<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON OCTOBER 29, 1996.
File Nos. 33-64781
and 811-7441
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-1A
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
Pre-Effective Amendment No.
Post-Effective Amendment No -2- X
and
REGISTRATION STATEMENT UNDER THE
INVESTMENT COMPANY ACT OF 1940
Amendment No. -4- X
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)
It is proposed that this filing will become effective:
- --- immediately upon filing pursuant to paragraph (b)
- -X- on October 31, 1996 pursuant to paragraph (b)
- --- 60 days after filing pursuant to paragraph (a)(1)
- --- on (date) pursuant to paragraph (a)(1)
- --- 75 days after filing pursuant to paragraph (a)(2)
- --- on (date) pursuant to paragraph (a)(2) of Rule 485
Pursuant to Rule 24f-2 under the Investment Company Act of 1940, Registrant
has registered an indefinite amount of its securities under the Securities Act
of 1933. A Rule 24f-2 Notice for Registrant's fiscal year ended June 30, 1996
was filed on August 26, 1996.
<PAGE>
KEYSTONE INSTITUTIONAL TRUST
KEYSTONE INSTITUTIONAL SMALL CAPITALIZATION GROWTH FUND
CONTENTS OF
REGISTRATION STATEMENT
This Post-Effective Amendment No. 2 to
Registration Statement No. 33-64781/811-7441 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
Independent Auditors' Report
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 Fund
Investment Objective and Policies
Investment Restrictions
Risk Factors
Additional Investment Information
5 Fund Management and Expenses
5A Not Applicable
6 The Fund
Dividends and Taxes
Fund 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 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
23 Financial Statements
<PAGE>
KEYSTONE INSTITUTIONAL TRUST
Keystone Institutional Small Capitalization Growth Fund
PART A
PROSPECTUS
<PAGE>
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PROSPECTUS OCTOBER 31, 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.
Under normal circumstances, the Fund invests 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 net assets in small
company 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, the Fund does not charge 12b-1 fees.
This prospectus concisely states 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 October 31, 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.
------------------------
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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TABLE OF CONTENTS
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PAGE
Fee Table .................................................... 3
Financial Highlights ......................................... 4
The Fund ..................................................... 5
Investment Objective and Policies ............................ 5
Investment Restrictions ...................................... 6
Risk Factors ................................................. 6
Pricing Shares ............................................... 7
Dividends and Taxes .......................................... 8
Fund Management and Expenses ................................. 9
How to Buy Shares ............................................ 12
How to Redeem Shares ......................................... 14
Shareholder Services ......................................... 15
Performance Data ............................................. 16
Fund Shares .................................................. 16
Additional Information ....................................... 17
Additional Investment Information ............................ (i)
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FEE TABLE
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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"; 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
$10 $32
You would pay the following expenses on the same investment, assuming no
redemption:
1 YEAR 3 YEARS
$10 $32
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 for the Fund's fiscal period ended June 30, 1996 after
giving effect to the reimbursement by Keystone Investment Management Company
("Keystone") of expenses in accordance with certain voluntary expense
limits. Until December 31, 1996, Keystone has voluntarily limited the Fund's
annual expenses to 1.00% of the Fund's average daily net assets. Keystone
currently intends to continue such limitation on a month-by-month basis
thereafter. After December 31, 1996, Keystone may modify or terminate the
expense limitation. Without reimbursement, the Fund's expense ratio for the
fiscal period ended June 30, 1996 would have been 2.81% of average daily net
assets.
(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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FINANCIAL HIGHLIGHTS
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KEYSTONE INSTITUTIONAL SMALL CAPITALIZATION GROWTH FUND
(FOR A SHARE OUTSTANDING THROUGHOUT THE PERIOD)
The following table contains important financial information relating to the
Fund and has been audited by KPMG Peat Marwick LLP, the Fund's independent
auditors. The table appears in the Fund's Annual Report and should be read in
conjunction with the Fund's financial statements and related notes, which also
appear, together with the independent auditors' report, in the Fund's Annual
Report. The Fund's financial statements, related notes, and independent
auditors' report are incorporated by reference into the statement of additional
information. Additional information about the Fund's performance is contained in
its Annual Report, which will be made available upon request and without charge.
PERIOD FROM
DECEMBER 28, 1995
(COMMENCEMENT
OF OPERATIONS)
TO JUNE 30, 1996
---------------------
NET ASSET VALUE BEGINNING OF PERIOD ................... $10.00
------
INCOME FROM INVESTMENT OPERATIONS
Net investment loss ................................... (0.03)
Net realized and unrealized gain ...................... 1.68
-----
Total from investment operations .................. 1.65
-----
NET ASSET VALUE END OF PERIOD ......................... $11.65
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TOTAL RETURN .......................................... 16.50%
RATIOS/SUPPLEMENTAL DATA
Ratios to average net assets:
Total expenses .................................... 1.00% (a)(b)
Net investment loss ............................... (0.45%)(a)
Portfolio turnover rate ........................... 57%
Average commission rate paid ...................... $0.0847
Net assets end of period (thousands) .................. $2,446
------
(a) Annualized for the period from December 28, 1995 (Commencement of
operations) to June 30, 1996.
(b) Figures are net of expense reimbursement by Keystone in connection with
voluntary expense limitations. Before the expense reimbursement, the
"Ratio of total expenses to average net assets" would have been 2.81%.
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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 30, 1995. Keystone Investment Management Company ("Keystone") is
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. Under normal circumstances, the Fund invests, 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 net
assets in the stocks of companies with market capitalizations that are
generally less than $1 billion and more than $100 million ("small companies")
at the time of the Fund's investment. Companies whose capitalization falls
outside this range after the purchase continue to be considered small
companies 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 Fund's strategy is to remain essentially
fully invested with cash reserves below 5% of its market value. However, if
market conditions warrant, the Fund may adopt a more defensive strategy to
preserve shareholders' 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. When the Fund invests for
defensive purposes, it seeks to limit the risk of loss of principal and is not
pursuing its investment objective.
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. At
this time, the Fund (1) treats as illiquid, securities that may not be sold or
disposed of in the ordinary course of business within seven days at
approximately the value at which the Fund has valued the investment on its
books and limits its holdings of such securities to 10% of the Fund's net
assets.
The Fund may invest in restricted equity 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 and reverse repurchase
agreements. 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.
For further information about the types of investments and investment
techniques available to the Fund and the associated risks, see the "Risk
Factors" and "Additional Investment Information" sections of this prospectus
and the statement of additional information.
Any investment involves risk, and there is no assurance that the Fund will
achieve its investment objective.
The investment objective of the Fund cannot be changed without a vote of the
holders of a majority of the Fund's outstanding shares (as defined in the
Investment Company Act of 1940 ("1940 Act")).
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INVESTMENT RESTRICTIONS
- --------------------------------------------------------------------------------
The Fund has adopted the fundamental investment restrictions summarized below,
which may not be changed without the approval of a 1940 Act majority 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),
except that up to 25% of its total assets may be invested without regard to
this limit; and (2) 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.
- --------------------------------------------------------------------------------
RISK FACTORS
- --------------------------------------------------------------------------------
Like any investment, your investment in the Fund involves an element of risk.
Before you buy shares of the Fund, you should carefully evaluate your ability
to assume the risks your investment in the Fund poses. YOU CAN LOSE MONEY BY
INVESTING IN THE FUND. YOUR INVESTMENT IS NOT GUARANTEED. A DECREASE IN THE
VALUE OF THE FUND'S PORTFOLIO SECURITIES CAN RESULT IN A DECREASE IN THE VALUE
OF YOUR INVESTMENT.
The Fund seeks to provide long-term growth of capital by investing principally
in equity securities of small companies. 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"
and the statement of additional information.
FUND RISKS
Investing in growth companies with small market capitalizations involves
greater risk than investing in larger companies. Small company 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 such
companies on limited product lines, markets, and financial and management
resources. These and other factors may make small 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 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 company 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 company
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 company stocks.
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PRICING SHARES
- --------------------------------------------------------------------------------
The net asset value of a Fund share is computed each day on which the New York
Stock Exchange (the "Exchange") is open as of the close of trading on the
Exchange (currently 4:00 p.m. eastern time for the purpose of pricing Fund
shares) except on days when changes in the value of the Fund's portfolio
securities do not affect the current net asset value of its shares. The
Exchange is currently closed on weekends, New Year's Day, Presidents' Day,
Good Friday, Memorial Day, Independence Day, Labor Day, Thanksgiving Day, and
Christmas Day. The net asset value per share is arrived at by determining the
value of all of the Fund's assets, subtracting its liabilities and dividing
the result by the number of its outstanding shares.
Current values for the Fund's portfolio 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;
2. securities traded in the over-the-counter market, other than NMS, are
valued at the mean of the bid and asked prices at the time of valuation;
3. short-term instruments maturing in sixty days or less (including all
master demand notes) are valued at amortized cost (original purchase cost
as adjusted for amortization of premium or accretion of discount), which,
when combined with accrued interest, approximates market;
4. short-term instruments maturing in more than sixty days for which
market quotations are readily available are valued at current market
value;
5. short-term instruments maturing in more than sixty days when purchased
that are held on the sixtieth day prior to maturity are valued at
amortized cost (market value on the sixtieth day adjusted for amortization
of premium or accretion of discount), which, when combined with accrued
interest, approximates market; and
6. 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.
- --------------------------------------------------------------------------------
DIVIDENDS AND TAXES
- --------------------------------------------------------------------------------
The Fund has qualified and intends to continue to qualify as a regulated
investment company under the Internal Revenue Code of 1986, as amended (the
"Code"). The Fund qualifies if, among other things, it distributes to its
shareholders at least 90% of its net investment income for its fiscal year.
The Fund also intends to make timely distributions, if necessary, sufficient
in amount to avoid the nondeductible 4% excise tax imposed on a regulated
investment company 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.
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. Fund 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.
Dividends and distributions are taxable whether they are received in cash or
in shares. Income dividends and net short-term gains distributions are taxable
as ordinary income. Net long-term gains 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.
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.
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
- --------------------------------------------------------------------------------
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
provides investment advice, management and administrative services to the
Trust and the Fund.
INVESTMENT ADVISER
Keystone 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"). Both Keystone and Keystone Investments are located at 200
Berkeley Street, Boston, Massachusetts 02116-5034.
Keystone Investments is a private corporation predominantly owned by current
and former members of management of Keystone and its affiliates. The shares of
Keystone Investments common stock beneficially owned by management are held in
a number of voting trusts, the trustees of which are George S. Bissell, Albert
H. Elfner, III, Edward F. Godfrey, Ralph J. Spuehler, Jr. and Rosemary D. Van
Antwerp. 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, 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:
ANNUAL AGGREGATE NET ASSET
MANAGEMENT VALUE OF THE SHARES
FEE OF THE FUND
- --------------------------------------------------------------------------------
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 each business day and payable daily.
