<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JANUARY 8, 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. _7_ _X_
and
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940
Amendment No. _7_ _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) 338-3200
Rosemary D. Van Antwerp, Esq., 200 Berkeley Street, Boston, MA
02116-5034
(Name and Address of Agent for Service)
It is proposed that this filing will become effective:
_X_ immediately upon filing pursuant to paragraph (b)
- --- on (date) 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)
<PAGE>
CALCULATION OF REGISTRATION FEE UNDER THE SECURITIES ACT OF 1933
- -----------------------------------------------------------------
Proposed Proposed
Title of Maximum Maximum
Securities Amount Offering Aggregate Amount of
Being Being Price Offering Registration
Registered Registered Per Unit* Price** Fee
- -----------------------------------------------------------------
Shares
without Par 590,932 $9.67 $289,993 $100
Value
- -----------------------------------------------------------------
* Computed under Rule 457(d) on the basis of the offering price per share at
the close of business on December 29, 1995.
** The calculation of the maximum aggregate offering price is made pursuant to
Rule 24e-2 under the Investment Company Act of 1940. 561,933 shares of the Fund
were redeemed during its fiscal year ended September 30, 1995. All of such
shares are being used for a reduction in this filing.
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 most recent fiscal
year ended September 30, 1995 was filed on November 28, 1995.
<PAGE>
KEYSTONE INSTITUTIONAL ADJUSTABLE RATE FUND
CONTENTS OF
POST-EFFECTIVE AMENDMENT No. 7
to
REGISTRATION STATEMENT
This Post-Effective Amendment No. 7 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
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
Alternative Sales Options
Distribution Plan
Additional Information
5A Not applicable
6 Cover Page
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
<PAGE>
Items in
Part B of
Form N-1A Statement of Additional Information Caption
- --------- -------------------------------------------
10 Cover Page
11 Table of Contents
12 Not applicable
13 Investment Restrictions
Appendix
14 Trustees and Officers
Investment Adviser
15 Additional Information
16 Investment Adviser
Distributor
Distribution Plan
Additional Information
17 Brokerage
18 Declaration of Trust
19 Valuation of Securities
Distribution Plan
20 Dividends 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 JANUARY 8, 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. Of course, there can be no assurance that the Fund's
objective will be achieved.
The Fund offers two classes of 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 (currently limited to 0.25% of the
average daily net asset value of Class Y shares) under a Distribution Plan
adopted pursuant to Rule 12b-1 under the Investment Company Act of 1940 ("1940
Act"). 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 in respect of Class Z shares. Class Z shares are
available to the following investors: officers, directors or trustees, and
employees of the Fund, Keystone Investment Management Company (formerly named
Keystone Custodian Funds, Inc.) ("Keystone"), the Fund's investment adviser,
Fiduciary Investment Company, Inc. ("FICO"), the Fund's principal underwriter,
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. (formerly named Keystone Investment Management
Corporation) ("KIC"), FICO, or any of their affiliates. See "How to Buy
Shares."
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 January --, 1996, which has been filed with the
Securities and Exchange Commission and is incorporated by reference into this
prospectus. For a free copy, or for other information about the Fund, write to
the address or call the telephone number listed below.
KEYSTONE INSTITUTIONAL
ADJUSTABLE RATE FUND
200 BERKELEY STREET
BOSTON, MASSACHUSETTS 02116-5034
CALL TOLL FREE 1-800-633-2700
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>
TABLE OF CONTENTS
Page
Fee Table ........................................................... 3
Financial Highlights ................................................ 4
The Fund ............................................................ 6
Investment Objective and Policies ................................... 6
Risk Factors ........................................................ 8
Investment Restrictions ............................................. 10
Pricing Shares ...................................................... 10
Dividends and Taxes ................................................. 11
Fund Management and Expenses ........................................ 12
How to Buy Shares ................................................... 13
Alternative Sales Options ........................................... 13
Distribution Plan ................................................... 15
How to Redeem Shares ................................................ 15
Shareholder Services ................................................ 16
Performance Data .................................................... 16
Fund Shares ......................................................... 17
Additional Information .............................................. 17
Additional Investment Information ................................... (i)
<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 will bear directly or
indirectly. For a more complete description of the various costs and expenses,
see the "Fund Management and Expenses" section of this prospectus.
<TABLE>
<CAPTION>
ANNUAL FUND OPERATING EXPENSES<F1> CLASS Y CLASS Z<F2>
(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<F3> 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>
- ----------
<F1> Expense ratios are for the Fund's fiscal year ending September 30, 1995.
<F2> Class Z shares are available only to certain investors, as described
previously.
<F3> 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 THE PERIOD)
The following table contains important financial information relating to
the Fund and has been audited by KPMG Peat Marwick LLP, the Fund's independent
auditors. The table appears in the Fund's Annual Report and should be read in
conjunction with the Fund's financial statements and related notes, which also
appear, together with the independent auditors' report, in the Fund's Annual
Report. The Fund's financial statements, related notes, and independent
auditors' report are included in 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>
May 23, 1994 (Date of
Year Ended Initial Public Offering)
September 30, 1995 to September 30, 1994
---------------------- ----------------------------
<S> <C> <C>
NET ASSET VALUE BEGINNING OF PERIOD $9.61 $9.73
----- -----
Income from investment operations:
Net investment income ................. 0.64 0.17
Net realized and unrealized gain
(loss) on investments ............... (0.02) (0.13)
----- -----
Total from investment operations ...... 0.62 0.04
----- -----
Less distributions from:
Net investment income ................. (0.53) (0.16)
In excess of net investment income .... (0.05) 0
----- -----
Total distributions ................... (0.58) (0.16)
----- -----
NET ASSET VALUE END OF PERIOD ......... $9.65 $9.61
===== =====
TOTAL RETURN .......................... 6.60% 0.35%
RATIOS/SUPPLEMENTAL DATA
Ratios to average net assets:
Total expenses ...................... 0.55% 0.43%(a)
Net investment income ............... 6.70% 5.03%(a)
Portfolio turnover rate ............... 56% 63%
----- -----
Net assets end of period (thousands) . $2,871 $ 1
<FN>
- ------------
(a) Annualized.
</FN>
</TABLE>
<PAGE>
FINANCIAL HIGHLIGHTS
KEYSTONE INSTITUTIONAL ADJUSTABLE RATE FUND
CLASS Z SHARES
(FOR A SHARE OUTSTANDING THROUGHOUT THE 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 included in 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,
----------------------------------------------------
1995 1994 1993(a) 1992
---- ---- ------- ----
<S> <C> <C> <C> <C>
NET ASSET VALUE BEGINNING OF YEAR ...... $9.61 $9.93 $9.88 $10.00
----- ----- ----- ------
Income from investment operations:
Net investment income .................. 0.63 0.63 0.54 0.67
Net realized and unrealized gain (loss)
on investments ....................... 0.01 (0.49) (0.01) (0.15)
----- ----- ----- -----
Total from investment operations ....... 0.64 0.14 0.53 0.52
----- ----- ----- -----
Less distributions from:
Net investment income .................. (0.55) (0.44) (0.48) (0.64)
In excess of net investment income ..... (0.05) (0.02) 0 0
----- ----- ----- -----
Total distributions .................... (0.60) (0.46) (0.48) (0.64)
----- ----- ----- -----
NET ASSET VALUE END OF YEAR ............ $9.65 $9.61 $9.93 $9.88
===== ===== ===== =====
TOTAL RETURN ........................... 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%
Net investment income ................ 6.61% 5.15% 5.46% 6.83%
Portfolio turnover rate ................ 56% 63% 81% 88%
------ ------ ------ ------
Net assets end of year (thousands) ..... $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 thirty funds managed or advised by 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 Fund pursues its investment objective by investing under
ordinary circumstances 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. The Fund follows a strategy
that seeks to minimize changes in its net asset value per share by investing
primarily in adjustable rate securities, the interest rates of which 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.
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).
There is no assurance that the Fund will achieve its investment objective
since there is uncertainty in every investment.
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 or 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 or one of 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."
RISK FACTORS
Like any investment, your investment in the Fund involves an element of
risk. Before you invest in the Fund, you should carefully evaluate your
ability to assume the risks your investment in the Fund poses.
Certain risks related to the Fund are discussed below. To the extent not
discussed in this section, specific risks attendant to individual securities
or investment practices are discussed in "Additional Investment Information."
Should many shareholders change from this Fund to some other investment at
about the same time, the Fund might have to sell portfolio securities at a
time when it would be disadvantageous to do so and at a lower price than if
such securities were held to maturity.
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.
INTEREST RATE RISK
The values of fixed rate securities fluctuate in response to changes in
interest rates. When interest rates decline, the value of these securities can
be expected to rise. Conversely, when interest rates rise, the value of these
securities can be expected to decline. 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. The market value of such
investments generally will vary inversely to changes in interest rates. If
interest rates increase after a security is purchased, the security, if sold
prior to maturity, may return less than its cost.
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 interest rates paid on the securities held in ARMS and adjustable rate
CMOs in which the Fund invests 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.
Investors could suffer some 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 underlying loans or mortgages that collateralize the ARMS and CMOs in
which the Fund invests 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). Fluctuation in interest rates above
these levels 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
It is possible in an environment in which interest rates on short-term,
fixed rate debt securities are rising faster than interest rates on long-term,
fixed rate debt securities that the Fund's investments may not perform as
expected primarily because of the reset risk described above. In this abnormal
interest rate environment, the market value of Mortgage Securities in general
will typically under-perform other fixed rate debt securities.
ARMS are not as effective a means of "locking in" long-term interest rates
as are fixed rate debt securities. The market value of ARMS will generally
vary inversely with changes in market interest rates, declining when interest
rates rise and rising when interest rates decline. However, ARMS have less
risk of a decline than fixed rate debt securities of comparable maturities
during periods of rapidly rising rates and have less potential than such
investments for capital appreciation due to their adjustable rate features and
the likelihood of increased prepayments of mortgages as interest rates
decline.
To the extent 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. In addition, current yield levels should not be
considered representative of yields for any future period of time.
For further information about the types of investments and investment
techniques available to the Fund, including the associated risks, see the
section of this prospectus entitled "Additional Investment Information" and
the statement of additional information.
INVESTMENT RESTRICTIONS
The Fund has adopted the fundamental restrictions summarized below, which may
not be changed without the vote of a 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 (excepting U.S. government securities); and (2)
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.
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 is not a
violation of the limit.
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 currently is closed on weekends, New Year's Day, Presidents' Day,
Good Friday, Memorial Day, Independence Day, Labor Day, Thanksgiving Day and
Christmas Day. The net asset value per share of the 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 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. Securities with remaining maturities of more than sixty
days for which market quotations are readily available are valued at current
market value. 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. 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 intends to declare dividends from net investment income daily and
distribute to its shareholders such dividends monthly and to declare and
distribute all net realized long-term capital gains annually. All dividends
and distributions are payable in that class of shares upon which the
distribution is based or, at the option of the shareholder (which must be
exercised before the record date for the distribution), in cash. Shareholders
who have not opted to receive cash prior to the payable date for any net
investment income dividend or the record date for any capital gains
distribution will have the number of such shares determined on the basis of
the Fund's net asset value per share computed at the end of that day after
adjustment for the distribution. Net asset value per share is used in
computing the number of shares in both capital gains and income distribution
reinvestments.
Dividends will be automatically invested in that class of shares upon which
the distribution is based unless the shareholder elects to receive them in
cash. 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.
The Fund has qualified, and intends to continue to qualify, as a regulated
investment company under the Internal Revenue Code (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 to the
extent that it fails to distribute, with respect to each calendar year, at
least 98% of its ordinary income for such calendar year and 98% of its net
capital gains for the one-year period ending on October 31 of such calendar
year. 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. If the Fund
qualifies and if it distributes all of its net investment income and net
capital gains, if any, to shareholders, it will be relieved of any federal
income tax liability. 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
attributable to 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.
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 taxable 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 authority of the Board of Trustees, Keystone serves as
investment adviser to the Fund and is responsible for the overall management
of the Fund's business and affairs.
INVESTMENT ADVISER
Keystone, the Fund's investment adviser, located at 200 Berkeley Street,
Boston, Massachusetts 02116-5034, has provided investment advisory and
management services to investment companies and private accounts since it was
organized in 1932. Keystone is a wholly-owned subsidiary of Keystone
Investments, Inc. (formerly named Keystone Group, Inc.) ("Keystone
Investments"), located at 200 Berkeley Street, Boston, Massachusetts 02116-
5034.
Keystone Investments is a 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, Roger T. Wickers, Edward F. Godfrey and Ralph J. Spuehler, Jr.
Keystone Investments provides accounting, bookkeeping, legal, personnel and
general corporate services to Keystone, its affiliates and the Keystone
Investments Family of Funds.
Pursuant to its Investment Advisory and Management Agreement 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 the Board of
Trustees or by vote of a majority of the outstanding shares of the Fund. In
either case, the terms of the Advisory Agreement and continuance thereof must
be approved by the vote of a majority of Independent Trustees in person at a
meeting called for the purpose of voting on such approval. The Advisory
Agreement may be terminated, without penalty, on 60 days' written notice by
the Fund or Keystone, or by a vote of shareholders of the Fund. The Advisory
Agreement will terminate automatically upon its assignment.
The Fund has adopted a Code of Ethics incorporating policies on personal
securities trading as recommended by the Investment Company Institute.
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, 1995, 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, 1995, the Fund paid or accrued to
Keystone investment management and advisory services fees of $79,819 which
represented 0.30% of the Fund's average net assets. For the fiscal year ended
September 30, 1995, the Fund paid .55% and .30% of the average annual net
assets of the Class Y and Class Z shares, respectively, in expenses.
PORTFOLIO MANAGER
Christopher P. Conkey has been the Fund's portfolio manager since 1991. Mr.
Conkey is a Keystone Senior Vice President and has more than 12 years of
investment experience.
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 follow a policy of considering as a factor the number
of shares of the Fund sold by such broker-dealer. In addition, broker-dealers
executing portfolio transactions from time to time, may be affiliated with the
Fund, Keystone, FICO, the Fund's principal underwriter, (or their affiliates).
FICO, a wholly-owned subsidiary of Keystone, is located at 200 Berkeley
Street, Boston, Massachusetts 02116-5034.
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,
1995 and 1994 were 56% and 63%, respectively.
HOW TO BUY SHARES
Shares of the Fund are sold through FICO. FICO acts as the Fund's principal
underwriter and is an affiliate of Keystone. Shares are sold without a sales
charge at the offering price, which equals 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 KIRC deems it appropriate, additional documentation or verification of
authority may be required.
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
Fund 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 KIC, FICO, or any of their affiliates. There is no minimum amount
required for subsequent purchases.
ARRANGEMENTS WITH BROKER-DEALERS AND OTHERS
FICO may, from time to time, provide promotional incentives to certain
dealers whose representatives have sold or are expected to sell significant
amounts of the Fund. In addition, dealers may, from time to time, receive
additional cash payments. FICO may provide written information to dealers with
whom it has dealer agreements that relates to sales incentive campaigns
conducted by such 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 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 dealer's satisfaction of the required conditions, be periodic
and may be up to 0.25% of the value of shares sold by such dealer.
FICO also may pay a transaction fee up to the level of the payments made
allowable to 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 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 a fund may pay annually in distribution
costs for the sale of its shares and shareholder service fees. The NASD limits
annual expenditures to 1% of the aggregate average daily net asset value of
its shares, of which 0.75% may be used to pay 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.
For the year ended September 30, 1995, the Fund paid or accrued to FICO
$5,470 under its Class Y Distribution Plan.
Payments pursuant to the Class Y Distribution Plan are included in the
operating expenses of that class.
HOW TO REDEEM SHARES
Shares of the Fund may be redeemed at net asset value by mail or by using
the telephone or telecommunication redemption privilege.
MAIL REDEMPTIONS
Shares may be redeemed on each day on which the Exchange is open by mailing
a written request to KIRC at the following address:
Keystone Investor Resource Center, Inc.
P.O. Box 2121
Boston, Massachusetts 02106-2121
The signatures on the written request must be PROPERLY GUARANTEED by a U.S.
stock exchange member, a bank or other persons eligible to guarantee
signatures under the Securities Exchange Act of 1934 and KIRC's policies when
the circumstances of such redemptions indicate that guaranteed signatures are
appropriate, in the judgment of the Fund or KIRC, for the protection of the
Fund, its shareholders and KIRC.
TELEPHONE OR TELECOMMUNICATION REDEMPTIONS
Shares may be redeemed on each day on which the Exchange is open for
business by telephone (toll free 1-800-633-2700), Mailgram, fax or other
request not bearing a signature and a signature guarantee to KIRC.
Shareholders who wish to take advantage of one 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 form. CONSEQUENTLY, SHAREHOLDERS MUST COMPLETE AN ACCOUNT
APPLICATION, INCLUDING THE REDEMPTION AUTHORIZATION. If KIRC deems it
appropriate, additional documentation may be required. Although at present
KIRC pays the wire costs involved, it reserves the right at any time to
require the shareholder to pay such costs.
Except as otherwise noted, neither the Fund, KIRC nor FICO assumes
responsibility for the authenticity of any instructions received by any of
them from a shareholder in writing or by telephone. KIRC will employ
reasonable procedures to confirm that instructions received over the telephone
are genuine. Neither the Fund, KIRC nor FICO will be liable when following
instructions received by telephone that KIRC reasonably believes to be
genuine.
The Fund computes the amount due a shareholder at the close of the Exchange
at the end of the day on which it has received all proper documentation.
Payment will be made promptly and, in any event, within seven days after a
properly completed redemption request is received, subject to suspension of
the right of redemption or extension of the date for payment when (1) the
Exchange is closed, other than customary weekend and holiday closings; (2)
trading on the Exchange is restricted; (3) an emergency exists and the Fund
cannot dispose of its investments or fairly determine their value; or (4) the
Securities and Exchange Commission so orders.
Any change in the bank account designated to receive redemption proceeds
must be made in another Account Application signed by the shareholder (WITH
SIGNATURES PROPERLY GUARANTEED IN THE MANNER DESCRIBED ABOVE) and delivered to
KIRC at the address above.
If a shareholder redeems all the shares in an account, the shareholder will
receive, in addition to the value thereof, all declared but unpaid
distributions thereon.
The Fund has made no arrangements with brokers for the repurchase of shares.
