<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON DECEMBER 6, 1996.
File Nos. 33-42864
and 811-6412
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. _9_ _X_
and
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940
Amendment No. _9_ _X_
KEYSTONE INSTITUTIONAL ADJUSTABLE RATE FUND
(Exact name of Registrant as specified in Charter)
200 Berkeley Street, Boston, Massachusetts 02116-5034
(Address of Principal Executive Offices) (Zip Code11)
Registrant's Telephone Number, including Area Code:
(617) 210-3200
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 December 10, 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)
Pursuant to Rule 24f-2 under the Investment Company Act of 1940, the
Registrant has elected to register an indefinite number of shares under the
Securities Act of 1933. A Rule 24f-2 Notice for Registrant's fiscal year ended
September 30, 1996 was filed on November 27, 1996.
<PAGE>
KEYSTONE INSTITUTIONAL ADJUSTABLE RATE FUND
CONTENTS OF
POST-EFFECTIVE AMENDMENT No. 9
to
REGISTRATION STATEMENT
This Post-Effective Amendment No. 9 to Registration Statement No.
33-42864/811-6412 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 24(b)
Financial Statements
Independent Auditors' Report
Listing of Exhibits
PART C - OTHER INFORMATION - ITEMS 25-32 - and SIGNATURE PAGES
Number of Holders of Securities
Indemnification
Business and Other Connections of Investment Adviser
Principal Underwriter
Management Services
Undertakings
Location of Accounts and Records
Signatures
Exhibits (including Powers of Attorney)
<PAGE>
KEYSTONE INSTITUTIONAL ADJUSTABLE RATE FUND
Cross-Reference Sheet pursuant to Rules 404 and 495 under the Securities of
1933.
Items in
Part A of
Form N-1A Prospectus Caption
- --------- ------------------
1 Cover Page
2 Fee Table
3 Financial Highlights
Performance Data
4 Cover Page
The Fund
Investment Objective and Policies
Risk Factors
Investment Restrictions
Additional Investment Information
5 Fund Management and Expenses
Additional Information
5A Not applicable
6 The Fund
Dividends and Taxes
How to Buy Shares
Alternative Sales Options
Fund Shares
Shareholder Services
7 Pricing Shares
Fund Management and Expenses
How to Buy Shares
Alternative Sales Options
Distribution Plan
Shareholder Services
8 How to Redeem Shares
9 Not applicable
Items in
Part B of
Form N-1A Statement of Additional Infomation Caption
- --------- ------------------------------------------
10 Cover Page
11 Table of Contents
12 Not applicable
13 Investment Restrictions
Appendix
14 Trustees and Officers
15 Additional Information
16 Investment Adviser
Distributor
Distribution Plan
Additional Information
17 Brokerage
18 Declaration of Trust
19 Valuation of Securities
Distribution Plan
20 Distributions and Taxes
21 Distributor
22 Standardized Total Return and Yield Quotations
23 Financial Statements
<PAGE>
KEYSTONE INSTITUTIONAL ADJUSTABLE RATE FUND
PART A
PROSPECTUS
<PAGE>
KEYSTONE INSTITUTIONAL
ADJUSTABLE RATE FUND
PROSPECTUS DECEMBER 10, 1996
Keystone Institutional Adjustable Rate Fund (the "Fund") is a diversified,
open-end management investment company, commonly known as a mutual fund, that
seeks a high level of current income, consistent with low volatility of
principal, by investing under ordinary circumstances at least 65% of its assets
in adjustable rate securities. Such securities include adjustable rate mortgage
securities that are issued or guaranteed by the United States ("U.S.")
government, its agencies or instrumentalities. The Fund does not attempt to
maintain a constant price per share. The Fund does, however, follow a strategy
that seeks to minimize changes in its net asset value per share by investing
primarily in adjustable rate securities whose interest rates are periodically
reset when market rates change.
The Fund is designed for institutional investors and seeks to provide a
relatively stable net asset value while providing high current income relative
to high-quality, short-term investment alternatives.
The Fund offers Class Y and Z shares. Information on share classes and their
fee and sales charge structures may be found in the "Fee Table," "How to Buy
Shares," "Alternative Sales Options," "Distribution Plan" and "Fund Shares"
sections of this prospectus.
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 December 10, 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 provided on this page.
KEYSTONE INSTITUTIONAL
ADJUSTABLE RATE FUND
200 BERKELEY STREET
BOSTON, MASSACHUSETTS 02116-5034
CALL TOLL FREE 1-800-633-2700
TABLE OF CONTENTS
Page
Fee Table ......................................... 2
Financial Highlights .............................. 3
The Fund .......................................... 5
Investment Objective and Policies ................. 5
Investment Restrictions ........................... 7
Risk Factors ...................................... 7
Pricing Shares .................................... 9
Dividends and Taxes ............................... 10
Fund Management and Expenses ...................... 10
How to Buy Shares ................................. 12
Alternative Sales Options ......................... 13
Distribution Plan ................................. 14
How to Redeem Shares .............................. 14
Shareholder Services .............................. 15
Performance Data .................................. 16
Fund Shares ....................................... 16
Additional Information ............................ 16
Additional Investment Information ................. (i)
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.
<PAGE>
FEE TABLE
KEYSTONE INSTITUTIONAL ADJUSTABLE RATE FUND
The purpose of this fee table is to assist investors in understanding the
costs and expenses that an investor in each class of shares of the Fund will
bear directly or indirectly. For a more complete description of the various
costs and expenses, see the "Fund Management and Expenses" and "Distribution
Plan" sections of this prospectus.
<TABLE>
<CAPTION>
ANNUAL FUND OPERATING EXPENSES(1) CLASS Y CLASS Z(2)
(as a percentage of average net assets) SHARES SHARES
-------------- --------------
<S> <C> <C>
Management Fees ...................................................................... 0.30% 0.30%
12b-1 Fees ........................................................................... 0.25% 0.00%
Other Expenses ....................................................................... 0.00% 0.00%
---- ----
Total Fund Operating Expenses ........................................................ 0.55% 0.30%
==== ====
<CAPTION>
EXAMPLE(3) 1 YEAR 3 YEARS 5 YEARS 10 YEARS
------ ------- ------- --------
<S> <C> <C> <C> <C>
You would pay the following expenses on a $1,000 investment
in the Fund, assuming (1) 5% annual return and (2)
redemption at the end of each period:
Class Y ................................................. $6 $18 $31 $69
Class Z ................................................. $3 $10 $17 $38
AMOUNTS SHOWN IN THE EXAMPLE SHOULD NOT BE CONSIDERED A REPRESENTATION OF PAST OR FUTURE EXPENSES; ACTUAL EXPENSES MAY BE
GREATER OR LESS THAN THOSE SHOWN.
- ----------
<FN>
(1) Expense ratios are for the Fund's fiscal year ended September 30, 1996.
(2) Class Z shares are available only to certain investors. See "Alternative Sales Options -- Class Z Shares."
(3) The Securities and Exchange Commission requires use of a 5% annual return figure for purposes of this example. Actual
return for the Fund may be greater or less than 5%.
</FN>
</TABLE>
<PAGE>
FINANCIAL HIGHLIGHTS
KEYSTONE INSTITUTIONAL ADJUSTABLE RATE FUND
CLASS Y SHARES
(FOR A SHARE OUTSTANDING THROUGHOUT EACH YEAR)
The following table contains important financial information relating to the
Fund and has been audited by KPMG Peat Marwick LLP, the Fund's independent
auditors. The table appears in the Fund's Annual Report and should be read in
conjunction with the Fund's financial statements and related notes, which also
appear, together with the independent auditors' report, in the Fund's Annual
Report. The Fund's financial statements, related notes, and independent
auditors' report are incorporated by reference into the statement of additional
information. Additional information about the Fund's performance is contained in
its Annual Report, which will be made available upon request and without charge.
YEAR ENDED SEPTEMBER 30, MAY 23, 1994 (DATE OF
------------------------ INITIAL PUBLIC OFFERING)
1996(b) 1995 TO SEPTEMBER 30, 1994
----- --- ------------------------
NET ASSET VALUE
BEGINNING OF YEAR ...... $9.65 $9.61 $9.73
----- ----- -----
INCOME FROM INVESTMENT
OPERATIONS:
Net investment income .. 0.65 0.64 0.17
Net realized and
unrealized loss on
investments .......... (0.03) (0.02) (0.13)
----- ----- -----
Total from investment
operations ........... 0.62 0.62 0.04
----- ----- -----
LESS DISTRIBUTIONS FROM:
Net investment income .. (0.58) (0.53) (0.16)
In excess of net
investment income .... (0.01) (0.05) 0
----- ----- -----
Total distributions .... (0.59) (0.58) (0.16)
----- ----- -----
NET ASSET VALUE END OF
YEAR ................. $9.68 $9.65 $9.61
===== ===== =====
TOTAL RETURN ........... 6.60% 6.60% 0.35%
RATIOS/SUPPLEMENTAL DATA
RATIOS TO AVERAGE NET
ASSETS:
Total expenses ....... 0.55% 0.55% 0.43%(a)
Net investment income 6.64% 6.70% 5.03%(a)
Portfolio turnover rate 85% 56% 63%
----- ----- -----
NET ASSETS END OF YEAR
(THOUSANDS) .......... $14,361 $2,871 $ 1
- ------------
(a) Annualized.
(b) Per share calculations based on weighted average shares outstanding.
<PAGE>
FINANCIAL HIGHLIGHTS
KEYSTONE INSTITUTIONAL ADJUSTABLE RATE FUND
CLASS Z SHARES
(FOR A SHARE OUTSTANDING THROUGHOUT EACH YEAR)
The following table contains important financial information relating to the
Fund and has been audited by KPMG Peat Marwick LLP, the Fund's independent
auditors. The table appears in the Fund's Annual Report and should be read in
conjunction with the Fund's financial statements and related notes, which also
appear, together with the independent auditors' report, in the Fund's Annual
Report. The Fund's financial statements, related notes, and independent
auditors' report are incorporated by reference into the statement of additional
information. Additional information about the Fund's performance is contained in
its Annual Report, which will be made available upon request and without charge.
<TABLE>
<CAPTION>
YEAR ENDED SEPTEMBER 30,
---------------------------------------------------------------------
1996(a) 1995 1994 1993(a) 1992
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE BEGINNING OF YEAR $ 9.65 $ 9.61 $ 9.93 $ 9.88 $ 10.00
------- ------- ------- ------- -------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income ............ 0.64 0.63 0.63 0.54 0.67
Net realized and unrealized gain
(loss) on investments .......... 0.00 0.01 (0.49) (0.01) (0.15)
------- ------- ------- ------- -------
Total from investment operations . 0.64 0.64 0.14 0.53 0.52
------- ------- ------- ------- -------
LESS DISTRIBUTIONS FROM:
Net investment income ............ (0.60) (0.55) (0.44) (0.48) (0.64)
In excess of net investment income (0.01) (0.05) (0.02) 0 0
------- ------- ------- ------- -------
Total distributions .............. (0.61) (0.60) (0.46) (0.48) (0.64)
------- ------- ------- ------- -------
NET ASSET VALUE END OF YEAR ...... $ 9.68 $ 9.65 $ 9.61 $ 9.93 $ 9.88
====== ======= ======= ======= =======
TOTAL RETURN ..................... 6.86% 6.87% 1.43% 5.53% 5.46%
RATIOS/SUPPLEMENTAL DATA
RATIOS TO AVERAGE NET ASSETS:
Total expenses ................. 0.30% 0.30% 0.30% 0.30% 0.30%
Net investment income .......... 6.84% 6.61% 5.15% 5.46% 6.83%
Portfolio turnover rate .......... 85% 56% 63% 81% 88%
------- ------- ------- ------- -------
NET ASSETS END OF YEAR (THOUSANDS) $65,974 $23,616 $25,200 $60,035 $51,625
------- ------- ------- ------- -------
<FN>
(a) Per share calculations based on weighted average shares outstanding.
</FN>
</TABLE>
<PAGE>
THE FUND
The Fund was formed as a Massachusetts business trust on June 19, 1991. The
Fund is one of more than thirty funds advised by Keystone Investment Management
Company ("Keystone"), the Fund's investment adviser.
INVESTMENT OBJECTIVE AND POLICIES
INVESTMENT OBJECTIVE
The Fund seeks a high level of current income consistent with low volatility
of principal. The investment objective of the Fund is fundamental and may not be
changed without approval of the holders of a majority (as defined in the
Investment Company Act of 1940 ("1940 Act") of the Fund's outstanding shares
(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).
Any investment involves risk, and there is no assurance that the Fund will
achieve its investment objective.
PERMITTED INVESTMENTS
Under ordinary circumstances, the Fund invests at least 65% of its assets in
mortgage securities or other securities collateralized by or representing an
interest in a pool of mortgages (collectively, "Mortgage Securities"), which
securities have interest rates that reset at periodic intervals and are issued
or guaranteed by the U.S. government, its agencies or instrumentalities.
The Fund does not attempt to maintain a constant price per share. However, the
Fund does follow a strategy that seeks to minimize changes in its net asset
value per share by investing primarily in adjustable rate securities, whose
interest rates are periodically reset when market rates change. The average
dollar weighted reset period of adjustable rate securities held by the Fund will
not exceed one year. The Fund seeks to provide a relatively stable net asset
value while providing high current income relative to high-quality, short-term
investment alternatives.
INVESTMENT POLICIES AND APPROACH
Keystone believes that, by investing primarily in Mortgage Securities with
adjustable rates of interest, the Fund will achieve a less volatile net asset
value per share than is characteristic of mutual funds that invest primarily in
U.S. government securities paying a fixed rate of interest.
Unlike fixed rate mortgages and loans that generally decline in value during
periods of rising interest rates, adjustable rate Mortgage Securities ("ARMS")
allow the Fund to participate in increases in interest rates through periodic
adjustments in the coupons of the underlying mortgages or loans, resulting in
both higher current yields and lower price fluctuations in the Fund's net asset
value per share. The Fund is also affected by decreases in interest rates
through periodic decreases in the coupons of the underlying mortgages or loans
resulting in lower income to the Fund. This downward adjustment results in lower
price fluctuations in the net asset value per share in a decreasing interest
rate environment. As the interest rates on the mortgages or loans underlying the
Fund's investments are reset periodically, coupons of portfolio securities will
gradually align themselves to reflect changes in market rates and should cause
the net asset value per share of the Fund to fluctuate less dramatically than it
would if the Fund invested in more traditional long-term, fixed rate mortgages.
The portion of the Fund that is not invested in ARMS, if any, is intended to
increase the Fund's total return from changes in market rates while not
materially increasing the volatility of the net asset value per share.
The Fund intends to follow the policies of the Securities and Exchange
Commission as they are adopted from time to time with respect to illiquid
securities, including, at this time, (1) treating as illiquid, securities that
may not be sold or disposed of in the ordinary course of business within seven
days at approximately the value at which the Fund has valued such securities on
its books and (2) limiting its holdings of such securities to 15% of net assets.
PERMITTED INVESTMENTS
The Fund invests in Mortgage Securities that are issued or guaranteed by the
U.S. government, one of its agencies or instrumentalities, such as the
Government National Mortgage Association ("GNMA"), the Federal National Mortgage
Association ("FNMA") and the Federal Home Loan Mortgage Corporation ("FHLMC").