For the fiscal period ended June 30, 1996, the Fund paid or accrued to
Keystone investment management and administrative services fees of $9,209,
which represented 0.80% of the Fund's average daily net asset value during the
period.
An advisory fee of 0.80% is higher than that paid by general equity funds.
However, the Fund believes that its advisory fee is comparable to that of
other small company growth equity funds.
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 a majority of the Fund's outstanding shares. In either
case, the terms of the Advisory Agreement and continuance thereof must be
approved by the vote of a majority of Trustees who are not interested persons
of the Trust, as defined in the 1940 Act (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 on behalf of the Fund or Keystone or may be terminated by
a vote of the Fund's shareholders. The Advisory Agreement will terminate
automatically upon its assignment.
Keystone Investments has recently entered into an Agreement and Plan of
Acquisition and Merger with First Union Corporation ("First Union"), pursuant
to which Keystone Investments will be merged with and into a wholly-owned
subsidiary of First Union National Bank of North Carolina ("FUNB-NC") (the
"Merger"). The surviving corporation will assume the name "Keystone
Investments, Inc.". Subject to a number of conditions being met, it is
currently anticipated that the Merger will take place on or around December
11, 1996. Thereafter, Keystone Investments, Inc. would be a subsidiary of
FUNB-NC.
If consummated, the proposed Merger will be deemed to cause an assignment,
within the meaning of the 1940 Act, of the Advisory Agreement. Consequently, the
completion of the Merger is contingent upon, among other things, the approval of
the Fund's shareholders of a new investment advisory and management agreement
between the Trust and Keystone (the "New Advisory Agreement"). The Trust's
Trustees have approved the terms of the New Advisory Agreement, subject to the
approval of shareholders and the completion of the Merger, and have called a
special meeting of shareholders to obtain their approval of, among other things,
the New Advisory Agreement. The meeting is expected to be held in December 1996.
The proposed New Advisory Agreement has terms, including fees payable
thereunder, that are substantively identical to those in the current agreement.
In addition to an assignment of the Trust's Advisory Agreement, the Merger, if
consummated, will also be deemed to cause an assignment, as defined by the 1940
Act, of the Principal Underwriting Agreement between the Trust and Fidiciary
Investment Company, Inc.(the "Principal Underwriter"), the Fund's current
principal underwriter. As a result, the Trust's Trustees have approved the
following agreements, subject to the Merger's completion: (i) a principal
underwriting agreement between Evergreen Funds Distributor, Inc. ("EFD") and the
Trust; (ii) a marketing services agreement between the Principal Underwriter and
EFD with respect to the Trust; and (iii) a subadministration agreement between
Keystone and EFD with respect to the Trust. EFD is a wholly- owned subsidiary of
Furman Selz LLC. It is currently anticipated that on or about January 2, 1997,
Furman Selz LLC will transfer EFD, and Furman Selz's related services, to BISYS
Group, Inc. ("BISYS") (the "Transfer"). The Trust's Trustees have also approved,
subject to completion of the Transfer, (i) a new principal underwriting
agreement between EFD and the Trust; (ii) a new marketing services agreement
between the Principal Underwriter and EFD with respect to the Trust; and (iii) a
subadministration agreement between Keystone and BISYS with respect to the
Trust. The terms of such agreements will be substantively identical to the terms
of the agreements to be executed upon completion of the Merger.
The Trust has adopted a Code of Ethics incorporating policies on personal
securities trading as recommended by the Investment Company Institute.
PORTFOLIO MANAGEMENT
Keystone's Small Cap Growth Team has managed the Fund's portfolio since its
inception. Since July, 1996, the team has been composed of the following
members: Donald C. Dates, Marjory C. Parker, and David S. Benhaim. Mr. Dates,
a Keystone Senior Vice President, is head of the team and has more than 32
years of investment experience. Ms. Parker is a Keystone Vice President and
and has more than 14 years of investment experience. Mr. Benhaim is a Keystone
Vice President and has approximately 9 years of investment experience. Messrs.
Dates and Benhaim are Chartered Financial Analysts.
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 the 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.
For the fiscal period ended June 30, 1996, after an expense reimbursement, the
Fund paid 1.00% of its average net assets in expenses. In accordance with the
voluntary expense limitation, for the same period, Keystone reimbursed the Fund
$21,451.
Keystone has voluntarily limited the expenses of the Fund to 1.00% of average
daily net assets until December 31, 1996 and currently intends to continue the
limitation on a month-by-month basis thereafter. After December 31, 1996,
Keystone may modify or terminate the foregoing expense limitations.
During the fiscal period ended June 30, 1996, the Fund paid or accrued to
Keystone Investor Resource Center, Inc. ("KIRC"), the Fund's transfer and
dividend disbursing agent, fees in the amount of $1,000. KIRC is a wholly-
owned subsidiary of Keystone and is located at 200 Berkeley Street, Boston, MA
02116-5034.
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 company 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. Keystone may use these services in
advising the Fund as well as in advising its other clients.
PORTFOLIO TURNOVER
The Fund's portfolio turnover rate for the fiscal period ended June 30, 1996
was 57%. 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 the Principal Underwriter. The
Principal Underwriter, a wholly-owned subsidiary of Keystone, is located at 200
Berkeley Street, Boston, Massachusetts 02116-5034. See "Fund Management and
Expenses" for more information on how the proposed First Union Merger will
affect the Fund's underwriting arrangements.
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, the Principal Underwriter,
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 KIRC, toll free at 1-800-633-2700 to open an account and
obtain an account or wire identification number.
Second, arrange with your bank to wire federal funds to the Fund's custodial
bank 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 0127-654-2
For credit to Keystone Institutional Small
Capitalization Growth Fund
Client Name and/or Account Number
Third, 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 fees 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.
If you have technical questions relating to the Fund's investment policies or
current strategy, or if you need 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
- --------------------------------------------------------------------------------
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
Signatures on written requests 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. The Fund and KIRC may waive this requirement or may require additional
documentation in certain cases.
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 an 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.
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 the Pricipal Underwriter
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 the Principal Underwriter 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 business 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 shareholder's bank account designated to receive redemption
proceeds must be made in an 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 the Principal Underwriter by writing to the
Principal Underwriter 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.
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PERFORMANCE DATA
- --------------------------------------------------------------------------------
From time to time, the Fund may discuss "total return" and "current yield."
ALL DATA IS BASED ON HISTORICAL RESULTS. PAST PERFORMANCE SHOULD NOT BE
CONSIDERED REPRESENTATIVE OF RESULTS FOR ANY FUTURE PERIOD OF TIME. Total
return refers to 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
- --------------------------------------------------------------------------------
The Trust currently issues shares of only one series of shares, 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 Trust's Declaration of 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 holders of 10% of the outstanding shares request a meeting for
the purpose of removing a Trustee. As prescribed by Section 16(c) of the 1940
Act, shareholders may be eligible for shareholder communication assistance in
connection with the special meeting.
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
- --------------------------------------------------------------------------------
When the Fund determines from its records that more than one account in the
Fund is registered in the name of a shareholder or shareholders having the
same address, upon written notice to those shareholders, the Fund intends,
when an annual report or semi-annual report of the Fund is required to be
furnished, to mail one copy of such report to that address.
Except as otherwise stated in this prospectus or required by law, the Fund
reserves the right to change the terms of the offer stated in this prospectus
without shareholder approval, including the right to impose or change fees for
services provided.
<PAGE>
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ADDITIONAL INVESTMENT INFORMATION
- --------------------------------------------------------------------------------
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.
REVERSE REPURCHASE AGREEMENTS
Under a reverse repurchase agreement, the Fund would sell securities and agree
to repurchase them at a mutually agreed upon date and price. The Fund intends
to enter into reverse repurchase agreements to avoid otherwise having to sell
securities during unfavorable market conditions in order to meet redemptions.
At the time the Fund enters into a reverse repurchase agreement, it will
establish a segregated account with the Fund's custodian containing liquid
assets such as U.S. government securities or other high grade debt securities
having a value not less than the repurchase price (including accrued interest)
and will subsequently monitor the account to ensure such value is maintained.
Reverse repurchase agreements involve the risk that the market value of the
securities that the Fund is obligated to repurchase may decline below the
repurchase price.
LOANS OF SECURITIES TO BROKER-DEALERS
The Fund may lend securities to brokers-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 one-third 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.
STOCK INDEX FUTURES
The Fund may purchase stock index futures as a means for increasing or
decreasing market exposure, but not for leverage, in furtherance of its
investment objective. Stock index futures are derivatives.
Derivatives - generally. 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. 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 objective 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 futures transactions, 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.
* Leverage Risk -- Since many derivatives have a leverage component, adverse
changes in the value or level of the underlying asset, rate or index can
result in a loss substantially greater than the amount invested in the
derivative itself. In the case of swaps, the risk of loss generally is related
to a notional principal amount, even if the parties have not made any initial
investment. Certain derivatives have the potential for unlimited loss,
regardless of the size of the initial investment.
* Other Risks -- Other risks in using derivatives include the risk of
mispricing or improper valuation and the inability of derivatives to correlate
perfectly with underlying assets, rates and indices. Many derivatives, in
particular privately negotiated derivatives, are complex and often valued
subjectively. Improper valuations can result in increased cash payment
requirements to counterparties or a loss of value to a Fund. Derivatives do
not always perfectly or even highly correlate or track the value of the
assets, rates or indices they are designed to closely track. Consequently, the
Fund's use of derivatives may not always be an effective means of, and
sometimes could be counterproductive to, furthering the Fund's investment
objective.
Futures Transactions. The Fund may enter into financial futures contracts
based on securities indices and may write options on such contracts. The Fund
intends to enter into such contracts and related options for hedging purposes.
The Fund may enter into other types of futures contracts that may become
available and relate to 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. A futures contract on a securities index does not involve
the actual delivery of securities, but merely requires the payment of a cash
settlement based on changes in the securities index. The Fund does not make
payment or deliver securities upon entering into a futures contract. Instead,
it puts down a margin deposit, which is adjusted to reflect changes in the
value of the contract and which continues until the contract is terminated.
The Fund will "cover" its futures contracts obligations by maintaining in a
segregated account with its custodian the securities 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 Fund's contract will tend to rise when the
value of the underlying securities declines and to fall when the value of such
securities increases. Thus, the Fund sells futures contracts in order to
offset a possible decline in the value of its securities. If a futures
contract is purchased by the Fund, the value of the contract will tend to rise
when the value of the underlying securities increases and to fall when the
value of such securities declines. The Fund intends to purchase futures
contracts in order to establish what is believed by Keystone to be a favorable
price and rate of return for securities the Fund intends to purchase.
The Fund also intends to purchase put and call options on futures contracts
for hedging purposes. A put option purchased by the Fund would give it the
right to assume a position as the seller of a futures contract. A call option
purchased by the Fund would give it the right to assume a position as the
purchaser of a futures contract. The purchase of an option on a futures
contract requires the Fund to pay a premium. In exchange for the premium, the
Fund becomes entitled to exercise the benefits, if any, provided by the
futures contract, but is not required to take any action under the contract.
