proper
Instructions, which may be continuing instructions when deemed appropriate by
the parties, State Street shall make or cause its Foreign Subcustodians to
transfer, exchange or deliver foreign securities owned by a Fund, but, except to
the extent explicitly provided in paragraph 4R(8)(b), only in any of the cases
specified in this Agreement. Upon receipt of Proper Instructions, which may be
continuing instructions when deemed appropriate by the parties, State Street
shall pay out or cause its Foreign Subcustodians to pay out monies of a Fund,
but, except to the extent explicitly provided in paragraph 4R(8)(b), only in any
of the cases specified in this Agreement.
(b) Notwithstanding any provision of this Agreement to the contrary,
settlement and payment for securities received for the account of each Fund and
delivery of securities maintained for the account of such Fund may be effected
in accordance with the customary or established securities trading or securities
processing practices and procedures in the jurisdiction or market in which the
transaction occurs, including, without limitation, delivering securities to the
purchaser thereof or to a dealer therefor (or an agent for such purchaser or
dealer) against a receipt with the expectation of receiving later payment for
such securities from such purchaser or dealer. Securities maintained in the
custody of a Foreign Subcustodian may be maintained in the name of such entity's
nominee to the same extent as set forth in paragraphs 2 and 4F of this
Agreement, and the Trust agrees to hold any such nominee harmless from any
liability as a holder of record of such securities.
(9) Liability of Foreign Subcustodians. Each agreement pursuant to which
State Street employs a foreign banking institution as a Foreign Subcustodian
shall require the institution to exercise reasonable care in the performance of
its duties and to indemnify, and hold harmless, State Street, the Trust and each
Fund from and against any loss, damage, cost, expense, liability or claim
arising out of or in connection with the institution's performance of such
obligations. At the election of the Trust, it shall be entitled to be subrogated
to the rights of State Street with respect to any claims against a foreign
banking institution as a consequence of any such loss, damage, cost, expense,
liability or claim if and to the extent that the Trust or its Funds have not
been made whole for any such loss, damage, cost, expense, liability or claim.
(10) Liability of State Street. State Street shall be liable to the Trust
and its Funds for the acts or omissions of a foreign banking institution
appointed pursuant to these provisions to the same extent that such foreign
banking institution is liable to State Street as provided under paragraph 4R(9);
provided however that State Street shall not be liable to the Trust or its Funds
for any loss resulting from or caused by nationalization, expropriation,
currency restrictions, acts of war or terrorism or other similar events or acts.
(11) Monitoring Responsibilities. State Street shall furnish annually to
the Trust, during the month of June, information concerning the Foreign
Subcustodians employed by State Street. Such information shall be similar in
kind and scope to that furnished to the Trust in connection with the initial
approval of this Agreement. In addition, State Street will promptly inform the
Trust in the event that State Street learns of a material adverse change in the
financial condition of a Foreign Subcustodian or any material loss in the assets
of a Fund, or is notified by a foreign banking institution employed as a Foreign
Subcustodian that there appears to be a substantial likelihood that its
shareholders' equity will decline below $200 million (U.S. dollars or the
equivalent thereof) or that its shareholders equity has declined below $200
million (in each case computed in accordance with generally accepted U.S.
accounting principles).
(12) Branches of U.S. Banks. Except as otherwise set forth in this
Agreement, the provisions hereof shall not apply where the custody of a Fund's
assets are maintained in a foreign branch of a banking institution which is a
"bank" as defined by Section 2(a)(5) of the 1940 Act and which meets the
qualifications set forth in Section 26(a) of the 1940 Act. The appointment of
any such branch as a subcustodian shall be governed by paragraph 7C of this
Agreement.
S. Miscellaneous. In general, attend to all nondiscretionary details
in connection with the sale, exchange, substitution, purchase, transfer or other
dealing with such securities or property of each Fund, except as otherwise
directed by the Trust pursuant to Proper Instructions. State Street shall render
to the Trust daily a report of all monies received or paid on behalf of each
Fund, an itemized statement of the securities and cash for which it is
accountable to the Trust under this Agreement and an itemized statement of
security transactions which settled the day before and shall render to the Trust
weekly an itemized statement of security transactions which failed to settle as
scheduled. At the end of each week State Street shall provide a list of all
security transactions that remain unsettled at such time.