Redemptions placed through brokers, who may charge for their services, must
comply with the redemption procedures and requirements described above.
GENERAL
The Fund reserves the right, at any time, to terminate, suspend or change
the terms of any redemption method described in this prospectus, except
redemption by mail, and to impose or change fees.
SHAREHOLDER SERVICES
Details on all shareholder services may be ob-
tained from KIRC by calling toll free 1-800-633-2700
or from FICO by writing FICO at 200 Berkeley Street, Boston, Massachusetts
02116-5034.
SHAREHOLDER ACCOUNTS
Each investor will automatically have established an account under which he
or she will receive a statement showing details of all transactions, including
the current balance of full and fractional shares in the account.
SUBACCOUNTS
Special processing has been arranged with KIRC for banks and other
institutions that wish to open multiple accounts (a master account and
subaccounts). An investor wishing to avail 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 EARNINGS AND IS NOT INTENDED TO
INDICATE FUTURE PERFORMANCE. Total return and current yield are computed
separately for each class of shares of the Fund. Total return refers to the
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 two classes of 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 of the Fund 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 10% of the outstanding shares request a
meeting. Shareholders may be eligible for shareholder communications
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
KIRC, located at 101 Main Street, Cambridge, Massachusetts 02142-1519, is a
wholly-owned subsidiary of Keystone. As previously mentioned, KIRC serves as
the Fund's transfer agent and dividend disbursing agent.
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. Borrowing and reverse repurchase agreements
magnify the potential for gain or loss on the portfolio securities of the Fund
and, therefore, increase the possibility of fluctuation in the Fund's net
asset value. Such practices may constitute leveraging. In the event the buyer
of securities under a reverse repurchase agreement files for bankruptcy or
becomes insolvent, such buyer or its trustee or receiver may receive an
extension of time to determine whether to enforce the Fund's obligation to
repurchase the securities, and the Fund's use of the proceeds of the reverse
repurchase agreement may effectively be restricted pending such determination.
The staff of the Securities and Exchange Commission has taken the position
that the 1940 Act treats reverse repurchase agreements as being included in
the percentage limit on borrowings imposed on a Fund.
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>
KEYSTONE
INSTITUTIONAL
ADJUSTABLE
RATE FUND
PROSPECTUS
[logo] KEYSTONE
INVESTMENTS
[logo]
KIARF-P 1/96
..55M
[recycle logo]
<PAGE>
KEYSTONE INSTITUTIONAL ADJUSTABLE RATE FUND
PART B
STATEMENT OF ADDITIONAL INFORMATION
<PAGE>
KEYSTONE INSTITUTIONAL ADJUSTABLE RATE FUND
STATEMENT OF ADDITIONAL INFORMATION
JANUARY 8, 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 January 8, 1996. A copy of
the prospectus may be obtained from Fiduciary Investment Company, Inc. ("FICO"),
the Fund's principal underwriter, 200 Berkeley Street, Boston, Massachusetts
02116-5034.
- -------------------------------------------------------------------------------
TABLE OF CONTENTS
- -------------------------------------------------------------------------------
Page
The Fund 2
Investment Restrictions 2
Dividends and Taxes 4
Valuation of Securities 5
Investment Adviser 6
Trustees and Officers 8
Distribution Plan 12
Distributor 14
Brokerage 15
Declaration of Trust 17
Standardized Total Return and Yield Quotations 19
Additional Information 20
Appendix A-1
Financial Statements F-1
Independent Auditors' Report F-15
#101606a5
<PAGE>
- -------------------------------------------------------------------------------
THE FUND
- -------------------------------------------------------------------------------
The Fund is a diversified, open-end 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 thirty funds managed or advised by
Keystone Investment Management Company (formerly named Keystone Custodian Funds,
Inc.) ("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 following restrictions are fundamental and may not be changed
without a vote of the holders of a majority, as defined in the Investment
Company Act of 1940 (the "1940 Act"), of the Fund's outstanding shares.
The Fund shall not do any of 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 securites 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 its 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.
In order to permit the sale of Fund shares in certain states or foreign
countries, the Fund may make commitments more restrictive than the investment
restrictions described above. Should the Fund determine that any such commitment
is no longer in the best interests of the Fund, it will revoke the commitment by
terminating sales of its shares in the state or country involved.
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.
- -------------------------------------------------------------------------------
DIVIDENDS AND TAXES
- -------------------------------------------------------------------------------
The Fund intends to declare dividends from net investment income daily
and distribute to its shareholders such dividends monthly and to declare and
distribute all net realized long-term capital gains annually. The Fund
distributes such dividends and capital gains in shares or, at the option of the
shareholder, in cash. Distributions are taxable whether paid in cash or in
additional Fund shares. Shareholders who have not opted prior to the payable
date for any income dividend or the record date for any capital gains
distribution to receive cash will have the number of such shares determined on
the basis of the Fund's net asset value per share computed at the end of the day
on the record date after adjustment for the distribution. Net asset value is
used in computing the number of shares in both gains and income distribution
reinvestments. Dividends will be automatically invested in additional shares of
the Fund unless the shareholder elects to receive them in cash. 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.
It is not expected that the Fund's income dividends will be eligible
for the corporate dividends received deduction. Distributed long-term capital
gains are taxable as such to the shareholder regardless of the period of time
Fund shares have been held by the shareholder. If such shares are held less than
six months and redeemed at a loss, the shareholder will recognize a long-term
capital loss on such shares to the extent of the capital gains distribution
received in connection with such shares. If the net asset value of the Fund's
shares is reduced below a shareholder's cost by a capital gains distribution,
such distribution, to the extent of the reduction, would be a return of
investment, though taxable as stated above. Since distributions of capital gains
depend upon profits actually realized from the sale of securities by the Fund,
they may or may not occur. The foregoing comments relating to the taxation of
dividends and distributions paid on the Fund's shares relate solely to federal
income taxation. Such dividends and distributions may also be subject to state
and local taxes.
When the Fund makes a distribution it intends to distribute only the
Fund's net capital gains and such income as has been predetermined to the best
of the Fund's ability to be taxable as ordinary income. Therefore, net
investment income distributions will not be made on the basis of distributable
income as computed on the books of the Fund, but will be made on a federal
income tax basis.
- -------------------------------------------------------------------------------
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) instruments having maturities of sixty days or less when
purchased 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) instruments maturing in more than sixty days when purchased
that are held on the sixtieth day prior to maturity are valued at amortized cost
(market value on the sixtieth day adjusted for amortization of premium or
accretion of discount), which, when combined with accrued interest, approximates
market; and which in either case reflects fair value as determined in accordance
with procedures established by the Fund's Board of Trustees;
(c) 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 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. Securities for
which market quotations are readily available are valued on a consistent basis
at that price quoted that, in the opinion of the Board of Trustees or the person
designated by the Board of Trustees to make the determination, most nearly
represents the market value of the particular security. Other assets and any
securities for which market quotations are not readily available are valued on a
consistent basis at fair value as determined in good faith using methods
prescribed by the Board of Trustees.
- -------------------------------------------------------------------------------
INVESTMENT ADVISER
- -------------------------------------------------------------------------------
Subject to the general supervision of the Fund's Board of Trustees,
Keystone serves as investment adviser to the Fund and is responsible for the
overall management of the Fund's business and affairs.
Keystone, located at 200 Berkeley Street, Boston, Massachusetts
02116-5034, has provided investment advisory and management services to
investment companies and private accounts since it was organized in 1932.
Keystone is a wholly-owned subsidiary of Keystone Investments, Inc. (formerly
named Keystone Group, Inc.) ("Keystone Investments"), which is located at 200
Berkeley Street, Boston, Massachusetts 02116-5034.
Keystone Investments is a 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, Roger T. Wickers, Edward F. Godfrey, and Ralph J. Spuehler, Jr.
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 an Investment Advisory and Management Agreement between the
Fund and Keystone (the "Advisory Agreement") and subject to the supervision of
the Fund's Board of Trustees, Keystone manages and administers the operation of
the Fund and manages the investment and reinvestment of the Fund's assets in
conformity with the Fund's investment objective and restrictions.
The Advisory Agreement stipulates that Keystone shall provide office
space, all necessary office facilities, equipment and personnel in connection
with its services under the Advisory Agreement and pay or reimburse the Fund for
the compensation of officers and Trustees of the Fund who are affiliated with
Keystone as well as 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 all charges and expenses of any custodian or depository
appointed by the Fund for the safekeeping of its cash, securities and other
property; all charges and expenses for bookkeeping and auditors; all charges and
expenses of any transfer agents and registrars appointed by the Fund; all costs
of certificates representing shares of the Fund; all fees and expenses involved
in registering and maintaining registrations of the Fund and of its shares with
the Securities and Exchange Commission (sometimes referred to herein as the
"SEC" or 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; expenses of
preparing, printing and mailing prospectuses and statements of additional
information to shareholders of the Fund; all expenses of shareholders' and
Trustees' meetings and of preparing, printing and mailing notices, reports and
proxy materials to shareholders of the Fund; and 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, (1) all fees of all Trustees of the Fund who are not
affiliated with Keystone or any of its affiliates, or with any adviser retained
by Keystone; (2) 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; (3) 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; (4) all
charges and expenses of legal counsel for the Fund and for Trustees of the Fund
in connection with 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; (5) all taxes and business trust
fees payable by the Fund to federal, state or other governmental agencies; (6)
all interest costs of the Fund; and (7) 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, annual expenses of the Fund's Class Y shares have been
voluntarily limited by Keystone to no more than 0.55% of Class Y's average daily
net assets. Currently, annual expenses of the Fund's Class Z shares have been
voluntarily limited by Keystone to no more than 0.30% of Class Z's average daily
net assets. 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. Keystone will not be required to make any reimbursement to the extent
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").
During the year ended September 30, 1993, the Fund paid or accrued to
Keystone investment management and advisory services fees of $148,915, which
represented 0.30% of the Fund's average net assets on an annualized basis.
During the year ended September 30, 1994, the Fund paid or accrued to
Keystone investment management and advisory services fees of $123,050, which
represented 0.30% of the Fund's average net assets on an annualized basis.
During the year ended September 30, 1995, the Fund paid or accrued to
Keystone investment management and advisory services fees of $79,819, which
represented 0.30% of the Fund's average net assets on an annualized basis.
The Advisory Agreement continues in effect only if approved at least
annually by the Board of Trustees of the Fund or by a vote of a majority of the
outstanding shares of the Fund, and such renewal has been approved by the vote
of a majority of the Independent Trustees cast in person at a meeting called for
the purpose of voting on such approval. The Advisory Agreement may be
terminated, without penalty, on 60 days written notice by the 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.
- -------------------------------------------------------------------------------
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, Director and Chief Executive
Officer of Keystone Investments; President, Chief Executive Officer and
Trustee or Director of all 30 funds in the Keystone Investments Family of
Funds; Director and Chairman of the Board, Chief Executive Officer and Vice
Chairman of Keystone; Chairman of the Board and Director of Keystone
Institutional Company, Inc. ("Keystone Institutional") (formerly named
Keystone Investment Management Corporation), and Keystone Fixed Income
Advisors ("KFIA"); Director, Chairman of the Board, Chief Executive Officer
and President of Keystone Management, Keystone Software Inc. ("Keystone
Software"); Director and President of Keystone Asset Corporation, Keystone
Capital Corporation, and Keystone Trust Company; Director of the Principal
Underwriter, KIRC, and Fiduciary Investment Company, Inc. ("FICO");
Director of Boston Children's Services Association; Trustee of Anatolia
College, Middlesex School, and Middlebury College; Member, Board of
Governors, New England Medical Center; former Director and President of
Hartwell Keystone Advisers, Inc. ("Hartwell Keystone"); former Director and
Vice President of Robert Van Partners, Inc.; and former Trustee of Neworld
Bank.
FREDERICK AMLING: Trustee of the Fund; Trustee or Director of all other Keystone
Investments Funds; Professor, Finance Department, George Washington
University; President, Amling & Company (investment advice); Member, Board
of Advisers, Credito Emilano (banking); and former Economics and Financial
Consultant, Riggs National Bank.
CHARLES A. AUSTIN III: Trustee of the Fund; Trustee or Director of all other
Keystone Investments Funds; Investment Counselor to Appleton Partners,
Inc.; former Managing Director, Seaward Management Corporation (investment
advice) and former Director, Executive Vice President and Treasurer, State
Street Research & Management Company (investment advice).
*GEORGE S. BISSELL: Chairman of the Board and Trustee of the Fund; Director of
Keystone Investments; Chairman of the Board and Trustee or Director of all
other Keystone Investments Funds; former Director and Chairman of the Board
of Hartwell Keystone; Chairman of the Board and Trustee of Anatolia
College; Trustee of University Hospital (and Chairman of its Investment
Committee); former Chairman of the Board and Chief Executive Officer of
Keystone Investments; and former Chief Executive Officer of the Fund.
EDWIN D. CAMPBELL: Trustee of the Fund; Trustee or Director of all other
Keystone Investments Funds; Executive Director, Coalition of Essential
Schools, Brown University; Director and former Executive Vice President,
National Alliance of Business; former Vice President, Educational Testing
Services; and former Dean, School of Business, Adelphi University.
CHARLES F. CHAPIN: Trustee of the Fund; Trustee or Director of all other
Keystone Investments Funds; former Group Vice President, Textron Corp.; and
former Director, Peoples Bank (Charlotte, N.C).
LEROY KEITH, JR.: Trustee of the Fund; Trustee or Director of all other Keystone
Investments Funds; Director of Phoenix Total Return Fund and Equifax, Inc.;
Trustee of Phoenix Series Fund, Phoenix Multi-Portfolio Fund and The
Phoenix Big Edge Series Fund; and former President, Morehouse College.
K. DUN GIFFORD: Trustee of the Fund; Trustee or Director of all other Keystone
Investments Funds; Chairman of the Board, Director and Executive Vice
President, The London Harness Company; Managing Partner, Roscommon Capital
Corp.; Trustee, Cambridge College; Chairman Emeritus and Director, American
Institute of Food and Wine; Chief Executive Officer, Gifford Gifts of Fine
Foods; Chairman, Gifford, Drescher & Associates (environmental consulting);
President, Oldways Preservation and Exchange Trust (education); and former
Director, Keystone Investments and Keystone.
F. RAY KEYSER, JR.: Trustee of the Fund; Trustee or Director of all other
Keystone Investments Funds; Of Counsel, Keyser, Crowley & Meub, P.C.;
Member, Governor's (VT) Council of Economic Advisers; Chairman of the Board
and Director, Central Vermont Public Service Corporation and Hitchcock
Clinic; Director, Vermont Yankee Nuclear Power Corporation, Vermont
Electric Power Company, Inc., Grand Trunk Corporation, Central Vermont
Railway, Inc., S.K.I. Ltd., Sherburne Corporation, Union Mutual Fire
Insurance Company, New England Guaranty Insurance Company, Inc. and the
Investment Company Institute; former Governor of Vermont; former Director
and President, Associated Industries of Vermont; former Chairman and
President, Vermont Marble Company; former Director of Keystone; and former
Director and Chairman of the Board, Green Mountain Bank.
DAVID M. RICHARDSON: Trustee of the Fund; Trustee or Director of all other
Keystone Investments Funds; Executive Vice President, DHR International,
Inc. (executive recruitment); former Senior Vice President, Boyden
International Inc. (executive recruitment); and Director, Commerce and
Industry Association of New Jersey, 411 International, Inc. and J & M
Cumming Paper Co.
RICHARD J. SHIMA: Trustee of the Fund; Trustee or Director of all other Keystone
Investments Funds; Chairman, Environmental Warranty, Inc., and Consultant,
Drake Beam Morin, Inc. (executive outplacement); Director of Connecticut
Natural Gas Corporation, Trust Company of Connecticut, Hartford Hospital,
Old State House Association and Enhanced Financial Services, Inc.; Member,
Georgetown College Board of Advisors; Chairman, Board of Trustees, Hartford
Graduate Center; Trustee, Kingswood-Oxford School and Greater Hartford
YMCA; former Director, Executive Vice President and Vice Chairman of The
Travelers Corporation; and former Managing Director of Russell Miller, Inc.
ANDREW J. SIMONS: Trustee of the Fund; Trustee or Director of all other Keystone
Investments Funds; Partner, Farrell, Fritz, Caemmerer, Cleary, Barnosky &
Armentano, P.C.; former President, Nassau County Bar Association; and
former Associate Dean and Professor of Law, St. John's University School of
Law.
EDWARD F. GODFREY: Senior Vice President of the Fund; Senior Vice President of
all other Keystone Investments Funds; Director, Senior Vice President,
Chief Financial Officer and Treasurer of Keystone Investments, the
Principal Underwriter, Keystone Asset Corporation, Keystone Capital
Corporation, Keystone Trust Company; Treasurer of Keystone Institutional,
and FICO; Treasurer and Director of Keystone Management, and Keystone
Software; Vice President and Treasurer of KFIA; and Director of KIRC;
former Treasurer and Director of Hartwell Keystone; former Treasurer of
Robert Van Partners, Inc.
JAMES R. McCALL: Senior Vice President of the Fund; Senior Vice President of all
other Keystone Investments Funds; and President of Keystone.
J. KEVIN KENELY: Treasurer of the Fund; Treasurer of all other Keystone
Investments Funds; Vice President and Controller of Keystone Investments,
Keystone, the Principal Underwriter, FICO and Keystone Software; and
Controller of Keystone Asset Corporation and Keystone Capital Corporation.
CHRISTOPHER P. CONKEY: Vice President of the Fund; Vice President certain other
Keystone Investment 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 Keystone Investments Funds;
Senior Vice President, General Counsel and Secretary of Keystone; Senior
Vice President, General Counsel, Secretary and Director of the Principal
Underwriter, Keystone Management and Keystone Software; Senior Vice
President and General Counsel of Keystone Institutional; Senior Vice
President, General Counsel and Director of FICO and KIRC; Vice President
and Secretary of KFIA; Senior Vice President, General Counsel and Secretary
of Keystone Investments, Keystone Asset Corporation, Keystone Capital
Corporation and Keystone Trust Company; former Senior Vice President and
Secretary of Hartwell Keystone, and Robert Van Partners, Inc.
* This Trustee may be considered an "interested person" of the Fund within the
meaning of the 1940 Act.