If the option cannot be exercised profitably before it expires, the Fund's
loss will be limited to the amount of the premium and any transaction costs.
The Fund may enter into closing purchase and sale transactions in order to
terminate a futures contract and may sell put and call options for the purpose
of closing out its options positions. The Fund's ability to enter into closing
transactions depends on the development and maintenance of a liquid secondary
market. There is no assurance that a liquid secondary market will exist for
any particular contract or at any particular time. As a result, there can be
no assurance that the Fund will be able to enter into an offsetting
transaction with respect to a particular contract at a particular time. If the
Fund is not able to enter into an offsetting transaction, the Fund will
continue to be required to maintain the margin deposits on the contract and to
complete the contract according to its terms, in which case, it would continue
to bear market risk on the transaction.
Although futures and related options transactions are intended to enable the
Fund to manage market risk, unanticipated changes in market prices could
result in poorer performance than if it had not entered into these
transactions. Even if Keystone correctly predicts market 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. Keystone will attempt to
minimize these risks through careful selection and monitoring of the Fund's
futures and options positions.
The Fund does not intend to use futures transactions for speculation or
leverage. The Fund has the ability to write options on futures, but intends to
write such options only to close out options purchased by the Fund. The Fund
will not change these policies without supplementing the information in its
prospectus and statement of additional information.
<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
October 31, 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
October 31, 1996. A copy of the prospectus may be obtained from Fiduciary
Investment Company, Inc. ("FICO"), the Fund's principal underwriter, located at
200 Berkeley Street, Boston, Massachusetts, 02116-5034, or your broker-dealer.
TABLE OF CONTENTS
Page
Investment Objective and Policies 2
Investment Restrictions 2
Valuation of Securities 3
Distributions and Taxes 4
Declaration of Trust 6
Trustees and Officers 8
Investment Adviser 12
Principal Underwriter 15
Brokerage 17
Standardized Total Return 19
Additional Information 19
Financial Statements 22
Appendix A-1
INVESTMENT OBJECTIVE AND POLICIES
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 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.
INVESTMENT RESTRICTIONS
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 of the Fund's
outstanding voting shares(as defined in the Investment Company Act of 1940
("1940 Act") which means the lesser of (1) 67% of the shares represented at a
meeting at which more than 50% of the outstanding shares are represented or (2)
more than 50% of the outstanding shares). 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) engage in the business of underwriting securities issued by other
persons, except insofar as the Fund may be deemed to be an underwriter in
connection with the disposition of its portfolio investments;
(6) 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
(7) make loans, except that the Fund may (a) 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.
VALUATION OF SECURITIES
Current value 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;
(2) securities traded in the over-the-counter market, other than on NMS
are valued at the mean of the bid and asked prices at the time of valuation;
(3) short-term instruments maturing in more than sixty days for which
market quotations are readily available, are valued at current market value;
(4) short-term instruments maturing in sixty days or less (including
all master demand notes) are valued at amortized cost (original purchase cost as
adjusted for amortization of premium or accretion of discount), which, when
combined with accrued interest, approximates market;
(5) short-term instruments maturing in more than sixty days when
purchased that are held on the sixtieth day prior to maturity are valued at
amortized cost (market value on the sixtieth day adjusted for amortization of
premium or accretion of discount), which, when combined with accrued interest,
approximates market; and
(6) securities, including restricted securities, for which complete
quotations are not readily available; 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 other assets are valued at prices deemed in good
faith to be fair under procedures established by the Board of Trustees.
DISTRIBUTIONS AND TAXES
The Fund distributes to its shareholders dividends from net investment
income and net realized capital gains annually in shares or, at the option of
the shareholder, in cash. Distributions are taxable whether received in cash or
additional shares. (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.
DECLARATION OF TRUST
Massachusetts Business Trust
The Trust is a Massachusetts business trust established under a
Declaration of Trust dated November 30, 1995 (the "Declaration of Trust"). 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 is on file as an
exhibit to the Trust's Registration Statement, of which this statement of
additional information is a part. This summary is qualified in its entirety by
reference to the Declaration of Trust.
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/or class. Upon liquidation, shares are entitled to a pro rata share
of the Trust based on the relative net assets of each series and/or 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; (2) 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 (3) 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 that
adversely affects any class of shares without the approval of a majority of the
shares of that class. Shares have non-cumulative voting rights, which means that
the holders of more than 50% of the shares voting for the election of Trustees
can elect 100% of the Trustees to be elected at a meeting and, in such event,
the holders of the remaining 50% or less of the shares voting will not be able
to elect any Trustees.
After the initial meeting as described above, no further meetings of
shareholders for the purpose of electing Trustees will be held, unless required
by law, 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.
TRUSTEES AND OFFICERS
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
Trust; Chairman of the Board, President and Chief Executive Officer of
Keystone Investments, Keystone, Keystone Management, Inc. ("Keystone
Management") and Keystone Software, Inc. ("Keystone Software");
President, Chief Executive Officer and Trustee or Director of all other
funds in the Keystone Investments Family of Funds; Chairman of the
Board and Director of Keystone Institutional Company, Inc. ("Keystone
Institutional")and Keystone Fixed Income Advisors ("KFIA"); Director
and President of Keystone Asset Corporation, Keystone Capital
Corporation and Keystone Trust Company; Director of Keystone Investment
Distributors Company ("Keystone Distributors"), KIRC, and 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, Robert Van Partners, Inc.; and former Trustee of
Neworld Bank.
FREDERICK AMLING: Trustee of the Trust; Trustee or Director of all other funds
in the Keystone Investments Family of Funds; Pro fessor, Finance
Department, George Washington University; President, Amling & Company
(investment advice); and former Member, Board of Advisers, Credito
Emilano (banking).
CHARLES A. AUSTIN III: Trustee of the Trust; Trustee or Director of all other
funds in the Keystone Investments Family of Funds; Investment Counselor
to Appleton Partners, Inc.; and former Managing Director, Seaward
Management Corporation (in vestment advice).
*GEORGE S. BISSELL: Chairman of the Board and Trustee of the Trust; Chairman of
the Board and Trustee or Director of all other funds in the Keystone
Investments Family of Funds; Director of Keystone Investments; Chairman
of the Board and Trustee of Anatolia College; Trustee of University
Hospital (and Chairman of its Investment Committee); former Director
and Chairman of the Board of Hartwell Keystone; and former Chairman of
the Board and Chief Executive Officer of Keystone Investments.
EDWIN D. CAMPBELL: Trustee of the Trust; Trustee or Director of all other
funds in the Keystone Investments Family of Funds; Principal, Padanaram
Associates, Inc.; and former Executive Director, Coalition of Essential
Schools, Brown University.
CHARLES F. CHAPIN: Trustee of the Trust; Trustee or Director of all other funds
in the Keystone Investments Family of Funds; and former Director,
Peoples Bank (Charlotte, NC).
K. DUN GIFFORD: Trustee of the Trust; Trustee or Director of all other
funds in the Keystone Investments Family of Funds; Trustee, Treasurer,
and Chairman of the Finance Committee, Cambridge College; Chairman
Emeritus and Director, American Institute of Food and Wine; Chairman
and President, Oldways Preservation and Exchange Trust (education);
Former Chairman of the Board, Director, and Executive Vice President,
The London Harness Company; former Managing Partner, Roscommon Capital
Corp.; former Chief Executive Officer, Gifford Gifts of Fine Foods;
former Chairman, Gifford, Drescher & Associates (environmental
consulting); and former Director, Keystone Investments and Keystone.
LEROY KEITH, JR.: Trustee of the Trust; Trustee or Director of all other
funds in the Keystone Investments Family of Funds; Chairman of the
Board and Chief Executive Officer, Carson Products Company; Director of
Phoenix Total Return Fund and Equifax, Inc.; Trustee of Phoenix Series
Fund, Phoenix Multi- Portfolio Fund, and The Phoenix Big Edge Series
Fund; and former President, Morehouse College.
F. RAY KEYSER, JR.: Trustee of the Trust; Trustee or Director of all other
funds in the Keystone Investments Family of Funds; Chairman and Of
Counsel, Keyser, Crowley, Meub, Layden, Kulig & Sullivan P.C.; Member,
Governor's (VT) Council of Economic Advisers; Chairman of the Board and
Director, Central Vermont Public Service Corporation and Lahey
Hitchcock Clinic; Di rector, Vermont Yankee Nuclear Power Corporation,
Grand Trunk Corporation, Grand Trunk Western Railroad, Union Mutual
Fire Insurance Company, New England Guaranty Insurance Company, Inc.,
and the Investment Company Institute; former Director and President,
Associated Industries of Vermont; former Director of Keystone, Central
Vermont Railway, Inc., S.K.I. Ltd., and Arrow Financial Corp.; and
former Director and Chairman of the Board, Hitchcock Clinic, Proctor
Bank, and Green Mountain Bank.
DAVID M. RICHARDSON: Trustee of the Trust; Trustee or Director of all other
funds in the Keystone Investments Family of Funds; Vice Chair and
former Executive Vice President, DHR Interna tional, 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 Trust; Trustee or Director of all other funds
in the Keystone Investments Family of Funds; Chairman, Environmental
Warranty, Inc. (insurance agency); Executive Consultant, Drake Beam
Morin, Inc. (executive outplacement); Director of Connecticut Natural
Gas Corpora tion, Hartford Hospital, Old State House Association,
Middlesex Mutual Assurance Company, and Enhance Financial Services,
Inc.; Chairman, Board of Trustees, Hartford Graduate Center; Trustee,
Greater Hartford YMCA; former Director, Vice Chairman and Chief
Investment Officer, The Travelers Corporation; former Trustee,
Kingswood-Oxford School; and former Managing Director and Consultant,
Russell Miller, Inc.
ANDREW J. SIMONS: Trustee of the Trust; Trustee or Director of all other funds
in the Keystone Investments Family of Funds; Partner, Farrell, Fritz,
Caemmerer, Cleary, Barnosky & Armentano, P.C.; Adjunct Professor of Law
and former Associate Dean, St. John's University School of Law; Adjunct
Professor of Law, Touro College School of Law; and former President,
Nassau County Bar Association.
EDWARD F. GODFREY: Senior Vice President of the Trust; Senior Vice President
of all other funds in the Keystone Investments Family of Funds;
Director, Senior Vice President, Chief Financial Officer, and Treasurer
of Keystone Investments, the Keystone Distributors, Keystone Asset
Corporation, Keystone Capital Corporation, and Keystone Trust Company;
Treasurer of Keystone Institutional and FICO; Treasurer and Director of
Keystone Management and Keystone Software; Vice President and Treasurer
of KFIA; Director of KIRC; former Treasurer and Director of Hartwell
Keystone; and former Treasurer of Robert Van Partners, Inc.
