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Keystone Institutional
Small Capitalization
Growth Fund
Annual Report
June 30, 1996
[KEYSTONE INVESTMENTS LOGO]
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Keystone Institutional Trust
Keystone Institutional Small Capitalization Growth Fund
SCHEDULE OF INVESTMENTS -- June 30, 1996
Number Market
of Shares Value
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COMMON STOCKS (97.9%)
Automotive (3.5%)
Discount Auto Parts, Inc. (a) 1,900 $48,212
Tower Automotive, Inc. (a) 1,500 36,844
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85,056
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Advertising (2.4%)
Desktop Data, Inc. (a) 1,800 58,950
Amusements (3.1%)
Carmike Cinemas, Inc. (a) 900 24,300
Studio Plus America, Inc. (a) 1,600 52,400
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76,700
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Building Materials (2.7%)
Champion Enterprises, Inc. (a) 1,600 33,400
Oakwood Homes Corp. 1,600 33,000
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66,400
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Business Services (15.3%)
Equity Corporation International (a) 1,300 34,937
G&K Services, Class A 1,700 48,025
Metromail Corp New (a) 2,700 60,413
Molten Metal Technology, Inc. (a) 1,400 41,125
Natural Microsystems Corp. (a) 1,700 60,138
Newpark Resources, Inc. (a) 1,300 47,775
U.S. Filter Corp. (a) 1,500 52,125
Vitalcom, Inc. (a) 1,700 29,325
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373,863
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Capital Goods (3.7%)
AGCO Corp. 2,000 55,500
Cognex Corp. (a) 2,100 34,256
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89,756
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Chemicals (1.7%)
Applied Extrusion Technologies (a) 1,650 20,831
OM Group, Inc. 560 21,910
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42,741
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Consumer Goods (9.8%)
Aptar Group, Inc. 1,000 30,250
Blyth Industries, Inc. (a) 1,600 72,600
DeVry, Inc. Del (a) 1,700 76,500
USA Detergents, Inc. (a) 1,500 59,813
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239,163
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Drugs (4.3%)
Amylin Pharmaceuticals, Inc. (a) 1,900 20,306
Cytotherapeutics, Inc. (a) 1,700 18,912
Gilead Sciences, Inc. (a) 1,000 25,125
Magainin Pharmaceutical, Inc. (a) 2,200 22,963
Neurogen Corp. (a) 700 17,850
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105,156
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Electronics Products (2.2%)
Merix Corp. (a) 1,000 19,875
Microchip Technology, Inc. (a) 1,400 35,000
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54,875
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Finance (7.7%)
BISYS Group, Inc. (a) 1,500 56,343
Investors Financial Services Corp. 2,400 55,350
Strattec Securities Corp. (a) 1,500 26,531
TCF Financial Corp. 1,500 49,875
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188,099
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Health Care Service (4.1%)
Conceptus, Inc. (a) 1,100 18,425
PhyMatrix Corp. (a) 1,200 27,750
Thermo Cardiosystems, Inc. (a) 1,200 53,700
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99,875
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Insurance (2.6%)
HCC Insurance Holdings, Inc. 2,250 50,625
Integon Corp. 700 14,088
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64,713
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Oil Services (4.5%)
Falcon Drilling, Inc. (a) 2,500 67,656
Nuevo Energy Co. (a) 1,300 41,925
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109,581
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Restaurants (2.4%)
Apple South, Inc. 2,200 58,850
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Software Services (13.2%)
BDM International, Inc. (a) 1,000 46,500
Epic Design Technology, Inc. (a) 1,400 36,050
Geoworks, Inc. (a) 2,100 73,500
INSO Corp. (a) 900 46,462
National Instruments Corp. (a) 1,200 26,700
Peak Technologies Group, Inc. (a) 2,000 46,500
Raptor Systems, Inc. (a) 1,800 47,475
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323,187
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Telecommunications (6.6%)
CIDCO Group, Inc. (a) 1,500 52,875
Heartland Wireless Communications, Inc. (a) 2,000 48,000
Winstar Communications, Inc. (a) 2,400 59,700
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160,575
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Textiles (2.9%)
Authentic Fitness Corp. 1,600 29,800
St. John Knits, Inc. 900 40,163
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69,963
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Transportation (5.2%)
Railtex, Inc. (a) 1,900 48,450
Skywest Inc. 2,300 42,550
Swift Transportation Co., Inc. (a) 1,900 36,338
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127,338
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TOTAL COMMON STOCKS (Cost - $2,078,549) 2,394,841
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Maturity
Value
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SHORT-TERM INVESTMENTS (1.4%)
Investments in repurchase agreements, in a joint trading
account, purchased 6/28/96, 5.55%, maturing 7/01/96(b) $34,016 $34,000
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TOTAL SHORT-TERM INVESTMENTS (Cost - $34,000) 34,000
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TOTAL INVESTMENTS (Cost - $2,112,549) 2,428,841
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OTHER ASSETS AND LIABILITIES -- NET (0.7%) 17,060
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NET ASSETS (100%) $2,445,901
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(a) Non-income-producing security.