Mr. Elfner and Mr. Bissell are "interested persons" by virtue of their
positions as officers and/or Directors of Keystone Investments and several of
its affiliates including Hartwell Keystone, KDI and KIRC. Mr. Elfner and Mr.
Bissell own shares of Keystone Investments . Mr. Elfner is Chairman of the
Board, Chief Executive Officer and a Director of Keystone Investments. Mr.
Bissell is a Director of Keystone Investments.
During the fiscal year ended September 30, 1995, no Trustee affiliated
with Keystone nor any officer received any direct remuneration from the Fund.
During the same period, no non-affiliated Trustee received retainers or fees.
For the year ended December 31, 1995, aggregate compensation received by the
Independent Trustees on a fund complex wide basis was $585,990. On December 31,
1995, the Fund's Trustees, officers and former Advisory Board members as a group
did not beneficially own any of the Fund's outstanding shares.
The address of the Fund's Trustees and officers is 200 Berkeley Street,
Boston, Massachusetts 02116-5034.
- -------------------------------------------------------------------------------
DISTRIBUTION PLAN
- -------------------------------------------------------------------------------
GENERAL
The Fund offers two classes of 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. 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 in respect of 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. On March 16, 1994, the
Fund's Class Y Distribution Plan was approved by the Fund's Board of Trustees,
including a majority of the Trustees who are not interested persons of the Fund
as defined in the 1940 Act ("Independent Trustees") and the Trustees who have no
direct or indirect financial interest in the Distribution Plan or any agreement
related thereto (the "Rule 12b-1 Trustees" who are the same as the Independent
Trustees).
The National Association of Securities Dealers, Inc. ("NASD") currently
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% of the aggregate average daily net asset value of its shares, of which
0.75% may be used to pay distribution costs and 0.25% may be used to pay
shareholder service fees. The NASD also limits the aggregate amount that the
Fund may pay for such distribution costs to 6.25% of gross share sales since the
inception of the Class Y Distribution Plan, plus interest at the prime rate plus
1% on such amounts.
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 a principal
underwriter of the Fund ("Principal Underwriter") (currently 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 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 on the books of the Fund for specified
periods. The Fund may also make payments to FICO, 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 Rule 12b-1 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 Rule 12b-1 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 Rule 12b-1 Trustees quarterly. The Rule 12b-1 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.
Whether any expenditure under the Class Y Distribution Plan is subject
to a state expense limit will depend upon the nature of the expenditure and the
terms of the state law, regulation or order imposing the limit. A portion of the
Fund's Distribution Plan expenses may be includable in the Fund's total
operating expenses for purposes of determining compliance with state expense
limits.
For the fiscal year ended September 30, 1995, the Fund paid the
Principal Underwriter $5,470 under the Class Y Distribution Plan.
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 will benefit the Fund.
- -------------------------------------------------------------------------------
DISTRIBUTOR
- -------------------------------------------------------------------------------
The Fund has entered into a Distribution Agreement with FICO (the
"Distribution Agreement"). FICO is a wholly-owned subsidiary of Keystone.
The Fund has appointed FICO to act as Principal Underwriter of the
Fund's shares in such states as the Fund may, from time to time, designate. FICO
will act as agent for the Fund and not as principal. FICO will have the right to
obtain subscriptions for and to sell shares as agent of the Fund and, in so
doing, may retain and employ representatives to promote distribution of the
shares and may obtain orders from brokers or dealers or others for sales of
shares to them. No such representative, dealer or broker shall have any
authority to act as agent for the 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. In its capacity as Principal
Underwriter, 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 offering price
of the shares 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 and 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 or in connection with any action, suit or proceeding
to which any of them may be a party, that arises out of or is alleged to arise
out of any misrepresentation or omission to state a material fact on the part of
FICO or any other person for whose acts FICO is responsible or is alleged to be
responsible, unless such misrepresentation or omission was made in reliance upon
written information furnished by the 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.
- -------------------------------------------------------------------------------
BROKERAGE
- -------------------------------------------------------------------------------
It is the policy of the Fund, in effecting transactions in portfolio
securities, to seek best execution of orders at the most favorable prices. The
determination of what may constitute best execution and price in the execution
of a securities transaction by a broker involves a number of considerations
including, without limitation, the overall direct net economic result to the
Fund, involving both price paid or received and any commissions and other costs
paid, the efficiency with which the transaction is effected, the ability to
effect the transaction at all where a large block is involved, the availability
of the broker to stand ready to execute potentially difficult transactions in
the future and the financial strength and stability of the broker. Such
considerations are judgmental and are weighed by management in determining the
overall reasonableness of brokerage commissions paid.
Subject to the foregoing, a factor in the selection of brokers is the
receipt of research services, such as analyses and reports concerning issuers,
industries, securities, economic factors and trends and other statistical and
factual information. Any such research and other statistical and factual
information provided by brokers to the Fund is considered to be in addition to
and not in lieu of services required to be performed by Keystone under the
Advisory Agreement. The cost, value and specific application of such information
are indeterminable and cannot be practically allocated among the Fund and other
clients of Keystone 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 policy of the Fund with respect to brokerage is and will be
reviewed by the Fund's Board of Trustees from time to time. Because of the
possibility of further regulatory developments affecting the securities
exchanges and brokerage practices generally, the foregoing practices may be
changed, modified or eliminated.
Investment decisions for the Fund are made independently by Keystone
from those of the other funds and investment accounts managed by Keystone. It
may frequently develop 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.
For the years ended September 30, 1995, 1994 and 1993, the Fund did not
pay any brokerage commissions.
- -------------------------------------------------------------------------------
DECLARATION OF TRUST
- -------------------------------------------------------------------------------
MASSACHUSETTS BUSINESS TRUST
The Fund is a Massachusetts business trust established under a
Declaration of Trust dated June 19, 1991 (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, as amended, has been filed
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 one or more series and/or classes of shares.
Each share of a series or class 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 transferable, redeemable and fully assignable as collateral. There
are no sinking fund provisions. The Fund currently issues two classes of shares
and is authorized to issue additional classes or series of shares.
SHAREHOLDER LIABILITY
Pursuant to court decisions or other theories of law, shareholders of a
Massachusetts business trust may be held personally liable on the obligations of
the trust. The possibility of Fund shareholders incurring financial loss under
such circumstances 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. Shares of the Fund are entitled to one vote per share on
matters subject to vote by the Fund, such as investment advisory agreements.
Shares generally vote together as one class. 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. Each class has exclusive
voting rights with respect to its respective distribution plan, if any. 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. In such event, the holders of the remaining 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 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.
- -------------------------------------------------------------------------------
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 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.
Total return for Class Y shares for the fiscal year ended September 30,
1995 was 6.60%. Total return for Class Y shares for the period May 23, 1994
(commencement of operations) through the fiscal period ended September 30, 1995
was 7.06%. The total return for Class Z for the fiscal year ended September 30,
1995 was 6.87%. The cumulative total return for Class Z for the period October
1, 1991 (commencement of operations) through September 30, 1995 was 20.55%. The
compounded average annual total return for Class Z for that same four year
period was 4.78%.
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, 1995 were 6.49% and
6.71%, 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.
- -------------------------------------------------------------------------------
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.
Keystone Investor Resource Center, Inc., 101 Main Street, Cambridge,
Massachusetts 02142, 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 December 31, 1995, the following accounts owned of record 5% or
more of the Fund's Class Y shares:
PERCENTAGE
RECORD OWNER OF CLASS OWNED
------------ --------------
William H. Morgan Jr. 33.888%
906 Weightman
Greenwood, MS 38930-2438
M & M Farms 29.610%
906 Weightman
Greenwood, MS 38930-2438
James Alexander 19.714%
P.O. Box 1265
Meridian, MS 39302
Oklahoma Farms Inc. 13.628%
906 Weightman
Greenwood, MS 38930-2438
As of December 31, 1995, the following accounts owned of record 5% or
more of the outstanding shares of the Fund's Class Z shares:
PERCENTAGE
RECORD OWNER OF CLASS OWNED
------------ --------------
Ampex Retirement Master Trust 69.660%
P.O. BoX 1992
Boston, MA 02105-1992
Keystone Investment Distributors Company 21.551%
ATTN: Mgr. Financial Accounting
200 Berkeley Street
Boston, MA 02116-5022
Buffalo Color Corp Master Trust 8.636%
P.O. Box 1992
Boston, MA 02105-1992
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.
<PAGE>
- -------------------------------------------------------------------------------
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 and securities issued by the Government
National Mortgage Association ("GNMA"). Treasury bills have maturities of one
year or less. 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. GNMA securities include GNMA
mortgage pass-through certificates. Such securities are supported by the full
faith and credit of the U.S.
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. Because the U.S. government is not obligated by
law to provide support to an instrumentality it sponsors, the Fund will invest
in securities issued by such an instrumentality only when Keystone determines
under standards established by the Board of Trustees that the credit risk with
respect to the instrumentality does not make its securities unsuitable
instruments. U.S. government securities 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 CORPORATE BOND 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 U.S., 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 AA to A may be modified by the addition of a plus or minus
sign to show relative standing within the major rating categories.
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 CORPORATE BOND RATINGS
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
which 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
A 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, severity 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.
A. 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.
B. 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, which 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.
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,
unconditionally 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
SCHEDULE OF INVESTMENTS -- September 30, 1995
<TABLE>
<CAPTION>
Interest Maturity Par Market
Rate Date Value Value
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
ADJUSTABLE RATE MORTGAGE SECURITIES (91.8%)
FHLMC (35.8%)
FHLMC Pool #605386, Cap 12.890%, Margin 2.114% + CMT, Resets Annually 7.736% 09/01/17 $1,122,269 $1,152,952
FHLMC Pool #605343, Cap 13.604%, Margin 2.125% + CMT, Resets Annually 7.782 03/01/19 1,459,873 1,500,019
FHLMC Pool #606541, Cap 13.539%, Margin 2.037% + CMT, Resets Annually 7.735 03/01/21 989,905 1,015,890
FHLMC Pool #845039, Cap 12.463%, Margin 2.080% + CMT, Resets Annually 7.612 10/01/21 1,598,826 1,640,795
FHLMC Pool #606679, Cap 12.052%, Margin 2.159% + CMT, Resets Annually 7.566 10/01/21 1,287,306 1,321,497
FHLMC Pool #845049, Cap 12.678%, Margin 2.183% + CMT, Resets Annually 7.767 11/01/21 248,526 255,827
FHLMC Pool #845063, Cap 12.050%, Margin 2.174% + CMT, Resets Annually 7.750 11/01/21 904,612 931,185
FHLMC Pool #845082, Cap 12.350%, Margin 1.997% + CMT, Resets Annually 7.687 03/01/22 1,628,783 1,667,466
- ---------------------------------------------------------------------------------------------------------------------------------
TOTAL FHLMC 9,485,631
- ---------------------------------------------------------------------------------------------------------------------------------
FNMA (56.0%)
FNMA Pool #070119, Cap 12.021%, Margin 2.000% + CMT, Resets Annually 7.802 11/01/17 3,137,088 3,237,083
FNMA Pool #090678, Cap 13.136%, Margin 2.177% + CMT, Resets Annually 7.747 09/01/18 1,536,260 1,587,632
FNMA Pool #124015, Cap 13.307%, Margin 1.817% + CMT, Resets Annually 7.580 11/01/18 544,703 555,341
FNMA Pool #095405, Cap 13.738%, Margin 2.068% + CMT, Resets Annually 7.853 12/01/19 1,110,152 1,142,763
FNMA Pool #124289, Cap 13.425%, Margin 2.005% + CMT, Resets Annually 7.696 09/01/21 2,758,355 2,831,617
FNMA Pool #142963, Cap 10.960%, Margin 1.950% + CMT, Resets Annually 7.453 01/01/22 1,800,851 1,836,022
FNMA Pool #238847, Cap 13.334%, Margin 2.317% + CMT, Resets Annually 8.023 06/01/31 3,524,124 3,647,469
- ---------------------------------------------------------------------------------------------------------------------------------
TOTAL FNMA 14,837,927
- ---------------------------------------------------------------------------------------------------------------------------------
TOTAL ADJUSTABLE RATE MORTGAGE SECURITIES (Cost - $24,395,519) 24,323,558
- ---------------------------------------------------------------------------------------------------------------------------------
FIXED RATE MORTGAGE SECURITIES (2.8%)
FHLMC (0.4%)
FHLMC Pool #277831 7.250 11/01/08 107,107 106,673
- ---------------------------------------------------------------------------------------------------------------------------------
FNMA (2.4%)
FNMA Pool #004534 10.750 10/01/12 572,721 627,616
- ---------------------------------------------------------------------------------------------------------------------------------
TOTAL FIXED RATE MORTGAGE SECURITIES (Cost - $716,287) 734,289
- ---------------------------------------------------------------------------------------------------------------------------------
UNITED STATES TREASURY ISSUES (1.9%)
U.S. Treasury Notes (Cost $501,016) 6.000 08/31/97 500,000 501,250
- ---------------------------------------------------------------------------------------------------------------------------------
</TABLE>
See Notes to Schedule of Investments
<PAGE>
KEYSTONE INSTITUTIONAL ADJUSTABLE RATE FUND
SCHEDULE OF INVESTMENTS -- September 30, 1995
<TABLE>
<CAPTION>
Interest Maturity Par Market
Rate Date Value Value
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
SHORT-TERM INVESTMENT (2.3%)
Keystone Joint Repurchase Agreement (Investments in repurchase agreements,
in a joint trading account, purchased 9/30/95) (Cost -- $618,000)(a) 6.391% 10/02/95 $618,329 $618,000
- ---------------------------------------------------------------------------------------------------------------------------------
TOTAL INVESTMENTS (Cost - $26,230,822)(b) 26,177,097
- ---------------------------------------------------------------------------------------------------------------------------------
OTHER ASSETS AND LIABILITIES -- NET (1.2%) 309,618
- ---------------------------------------------------------------------------------------------------------------------------------
NET ASSETS -- (100.0%) $26,486,715
<FN>
NOTES TO SCHEDULE OF INVESTMENTS:
(a) The repurchase agreements are fully collateralized by U.S. government and/or agency obligations based
on market prices at September 30, 1995.
(b) The cost of investments for federal income tax purposes is $26,239,168. Gross unrealized appreciation and
depreciation of investments, based on identified tax cost at September 30, 1995 are as follows:
Gross unrealized appreciation $80,048
Gross unrealized depreciation -142,119
-------
Net unrealized depreciation -$62,071
=======
</TABLE>
Legend of Portfolio Abbreviations:
CMT - 1, 3 or 5 year Constant Maturity Treasury Index
FHLMC - Federal Home Loan Mortgage Corporation
FNMA - Federal National Mortgage Association
See Notes to Financial Statements
<PAGE>
Keystone Institutional Adjustable Rate Fund
FINANCIAL HIGHLIGHTS - CLASS Y SHARES
(For a share outstanding throughout the period)
<TABLE>
<CAPTION>
May 23, 1994 (Date of
Year Ended September 30, Initial Public Offering)
1995 to September 30, 1994
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
NET ASSET VALUE BEGINNING OF PERIOD $9.61 $9.73
Income from investment operations:
Net investment income 0.64 0.17
Net realized and unrealized gain (loss) on investments (0.02) (0.13)
- ---------------------------------------------------------------------------------------------------------------------------------
Total from investment operations 0.62 0.04
- ---------------------------------------------------------------------------------------------------------------------------------
Less distributions from:
Net investment income (0.53) (0.16)
In excess of net investment income (0.05) 0
Total distributions (0.58) (0.16)
- ---------------------------------------------------------------------------------------------------------------------------------
NET ASSET VALUE END OF PERIOD $9.65 $9.61
=================================================================================================================================
TOTAL RETURN 6.60% 0.35%
RATIOS/SUPPLEMENTAL DATA
RATIOS TO AVERAGE NET ASSETS:
Total expenses 0.55% 0.43%(a)
Net investment income 6.70% 5.03%(a)
Portfolio turnover rate 56% 63%
- ---------------------------------------------------------------------------------------------------------------------------------
NET ASSETS END OF PERIOD (THOUSANDS) $2,871 $ 1
=================================================================================================================================
<FN>
(a) Annualized
</TABLE>
See Notes to Financial Statements
<PAGE>
Keystone Institutional Adjustable Rate Fund
FINANCIAL HIGHLIGHTS - CLASS Z SHARES
(For a share outstanding throughout the year)
<TABLE>
<CAPTION>
Year Ended September 30,
--------------------------------------------------------
1995 1994 1993(a) 1992
<S> <C> <C> <C> <C>
NET ASSET VALUE BEGINNING OF YEAR $9.61 $9.93 $9.88 $10.00
- ---------------------------------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income 0.63 0.63 0.54 0.67
Net realized and unrealized gain (loss) on investments 0.01 (0.49) (0.01) (0.15)
- ---------------------------------------------------------------------------------------------------------------------------------
Total from investment operations 0.64 0.14 0.53 0.52
- ---------------------------------------------------------------------------------------------------------------------------------
LESS DISTRIBUTIONS FROM:
Net investment income (0.55) (0.44) (0.48) (0.64)
In excess of net investment income (0.05) (0.02) 0 0
Total distributions (0.60) (0.46) (0.48) (0.64)
- ---------------------------------------------------------------------------------------------------------------------------------
NET ASSET VALUE END OF YEAR $9.65 $9.61 $9.93 $9.88
=================================================================================================================================
TOTAL RETURN 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%
Net investment income 6.61% 5.15% 5.46% 6.83%
Portfolio turnover rate 56% 63% 81% 88%
- ---------------------------------------------------------------------------------------------------------------------------------
NET ASSETS END OF YEAR (THOUSANDS) $23,616 $25,200 $60,035 $51,625
=================================================================================================================================
<FN>
(a) Per share calculations based on weighted average shares outstanding.