Securities issued by GNMA, but not those issued by FNMA or FHLMC, are backed by
the full faith and credit of the U.S. government.
The Fund invests in mortgage pass-through securities representing
participation interests in pools of residential mortgage loans originated by
U.S. governmental lenders and guaranteed, to the extent provided in such
securities, by the U.S. government, its agencies or instrumentalities. Such
securities, which are ownership interests in the underlying mortgage loans,
differ from conventional debt securities, which provide for periodic payment of
interest in fixed amounts (usually semiannually) and principal payments at
maturity or on specified call dates. Mortgage pass-through securities provide
for monthly payments that are a "pass-through" of the monthly interest and
principal payments (including any prepayments) made by the individual borrowers
on the pooled mortgage loans, net of any fees paid to the guarantor of such
securities and the servicer of the underlying mortgage loans.
The guaranteed mortgage pass-through securities in which the Fund invests
include those issued or guaranteed by GNMA, FNMA and FHLMC. GNMA certificates
are direct obligations of the U.S. government and, as such, are backed by the
full faith and credit of the U.S. government. FNMA is a federally chartered,
privately owned corporation. FHLMC is a corporate instrumentality of the U.S.
government. FNMA and FHLMC certificates are not backed by the full faith and
credit of the U.S. government and are supported only by the credit of FNMA and
FHLMC, which have the right to borrow to meet their obligations from an
existing line of credit with the U.S. Treasury. Although their close
relationship with the U.S. government is believed to make them high quality
securities with minimal credit risks, the U.S. government is not obligated by
law to support either FNMA or FHLMC. Historically, however, there have been no
defaults in any FNMA or FHLMC issues.
Certificates for Mortgage Securities evidence an interest in a specific pool
of mortgages. These certificates are, in most cases, "modified pass-through"
instruments, wherein the issuing agency guarantees the payment of principal and
interest on mortgages underlying the certificates, whether or not such amounts
are collected by the issuer on the underlying mortgages.
Adjustable rate mortgages are an important form of residential financing.
Generally, adjustable rate mortgages are mortgages that have a specified
maturity date and amortize in a manner similar to that of a fixed rate mortgage.
As a result, in periods of declining interest rates there is a reasonable
likelihood that adjustable rate mortgages will behave like fixed rate mortgages
in that current levels of prepayments of principal on the underlying mortgages
could accelerate. However, one difference between adjustable rate mortgages and
fixed rate mortgages is that for certain types of adjustable rate mortgages the
rate of amortization of principal, as well as interest payments, can and does
change in accordance with movements in a particular, pre-specified, published
interest rate index. The amount of interest due a holder of an adjustable rate
mortgage is calculated by adding a specified additional amount (margin) to the
index, subject to limitations or "caps" on the maximum and minimum interest rate
that is charged to the mortgagor during the life of the mortgage or to maximum
and minimum changes in that interest rate during a given period. It is these
special characteristics, unique to the adjustable rate mortgages underlying the
ARMS in which the Fund invests, that are believed to make ARMS attractive
investments for seeking to accomplish the Fund's objective. For further
information, see "Prepayments" in the section on "Risk Factors."
OTHER PERMITTED INVESTMENTS
The Fund may invest in collateralized mortgage obligations ("CMOs") issued
or guaranteed by the U.S. government, its agencies or instrumentalities. The
Fund intends to invest only in CMOs that, in Keystone's opinion, are suitable
in light of the Fund's investment objective and policies. For further
information, see "Additional Investment Information."
In addition, the Fund may enter into repurchase agreements and reverse
repurchase agreements for eligible securities and U.S. government obligations.
For further information, see "Additional Investment Information."
The Fund may also invest up to 35% of its assets under ordinary circumstances
and up to 100% of its assets for temporary defensive purposes in obligations of
the U.S. government, its agencies or instrumentalities, such as the Federal Home
Loan Banks, FNMA, GNMA, FHLMC or the Federal Farm Credit Banks.
The Fund may assume a temporary defensive position, for example, upon
Keystone's determination that market conditions so warrant. The Fund may not be
pursuing its investment objective when it assumes a temporary defensive
position.
The Fund will not invest in derivative Mortgage Securities other than the CMOs
described in "Additional Investment Information."
INVESTMENT RESTRICTIONS
The Fund has adopted the fundamental 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 and
non-fundamental restrictions are set forth in detail in the statement of
additional information. Unless otherwise stated, all references to the Fund's
assets are in terms of current market value.
Generally 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 in the
securities of any one issuer; this limitation does not apply to investments in
securities issued or guaranteed by the U.S. government, its agencies or
instrumentalities; and (2) borrow money or enter into reverse repurchase
agreements, except that the Fund may (a) enter into reverse repurchase
agreements or (b) borrow money from banks for temporary or emergency purposes in
aggregate amounts of up to one-third of the value of the Fund's net assets;
provided that, while borrowings exceed 5% of the Fund's net assets, any such
borrowings will be repaid before additional investments are made.
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.
By itself, the Fund does not constitute a balanced investment program.
Investors should take into account their investment objectives as well as other
investments when considering the purchase of shares of any investment company.
Certain risks related to the Fund are discussed below. In addition to the
risks 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.
Should the Fund need to raise cash to meet a large number of redemptions the
Fund might have to sell portfolio securities at a time when it would be
disadvantageous to do so.
INTEREST RATE RISK
The values of fixed-rate securities fluctuate in response to changes in
interest rates; generally rising when interest rates decline, and falling, when
interest rates rise. As a result, if interest rates increase after a security is
purchased, the security, if sold prior to maturity, may return less than its
cost. The corresponding increase or decrease in the value of fixed-rate
securities generally becomes more significant for instruments with longer
remaining maturities or longer expected remaining lives. Moreover, investment
yields on relatively short-term investments are subject to substantial and rapid
fluctuation.
PREPAYMENTS
The Mortgage Securities in which the Fund principally invests differ from
conventional bonds in that principal is repaid over the life of the investment
rather than at maturity. As a result, the holder of the investment (i.e., the
Fund) receives monthly scheduled payments of principal and interest and may
receive unscheduled principal payments representing prepayments on the
underlying mortgages or loans. When the holder reinvests the payments and any
unscheduled prepayments of principal it receives, it may receive a rate of
interest that is higher or lower than the rate on the existing investment.
RESETS
The Fund invests in ARMS and adjustable rate CMOs that hold securities whose
interest rates are readjusted at intervals of up to three years (generally one
year or less) to an increment over some predetermined interest rate index.
There are three main categories of indices: (1) those based on U.S. Treasury
securities; (2) those derived from a calculated measure, such as a cost of funds
index; or (3) a moving average of mortgage rates. Commonly utilized indices
include the one-year, three-year and five-year constant maturity Treasury rates,
the three-month Treasury Bill rate, the 180-day Treasury Bill rate, rates on
longer-term Treasury securities, the 11th District Federal Home Loan Bank Cost
of Funds, the National Median Cost of Funds, the one-month, three-month,
six-month or one-year London Interbank Offered Rate ("LIBOR"), the prime rate of
a specific bank and commercial paper rates. Some indices, such as the one-year
constant maturity Treasury rate, closely mirror changes in market interest rate
levels. Others, such as the 11th District Home Loan Bank Cost of Funds Index,
tend to lag behind changes in market rate levels and tend to be somewhat less
volatile.
The Fund's net asset value per share could vary to the extent that current
interest rates on Mortgage Securities are different than market interest rates
during periods between coupon reset dates. During periods of rising or falling
interest rates, changes in the coupon rate lag behind changes in the market rate
possibly resulting in a net asset value per share that is slightly lower or
higher, as the case may be, until the coupon resets to market rates.
Shareholders could lose some of their principal loss if they sold their shares
of the Fund during periods of rising interest rates before the interest rates on
the underlying mortgages or loans were adjusted to reflect current market rates.
During periods of fluctuations in interest rates, the Fund's net asset value per
share will fluctuate as well.
CAPS AND FLOORS
The Fund invests in ARMS and CMOs whose underlying securities will frequently
have "caps" and "floors" that limit the maximum amount by which the loan rate to
the borrower may change up or down per reset or adjustment interval and over the
life of the loan.
The Fund will not benefit from increases in interest rates to the extent that
interest rates rise to the point where they cause the current coupon of loans or
mortgages held as investments to reach their maximum allowable annual or
lifetime reset limits (cap rates). An increase in interest rates above the cap
rates would cause such mortgages or loans to "cap out" and to behave more like
long-term fixed rate debt securities. Conversely, the Fund will not benefit from
decreases in interest rates to the extent that prepayments increase. In
addition, when interest rates decline, the Fund's income will be reduced when
the interest rates on underlying adjustable rate mortgages are reduced.
ADDITIONAL FACTORS
In an environment where interest rates on short-term fixed-rate debt
securities are rising faster than interest rates on long-term fixed-rate debt
securities, the market value of Mortgage Securities will typically underperform
other fixed-rate debt securities. In addition, because of the user risk
described above, the Fund's investments may not perform as expected.
ARMS are less effective as a means of "locking in" long-term interest rates
than fixed-rate debt securities, since their market values will generally vary
inversely with changes in market interest rates, (i.e., declining when interest
rates rise and rising when interest rates decline). However, the market value of
ARMS is less likely to decline than fixed-rate debt securities of comparable
maturities during periods of rapidly rising rates. In addition, ARMS have less
potential than fixed-rate debt securities for capital appreciation due to their
adjustable rate features and the likelihood of increased prepayments of
mortgages as interest rates decline.
If ARMS are purchased at a premium, unscheduled principal prepayments may
result in some loss of the holder's principal investment to the extent of the
premium paid over the face value of the security. On the other hand, if ARMS are
purchased at a discount, both a scheduled payment of principal and an
unscheduled prepayment of principal will increase current and total returns and
will accelerate the recognition of income, which, when distributed to
shareholders, will be taxable as ordinary income.
While the Fund may invest in securities that are issued or guaranteed by the
U.S. government, its agencies or instrumentalities, the market value of such
securities is not guaranteed.
For further information about the risks associated with the Fund's investments
and investment techniques, see the section of this prospectus entitled
"Additional Investment Information" and the statement of additional information.
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 purposes 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 of the Fund is arrived at by determining the value of the Fund's
assets, subtracting its liabilities and dividing the result by the number of its
shares outstanding.
The Fund values most of its securities at the mean of the bid and asked price
at the time of valuation and values other securities at fair value according to
procedures established by the Board of Trustees, including valuing certain of
its fixed rate Mortgage Securities on the basis of valuations provided by a
pricing service approved by the Fund's Board of Trustees, which uses information
with respect to transactions in Mortgage Securities, quotations from dealers,
market transactions in comparable securities and various relationships between
securities in determining value.
The Fund values securities (1) with maturities of sixty days or less at
amortized cost (original purchase cost as adjusted for amortization of premium
or accretion of discount), which, when combined with accrued interest,
approximates market; (2) securities with remaining maturities of 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; (3) all other investments are valued at
market value or, where market quotations are not readily available, at fair
value as determined in good faith in accordance with procedures established by
the Board of Trustees.
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 as a regulated investment company, 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 intends to declare dividends from net investment income daily and
distribute to its shareholders such dividends monthly and declare and distribute
all net realized capital gains if any, annually. Shareholders receive Fund
distributions in the form of additional shares of that class of shares upon
which the distribution is based or, at the shareholder's option, in cash.
Because Class Y shares bear most of the costs of distribution of such shares
through an annual distribution fee, expenses attributable to Class Y shares will
generally be higher than those of Class Z shares, and income distributions paid
by the Fund with respect to Class Z shares will generally be greater than those
paid with respect to Class Y shares.
Dividends and distributions other than capital gains dividends, are taxable as
ordinary income to shareholders who are subject to federal income taxes and 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.
Any such distribution declared in October, November or December to
shareholders of record in such month and paid by the following January 31 would
be includable in the taxable income of shareholders as if paid on December 31 of
the year in which the distribution was declared.
The Fund intends to distribute its net long-term capital gains as capital gain
dividends; such dividends are treated by shareholders as long-term capital
gains. Such distributions will be designated as long-term capital gain dividends
by a written notice mailed to each shareholder no later than 60 days after the
close of the Fund's fiscal year. If a shareholder receives a capital gain
dividend, then any allowable loss on disposition of Fund shares will be treated
as a long-term capital loss to the extent of such capital gain dividend, if such
shares have been held for six months or less.
Since none of the Fund's income will consist of corporate dividends, no
distributions will qualify for the corporate dividends received deduction.
FUND MANAGEMENT AND EXPENSES
BOARD OF TRUSTEES
Under Massachusetts law, the Fund's Board of Trustees has absolute and
exclusive control over the management and disposition of all assets of the Fund.
Subject to the general supervision of the Fund's Board of Trustees, Keystone is
responsible for the overall management of the Fund's business and affairs.
INVESTMENT ADVISER
Keystone has provided investment advisory and management services to
investment companies and private accounts since 1932. Keystone is a wholly-
owned subsidiary of Keystone Investments, Inc. ("Keystone Investments"). 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 with the Fund
(the "Advisory Agreement"), Keystone provides investment advisory and management
services to the Fund. The Fund pays Keystone a fee for its services at the
annual rate of 0.30% of the average daily net asset value of the shares of the
Fund. A pro-rata portion of the fee is payable in arrears at the end of each day
or calendar month as Keystone may, from time to time, specify to the Fund.
The Advisory Agreement continues in effect from year to year only so long as
such continuance is specifically approved at least annually by (i) the Fund's
Board of Trustees or by vote of a majority of the outstanding shares of the Fund
and (ii) by the vote of a majority of the Independent Trustees (Trustees who are
not interested persons, as defined in the 1940 Act of the Fund, as defined in
the 1940 Act) cast in person at a meeting called for the purpose of voting on
such approval. The Advisory Agreement may be terminated, without penalty, on 60
days' written notice by the Fund or Keystone, or by a vote of shareholders of
the Fund. 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 of "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 Fund and Keystone (the "New Advisory Agreement"). The Fund'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 Fund'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 Fund and Fiduciary
Investment Company, the Fund's Principal Underwriter ("FICO"). As a result, the
Fund'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 Fund; (ii) a marketing services agreement
between Keystone Investment Distributors Company ("KIDC") and EFD with respect
to the Fund; and (iii) a subadministration agreement between Keystone and Furman
Selz LLC with respect to the Fund. EFD is a wholly-owned subsidiary of Furman
Selz LLC. KIDC is a wholly owned subsidiary of Keystone. It is currently
anticipated that on or about January 2, 1997, Furman Selz LLC will transfer EFD
and Furman Selz LLC's related services to BISYS Group, Inc. ("BISYS") (the
"Transfer"). The Fund's Trustees have also approved, subject to completion of
the Transfer, (i) a new principal underwriting agreement between KIDC and EFD
with respect to the Fund; (ii) a new marketing services agreement between EFD
with respect to the Fund; and (iii) a subadministration agreement between
Keystone and BISYS with respect to the Fund. The terms of such agreements will
be substantively identical to the terms of the agreements to be executed upon
completion of the Merger.