5. Additionally, as Custodian, State Street shall promptly:
A. Bank Account. Retain safely all cash of each Fund, other than cash
maintained by a Fund in a bank account established and used in accordance with
Rule 17f-3 under the 1940 Act, in the banking department of State Street in a
separate account or accounts in the name of each Fund, subject only to draft or
order by State Street acting pursuant to the terms of this Agreement. If and
when authorized by Proper Instructions in accordance with a vote of the Board of
Trustees of the Trust, State Street may open and maintain an additional account
or accounts in such other bank or trust companies as may be designated by such
instructions, such account or accounts, however, to be solely in the name of
State Street in its capacity as Custodian and subject only to its draft or order
in accordance with the terms of this Agreement. State Street shall furnish to
the Trust, not later than thirty (30) calendar days after the last business day
of each month, a statement reflecting the current status of its internal
reconciliation of the closing balance as of that day in all accounts described
in this paragraph to the balance shown on the daily cash report for that day
rendered to the Trust.
B. Collections. Unless otherwise instructed by receipt of Proper
Instructions, collect, receive and deposit in the bank account or accounts
maintained pursuant to paragraph 5A hereof all income and other payments with
respect to the securities held hereunder, execute ownership and other
certificates and affidavits for all federal and state tax purposes in connection
with the collection of bond and note coupons, do all other things necessary or
proper in connection with the collection of such income, and without waiving the
generality of the foregoing:
1) present for payment on the date of payment all coupons and other
income items requiring presentation;
2) present for payment all securities which may mature or be called,
redeemed, retired or otherwise become payable on the date such
securities become payable;
3) endorse and deposit for collection, in the name of the respective
Fund, checks, drafts or other negotiable instruments on the same day
as received.
In any case in which State Street does not receive any such due and unpaid
income within a reasonable time after it has made proper demands for the same
(which shall be presumed to consist of at least three demand letters and at
least one telephonic demand), it shall so notify the Trust in writing, including
copies of all demand letters, any written responses thereto, and memoranda of
all oral responses thereto and to telephonic demands, and await proper
instruction; State Street shall not be obliged to take legal action for
collection unless and until reasonably indemnified to its satisfaction for the
reasonable costs of such legal action for collection. It shall also notify the
Trust as soon as reasonably practicable whenever income due on securities is not
collected in due course.
C. Sale of Shares of the Trust. Make such arrangements with the Transfer
Agent of the Trust as will enable State Street to make certain it receives the
cash consideration due to each Fund for shares of beneficial interest ("shares")
of such Fund as may be issued or sold from time to time by the Trust, all in
accordance with the Trust's Declaration of Trust and By-Laws, as amended.
D. Dividends and Distributions. Upon receipt of Proper Instructions,
release or otherwise apply cash insofar as cash is available for the purpose of
the payment of dividends or other distributions to shareholders of each Fund.
E. Redemption of Shares of the Trust. From such funds as may be
available for the purpose, but subject to the limitation of the Trust's
Declaration of Trust and By-Laws, as amended, and applicable resolutions of the
Board of Trustees of the Trust pursuant thereto, make funds available for
payment to shareholders who have delivered to the Transfer Agent a request for
redemption of their shares by a Fund pursuant to such Declaration of Trust, as
amended.
In connection with the redemption of shares of each Fund pursuant to the
Trust's Declaration of Trust and By-Laws, as amended, State Street is authorized
and directed upon receipt of Proper Instructions from the Transfer Agent of the
Trust to make funds available for transfer through the Federal Reserve Wire
System or by other bank wire to a commercial bank account designated by the
redeeming stockholder.
F. Stock Dividends, Rights, Etc. Receive and collect all stock
dividends, rights and other items of like nature; and deal with the same
pursuant to Proper Instructions relative thereto.
G. Disbursements. Upon receipt of Proper Instructions, make or cause to
be made, insofar as cash is available for the purpose, disbursements for the
payment on behalf of the Trust or its Funds of its expenses, including without
limitation, interest, taxes and fees or reimbursement to State Street or to the
Trust's investment advisers for their payment of any such expenses.