</TABLE>
See Notes to Financial Statements
<PAGE>
Keystone Institutional Adjustable Rate Fund
STATEMENT OF ASSETS AND LIABILITIES
September 30, 1995
ASSETS:
Investments at market value ( identified cost
-- $26,230,822)(Note 1) $26,177,097
Cash 58
Receivable for:
Principal paydown 234,775
Interest 227,690
Receivable from investment adviser (Note 4) 76
- ------------------------------------------------------------------------------
Total assets 26,639,696
LIABILITIES:
Payable for income distribution 152,915
Accrued expenses 66
- ------------------------------------------------------------------------------
Total liabilities 152,981
- ------------------------------------------------------------------------------
NET ASSETS $26,486,715
==============================================================================
NET ASSETS REPRESENTED BY (NOTE 1):
Paid-in capital 27,795,222
Accumulated distributions in excess of net investment income (130,905)
Accumulated net realized gain (loss) on investments (1,123,877)
Net unrealized appreciation (depreciation) on investments (53,725)
- ------------------------------------------------------------------------------
Total net assets $26,486,715
==============================================================================
NET ASSET VALUE AND REDEMPTION PRICE PER SHARE (NOTE 1):
Class Y Shares
Net assets of $2,870,585/297,431 shares outstanding $9.65
Class Z Shares
Net assets of $23,616,130/2,447,003 shares outstanding 9.65
==============================================================================
See Notes to Financial Statements
<PAGE>
Keystone Institutional Adjustable Rate Fund
STATEMENT OF OPERATIONS
Year Ended September 30, 1995
- ------------------------------------------------------------------------------
INVESTMENT INCOME (NOTE 1):
Interest $1,852,307
- ------------------------------------------------------------------------------
EXPENSES (NOTES 2 AND 4):
Management fees 79,819
Distribution Plan expenses 5,470
- ------------------------------------------------------------------------------
Total expenses 85,289
Less: Reimbursement from investment advisor (Note 4) (76)
- ------------------------------------------------------------------------------
Net expenses 85,213
- ------------------------------------------------------------------------------
Net investment income 1,767,094
- ------------------------------------------------------------------------------
NET REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS (NOTES 1 AND 3) :
Net realized gain (loss) on investments (233,646)
- ------------------------------------------------------------------------------
Net change in unrealized appreciation (depreciation)
on investments 278,275
- ------------------------------------------------------------------------------
Net realized and unrealized gain (loss) on investments 44,629
- ------------------------------------------------------------------------------
Net increase (decrease) in net assets resulting
from operations $1,811,723
==============================================================================
See Notes to Financial Statements
<PAGE>
Keystone Institutional Adjustable Rate Fund
STATEMENTS OF CHANGES IN NET ASSETS
Year Ended September 30,
-------------------------------
1995 1994
- ------------------------------------------------------------------------------
Operations:
Net investment income $1,767,094 $2,054,680
Net realized gain (loss) on investments (233,646) (490,115)
Net change in unrealized appreciation
(depreciation) on investments 278,275 (829,592)
- ------------------------------------------------------------------------------
Net increase (decrease) in net assets
resulting from operations 1,811,723 734,973
- ------------------------------------------------------------------------------
DISTRIBUTIONS TO SHAREHOLDERS FROM (NOTE 1):
Net investment income - Class Y Shares (125,619) (17)
Net investment income - Class Z Shares (1,407,521) (1,803,281)
In excess of net investment income
- Class Y Shares (10,726) -0-
In excess of net investment income
- Class Z Shares (120,179) (87,216)
- ------------------------------------------------------------------------------
Total distributions to shareholders (1,664,045) (1,890,514)
- ------------------------------------------------------------------------------
CAPITAL SHARE TRANSACTIONS (NOTE 2):
Proceeds from shares sold - Class Y Shares 5,084,803 1,000
Proceeds from shares sold - Class Z Shares 219,375 8,811,967
Payments for shares redeemed - Class Y Shares (2,362,055) -0-
Payments for shares redeemed - Class Z Shares (3,056,070) (43,893,431)
Net asset value of shares issued in
reinvestment of dividends and distributions
from:
Class Y Shares 118,357 -0-
Class Z Shares 1,133,577 1,402,449
- ------------------------------------------------------------------------------
Net increase (decrease) in net assets
resulting from capital share transactions 1,137,987 (33,678,015)
- ------------------------------------------------------------------------------
Total increase (decrease) in net assets 1,285,665 (34,833,556)
- ------------------------------------------------------------------------------
NET ASSETS:
Beginning of year 25,201,050 60,034,606
- ------------------------------------------------------------------------------
End of year [Including undistributed net
investment income (distributions in excess
of net investment income) as follows:
1995-($130,905) and 1994-($87,216)](Note 1) $26,486,715 $25,201,050
==============================================================================
See Notes to Financial Statements
<PAGE>
KEYSTONE INSTITUTIONAL ADJUSTABLE RATE FUND
NOTES TO FINANCIAL STATEMENTS
(1.) SIGNIFICANT ACCOUNTING POLICIES
Keystone Institutional Adjustable Rate Fund (the "Fund") is a Massachusetts
business trust for which Keystone Investment Management Company ("Keystone")
(formerly known as Keystone Custodian Funds, Inc.) is the Investment Adviser and
Manager. The Fund was organized on June 19, 1991, and had no operations prior to
October 1, 1991. The Fund is registered under the Investment Company Act of
1940, as amended (the "1940 Act"), as a diversified open-end investment company.
The Fund currently offers Class Y shares and Class Z shares. Both classes 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.
Keystone is a wholly-owned subsidiary of Keystone Investments, Inc. ("KII")
(formerly Keystone Group, Inc.), a Delaware corporation. KII is privately owned
by an investor group consisting of current and former members of management of
Keystone and its affiliates. Keystone Investor Resource Center, Inc. ("KIRC"), a
wholly-owned subsidiary of Keystone, is the Fund's transfer agent.
The following is a summary of significant accounting policies consistently
followed by the Fund in the preparation of its financial statements. The
policies are in conformity with generally accepted accounting principles.
A. U.S. Government agency securities and certificates are traded in the
over-the-counter market and are valued at the mean of bid and asked prices at
the time of valuation. Short-term investments which 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. Short-term investments
maturing in more than sixty days for which market quotations are readily
available are valued at current market value. Short-term investments maturing in
more than sixty days when purchased which 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. All other securities for which market
quotations are readily available are valued at current market value. Management
values the following securities at prices it deems in good faith to be fair: (a)
securities (including restricted securities) for which complete quotations are
not readily available and (b) listed securities if, in the opinion of
management, the last sales price does not reflect a current value, or if no sale
occurred.
B. Securities transactions are accounted for no later than one business day
after the trade date. Realized gains and losses are computed on the identified
cost basis. Interest income is recorded on the accrual basis. All premiums and
discounts are amortized/accreted for both financial reporting and federal income
tax purposes.
C. The Fund has qualified and intends to qualify in the future as a regulated
investment company under the Internal Revenue Code of 1986, as amended
("Internal Revenue Code"). Thus, the Fund expects to be relieved of any federal
income tax liability by distributing all of its net taxable investment income
and net taxable capital gains, if any, to its shareholders. The Fund intends to
avoid any excise tax liability by making the required distributions under the
Internal Revenue Code.
D. When the Fund enters into a repurchase agreement (a purchase of securities
whereby the seller agrees to repurchase the securities at a mutually agreed upon
date and price) the repurchase price of the securities will generally equal the
amount paid by the Fund plus a negotiated interest amount. The seller under the
repurchase agreement will be required to provide securities ("collateral") to
the Fund whose value will be maintained at an amount not less than the
repurchase price, and which generally will be maintained at 101% of the
repurchase price. The Fund monitors the value of collateral on a daily basis,
and if the value of collateral falls below required levels, the Fund intends to
seek additional collateral from the seller or terminate the repurchase
agreement. If the seller defaults, the Fund would suffer a loss to the extent
that the proceeds from the sale of the underlying securities were less than the
repurchase price. Any such loss would be increased by any cost incurred on
disposing of such securities. If bankruptcy proceedings are commenced against
the seller under the repurchase agreement, the realization on the collateral may
be delayed or limited. Repurchase agreements entered into by the Fund will be
limited to transactions with dealers or domestic banks believed to present
minimal credit risks, and the Fund will take constructive receipt of all
securities underlying repurchase agreements until such agreements expire.
Pursuant to an exemptive order issued by the Securities and Exchange
Commission, the Fund, along with certain other Keystone funds, may transfer
uninvested cash balances into a joint trading account. These balances are
invested in one or more repurchase agreements that are collateralized by U.S.
Treasury and/or Federal Agency obligations.
E. The Fund distributes net investment income monthly and net capital gains, if
any, annually. Distributions are determined in accordance with income tax
regulations. Distributions from taxable net investment income and net capital
gains can exceed book basis net investment income and net capital gains.
The significant differences between financial statement amounts
available for distribution and distributions made in accordance with income tax
regulations are due to the deferral of losses for income tax purposes and
differences in the treatment of paydown gains and losses.
(2) CAPITAL SHARE TRANSACTIONS
The Trust Agreement authorizes the issuance of an unlimited number of shares of
beneficial interest without par value. Transactions in shares of the Fund were
as follows:
Class Y Shares
----------------------------------------------
May 23, 1994 (Date of
Year Ended Initial Public Offering)
September 30, 1995 to September 30, 1994
- ----------------------------------------------------------------------------
Shares sold 529,838 103
Shares redeemed (244,779) 0
Shares issued in
reinvestment of dividends
and distributions 12,269 0
- ----------------------------------------------------------------------------
Net increase (decrease) 297,328 103
============================================================================
Class Z Shares
----------------------------------------------
Year Ended September 30,
1995 1994
- ----------------------------------------------------------------------------
Shares sold 22,876 899,739
Shares redeemed (317,154) (4,465,425)
Shares issued in
reinvestment of dividends
and distributions 117,999 142,717
- ----------------------------------------------------------------------------
Net increase (decrease) (176,279) (3,422,969)
============================================================================
The Fund bears some of the costs of selling its shares under a Distribution Plan
adopted with respect to its Class Y shares pursuant to Rule 12b-1 under the 1940
Act.
The Class Y Distribution Plan provides for payments which are currently limited
to 0.25% annually of the average daily net assets of Class Y shares to pay
expenses of the distribution of Class Y shares.
Amounts paid by the Fund under the Class Y Distribution Plan are currently used
to pay service fees to the Fund's principal underwriter, Fiduciary Investment
Company Inc.("FICO") and others. The Fund may also make payments to FICO,
dealers and others for activities primarily intended to result in sales of Class
Y Shares.
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. However, after termination of the Class Y Distribution Plan, at the
discretion of the Independent trustees, payments to FICO may continue as
compensation for its services which had been earned while the Distribution Plan
was in effect.
Presently, the Fund's class-specific expenses are limited to Distribution Plan
expenses incurred by Class Y shares. During the year ended September 30, 1995,
the Fund paid or accrued to FICO $5,470 under its Class Y Distribution Plan.
This amount represents 0.25% of the average net asset value of Class Y for the
year ended September 30, 1995.
(3.) SECURITIES TRANSACTIONS
As of September 30, 1995 the Fund had capital loss carryovers of approximately
$1,072,000 which expire as follows: $305,000 in 2000, $486,000 in 2001 and
$281,000 in 2003.
Purchases and sales of investment securities (including proceeds received at
maturity) for the year ended September 30, 1995 were as follows:
Cost of Proceeds
Purchases From Sales
- ---------------------------------------------------------------------------
Portfolio securities $ 15,583,485 $ 14,203,463
Short-term investments 262,057,726 262,207,726
- ---------------------------------------------------------------------------
$277,641,211 $276,411,189
============================================================================
(4.) INVESTMENT MANAGEMENT AND OTHER TRANSACTIONS
Under the terms of the Investment Advisory and Management Agreement between
Keystone and the Fund dated September 19, 1991, 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 assets of the
Fund.
During the year ended September 30, 1995, Keystone voluntarily limited expenses
including the management fee of Class Y to 0.55% annually and Class Z to 0.30%
annually of the respective average daily net assets of each class. However,
Keystone will not be required to make any reimbursement to an extent which would
result in the Fund's inability to qualify as a regulated investment company
under provisions of the Internal Revenue Code. In accordance with these
voluntary expense limitations, Keystone reimbursed the Fund during the year
ended September 30, 1995 $76 for Class Y shares. Keystone does not intend to
seek repayment of this amount.
Certain officers and/or directors of Keystone are also officers and/or trustees
of the Fund. Officers of Keystone and affiliated trustees receive no
compensation directly from the Fund. Currently, the independent trustees of the
Fund receive no compensation for their services.
<PAGE>
KEYSTONE INSTITUTIONAL ADJUSTABLE RATE FUND
INDEPENDENT AUDITORS' REPORT
The Trustees and Shareholders
Keystone Institutional Adjustable Rate Fund
We have audited the accompanying statement of assets and liabilities of Keystone
Institutional Adjustable Rate Fund, including the schedule of investments, as of
September 30, 1995, and the related statement of operations for the year then
ended, the statements of changes in net assets for each of the years in the
two-year period then ended, and the financial highlights for the year ended
September 30, 1995 and the period from May 23, 1994 (date of initial public
offering) to September 30, 1994 for Class Y shares and for each of the years in
the four-year period then ended for Class Z shares. These financial statements
and financial highlights are the responsibility of the Fund's management. Our
responsibility is to express an opinion on these financial statements and
financial highlights based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and financial
highlights are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. Our procedures included confirmation of securities owned as of
September 30, 1995 by correspondence with the custodian. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of
Keystone Institutional Adjustable Rate Fund as of September 30, 1995, the
results of its operations for the year then ended, the changes in its net assets
for each of the years in the two-year period then ended and the financial
highlights for each of the years or periods specified in the first paragraph
above in conformity with generally accepted accounting principles.
KPMG Peat Marwick LLP
Boston, Massachusetts
October 27, 1995
<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 included in Registrant's Statement of
Additional Information.
Schedule of Investments Year ended
September 30, 1995
Supplementary Information - Year ended
September 30, 1995
Statement of Assets and Liabilities September 30, 1995
Statement of Operations Year ended
September 30, 1995
Statements of Changes in Net Assets Two years ended
September 30, 1995
Notes to Financial Statements
Independent Auditors' Report
dated October 27, 1995
All other schedules are omitted as the required information is inapplicable.
<PAGE>
(24)(b) Exhibits
(1) A copy of Registrant's Declaration of Trust is filed herewith.
(1)(a) The First Supplemental Declaration of Trust is filed herewith.
(2) A copy of Registrant's By-Laws is filed herewith.
(3) Not applicable.
(4) Not applicable.
(5) A copy of the Investment Advisory and Management Agreement
between Registrant and Keystone Custodian Funds, Inc. (now named
Keystone Investment Management Company) is filed herewith.
(6) A copy of the Distribution Agreement between Registrant and
Fiduciary Investment Company, Inc. was filed with Post-Effective
Amendment No. 3 to the Registration Statement as Exhibit
24(b)(6) and is incorporated by reference herein.
(7) Not applicable.
(8) A copy of the form of Custodian, Fund Accounting and
Recordkeeping Agreement between Registrant and State Street Bank
and Trust Company was filed with the Registration Statement as
Exhibit 24(b)(8) and is incorporated by reference herein.
(9) Not applicable.
(10) An opinion and a consent of counsel as to the legality of the
securities registered by the Fund is filed herewith.
(11) A consent as to the use of the Independent Auditors' Report is
filed herewith.
(12) Not applicable.
(13) A copy of Registrant's Subscription Agreement was filed with the
Registration Statement as Exhibit 24(b)(13) and is incorporated
by reference herein.
(14) Not applicable.
(15) A copy of the form of Registrant's Class Y Distribution Plan was
filed with Post-Effective Amendment No. 4 to the Registration
Statement and is incorporated by reference herein.
(16) Schedules for the computation of total return and current yield
are filed herewith.
(17) Financial Data schedules are filed herewith as Exhibit 27.
(18) Not applicable.
(19) Powers of Attorney are filed herewith.
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 30, 1995
- -------------- -------------------------------
Class Y Shares of 7
Beneficial Interest,
without par value
Class Z Shares of 6
Beneficial Interest,
without par value
Item 27. Indemnification
Provisions for the indemnification of the Fund's Trustees and officers
are contained in Article VIII of the Fund's Declaration of Trust, a copy of
which is filed herewith and incorporated by reference herein.
Provisions for the indemnification of Keystone Custodian Funds,
Inc.(now named Keystone Investment Management Company), Registrant's investment
adviser, are contained in Section 5 of the Investment Advisory and Management
Agreement between the Registrant and Keystone Custodian Funds, Inc., a copy of
which is filed herewith 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
Position with
Keystone
Investment
Name Management Company Other Business Affiliations
- ---- ------------------ ---------------------------
Albert H. Chairman of Chairman of the Board,
Elfner, III the Board, Chief Executive Officer,
Chief Executive President and Director:
Officer,and Keystone Investments, Inc.
Director Keystone Management, Inc.
Keystone Software, Inc.
Keystone Asset Corporation
Keystone Capital
Corporation
Chairman of the Board and
Director:
Keystone Fixed Income
Advisers, Inc.
Keystone Institutional
Company, Inc.
President and Director:
Keystone Trust Company
Director or Trustee:
Fiduciary Investment
Company, Inc.
Keystone Investment
Distributors Company
Keystone Investor
Resource Center, Inc.
Boston Children's
Services Associates
Middlesex School
Middlebury College
Former Trustee or Director:
Neworld Bank
Robert Van Partners, Inc.
Philip M. Byrne Director President and Director:
Keystone Institutional
Company, Inc.
Senior Vice President:
Keystone Investments, Inc.
Herbert L. Senior Vice None
Bishop, Jr. President
Donald C. Dates Senior Vice None
President
Gilman Gunn Senior Vice None
President
Edward F. Director, Director, Senior Vice
Godfrey Senior Vice President
President, Chief Financial Officer and
Treasurer and Treasurer:
Chief Financial Keystone Investments, Inc.
Officer Keystone Investment
Distributors Company
Treasurer:
Keystone Institutional
Company, Inc.
Keystone Management,
Inc.
Keystone Software, Inc.
Fiduciary Investment
Company, Inc.
Former Treasurer and
Director: Hartwell
Keystone Advisers, Inc.
James R. McCall Director and None
President
Ralph J. Director President and Director:
Spuehler, Jr. Keystone Investment
Distributors Company
Senior Vice President and
Director:
Keystone Investments, Inc.
Chairman and Director:
Keystone Investor
Resource Center, Inc.
Keystone Management, Inc.
Formerly President:
Keystone Management, Inc.
Formerly Treasurer:
The Kent Funds
Keystone Investments, Inc.
Keystone Investment
Management Company
Rosemary D. Senior Vice General Counsel, Senior
Van Antwerp President, Vice President and
General Counsel Secretary:
and Secretary Keystone Investments, Inc.