The Fund has adopted a Code of Ethics incorporating policies on personal
securities trading as recommended by the Investment Company Institute.
PORTFOLIO MANAGER
Christopher P. Conkey has been the Fund's portfolio manager since 1991. Mr.
Conkey is a Keystone Senior Vice President and Group Leader for the high grade
fixed income area. Mr. Conkey joined Keystone as a fixed income portfolio
manager in January, 1988.
FUND EXPENSES
Pursuant to the Advisory Agreement, Keystone has agreed to pay certain of the
Fund's expenses, including expenses of the Fund's transfer agent, custodian and
auditors; 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 prospectuses, notices,
reports and proxy material; and expenses of shareholders' and Trustees'
meetings. In addition to the investment advisory and management fee discussed
above, the principal expenses that the Fund is expected to pay include expenses
of its Independent Trustees; brokerage commissions, interest charges and taxes;
legal fees and certain extraordinary expenses. Each class will pay all of the
expenses attributable to it. Such expenses are currently limited to Distribution
Plan expenses.
During the fiscal year ended September 30, 1996, Keystone voluntarily limited
the expenses of the Fund's Class Y and Class Z shares to .55% and .30%,
respectively, of average net class assets annually. Keystone reserves the right
at any time, however, to make a redetermination of whether to continue these
expense limits and, if so, at what rates.
For the fiscal year ended September 30, 1996, the Fund paid or accrued to
Keystone investment management and advisory services fees of $121,105 which
represented 0.30% of the Fund's average net assets. For the fiscal year ended
September 30, 1996, the Fund paid .55% and .30% of the average annual net assets
of the Class Y and Class Z shares, respectively, in expenses.
SECURITIES TRANSACTIONS
Under policies established by the Board of Trustees, Keystone selects
broker-dealers to execute transactions subject to the receipt of best execution.
When selecting broker-dealers to execute portfolio transactions for the Fund,
Keystone may consider the number of shares of the Fund sold by the
broker-dealer. In addition, broker-dealers executing portfolio transactions,
from time to time, may be affiliated with the Fund, Keystone, FICO, or their
affiliates.
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 rates for the fiscal years ended September 30,
1996 and 1995 were 85% and 56%, respectively.
HOW TO BUY SHARES
Shares of the Fund are sold through FICO. FICO, a wholly-owned subsidiary of
Keystone, is located at 200 Berkeley Street, Boston, Massachusetts 02116-5034.
Shares are sold without a sales charge at the public offering price, which is
equal to 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.
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.
OPENING AN ACCOUNT
First, telephone Keystone Investor Resource Center, Inc. ("KIRC"), the Fund's
transfer agent and dividend disbursing agent, toll free at 1-800-633-2700 to
open an account and obtain an account or wire identification number.
Second, arrange with your bank to wire federal funds to KIRC's agent at the
following address (please include your account number)
State Street Bank and Trust Company
Boston, Massachusetts
ABA 011000028 Attn: Mutual Fund Division
For incoming wire A/C 0127-654-2
For credit to KIARF
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 appropriate, KIRC may require additional documentation or verification of
authority.
Information on how to wire federal funds is available at any national bank or
any state bank that is a member of the Federal Reserve System. The bank may
charge for these services. Presently, there is no fee for receipt by KIRC of
federal funds wired, but the right to charge for this service is reserved.
ALTERNATIVE SALES OPTIONS
The Fund offers two classes of shares.
CLASS Y SHARES
Class Y shares are sold without a sales charge at the time of purchase and are
not subject to a sales charge when they are redeemed. Class Y shares are
available to any investor making a minimum initial purchase aggregating
$1,000,000 or more. There is no minimum amount required for subsequent
purchases.
The Fund has adopted a Distribution Plan with respect to its Class Y shares
("Class Y Distribution Plan"), that provides for payments at an annual rate of
up to 0.35% of the average daily net asset value of Class Y shares, to pay
expenses of the distribution of Class Y shares. Payments are expected to be at a
rate of 0.25% of the average daily net assets of Class Y shares. Amounts paid by
the Fund under the Class Y Distribution Plan are generally used to pay FICO and
others' service fees. The Fund may also make payments to FICO, dealers and
others for activities that are primarily intended to result in sales of Class Y
shares, including, but not limited to, mail promotions and advertising,
including the use of member name and address lists of affinity groups,
professional associations, trade groups, industry associations or other
associations (e.g., credit union trade groups), for which use royalty payments
may be made. As a result, income distributions paid by the Fund with respect to
Class Y shares will generally be less than those paid with respect to Class Z
shares. See "Distribution Plan" below.
CLASS Z SHARES
Class Z shares are sold without a sales charge at the time of purchase and are
not subject to a sales charge when they are redeemed. Class Z shares are
available to the following investors making a minimum initial purchase
aggregating $1,000,000 or more: officers, directors or trustees, and employees
of the Fund, Keystone, FICO, or any of their affiliates, and members of the
immediate families of such persons, or any trust, pension, profit-sharing, or
other retirement or benefit plan for the benefit of such persons; present
shareholders of Class Z shares of the Fund; and existing investment advisory
clients of Keystone Institutional Company, Inc., FICO, or any of their
affiliates. There is no minimum amount required for subsequent purchases.
ARRANGEMENTS WITH BROKER-DEALERS AND OTHERS
From time to time, FICO may provide promotional incentives to certain dealers
whose representatives have sold or are expected to sell significant amounts of
the Fund. In addition, from time to time, broker-dealers may receive additional
cash payments. FICO may provide written information to broker-dealers with whom
it has dealer agreements that relates to sales incentive campaigns conducted by
such broker-dealers for their representatives as well as financial assistance in
connection with pre-approved seminars, conferences and advertising. No such
programs or additional compensation will be offered to the extent they are
prohibited by the laws of any state or any self-regulatory agency, such as the
National Association of Securities Dealers ("NASD").
FICO may, at its own expense, pay concessions in addition to those described
above to broker-dealers that satisfy certain criteria established from time to
time by FICO. These conditions relate to increasing sales of shares of the
Keystone funds over specified periods and certain other factors. Such payments
may, depending on the broker-dealer's satisfaction of the required conditions,
be periodic and may be up to 0.25% of the value of shares sold by such
broker-dealer.
FICO may also pay a transaction fee (up to the level of the payments allowed
to broker-dealers for the sale of such shares, as described above) to banks and
other financial services firms that facilitate transactions in shares of the
Fund.
The Glass-Steagall Act currently limits the ability of a depository
institution (such as a commercial bank or a savings and loan association) to
become an underwriter or distributor of securities. In the event the
Glass-Steagall Act is deemed to prohibit depository institutions from accepting
payments under the arrangement described above, or should Congress relax current
restrictions on depository institutions, the Board of Trustees will consider
what action, if any, is appropriate.
In addition, state securities laws on this issue may differ from the
interpretations of federal law expressed herein, and banks and financial
institutions may be required to register as broker-dealers pursuant to state
law.
DISTRIBUTION PLAN
As discussed above, the Fund bears some of the costs of selling its Class Y
shares under a Distribution Plan adopted with respect to its Class Y shares
pursuant to Rule 12b-1 under the 1940 Act. Payments under the Class Y
Distribution Plan are limited to up to 0.35% annually of the average daily net
asset value of Class Y shares.
The NASD limits the amount that the Fund may pay annually in distribution
costs for the sale of its shares and shareholder service fees. The NASD
currently limits annual expenditures to 1% of the aggregate average daily net
asset value of its shares, of which 0.75% may be used to pay such distribution
costs and 0.25% may be used to pay shareholder service fees. The NASD also
limits the aggregate amount that the Fund may pay for such distribution costs to
6.25% of gross share sales since the inception of the 12b-1 Distribution Plan,
plus interest at the prime rate plus 1% on such amounts remaining unpaid from
time to time.
The Class Y Distribution Plan may be terminated at any time by vote of the
Independent Trustees or by vote of a majority of the outstanding voting shares
of Class Y.
Payments pursuant to the Class Y Distribution Plan are included in the
operating expenses of that class.
HOW TO REDEEM SHARES
You may redeem shares of the Fund at net asset value by mail or by using the
telephone or telecommunication redemption privilege.
MAIL REDEMPTIONS
Shares may be redeemed on each day on which the Exchange is open by mailing a
written request to KIRC at the following address:
Keystone Investor Resource Center, Inc.
P.O. Box 2121
Boston, Massachusetts 02106-2121
The signatures on the written request must be PROPERLY GUARANTEED by a U.S.
stock exchange member, a bank or other persons eligible to guarantee signatures
under the Securities Exchange Act of 1934 and KIRC's policies when the
circumstances of such redemptions indicate that guaranteed signatures are
appropriate, in the judgment of the Fund or KIRC, for the protection of the
Fund, its shareholders and KIRC. The Fund and KIRC may waive this requirement or
may require additional documentation in certain cases.
TELEPHONE OR TELECOMMUNICATION REDEMPTIONS
You may redeem shares on each day on which the Exchange is open for business
by telephone (toll free 1-800-633-2700), mailgram, fax or other request not
bearing a signature and a signature guarantee to KIRC.
Shareholders must complete and sign the Account Application, including the
Redemption Authorization Section.
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 FICO assumes
responsibility for the authenticity of any instructions received by any of them
from a shareholder in writing or by telephone. KIRC will employ reasonable
procedures to confirm that instructions received over the telephone are genuine.
Neither the Fund, KIRC nor FICO will be liable when following instructions
received by telephone that KIRC reasonably believes to be genuine.
Any change in the bank account designated to receive redemption proceeds must
be made in another Account Application signed by the shareholder (WITH
SIGNATURES PROPERLY GUARANTEED IN THE MANNER DESCRIBED ABOVE) and delivered to
KIRC at the address above.
If a shareholder redeems all the shares in an account, the shareholder will
receive, in addition to the value thereof, all declared but unpaid distributions
thereon.
REDEMPTION OF SHARES IN 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.
The Fund computes the amount due you at the close of the Exchange at the end
of the day on which it has received all proper documentation from you. Payment
will be made within seven days after a properly completed redemption request is
received.
The Fund may temporarily suspend the right to redeem or may extend 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.
SHAREHOLDER SERVICES
Details on all shareholder services may be obtained from KIRC by calling toll
free 1-800-633-2700 or from FICO by writing to FICO at 200 Berkeley Street,
Boston, Massachusetts 02116-5034.
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 himself or herself 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.
PERFORMANCE DATA
From time to time, the Fund may advertise "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
and current yield are computed separately for each class of shares of the Fund.
Total return refers to the Fund's average annual compounded rates of return over
specified periods determined by comparing the initial amount invested in a
particular class to the ending redeemable value of that amount. The resulting
equation assumes reinvestment of all dividends and distributions and deduction
of 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.
FUND SHARES
The Fund currently issues Class Y and Z shares, which participate in dividends
and distributions and have equal voting, liquidation and other rights except
that (1) expenses related to the distribution of each class of shares or other
expenses that the Board of Trustees may designate as class expenses, from time
to time, are borne solely by each class; (2) each class of shares has exclusive
voting rights with respect to its Distribution Plan, if any; and (3) each class
has a different designation. When issued and paid for, the shares will be fully
paid and nonassessable by the Fund. Shares will have no preference, conversion,
exchange or preemptive rights. Shares are transferable, redeemable and freely
assignable as collateral. There are no sinking fund provisions. The Fund is
authorized to issue additional classes or series of shares.
Shareholders are entitled to one vote for each full share owned and fractional
votes for fractional shares on all matters subject to Fund vote. Shares of the
Fund vote together except when required by law to vote separately by series or
class. The Fund does not have annual meetings. The Fund will have special
meetings, from time to time, as required under its Declaration of Trust and
under the 1940 Act. As provided in the Declaration of Trust of the Fund,
shareholders have the right to remove Trustees by an affirmative vote of
two-thirds of the outstanding shares. A special meeting of the shareholders will
be held when holders of 10% of the outstanding shares request a meeting. 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 Fund's obligations. The Fund's Declaration of Trust
provides, however, that shareholders shall not be subject to any personal
liability for the Fund's obligations and provides indemnification from Fund
assets for any shareholder held personally liable for the Fund's obligations.
Disclaimers of such liability are included in each Fund agreement.
ADDITIONAL INFORMATION
Except as otherwise stated in this prospectus or required by law, the Fund
reserves the right to change the terms of the offer stated in this prospectus
without shareholder approval, including the right to impose or change fees for
services provided.
<PAGE>
- --------------------------------------------------------------------------------
ADDITIONAL INVESTMENT INFORMATION
- ------------------------------------------------------------------------------
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
creditworthy. 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 only intends 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 of the Fund 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
the Fund is obligated to repurchase may decline below the repurchase price.
COLLATERALIZED MORTGAGE OBLIGATIONS
The Fund will invest only in CMOs issued or guaranteed by the U.S. government,
its agencies or instrumentalities. The Fund intends to invest only in CMOs that,
in Keystone's opinion, are suitable in light of the Fund's investment objective
and policies. The Fund may purchase any class of CMO other than the residual
(final) class or a class whose average life would extend or is shortened by more
than 6 years under modeling scenarios where mortgage commitment rates
immediately rise or fall 300 basis points.
CMOs are debt obligations collateralized by Mortgage Securities and may be
issued by and guaranteed as to principal and interest by the U.S. government,
its agencies or instrumentalities or by private originators of, or investors in,
mortgage loans, including savings and loan associations, mortgage banks,
commercial banks, investment banks and special purpose subsidiaries of the
foregoing. The principal governmental issuer of CMOs is FNMA. In addition, FHLMC
issues a significant number of CMOs. The secondary market for CMOs is actively
traded.
CMOs are structured by redirecting the total payment of principal and interest
on the underlying Mortgage Securities used as collateral to create classes with
different interest rates, maturities and payment schedules. Instead of interest
and principal payments on the underlying Mortgage Securities being passed
through or paid pro-rata to all holders of interests in the underlying Mortgage
Securities, each class of a CMO is paid from and secured by a separate priority
payment of the cash flow generated by the pledged Mortgage Securities.
Most CMO issues have at least four classes. Classes with earlier maturities
receive priority on payments to assure the early maturity. After the first class
is redeemed, excess cash flow not necessary to pay interest on the remaining
classes is directed to the repayment of the next maturing class until that class
is fully redeemed. This process continues until all classes of the CMO issue
have been paid in full. Among the CMO classes available are floating
(adjustable) rate classes, which have characteristics similar to ARMS and
inverse floating rate classes whose coupons vary inversely with the rate of some
market index.
<PAGE>
[logo] KEYSTONE
INVESTMENTS
Fiduciary Investment Company, Inc.
Keystone Investment Distributors Company
200 Berkeley Street
Boston, Massachusetts 02116-5034
KIARF-P 12/96
..55M [recycle logo]
KEYSTONE
INSTITUTIONAL
ADJUSTABLE
RATE FUND
PROSPECTUS
[logo]
<PAGE>
KEYSTONE INSTITUTIONAL ADJUSTABLE RATE FUND
PART B
STATEMENT OF ADDITIONAL INFORMATION
<PAGE>
KEYSTONE INSTITUTIONAL ADJUSTABLE RATE FUND
STATEMENT OF ADDITIONAL INFORMATION
DECEMBER 10, 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 Adjustable Rate Fund (the "Fund") dated December 10, 1996. A copy
of the prospectus may be obtained from the Fund's principal underwriter,
Fiduciary Investment Company, Inc. ("FICO"), located at 200 Berkeley Street,
Boston, Massachusetts 02116-5034.