JAMES R. McCALL: Senior Vice President of the Trust; Senior Vice President of
all other funds in the Keystone Investments Family of Funds; and
President of Keystone.
J. KEVIN KENELY: Treasurer of the Trust; Treasurer of all other funds in
the Keystone Investments Family of Funds; Vice President and former
Controller of Keystone Investments, Keystone, the Keystone
Distributors, FICO, and Keystone Software; and former Controller of
Keystone Asset Corporation and Keystone Capital Corporation.
ROSEMARY D. VAN ANTWERP: Senior Vice President and Secretary of the Trust;
Senior Vice President and Secretary of all other funds in the Keystone
Investments Family of Funds; Senior Vice President, General Counsel,
and Secretary of Keystone; Senior Vice President, General Counsel,
Secretary, and Director of the Keystone Distributors, Keystone
Management, and Keystone Software; Senior Vice President and General
Counsel of Keystone Institutional; Senior Vice President, General
Counsel, and Director of FICO and KIRC; Vice President and Secretary of
KFIA; Senior Vice President, General Counsel, and Secretary of Keystone
Investments, Keystone Asset Corporation, Keystone Capital Corporation,
and Keystone Trust Company; and former Senior Vice President and
Secretary of Hartwell Keystone and Robert Van Partners, Inc.
DONALD C. DATES: Vice President of the Fund; Vice President of certain other
funds in the Keystone Investments Family of Funds; and Senior Vice
President of Keystone.
* This Trustee may be considered an "interested person" of the Trust within the
meaning of the 1940 Act.
Mr. Elfner and Mr. Bissell are "interested persons" of the Trust by
virtue of their positions as officers and/or Directors of Keystone Investments
and several of its affiliates including Keystone, the Keystone Investment
Distributors Company and KIRC. Mr. Elfner and Mr. Bissell own shares of Keystone
Investments. Mr. Elfner is Chairman of the Board, Chief Executive Officer and a
Director of Keystone Investments. Mr. Bissell is a Director of Keystone
Investments.
During the fiscal period ended June 30, 1996, no Trustee affiliated
with Keystone or any other officer received any direct remuneration from the
Trust. During this same period, Independent Trustees received no retainers and
fees from the Trust. Aggregate compensation received by the Independent Trustees
from the funds in the Keystone Investments Family of Funds (which includes over
30 mutual funds) for the calendar year ended December 31, 1995 totaled
$450,716. As of September 30, 1996, the Trustees and officers beneficially owned
none 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.
INVESTMENT ADVISER
Subject to the general supervision of the Trust's Board of Trustees,
Keystone Investment Management Company ("Keystone") provides investment advice,
management and administrative services to the Fund. Keystone, organized in 1932,
is a wholly-owned subsidiary of Keystone Investments, Inc. ("Keystone
Investments"). Both Keystone and Keystone Investments are located at 200
Berkeley Street, Boston, Massachusetts 02116-5034.
Keystone Investments is a private corporation predominantly owned by
current and former members of management of Keystone and its affiliates. The
shares of Keystone Investments common stock beneficially owned by management are
held in a number of voting trusts, the trustees of which are George S. Bissell,
Albert H. Elfner, III, Edward F. Godfrey, and Ralph J. Spuehler, Jr., and
Rosemary D. Van Antwerp. 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 (the "Advisory Agreement"), 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 and all necessary office facilities, equipment and personnel in
connection with its services under the Advisory Agreement and shall 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 (i) custodian
charges and expenses; (ii) bookkeeping and auditors' charges and expenses; (iii)
transfer agent charges and expenses; (iv) fees of Trustees who are not
interested persons (as defined in the 1940 Act) of the Trust (the "Independent
Trustees"); (v) brokerage commissions, brokers' fees and expenses, and issue and
transfer taxes; (vi) taxes and trust fees payable to governmental agencies;
(vii) fees and expenses of the registration and qualification of the Fund and
its shares with the Commission or under state or other securities laws; (viii)
expenses of preparing, printing and mailing reports, prospectuses, statements of
additional information, notices, and proxy materials to shareholders of the
Fund; (ix) expenses of shareholders' and Trustees' meetings; (x) charges and
expenses of legal counsel for the Trust and for the Trustees of the Trust on
matters relating to the Fund; (xi) charges and expenses of filing annual and
other reports with the Commission and other authorities; and (xii) 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
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 payable daily.
During the period from December 28, 1995 (commencement of operations)
to June 30, 1996, the Fund paid or accrued to Keystone Management investment
management and administrative services fees of $9,209, which represented 0.80%
of the Fund's average net assets.
Until December 31, 1996, Keystone has voluntarily limited the expenses
of the Fund to 1.00% of the Fund's average daily net assets. After December 31,
1996, Keystone currently intends to continue the foregoing limitation on a
month-by-month basis. After December 31, 1996, Keystone may modify or terminate
the foregoing expense limitation. In accordance with the expense limitation in
effect for the period ended June 30, 1996, Keystone reimbursed the Fund $21,451.
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 vote of (i) the Board of Trustees or a majority of the outstanding
shares, and (ii) 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.
Keystone Investments has recently entered into an Agreement and Plan of
Acquisition and Merger with First Union Corporation ("First Union"), pursuant to
which Keystone Investments will be merged with and into a wholly-owned
subsidiary of First Union National Bank of North Carolina ("FUNB-NC")(the
"Merger"). The surviving corporation will assume the name "Keystone Investments,
Inc." Subject to a number of conditions being met, it is currently anticipated
that the Merger will take place on or around December 11, 1996. Thereafter,
Keystone Investments, Inc. would be a subsidiary of FUNB-NC.
If consummated, the Merger will be deemed to cause an assignment,
within the meaning of the 1940 Act, of the Advisory Agreement. Consequently, the
completion of the Merger is contingent upon, among other things, the approval of
the Fund's shareholders of a new investment advisory and management agreement
between the Trust and Keystone. The Trust's Trustees have approved the terms of
the new Advisory Agreement, subject to the approval of shareholders and the
completion of the Merger, and have called a special meeting of shareholders to
obtain their approval of, among other things, such agreement. The meeting is
expected to be held in December 1996. The proposed New Advisory Agreement has
terms, including investment advisory fees payable thereunder, that are
substantively identical to those in the current agreement.
PRINCIPAL UNDERWRITER
The Trust has entered into a Principal Underwriting Agreement with FICO
(the "Underwriting 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 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 Underwriting
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. FICO has also
agreed that it will indemnify and hold harmless the Trust, and each person who
has been, is or may be a Trustee or officer of the Trust, against expenses
reasonably incurred by any of them in connection with any claim, action, suit or
proceeding to which any of them may be a party, that arises out of or is alleged
to arise out of any misrepresentation or omission to state a material fact on
the part of 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 Underwriting Agreement provides that it will remain in effect until
December 13, 1997 and from year to year thereafter as long as its terms and
continuance are approved at least annually (i) by a majority of the Independent
Trustees cast in person at a meeting called for that purpose, and (ii) by vote
of a majority of Trustees or a majority of the outstanding shares of the Fund.
The Underwriting Agreement may be terminated, without penalty, on 60
days' written notice by the Trust or on 90 days' written notice by FICO. The
Underwriting Agreement will terminate automatically upon its "assignment" (as
that term is defined in the 1940 Act).
The Merger may also be deemed to cause an assignment, as defined by the
1940 Act, of the Underwriting Agreement between the Trust and FICO. As a result,
the Trust's Trustees have approved the following agreements, subject to the
completion of the Merger: (i) a principal underwriting agreement between
Evergreen Funds Distributor, Inc. ("EFD") and the Trust; (ii) a marketing
services agreement between FICO and EFD with respect to the Trust; and (iii) a
subadministration agreement between the Adviser and EFD with respect to the
Trust. EFD is a wholly-owned subsidiary of Furman Selz LLC. It is expected that
on or about January 2, 1997, Furman Selz LLC will transfer EFD, and Furman
Selz's related services, to BISYS Group, Inc. ("BISYS") (the "Transfer"). The
Trust's Trustees have also approved, subject to completion of the Transfer: (i)
a new principal underwriting agreement with EFD and the Trust; (ii) a new
marketing services agreement between FICO and EFD with respect to the Trust; and
(iii) a subadministration agreement between Keystone and BISYS with respect to
the Trust. The terms of such agreements will be substantively identical to the
terms of the agreements to be executed upon completion of the Merger.
BROKERAGE
It is the policy of Keystone, in effecting transactions in portfolio
securities for the Fund, 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
broker's ability to effect the transaction at all where a large block is
involved; the availability of the broker to stand ready to execute potentially
difficult transactions in the future; and the financial strength and stability
of the broker. Such considerations are weighed by management in determining the
overall reasonableness of brokerage commissions paid.
Subject to the foregoing, a factor in the selection of brokers is the
receipt of research services, such as analyses and reports concerning issuers,
industries, securities, economic factors and trends 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 that 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 Fund's policy 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. Although in some cases this system could have a detrimental
effect on the price or volume of the Fund portfolio securities, in other cases,
the Fund believes that its ability to participate in volume transactions will
produce better executions for the Fund.
In no instance are portfolio securities purchased from or sold to
Keystone, FICO or any of their affiliated persons, as defined in the 1940 Act
and rules and regulations issued thereunder.
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.
The average annual rate of return for the Fund for the period of
December 28, 1995 (commencement of operations) to June 30, 1996 was 16.50%.
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 record keeping on behalf of the Fund.
KPMG Peat Marwick LLP, located at 99 High Street, Boston, Massachusetts
02110, Certified Public Accountants, are the independent auditors for the Fund.
Keystone Investor Resource Center, Inc., located at 200 Berkeley
Street, Boston, Massachusetts 02116-5034, is a wholly-owned subsidiary of
Keystone and is the Trust's transfer agent and dividend disbursing agent.
As of September 30, 1996, the Board of Trustees of Sheet Metal Workers
Local No. 85 Pension Fund, 3835 Presidential Parkway, Suite 123, Atlanta, GA
30340-3723 owned 95.238% of the outstanding shares of the Fund.
Except as otherwise stated in its prospectus or required by law, the
Fund reserves the right to change the terms of the offer stated in its
prospectus without shareholder approval, including the right to impose or change
fees for services provided.
No 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 FICO. 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
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.
FINANCIAL STATEMENTS
The following financial statements of the Fund are incorporated by
reference herein from the Fund's Annual Report, as filed with the Commission on
October 24, 1996:
Schedule of Investments and Statement of Assets and Liabilities as of
June 30, 1996;
Statement of Operations, Statement of Changes in Net Assets and
Financial Highlights for the period from December 28, 1995
(Commencement of Operations) to June 30, 1996;
Notes to Financial Statements; and
Independent Auditor's Report dated July 26, 1996.