(b) The repurchase agreements are fully collateralized by U.S. government and/or
agency obligations based on market prices at June 30, 1996.
(c) The Cost of investments for federal income tax purposes amounted to
$2,119,862. Gross unrealized appreciation and depreciation on investments,
based on identified tax cost, at June 30, 1996, are as follows:
Gross unrealized appreciation $413,300
Gross unrealized depreciation (104,321)
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Net unrealized appreciation $308,979
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See Notes to Financial Statements.
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Keystone Institutional Trust
Keystone Institutional Small Capitalization Growth Fund
FINANCIAL HIGHLIGHTS
(For a share outstanding throughout the period)
Period from December 28, 1995
(Commencement of Operations)
to June 30, 1996
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Net asset value beginning of period $10.00
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Income from investment operations
Net investment loss (0.03)
Net realized and unrealized gain 1.68
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Total from investment operations 1.65
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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
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(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 expenses to average net assets" would have been 2.81%.
See Notes to Financial Statements.
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Keystone Institutional Trust
Keystone Institutional Small Capitalization Growth Fund
STATEMENT OF ASSETS AND LIABILITIES
June 30, 1996
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Assets (Note 1)
Investments at market value (identified cost - $2,112,549) $2,428,841
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Cash 332
Receivable for:
Expense Reimbursement Receivable 21,451
Interest and dividends 81
Deferred organization cost 17,754
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Total assets 2,468,459
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Liabilities (Note 4)
Payable for:
Accrued expense 17,647
Accrued organization cost 4,911
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Total liabilities 22,558
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Net assets $2,445,901
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Net assets represented by (Notes 1 and 2)
Paid-in capital $2,100,000
Accumulated net investment income 36,922
Accumulated net realized loss on investments (7,313)
Net unrealized appreciation on investments 316,292
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Total net assets applicable to outstanding shares
of beneficial interest at 6/30/96 ($11.65 a share on
210,000 shares outstanding) $2,445,901
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See Notes to Financial Statements.
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Keystone Institutional Trust
Keystone Institutional Small Capitalization Growth Fund
STATEMENT OF OPERATIONS
Period from December 28, 1995 (Commencement of Operations) to June 30, 1996
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Investment income (Note 1)
Dividends $1,943
Interest 4,577
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Total income 6,520
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Expenses (Notes 2 and 4)
Management fee $ 9,209
Custodian fee 6,833
Audit fee 4,995
Transfer agent fee 1,000
Organization expense 2,046
Registration fees 9,197
Reimbursement from Investment Adviser (21,451)
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Total expenses 11,829
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Net Investment loss (5,309)
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Net realized and unrealized gain (loss) on investments
(Notes 1 and 3)
Realized gain on investments 34,918
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Net change in unrealized appreciation on investments 316,292
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Net gain on investments 351,210
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Net increase in net assets resulting from operations $345,901
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See Notes to Financial Statements.
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Keystone Institutional Trust
Keystone Institutional Small Capitalization Growth Fund
STATEMENT OF CHANGES IN NET ASSETS
Period from December 28, 1995
(Commencement of Operations)
to June 30, 1996
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Operations:
Net investment loss ($5,309)
Net realized gain on investments 34,918
Net change in unrealized appreciation 316,292
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Net increase in net assets resulting
from operations 345,901
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Capital share transactions (Note 2)
Proceeds from shares sold 2,100,000
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Total increase in net assets 2,445,901
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Net assets:
Beginning of period 0
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End of period $2,445,901
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See Notes to Financial Statements.
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Keystone Institutional Trust
Keystone Institutional Small Capitalization Growth Fund
NOTES TO FINANCIAL STATEMENTS
(1.) Significant Accounting Policies
Keystone Institutional Trust, (the "Fund"), is registered under the Investment
Company Act of 1940, as amended (the "1940 Act"), as a diversified open-end
management investment company. The Fund was formed as a Massachusetts business
trust under a Declaration of Trust dated November 30, 1995. The Fund currently
issues one series of shares, Keystone Institutional Small Capitalization Growth
Fund (the "Fund"). Keystone Investment Management Company ("Keystone") is the
Fund's investment adviser. The Fund's objective is long-term growth of capital.