TABLE OF CONTENTS
Page
The Fund 2
Investment Restrictions 2
Distributions and Taxes 4
Valuation of Securities 4
Brokerage 5
Distribution Plan 7
Trustees and Officers 9
Investment Adviser 13
Distributor 15
Declaration of Trust 17
Expenses 19
Standardized Total Return and Yield Quotations 20
Financial Statements 20
Additional Information 21
Appendix A-1
THE FUND
The Fund is an open-end, diversified management investment company,
commonly known as a mutual fund. The Fund was formed as a Massachusetts business
trust on June 19, 1991. The Fund is one of more than thirty funds advised by
Keystone Investment Management Company ("Keystone"), the Fund's investment
adviser.
Certain information about the Fund is contained in its prospectus. This
statement of additional information provides additional information about the
Fund.
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 (the
"1940 Act") as 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 the
assets of the Fund 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 in the securities of any one issuer; this limitation
does not apply to investments in securities issued or guaranteed by the U.S.
government, its agencies or instrumentalities;
(2) invest more than 5% of its total assets in securities of any
company having a record, together with its predecessors, of less than three
years of continuous operations;
(3) pledge more than 15% of its net assets to secure indebtedness; the
purchase or sale of securities on a when issued basis is not deemed to be a
pledge of assets;
(4) borrow money or enter into reverse repurchase agreements, except
that the Fund may enter into reverse repurchase agreements or borrow money from
banks for temporary or emergency purposes in aggregate amounts up to one-third
of the value of the Fund's net assets; provided that while borrowings from banks
(not including reverse repurchase agreements) exceed 5% of the Fund's net
assets, any such excess borrowings will be repaid before additional investments
are made;
(5) make loans, except that the Fund may purchase or hold debt
securities consistent with its investment objective, lend portfolio securities
valued at not more than 15% of its total assets to brokers, dealers and
financial institutions, and enter into repurchase agreements;
(6) make short sales of securities or maintain a short position, unless
at all times when a short position is open it owns an equal amount of such
securities or of securities which, without payment of any further consideration,
are convertible into or exchangeable for securities of the same issue as, and
equal in amount to, the securities sold short;
(7) issue senior securities; the purchase or sale of securities on a
when issued basis is not deemed to be the issuance of a senior security;
(8) purchase securities on margin, except that it may obtain such
short-term credit as may be necessary for the clearance of purchases and sales
of securities;
(9) purchase more than 3% of the total outstanding voting securities of
any one investment company, invest more than 5% of its total assets in any one
investment company or invest more than 10% of its total assets in investment
companies in general, except as part of a merger, consolidation, purchase of
assets or similar transaction;
(10) purchase or sell commodities or commodity contracts or real
estate, except that it may purchase and sell securities secured by real estate
and securities of companies which invest in real estate and may engage in
financial futures contracts and related options transactions; and
(11) underwrite securities of other issuers, except that the Fund may
purchase securities from the issuer or others and dispose of such securities in
a manner consistent with its investment objective.
If a percentage limit is satisfied at the time of investment or
borrowing, a later increase or decrease resulting from a change in asset value
of a security or a decrease in Fund assets is not a violation of the limit.
DISTRIBUTIONS AND TAXES
The Fund intends to distribute its net investment income daily and its
net capital gains, if any, annually. You will receive distributions as shares,
unless you elect, before the payable date for income dividends or the record
date for capital gains distributions, to receive them as cash. Unless the Fund
receives instructions to the contrary, it will assume that you wish to receive
that distribution and future gains and income distributions in shares. Your
instructions continue in effect until changed in writing. If you have not opted
to receive cash, the Fund will determine the number of shares that you should
receive based on its net asset value per share as computed at the close of
business on the ex-dividend date after adjustment for the distribution.
Capital gains distributions that reduce the net asset value of your
shares below your cost are, to the extent of the reduction, a return of your
investment. Since distributions of capital gains depend upon profits realized
from the sale of the Fund's portfolio securities, they may or may not occur.
Distributions are taxable whether you receive them in cash or
additional shares. Long-term capital gains distributions are taxable as such
regardless of how long you have held the shares. If, however, you hold the
Fund's shares for less than six months and redeem them at a loss, you will
recognize a long-term capital loss to the extent of the long-term capital gain
distribution received in connection with such shares.
The Fund intends to distribute only such net capital gains and income
as it has predetermined, to the best of its ability, to be taxable as ordinary
income. The Fund distributes its net investment income on a federal income tax
basis, not based on distributable income as computed on our books. The Fund does
not expect its income dividends to qualify for the corporate dividends received
deduction.
The Fund will advise you annually as to the federal income tax status
of your distributions. These comments relating to the taxation of dividends and
distributions paid on the Fund's shares relate solely to federal income
taxation. Your dividends and distributions may also be subject to state and
local taxes.
VALUATION OF SECURITIES
Current values for the Fund's portfolio securities are determined in
the following manner:
(1) securities for which market quotations are readily available are
valued at market value, which is deemed to be the mean of the bid and asked
prices at the time of valuation;
(2) (a) short-term investments that are purchased with maturities of
sixty days or less are valued at amortized cost (original purchase cost as
adjusted for amortization of premium or accretion of discount), which, when
combined with accrued interest, approximates market;
(b) 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;
(c) short-term instruments having maturities of more than sixty days,
for which market quotations are readily available, are valued at current market
value; and
(3) securities, including restricted securities, for which market
quotations are not readily available, and other assets are valued at prices
deemed in good faith to be fair under procedures established by the Fund's Board
of Trustees.
The Fund believes that reliable market quotations are generally not
readily available for purposes of valuing certain securities. As a result,
depending on the particular securities owned by the Fund, it is likely that most
of the valuations for such obligations will be based upon their fair value
determined under procedures that have been approved by the Board of Trustees.
The Board of Trustees has authorized the use of a pricing service to determine
the fair value of the Fund's fixed rate mortgage securities.
BROKERAGE
It is the policy of Keystone, in effecting transactions in the Fund's
portfolio securities, to seek best execution of orders at the most favorable
prices. The determination of what may constitute best execution and price in the
execution of a securities transaction by a broker involves a number of
considerations including, without limitation, the overall direct net economic
result to the Fund, involving both price paid or received and any commissions
and other costs paid; the efficiency with which the transaction is effected; the
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 judgmental and are weighed by management in
determining the overall reasonableness of brokerage commissions paid.
Subject to the foregoing, a factor in the selection of brokers is the
receipt of research services, such as analyses and reports concerning issuers,
industries, securities, economic factors and trends and other statistical and
factual information. Any such research and other statistical and factual
information provided by brokers to the Fund is considered to be in addition to,
and not in lieu of, services required to be performed by Keystone under its
Investment Advisory and Management Agreement with the Fund (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 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 its securities and
temporary instruments usually will be principal transactions. Adjustable rate
and fixed rate securities and temporary instruments are normally purchased
directly from the issuer or from an underwriter or market maker for the
securities. There usually will be no brokerage commissions paid by the Fund for
such purchases. Purchases from underwriters will include the underwriting
commission or concession, and purchases from dealers serving as market makers
will include a dealer's mark-up or reflect a dealer's mark-down. Where
transactions are made in the over-the-counter market, the Fund will deal with
primary market makers unless more favorable prices are otherwise obtainable.
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 in order to take 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 Board of
Trustees, however, has determined that the Fund may follow a policy of
considering sales of shares as a factor in the selection of broker-dealers to
execute portfolio transactions, subject to the requirements of best execution,
including best price, described above.
The Fund's Board of Trustees periodically reviews the Fund's brokerage
policy. In the event of further regulatory development affecting securities
exchanges and brokerage practices generally, the Board of Trustees may change,
modify or eliminate any of the foregoing practices.
Investment decisions for the Fund are made independently by Keystone
from those of the other funds and investment accounts managed by Keystone. It
may frequently develop, however, that the same investment decision is made for
more than one fund. Simultaneous transactions are inevitable when the same
security is suitable for the investment objective of more than one account. When
two or more 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 that is equitable to each fund or account. It is recognized that in some
cases this system could have a detrimental effect on the price or volume of the
security as far as the Fund is concerned. In other cases, however, it is
believed that the ability of the Fund to participate in volume transactions will
produce better executions for the Fund.
In no instance are portfolio securities purchased from or sold to
Keystone, FICO or any of their affiliated persons, as defined in the 1940 Act
and rules and regulations issued thereunder.
DISTRIBUTION PLAN
GENERAL
The Fund offers Class Y and Z shares. Class Y shares are offered
without an initial sales charge and are not subject to a sales charge when they
are redeemed. Class Y shares make payments under a distribution plan pursuant to
Rule 12b-1 under the 1940 Act (the "Class Y Distribution Plan").
Class Z shares are also offered without a sales charge at the time of
purchase and are not subject to a sales charge when they are redeemed. There is
no distribution plan with respect to Class Z shares. Class Z shares are
available only to certain investors. The prospectus contains a general
description of how investors may buy shares of the Fund.
Rule 12b-1 under the 1940 Act permits investment companies, such as the
Fund, to use their assets to bear expenses of distributing their shares if they
comply with various conditions, including adoption of a distribution plan
containing certain provisions set forth in Rule 12b-1. The Fund's Class Y
Distribution Plan has been approved by the Fund's Board of Trustees, including a
majority of the Independent Trustees (Trustees who are not interested persons of
the Fund, as defined in the 1940 Act, and who have no direct or indirect
financial interest in the Fund's Distribution Plan or any agreement related
thereto).
The National Association of Securities Dealers, Inc. ("NASD") limits
the amount that the Fund may pay annually in distribution costs for sale of its
shares and shareholder service fees. The NASD limits annual expenditures to
1.00% of the aggregate average daily net asset value of its shares, of which
0.75% may be used to pay such distribution costs and 0.25% may be used to pay
shareholder service fees. The NASD also limits the aggregate amount that the
Fund may pay for such distribution costs to 6.25% of gross share sales since the
inception of the Class Y Distribution Plan, plus interest at the prime rate plus
1.00% on such amounts remaining unpaid from time to time.
CLASS Y DISTRIBUTION PLAN. The Class Y Distribution Plan provides that the Fund
may expend daily amounts at an annual rate up to 0.35% of the Fund's average
daily net asset value attributable to Class Y shares to finance any activity
that is primarily intended to result in the sale of Class Y shares, including
without limitation, expenditures consisting of the payment of service fees to
FICO or others. Such payments are expected to be at a rate of 0.25% of the
average daily net assets of Class Y shares.
Amounts paid by the Fund under the Class Y Distribution Plan are
currently used to pay FICO and others, such as broker-dealers, service fees at
an annual rate of up to 0.25% of the average daily net asset value of Class Y
shares maintained by FICO and such others and outstanding on the books of the
Fund for specified periods. The Fund may also make payments to FICO,
broker-dealers and others for activities that are primarily intended to result
in sales of the Fund's Class Y shares, including, but not limited to, mail
promotions and advertising, including the use of member name and address lists
of affinity groups, professional associations, trade groups, industry
associations, or other associations, for which use royalty payments may be made.
The Class Y Distribution Plan may be terminated, at any time, by vote
of the Independent Trustees or by vote of a majority of the outstanding voting
shares of the Fund's Class Y shares. Any change in the Class Y Distribution Plan
that would materially increase the distribution expenses of the Fund's Class Y
shares provided for in the Class Y Distribution Plan requires shareholder
approval. Otherwise, the Class Y Distribution Plan may be amended by the
Trustees, including the Independent Trustees.
The total amounts paid by the Fund under the foregoing arrangements may
not exceed the maximum Class Y Distribution Plan limit specified above, and the
amounts and purposes of expenditures under the Class Y Distribution Plan must be
reported to the Independent Trustees quarterly. The Independent Trustees may
require or approve changes in the implementation or operation of the Class Y
Distribution Plan and may also require that total expenditures by the Fund under
the Class Y Distribution Plan be kept within limits lower than the maximum
amount permitted by the Distribution Plan as stated above.
While the Class Y Distribution Plan is in effect, the Fund will be
required to commit the selection and nomination of candidates for Independent
Trustees to the discretion of the Independent Trustees.
The Independent Trustees of the Fund have determined that the sales of
the Fund's Class Y shares resulting from payments under the Class Y Distribution
Plan have benefit the Fund.
TRUSTEES AND OFFICERS
Trustees and officers of the Fund, their principal occupations and some
of their affiliations over the last five years are as follows:
*ALBERT H. ELFNER, III: President, Chief Executive Officer and Trustee of the
Fund; 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 Advisers ("KFIA"); Director
and President of Keystone Asset Corporation, Keystone Capital
Corporation and Keystone Trust Company; Director of Keystone Investment
Distributors Company ("KIDC"), Keystone Investor Resource Center, Inc.
("KIRC"), and FICO; Director of Boston Childre n'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 Fund; Trustee or Director of all other funds in
the Keystone Investments Family of Funds; Professor, 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 Fund; 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 (investment advice).
*GEORGE S. BISSELL: Chairman of the Board and Trustee of the Fund; 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 Fund; 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 Fund; 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 Fund; 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 Fund; 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 Fund; 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; Director, Vermont Yankee Nuclear Power Corporation,
Grand Trunk Corporation, Grand Trunk Western Railroad, Union Mutual
Fire Insurance Company, New England Guaranty Insurance Company, Inc.,
and the Investment Company Institute; former Director and President,
Associated Industries of Vermont; former Director of Keystone, Central
Vermont Railway, Inc., S.K.I. Ltd., and Arrow Financial Corp.; and
former Director and Chairman of the Board, Hitchcock Clinic, Proctor
Bank, and Green Mountain Bank.
DAVID M. RICHARDSON: Trustee of the Fund; Trustee or Director of all other
funds in the Keystone Investments Family of Funds; Vice Chair and
former Executive Vice President, DHR International, Inc. (executive
recruitment); former Senior Vice President, Boyden International Inc.
(executive recruitment); and Director, Commerce and Industry
Association of New Jersey, 411 International, Inc., and J & M Cumming
Paper Co.
RICHARD J. SHIMA: Trustee of the Fund; 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 Corporation, Hartford Hospital, Old State House Association,
Middlesex Mutual Assurance Company, and Enhance Financial Services,
Inc.; Chairman, Board of Trustees, Hartford Graduate Center; Trustee,
Greater Hartford YMCA; former Director, Vice Chairman and Chief
Investment Officer, The Travelers Corporation; former Trustee,
Kingswood-Oxford School; and former Managing Director and Consultant,
Russell Miller, Inc.
ANDREW J. SIMONS: Trustee of the Fund; Trustee or Director of all other funds
in the Keystone Investments 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 Fund; 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, KIDC, 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 Fund; Senior Vice President of
all other funds in the Keystone Investments Family of Funds; and
President of Keystone.