H. Other Proper Corporate Purposes. Upon receipt of Proper Instructions,
make or cause to be made, insofar as cash is available for the purpose,
disbursements for any other purpose (in addition to the purposes specified in
paragraphs 4G, 4H, 5D, 5E, and 5G of this Agreement) which the Trust declares is
a proper corporate purpose.
I. Records. Create, maintain and retain all records relating to its
activities and obligations under this Agreement in such manner as shall meet the
obligations of the Trust under the 1940 Act, particularly Section 31 thereof and
Rules 31a-1 and 31a-2 thereunder or as reasonably requested from time to time by
the Trust. All records maintained by State Street in connection with the
performance of its duties under this Agreement shall remain the property of the
Trust, and, in the event of termination of this Agreement, shall be delivered in
accordance with the terms of paragraph 10 below.
J. Miscellaneous. Assist generally in the preparation of routine reports
to holders of shares of the Trust, to the Commission, including form N-SAR, to
state "Blue Sky" authorities, to others in the auditing of accounts and in other
matters of like nature and as otherwise reasonably requested by the Trust.
K. Trust Accounting and Net Asset Value Computation. State Street shall
maintain the general ledger and all other books of account of the Trust,
including the accounting of each Fund. In addition, upon receipt of Proper
Instructions, which may be deemed to be continuing instructions, State Street
shall daily compute the net asset value of the shares of each Fund and the total
net asset value of each Fund. State Street shall, in addition, perform such
other services incidental to its duties hereunder as may be reasonably requested
from time to time by the Trust.
6. State Street and the Trust further agree as follows:
A. Proper Instructions. State Street shall be deemed to have received
Proper Instructions upon receipt of written instructions signed by the Trust's
Trustees or by one or more person or persons as the Trust's Board of Trustees
shall have from time to time authorized to give the particular class of
instructions for different purposes. Different persons may be authorized to give
instructions for different purposes. A copy of a resolution or action of the
Trustees certified by the Secretary or an Assistant Secretary of the Trust may
be received and accepted by State Street as conclusive evidence of the
instruction of the Trust's Board of Trustees and/or the authority of any person
or persons to act on behalf of the Trust and may be considered as in full force
and effect until receipt of written notice to the contrary. Such instruction may
be general or specific in terms. Oral instructions will be considered Proper
Instructions if State Street reasonably believes them to have been given by a
person authorized by the Board of Trustees to give such oral instructions with
respect to the class of instruction involved. The Trust shall cause all oral
instructions to be confirmed in writing. Proper instructions may include
communications effected directly between electromechanical or electronic devices
provided that the Trust and State Street are satisfied that such procedures
afford adequate safeguards for the assets of each Fund. Use by the Trust of such
communication systems shall constitute approval by the Trust of the safeguards
available therewith.
B. Investments, Limitations. In performing its duties generally, and
more particularly in connection with the purchase, sale and exchange of
securities made by or for each Fund, State Street may take cognizance of the
provisions of the Declaration of Trust of the Trust, as amended; provided,
however, that except as otherwise expressly provided herein, State Street may
assume unless and until notified in writing to the contrary that instructions
purporting to be Proper Instructions received by it are not in conflict with or
in any way contrary to any provision of the Declaration of Trust of the Trust,
as amended, or resolutions or proceedings of the Board of Trustees of the Trust.
7. State Street and the Trust further agree as follows:
A. Indemnification. State Street, as Custodian, shall be entitled to
receive and act upon advice of counsel (who may be counsel for the Trust) and
shall be without liability for any action reasonably taken or thing reasonably
done pursuant to such advice; provided that such action is not in violation of
applicable federal or state laws or regulations or contrary to written
instructions received from the Trust, and shall be indemnified by the Trust and
without liability for any action taken or thing done by it in carrying out the
terms and provisions of this Agreement in good faith and without negligence,
misfeasance or misconduct. In order that the indemnification provision contained
in this paragraph shall apply, however, if the Trust is asked to indemnify or
save State Street harmless, the Trust shall be fully and promptly advised of all
pertinent facts concerning the situation in question, and State Street shall use
all reasonable care to identify and notify the Trust fully and promptly
concerning any situation which presents or appears likely to present the
probability of such a claim for indemnification against the Trust. The Trust
shall have the option to defend State Street against any claim which may be the
subject of this indemnification, and, in the event that the Trust so elects, it
will so notify State Street, and thereupon the Trust shall take over complete
defense of the claim, and State Street shall initiate no further legal or other
expenses for which it shall seek indemnification under this paragraph. State
Street shall in no case confess any claim or make any compromise in any case in
which the Trust will be asked to indemnify State Street except with the Trust's
prior written consent.