Senior Vice President and
General Counsel:
Keystone Institutional
Company, Inc.
Senior Vice President,
General Counsel and
Director:
Keystone Investor
Resource Center, Inc.
Fiduciary Investment
Company, Inc.
Keystone Investment
Distributors Company
Senior Vice President,
General Counsel, Director
and Secretary:
Keystone Management, Inc.
Keystone Software, Inc.
Former Senior Vice
President and Secretary:
Hartwell Keystone
Advisers, Inc.
Vice President and
Secretary:
Keystone Fixed Income
Advisers, Inc.
Robert K. Vice President None
Baumback
Betsy A. Blacher Senior Vice None
President
Francis X. Claro Vice President None
Kristine R. Vice President None
Cloyes
Christopher P. Senior Vice None
Conkey President
Richard Cryan Senior Vice None
President
Maureen E. Senior Vice None
Cullinane President
George E. Dlugos Vice President None
Antonio T. Docal Vice President None
Christopher R. Senior Vice None
Ely President
Robert L. Hockett Vice President None
Sami J. Karam Vice President None
Donald M. Keller Senior Vice None
President
George J. Kimball Vice President None
JoAnn L. Lyndon Vice President None
John C. Vice President None
Madden, Jr.
Stephen A. Marks Vice President None
Eleanor H. Marsh Vice President None
Walter T. Senior Vice None
McCormick President
Barbara McCue Vice President None
Stanley M. Niksa Vice President None
Robert E. O'Brien Vice President None
Margery C. Parker Vice President None
William H. Vice President None
Parsons
Daniel A. Rabasco Vice President None
David L. Smith Vice President None
Kathy K. Wang Vice President None
Judith A. Warners Vice President None
John D. Rogol Vice President None
and Controller
Joseph J. Asst. Vice President None
Decristofaro
9'95
<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 Reserves 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
Jean S. Loewenberg Clerk Assistant
Secretary
Albert H. Elfner, III Director President,
Chief
Executive
Officer and
Trustee
J. Kevin Kenely Assistant Treasurer 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
200 Berkeley Street
Boston, MA 02116-5034
Keystone Investor Resource Center, Inc.
101 Main Street
Cambridge, MA 02142
State Street Bank and Trust Company
1776 Heritage Drive
Quincy, MA 02171
Data Vault Inc.
3431 Sharpslot Road
Swansea, MA 02277
Item 31. Management Services
Not applicable.
<PAGE>
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 the effectiveness of this Amendment to its Registration
Statement pursuant to Rule 485(b) under the Securities Act of 1933 and has duly
caused this Amendment to its Registration Statement to be signed on its behalf
by the undersigned, thereunto duly authorized, in the City of Boston, in the
Commonwealth of Massachusetts, on the 5th day of January,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 5th day of January, 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
- ------------------------- Trustee
Albert H. Elfner, III*
/s/ J. Kevin Kenely Treasurer (Principal Financial
- ------------------------- and Accounting Officer)
J. Kevin Kenely*
*By:/s/ James M. Wall
---------------------------
James M. Wall**
Attorney-in-Fact
<PAGE>
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 Kaiser Trustee
- --------------------------
F. Ray Kaiser
/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)(192).
<PAGE>
INDEX TO EXHIBITS
Page Number
In Sequential
Exhibit Number Exhibit Numbering System
- -------------- ------- ----------------
1 Declaration of Trust
1a Amendment to Trust
2 By-Laws
5 Investment Advisory and
Management Agreement
10 Opinion and Consent of Counsel
11 Independent Auditors' Consent
16 Total Return and Current Yield
Schedules
17 Financial Data Schedules
19 Powers of Attorney
<PAGE>
KEYSTONE CAPITAL PRESERVATION AND INCOME FUND
DECLARATION OF TRUST
DATED: JUNE 19, 1991
This DECLARATION OF TRUST of Keystone Capital Preservation
and Income Fund, made at Boston, Massachusetts on June 19, 1991
by George S. Bissell, John M. Haffenreffer, Everett P. Pope and
Rodney M. Vining (hereinafter with their successors referred to
as the "Trustees").
WITNESSETH:
WHEREAS the Trustees have agreed to manage all property received by
them as Trustees in accordance with the provisions hereinafter set forth.
NOW, THEREFORE, the Trustees hereby declare that they will hold all
cash, securities and other assets which they may from time to time acquire in
any manner as Trustees hereunder IN TRUST to manage and dispose of the same upon
the following terms and conditions for the pro rata benefit of the holders from
time to time of Shares in this Trust as hereinafter set forth.
ARTICLE I
Name and Definitions
Section 1. Name. This Trust shall be known as Keystone Capital
Preservation and Income Fund and the Trustees shall conduct the business of this
Trust under that name or any other name as they may from time to time determine.
Section 2. Definitions. Whenever used herein, unless
otherwise required by the context or specifically provided
(a) The terms "Affiliated Person", "Assignment", "Commission",
"Interested Person" and "Principal Underwriter" shall have the meanings
given them in the 1940 Act;
(b) The "Trust" refers to the Massachusetts business trust
established by and under this Declaration of Trust;
(c) "Declaration of Trust" shall mean this Declaration of
Trust as amended or restated from time to time;
(d) "Net Asset Value Per Share" means the net asset value per
share of the Trust determined in the manner provided or authorized in
Article VI, Section 4;
(e) "Shareholder" means a record owner of Shares of the Trust;
(f) "Shares" means the equal proportionate units of interest
into which the beneficial interest in the Trust shall be divided from
time to time or, if more than one series ("Series") or more than one
class ("Class") of Shares is authorized by the Trustees, the equal
proportionate units into which each such Series or Class of Shares
shall be divided from time to time, and includes where appropriate
fractions of a Share as well as a whole Share, unless the Trustees
provide that there shall be no fractions of any particular Shares.
(g) "Trustees" refers to the Trustee or Trustees of the Trust
who become such in accordance with Article IV and where appropriate
means a majority or other portion of them acting in accordance with
this Declaration of Trust or the By-laws of the Trust; and
(h) The "1940 Act" refers to the Investment Company Act of
1940 and the Rules and Regulations thereunder, all as amended from time
to time.
ARTICLE II
Purpose of Trust
The purpose of the Trust is to provide investors a continuous source of
managed investments.
ARTICLE III
Beneficial Interest
Section 1. Shares of Beneficial Interest. The beneficial interest in
the Trust shall at all times be divided into transferable Shares, without par
value, each of which shall represent an equal proportionate interest in the
Trust with each other Share outstanding, none having priority or preference over
another, except to the extent modified by the Trustees under the provisions of
this Section. The number of Shares which may be issued is unlimited. The
Trustees may from time to time divide or combine the outstanding Shares into a
greater or lesser number without thereby changing the proportionate beneficial
interests in the Trust. Contributions to the Trust may be accepted for, and
Shares shall be redeemed as, whole Shares and/or fractions.
From time to time, as they deem appropriate, the Trustees may create
additional Series and/or Classes of Shares, in addition to the Shares initially
created under this instrument ("Original Series"). References in this
Declaration of Trust to Shares of the Trust shall apply, as appropriate, to each
such Series of Shares and to each such Class of Shares.
Any additional Series of Shares created hereunder shall represent the
beneficial interest in the assets (and related liabilities) allocated by the
Trustees to such Series of Shares and acquired by the Trust only after creation
of the respective Series of Shares and only on account of such Series. If the
Trustees create any additional Series of Shares hereunder, then the Original
Series shall be deemed a separate Series of Shares. Upon creation of each Series
of Shares, the Trustees may designate it appropriately and determine the
investment policies with respect to the assets allocated to such Series of
Shares, redemption rights, dividend policies, conversion rights, liquidation
rights, voting rights, and such other rights and restrictions as the Trustees
deem appropriate, to the extent not inconsistent with the provisions of this
Declaration of Trust.
The Trustees may divide any Series (including the Original Series) into
more than one Class of Shares. Upon creation of each additional Class of Shares
the Trustees may designate it appropriately and determine its rights and
restrictions (including without limitation such redemption rights, dividend
rights, conversion rights, liquidation rights, voting rights, and such other
rights and restrictions as the Trustees deem appropriate).
Section 2. Ownership of Shares. The ownership of Shares shall be
recorded in the books of the Trust or a transfer agent or a similar agent. The
Trustees may make such rules as they consider appropriate for the transfer of
Shares and similar matters. The record books of the Trust as kept by the Trust
or any transfer agent or similar agent, as the case may be, shall be conclusive
as to who are the holders of Shares of each Series or Class and as to the number
of Shares of each Series or Class held from time to time by each.
Section 3. Investments in the Trust. The Trustees shall accept
investments in the Trust from such persons and on such terms and, subject to any
requirements of law, for such consideration as the Trustees from time to time
authorize and may cease offering Shares to the public at any time. After such
acceptance, the number of Shares of the appropriate Series or Class to represent
the contribution may in the Trustees' discretion be considered as outstanding
and the amount receivable by the Trustees on account of the contribution may be
treated as an asset of the Series or Class.
Section 4. No Preemptive Rights. Shareholders shall have
no preemptive or other right to subscribe to any additional
Shares or other securities issued by the Trust.
Section 5. Provisions Relating to Series or Classes of Shares. Whenever
no Shares of a Series or Class are outstanding, then the Trustees may abolish
such Series or Class. Whenever more than one Series or Class of Shares is
outstanding, then the following provisions shall apply:
(a) Assets Belonging to Each Series or Class. All
consideration received by the Trust for the issue or sale of Shares of
a particular Series or Class, together with all assets in which such
consideration is invested or reinvested, all income, earnings and
proceeds thereof, and any funds derived from any reinvestment of such
proceeds, shall, except to the extent specifically otherwise provided
in the provisions adopted by the Board of Trustees establishing the
Series or Class, irrevocably belong to that Series or Class for all
purposes, subject only to the rights of creditors, and shall be so
recorded upon the books of the Trust. In the event there are assets,
income, earnings, and proceeds thereof which are not readily
identifiable as belonging to a particular Series or Class, then the
Trustees shall allocate such items to the various Series or Classes
then existing, in such manner and on such basis as they, in their sole
discretion, deem fair and equitable. The amount of each such item
allocated to a particular Series or Class by the Trustees shall then
belong to that Series or Class, and each such allocation shall be
conclusive and binding upon the Shareholders of all Series or Classes
for all purposes.
(b) Liabilities Belonging to Each Series or Class. The assets
belonging to each particular Series or Class shall, except to the
extent specifically otherwise provided in the provisions adopted by the
Board of Trustees establishing the Series or Class, be charged with the
liabilities, expenses, costs and reserves of the Trust attributable to
that Series or Class; and any general liabilities, expenses, costs and
reserves of the Trust which are not readily identifiable as
attributable to a particular Series or Class shall be allocated by the
Trustees to the various Series or Classes then existing, in such manner
and on such basis as they, in their sole discretion, deem fair and
equitable. Each such allocation shall be conclusive and binding upon
the Shareholders of all Series or Classes for all purposes.
(c) Series or Classes of Shares, Dividends and Liquidation.
Each Share of each respective Class or Series shall, except to the
extent specifically otherwise provided in the provisions adopted by the
Board of Trustees establishing the Series or Class, have the same
rights and pro rata beneficial interest in the assets and liabilities
of the Series or Class as any other such Share. Any dividends paid on
the Shares of any Series or Class shall, except to the extent
specifically otherwise provided in the provisions adopted by the Board
of Trustees establishing the Series or Class, only be payable from and
to the extent of the assets (net of liabilities) belonging that Series
or Class. In the event of liquidation of a Series or Class, only the
assets (less provision for liabilities) of that Series or Class shall
be distributed to the holders of that Series or Class.
(d) Voting by Series or Class. Except as provided in this
Section or as limited by the rights and restrictions of any Series or
Class, each Share of the Trust may vote with and in the same manner as
any other Share on matters submitted to a vote of the Shareholders
entitled to vote thereon, without differentiation among votes from the
separate Series or Classes; provided, however, that (i) as to any
matter with respect to which a separate vote of any Series or Class is
required by the 1940 Act, or otherwise by applicable law, such
requirement as to a separate vote shall apply in lieu of the voting
described above; (ii) in the event that the separate vote requirements
referred to in (i) above apply with respect to one or more Series or
Classes, then, subject to (iii) below, the Shares of all other Series
or Classes shall vote without differentiation among their votes; and
(iii) as to any matter which does not affect the interest of any
particular Series or Class, only the holders of Shares of the one or
more affected Series or Classes shall be entitled to vote.
Section 6. Limitation of Personal Liability. The Trustees shall have no
power to bind any Shareholder personally or to call upon any Shareholder for the
payment of any sum of money or assessment whatsoever other than such as the
Shareholder may at any time personally agree to pay by way of subscription to
any Shares or otherwise. Every note, bond, contract or other undertaking issued
by or on behalf of the Trust or the Trustees relating to the Trust shall include
a recitation limiting the obligation represented thereby to the Trust and its
assets (but the omission of such a recitation shall not operate to bind any
Shareholder).
ARTICLE IV
The Trustees
Section 1. Number of Trustees. The number of Trustees shall initially
be such number as shall be elected as such by a vote of the shareholders of the
Trust and thereafter shall be such number as shall be fixed from time to time by
action of a majority of the Trustees.
Section 2. Election or Appointment and Term. The initial Trustees shall
be the individuals signing this Declaration in that capacity, who shall have
been previously elected by a vote of the shareholders of the Trust. Thereafter,
subject to Section 16(a) of the 1940 Act, the Trustees may elect themselves or
their successors at such intervals, as they deem proper, and may appoint
Trustees to fill vacancies as provided in Section 4 hereof; provided, that
Trustees shall be elected by vote of a majority of Shares voting thereon at such
time or times as the Trustees shall determine that such action is advisable.
Subject to Section 3 hereof, the Trustees shall have the power to set and alter
the terms of office of the Trustees, and they may at any time lengthen or
shorten their own terms or make their terms of unlimited duration; provided,
that the term of office of any incumbent Trustee shall continue until
terminated, as provided in Section 4 hereof or, if not so terminated, until the
election of such Trustee's successor in office has become effective in
accordance with this Section 2.
Section 3. Resignation and Removal. Any Trustee may resign his trust
(without need for prior or subsequent accounting) by an instrument in writing
signed by him and delivered to the other Trustees, and such resignation shall be
effective upon such delivery or at any later date according to the terms of the
instrument. Any Trustee may be removed by the action of two-thirds of the
remaining Trustees. Upon the resignation or removal of a Trustee, or his
otherwise ceasing to be a Trustee, he shall execute and deliver such documents
as the remaining Trustees shall require for the purpose of conveying to the
Trust or the remaining Trustees any Trust property held in his name. Upon the
incapacity or death of any Trustee, his legal representative shall execute and
deliver on his behalf such documents as the remaining Trustees shall require as
provided in the preceding sentence. However, the execution and delivery of such
documents by a former Trustee or his legal representative shall not be requisite
to the vesting of title to the Trust property in the remaining Trustees.
Section 4. Vacancies. The term of office of a Trustee shall terminate
and a vacancy shall occur in the event of such Trustee's death, resignation,
removal, bankruptcy, adjudicated incompetence or other incapacity to perform the
duties of the office of Trustee. No such vacancy shall operate to annul this
Declaration of Trust or to revoke any existing agency created pursuant to the
terms of this Declaration of Trust. In the case of an existing vacancy,
including a vacancy existing by reason of an increase in the number of Trustees,
subject to applicable law, the remaining Trustees or, if only one Trustee shall
then remain in office, the sole remaining Trustee, shall appoint such individual
to fill such vacancy as they or he, in their or his discretion, shall see fit.
An appointment of a Trustee may be made in anticipation of a vacancy to occur at
a later date by reason of retirement or resignation of a Trustee or an increase
in the number of Trustees; provided, that such appointment shall not become
effective prior to such retirement or resignation or such increase in the number
of Trustees. Whenever a vacancy in the number of Trustees shall occur, until
such vacancy is filled as provided in this Section 4, the Trustees in office,
regardless of their number, shall have all the powers granted to the Trustees
and shall discharge all the duties imposed upon the Trustees by this Declaration
of Trust in the manner provided by this Declaration of Trust. A written
instrument certifying the existence of such vacancy signed by a majority of the
Trustees shall be conclusive evidence of the existence of such vacancy.
Section 5. Management of the Trust. Subject to the provisions of this
Declaration of Trust, the business and affairs of the Trust shall be managed by
the Trustees, and they shall have all powers necessary and desirable to carry
out that responsibility. Action by the Trustees may be taken by majority vote of
the Trustees at a meeting at which a quorum (which shall be a majority of the
Trustees then in office) shall be present, or by a writing signed by a majority
of the Trustees in office.
Without limiting the foregoing, the Trustees may adopt By-Laws not
inconsistent with this Declaration of Trust providing for the conduct of the
business of the Trust and may amend and repeal them to the extent that they do
not reserve that right to any Shareholders; they may elect and remove such
officers and appoint and terminate such agents as they consider appropriate;
they may appoint from their own number and terminate any one or more committees;
they may employ one or more custodians of the assets of the Trust and may
authorize such custodians to employ subcustodians and to deposit all or any part
of such assets in a system or systems for the central handling of securities,
retain a transfer agent or a Shareholder servicing agent, or both, provide for
the distribution of Shares by the Trust, through one or more principal
underwriters or otherwise, set, or otherwise provide for the setting of, record
dates, and in general delegate such authority to do any or all things which the
Trustees may do in the operation of the business of the Trust as they consider
desirable to any officers of the Trust and committees of the Trustees and to any
agent or employee, custodian or underwriter. Any action relating to the
operation of the Trust provided for herein to be taken by the Trustees may be
taken by any other person under authority granted by the Trustees whether or not
specifically so stated, and unless specifically so stated to the contrary. A
specific statement indicating that the Trustees may delegate any authority shall
not give rise to any contrary implication with respect to any provision of this
Declaration of Trust.