A copy of the Fund's Annual Report will be furnished upon request and
without charge. Requests may be made in writing to Keystone Investor Resource
Center, P.O. Box 2121, Boston, Massachusetts 02106-2121, or by calling Keystone
Investor Resource Center toll-free at 1-800-343-2898.
<PAGE>
A - 1
APPENDIX
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 instrumental-ities 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.
FUTURES CONTRACTS AND RELATED OPTIONS TRANSACTIONS
The Fund intends to enter into 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 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 securities prices, and
purchases of futures as an offset against the effect of expected declines in
securities prices.
For example, when the Fund anticipates a significant market or market
sector advance, it will purchase a stock index futures contract as a hedge
against not participating in such advance at a time when the Fund is not fully
invested. The purchase of a futures contract serves as a temporary substitute
for the purchase of individual securities which may then be purchased in an
orderly fashion. As such purchases are made, an equivalent amount of index based
futures contracts would be terminated by offsetting sales. In contrast, the Fund
would sell stock index futures contracts in anticipation of or in a general
market or market sector decline that may adversely affect the market value of
the Fund's portfolio. To the extent that the Fund's portfolio changes in value
in correlation with a given index, the sale of futures contracts on that index
would substantially reduce the risk to the portfolio of a market decline and, by
doing so, provide an alternative to the liquidation of the Fund's securities
positions and the resulting transaction costs.
The Fund intends to engage in options transactions which are related to
financial futures contracts for the 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
market fluctuations, the Fund may be able to hedge its exposure more effectively
and perhaps at a lower cost through using futures contracts and related options
transactions. While the Fund does not intend to take delivery of the instruments
underlying futures contracts it holds, the Fund does not intend to engage in
such futures contracts for speculation.
Futures Contracts
Futures contracts are transactions in the commodities markets rather
than in the securities markets. A futures contract creates an obligation by the
seller to deliver to the buyer the commodity specified in the contract at a
specified future time for a specified price. The futures contract creates an
obligation by the buyer to accept delivery from the seller of the commodity
specified at the specified future time for the specified price. In contrast, a
spot transaction creates an immediate obligation for the seller to deliver and
the buyer to accept delivery of and pay for an identified commodity. In general,
futures contracts involve transactions in fungible goods such as wheat, coffee
and soybeans. However, in the last decade an increasing number of futures
contracts have been developed which specify financial instruments or financially
based indexes as the underlying commodity.
U.S. futures contracts are traded only on national futures exchanges
and are standardized as to maturity date and underlying financial instrument.
The principal financial futures exchanges in the United States are The Board of
Trade of the City of Chicago, the Chicago Mercantile Exchange, the International
Monetary Market (a division of the Chicago Mercantile Exchange), the New York
Futures Exchange and the Kansas City Board of Trade. Each exchange guarantees
performance under contract provisions through a clearing corporation, a
nonprofit organization managed by the exchange membership, which is also
responsible for handling daily accounting of deposits or withdrawals of margin.
A futures commission merchant (Broker) effects each transaction in connection
with futures contracts for a commission. Futures exchanges and trading are
regulated under the Commodity Exchange Act by the Commodity Futures Trading
Commission (CFTC) and National Futures Association (NFA).
Stock Index Futures Contracts
A stock index assigns relative values to the common stocks included in
the index. The index fluctuates with changes in the market values of the common
stocks so included. A stock index futures contract is a bilateral agreement by
which two parties agree to take or make delivery of an amount of cash equal to a
specified dollar amount times the difference between the closing value of the
stock index on the expiration date of the contract and the price at which the
futures contract is originally made. No physical delivery of the underlying
stocks in the index is made.
Currently, stock index futures contracts can be purchased or sold on
the Standard and Poor's Corporation (S&P) Index of 500 Stocks, the S&P Index of
100 Stocks, the New York Stock Exchange Composite Index, the Value Line Index
and the Major Market Index. It is expected that futures contracts trading in
additional stock indices will be authorized. The standard contract size is $500
times the value of the index.
The Fund does not believe that differences between existing stock
indices will create any differences in the price movements of the stock index
futures contracts in relation to the movements in such indices. However, such
differences in the indices may result in differences in correlation of the
futures with movements in the value of the securities being hedged.
The purchase or sale of a futures contract differs from the purchase or
sale of a security, in that no price or premium is paid or received. Instead, to
initiate trading an amount of cash, cash equivalents, money market instruments,
or U.S. Treasury bills equal to approximately 1 1/2% (up to 5%) of the contract
amount must be deposited by the Fund with the Broker. This amount is known as
initial margin. The nature of initial margin in futures transactions is
different from that of margin in security transactions. Futures contract margin
does not involve the borrowing of funds by the customer to finance the
transactions. Rather, the initial margin is in the nature of a performance bond
or good faith deposit on the contract which is returned to the Fund upon
termination of the futures contract assuming all contractual obligations have
been satisfied. The margin required for a particular futures contract is set by
the exchange on which the contract is traded, and may be significantly modified
from time to time by the exchange during the term of the contract.
Subsequent payments, called variation margin, to the Broker and from
the Broker, are made on a daily basis as the value of the underlying instrument
or index fluctuates, making the long and short positions in the futures contract
more or less valuable, a process known as mark-to-market. For example, when the
Fund has purchased a futures contract and the price of the underlying financial
instrument or index has risen, that position will have increased in value and
the Fund will receive from the Broker a variation margin payment equal to that
increase in value. Conversely, where the Fund has purchased a futures contract
and the price of the underlying financial instrument or index has declined, the
position would be less valuable and the Fund would be required to make a
variation margin payment to the Broker. At any time prior to expiration of the
futures contract, the Fund may elect to close the position. A final
determination of variation margin is then made, additional cash is required to
be paid to or released by the Broker, and the Fund realizes a loss or gain.
The Fund intends to enter into arrangements with its custodian and with
Brokers to enable its initial margin and any variation margin to be held in a
segregated account by its custodian on behalf of the Broker.
Although interest rate futures contracts by their terms call for actual
delivery or acceptance of financial instruments and index based futures
contracts call for the delivery of cash equal to the difference between the
closing value of the index on the expiration date of the contract and the price
at which the futures contract is originally made, in most cases such futures
contracts are closed out before the settlement date without the making or taking
of delivery. Closing out a futures contract sale is effected by an offsetting
transaction in which the Fund enters into a futures contract purchase for the
same aggregate amount of the specific type of financial instrument or index and
same delivery date. If the price in the sale exceeds the price in the offsetting
purchase, the Fund is paid the difference and thus realizes a gain. If the
offsetting purchase price exceeds the sale price, the Fund pays the difference
and realizes a loss. Similarly, the closing out of a futures contract purchase
is effected by an offsetting transaction in which the Fund enters into a futures
contract sale. If the offsetting sale price exceeds the purchase price, the Fund
realizes a gain. If the purchase price exceeds the offsetting sale price the
Fund realizes a loss. The amount of the Fund's gain or loss on any transaction
is reduced or increased, respectively, by the amount of any transaction costs
incurred by the Fund.
As an example of an offsetting transaction, the contractual obligations
arising from the sale of one contract of September U.S. Treasury bills on an
exchange may be fulfilled at any time before delivery of the contract is
required (i.e. on a specified date in September, the "delivery month") by the
purchase of one contract of September U.S. Treasury bills on the same exchange.
In such instance the difference between the price at which the futures contract
was sold and the price paid for the offsetting purchase after allowance for
transaction costs, represents the profit or loss to the Fund.
There can be no assurance, however, that the Fund will be able to enter
into an offsetting transaction with respect to a particular contract at a
particular time. If the Fund is not able to enter into an offsetting
transaction, the Fund will continue to be required to maintain the margin
deposits on the contract and to complete the contract according to its terms.
Options on Financial Futures
The Fund intends to purchase call and put options on financial futures
contracts and sell such options to terminate an existing position. Options on
financial futures contracts are similar to options on stocks except that an
option on a 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 instruments making up a financial futures index,
at a specified exercise price at any time during the period of the option. Upon
exercise of the option, the delivery of the futures position by the writer of
the option to the holder of the option will be accompanied by delivery of the
accumulated balance in the writer's futures margin account. This amount
represents the amount by which the market price of the futures contract at
exercise exceeds, in the case of a call, or is less than, in the case of a put,
the exercise price of the option on the futures contract. If an option is
exercised on the last trading day prior to the expiration date of the option,
the settlement will be made entirely in cash equal to the difference between the
exercise price of the option and value of the futures contract.
The Fund intends to use options on 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 analagous to the purchase of protective puts on individual stocks, where an
absolute level of protection is sought below which no additional economic loss
would be incurred by the Fund. Put options may be purchased to hedge a portfolio
of stocks or debt instruments or a position in the futures contract upon which
the put option is based.
Purchase of Call Options on Futures Contracts
The purchase of a call option on a financial futures contract
represents a means of obtaining temporary exposure to market appreciation at
limited risk. It is analogous to the purchase of a call option on an individual
stock, which can be used as a substitute for a position in the stock itself.
Depending on the pricing of the option compared to either the futures contract
upon which it is based, or upon the price of the underlying financial instrument
or index itself, purchase of a call option may be less risky than the ownership
of the index based futures contract or the underlying securities. Call options
on 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 Financial Futures Contracts
or Related Options
The Fund may employ new investment techniques involving 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 herein.
Limitations on Purchase and Sale of Futures Contracts and Related
Options on Such Futures Contracts
The Fund will not enter into a futures contract if, as a result
thereof, more than 5% of the Fund's total assets (taken at market value at the
time of entering into the contract) would be committed to margin deposits on
such futures contracts.
The Fund intends that its futures contracts and related options
transactions will be entered into for traditional hedging purposes. That is,
futures contracts will be sold to protect against a decline in the price of
securities that the Fund owns, or futures contracts will be purchased to protect
the Fund against an increase in the price of securities it intends to purchase.
The Fund does not intend to enter into futures contracts for speculation.
<PAGE>
KEYSTONE INSTITUTIONAL TRUST
KEYSTONE INSTITUTIONAL SMALL CAPITALIZATION GROWTH FUND
PART C
OTHER INFORMATION
Item 24. Financial Statements and Exhibits
Item 24(a). The following financial statements are hereby incorporated by
reference from Registrant's Annual Report, as filed with the
Securities and Exchange Commission on October 24, 1996.
Schedule of Investments June 30, 1996
Financial Highlights For the period
from December 28,
1995 (commencement
of operations) to
June 30, 1996
Statement of Assets and Liabilities June 30, 1996
Statement of Operations For the period
from December 28,
1995 (commencement
of operations) to
June 30, 1996
Statement of Changes in Net Assets For the period
from December 28,
1995 (commencement
of operations) to
June 30, 1996
Notes to Financial Statements
Independent Auditors' Report July 26, 1996
<PAGE>
(24)(b) Exhibits
(1) Registrant's Declaration of Trust (1).
(2) Registrant's By-Laws (1).
(3) Not applicable.
(4) (A) Registrant's Declaration of Trust, Articles III, V, VI, and VIII (1).