B. Expenses Reimbursement. State Street shall be entitled to receive
from each Fund on demand reimbursement for its cash disbursements, expenses and
charges, excluding salaries and usual overhead expenses with respect to such
Fund, as set forth in Schedule A.
C. Appointment of Agents and Subcustodians. State Street, as Custodian,
may appoint (and may remove), only in compliance with the terms and conditions
of the Trust's Declaration of Trust and By-Laws, as amended, any other bank,
trust company or responsible commercial agent as its agent or Subcustodian to
carry out such of the provisions of this Agreement as State Street may from time
to time direct; provided, however, that the appointment of any such agent or
Subcustodian shall not relieve State Street of any of its responsibilities under
this Agreement.
D. Reliance on Documents. So long as and to the extent that it is in
good faith and in the exercise of reasonable care, State Street, as Custodian,
shall not be responsible for the title, validity or genuineness of any property
or evidence of title thereto received by it or delivered by it pursuant to this
Agreement, shall be protected in acting upon any instructions, notice, request,
consent, certificate or other instrument or paper reasonably believed by it to
be genuine and to constitute Proper Instructions under this Agreement and shall,
except as otherwise specifically provided in this Agreement, be entitled to
receive as conclusive proof of any fact or matter required to be ascertained by
it hereunder a certificate signed by the Trust's Trustees, the Secretary or an
Assistant Secretary of the Trust or any other person expressly authorized by the
Board of Trustees of the Trust.
E. Access to Records. Subject to security requirements of State Street
applicable to its own employees having access to similar records within State
Street and such regulations as to the conduct of such monitors as may be
reasonably imposed by State Street after prior consultation with an authorized
officer of the Trust, books and records of State Street pertaining to its
actions under this Agreement shall be open to inspection and audit at reasonable
times by the Trustees of, attorneys for, auditors employed by the Trust or any
other person as the Trust's Board of Trustees shall direct.
F. Recordkeeping. State Street shall maintain such records as shall
enable the Trust to comply with the requirements of all federal and state laws
and regulations applicable to the Trust and its Funds with respect to the
matters covered by this Agreement.
8. If a Fund requires State Street to advance cash or securities for any
purpose or in the event that State Street or its nominee shall incur or be
assessed any taxes, charges, expenses, assessments, claims or liabilities in
connection with the performance of this Agreement, except such as may arise from
its or its nominee's own negligent action, negligent failure to act or willful
misconduct, any property at any time held for the account of such Fund shall be
security therefor and should such Fund fail to repay State Street promptly,
State Street shall be entitled to utilize available cash and to dispose of such
Fund's assets to the extent necessary to obtain reimbursement; provided,
however, that the total value of any property of such Fund which at any time is
security for any payment by State Street hereunder shall not exceed 15% of such
Fund's total net asset value.
9. The Trust shall pay State Street for its services as Custodian such
compensation as shall be specified on the attached Schedule A. Such compensation
shall remain fixed until otherwise agreed in writing by the parties hereto,
unless this Agreement is terminated as provided in paragraph 10.