Without limiting the foregoing, the Trustees in addition to all powers
granted by law shall have power and authority:
(a) To invest and reinvest cash, and to hold cash uninvested,
without in anywise being bound or limited by any present or future law
or custom in regard to investments by trustees;
(b) To sell, exchange, lend, pledge, mortgage, hypothecate or
lease any or all of the assets of the Trust;
(c) To vote or give assent, or exercise any rights of
ownership, with respect to stock or other securities or property, and
to execute and deliver proxies or powers of attorney to such person or
persons as the Trustees shall deem proper, granting to such person or
persons such power and discretion with relation to securities or
property as the Trustees shall deem proper;
(d) To exercise powers and rights of subscription or otherwise
which in any manner arise out of ownership of securities;
(e) To hold any security or property in a form not indicating
any trust, whether in bearer, unregistered or other negotiable form, or
in the Trust's own name or in the name of a custodian or subcustodian
or a nominee or nominees or otherwise;
(f) To consent to or participate in any plan for the
reorganization, consolidation or merger of any corporation or concern,
any security of which is held in the Trust; to consent to any contract,
lease, mortgage, purchase or sale of property by such corporation or
concern, and to pay calls or subscriptions with respect to any security
held in the Trust;
(g) To join with other security holders in acting through a
committee, depository, voting trustee or otherwise, and in that
connection to deposit any security with, or transfer any security to,
any such committee, depository or trustee, and to delegate to them such
power and authority with relation to any security (whether or not so
deposited or transferred) as the Trustees shall deem proper, and to
agree to pay, and to pay, such portion of the expenses and compensation
of such committee, depository or trustee as the Trustees shall deem
proper;
(h) To compromise, arbitrate, or otherwise adjust claims in
favor of or against the Trust for any matter in controversy, including
but not limited to claims for taxes; and
(i) To borrow funds.
The Trustees shall not be required to obtain any court order to deal
with any assets of the Trust or take any other action hereunder.
Section 6. Ownership of Assets of the Trust. The assets of the Trust
shall be held separate and apart from any assets now or hereafter held in any
capacity other than as Trustee hereunder by the Trustees or by any successor
Trustees. All of the assets of the Trust shall at all times be considered as
vested in the Trustees. No Shareholder shall be deemed to have a severable
ownership in any individual asset of the Trust or any right of partition or
possession thereof, but each Shareholder shall have a proportionate undivided
beneficial interest in the assets of the Series or Class of Shares of which he
is a holder, subject to any rights or restrictions applicable to any Series or
Class of Shares of which he is a holder.
Section 7. Payment of Expenses. The Trustees shall pay or cause to be
paid out of the principal or income of the Trust, or partly out of principal and
partly out of income, as they deem fair, all expenses, charges, taxes and
liabilities incurred or arising in connection with the Trust, or in connection
with the management thereof, including but not limited to the Trustees'
compensation and such expenses and charges for the services of the Trust's
investment adviser or manager, administrator, auditor, counsel, custodian,
transfer agent, Shareholder servicing agent, and such other agents or
independent contractors and such other expenses and charges as the Trustees may
deem necessary or proper to incur.
Section 8. Investment Management and Other Services. Without limiting
the generality of the powers of the Trustees, subject to applicable law, the
Trustees may enter into a contract with any person or persons, including any
firm, corporation, trust or association in which any Trustee, Shareholder or
officer of the Trust may be interested, to act as investment advisers and/or
managers of the Trust and to provide such investment advice and/or management as
the Trustees may from time to time consider appropriate ("Adviser"). Any such
contract may authorize the Adviser to determine from time to time what
securities shall be acquired, held or disposed of by the Trust and what portion
of assets of the Trust shall be held uninvested and to take, on behalf of the
Trust, actions which the Adviser deems necessary to implement the investment
policies of the Trust, including the placement of all orders for the purchase,
sale or loan of portfolio securities for the Trust's account with brokers or
dealers or others selected by the Adviser and the giving of instructions to the
custodian of the Trust's assets as to deliveries of securities and payments of
cash for the account of the Trust.
Without limiting the generality of the powers of the Trustees, subject
to applicable law, the Adviser may enter into an agreement to retain at its own
expense any person or persons, including any firm, corporation, trust or
association in which any Trustee, Shareholder or officer of the Trust may be
interested, to provide the Trust investment advice and/or management and any
person or persons so retained may be granted all authority which has been
granted to the Adviser under the contract which the Adviser entered into
pursuant to the preceding paragraph.
Without limiting the generality of the powers of the Trustees, the
Trustees may enter into a contract with any person or persons, including any
firm, corporation, trust or association in which any Trustee, Shareholder or
officer of the Trust may be interested, to act as principal underwriter for the
Shares.
Section 9. Affiliations of Trustees or Officers, Etc. The fact that (i)
any of the Shareholders, Trustees or officers of the Trust is a shareholder,
Director, officer, partner, Trustee, employee, manager, adviser or distributor
of or for any partnership, corporation, trust, association or other organization
or for any parent or affiliate of any organization, with which any contract
including, without limitation, contracts for services as manager, investment
adviser, distributor, principal underwriter, custodian, transfer agent or
dividend disbursing agent or for related services may have been or may hereafter
be made, or that any such organization, or any parent or affiliate thereof, is a
Shareholder of or has an interest in the Trust, or that (ii) any partnership,
corporation, trust, association or other organization with which a contract
referred to in (i) above may have been or may hereafter be made also has any one
or more of such contracts with one or more other partnerships, corporations,
trusts, associations or other organizations, or has other business or interests,
shall not affect the validity of any such contract or disqualify any
Shareholder, Trustee or officer of the Trust from voting upon or executing the
same or create any liability or accountability to the Trust or its Shareholders.
ARTICLE V
Shareholders' Voting Powers and Meetings
Section 1. Voting Powers. The Shareholders shall have power to vote
only (i) for the election of Trustees as provided in Section 2 of Article IV
hereof and the removal of Trustees to the extent provided in Section 16(c) of
the 1940 Act, (ii) with respect to approval or termination in accordance with
the 1940 Act of any investment advisory or management agreement described in
Article IV hereof, (iii) with respect to any amendment of this Declaration of
Trust to the extent and as provided in Section 7 of Article IX hereof, (iv) to
the same extent as the stockholders of a Massachusetts corporation as to whether
or not a court action, proceeding or claim should or should not be brought or
maintained derivatively or as a class action on behalf of the Trust or the
Shareholders, and (v) with respect to such additional matters relating to the
Trust as may be required by this Declaration of Trust or the By-Laws, or as to
which the Trustees in their discretion shall determine such Shareholder vote to
be required by law or otherwise to be necessary, appropriate or advisable.
Each whole Share shall be entitled to one vote as to any matter on
which it is entitled to vote and each fractional Share shall be entitled to a
proportionate fractional vote. There shall be no cumulative voting in the
election of Trustees. Shares may be voted in person or by proxy. A proxy with
respect to Shares held in the name of two or more persons shall be valid if
executed by any one of them unless at or prior to exercise of the proxy the
Trust receives a specific written notice to the contrary from any one of them. A
proxy purporting to be executed by or on behalf of a Shareholder shall be deemed
valid unless challenged at or prior to its exercise and the burden of proving
invalidity shall rest on the challenger. Until Shares are issued, the Trustees
may exercise all rights of Shareholders and may take any action required by law,
this Declaration of Trust or any By-Laws of the Trust to be taken by
Shareholders.
Section 2. Meetings. Meetings of Shareholders shall be held at such
times at the principal office of the Trust or such other place as the Trustees
may designate. Meetings of the Shareholders may be called by the Trustees or
such other person or persons as may be specified in the By-laws. Shareholders
shall be entitled to at least seven days' notice of any meeting.
Section 3. Quorum and Required Vote. Except as otherwise provided by
law, to constitute a quorum for the transaction of business at a Shareholders'
meeting there must be present, in person or by proxy, holders of a majority of
the total number of Shares of the Trust then outstanding and entitled to vote at
the meeting, but any lesser number shall be sufficient for adjournment, and any
adjourned session or sessions may be held within 90 days after the date set for
the original meeting without the necessity of further notice. Subject to any
applicable requirements of law, a majority of the Shares present and entitled to
vote on a question or election shall decide such question or election, except
when a larger vote is required by any provision of this Declaration of Trust,
the By-Laws of the Trust or any applicable provision of law.
Section 4. Action by Written Consent. Except as otherwise required by
law, any action required or permitted to be taken at any meeting may be taken
without a meeting if a consent in writing setting forth such action is signed by
the Shareholders entitled to vote on the subject matter thereof holding a
majority of the Shares entitled to vote thereon.
Section 5. Additional Provisions. The By-Laws may include
further provisions for Shareholders' votes and meetings and related matters.
ARTICLE VI
Distributions and Redemptions
Section 1. Distributions. The Trustees may, but need not, each year
distribute to the Shareholders of each Series or Class such income and gains as
the Trustees may determine, after providing for actual and accrued expenses and
liabilities (including such reserves as the Trustees may establish) determined
in accordance with generally accepted accounting practices. The Trustees shall
have full discretion to determine which items shall be treated as income and
which items as capital and their determination shall be binding upon the
Shareholders. Distributions of each year's income of each Series or Class, if
any be made, may be made in one or more payments, which shall be in Shares, in
cash or otherwise and on a date or dates and as of a record date or dates
determined by or under the authority of the Trustees. At any time and from time
to time in their discretion the Trustees may distribute to the Shareholders of
any one or more Series or Class as of a record date or dates determined by or
under the authority of the Trustees, in Shares, in cash or otherwise, all or
part of any gain realized on the sale or disposition of property of the Trust or
otherwise, or all or part of any other principal of the Trust. Each distribution
pursuant to this Section 1 shall be made ratably according to the number of
Shares of the Series or Class held by the several Shareholders on the applicable
record date thereof, provided that no distribution need be made on Shares
purchased pursuant to orders received or for which payment is made after such
time or times as may be determined by or under the authority of the Trustees.
Any such distribution paid in Shares will be paid at the net asset value thereof
as determined in accordance with Section 4 hereof.
Section 2. Redemptions. Upon offer by any Shareholder of all or part of
the Shares held by the Shareholder for redemption hereunder, in accordance with
such methods, upon such terms and subject to such conditions as from time to
time may be determined by or under the authority of the Trustees, the Trust
shall redeem the Shares so offered by distributing to the Shareholder the Net
Asset Value per Share thereof determined as of a time fixed by or under the
authority of the Trustees. The Trust shall have the right at its option and at
any time to redeem the Shares of any Shareholder for their Net Asset Value per
Share if the Shareholder owns Shares of a Series or Class having an aggregate
net asset value of less than such minimum amount as may from time to time be
prescribed by or under the authority of the Trustees or if ownership of such
Shares by the Shareholder could create adverse tax consequences for the Trust or
any Series or Class thereof. With respect to all Shares or any Series or Class
of Shares, the right to redemption or the date for payment may, however, be
delayed or suspended by the Trustees if there is an extraordinary closing or
restriction of trading on the New York Stock Exchange as determined under rules
and regulations of the Commission, or an emergency exists as a result of which
it is not reasonably practicable for the Trust to dispose of securities or
fairly to determine the value of its net assets, or as the Commission may
permit. The completion of such distribution on redemption of Shares shall
constitute a full discharge of the Trust and Trustees with respect to such
Shares, and the Trustees may require that any certificate or certificates issued
by the Trust to evidence the ownership of the Shares shall be surrendered to the
Trustees for cancellation or notation. Shares so redeemed shall be cancelled or
held by the Trust for reissue, as the Trustees may from time to time determine.
Section 3. Payment in Kind. Subject to any generally applicable
limitation imposed by the Trustees, any distribution on redemption may, if
authorized by the Trustees, be made wholly or partly in kind, instead of in
cash. Such distribution in kind shall be made by distributing investments
constituting, in the opinion of the Trustees, a fair representation of the
various types of securities then held by the Series or Class of Shares being
redeemed (but not necessarily including a portion of each particular investment)
and in each case having an aggregate value equal to the amount of cash instead
of which such distribution in kind is made.
Section 4. Determination of Net Asset Value per Share. Subject to
applicable law, the Net Asset Value per Share of each Series or Class shall be
computed as of such times as may be determined by or under authority of the
Trustees by determining the value of all the investments of such Series or Class
in such manner as may be determined by or under authority of the Trustees,
adding any other assets of such Series or Class, subtracting all liabilities of
such Series or Class and dividing the result by the number of Shares of such
Series or Class outstanding.
Determination of Net Asset Value per Share so made in good faith and
pursuant to the provisions of the 1940 Act shall be binding on all parties
concerned.
Section 5. Automatic Redemption from Small Accounts. The Trustees shall
have the power to redeem shares at a redemption price determined in accordance
with Section 4 of this Article if at any time the total investment in an account
does not have a value of at least $1,000 or such other minimum amount as the
Trustees may from time to time determine. Before redeeming such Shares, the
Shareholder will be notified that the value of his account is less than the
required minimum amount and be allowed 60 days or such period as is permitted by
law to make an additional investment to bring the total value of such account to
such amount or more.
Section 6. Power to Modify Foregoing Procedures. Notwithstanding any of
the foregoing provisions of this Article VI, the Trustees may prescribe, in
their absolute discretion, such other bases and times for the declaration and
payment of dividends and distributions as they may deem desirable or necessary
to enable the Trust to comply with any provision of the 1940 Act or the Internal
Revenue Code, including any rule or regulation adopted by the Commission or any
securities association registered under the Securities Exchange Act of 1934, or
any order of exemption issued by the Commission or any rule or regulation issued
under the Internal Revenue Code, all as in effect now or as hereafter amended or
modified.
ARTICLE VII
Compensation and Limitation of Liability of Trustees
Section 1. Compensation. The Trustees shall be entitled
to reasonable compensation from the Trust; they may fix the amount
of their compensation.
Section 2. Limitation of Liability. Provided they have exercised
reasonable care in their selection, the Trustees shall not be responsible or
liable in any event for any neglect or wrongdoing of any officer, agent,
employee or Adviser of the Trust nor shall any Trustee be responsible for the
act or omission of any other Trustee, but nothing herein contained shall protect
any Trustee against any liability to which he would otherwise be subject by
reason of wilful misfeasance, bad faith, gross negligence or reckless disregard
of the duties involved in the conduct of his office.
Every note, bond, contract, instrument, certificate, share or
undertaking and every other act or thing whatsoever executed or done by or on
behalf of the Trust or the Trustees or any of them in connection with the Trust
shall be conclusively deemed to have been executed or done only in their or his
capacity as Trustees or Trustee, and such Trustees or Trustee shall not be
personally liable thereon.
The Trustees shall use their best efforts to ensure that every note,
bond, contract, instrument, certificate or undertaking made or issued by the
Trustees or by any officers shall give notice of the existence of this
Declaration of Trust and shall recite to the effect that the same was executed
or made by or on behalf of the Trust or by them as Trustees or officers, and not
individually, and is not binding upon any of them or the Shareholders
individually, but is binding only upon the Trust property, or the assets of the
particular Series or Class in question, as the case may be, but the omission
thereof shall not operate to bind any Trustee or officer or Shareholder
individually, or to subject the assets of any Series or Class to the obligations
of any other Series or Class.
ARTICLE VIII
Indemnification
Section 1. Trustees, Officers, etc. The Trust shall indemnify each of
its present and former Trustees and officers and may indemnify any of its
present or former employees or agents, and shall indemnify any persons who serve
or have served at the Trust's request as Directors, officers or Trustees of
another organization, and may indemnify persons who serve or have served at the
Trust's request as employees or agents of another organization in which the
Trust has any interest as a shareholder, creditor or otherwise (hereinafter
referred to as a "Covered Person") against all liabilities and expenses,
including but not limited to amounts paid in satisfaction of judgments, in
compromise or as fines and penalties, and counsel fees reasonably incurred by
any such Covered Person in connection with the defense or disposition of any
action, suit or other proceeding, whether civil or criminal, before any court or
administrative or legislative body, in which such Covered Person may be or may
have been involved as a party or otherwise or with which such person may be or
may have been threatened, while in office, employed or acting as agent, or
thereafter, by reason of being or having been such a Trustee, officer, Director,
employee or agent, except with respect to any matter as to which such Covered
Person shall have been finally adjudicated in any such action, suit or other
proceeding not to have acted in good faith in the reasonable belief that such
Covered Person's action was in the best interest of the Trust and except that no
person shall be indemnified against any liability to the Trust or its
Shareholders to which such Covered Person shall otherwise be subject by reason
of wilful misfeasance, bad faith, gross negligence or reckless disregard of the
duties involved in the conduct of his office. Expenses, including counsel fees
so incurred by any Covered Person, may in the discretion of the Trustees be paid
from time to time by the Trust in advance of the final disposition of any such
action, suit or proceeding upon receipt of an undertaking by or on behalf of
such Covered Person to repay amounts so paid to the Trust if it is ultimately
determined that indemnification against such expenses is not authorized under
this Article.
Except as otherwise provided by law, the Trust shall have power to
purchase and maintain insurance on behalf of a Covered Person against any
liability asserted against him and incurred by him in his capacity as a Covered
Person, or arising out of his status as such, whether or not the Trust would
have the power to indemnify him against the liability under the provisions of
this Section.
Section 2. Compromise Payment. As to any matter disposed of by a
compromise payment by any Covered Person referred to in Section 1 above,
pursuant to a consent decree or otherwise, no such indemnification either for
such payment or for any other expenses shall be provided unless such compromise
shall be approved as in the best interests of the Trust, after notice that it
involved such indemnification, (a) by a disinterested majority of the Trustees
then in office; or (b) by a majority of the disinterested Trustees then in
office; or (c) by any disinterested person or persons to whom the question may
be referred by the Trustees, provided that in the case of approval pursuant to
clause (b) or (c) there has been obtained an opinion in writing of independent
legal counsel to the effect that such Covered Person appears to have acted in
good faith in the reasonable belief that his action was in the best interests of
the Trust and that such indemnification would not protect such person against
any liability to the Trust to which such person would otherwise be subject by
reason of wilful misfeasance, bad faith, gross negligence or reckless disregard
of the duties involved in the conduct of his office; or (d) by vote of a
majority of the Shares voting thereon, exclusive of any Shares beneficially
owned by any interested Covered Person. Approval by the Trustees pursuant to
clause (a) or (b) or any disinterested person or persons pursuant to clause (c)
of this Section shall not prevent the recovery from any Covered Person of any
amount paid to such Covered Person in accordance with any such clauses as
indemnification if such Covered Person is subsequently adjudicated by a court of
competent jurisdiction not to have acted in good faith in the reasonable belief
that such person's action was in the best interests of the Trust or to have been
liable to the Trust or its Shareholders by reason of wilful misfeasance, bad
faith, gross negligence or reckless disregard of the duties involved in the
conduct of his office.