(B) Registrant's By-Laws, Article 2., Section 2.5 (1).
(5) Investment Management and Advisory Agreement between Registrant and
Keystone Investment Management Company (2).
(6) Principal Underwriting Agreement between Registrant and Fidiciary
Investment Company, Inc. (2).
(7) Not applicable.
(8) Custodian, Fund Accounting and Recordkeeping Agreement between Registrant
and State Street Bank and Trust Company (2).
(9) Not applicable.
(10) Opinion of counsel as to the legality of the shares being registered was
filed with Registrant's 24f-2 Notice for the fiscal period ended June 30,
1996 that was filed on August 26, 1996 and is incorporated by reference
herein.
(11) Consent as to use of Registrant's Independent Auditors' Report(2).
(12) Not applicable.
(13) Subscription Agreement between Registrant and Keystone Investment
Management Company (1).
(14) Not applicable.
(15) Not applicable.
(16) Schedules for computation of performance quotations (2).
(17) Financial Data Schedule (2).
(18) Not applicable.
(19) Powers of Attorney (2).
- ---------------------------------
(1) Filed with Pre-Effective Amendment No. 2 to Registration Statement
811-07441/33-64781 ("Pre-Effective Amendment No. 2") and incorporated
by reference herein.
(2) Filed herewith.
<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 September 30, 1996
-------------- ------------------------
Shares of Beneficial 2
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 which was filed with Pre-Effective Amendment No. 2 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 which is filed herewith.
Provisions for the indemnification of Keystone Investment Management
Company, Registrant's investment adviser, are contained in Section 5 of the
Investment Advisory and Management Agreement between Registrant and Keystone
Investment Management Company, a copy of which is filed herewith.
<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.
LIST OF OFFICERS AND DIRECTORS OF
KEYSTONE INVESTMENT MANAGEMENT COMPANY
Position with
Keystone Other
Investment Business
Name Management Company Affiliations
- ---- ------------------ ------------
Albert H. Chairman of Chairman of the Board,
Elfner, III the Board, Chief Executive Officer,
Chief Executive President and Director:
Officer,and Keystone Investments,Inc.
Director Keystone Management,Inc.
Keystone Software, Inc.
Keystone Asset Corporation
Keystone Capital Corporation
Chairman of the Board and
Director:
Keystone Fixed Income
Advisers, Inc.
Keystone Institutional
Company, Inc.
President and Director:
Keystone Trust Company
Director or Trustee:
Fiduciary Investment
Company, Inc.
Keystone Investment
Distributors Company
Keystone Investor
Resource Center, Inc.
Boston Children's
Services Associates
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.
Herbert L. Senior Vice None
Bishop, Jr. President
Donald C. Dates Senior Vice None
President
<PAGE>
Position with
Keystone Other
Investment Business
Name Management Company Affiliations
- ---- ------------------ ------------
Gilman Gunn Senior Vice None
President
Edward F. Director, Director, Senior Vice
Godfrey Senior Vice President
President, Chief Financial Officer and
Treasurer and Treasurer:
Chief Financial Keystone Investments, Inc.
Officer Keystone Investment
Distributors Company
Treasurer:
Keystone Institutional
Company, Inc.
Keystone Management, Inc.
Keystone Software, Inc.
Fiduciary Investment
Company, Inc.
Former Treasurer and
Director:
Hartwell Keystone
Advisers, Inc.
James R. McCall Director and None
President
Ralph J. Director President and Director:
Spuehler, Jr. Keystone Investment
Distributors Company
Senior Vice President and
Director:
Keystone Investments, Inc.
Chairman and Director:
Keystone Investor
Resource Center, Inc.
Keystone Management, Inc.
Formerly President:
Keystone Management, Inc.
Formerly Treasurer:
Keystone Investments, Inc.
Keystone Investment
Management Company
<PAGE>
Position with
Keystone Other
Investment Business
Name Management Company Affiliations
- ---- ------------------ ------------
Rosemary D. Senior Vice General Counsel, Senior
Van Antwerp President, Vice President and
General Counsel Secretary:
and Secretary Keystone Investments, Inc.
Senior Vice President and
General Counsel:
Keystone Institutional
Company, Inc.
Senior Vice President,
General Counsel and
Director:
Keystone Investor
Resource Center, Inc.
Fiduciary Investment
Company, Inc.
Keystone Investment
Distributors Company
Senior Vice President,
General Counsel, Director
and Secretary:
Keystone Management, Inc.
Keystone Software, Inc.
Former Senior Vice
President and Secretary:
Hartwell Keystone
Advisers, Inc.
Vice President and Secretary:
Keystone Fixed Income
Advisers, Inc.
J. Kevin Kenely Vice President Vice President:
Keystone Investments, Inc.
Keystone Investment
Distributors Company
Keystone Institutional
Company, Inc.
Keystone Management, Inc.
Keystone Software, Inc.
Fiduciary Investment
Company, Inc.
Formerly Controller:
Keystone Investments, Inc.
Keystone Investment
Management Company
Keystone Investment
Distributors Company
Keystone Institutional
Company, Inc.
Keystone Management, Inc.
Keystone Software, Inc.
Fiduciary Investment
Company, Inc.
John D. Rogol Vice President Vice President and
and Controller Controller:
Keystone Investments, Inc.
Keystone Invesmtent
Distributors Company
Keystone Institutional
Company, Inc.
Keystone Management, Inc.
<PAGE>
Position with
Keystone Other
Investment Business
Name Management Company Affiliations
- ---- ------------------ ------------
John D. Rogol (con't) Keystone Software, Inc.
Fiduciary Investment
Company, Inc.
Controller:
Keystone Asset Corporation
Keystone Capital Corporation
Robert K. Vice President None
Baumback
Betsy A. Blacher Senior Vice None
President
Francis X. Claro Vice President None
Kristine R. Vice President None
Cloyes
Christopher P. Senior Vice None
Conkey President
Richard Cryan Senior Vice None
President
Maureen E. Senior Vice None
Cullinane President
George E. Dlugos Vice President None
Antonio T. Docal Vice President None
Sami J. Karam Vice President None
George J. Kimball Vice President None
JoAnn L. Lyndon Vice President None
John C. Vice President None
Madden, Jr.
Stephen A. Marks Vice President None
Eleanor H. Marsh Vice President None
Walter T. Senior Vice None
McCormick President
Stanley M. Niksa Vice President None
Robert E. O'Brien Vice President None
Margery C. Parker Vice President None
William H. Vice President None
Parsons
Daniel A. Rabasco Vice President None
Kathy K. Wang Vice President None
Judith A. Warners Vice President None
Joseph J. Asst. Vice None
Decristofaro President
<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 Treasurer
John D. Rogol Vice President and None
Controller
The business address of the persons listed above is 200 Berkeley
Street, Boston, Massachusetts 02116-5034.
<PAGE>
Item 30. Location of Accounts and Records
Keystone Investments, Inc.
200 Berkeley Street
Boston, Massachusetts 02116-5034
State Street Bank and Trust Company
1776 Heritage Drive
Quincy, Massachusetts 02171
Iron Mountain
3431 Sharp Slot Road
Swansea, Massachusetts 02777
Item 31. Management Services
Not applicable.
Item 32. Undertakings
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 meets all of
the requirements for effectiveness of this Amendment to its Registration
Statement purstuant to Rule 485(b) under the Securities Act of 1933 and has duly
caused this Registration Statement to be signed on its behalf by the
undersigned, thereto duly authorized, in the City of Boston, in The
Commonwealth of Massachusetts, on the 29th day of October, 1996.
KEYSTONE INSTITUTIONAL TRUST
Keystone Institutional Small
Capitalization Growth Fund
By: /s/Rosemary D. Van Antwerp
------------------------
Rosemary D. Van Antwerp
Senior Vice President and Secretary
Pursuant to the requirements of the Securities Act of 1933, this Registration
Statement has been signed below by the following persons in the capacities
indicated on the 29th day of October, 1996.
SIGNATURES TITLE
- ---------- -----
/s/ George S. Bissell Chairman of the Board and Trustee
- --------------------------
George S. Bissell*
/s/ Albert H. Elfner, III Chief Executive Officer, President
- -------------------------- and Trustee
Albert H. Elfner, III*
/s/ J. Kevin Kenely Treasurer (Principal Financial
- -------------------------- and Accounting Officer)
J. Kevin Kenely*
*By /s/ James M. Wall
--------------------------
James M. Wall**
Attorney-in-Fact
<PAGE>
/s/ Frederick Amling Trustee
- --------------------------
Frederick Amling*
/s/ Charles A. Austin, III Trustee
- --------------------------
Charles A. Austin, III*
/s/ Edwin D. Campbell Trustee
- --------------------------
Edwin D. Campbell*
/s/ Charles F. Chapin Trustee
- --------------------------
Charles F. Chapin*
/s/ K. Dun Gifford Trustee
- --------------------------
K. Dun Gifford*
/s/ Leroy Keith, Jr. Trustee
- --------------------------
Leroy Keith, Jr.*
/s/ F. Ray Keyser, Jr. Trustee
- --------------------------
F. Ray Keyser, Jr.*
/s/ David M. Richardson Trustee
- --------------------------
David M. Richardson*
/s/ Richard J. Shima Trustee
- --------------------------
Richard J. Shima*
/s/ Andrew J. Simons Trustee
- --------------------------
Andrew J. Simons*
*By /s/ James M. Wall
--------------------------
James M. Wall**
Attorney-in-Fact
** James M. Wall, by signing his name hereto, does hereby sign this document
on behalf of each of the above-named individuals pursuant to powers of attorney
duly executed by such persons and attached hereto as Exhibit 24(b)(19).
<PAGE>
INDEX TO EXHIBITS
Exhibit Number Exhibit
- -------------- ------------
1 Declaration of Trust1
2 By-Laws1
5 Investment Advisory and
Management Agreement
6 Principal Underwriting Agreement
8 Custodian, Trust Accounting
and Recordkeeping Agreement
10 Opinion and Consent of Counsel2
11 Consent of Independent Auditors
13 Subscription Agreement
16 Schedules for computation of performance quotations2
17 Financial Data Schedule (Filed as Exhibit 27)
19 Powers of Attorney
- ------------------
1 Filed with Pre-Effective Amendment No. 2 and incorporated by reference
herein.
2 Filed with Registrant's 24f-2 Notice for fiscal period ended
June 30, 1996.
<PAGE>
EXHIBIT 99.5
KEYSTONE INSTITUTIONAL TRUST
INVESTMENT ADVISORY AND MANAGEMENT AGREEMENT
AGREEMENT made the 13th day of December 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 and payable daily.
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.
IN WITNESS WHEREOF, the parties hereto have duly executed this Agreement on
the day and year first above written.