J. KEVIN KENELY: Treasurer of the Fund; Treasurer of all other funds in
the Keystone Investments Family of Funds; Vice President and former
Controller of Keystone Investments, Keystone, KIDC, FICO, and Keystone
Software; and former Controller of Keystone Asset Corporation and
Keystone Capital Corporation.
CHRISTOPHER P. CONKEY: Vice President of the Fund; Vice President of certain
other funds in the Keystone Investments Family of Funds; and Senior
Vice President of Keystone.
ROSEMARY D. VAN ANTWERP: Senior Vice President and Secretary of the Fund; 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 KIDC, 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.
* This Trustee may be considered an "interested person" of the Fund within the
meaning of the 1940 Act.
Mr. Elfner and Mr. Bissell are "interested persons" of the Fund by
virtue of their positions as officers and/or Directors of Keystone Investments
and several of its affiliates including Hartwell Keystone, Keystone, Keystone
Investment Distributors Company and Keystone Investor Resource Center, Inc. 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 year ended September 30, 1996, no Trustee or officer
received any direct remuneration from the Fund. For the year ended December 31,
1995, aggregate compensation received by the Independent Trustees on a fund
complex wide basis (which includes over 30 mutual funds) was $450,716. On
November 21, 1996, the Fund's Trustees and officers as a group did not
beneficially own any of the Fund's outstanding shares.
The address of the Fund and its Trustees and officers is 200 Berkeley
Street, Boston, Massachusetts 02116-5034.
INVESTMENT ADVISER
Subject to the general supervision of the Fund's Board of Trustees,
Keystone is responsible for the overall management of the Fund's business and
affairs. Keystone has provided investment advisory and management services to
investment companies and private accounts since 1932. Keystone is a wholly-owned
subsidiary of Keystone Investments, Inc. ("Keystone Investments"). Both Keystone
and Keystone Investments are located at 200 Berkeley Street, Boston,
Massachusetts 02116-5034.
Keystone Investments is a private corporation predominantly owned by
former and current 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 Management, Inc. ("Keystone
Management"), Keystone, their affiliates and the Keystone Investments Family of
Funds.
Pursuant to 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 (i) provide
office space and all necessary office facilities, equipment and personnel in
connection with its services under the Advisory Agreement; (ii) pay or reimburse
the Fund for the compensation of officers and Trustees of the Fund who are
affiliated with Keystone and (iii) pay all expenses of Keystone incurred in
connection with the provision of its services. In addition, Keystone also
assumes and pays or reimburses the Fund for (i) all charges and expenses of any
custodian or depository appointed by the Fund for the safekeeping of its cash,
securities and other property; (ii) all charges and expenses for bookkeeping and
auditors; (iii) all charges and expenses of any transfer agents and registrars
appointed by the Fund; (iv) all costs of certificates representing shares of the
Fund; (v) all fees and expenses involved in registering and maintaining
registrations of the Fund and of its shares with the Securities and Exchange
Commission (the "Commission") and registering or qualifying its shares under
state or other securities laws, including, without limitation, the preparation
and printing of registration statements, prospectuses and statements of
additional information for filing with the Commission and other authorities;
(vi) expenses of preparing, printing and mailing prospectuses and statements of
additional information to shareholders of the Fund; (vii) all expenses of
shareholders' and Trustees' meetings and of preparing, printing and mailing
notices, reports and proxy materials to shareholders of the Fund; and (viii) all
charges and expenses of filing annual and other reports with the Commission and
other authorities.
The Fund assumes and pays all other expenses of the Fund, including,
without limitation, (i) fees of the Fund's Independent Trustees; (ii) all
brokers' fees, expenses and commissions and issue and transfer taxes chargeable
to the Fund in connection with transactions involving securities and other
property to which the Fund is a party; (iii) all costs and expenses of
distribution of its Class Y shares incurred pursuant to its Class Y Distribution
Plan adopted pursuant to Rule 12b-1 under the 1940 Act; (iv) all charges and
expenses of legal counsel for the Fund and for the Fund's Independent Trustees
on routine legal matters relating to the Fund, including, without limitation,
legal services rendered in connection with the Fund's existence, business trust
and financial structure and relations with its shareholders, registrations and
qualifications of securities under federal, state and other laws, and issues of
securities; (v) all taxes and business trust fees payable by the Fund to
federal, state or other governmental agencies; (vi) all interest costs of the
Fund; and (vii) all extraordinary expenses and charges of the Fund, including
all charges and expenses of legal counsel to the Fund in connection with
extraordinary matters, including, without limitation, any litigation involving
the Fund, its Trustees, officers, employees or agents. In the event Keystone
provides any of these services or pays any of these expenses, the Fund will
promptly reimburse Keystone therefor.
The Fund pays Keystone a fee for its services to the Fund at the annual
rate of 0.30% of the average daily net asset value of the shares of the Fund. A
pro rata portion of the fee is payable in arrears at the end of each day or
calendar month as Keystone may, from time to time, specify to the Fund.
Currently, Keystone has voluntarily limited the annual expenses of the
Fund to no more than 0.55% and 0.30% of Class Y and Class Z average daily net
assets, respectively. Keystone intends to continue the foregoing expense
limitations on a calendar month-by-month basis. Keystone will periodically
evaluate the foregoing expense limitations and may modify or terminate them in
the future.Keystone will not be required to reimburse the Fund for amounts in
excess of an expense limit if such reimbursement would result in the Fund's
inability to qualify as a regulated investment company under provisions of the
Internal Revenue Code of 1986, as amended (the "Code").
The Advisory Agreement continues in effect only if approved at least
annually (i) by the Board of Trustees of the Fund or by a vote of a majority of
the outstanding shares, and (ii) by the vote of a majority of the Independent
Trustees cast in person at a meeting called for the purpose of voting on such
approval. The Advisory Agreement may be terminated, without penalty, on 60 days
written notice by the Fund's Board of Trustees or by a vote of a majority of
outstanding shares of the Fund. 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 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 may be deemed to cause an
assignment, within the meaning of the 1940 Act, of the Advisory Agreement
between the Adviser and the Fund. 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 Fund and Keystone
(the "New Advisory" Agreement"). The Funds' 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 agreements. 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.
DISTRIBUTOR
The Fund has entered into a Distribution Agreement with FICO (the
"Distribution Agreement"), a wholly-owned subsidiary of Keystone.
FICO, as agent, currently has the right to obtain subscriptions for and
to sell shares of the Fund. In so doing FICO may retain and employ
representatives to promote distribution of the shares and may obtain orders from
brokers-dealers or others for sales of shares to them. No such representative or
broker-dealer broker shall have any authority to act as agent for the Fund. The
Distribution Agreement provides that FICO will bear the expenses of preparing,
printing and distributing advertising and sales literature and prospectuses used
by it. FICO may receive payments from the Fund pursuant to the Class Y
Distribution Plan.
All subscriptions and sales of shares by FICO are at the public
offering price of the shares, as determined in accordance with the provisions of
the Fund's Declaration of Trust, By-Laws, current prospectus and statement of
additional information. All orders are subject to acceptance by the Fund, and
the Fund reserves the right in its sole discretion to reject any order received.
Under the Distribution Agreement, the Fund is not liable to anyone for failure
to accept any order.
FICO has agreed that it will, in all respects, duly conform with all
state and federal laws applicable to the sale of the shares. FICO has also
agreed that it will indemnify and hold harmless the Fund, and each person who
has been, is or may be a Trustee or officer of the Fund, against expenses
reasonably incurred by any of them in connection with any claim, action, suit or
proceeding to which any of them may be a party, that arises out of or is alleged
to arise out of any misrepresentation or omission to state a material fact on
the part of 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 Fund.
The Distribution Agreement provides that it will remain in effect for
two years and from year to year thereafter as long as its terms and continuance
are approved by a majority of the Fund's Independent Trustees at least annually
at a meeting called for that purpose, and if its continuance is approved
annually by vote of a majority of Trustees, or by vote of a majority of the
outstanding shares of the Fund.
The Distribution Agreement may be terminated, without penalty, on 60
days' written notice by the Fund or on 90 days' written notice by FICO. The
Distribution Agreement will terminate automatically upon its "assignment," as
that term is defined in the 1940 Act.
The proposed transaction may also be deemed to cause an assignment, as
defined by the 1940 Act, of the Distribution Agreement between the Fund and
FICO. As a result, the Fund'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 Fund; (ii) a marketing
services agreement between KIDC and EFD with respect to the Fund; and (iii) a
subadministration agreement between the Adviser and Furman Selz LLC with respect
to the Fund. EFD is a wholly-owned subsidiary of Furman Selz LLC. KIDC is a
wholly-owned subsidiary of Keystone. It is expected that on or about January 2,
1997, Furman Selz LLC will transfer EFD, and Furman Selz LLC's related services,
to BISYS Group, Inc. ("BISYS") (the "Transfer"). The Fund's Trustees have also
approved, subject to completion of the Transfer: (i) a new principal
underwriting agreement between EFD and the Fund; (ii) a new marketing services
agreement between KIDC and EFD with respect to Fund; and (iii) a
subadministration agreement between the Adviser and BISYS with respect to the
Fund. The terms of such agreements are substantively identical to the terms of
the agreements to be executed upon completion of the Merger.
DECLARATION OF TRUST
MASSACHUSETTS BUSINESS TRUST
The Fund is a Massachusetts business trust established under a
Declaration of Trust dated June 19, 1991, as amended (the "Declaration of
Trust"). The Fund is similar in most respects to a business corporation. The
principal distinction between the Fund 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 Fund's Registration Statement. 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 classes of shares. Each share of the Fund
represents an equal proportionate interest with each other share of the series
or class. Upon liquidation, shares are entitled to a pro rata share in the net
assets of the portfolio of securities underlying the series or class.
Shareholders have no preemptive or conversion rights. Shares are redeemable and
transferable. The Fund offers Class Y and Z but may issue additional classes or
series of shares.
SHAREHOLDER LIABILITY
Pursuant to certain decisions of the Massachusetts courts, shareholders
of a Massachusetts business trust may, under certain circumstances, be held
personally liable for the obligations of the Fund. The possibility of the
shareholders incurring financial loss for that reason appears remote because the
Fund's Declaration of Trust (1) contains an express disclaimer of shareholder
liability for obligations of the Fund; (2) requires that notice of such
disclaimer be given in each agreement, obligation or instrument entered into or
executed by the Fund or the Trustees; and (3) provides for indemnification out
of Fund property for any shareholder held personally liable for the obligations
of the Fund.
VOTING RIGHTS
Under the terms of the Declaration of Trust, the Fund does not hold
annual meetings. 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. 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 electing Trustees, no further meetings of
shareholders for the purpose of electing Trustees will be held unless required
by law or 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 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 Fund's outstanding shares.
Any Trustee may voluntarily resign from office.
LIMITATION OF TRUSTEES' LIABILITY
The Declaration of Trust provides that a Trustee shall be liable only
for his own willful defaults and, if reasonable care has been exercised in the
selection of officers, agents, employees or investment advisers, shall not be
liable for any neglect or wrongdoing of any such person; provided, however, that
nothing in the Declaration of Trust shall protect a Trustee against any
liability for his willful misfeasance, bad faith, gross negligence or reckless
disregard of his duties.
The Trustees have absolute and exclusive control over the management
and disposition of all assets of the Fund and may perform such acts as in their
sole judgment and discretion are necessary and proper for conducting the
business and affairs of the Fund or promoting the interests of the Fund and the
shareholders.
EXPENSES
INVESTMENT ADVISORY FEES
For each of the Fund's last three fiscal years, the table below lists the total
dollar amounts paid by the Fund to Keystone for services rendered under the
Advisory Agreement. The table below also shows the percentage of the Fund's
average net assets represented by Keystone's fees. For more information, see
"INVESTMENT ADVISER."
<TABLE>
<S> <C> <C>
Percentage of Fund's
Fiscal Year Fee Paid to Keystone Average Net Assets
Ended under the Advisory Represented by Keystone's
September 30, Agreement Fee
- -------------------------- ---------------------------------------- -----------------------------------------
1996 $121,105 0.30%
1995 $79,819 0.30%
1994 $123,050 0.30%
</TABLE>
- -------------------
DISTRIBUTION PLAN EXPENSES
During the fiscal year ended September 30,, 1996, the Fund paid $23,210 to FICO
under its Distribution Plan. For more information, see "Distribution Plans."
BROKERAGE COMMISSIONS
The Fund paid no brokerage commissions for the fiscal years ended September 30,
1994, 1995 and 1996. For more information, see "Brokerage."
STANDARDIZED TOTAL RETURN AND YIELD QUOTATIONS
Total return quotations for a class of shares of the Fund as they may
appear from time to time in advertisements are calculated by finding the average
annual compounded rates of return over one, five and ten year periods, or the
time periods for which such class of shares has been effective, whichever is
relevant, on a hypothetical $1,000 investment that would equate the initial
amount invested in the class to the ending redeemable value. 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 relevant periods.
The annual total return for Class Y shares for the fiscal year ended
September 30, 1996, was 6.60%. Average annual total return for Class Y shares
for the period May 23, 1994 (commencement of operations), through the fiscal
period ended September 30, 1996, was 5.77%.
The annual total return for Class Z for the fiscal year ended September
30, 1996, was 6.86%. The average annual total return for Class Z for the period
October 1, 1991 (commencement of operations), through September 30, 1996, was
5.20%.
Current yield quotations as they may appear, from time to time, in
advertisements will consist of a quotation based on a 30-day period ended on the
date of the most recent balance sheet of the Fund, computed by dividing the net
investment income per share earned during the period by the maximum offering
price per share on the last day of the base period. The current yields for Class
Y and Class Z for the 30-day period ended September 30, 1996 were 6.07% and
6.36%, respectively.
Any given yield or total return quotation should not be considered
representative of the Fund's yield or total return for any future period.
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:
Schedule of Investments as of September 30, 1996;
Statement of Assets and Liabilities as of September 30, 1996;
Statement of Operations for the year ended September 30, 1996;
Statements of Changes in Net Assets for each of the years in the
two-year period ended September 30, 1996;
Financial Highlights for each of the years in the two-year period ended
September 30, 1996, and the period from May 23, 1994 (date of initial
public offering) to September 30, 1994, for Class Y shares;
Financial Highlights for each of the years in the five-year period
ended September 30, 1996, for Class Z shares;
Notes to Financial Statements; and
Independent Auditors' Report dated November 1, 1996.
A copy of the Fund's Annual Report will be furnished upon request and
without charge. Requests may be made in writing to KIRC, P.O. Box 2121, Boston,
Massachusetts 02106-2121 or by calling KIRC toll free at 1-800-343-2898.
ADDITIONAL INFORMATION
SMALL ACCOUNTS
The Fund reserves the right to redeem shares in any account in which
the value of shares is less than $1,000. The redemption proceeds will be
promptly paid to the shareholder. Shareholders will be notified if their
accounts are less than such amount and given 60 days to bring the account up to
such amount before the redemption is made.
REDEMPTIONS IN KIND
If conditions arise that would make it undesirable for the Fund to pay
for all redemptions in cash, the Fund may authorize payment to be made in
portfolio securities or other property. The Fund has obligated itself under the
1940 Act, however, to redeem for cash all shares presented for redemption by any
one shareholder in any 90-day period up to the lesser of $250,000 or 1% of the
Fund's net assets. Securities delivered in payment of redemptions would be
valued at the same value assigned to them in computing the net asset value per
share and would, to the extent permitted by law, be readily marketable.