Keystone is a wholly-owned subsidiary of Keystone Investments, Inc. ("KII"), a
Delaware corporation. KII is a private corporation predominately owned by
current and former members of management of Keystone and its affiliates.
Keystone Investor Resource Center, Inc. ("KIRC"), a wholly-owned subsidiary of
Keystone, is the Fund's transfer and dividend disbursing agent.
The following is a summary of significant accounting policies consistently
followed by the Fund in the preparation of its financial statements. The
policies are in conformity with generally accepted accounting principles, which
requires management to make estimates and assumptions that affect amounts
reported herein. Although actual results could differ from these estimates, any
such differences are expected to be immaterial relative to the net assets of the
Fund.
A. Investments are usually valued at the closing sales price, or, in the absence
of sales and for over-the-counter securities, the mean of bid and asked
quotations. Management values the following securities at prices it deems in
good faith to be fair under the direction of the Fund's Board of Trustees: (1)
securities (including restricted securities) for which complete quotations are
not readily available and (2) listed securities if, in the opinion of
management, the last sales price does not reflect a current value or if no sale
occurred.
B. Short-term investments maturing in sixty days or less are valued at amortized
cost (original purchase cost as adjusted for amortization of premium or
accretion of discount), which, when combined with accrued interest, approximates
market. Short-term investments maturing in more than sixty days for which market
quotations are readily available are valued at current market value. Short-term
investments maturing in more than sixty days 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.
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The Fund may enter into currency and other financial futures contracts as a
hedge against changes in interest or currency exchange rates. A futures contract
is an agreement between two parties to buy and sell a specific amount of a
commodity, security, financial instrument, or, in the case of a stock index,
cash at a set price on a future date. Upon entering into a futures contract, the
Fund is required to deposit with a broker an amount (initial margin) equal to a
certain percentage of the purchase price indicated in the futures contract.
Subsequent payments (variation margin) are made or received by the Fund each
day, as the value of the underlying instrument or index fluctuates, and are
recorded for book purposes as unrealized gains or losses by the Fund. For
federal tax purposes, any futures contracts that remain open at fiscal year-end
are marked-to-market and the resultant net gain or loss is included in federal
taxable income.
Investments denominated in a foreign currency are adjusted daily to reflect
changes in exchange rates. Foreign currency amounts are translated into United
States dollars as follows: market value of investments, assets and liabilities
at the daily rate of exchange, purchases and sales of investment, income and
expenses at the rate of exchange prevailing on the respective dates of such
transactions. Net unrealized foreign exchange gains/losses are a component of
unrealized appreciation/ depreciation of investments. In addition to market
risk, the Fund is subject to the credit risk that the other party will not be
able to complete the obligations of the contract.
C. Securities transactions are accounted for no later than one business day
after the trade date. Realized gains and losses are recorded on the identified
cost basis. Interest income is recorded on the accrual basis and dividend income
is recorded on the ex-dividend date. Distributions to shareholders are recorded
at the close of business on the ex-dividend date.
D. The Fund has qualified, and intends to qualify in the future, as a regulated
investment company under the Internal Revenue Code of 1986, as amended
("Internal Revenue Code"). Thus, the Fund is relieved of any federal income tax
liability by distributing all of its net taxable investment income and net
taxable capital gains, if any, to its shareholders.
The Fund intends to avoid excise tax liability by making the required
distributions under the Internal Revenue Code.
E. When the Fund enters into a repurchase agreement ( a purchase of securities
whereby the seller agrees to repurchase the securities at a mutually agreed upon
date and price), the repurchase price of the securities will generally equal the
amount paid by the Fund plus a negotiated interest amount. The seller under the
repurchase agreement will be required to provide securities (collateral) to the
Fund the value of which will be maintained at an amount not less than the
repurchase price, and which generally will be maintained at 101% of the
repurchase price. The Fund monitors the value of collateral on a daily basis. If
the value of collateral falls below required levels, the Fund intends to seek
additional collateral from the seller or terminate the repurchase agreement. If
the seller defaults, the Fund would suffer a loss to the extent that the
proceeds from the sale of the underlying securities were less than the
repurchase price. Any such loss would be increased by any cost incurred on
disposing of such securities.
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If bankruptcy proceedings are commenced against the seller under the repurchase
agreement, the realization on the collateral may be delayed or limited.
Repurchase agreements entered into by the Fund will be limited to transactions
with dealers or domestic banks believed to present minimal credit risks. The
Fund will take constructive receipt of all securities underlying repurchase
agreements until such agreements expire.