KEYSTONE INSTITUTIONAL TRUST
By:/s/ Albert H. Elfner, III
------------------------------------
Albert H. Elfner, III
President and chief Executive Officer
KEYSTONE INVESTMENT MANAGEMENT COMPANY
By:/s/ James R. McCall
------------------------------------
James R. McCall
President
<PAGE>
SCHEDULE A
KEYSTONE INSTITUTIONAL TRUST
KEYSTONE INSTITUTIONAL SMALL CAPITALIZATION GROWTH FUND pays Keystone a fee for
its services at the annual rate set forth below:
Annual Aggregate Net Asset Value
Management Fee of the Shares of the Fund
- -------------- --------------------------
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.
<PAGE>
EXHIBIT 99.6
KEYSTONE INSTITUTIONAL TRUST
PRINCIPAL UNDERWRITING AGREEMENT
AGREEMENT made as of this 13th day of December, 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:/s/ Albert H. Elfner, III
----------------------------------------
Title: Chief Executive Officer and
President
FIDUCIARY INVESTMENT COMPANY, INC.
By:/s/ Ralph J. Spuehler, Jr.
----------------------------------------
Title: President
<PAGE>
EXHIBIT 99.8
CUSTODIAN, FUND ACCOUNTING AND RECORDKEEPING AGREEMENT
BY AND BETWEEN
KEYSTONE INSTITUTIONAL TRUST
AND
STATE STREET BANK AND TRUST COMPANY
Agreement made as of this 13th 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.
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:/s/ Albert H. Elfner, III
--------------------------------
Albert H. Elfner, III
President and Chief
Executive Officer
ATTEST: STATE STREET BANK AND TRUST COMPANY
By:/s/ Ronald E. Logue
--------------------------------
Name: Ronald E. Logue
Title: Executive Vice President
<PAGE>
***SEE State Street Fee Schedule for Fees
EXHIBIT 99.11
CONSENT OF INDEPENDENT AUDITORS
The Trustees and Shareholders
Keystone Institutional Trust
Keystone Institutional Small Capitalization Growth Fund
We consent to the use of our report dated July 26, 1996 incorporated by
reference herein and to the reference to our firm under the caption "Financial
Highlights" in the prospectus.
/s/ KPMG Peat Marwick LLP
KPMG Peat Marwick LLP
Boston, Massachusetts
October 29, 1996
<TABLE>
<CAPTION>
INSTITUTIONAL SMALL CAP MTD YTD ONE YEAR THREE YEAR THREE YEAR FIVE YEAR FIVE YEAR TEN YEAR TEN YEAR
28-Jun-96 TOTAL RETURN COMPOUNDED TOTAL RETURN COMPOUNDED TOTAL RETURN COMPOUNDED
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
no load -4.81% 14.80% 14.80% 14.80% 31.20% 14.80% 31.20% 14.80% 31.20%
Beg dates 31-May-96 29-Dec-95 29-Dec-95 29-Dec-95 29-Dec-95 29-Dec-95 9-Dec-95 29-Dec-95 29-Dec-95
Beg Value (no load) 12,060 10,000 10,000 10,000 10,000 10,000 10,000 10,000 10,000
End Value 11,480 11,480 11,480 11,480 11,480 11,480 11,480 11,480 11,480
TIME 0.51 0.51 0.51
INCEPTION DATE 28-Dec-95
Compound Total Return Time Period: beginning 12/28/95
Through 06/28/96
# Months # Years
1995 From Inception * 0.100
1996 6
6.100 0.508
</TABLE>
<PAGE>
Exhibit 24(b)(19)
POWER OF ATTORNEY
I, the undersigned, hereby constitute Roger T. Wickers, Rosemary D. Van
Antwerp, Jean S. Loewenberg, Dorothy E. Bourassa, James M. Wall and Melina M. T.
Murphy, each of them singly, my true and lawful attorneys, with full power to
them and each of them to sign for me and in my name in the capacity indicated
below any and all registration statements, including, but not limited to, Forms
N-8A, N-8B-1, S-5, N-1 and N-1A, as amended from time to time, and any and all
amendments thereto to be filed with the Securities and Exchange Commission for
the purpose of registering from time to time all investment companies of which I
am now or hereafter a Director or Trustee and/or Chairman of the Board and Chief
Executive Officer and for which Keystone Custodian Funds, Inc. serves as Adviser
or Manager and registering from time to time the shares of such companies, and
generally to do all such things in my name and in my behalf to enable such
investment companies to comply with the provisions of the Securities Act of
1933, as amended, the Investment Company Act of 1940, as amended, and all
requirements and regulations of the Securities and Exchange Commission
thereunder, hereby ratifying and confirming my signature as it may be signed by
my said attorneys to any and all registration statements and amendments thereto.
/s/ George S. Bissell
George S. Bissell
Director/Trustee,
Chairman of the Board
Dated: December 14, 1994
<PAGE>
POWER OF ATTORNEY
I, the undersigned, hereby constitute Roger T. Wickers, Rosemary D. Van
Antwerp, Jean S. Loewenberg, Dorothy E. Bourassa, James M. Wall and Melina M. T.
Murphy, each of them singly, my true and lawful attorneys, with full power to
them and each of them to sign for me and in my name in the capacity indicated
below any and all registration statements, including, but not limited to, Forms
N-8A, N-8B-1, S-5, N-1 and N-1A, as amended from time to time, and any and all
amendments thereto to be filed with the Securities and Exchange Commission for
the purpose of registering from time to time all investment companies of which I
am now or hereafter a Director or Trustee and/or Chief Executive Officer and for
which Keystone Custodian Funds, Inc. serves as Adviser or Manager and
registering from time to time the shares of such companies, and generally to do
all such things in my name and in my behalf to enable such investment companies
to comply with the provisions of the Securities Act of 1933, as amended, the
Investment Company Act of 1940, as amended, and all requirements and regulations
of the Securities and Exchange Commission thereunder, hereby ratifying and
confirming my signature as it may be signed by my said attorneys to any and all
registration statements and amendments thereto.
/s/ Albert H. Elfner, III
Albert H. Elfner, III
Director/Trustee,
President and Chief
Executive Officer
Dated: December 14, 1994
<PAGE>
POWER OF ATTORNEY
I, the undersigned, hereby constitute Rosemary D. Van Antwerp, Jean S.
Loewenberg, Dorothy E. Bourassa, James M. Wall and Melina M. T. Murphy, each of
them singly, my true and lawful attorneys, with full power to them and each of
them to sign for me and in my name in the capacity indicated below any and all
registration statements, including, but not limited to, Forms N-8A, N-8B-1, S-5,
N-1 and N-1A, as amended from time to time, and any and all amendments thereto
to be filed with the Securities and Exchange Commission for the purpose of
registering from time to time all investment companies of which I am now or
hereafter a Director, Trustee or officer and for which Keystone Investment
Management Company serves as Adviser or Manager and registering from time to
time the shares of such companies, and generally to do all such things in my
name and in my behalf to enable such investment companies to comply with the
provisions of the Securities Act of 1933, as amended, the Investment Company Act
of 1940, as amended, and all requirements and regulations of the Securities and
Exchange Commission thereunder, hereby ratifying and confirming my signature as
it may be signed by my said attorneys to any and all registration statements and
amendments thereto.
/s/ J. Kevin Kenely
J. Kevin Kenely
Treasurer
Dated: December 15, 1995
<PAGE>
POWER OF ATTORNEY
I, the undersigned, hereby constitute Roger T. Wickers, Rosemary D. Van
Antwerp, Jean S. Loewenberg, Dorothy E. Bourassa, James M. Wall and Melina M. T.
Murphy, each of them singly, my true and lawful attorneys, with full power to
them and each of them to sign for me and in my name in the capacity indicated
below any and all registration statements, including, but not limited to, Forms
N-8A, N-8B-1, S-5, N-1 and N-1A, as amended from time to time, and any and all
amendments thereto to be filed with the Securities and Exchange Commission for
the purpose of registering from time to time all investment companies of which I
am now or hereafter a Director or Trustee and for which Keystone Custodian
Funds, Inc. serves as Adviser or Manager and registering from time to time the
shares of such companies, and generally to do all such things in my name and in
my behalf to enable such investment companies to comply with the provisions of
the Securities Act of 1933, as amended, the Investment Company Act of 1940, as
amended, and all requirements and regulations of the Securities and Exchange
Commission thereunder, hereby ratifying and confirming my signature as it may be
signed by my said attorneys to any and all registration statements and
amendments thereto.
/s/ Frederick Amling
Frederick Amling
Director/Trustee
Dated: December 14, 1994
<PAGE>
POWER OF ATTORNEY
I, the undersigned, hereby constitute Roger T. Wickers, Rosemary D. Van
Antwerp, Jean S. Loewenberg, Dorothy E. Bourassa, James M. Wall and Melina M. T.
Murphy, each of them singly, my true and lawful attorneys, with full power to
them and each of them to sign for me and in my name in the capacity indicated
below any and all registration statements, including, but not limited to, Forms
N-8A, N-8B-1, S-5, N-1 and N-1A, as amended from time to time, and any and all
amendments thereto to be filed with the Securities and Exchange Commission for
the purpose of registering from time to time all investment companies of which I
am now or hereafter a Director or Trustee and for which Keystone Custodian
Funds, Inc. serves as Adviser or Manager and registering from time to time the
shares of such companies, and generally to do all such things in my name and in
my behalf to enable such investment companies to comply with the provisions of
the Securities Act of 1933, as amended, the Investment Company Act of 1940, as
amended, and all requirements and regulations of the Securities and Exchange
Commission thereunder, hereby ratifying and confirming my signature as it may be
signed by my said attorneys to any and all registration statements and
amendments thereto.
/s/ Charles A. Austin III
Charles A. Austin III
Director/Trustee
Dated: December 14, 1994
<PAGE>
POWER OF ATTORNEY
I, the undersigned, hereby constitute Roger T. Wickers, Rosemary D. Van
Antwerp, Jean S. Loewenberg, Dorothy E. Bourassa, James M. Wall and Melina M. T.
Murphy, each of them singly, my true and lawful attorneys, with full power to
them and each of them to sign for me and in my name in the capacity indicated
below any and all registration statements, including, but not limited to, Forms
N-8A, N-8B-1, S-5, N-1 and N-1A, as amended from time to time, and any and all
amendments thereto to be filed with the Securities and Exchange Commission for
the purpose of registering from time to time all investment companies of which I
am now or hereafter a Director or Trustee and for which Keystone Custodian
Funds, Inc. serves as Adviser or Manager and registering from time to time the
shares of such companies, and generally to do all such things in my name and in
my behalf to enable such investment companies to comply with the provisions of
the Securities Act of 1933, as amended, the Investment Company Act of 1940, as
amended, and all requirements and regulations of the Securities and Exchange
Commission thereunder, hereby ratifying and confirming my signature as it may be
signed by my said attorneys to any and all registration statements and
amendments thereto.