Shareholders receiving such securities would incur brokerage costs when these
securities are sold.
OTHER INFORMATION
State Street Bank and Trust Company, located at 225 Franklin Street,
Boston, Massachusetts 02110, is custodian of all securities and cash of the Fund
(the "Custodian"). The Custodian performs no investment management functions for
the Fund, but, in addition to its custodial services, is responsible for
accounting and related recordkeeping on behalf of the Fund.
KPMG Peat Marwick LLP, 99 High Street, Boston, Massachusetts 02110,
Certified Public Accountants, are the independent auditors for the Fund.
KIRC, 200 Berkeley Street, Boston, Massachusetts 02116-5034, is a
wholly-owned subsidiary of Keystone and acts as transfer agent and dividend
disbursing agent for 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 dealer, salesman or other person is authorized to give any
information or to make any representation not contained in the Fund's
prospectus, statement of additional information or in supplemental sales
literature issued by the Fund or FICO, and no person is entitled to rely on any
information or representation not contained therein.
As of November 21, 1996, the following accounts owned of record 5% or
more of the Fund's Class Y shares:
PERCENTAGE
RECORD OWNER OF CLASS OWNED
Skyline Telephone Membership Corp 23.758%
Attn: Hobart G. Davis
P.O. Box 759
Jefferson, NC 28694-0759
Solano Partnership Health Plan 21.452%
Attn: Deborah Cox
421 Executive Ct. N#A
Suisun City, CA 94585-4019
William H. Morgan Jr. 21.376%
906 Weightman
Greenwood, MS 38930-2438
M & M Farms 13.024%
906 Weightman
Greenwood, MS 38930-2438
As of November 21, 1996, the following accounts owned of record 5% or
more of the outstanding shares of the Fund's Class Z shares:
PERCENTAGE OF
RECORD OWNER OF CLASS OWNED
Bank of New York Trustee 55.859%
FBO Saatchi & Saatchi Cash Bal.
Retirement Plan Trust
Attn: Ms. Amy Nellissen
375 Hudson St
New York, NY 10014-3658
Ampex Retirement Master Trust 22.293%
P.O. Box 1992
Boston, MA 02105-1992
Keystone Investments 12.493%
Defined Benefit Pension Trusts
ATTN: Operations
200 Berkeley Street 25th Floor
Boston, MA 02116-5022
Keystone Investment Distributor 6.545%
Attn: Corporate Finance Dept.
21st Floor
200 Berkeley Street
Boston, MA 02116-5022
The Fund's prospectus and 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.
APPENDIX
U.S. GOVERNMENT SECURITIES
Securities issued or guaranteed by the U.S. government include a variety of
Treasury securities that differ only in their interest rates, maturities and
dates of issuance. 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. Government
National Mortgage Association ("GNMA") securities include GNMA mortgage
pass-through certificates. Such securities are supported by the full faith and
credit of the U.S. government.
Securities issued or guaranteed by U.S. government agencies or
instrumentalities include securities issued or guaranteed by the Federal Housing
Administration, Farmers Home Administration, Export-Import Bank of the U.S.,
Small Business Administration, General Services Administration, Central Bank for
Cooperatives, Federal Home Loan Banks, Federal Loan Mortgage Corporation,
Federal Intermediate Credit Banks, Federal Land Banks, Maritime Administration,
The Tennessee Valley Authority, District of Columbia Armory Board and Federal
National Mortgage Association.
Some obligations of U.S. government agencies and instrumentalities, such as
securities of Federal Home Loan Banks, are supported by the right of the issuer
to borrow from the Treasury. Others, such as bonds issued by the Federal
National Mortgage Association, a private corporation, are supported only by the
credit of the instrumentality. The U.S. government is not obligated by law to
provide support to an instrumentality it sponsors. U.S. government securities
held by the Fund do not include international agencies or instrumentalities in
which the U.S. government, its agencies or instrumentalities participate, such
as the World Bank, Asian Development Bank or the Inter-American Development
Bank, or issues insured by the Federal Deposit Insurance Corporation.
CORPORATE BOND RATINGS
S&P RATINGS
A Standard & Poor's Corporation ("S&P") corporate bond rating is a current
assessment of the creditworthiness of an obligor, including obligors outside the
United States, with respect to a specific obligation. This assessment may take
into consideration obligors such as guarantors, insurers, or lessees. Ratings of
foreign obligors do not take into account currency exchange and related
uncertainties. The ratings are based on current information furnished by the
issuer or obtained by S&P from other sources it considers reliable.
The ratings are based, in varying degrees, on the following considerations:
1. likelihood of default - capacity and willingness of the obligor as to
the timely payment of interest and repayment of principal in accordance with the
terms of the obligation;
2. nature of and provisions of the obligation; and
3. protection afforded by and relative position of the obligation in the
event of bankruptcy, reorganization or other arrangement under the laws of
bankruptcy and other laws affecting creditors' rights.
PLUS (+) OR MINUS (-): To provide more detailed indications of credit
quality, ratings from AAto Amay be modified by the addition of a plus or minus
sign to show relative standing within the major rating categories.
Eligible bond ratings are as follows:
1. AAA - Debt rated AAA has the highest rating assigned by S&P. Capacity to
pay interest and repay principal is extremely strong.
2. AA - Debt rated AA has a very strong capacity to pay interest and
repay principal and differs from the higher rated issues only in small degree.
Moody's Ratings
Eligible ratings of Moody's Investors Service, Inc. ("Moody's") are as
follows:
1. Aaa - Bonds that are rated Aaa are judged to be of the best quality.
They carry the smallest degree of investment risk and are generally referred to
as "gilt-edge." Interest payments are protected by a large or by an
exceptionally stable margin and principal is secure. While the various
protective elements are likely to change, such changes as can be visualized are
most unlikely to impair fundamentally strong position of such issues.
2. Aa - Bonds that are rated Aa are judged to be of high quality by all
standards. Together with the Aaa group they comprise what are generally known as
high grade bonds. They are rated lower than the best bonds because margins of
protection may not be as large as in Aaa securities or fluctuation of protective
elements may be of greater amplitude or there may be other elements present that
make the long term risks appear somewhat larger than in Aaa securities.
Moody's applies numerical modifiers 1, 2 and 3 in each generic rating
classification from Aa through B in its corporate bond rating system. The
modifier 1 indicates that the security ranks in the higher end of its generic
rating category; the modifier 2 indicates a mid-range ranking; and the modifier
3 indicates that the issue ranks in the lower end of its generic rating
category.
ADJUSTABLE RATE SECURITIES RATINGS
S&P RATINGS
An S&P rating of an issue secured by a pool of mortgages is a measure of
the likelihood that cash flow from the mortgages is sufficient for timely
payment of interest and principal on the rated security. Each rating category
generally defines an adverse economic climate that is likely to impact the
performance of the mortgages in the pool over time. The rating process for
commercial mortgages, like all asset-backed financings, involves a credit, legal
structure and cash flow analysis.
The credit analysis involves an analysis of the originator and an
evaluation of the credit quality of the loans and their risk characteristics,
such as property types, geographic locations, loan maturity dates, loan-to-value
ratios, lien status and loan seasoning.
The legal structure analysis involves a review of legal documents to
determine the documents accurately reflect the specifics of the financing and a
review of flow of funds and investment restrictions of any reserve fund or
credit enhancement.
The cash flow analysis involves identification of the type of security
created out of the cash flow from the pool of commercial mortgages and the
payment terms of the security. Once these items are identified, the individual
loan and pool analysis are applied to determine cash flow scenarios for the
pool.
Eligible ratings are as follows:
1. AAA - Securities rated AAA have the highest rating assigned by S&P and
reflect certainty that the issuer at all times will have pledged collateral such
that scheduled cash flow and assumed reinvestment income thereon will be
sufficient to pay annual interest on the securities and redeem principal at
maturity.
2. AA - Securities rated AA reflect certainty that amounts available from
distributions on the mortgage loans and from reserves will be sufficient to pay
monthly interest and return principal.
MOODY'S RATINGS
Moody's rating provides a system of gradation by which the relative credit
risks of investments in adjustable rate securities can be judged. Moody's
factors into its ratings the frequency, serverity and timing of defaults in
order to provide an assessment of the appropriate risk premium for taking on
credit risk. In rating adjustable rate securities, Moody's uses the same letter
system as that for corporate bonds. In assessing risk, on average, the risks
associated with Aaa and Aa rated Moody's corporate bonds would apply to
adjustable securities rated Aaa or Aa by Moody's. See the description of Moody's
corporate bond ratings set forth above.
MONEY MARKET INSTRUMENTS
Money market securities are instruments with remaining maturities of one
year or less such as bank certificates of deposit, bankers' acceptances,
commercial paper (including master demand notes) and obligations issued or
guaranteed by the U.S. government, its agencies or instrumentalities, some of
which may be subject to repurchase agreements.
COMMERCIAL PAPER
Commercial paper will consist of issues rated at the time of purchase A-1
by S&P, Prime-1 by Moody's, or F-1 by Fitch Investors Service, Inc. ("Fitch's");
or, if not rated, will be issued by companies that have an outstanding debt
issue rated at the time of purchase Aaa, Aa or A by Moody's, or AAA, AA or A by
S&P, or will be determined by Keystone to be of comparable quality.
S&P RATINGS
An S&P commercial paper rating is a current assessment of the likelihood of
timely payment of debt having an original maturity of no more than 365 days.
Ratings are graded into four categories, ranging from "A" for the highest
quality obligations to "D" for the lowest. The top category is as follows:
1. A: Issues assigned this highest rating are regarded as having the
greatest capacity for timely payment. Issues in this category are delineated
with the numbers 1, 2 and 3 to indicate the relative degree of safety.
2. A-1: This designation indicates that the degree of safety regarding
timely payment is either overwhelming or very strong. Those issues determined to
possess overwhelming safety characteristics are denoted with a plus (+) sign
designation.
MOODY'S RATINGS
The term "commercial paper" as used by Moody's means promissory obligations
not having an original maturity in excess of nine months. Moody's commercial
paper ratings are opinions of the ability of issuers to repay punctually
promissory obligations not having an original maturity in excess of nine months.
Moody's employs the following designation, judged to be investment grade, to
indicate the relative repayment capacity of rated issuers.
The rating Prime-1 is the highest commercial paper rating assigned by
Moody's. Issuers rated Prime-1 (or related supporting institutions) are deemed
to have a superior capacity for repayment of short term promissory obligations.
Repayment capacity of Prime-1 issuers is normally evidenced by the following
characteristics:
1. leading market positions in well-established industries;
2. high rates of return on funds employed;
3. conservative capitalization structures with moderate
reliance on debt and ample asset protection;
4. broad margins in earnings coverage of fixed financial
charges and high internal cash generation; and
5. well established access to a range of financial markets and
assured sources of alternate liquidity.
In assigning ratings to issuers whose commercial paper obligations are
supported by the credit of another entity or entities, Moody's evaluates the
financial strength of the affiliated corporations, commercial banks, insurance
companies, foreign governments or other entities, but only as one factor in the
total rating assessment.
CERTIFICATES OF DEPOSIT
Certificates of deposit are receipts issued by a bank in exchange for the
deposit of funds. The issuer agrees to pay the amount deposited plus interest to
the bearer of the receipt on the date specified on the certificate. The
certificate usually can be traded in the secondary market prior to maturity.
Certificates of deposit will be limited to U.S. dollar denominated
certificates of United States banks, including their branches abroad, and of
U.S. branches of foreign banks, that are members of the Federal Reserve System
or the Federal Deposit Insurance Corporation and have at least $1 billion in
assets as of the date of their most recently published financial statements, or
of savings and loan associations that are members of the Federal Savings and
Loan Insurance Corporation, and have at least $1 billion in assets as of the
date of their most recently published financial statements.
The Fund will not acquire time deposits or obligations issued by the
International Bank for Reconstruction and Development, the Asian Development
Bank or the Inter-American Development Bank. Additionally, the Fund does not
intend to purchase such foreign securities (except to the extent that
certificates of deposit of foreign branches of U.S. banks may be deemed foreign
securities) or purchase certificates of deposit, bankers' acceptances or other
similar obligations issued by foreign banks.
BANKERS' ACCEPTANCES
Bankers' acceptances typically arise from short term credit arrangements
designed to enable businesses to obtain funds to finance commercial
transactions. Generally, an acceptance is a time draft drawn on a bank by an
exporter or an importer to obtain a stated amount of funds to pay for specific
merchandise. The draft is then "accepted" by the bank that, in effect,
uncondition-ally guarantees to pay the face value of the instrument on its
maturity date. The acceptance may then be held by the accepting bank as an
earning asset or it may be sold in the secondary market at the going rate of
discount for a specific maturity. Although maturities for acceptances can be as
long as 270 days, most acceptances have maturities of six months or less.
Bankers' acceptances acquired by the Fund must have been accepted by U.S.
commercial banks, including foreign branches of U.S. commercial banks, having
total assets at the time of purchase in excess of $1 billion and must be payable
in U.S. dollars.
<PAGE>
KEYSTONE INSTITUTIONAL ADJUSTABLE RATE FUND
PART C
OTHER INFORMATION
Item 24. Financial Statements and Exhibits
Item 24 (a). Financial Statements
All financial statements listed below are incorporated by reference from
Registrant's Annual Report, as filed with the Securiteis and Exchange
Commission.
Schedule of Investments Year ended
September 30, 1996
Financial Highlights:
Class Y Shares For each of the years in the
two-year period ended September 30,
1996, and the period from May 23,
1994 (date of initial public
offering) to September 30, 1994
Class Z Shares For each of the years in the
five-year period ended
September 30, 1996
Statement of Assets and Liabilities September 30, 1996
Statement of Operations Year ended
September 30, 1996
Statements of Changes in Net Assets Two years ended
September 30, 1996
Notes to Financial Statements
Independent Auditors' Report November 1, 1996
<PAGE>
(24)(b) Exhibits
(1) Registrant's Declaration of Trust, as amended
(the "Declaration of Trust")(1)
(2) Registrant's By-Laws (the "By-Laws")(1)
Amendment to By-Laws, Article 4, Section 4.1(2)
(3) Not applicable
(4)(a) Articles III, V, VI and VIII to the Declaration of Trust(1)
(b) Article 2, Section 2.5 to the By-Laws(1)
(5) Investment Advisory and Management Agreement between Registrant
and Keystone Investment Management Company (the "Advisory
Agreement")(1)
(6) Distribution Agreement between Registrant and Fiduciary
Investment Company, Inc. (the "Distribution Agreement")(3)
(7) Not applicable
(8) Form of Custodian, Fund Accounting and Recordkeeping Agreement
between Registrant and State Street Bank and Trust Company(4)
(9) Not applicable
(10) Opinion of Counsel(5)
(11) Consent as to use of Independent Auditors' Report(2)
(12) Not applicable
(13) Subscription Agreement between Registrant and Keystone
Investment Management Company(4)
(14) Not applicable
(15) Class Y Distribution Plan(6)
(16) Schedules for the computation of total return and current yield
quotations(2)
(17) Financial Data Schedules(2)
(18) Not applicable
(19) Powers of Attorney(2)
- ------------------------------
(1) Filed with Post-Effective Amendment No. 7 ("Post-Effective
Amendment No. 7") to Registration Statement No. 33-42864/811-6412
(the "Registration Statement") and incorporated by reference herein.