10. State Street and the Trust further agree as follows:
A. Effective Period, Termination, Amendment and Interpretive and
Additional Provisions. This Agreement shall become effective as of the date of
its execution, shall continue in full force and effect until terminated as
hereinafter provided, may be amended at any time by mutual agreement of the
parties hereto and may be terminated by either party by an instrument in writing
delivered or mailed, postage prepaid, to the other party, such termination to
take effect sixty (60) days after the date of such delivery or mailing; and
further provided that the Trust may, by action of the Trust's Board of Trustees,
substitute another bank or trust company for State Street by giving notice as
provided above to State Street, provided, however that State Street shall not
act under paragraphs 4B or 4C hereof in the absence of receipt of an initial
certificate of the Secretary or an Assistant Secretary that the Board of
Trustees of the Trust has approved the initial use of a particular Securities
System and the receipt of an annual certificate of the Secretary or an Assistant
Secretary that the Board of Trustees has reviewed the use by the Trust of such
Securities System, as required in each case by Rule 17f-4 under the 1940 Act,
and that State Street shall not act under paragraph 4C hereof in the absence of
receipt of an initial certificate of the Secretary or an Assistant Secretary
that the Board of Trustees has approved the initial use of the Direct Paper
System and the receipt of an annual certificate of the Secretary or an Assistant
Secretary that the Board of Trustees has reviewed the use by the Trust of the
Direct Paper System. The Trust or State Street shall not amend or terminate this
Agreement in contravention of any applicable federal or state laws or
regulations, or any provision of the Declaration of Trust of the Trust, as
amended; provided, however, that in the event of such termination State Street
shall remain as Custodian hereunder for a reasonable period thereafter if the
Trust after using its best efforts is unable to find a Successor Custodian.
In connection with the operation of this Agreement, State Street and the
Trust may agree from time to time on such provisions interpretive of or in
addition to the provisions of this Agreement as may in their joint opinion be
consistent with the general tenor of this Agreement, any such interpretive or
additional provision to be signed by both parties and annexed hereto, provided
that no such interpretive or additional provisions shall contravene any
applicable federal or state laws or regulations, or any provision of the Trust's
Declaration of Trust as amended. No interpretive provisions made as provided in
the preceding sentence shall be deemed to be an amendment of this Agreement.
B. Successor Custodian. Upon termination hereof or the inability of
State Street to continue to serve hereunder, the Trust shall pay to State Street
such compensation as may be due for services through the date of such
termination and shall likewise reimburse State Street for its costs, expenses
and disbursements incurred prior to such termination in accordance with
paragraph 7B hereof and such reasonable costs, expenses and disbursements as may
be incurred by State Street in connection with such termination.
If a Successor Custodian is appointed by the Board of Trustees of the Trust
in accordance with the Trust's Declaration of Trust, as amended, State Street
shall, upon termination, deliver to such Successor Custodian at the office of
State Street, properly endorsed and in proper form for transfer, all securities
then held hereunder, all cash and other assets of the Trust deposited with or
held by it hereunder.
If no such Successor Custodian is appointed, State Street shall, in like
manner at its office, upon receipt of a certified copy of a resolution of the
shareholders pursuant to the Trust's Declaration of Trust and By-Laws, as
amended, deliver such securities, cash and other properties in accordance with
such resolutions.
In the event that no written order designating a Successor Custodian or
certified copy of a resolution of the shareholders shall have been delivered to
State Street on or before the date when such termination shall become effective,
then State Street shall have the right to deliver to a bank or trust company
doing business in Boston, Massachusetts of its own selection, having an
aggregate capital, surplus and undivided profits, as shown by its last published
report, of not less than $5,000,000, all securities, cash and other properties
held by State Street and all instruments held by it relative thereto and all
other property held by it under this Agreement. Thereafter, such bank or trust
company shall be the Successor of State Street under this Agreement and subject
to the restrictions, limitations and other requirements of the Trust's
Declaration of Trust and By-Laws, both as amended.
In the event that securities, funds, and other properties remain in the
possession of State Street after the date of termination hereof owing to failure
of the Trust to procure the certified copy above referred to, or of the Trust's
Board of Trustees to appoint a Successor Custodian, State Street shall be
entitled to fair compensation for its services during such period, and the
provisions of this Agreement relating to the duties and obligations of State
Street shall remain in full force and effect.
C. Duplicate Records and Backup Facilities. State Street shall not be
liable for loss of data occurring by reason of circumstances beyond its control,
including but not limited to acts of civil or military authority, national
emergencies, fire, flood or catastrophe, acts of God, insurrection, war, riots
or failure of transportation, communication or power supply. However, State
Street shall keep in a separate and safe place additional copies of all records
required to be maintained pursuant to this Agreement or additional tapes, disks
or other sources of information necessary to reproduce all such records.