/s/ Edwin D. Campbell
Edwin D. Campbell
Director/Trustee
Dated: December 14, 1994
<PAGE>
POWER OF ATTORNEY
I, the undersigned, hereby constitute Roger T. Wickers, Rosemary D. Van
Antwerp, Jean S. Loewenberg, Dorothy E. Bourassa, James M. Wall and Melina M. T.
Murphy, each of them singly, my true and lawful attorneys, with full power to
them and each of them to sign for me and in my name in the capacity indicated
below any and all registration statements, including, but not limited to, Forms
N-8A, N-8B-1, S-5, N-1 and N-1A, as amended from time to time, and any and all
amendments thereto to be filed with the Securities and Exchange Commission for
the purpose of registering from time to time all investment companies of which I
am now or hereafter a Director or Trustee and for which Keystone Custodian
Funds, Inc. serves as Adviser or Manager and registering from time to time the
shares of such companies, and generally to do all such things in my name and in
my behalf to enable such investment companies to comply with the provisions of
the Securities Act of 1933, as amended, the Investment Company Act of 1940, as
amended, and all requirements and regulations of the Securities and Exchange
Commission thereunder, hereby ratifying and confirming my signature as it may be
signed by my said attorneys to any and all registration statements and
amendments thereto.
/s/ Charles F. Chapin
Charles F. Chapin
Director/Trustee
Dated: December 14, 1994
<PAGE>
POWER OF ATTORNEY
I, the undersigned, hereby constitute Roger T. Wickers, Rosemary D. Van
Antwerp, Jean S. Loewenberg, Dorothy E. Bourassa, James M. Wall and Melina M. T.
Murphy, each of them singly, my true and lawful attorneys, with full power to
them and each of them to sign for me and in my name in the capacity indicated
below any and all registration statements, including, but not limited to, Forms
N-8A, N-8B-1, S-5, N-1 and N-1A, as amended from time to time, and any and all
amendments thereto to be filed with the Securities and Exchange Commission for
the purpose of registering from time to time all investment companies of which I
am now or hereafter a Director or Trustee and for which Keystone Custodian
Funds, Inc. serves as Adviser or Manager and registering from time to time the
shares of such companies, and generally to do all such things in my name and in
my behalf to enable such investment companies to comply with the provisions of
the Securities Act of 1933, as amended, the Investment Company Act of 1940, as
amended, and all requirements and regulations of the Securities and Exchange
Commission thereunder, hereby ratifying and confirming my signature as it may be
signed by my said attorneys to any and all registration statements and
amendments thereto.
/s/ K. Dun Gifford
K. Dun Gifford
Director/Trustee
Dated: December 14, 1994
<PAGE>
POWER OF ATTORNEY
I, the undersigned, hereby constitute Roger T. Wickers, Rosemary D. Van
Antwerp, Jean S. Loewenberg, Dorothy E. Bourassa, James M. Wall and Melina M. T.
Murphy, each of them singly, my true and lawful attorneys, with full power to
them and each of them to sign for me and in my name in the capacity indicated
below any and all registration statements, including, but not limited to, Forms
N-8A, N-8B-1, S-5, N-1 and N-1A, as amended from time to time, and any and all
amendments thereto to be filed with the Securities and Exchange Commission for
the purpose of registering from time to time all investment companies of which I
am now or hereafter a Director or Trustee and for which Keystone Custodian
Funds, Inc. serves as Adviser or Manager and registering from time to time the
shares of such companies, and generally to do all such things in my name and in
my behalf to enable such investment companies to comply with the provisions of
the Securities Act of 1933, as amended, the Investment Company Act of 1940, as
amended, and all requirements and regulations of the Securities and Exchange
Commission thereunder, hereby ratifying and confirming my signature as it may be
signed by my said attorneys to any and all registration statements and
amendments thereto.
/s/ Leroy Keith, Jr.
Leroy Keith, Jr.
Director/Trustee
Dated: December 14, 1994
<PAGE>
POWER OF ATTORNEY
I, the undersigned, hereby constitute Roger T. Wickers, Rosemary D. Van
Antwerp, Jean S. Loewenberg, Dorothy E. Bourassa, James M. Wall and Melina M. T.
Murphy, each of them singly, my true and lawful attorneys, with full power to
them and each of them to sign for me and in my name in the capacity indicated
below any and all registration statements, including, but not limited to, Forms
N-8A, N-8B-1, S-5, N-1 and N-1A, as amended from time to time, and any and all
amendments thereto to be filed with the Securities and Exchange Commission for
the purpose of registering from time to time all investment companies of which I
am now or hereafter a Director or Trustee and for which Keystone Custodian
Funds, Inc. serves as Adviser or Manager and registering from time to time the
shares of such companies, and generally to do all such things in my name and in
my behalf to enable such investment companies to comply with the provisions of
the Securities Act of 1933, as amended, the Investment Company Act of 1940, as
amended, and all requirements and regulations of the Securities and Exchange
Commission thereunder, hereby ratifying and confirming my signature as it may be
signed by my said attorneys to any and all registration statements and
amendments thereto.
/s/ F. Ray Keyser, Jr.
F. Ray Keyser, Jr.
Director/Trustee
Dated: December 14, 1994
<PAGE>
POWER OF ATTORNEY
I, the undersigned, hereby constitute Roger T. Wickers, Rosemary D. Van
Antwerp, Jean S. Loewenberg, Dorothy E. Bourassa, James M. Wall and Melina M. T.
Murphy, each of them singly, my true and lawful attorneys, with full power to
them and each of them to sign for me and in my name in the capacity indicated
below any and all registration statements, including, but not limited to, Forms
N-8A, N-8B-1, S-5, N-1 and N-1A, as amended from time to time, and any and all
amendments thereto to be filed with the Securities and Exchange Commission for
the purpose of registering from time to time all investment companies of which I
am now or hereafter a Director or Trustee and for which Keystone Custodian
Funds, Inc. serves as Adviser or Manager and registering from time to time the
shares of such companies, and generally to do all such things in my name and in
my behalf to enable such investment companies to comply with the provisions of
the Securities Act of 1933, as amended, the Investment Company Act of 1940, as
amended, and all requirements and regulations of the Securities and Exchange
Commission thereunder, hereby ratifying and confirming my signature as it may be
signed by my said attorneys to any and all registration statements and
amendments thereto.
/s/ David M. Richardson
David M. Richardson
Director/Trustee
Dated: December 14, 1994
<PAGE>
POWER OF ATTORNEY
I, the undersigned, hereby constitute Roger T. Wickers, Rosemary D. Van
Antwerp, Jean S. Loewenberg, Dorothy E. Bourassa, James M. Wall and Melina M. T.
Murphy, each of them singly, my true and lawful attorneys, with full power to
them and each of them to sign for me and in my name in the capacity indicated
below any and all registration statements, including, but not limited to, Forms
N-8A, N-8B-1, S-5, N-1 and N-1A, as amended from time to time, and any and all
amendments thereto to be filed with the Securities and Exchange Commission for
the purpose of registering from time to time all investment companies of which I
am now or hereafter a Director or Trustee and for which Keystone Custodian
Funds, Inc. serves as Adviser or Manager and registering from time to time the
shares of such companies, and generally to do all such things in my name and in
my behalf to enable such investment companies to comply with the provisions of
the Securities Act of 1933, as amended, the Investment Company Act of 1940, as
amended, and all requirements and regulations of the Securities and Exchange
Commission thereunder, hereby ratifying and confirming my signature as it may be
signed by my said attorneys to any and all registration statements and
amendments thereto.
/s/ Richard J. Shima
Richard J. Shima
Director/Trustee
Dated: December 14, 1994
<PAGE>
POWER OF ATTORNEY
I, the undersigned, hereby constitute Roger T. Wickers, Rosemary D. Van
Antwerp, Jean S. Loewenberg, Dorothy E. Bourassa, James M. Wall and Melina M. T.
Murphy, each of them singly, my true and lawful attorneys, with full power to
them and each of them to sign for me and in my name in the capacity indicated
below any and all registration statements, including, but not limited to, Forms
N-8A, N-8B-1, S-5, N-1 and N-1A, as amended from time to time, and any and all
amendments thereto to be filed with the Securities and Exchange Commission for
the purpose of registering from time to time all investment companies of which I
am now or hereafter a Director or Trustee and for which Keystone Custodian
Funds, Inc. serves as Adviser or Manager and registering from time to time the
shares of such companies, and generally to do all such things in my name and in
my behalf to enable such investment companies to comply with the provisions of
the Securities Act of 1933, as amended, the Investment Company Act of 1940, as
amended, and all requirements and regulations of the Securities and Exchange
Commission thereunder, hereby ratifying and confirming my signature as it may be
signed by my said attorneys to any and all registration statements and
amendments thereto.
/s/ Andrew J. Simons
Andrew J. Simons
Director/Trustee
Dated: December 14, 1994
<TABLE> <S> <C>
<ARTICLE> 6
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED
FROM ACCOUNTING
RECORDS AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
ACCOUNTING
RECORDS.
</LEGEND>
<SERIES>
<NUMBER> 101
<NAME> KEYSTONE INSTITUTIONAL SMALL CAP GROWTH FUND CLASS A
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> JUN-30-1996
<PERIOD-START> DEC-28-1995
<PERIOD-END> JUN-30-1996
<INVESTMENTS-AT-COST> 2,112,549
<INVESTMENTS-AT-VALUE> 2,428,841
<RECEIVABLES> 21,532
<ASSETS-OTHER> 18,086
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 2,468,459
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 22,558
<TOTAL-LIABILITIES> 22,558
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 2,100,000
<SHARES-COMMON-STOCK> 210,000
<SHARES-COMMON-PRIOR> 210,000
<ACCUMULATED-NII-CURRENT> 36,922
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> (7,313)
<ACCUM-APPREC-OR-DEPREC> 316,292
<NET-ASSETS> 2,445,901
<DIVIDEND-INCOME> 1,943
<INTEREST-INCOME> 4,577
<OTHER-INCOME> 0
<EXPENSES-NET> (11,829)
<NET-INVESTMENT-INCOME> (5,309)
<REALIZED-GAINS-CURRENT> 34,918
<APPREC-INCREASE-CURRENT> 316,292
<NET-CHANGE-FROM-OPS> 345,901
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 0
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 210,000
<NUMBER-OF-SHARES-REDEEMED> 0
<SHARES-REINVESTED> 0
<NET-CHANGE-IN-ASSETS> 2,445,901
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> (9,209)
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> (11,829)
<AVERAGE-NET-ASSETS> 2,327,733
<PER-SHARE-NAV-BEGIN> 10.00
<PER-SHARE-NII> (0.03)
<PER-SHARE-GAIN-APPREC> 1.68
<PER-SHARE-DIVIDEND> 0.00
<PER-SHARE-DISTRIBUTIONS> 0.00
<RETURNS-OF-CAPITAL> 0.00
<PER-SHARE-NAV-END> 11.65
<EXPENSE-RATIO> 1.00
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