(2) Filed herewith.
(3) Filed with Post-Effective Amendment No. 3 to the Registration
Statement and is incorporated by reference herein.
(4) Filed with the Registration Statement and incorporated by
reference herein.
(5) Filed with Registrant's Rule 24f-2 Notice for the fiscal year ended
September 30, 1996, (the "24f-2 Notice") and incorporated by
reference herein.
(6) Filed with Post-Effective Amendment No. 4 to the Registration
Statement and is incorporated by reference herein.
Item 25. Persons Controlled by or Under Common Control With Registrant
Not applicable.
Item 26. Number of Holders of Securities
Number of Record
Title of Class Holders as of November 21, 1996
- -------------- -------------------------------
Shares of Beneficial
Interest,without par value:
Class Y 67
Shares of Beneficial
Interest, without par value:
Class Z 7
Item 27. Indemnification
Provisions for the indemnification of Registrant's Trustees and
officers are contained in Article VIII of the Declaration of Trust, a copy of
which was filed with Post-Effective Amendment No. 7 and is incorporated by
reference herein.
Provisions for the indemnification of Fiduciary Investment Company,
Inc., Registrant's principal underwriter, are contained in Section 7 of the
Distribution Agreement, a copy of which was filed with Post-Effective Amendment
No. 3 to the Registration Statement and is incorporated by reference herein.
Provisions for the indemnification of Keystone Investment Management
Company, Registrant's investment adviser, are contained in Section 5 of the
Advisory Agreement, a copy of which was filed with Post-Effective Amendment No.
7 and incorporated by reference herein.
Item 28. Businesses and Other Connections of Investment Adviser
The following table lists the names of the various officers and
directors of Keystone Investment Management Company, Registrant's investment
adviser, and their respective positions. For each named individual, the table
lists, for at least the past two fiscal years, (i) any other organizations
(excluding investment advisory clients) with which the officer and/or director
has had or has substantial involvement; and (ii) positions held with such
organizations.
<PAGE>
LIST OF OFFICERS AND DIRECTORS OF
KEYSTONE INVESTMENT MANAGEMENT COMPANY
<TABLE>
<CAPTION>
Position with
Keystone
Investment
Name Management Company Other Business Affiliations
- ---- ------------------ ---------------------------
<S> <C> <C>
Albert H. Chairman of Chairman of the Board,
Elfner, III the Board, Chief Executive Officer,
Chief Executive President and Director:
Officer,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
Gilman Gunn Senior Vice None
President
Edward F. Director, Director, Senior Vice President
Godfrey Senior Vice President, President, Chief Financial Officer and Treasurer:
Treasurer and Keystone Investments, Inc.
Chief Financial 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
Keystone America Hartwell Growth Fund, Inc.
Rosemary D. Senior Vice General Counsel, Senior Vice President and Secretary:
Van Antwerp President, Keystone Investments, Inc.
General Counsel Senior Vice President and General Counsel:
and Secretary 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 Institutional Company, 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
Controller:
Keystone Investments, Inc.
Keystone Investment Distributors Company
Keystone Institutional Company, Inc.
Keystone Management, Inc.
Keystone Software, Inc.
Fiduciary Investment Company, Inc.
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
J. Gary Craven Senior Vice None
President
Richard Cryan Senior Vice None
President
Maureen E. Senior Vice None
Cullinane President
Walter T. Senior Vice None
McCormick President
George F. Wilkins Senior Vice None
President
John F. Addeo Vice President None
Andrew G. Baldassare Vice President None
David S. Benhaim Vice President None
Donald M. Bisson Vice President None
George E. Dlugos Vice President None
Antonio T. Docal Vice President None
Dana E. Erikson Vice President None
Sami J. Karam Vice President None
George J. Kimball Vice President None
JoAnn L. Lyndon Vice President None
John C. Vice President None
Madden, Jr.
Eleanor H. Marsh Vice President None
James D. Medredeff Vice President None
Stanley M. Niksa Vice President None
Jonathan A. Noonan Vice President None
Robert E. O'Brien Vice President None
Margery C. Parker Vice President None
William H. Vice President None
Parsons
Joyce W. Petkovich Vice President None
Daniel A. Rabasco Vice President None
Harlen R. Sanderling Vice President None
Kathy K. Wang Vice President None
Judith A. Warners Vice President None
Mary J. Willis Vice President None
Peter Willis Vice President None
Richard A. Wisentaner Vice President None
Cheryle E. Wanble Vice President None
Walter Zagrobski Vice President None
Joseph J. Asst. Vice President None
Decristofaro
</TABLE>
<PAGE>
Item 29. Principal Underwriter
(a) Fiduciary Investment Company, Inc., which acts as Registrant's
principal underwriter, also acts as principal underwriter for
the following entities:
Keystone Institutional Trust
Master Reserves Trust
(b) For information with respect to each Director and officer of
Fiduciary Investment Company, Inc., refer to the following
table:
Position and Offices Position and
Name and Principal with Fiduciary Offices with
Business Address Investment Company, Inc. the Fund
- ------------------ ------------------------ ------------
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
Albert H. Elfner, III Director President,
Chief
Executive
Officer and
Trustee
J. Kevin Kenely Vice President Treasurer
John D. Rogol Vice President and None
Controller
The business address of the above-listed persons is 200 Berkeley
Street, Boston, Massachusetts 02116-5034.
Item 29. Principal Underwriter (continued).
(c) Not applicable.
Item 30. Location of Accounts and Records
Keystone Investments, Inc.
200 Berkeley Street
Boston, MA 02116-5034
State Street Bank and Trust Company
1776 Heritage Drive
Quincy, MA 02171
Iron Mountain
3431 Sharp Slot Road
Swansea, MA 02277
Item 31. Management Services
Not applicable.
Item 32. Undertakings
Upon request and without charge, Registrant hereby undertakes to
furnish a copy of its latest annual report to shareholders to each
person to whom a copy of Registrant's prospectus is delivered.
<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
pursuant to Rule 485(b) under the Securities Act of 1933 and has duly caused
this amendment to its registration statement to be signed on its behalf by the
undersigned, thereto duly authorized, in the City of Boston, and in The
Commonwealth of Massachusetts, on the 6th day of December, 1996.
KEYSTONE INSTITUTIONAL
ADJUSTABLE RATE 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 Amendment to
Registrant's Registration Statement has been signed below by the following
persons in the capacities indicated on the 6th day of December, 1996.
SIGNATURES TITLE
- ---------- -----
/s/ George S. Bissell Chairman of the Board and Trustee
- -------------------------
George S. Bissell*
/s/ Albert H. Elfner, III President, Chief Executive Officer
- ------------------------- 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
SIGNATURES TITLE
- ---------- -----
/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 Trust(1)
2 By-Laws(1)
Amendment to By-Laws(2)
5 Advisory Agreement(1)
6 Distribution Agreement(3)
8 Custodian, Fund Accounting and
Recordkeeping Agreement(4)
10 Opinion of Counsel(5)
11 Independent Auditors' Consent(2)
13 Subscription Agreement(4)
15 Class Y Distribution Plan(6)
16 Total Return and Current Yield
Schedules(2)
17 Financial Data Schedules(filed as Exhibit 27)(2)
19 Powers of Attorney(2)
- -----------------------
(1) Incorporated by reference herein to Post-Effective Amendment No. 7 to
the Registration Statement.
(2) Filed herewith
(3) Incorporated by reference herein to Post-Effective Amendment No. 3 to
the Registration Statement.
(4) Incorporated by reference herein to the Registration Statement.
(5) Incorporated by reference herein to the 24f-2 Notice.
(6) Incorporated by reference herein to Post-Effective Amendment No. 4 to
the Registration Statement.
KEYSTONE INSTITUTIONAL ADJUSTABLE RATE FUND
Revised Article 4, Section 4.1 of the By-Laws as adopted by the Board
of Trustees on June 19, 1996:
4.1 Term. A Trustee shall serve until his or her death, retirement, resignation
or removal from office or until his or her successor is elected and qualifies. A
Trustee holding office shall automatically retire on December 31 of the year in
which he or she reaches the age of seventy-five.
Dated: September 13, 1996
CONSENT OF INDEPENDENT AUDITORS
The Trustees and Shareholders
Keystone Institutional Adjustable Rate Fund
We consent to the use of our report dated November 1, 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
December 6, 1996
<TABLE>
<CAPTION>
STATE STREET BANK & TRUST COMPANY SEC STANDARDIZED ADVERTISING YIELD
4252 Institutional adjustable Rate Fund CLASS Z PHASE II-ROLLING
Z
PRICING DATE 09/26/96
TOTAL INCOME FOR PERIOD 357,309.58
TOTAL EXPENSES FOR PERIOD 15,910.95
30 DAY YTM 6.36453% AVERAGE SHARES OUTSTANDING 6,730,365.21
LAST PRICE DURING PERIOD 9.69
<S> <C> <C> <C> <C> <C> <C> <C> <C>
PRICE ST VARIABLE LONG TERM GAIN/LOSS TOTAL DIV ADJUSTED DAILY DAILY
DATE INCOME INCOME INCOME FACTOR INCOME EXPENSES SHARES
08/28/96 14,802.77 14,802.77 85.31449 12,628.91 527.00 6,638,820.692
08/29/96 14,728.34 14,728.34 85.31450 12,565.41 526.94 6,638,820.692
08/30/96 15,263.26 15,263.26 85.31452 13,021.78 526.68 6,638,820.692
08/31/96 15,263.26 15,263.26 85.31452 13,021.78 526.68 6,638,820.692
09/01/96 15,263.26 15,263.26 85.31452 13,021.78 526.68 6,638,820.692
09/02/96 15,263.26 15,263.26 85.31452 13,021.78 526.68 6,638,820.692
09/03/96 14,817.67 14,817.67 85.30799 12,640.66 526.07 6,669,928.664
09/04/96 14,815.61 14,815.61 85.31221 12,639.53 528.92 6,669,928.664
09/05/96 14,814.49 14,814.49 85.31220 12,638.57 528.83 6,669,928.664
09/06/96 14,813.11 14,813.11 85.31220 12,637.39 528.75 6,669,928.664
09/07/96 14,813.11 14,813.11 85.31220 12,637.39 528.75 6,669,928.664
09/08/96 14,813.11 14,813.11 85.31220 12,637.39 528.75 6,669,928.664
09/09/96 14,813.70 14,813.70 85.31216 12,637.89 528.98 6,669,928.664
09/10/96 14,812.74 14,812.74 85.31216 12,637.07 529.12 6,669,928.664
09/11/96 14,814.80 14,814.80 85.31215 12,638.82 529.01 6,669,928.664
09/12/96 14,356.86 14,356.86 85.30087 12,246.53 528.92 6,669,928.664
09/13/96 15,186.20 15,186.20 81.34232 12,352.81 504.60 6,812,767.547
09/14/96 15,186.20 15,186.20 81.34232 12,352.81 504.60 6,812,767.547
09/15/96 15,186.20 15,186.20 81.34232 12,352.81 504.60 6,812,767.547
09/16/96 15,513.32 15,513.32 81.34244 12,618.91 540.83 6,812,767.547
09/17/96 15,568.80 15,568.80 81.34241 12,664.04 540.84 6,812,767.547
09/18/96 15,752.68 15,752.68 81.34241 12,813.61 540.44 6,812,767.547
09/19/96 15,880.99 15,880.99 81.31232 12,913.20 540.20 6,812,767.547
09/20/96 15,896.00 15,896.00 81.31230 12,925.40 540.25 6,812,767.547
09/21/96 15,896.00 15,896.00 81.31230 12,925.40 540.25 6,812,767.547
09/22/96 15,896.00 15,896.00 81.31230 12,925.40 540.25 6,812,767.547
09/23/96 17,159.40 17,159.40 82.12243 14,091.72 545.69 6,812,767.547
09/24/96 15,873.66 15,873.66 82.12269 13,035.88 540.27 6,812,767.547
09/25/96 13,907.01 13,907.01 82.12268 11,420.81 540.63 6,812,767.547
09/26/96 15,904.37 (29,732.10) (13,827.73) 82.12400 (11,355.90) 540.74 6,812,767.547
0.00 0.00 457,076.18 0.00 (29,732.10) 0.00 427,344.08 2,506.7888357,309.58 15,910.95 6,730,365.215
</TABLE>
DAILY ACCUMULATED ACCUMULATED ACCUMULATED
PRICE INCOME EXPENSES SHARES
9.68 12,628.91 527.00 6,638,820.692
9.68 25,194.32 1,053.94 13,277,641.384
9.67 38,216.10 1,580.62 19,916,462.076
9.67 51,237.88 2,107.30 26,555,282.768
9.67 64,259.66 2,633.98 33,194,103.460
9.67 77,281.44 3,160.66 39,832,924.152
9.67 89,922.10 3,686.73 46,502,852.816
9.67 102,561.63 4,215.65 53,172,781.480
9.67 115,200.20 4,744.48 59,842,710.144
9.68 127,837.59 5,273.23 66,512,638.808
9.68 140,474.98 5,801.98 73,182,567.472
9.68 153,112.37 6,330.73 79,852,496.136
9.68 165,750.26 6,859.71 86,522,424.800
9.68 178,387.33 7,388.83 93,192,353.464
9.68 191,026.15 7,917.84 99,862,282.128
9.68 203,272.68 8,446.76 106,532,210.792
9.68 215,625.49 8,951.36 113,344,978.339
9.68 227,978.30 9,455.96 120,157,745.886
9.68 240,331.11 9,960.56 126,970,513.433
9.69 252,950.02 10,501.39 133,783,280.980
9.68 265,614.06 11,042.23 140,596,048.527
9.68 278,427.67 11,582.67 147,408,816.074
9.67 291,340.87 12,122.87 154,221,583.621
9.68 304,266.27 12,663.12 161,034,351.168
9.68 317,191.67 13,203.37 167,847,118.715