Furthermore, at all times during this Agreement, State Street shall maintain a
contractual arrangement whereby State Street will have a back-up computer
facility available for its use in providing the services required hereunder in
the event circumstances beyond State Street's control result in State Street not
being able to process the necessary work at its principal computer facility,
State Street shall, from time to time, upon request from the Trust provide
written evidence and details of its arrangement for obtaining the use of such a
back-up computer facility. State Street shall use its best efforts to minimize
the likelihood of all damage, loss of data, delays and errors resulting from an
uncontrollable event, and should such damage, loss of data, delays or errors
occur, State Street shall use its best efforts to mitigate the effects of such
occurrence. Representatives of the Trust shall be entitled to inspect the State
Street premises and operating capabilities within reasonable business hours upon
reasonable notice to State Street, and, upon request of such representative or
representatives, State Street shall from time to time as appropriate, furnish to
the Trust a letter setting forth the insurance coverage thereon, any changes in
such coverage which may occur and any claim relating to the Trust which State
Street may have made under such insurance.
D. Confidentiality. State Street agrees to treat all records and other
information relative to the Trust and its Funds confidentially and State Street,
on behalf of itself and its officers, employees and agents, agrees to keep
confidential all such information, except after prior notification to and
approval by the Trust (which approval shall not be unreasonably withheld and may
not be withheld where State Street may be exposed to civil or criminal contempt
proceedings), when requested to divulge such information by duly constituted
authorities or when so requested by a properly authorized person.
State Street and the Trust agree that they, their officers, employees and
agents shall maintain all information disclosed to them by the other in
connection with this Agreement in confidence and will not disclose any such
information to any other person, nor use such information for their own benefit
or for the benefit of third parties without the consent in writing of the other;
provided, however, that each party shall have the right to use any such
information for its own necessary internal purposes while this Agreement is in
effect. The provisions of the paragraph shall not apply to information which (i)
is in or becomes part of the public domain, or (ii) is demonstrably known
previously to the party to whom it is disclosed, or (iii) is independently
developed outside this Agreement by the party to whom it is disclosed or (iv) is
rightfully obtained from third parties by the party to whom it is disclosed.
11. The Trust shall not circulate any printed matter which contains any
reference to State Street without the prior written approval of State Street,
excepting solely such printed matter as merely identifies State Street as
Custodian. The Trust will submit printed matter requiring approval to State
Street in draft form, allowing sufficient time for review by State Street and
its counsel prior to any deadline for printing.
12. In the event of a reorganization of one of the Trust's Funds through a
merger, consolidation, sale of assets or other reorganization, State Street, at
the request of the Trust, shall act as Custodian for shares of any investment
company or other company obtained in any such reorganization by the Fund for
distribution to those Fund shareholders whose shares are represented by
certificates. The Trust shall give notice to each such shareholder of his or her
right to exchange his or her Fund shares represented by certificates for shares
held by State Street upon surrender to State Street of his or her certificates
representing such Fund shares properly endorsed and in proper form for transfer.
Upon the surrender of such Fund certificates, State Street will issue a
certificate or certificates to the surrendering shareholder for an approximate
number of shares held by State Street, unless such shareholder establishes an
Open Account Plan or other similar account at that time in which case such
shares will be credited to his or her account. State Street shall not be
required to issue certificates for any fractional shares held by it. Instead,
fractional interests in such shares shall be distributed to the shareholder in
cash at their then current market value or, if the fractional share represents
an interest in an investment company, it shall be redeemed by State Street at
the then current redemption price for such shares and the proceeds of such
redemption shall be distributed to such shareholder in cash. State Street shall
not release to any shareholder any such shares held by it until such shareholder
has properly surrendered for exchange his or her Fund shares represented by
certificates.
13. In the event that the Trust establishes one or more series of shares in
addition to Keystone Institutional Small Capitalization Growth Fund, with
respect to which it desires to have the Custodian render services as custodian
under the terms hereof, it shall so notify the Custodian in writing, and if the
custodian agrees in writing to provide such serivces, such series of shares
shall become a fund hereunder.