Pursuant to an exemptive order issued by the Securities and Exchange Commission,
the Fund, along with certain other Keystone funds, may transfer uninvested cash
balances into a joint trading account. These balances are invested in one or
more repurchase agreements that are fully collateralized by U.S. Treasury and/or
Federal Agency obligations.
F. In connection with portfolio purchases and sales of securities denominated in
foreign currency, the Fund may enter into forward foreign currency exchange
contracts. Additionally, from time to time the Fund may enter into such
contracts to hedge certain foreign currency assets. Contracts are recorded at
market value and marked-to-market daily. Realized gains and losses arising from
such transactions are included in net realized gain (loss) on foreign currency
related transactions. The Fund is subject to the credit risk that the other
party will not complete the obligations of the contract.
G. The Fund intends to distribute its net investment income and net capital
gains, if any, annually. Distributions are determined in accordance with income
tax regulations. Distributions from taxable net investment income and net
capital gains can exceed book basis net income and net capital gains. The
significant differences between financial statement amounts available for
distribution and distributions made in accordance with income tax regulations
are primarily due to net operating losses generated by the Fund.
H. Organization expenses are being amortized to operations over a five-year
period on a straight-line basis. In the event any of the initial shares are
redeemed by any holder thereof during the five-year amortization period,
redemption proceed will be reduced by any unamortized organization expenses in
the same proportion as the number of initial shares being redeemed bears to the
number of initial shares outstanding at the time of redemption.
(2.) Capital Share Transactions
The Fund's Declaration of Trust authorizes the issuance of an unlimited number
of shares of beneficial interest without par value. For the fiscal period
indicated, transactions in shares of the Fund were as follows:
Period from December 28, 1995
(Commencement of Operations) to
June 30, 1996
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Sales 210,000
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Net increase 210,000
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(3.) Securities Transactions
Cost of purchases and proceeds from sales of investment securities excluding
short-term securities during the period ended June 30, 1996 were $3,361,668 and
$1,318,037, respectively.
(4.) Investment Management and Transactions With Affiliates
Under the terms of the Investment Management Agreement between Keystone and the
Fund, Keystone provides investment management and administrative services to the
Fund. In return, Keystone is paid a management fee that is computed and paid
daily. The management fee is calculated by applying percentage rates to the
aggregate net asset value of the Fund's shares as follows: 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.
During the period ended June 30, 1996, the Fund paid or accrued to Keystone
investment management and administrative service fees of $9,209, which
represented 0.80% of the Fund's average daily net asset value during the period.
During the period ended June 30, 1996, the Fund paid or accrued $1,000 to KIRC
for transfer agent fees.
Keystone has agreed to reimburse the Fund annually for certain operating
expenses incurred by the Fund in excess of the applicable state expense limit.
However, Keystone is not required to make such reimbursement to an extent which
would result in the Fund's inability to qualify as a regulated investment
company under provisions of the Internal Revenue Code.
Keystone has voluntarily agreed to limit the expenses of the Fund to 1.0%
annually of average net assets through December 31, 1996. In connection with the
voluntary expense limitation Keystone reimbursed the Fund $21,451. Keystone does
not intend to seek repayment of this amount.
Certain officers and/or Directors of Keystone are also officers and/or Trustees
of the Fund. Officers of Keystone and affiliated Trustees receive no
compensation directly from the Fund. Currently, the Independent Trustees of the
Fund receive no compensation for their services.
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INDEPENDENT AUDITORS' REPORT
The Trustees and Shareholders
Keystone Institutional Trust
Keystone Institutional Small Capitalization Growth Fund
We have audited the accompanying statement of assets and liabilities of Keystone
Institutional Small Capitalization Growth Fund, a series of Keystone
Institutional Trust, including the schedule of investments, as of June 30, 1996,
and the related statements of operations, changes in net assets and the
financial highlights for the period from December 28, 1995 (Commencement of
Operations) to June 30, 1996. These financial statements and financial
highlights are the responsibility of the Fund's management. Our responsibility
is to express an opinion on these financial statements and financial highlights
based on our audit.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements and financial highlights are
free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements. Our
procedures included confirmation of securities owned as of June 30, 1996 by
correspondence with the custodian. An audit also includes assessing the
accounting principles used and significant estimates made by management, as well
as evaluating the overall financial statement presentation. We believe that our
audit provides a reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of
Keystone Institutional Small Capitalization Growth Fund, a series of Keystone
Institutional Trust, as of June 30, 1996, the results of its operations, the
changes in its net assets and the financial highlights for the period from
December 28, 1995 to June 30, 1996 in conformity with generally accepted
accounting principles.
KPMG Peat Marwick LLP
Boston, Massachusetts
July 26, 1996