Section 3. Indemnification Not Exclusive. The right of indemnification
hereby provided shall not be exclusive or affect any other rights to which any
such Covered Person may be entitled. As used in this Article VIII, the term
"Covered Person" shall include such person's heirs, executors and
administrators. An "interested Covered Person" is one against whom the action,
suit or other proceeding in question or another action, suit or other proceeding
on the same or similar grounds is then or has been pending, and a "disinterested
person" is a person against whom none of such actions, suits or other
proceedings or another action, suit or other proceeding on the same or similar
grounds is then or has been pending. Nothing contained in this Article shall
affect any rights to indemnification to which personnel of the Trust other than
Trustees and officers or other persons may be entitled by contract or otherwise
under law.
Section 4. Shareholders. In case any Shareholder or former Shareholder
shall be held to be personally liable solely by reason of his being or having
been a Shareholder and not because of his acts or omissions or for some other
reason, the Shareholder or former Shareholder (or his heirs, executors,
administrators or other legal representatives or in the case of a corporation or
other entity, its corporate or other successor) shall be entitled out of the
assets of the Trust to be held harmless from and indemnified against all loss
and expense arising from such liability.
ARTICLE IX
Miscellaneous
Section 1. Trust Not a Partnership. It is hereby expressly declared
that a trust and not a partnership is created hereby. Neither the Trust nor the
Trustees, nor any officer, employee or agent of the Trust shall have any power
to bind personally either the Trust's Trustees or officers or any Shareholders.
All persons extending credit to, contracting with or having any claim against
the Trust shall look only to the assets of the Trust for payment under such
credit, contract or claim, and neither the Shareholders nor the Trustees, nor
any of the Trust's officers, employees or agents, whether past, present or
future, shall be personally liable therefor. Nothing in this Declaration of
Trust shall protect any Trustee against any liability to which such Trustee
would otherwise be subject by reason of wilful misfeasance, bad faith, gross
negligence or reckless disregard of the duties involved in the conduct of the
office of Trustee hereunder.
Section 2. Trustee's Good Faith Action, Expert Advice, No Bond or
Surety. The exercise by the Trustees of their powers and discretions hereunder
in good faith and with reasonable care under the circumstances then prevailing
shall be binding upon everyone interested. Subject to the provisions of Section
1 of this Article IX, a Trustee shall be liable for his own wilful defaults, and
for nothing else, and shall not be liable for errors of judgment or mistakes of
fact or law. The Trustees may take advice of counsel or other experts with
respect to the meaning and operation of this Declaration of Trust, and subject
to the provisions of said Section 1 shall be under no liability for any act or
omission in accordance with such advice or for failing to follow such advice.
The Trustees shall not be required to give any bond as such, nor any surety if a
bond is required.
Section 3. Liability of Third Persons Dealing with Trustees. No person
dealing with the Trustees shall be bound to make any inquiry concerning the
validity of any transaction made or to be made by the Trustees pursuant hereto
or to see to the application of any payments made or property transferred to the
Trust or upon its order.
Section 4. Duration; Termination of Trust; Amendments;
Mergers, etc.
(a) This Trust shall continue without limitation of
time but subject to the provisions of this Section 4.
(b) The Trust (as used in this Section 4 the term "Trust"
specifically also means any Series or Class) may be terminated by
action of the Trustees.
(c) Upon the termination of the Trust:
(i) The Trust shall carry on no business except
for the purpose of winding up its affairs.
(ii) The Trustees shall proceed to wind up the
affairs of the Trust and all of the powers of the Trustees
under this Declaration of Trust shall continue until the
affairs of the Trust shall have been wound up, including the
power to fulfill or discharge the contracts of the Trust,
collect its assets, sell, convey, assign, exchange, transfer
or otherwise dispose of all or any part of the remaining Trust
property to one or more persons at public or private sale for
consideration which may consist in whole or in part of cash,
securities or other property of any kind, discharge or pay its
liabilities, and to do all other acts appropriate to liquidate
its business.
(iii) After paying or adequately providing for the
payment of all liabilities, and upon receipt of such releases,
indemnities and refunding agreements as they deem necessary
for their protection, the Trustees shall distribute the
remaining Trust property, in cash or in kind or partly each,
among the Shareholders according to their respective rights
and interests.
(d) After termination of the Trust and distribution to the
Shareholders as herein provided, a majority of the Trustees shall
execute and lodge among the records of the Trust an instrument in
writing setting forth the fact of such termination, and the Trustees
shall thereupon be discharged from all further liabilities and duties
hereunder, and the rights and interests of all Shareholders shall
thereupon cease.
(e) Upon completion of the distribution of the remaining
proceeds or the remaining assets as provided in paragraphs (c) and (d),
the Trust shall terminate and the Trustees shall be discharged of any
and all further liabilities and duties hereunder and the right, title
and interest of all parties shall be canceled and discharged.
Section 5. Filing of Copies, References, Headings. The original or a
copy of this instrument and of each Declaration of Trust supplemental hereto or
Amendment hereof shall be kept at the office of the Trust where it may be
inspected by any Shareholder. Anyone dealing with the Trust may rely on a
certificate by an officer of the Trust as to whether or not any Supplemental
Declaration of Trust or Amendments have been made and as to any matters in
connection with the trust hereunder; and, with the same effect as if it were the
original, may rely on a copy certified by an officer of the Trust to be a copy
of this instrument or of any such Supplemental Declaration of Trust or
Amendment. In this instrument or in any such Amendment or Supplemental
Declaration of Trust, references to this instrument, and all expressions such as
"herein," "hereof," and "hereunder," shall be deemed to refer to this instrument
as amended or affected by any such Supplemental Declaration of Trust or
Amendment. Headings are placed herein for convenience of reference only and in
case of any conflict, the text of this instrument, rather than the headings,
shall control. This instrument may be executed in any number of counterparts
each of which shall be deemed an original.
Section 6. Applicable Law. The Trust set forth in this instrument is
made in The Commonwealth of Massachusetts, and it is created under and is to be
governed by and construed and administered according to the laws of such
Commonwealth. The Trust shall be of the type commonly called a Massachusetts
business trust, and, without limiting the provisions hereof, the Trust may
exercise all powers which are ordinarily exercised by such a trust.
Section 7. Amendments. (a) This Declaration of Trust may be amended by
a vote or written consent of the Trustees. However, if such amendment adversely
affects the rights of any Shares of any Series or any Class with respect to
matters to which such amendment is applicable, such amendment shall be subject
to approval by holders of a majority of the Shares of such Series or Class. An
amendment or other action which provides for an additional Series of Shares
(and/or Class thereof), which Series may vote together with Shares of other
Series (and/or Classes thereof) and makes other provisions with respect to such
Series (and/or Class thereof) and its relation to existing Series (and/or
Classes thereof), shall not be deemed to adversely affect the rights of any
other Series of Shares or Class thereof. The Trustees may also amend this
Declaration of Trust without any Shareholder approval to change the name of the
Trust, to supply any omission, to cure, correct or supplement any ambiguous,
defective or inconsistent provision hereof, or, if they deem it necessary, to
conform this Declaration of Trust to the requirements of applicable federal laws
or regulations or the requirements of the Internal Revenue Code, or to eliminate
or reduce any federal, state or local taxes which are or may be payable by the
Trust or the Shareholders, but the Trustees shall not be liable for failing to
do so.
(b) Nothing contained in this Declaration of Trust shall permit the
amendment of this Declaration of Trust to impair the exemption from personal
liability of the Shareholders, Trustees, officers, employees and agents of the
Trust or to permit assessments upon Shareholders.
(c) A certificate signed by a majority of the Trustees or by the
Secretary or any Assistant Secretary of the Trust, setting forth an amendment by
reciting that it was duly adopted by the Shareholders or by the Trustees as
aforesaid, or a copy of the Declaration of Trust as amended, and executed by a
majority of the Trustees or certified by the Secretary or any Assistant
Secretary of the Trust, shall be conclusive evidence of such amendment when
lodged among the records of the Trust.
Section 8. Merger, Consolidation and Sale of Assets. The Trust may
merge into or consolidate with any other corporation, association, trust or
other organization or may sell, lease or exchange all or substantially all of
the Trust property, including its good will, upon such terms and conditions and
for such consideration when and as authorized by the Trustees.
Section 9. Incorporation. The Trustees may cause to be organized or
assist in organizing a corporation or corporations under the laws of any
jurisdiction or any other trust, partnership, association or other organization
to take over all the Trust property or to carry on any business in which the
Trust shall directly or indirectly have any interest, and to sell, convey and
transfer the Trust property to any such corporation, trust, partnership,
association or organization in exchange for the shares or securities thereof or
otherwise, and to lend money to, subscribe for the shares or securities of, and
enter into any contracts with any such corporation, trust, partnership,
association or organization in which the Trust holds or is about to acquire
shares or any other interest. The Trustees may also cause a merger or
consolidation between the Trust or any successor thereto and any corporation,
trust, partnership, association or other organization if and to the extent
permitted by law, as provided under the law then in effect. Nothing contained
herein shall be construed as requiring approval of Shareholders for the Trustees
to organize or assist in organizing one or more corporations, trusts,
partnerships, associations or other organizations and selling, conveying or
transferring the Trust property to such organizations or entities.
IN WITNESS WHEREOF, the undersigned have hereunto set their hands and
seals in the City of Boston, Massachusetts, for themselves and their assigns, as
of the day and year first above written.
/s/ George S. Bissell
------------------------------
George S. Bissell
/s/ John M. Haffenreffer
------------------------------
John M. Haffenreffer
/s/ Everett P. Pope
------------------------------
Everett P. Pope
/s/ Rodney M. Vining
------------------------------
Rodney M. Vining
<PAGE>
KEYSTONE CAPITAL PRESERVATION AND INCOME FUND
FIRST SUPPLEMENTAL
DECLARATION OF TRUST
DATED SEPTEMBER 18, 1991
FIRST SUPPLEMENTAL DECLARATION OF TRUST dated September 18, 1991 made
by George S. Bissell, K. Dun Gifford, John M. Haffenreffer, Philip B. Harley, F.
Ray Keyser, Everett P. Pope, James A. Reed, John W. Sharp, Spencer R. Stuart,
Russel R. Taylor, Rodney M. Vining and Charles M. Williams (hereinafter with
their successors referred to as the "Trustees") to DECLARATION OF TRUST, dated
June 19, 1991.
WHEREAS the Trustees have determined to change the name of the Trust.
NOW, THEREFORE, the Trustees hereby declare that they will amend the Declaration
of Trust of this Trust as hereinafter set forth:
ARTICLE I, Name and Definitions,
Section 1. Name, is hereby amended to read as follows: "This Trust
shall be known as the "Keystone Institutional Adjustable Rate Fund" and
the Trustees shall conduct the business of this Trust under that name
or any other name as they may from time to time determine."
All other provisions of the Declaration of Trust shall
continue as originally stated.
IN WITNESS WHEREOF, the undersigned, being all of the Trustees of the
Trust, have caused this Supplemental Declaration of Trust to be executed on the
18th day of September, 1991.
/s/ George S. Bissell /s/ K. Dun Gifford
- ------------------------------------- -------------------------------------
George S. Bissell, Trustee K. Dun Gifford, Trustee
/s/ John M. Haffenreffer /s/ Philip B. Harley
- ------------------------------------- -------------------------------------
John M. Haffenreffer, Trustee Philip B. Harley, Trustee
/s/ F. Ray Keyser /s/ Everett P. Pope
- ------------------------------------- -------------------------------------
F. Ray Keyser, Trustee Everett P. Pope, Trustee
/s/ James A. Reed /s/ John W. Sharp
- ------------------------------------- -------------------------------------
James A. Reed, Trustee John W. Sharp, Trustee
/s/ Spencer R. Stuart /s/ Russel R. Taylor
- ------------------------------------- -------------------------------------
Spencer R. Stuart, Trustee Russel R. Taylor, Trustee
/s/ Rodney M. Vining /s/ Charles M. Williams
- ------------------------------------- -------------------------------------
Rodney M. Vining, Trustee Charles M. Williams, Trustee
<PAGE>
BY-LAWS
KEYSTONE INSTITUTIONAL ADJUSTABLE RATE FUND
ARTICLE 1.
Restatement of Trust Agreement and Principal Office
1.1 Restatement of Trust Agreement. These By-laws are adopted pursuant to and
are subject to the terms of the Declaration of Trust ("Trust Agreement") of
Keystone Capital Preservation and Income Fund ("Fund").
1.2 Principal Office of the Fund. The principal office of the Fund shall be
located in Boston, Massachusetts, or such other place as the Trustees may
designate from time to time.
ARTICLE 2.
Meetings of Shareholders
2.1 Meetings. Meetings may be called by the Trustees or by the President or by
any other officers designated for the purpose by the Trustees.
2.2 Business to be Transacted. At any meeting of shareholders, such business may
be transacted as is referred to in the notice of the meeting, and any other
business considered appropriate by or under authority of the Trustees.
2.3 Notice. A written notice of each meeting of the shareholders, specifying the
time, place and purposes thereof, shall be given as hereinafter provided by the
Secretary of the Fund or any Assistant Secretary or by a person or persons
designated by either of them, to each shareholder who is entitled to vote
thereat at least seven (7) days (including Sundays and holidays) before such
meeting. Notice of a meeting need not be given to any shareholder if a written
waiver of notice, executed by the shareholder or his attorney thereunto duly
authorized before or after the meeting, is filed with the records of the
meeting, or to any shareholder who attends the meeting either in person or by
proxy without protesting, prior thereto or at its commencement, the lack of
notice to such shareholder. Every notice to any shareholder required or provided
for herein may be given to him personally or by mailing it to him postage
prepaid, addressed to him at his address specified in the records of the Trust.
Notice shall be deemed to have been given at the time when it is so mailed. In
respect of any share held jointly by several persons notice so given to any one
of them shall be sufficient notice to all of them.
Any notice so sent to the address of any shareholder shall be deemed to have
been duly sent in respect of any such share whether held by him solely or
jointly with others, notwithstanding he be then deceased or be bankrupt or
insolvent or legally incompetent, and whether or not the Trustees or any person
sending such notice have knowledge of his death, bankruptcy or insolvency or
legal incompetence, until some other person or persons shall be registered as
holders. The certificate of the person or persons giving such notice shall be
sufficient evidence thereof, and shall protect all persons acting in good faith
in reliance on such certificate.
2.5 Voting. Shares may be voted in person by the shareholder or by proxy in form
reasonably acceptable to the Trust. If the holder of any share is a minor or a
person of unsound mind, or subject to guardianship or to the legal control of
any other person as regards the charge or management of such share, he may vote
by his guardian or such other person appointed or having such control, and such
vote may be given in person or by proxy.
2.6 Record Dates. For the purpose of determining the shareholders who are
entitled to vote or act at any meeting or any adjournment thereof, or who are
entitled to receive payment of any dividend or of any other distribution, the
Trustees may from time to time fix or authorize the fixing by others of a time
as the record date for determining the shareholders having the right to notice
of and to vote at such meeting and any adjournment thereof or the right to
receive such dividend or distribution, and in such case only shareholders of
record on such record date shall have such right, notwithstanding any transfer
of shares on the books of the Fund after the record date; or without fixing such
record date the Trustees may for any of such purposes close the register or
transfer books for all or any part of such period.
ARTICLE 3.
Meetings of Trustees
3.1 Regular Meetings. Regular meetings of the Trustees may be held without call
or notice at such places and at such times as the
Trustees may from time to time determine.
3.2 Special Meetings. Special meetings of the Trustees may be held at any time
and at any place designated in the call of the meeting when called by the
Chairman, the President or the Treasurer, or by any other officer authorized by
the Trustees to do so, or by two or more Trustees, sufficient notice thereof
being given to each Trustee by the Secretary or an Assistant Secretary or by the
officer or one of the Trustees calling the meeting.
3.3 Notice. It shall be sufficient notice to a Trustee of a special meeting to
send notice by mail at least forty-eight hours or by telegram at least
twenty-four hours before the meeting addressed to him at his usual or last known
business or residence address or to give notice to him in person or by telephone
at least twenty-four hours before the meeting. Notice of a meeting need not be
given to any Trustee if a written waiver of notice, executed by him before or
after the meeting, is filed with the records of the meeting, or to any Trustee
who attends the meeting without protesting prior thereto or at its commencement
the lack of notice to him. Neither notice of a meeting nor a waiver of a notice
need specify the purposes of the meeting.
3.4 Quorum. At any meeting of the Trustees a majority of the Trustees then in
office shall constitute a quorum. Any meeting may be adjourned from time to time
by a majority of the votes cast upon the question, whether or not a quorum is
present and the meeting may be held as adjourned without further notice.
3.5 Action by Vote. When a quorum is present at any meeting, a majority of the
Trustees present may take any action, except when a larger vote is required by
the Trust Agreement or any applicable law.
3.6 Participation by Conference Telephone. The Trustees may participate in a
meeting of the Trustees by means of conference telephone or similar
communications equipment. Participation by such means shall constitute presence
in person at a meeting.
3.7 Action by Writing. The Trustees may act without a meeting and the action of
a majority of the Trustees then in office evidenced by a writing signed by such
a majority shall be valid and binding as the action of the Trustees.
ARTICLE 4.
Trustees
4.1 Term. A Trustee shall serve until his death, retirement, resignation or
removal from office or until his successor is elected and qualifies.
ARTICLE 5.
Officers
5.1 Election. The President, the Treasurer and the Secretary shall be elected
annually by the Trustees and shall serve until their successors are elected and
qualified or until their earlier death, resignation or removal. Other officers,
if any, including if desired a Controller, may be elected or appointed by the
Trustees at the meeting or at any other time. A Chairman of the Board may be
elected or appointed by the Trustees at the meeting or at any other time.
Vacancies in any office may be filled at any time by the Trustees.
5.2 Tenure. Each officer and each agent shall hold office at the pleasure of the
Trustees.
5.3 Powers. Subject to law and to the other provisions of these By-laws, each
officer shall have, in addition to any duties and powers set forth herein and in
the Trust Agreement, such duties and powers as are commonly incident to the
office occupied by him as if the Fund were organized as a Pennsylvania business
corporation and such other duties and powers as the Trustees may from time to
time designate.
5.4 President. Unless the Trustees otherwise provide, the President shall
preside at all meetings of shareholders and of the Trustees and the President
shall be the chief executive officer.