9.68 330,117.07 13,743.62 174,659,886.262
9.67 344,208.79 14,289.31 181,472,653.809
9.68 357,244.67 14,829.58 188,285,421.356
9.68 368,665.48 15,370.21 195,098,188.903
9.69 357,309.58 15,910.95 201,910,956.450
<TABLE>
<CAPTION>
STATE STREET BANK & TRUST COMPANY SEC STANDARDIZED ADVERTISING YIELD
4252 Institutional adjustable Rate Fund CLASS Y PHASE II-ROLLING
Y
PRICING DATE 09/26/96
TOTAL INCOME FOR PERIOD 70,034.50
TOTAL EXPENSES FOR PERIOD 1,330,206.50
30 DAY YTM 6.06527% AVERAGE SHARES OUTSTANDING 9.69
LAST PRICE DURING PERIOD 5,693.15
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
PRICE ST VARIABLE LONG TERM TOTAL DIV ADJUSTED DAILY DAILY
DATE INCOME INCOME INCOME FACTOR INCOME EXPENSES SHARES
08/28/96 0.00 0.00 14,802.77 0.00 0.00 14,802.77 14.685503 2,173.86 166.30 1,142,578.633
08/29/96 0.00 0.00 14,728.34 0.00 0.00 14,728.34 14.685490 2,162.93 166.29 1,142,578.633
08/30/96 0.00 0.00 15,263.26 0.00 0.00 15,263.26 14.685478 2,241.48 166.21 1,142,578.633
08/31/96 0.00 0.00 15,263.26 0.00 0.00 15,263.26 14.685478 2,241.48 166.21 1,142,578.633
09/01/96 0.00 0.00 15,263.26 0.00 0.00 15,263.26 14.685478 2,241.48 166.21 1,142,578.633
09/02/96 0.00 0.00 15,263.26 0.00 0.00 15,263.26 14.685478 2,241.48 166.21 1,142,578.633
09/03/96 0.00 0.00 14,817.67 0.00 0.00 14,817.67 14.692000 2,177.01 166.07 1,148,532.216
09/04/96 0.00 0.00 14,815.61 0.00 0.00 14,815.61 14.687783 2,176.08 166.97 1,148,145.927
09/05/96 0.00 0.00 14,814.49 0.00 0.00 14,814.49 14.687796 2,175.92 166.92 1,148,145.927
09/06/96 0.00 0.00 14,813.11 0.00 0.00 14,813.11 14.687796 2,175.72 166.89 1,148,145.927
09/07/96 0.00 0.00 14,813.11 0.00 0.00 14,813.11 14.687796 2,175.72 166.89 1,148,145.927
09/08/96 0.00 0.00 14,813.11 0.00 0.00 14,813.11 14.687796 2,175.72 166.89 1,148,145.927
09/09/96 0.00 0.00 14,813.70 0.00 0.00 14,813.70 14.687834 2,175.81 166.96 1,148,145.927
09/10/96 0.00 0.00 14,812.74 0.00 0.00 14,812.74 14.687834 2,175.67 167.01 1,148,145.927
09/11/96 0.00 0.00 14,814.80 0.00 0.00 14,814.80 14.687847 2,175.98 166.98 1,148,145.927
09/12/96 0.00 0.00 14,356.86 0.00 0.00 14,356.86 14.699120 2,110.33 167.03 1,149,178.985
09/13/96 0.00 0.00 15,186.20 0.00 0.00 15,186.20 18.657678 2,833.39 191.73 1,562,402.125
09/14/96 0.00 0.00 15,186.20 0.00 0.00 15,186.20 18.657678 2,833.39 191.73 1,562,402.125
09/15/96 0.00 0.00 15,186.20 0.00 0.00 15,186.20 18.657678 2,833.39 191.73 1,562,402.125
09/16/96 0.00 0.00 15,513.32 0.00 0.00 15,513.32 18.657551 2,894.41 212.25 1,562,402.125
09/17/96 0.00 0.00 15,568.80 0.00 0.00 15,568.80 18.657582 2,904.76 227.43 1,562,402.125
09/18/96 0.00 0.00 15,752.68 0.00 0.00 15,752.68 18.657584 2,939.07 227.26 1,562,402.125
09/19/96 0.00 0.00 15,880.99 0.00 0.00 15,880.99 18.687677 2,967.79 227.25 1,565,501.299
09/20/96 0.00 0.00 15,896.00 0.00 0.00 15,896.00 18.687694 2,970.60 227.63 1,565,501.299
09/21/96 0.00 0.00 15,896.00 0.00 0.00 15,896.00 18.687694 2,970.60 227.63 1,565,501.299
09/22/96 0.00 0.00 15,896.00 0.00 0.00 15,896.00 18.687694 2,970.60 227.63 1,565,501.299
09/23/96 0.00 0.00 17,159.40 0.00 0.00 17,159.40 17.877564 3,067.68 227.66 1,482,856.671
09/24/96 0.00 0.00 15,873.66 0.00 0.00 15,873.66 17.877306 2,837.78 215.62 1,482,856.671
09/25/96 0.00 0.00 13,907.01 0.00 0.00 13,907.01 17.877320 2,486.20 215.77 1,482,856.671
09/26/96 0.00 0.00 15,904.37 (29,732.10) 0.00 (13,827.73) 17.875909 (2,471.83) 215.79 1,482,856.671
0.00 0.00 457,076.18 (29,732.10) 0.00 427,344.08 493.211131 70,034.50 5,693.15 1,330,206.502
</TABLE>
DAILY ACCUMULATED ACCUMULATED ACCUMULATED
PRICE INCOME EXPENSES SHARES
9.68 2,173.86 166.30 1,142,578.633
9.68 4,336.79 332.59 2,285,157.266
9.67 6,578.27 498.80 3,427,735.899
9.67 8,819.75 665.01 4,570,314.532
9.67 11,061.23 831.22 5,712,893.165
9.67 13,302.71 997.43 6,855,471.798
9.68 15,479.72 1,163.50 8,004,004.014
9.67 17,655.80 1,330.47 9,152,149.941
9.67 19,831.72 1,497.39 10,300,295.868
9.68 22,007.44 1,664.28 11,448,441.795
9.68 24,183.16 1,831.17 12,596,587.722
9.68 26,358.88 1,998.06 13,744,733.649
9.68 28,534.69 2,165.02 14,892,879.576
9.68 30,710.36 2,332.03 16,041,025.503
9.68 32,886.34 2,499.01 17,189,171.430
9.68 34,996.67 2,666.04 18,338,350.415
9.69 37,830.06 2,857.77 19,900,752.540
9.69 40,663.45 3,049.50 21,463,154.665
9.69 43,496.84 3,241.23 23,025,556.790
9.69 46,391.25 3,453.48 24,587,958.915
9.68 49,296.01 3,680.91 26,150,361.040
9.68 52,235.08 3,908.17 27,712,763.165
9.68 55,202.87 4,135.42 29,278,264.464
9.68 58,173.47 4,363.05 30,843,765.763
9.68 61,144.07 4,590.68 32,409,267.062
9.68 64,114.67 4,818.31 33,974,768.361
9.68 67,182.35 5,045.97 35,457,625.032
9.68 70,020.13 5,261.59 36,940,481.703
9.68 72,506.33 5,477.36 38,423,338.374
9.69 70,034.50 5,693.15 39,906,195.045
<TABLE>
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
KIARF-Z MTD YTD 1 YEAR 3 YEAR 3 YEAR 5 YEAR 5 YEAR 10 YEAR 10 YEAR
30-Sep-96 TOT. RET. COMP TOT. RET. COMP. TOT. RET. COMP.
with cdsc N/A N/A N/A N/A N/A N/A N/A N/A N/A
W/O CDSC 0.63% 4.93% 6.86% 15.83% 5.02% 28.82% 5.20% NA NA
Beg dates 08/30/96 12/29/95 09/29/95 09/30/93 09/30/93 10/01/91 10/01/91 10/01/91 10/01/91
Beg Value (no load) 12,802 12,277 12,055 11,122 11,122 10,000 10,000 10,000 10,000
End Value (W/O CDSC 12,882 12,882 12,882 12,882 12,882 12,882 12,882 12,882 12,882
End Value (with cdsc) 12,514 12,521 12,774 12,774 12,882 12882.4261935 12,882 12882.4261935
beg nav 9.67 9.67 9.65 9.93 9.93 10.00 10 10.00 10
end nav 9.68 9.68 9.68 9.68 9.68 9.68 9.68 9.68 9.68
shares originally
purchased 1,323.88 1,269.59 1,249.25 1,120.06 1,120.06 1,000.00 1,000.00 1,000.00 1,000.00
TIME 3 5 5
INCEPTION DATE 01-Oct-91
Compound Return Time Period: BEGINNING Dec-94
</TABLE>
<TABLE>
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
KIARF-Y MTD YTD 1 YEAR 3 YEAR 3 YEAR 5 YEAR 5 YEAR 10 YEAR 10 YEAR
30-Sep-96 TOT. RET. COMP. TOT. RET. COMP. TOT. RET. COMP.
with cdsc N/A N/A N/A N/A N/A N/A N/A N/A N/A
W/O CDSC 0.61% 4.74% 6.60% 14.13% 5.77% 14.13% 5.77% NA NA
Beg dates 08/30/96 12/29/95 09/29/95 05/23/94 05/23/94 05/23/94 05/23/94 05/23/94 05/23/94
Beg Value (no load) 11,344 10,897 10,706 10,000 10,000 10,000 10,000 10,000 10,000
End Value (W/O CDSC) 11,413 11,413 11,413 11,413 11,413 11,413 11,413 11,413 11,413
End Value (with cdsc) 11,086 11,091 11,313 11,313 11,413 11,413 11,413 11,413
beg nav 9.67 9.67 9.65 9.73 9.73 9.73 9.73 9.73 9.73
end nav 9.68 9.68 9.68 9.68 9.68 9.68 9.68 9.68 9.68
shares originally
purhased 1,173.08 1,126.84 1,109.48 1,027.75 1,027.75 1,027.75 1,027.75 1,027.75 1,027.75
TIME 2.36 2.36 2.36
INCEPTION DATE 23-May-94
Compound Return Time Period: BEGINNING Dec-94
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM ACCOUNTING
RECORDS AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH ACCOUNTING
RECORDS.
</LEGEND>
<SERIES>
<NUMBER> 101
<NAME> KEYSTONE INSTITUTIONAL ADJUSTABLE RATE FUND CLASS Y
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> SEP-30-1996
<PERIOD-START> OCT-01-1995
<PERIOD-END> SEP-30-1996
<INVESTMENTS-AT-COST> 79,618,432
<INVESTMENTS-AT-VALUE> 79,735,633
<RECEIVABLES> 1,009,863
<ASSETS-OTHER> 78
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 80,745,574
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 411,282
<TOTAL-LIABILITIES> 411,282
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 67,215,441
<SHARES-COMMON-STOCK> 6,812,767
<SHARES-COMMON-PRIOR> 0
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> (160,757)
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> (1,142,881)
<ACCUM-APPREC-OR-DEPREC> 62,037
<NET-ASSETS> 65,973,840
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 2,219,251
<OTHER-INCOME> 0
<EXPENSES-NET> (93,014)
<NET-INVESTMENT-INCOME> 2,126,237
<REALIZED-GAINS-CURRENT> (205,377)
<APPREC-INCREASE-CURRENT> 149,404
<NET-CHANGE-FROM-OPS> 2,070,264
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (1,975,061)
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 4,318,022
<NUMBER-OF-SHARES-REDEEMED> (99,669)
<SHARES-REINVESTED> 147,411
<NET-CHANGE-IN-ASSETS> 42,357,711
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> (128,556)
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> (93,014)
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> (93,014)
<AVERAGE-NET-ASSETS> 31,087,485
<PER-SHARE-NAV-BEGIN> 9.65
<PER-SHARE-NII> 0.64
<PER-SHARE-GAIN-APPREC> 0.00
<PER-SHARE-DIVIDEND> (0.61)
<PER-SHARE-DISTRIBUTIONS> 0.00
<RETURNS-OF-CAPITAL> 0.00
<PER-SHARE-NAV-END> 9.68
<EXPENSE-RATIO> 0.30
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM ACCOUNTING
RECORDS AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH ACCOUNTING
RECORDS.
</LEGEND>
<SERIES>
<NUMBER> 102
<NAME> KEYSTONE INSTITUTIONAL ADJUSTABLE RATE FUND CLASS Z
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> SEP-30-1996
<PERIOD-START> OCT-01-1995
<PERIOD-END> SEP-30-1996
<INVESTMENTS-AT-COST> 79,618,432
<INVESTMENTS-AT-VALUE> 79,735,633
<RECEIVABLES> 1,009,863
<ASSETS-OTHER> 78
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 80,745,574
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 411,282
<TOTAL-LIABILITIES> 411,282
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 14,324,982
<SHARES-COMMON-STOCK> 1,482,857
<SHARES-COMMON-PRIOR> 0
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> (7,976)
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> (11,718)
<ACCUM-APPREC-OR-DEPREC> 55,164
<NET-ASSETS> 14,360,452
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 673,435
<OTHER-INCOME> 0
<EXPENSES-NET> (51,301)
<NET-INVESTMENT-INCOME> 622,134
<REALIZED-GAINS-CURRENT> (64,009)
<APPREC-INCREASE-CURRENT> 21,522
<NET-CHANGE-FROM-OPS> 579,647
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (572,474)
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 2,560,589
<NUMBER-OF-SHARES-REDEEMED> (1,428,881)
<SHARES-REINVESTED> 53,718
<NET-CHANGE-IN-ASSETS> 11,489,866
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> (2,349)
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> (28,091)
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> (51,301)
<AVERAGE-NET-ASSETS> 9,372,804
<PER-SHARE-NAV-BEGIN> 9.65
<PER-SHARE-NII> 0.65
<PER-SHARE-GAIN-APPREC> (0.03)
<PER-SHARE-DIVIDEND> (0.59)
<PER-SHARE-DISTRIBUTIONS> 0.00
<RETURNS-OF-CAPITAL> 0.00
<PER-SHARE-NAV-END> 9.68
<EXPENSE-RATIO> 0.55
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<PAGE>
Exhibit 99.19
POWER OF ATTORNEY
I, the undersigned, hereby constitute Roger T. Wickers, Rosemary D. Van
Antwerp, Jean S. Loewenberg, Dorothy E. Bourassa, James M. Wall and Melina M. T.
Murphy, each of them singly, my true and lawful attorneys, with full power to
them and each of them to sign for me and in my name in the capacity indicated
below any and all registration statements, including, but not limited to, Forms
N-8A, N-8B-1, S-5, N-1 and N-1A, as amended from time to time, and any and all
amendments thereto to be filed with the Securities and Exchange Commission for
the purpose of registering from time to time all investment companies of which I
am now or hereafter a Director or Trustee and/or Chairman of the Board and Chief
Executive Officer and for which Keystone Custodian Funds, Inc. serves as Adviser
or Manager and registering from time to time the shares of such companies, and
generally to do all such things in my name and in my behalf to enable such
investment companies to comply with the provisions of the Securities Act of
1933, as amended, the Investment Company Act of 1940, as amended, and all
requirements and regulations of the Securities and Exchange Commission
thereunder, hereby ratifying and confirming my signature as it may be signed by
my said attorneys to any and all registration statements and amendments thereto.
/s/ George S. Bissell
------------------------------
George S. Bissell
Director/Trustee,
Chairman of the Board
Dated: December 14, 1994
<PAGE>
POWER OF ATTORNEY
I, the undersigned, hereby constitute Roger T. Wickers, Rosemary D. Van
Antwerp, Jean S. Loewenberg, Dorothy E. Bourassa, James M. Wall and Melina M. T.
Murphy, each of them singly, my true and lawful attorneys, with full power to
them and each of them to sign for me and in my name in the capacity indicated
below any and all registration statements, including, but not limited to, Forms
N-8A, N-8B-1, S-5, N-1 and N-1A, as amended from time to time, and any and all
amendments thereto to be filed with the Securities and Exchange Commission for
the purpose of registering from time to time all investment companies of which I
am now or hereafter a Director or Trustee and/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
#101606c6
<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