14. This Agreement is executed and delivered in The Common- wealth of
Massachusetts and shall be subject to and be construed in accordance with the
laws of the Commonwealth.
15. Notices and other writings delivered or mailed postage prepaid to
Keystone Institutional Trust, c/o Keystone Investment Management Company, 200
Berkeley Street, Boston, Massachusetts 02116, or to State Street at 225 Franklin
Street, Boston, Massachusetts 02110, or to such other address as the Trust or
State Street may hereafter specify, shall be deemed to have been properly
delivered or given hereunder to the respective address.
16. This Agreement shall be binding upon and shall inure to the benefit of
the Trust and its Funds and State Street and their respective successors or
assigns.
17. This Agreement may be executed simultaneously in two or more
counterparts, each of which shall be deemed an original.
18. This Agreement is made on behalf of the Trust and its Funds by an
officer or Trustee of the Trust, not individually but solely as an officer or
Trustee under the Trust's Declaration of Trust, and the obligations under this
Agreement are not binding upon, nor shall resort be had to the property of any
of the Trustees, shareholders, officers, employees or agents of the fund
personally, but are binding only on the property of the Trust and its Funds.
<PAGE>
IN WITNESS WHEREOF, each of the parties hereto has caused this
Agreement to be executed in its name and on its behalf by a duly authorized
officer as of the day and year first above written.
ATTEST: KEYSTONE INSTITUTIONAL TRUST
By:
--------------------------------
Kevin J. Morrissey,
Treasurer
ATTEST: STATE STREET BANK AND TRUST COMPANY
By:
--------------------------------
Name:
Title:
#10160684
<PAGE>
***SEE State Street Fee Schedule for Fees
<PAGE>
EXHIBIT 99.10
December 5, 1995
Keystone Institutional Trust
200 Berkeley Street
Boston, MA 02116-5034
Gentlemen:
You have asked for my opinion with respect to the issuance of shares of
Keystone Institutional Trust (the "Trust") under the Declaration of Trust of the
Trust. A prospectus and statement of additional information are expected to be
filed with the Securities and Exchange Commission as part of the Trust's
Registration Statement covering the registration of the Trust as an investment
company and the public offering and sale of the Trust's shares. In my opinion,
after the effectiveness of the Registration Statement, such shares, when issued
and sold, will be legally issued, fully paid and non-assessable by the Trust,
entitling the holders thereof to the rights set forth in the Declaration of
Trust, and subject to the limitations stated therein.
My opinion is based upon my examination of the Trust's Declaration of
Trust and the Trust's prospectus and statement of additional information as they
are proposed to be filed in the Registration Statement.
I hereby consent to the use of this opinion in connection with the
registration of the Trust and its shares with the Securities and Exchange
Commission.
Very truly yours,
Rosemary D. Van Antwerp
Senior Vice President,
Secretary and General Counsel
#1016067f
<PAGE>
EXHIBIT 99.13
November 30, 1995
Albert H. Elfner, III, President and
Chief Executive Officer
Keystone Institutional Trust
200 Berkeley Street
Boston, Massachusetts 02116-5034
RE: Subscription for Shares
Dear Mr. Elfner:
Keystone Investment Management Company, in consideration of the
formation of Keystone Institutional Trust ("Trust") as a Massachusetts business
trust, hereby subscribes to 10,000 Shares of beneficial interest without par
value of a certain series of the Trust named Keystone Institutional Small
Capitalization Growth Fund ("Shares") and agrees to pay $100,000 for such shares
($10.00 each).
This subscription shall be payable and the shares subscribed for in
this letter shall be issued prior to the effective date of the registration of
such shares under the Securities Act of 1933. The payment of this subscription
shall be in cash.
The purchase of shares pursuant to this subscription will be made for
investment purposes and not with a view to the distribution of such shares.
Please indicate your agreement and acceptance of this subscription by
signing below.
KEYSTONE INVESTMENT MANAGEMENT
COMPANY
By:
----------------------------
Rosemary D. Van Antwerp
Senior Vice President, Secretary
and General Counsel
Accepted and Agreed to on
November 30, 1995
KEYSTONE INSTITUTIONAL TRUST
By
--------------------------
Albert H. Elfner, III
President
1016067f