5.5 Treasurer. The Treasurer shall be the chief financial officer of the Fund.
In the absence of the Treasurer, or if there is then no person serving in such
office, the Controller of the Fund shall be the chief financial officer of the
Fund. He shall, subject to the provisions of the Trust Agreement and subject to
any arrangement made by the Trustees with a bank or other trust company or
organization as custodian, be in charge of valuable papers, books of account and
accounting records, and shall have such other duties and powers as may be
designated from time to time by the Trustees or by the President.
5.6 Secretary. The Secretary shall record all proceedings of the shareholders
and Trustees in books to be kept therefor, which books shall be kept at the
principal office of the Fund. In the absence of the Secretary, an Assistant
Secretary, or if there be none or if he is absent, a temporary Secretary chosen
by the shareholders or the Trustees, as the case may be, shall record the
proceedings in the aforesaid books.
5.7 Resignation and Removals. Any Trustee or officer may resign at any time by
written instrument signed by him and deposited with the Trustees by delivering
such resignation to the President or the Secretary or to a meeting of the
Trustees. Such resignation shall be effective upon receipt unless specified to
be effective at some other time. The Trustees may remove any officer elected by
them with or without cause by vote of a majority of the Trustees then in office.
Except to the extent expressly provided in a written agreement with the Fund, no
Trustee or officer resigning and no officer removed shall have any right to
compensation for any period following his resignation or removal, or any right
to damages on account of such removal.
ARTICLE 6.
Committees
6.1 General. The Trustees may appoint from their number an executive committee
to serve during their pleasure. The executive committee may, when the Trustees
are not in session at a meeting, exercise such of the powers and authority of
the Trustees as may be conferred from time to time by the Trustees. Rules
governing the actions of the executive committee may be adopted by the Trustees
from time to time as they deem appropriate. The Trustees may appoint from their
number such other committees from time to time as they deem appropriate. The
number composing such committees, the powers and authority conferred upon such
committees and the rules governing the actions of such committees shall be
determined by the Trustees at their discretion.
6.2 Quorum; Voting. A majority of the members of any committee of the Trustees
shall constitute a quorum for the transaction of business, and any action of
such a committee may be taken at a meeting by a vote of a majority of the
members present (a quorum being present) or evidenced by one or more writings
signed by such a majority. Members of a committee may participate in a meeting
of such committee by means of conference telephone or similar communications
equipment. Participation by such means shall constitute presence in person at a
meeting.
ARTICLE 7.
Fiscal Year and Seal
7.1 Fiscal Year. The fiscal year of the Fund shall end on the last day of
September in each year.
7.2 Seal. The seal of the Fund shall consist of a flat-faced die with the name
of the Fund and 1991 cut or engraved thereon.
ARTICLE 8.
Amendments
8.1 Amendment by Trustees. These By-laws may also be altered, amended or
repealed by the Trustees, except with respect to any provision which by law, the
Trust Agreement or these By-laws requires action by the shareholders.
<PAGE>
INVESTMENT ADVISORY AND MANAGEMENT AGREEMENT
Agreement made the 19th day of August 1993, by and between KEYSTONE
INSTITUTIONAL ADJUSTABLE RATE FUND, a Massachusetts business trust (the "Fund"),
and KEYSTONE CUSTODIAN FUNDS, INC., a Delaware corporation (the "Adviser").
WHEREAS, the Fund and the Adviser wish to enter into an Agreement
setting forth the terms on which the Adviser will perform certain services for
the Fund.
THEREFORE, in consideration of the promises and the mutual agreements
hereinafter contained, the Fund and the Adviser agree as follows:
1. The Fund hereby employs the Adviser to manage and administer the
operation of the Fund, to supervise the provision of services to the Fund by
others, and to manage the investment and reinvestment of the assets of the Fund
in conformity with the Fund's investment objectives and restrictions as may be
set forth from time to time in the Fund's then current prospectus and statement
of additional information, if any, and other governing documents, all subject to
the supervision of the Board of Trustees of the Fund, for the period and on the
terms set forth in this Agreement. The Adviser hereby accepts such employment
and agrees during such period, at its own expense, to render the services and to
assume the obligations set forth herein, for the compensation provided herein.
The Adviser shall for all purposes herein be deemed to be an independent
contractor and shall, unless otherwise expressly provided or authorized, have no
authority to act for or represent the Fund in any way or otherwise be deemed an
agent of the Fund.
2. The Adviser shall place all orders for the purchase and sale of
portfolio securities for the account of the Fund with broker-dealers selected by
the Adviser. In executing portfolio transactions and selecting broker-dealers,
the Adviser will use its best efforts to seek best execution on behalf of the
Fund. In assessing the best execution available for any transaction, the Adviser
shall consider all factors it deems relevant, including the breadth of the
market in the security, the price of the security, the financial condition and
execution capability of the broker- dealer, and the reasonableness of the
commission, if any (all for the specific transaction and on a continuing basis).
In evaluating the best execution available, and in selecting the broker-dealer
to execute a particular transaction, the Adviser may also consider the brokerage
and research services (as those terms are used in Section 28(e) of the
Securities Exchange Act of 1934 (the "1934 Act") provided to the Fund and/or
other accounts over which the Adviser or an affiliate of the Adviser exercises
investment discretion. The Adviser is authorized to pay a broker-dealer who
provides such brokerage and research services a commission for executing a
portfolio transaction for one fund which is in excess of the amount of
commission another dealer would have charged for effecting that transaction if,
but only if, the Adviser determines in good faith that such commission was
reasonable in relation to the value of the brokerage and research services
provided by such broker-dealer viewed in terms of that particular transaction or
in terms of all of the accounts over which investment discretion is so
exercised.
3. The Adviser, at its own expense, shall furnish to the Fund office
space in the offices of the Adviser or in such other place as may be agreed upon
by the parties from time to time, all necessary office facilities, equipment and
personnel in connection with its services hereunder, and shall arrange, if
desired by the Fund, for members of the Adviser's organization to serve without
salaries from the Fund as officers or, as may be agreed from time to time, as
agents of the Fund. The Adviser assumes and shall pay or reimburse the Fund for:
(1) the compensation (if any) of the Trustees of the Fund who are affiliated
with the Adviser or with its affiliates, or with any adviser retained by the
Adviser, and of all officers of the Fund as such; (2) all expenses of the
Adviser incurred in connection with its services hereunder; (3) all charges and
expenses of any custodian or depository appointed by the Fund for the
safekeeping of its cash, securities and other property; (4) all charges and
expenses for bookkeeping and auditors; (5) all charges and expenses of any
transfer agents and registrars appointed by the Fund; (6) all costs of
certificates representing shares of the Fund; (7) all fees and expenses involved
in registering and maintaining registrations of the Fund and of its shares with
the Securities and Exchange Commission ("Commission") and registering or
qualifying its shares under state or other securities laws, including, without
limitation, the preparation and printing of registration statements,
prospectuses and statements of additional information for filing with the
Commission and other authorities; (8) expenses of preparing, printing and
mailing prospectuses and statements of additional information to shareholders of
the Fund; (9) all expenses of shareholders' and Trustees' meetings and of
preparing, printing and mailing notices, reports and proxy materials to
shareholders of the Fund; and (10) all charges and expenses of filing annual and
other reports with the Commission and other authorities. The Fund assumes and
shall pay all other expenses of the Fund, including, without limitation: (1) all
fees of all Trustees of the Fund who are not affiliated with the Adviser or any
of its affiliates, or with any adviser retained by the Adviser; (2) all broker's
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; (3) all taxes and business trust fees payable by the
Fund to federal, state or other governmental agencies; (4) all interest costs of
the Fund; (5) all charges and expenses of legal counsel to the Fund and to
Trustees of the Fund in connection with 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, 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; and (6) all extraordinary expenses and charges of
the Fund. In the event the Adviser provides any of these services or pays any of
these expenses, the Fund will promptly reimburse the Adviser therefor.
The services of the Adviser to the Fund hereunder are not to be deemed
exclusive, and the Adviser shall be free to render similar services to others.
4. As compensation for the Adviser's services to the Fund during the
period of this Agreement, the Fund will pay to the Adviser a fee 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 shall be payable in arrears at the end of
each day or calendar month as the Adviser may from time to time specify to the
Fund. If and when this Agreement terminates, any compensation payable hereunder
for the period ending with the date of such termination shall be payable upon
such termination. Amounts payable hereunder shall be promptly paid when due.
5. The Adviser shall not be liable for any error of judgment or mistake
of law or for any loss suffered by the Fund in connection with the performance
of this Agreement, except a loss resulting from the Adviser's willful
misfeasance, bad faith, gross negligence or from reckless disregard by it of its
obligations and duties under this Agreement. Any person, even though also an
officer, director, partner, employee, or agent of the Adviser who may be or
become an officer, trustee, employee or agent of the Fund, shall be deemed, when
rendering services to the Fund or acting on any business of the Fund (other than
services or business in connection with the Adviser's duties hereunder), to be
rendering such services to or acting solely for the Fund and not as an officer,
director, partner, employee, or agent or one under the control or direction of
the Adviser even though paid by it. The Fund agrees to indemnify and hold the
Adviser harmless from all taxes, charges, expenses, assessments, claims and
liabilities (including, without limitation, liabilities arising under the
Securities Act of 1933, the 1934 Act, the Investment Company Act of 1940 (the
"1940 Act") and any state and foreign securities and blue sky laws, as amended
from time to time) and expenses, including (without limitation) attorneys' fees
and disbursements, arising directly or indirectly from any action or thing which
the Adviser takes or does or omits to take or do hereunder provided that the
Adviser shall not be indemnified against any liability to the Fund or to its
shareholders (or any expenses incident to such liability) arising out of a
breach of fiduciary duty with respect to the receipt of compensation for
services, willful misfeasance, bad faith, or gross negligence on the part of the
Adviser in the performance of its duties, or from reckless disregard by it of
its obligations and duties under the Agreement.
6. The Fund shall cause its books and accounts to be audited at least
once each year by a reputable independent public accountant or organization of
public accountants who shall render a report to the Fund.
7. Subject to and in accordance with the Declaration of Trust of the
Fund, the Articles of Incorporation of the Adviser and the governing documents
of any adviser, it is understood that trustees, directors, officers, agents and
shareholders of the Fund or any Adviser are or may be interested in the Adviser
(or any successor thereof) as directors and officers of the Adviser or its
affiliates, as stockholders of Keystone Group, Inc. or otherwise; that
directors, officers and agents of the Adviser and its affiliates or stockholders
of Keystone Group, Inc. are or may be interested in the Fund or any Adviser as
trustees, directors, officers, shareholders or otherwise; that the Adviser (or
any such successor) is or may be interested in the Fund or any such Adviser as
shareholder, or otherwise; and that the effect of any such adverse interests
shall be governed by said Declaration of Trust of the Fund, Articles of
Incorporation of the Adviser and governing documents of any such adviser.
8. This Agreement shall continue in effect after July 1,
1993 only so long as (1) such continuance is specifically
approved at least annually by the Board of Trustees of the Fund or by a vote of
a majority of the outstanding voting securities of the Fund, and (2) such
renewal has been approved by the vote of a majority of Trustees of the Fund who
are not interested persons, as that term is defined in the 1940 Act, of the
Adviser or of the Fund, cast in person at a meeting called for the purpose of
voting on such approval.
9. On sixty days' written notice to the Adviser, this Agreement may be
terminated at any time without the payment of any penalty at any time by the
Board of Trustees of the Fund or by vote of the holders of a majority of the
outstanding voting securities of the Fund; and on sixty days' written notice to
the Fund, this Agreement may be terminated at any time without the payment of
any penalty at any time by the Adviser. This Agreement shall automatically
terminate upon its assignment (as that term is defined in the 1940 Act). Any
notice under this Agreement shall be given in writing, addressed and delivered,
or mailed postage prepaid, to the other party at the main office of such party.
10. This Agreement may be amended at any time by an instrument in
writing executed by both parties hereto or their respective successors, provided
that with regard to amendments of substance such execution by the Fund shall
have been first approved by the vote of the holders of a majority of the
outstanding voting securities of the Fund and by the vote of a majority of
Trustees of the Fund who are not interested persons (as that term is defined in
the 1940 Act) of the Adviser, any predecessor of the Adviser, or of the Fund,
cast in person at a meeting called for the purpose of voting on such approval. A
"majority of the outstanding voting securities of the Fund" shall have, for all
purposes of this Agreement, the meaning provided therefor in the 1940 Act.
11. Any compensation payable to the Adviser hereunder for any period
other than a full year shall be proportionately adjusted.
12. The provisions of the Agreement shall be governed, construed and
enforced in accordance with the laws of The Commonwealth of Massachusetts.
13. A copy of the Declaration of Trust of the Fund is on file with the
Secretary of the Commonwealth of Massachusetts. This instrument is executed on
behalf of the Trustees of the Fund as trustees and not individually and the
obligations of this instrument are not binding upon the Trustees or holders of
shares of the Fund individually but are binding only upon the assets and
property of the Fund.
IN WITNESS WHEREOF, the parties hereto have duly executed this
Agreement on the day and year first above written.
KEYSTONE INSTITUTIONAL ADJUSTABLE RATE FUND
By: /s/ Ralph J. Spuehler, Jr.
---------------------------------------
Title: Treasurer
KEYSTONE CUSTODIAN FUNDS, INC.
By: /s/ George S. Bissell
---------------------------------------
Title: Chairman
<PAGE>
January 5, 1996
Keystone Institutional Adjustable Rate Fund
200 Berkeley Street
Boston, Massachusetts 02116-5034
Gentlemen:
I am a Senior Vice President of and General Counsel to Keystone
Investment Management Company (formerly named Keystone Custodian Funds, Inc.),
the investment adviser to Keystone Institutional Adjustable Rate Fund (the
"Fund"). You have asked for my opinion with respect to the proposed issuance of
590,932 additional shares of the Fund.
To my knowledge, a Prospectus is being filed with the Securities and
Exchange Commission (the "Commission") as part of this Post-Effective Amendment
No. 7 to the Fund's Registration Statement, which will cover the public offering
and sale of the Fund shares currently registered with the Commission.
In my opinion, such additional shares, if issued and sold in accordance
with the Fund's Declaration of Trust, as amended, and offering Prospectus, will
be legally issued, fully paid, and nonassessable by the Fund, entitling the
holders thereof to the rights set forth in the Declaration of Trust and subject
to the limitations set forth therein.
My opinion is based upon my examination of the Fund's Declaration of
Trust, as amended, and By-Laws; a review of the minutes of the Fund's Board of
Trustees authorizing the issuance of such additional shares; and the Fund's
Prospectus. In my examination of such documents, I have assumed the genuineness
of all signatures and the conformity of copies to originals.
I hereby consent to the use of this opinion in connection with
Post-Effective Amendment No. 7 to the Fund's Registration Statement, which
covers the registration of such additional shares.
Very truly yours,
/s/ Rosemary D. Van Antwerp
Rosemary D. Van Antwerp
Senior Vice President and
General Counsel
101606F0
<PAGE>
CONSENT OF INDEPENDENT AUDITORS
The Trustees
Keystone Institutional Adjustable Rate Fund
We consent to the use of our report dated October 27, 1995 included
herein and to the references to our firm under the captions "FINANCIAL
HIGHLIGHTS" in the prospectus and "ADDITIONAL INFORMATION" in the statement of
additional information.
KPMG Peat Marwick LLP
Boston, Massachusetts
January 8, 1996
FUND #: 4252 SEC STANDARDIZED ADVERTISING YIELD
FUND NAME: KIARF CLASS Y PHASE II-ROLLING
PRICING DATE 26-Sep-95
TOTAL INCOME FOR PERIOD 18,600.47
TOTAL EXPENSES FOR PERIOD 1,526.24
30 DAY YTM 6.21401% AVERAGE SHARES OUTSTANDING 346,079.60
LAST PRICE DURING PERIOD 9.65
- - - -
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------------
PRICE ST FIXED OID AMORT. GAIN / LONG TERM TOTAL DIV ADJUSTED
DATE INCOME INCOME INCOME LOSS ADJ INCOME INCOME FACTOR INCOME
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1.00 28-Aug-95 0.00 0.00 0.00 0.00 4,994.25 4,994.25 13.2678631 662.63
2.00 29-Aug-95 0.00 0.00 0.00 0.00 5,614.12 5,614.12 13.2678512 744.87
3.00 30-Aug-95 0.00 0.00 0.00 0.00 5,615.47 5,615.47 13.2678512 745.05
4.00 31-Aug-95 0.00 0.00 0.00 0.00 5,615.47 5,615.47 13.2678512 745.05
5.00 01-Sep-95 0.00 0.00 0.00 0.00 5,609.13 5,609.13 13.2903373 745.47
6.00 02-Sep-95 0.00 0.00 0.00 0.00 5,609.13 5,609.13 13.2903373 745.47
7.00 03-Sep-95 0.00 0.00 0.00 0.00 5,609.13 5,609.13 13.2903373 745.47
8.00 04-Sep-95 0.00 0.00 0.00 0.00 5,609.13 5,609.13 13.2903254 745.47
9.00 05-Sep-95 0.00 0.00 0.00 0.00 5,611.88 5,611.88 13.2903254 745.84
10.00 06-Sep-95 0.00 0.00 0.00 0.00 5,612.29 5,612.29 13.2903254 745.89
11.00 07-Sep-95 0.00 0.00 0.00 0.00 5,612.41 5,612.41 13.2903254 745.91
12.00 08-Sep-95 0.00 0.00 0.00 0.00 5,611.99 5,611.99 13.2903254 745.85
13.00 09-Sep-95 0.00 0.00 0.00 0.00 5,611.99 5,611.99 13.2903254 745.85
14.00 10-Sep-95 0.00 0.00 0.00 0.00 5,611.98 5,611.98 13.2903254 745.85
15.00 11-Sep-95 0.00 0.00 0.00 0.00 5,612.02 5,612.02 13.2903254 745.86
16.00 12-Sep-95 0.00 0.00 0.00 0.00 5,299.54 5,299.54 12.9966997 688.77
17.00 13-Sep-95 0.00 0.00 0.00 0.00 5,572.50 5,572.50 12.9965826 724.23
18.00 14-Sep-95 0.00 0.00 0.00 0.00 5,572.50 5,572.50 12.9965709 724.23
19.00 15-Sep-95 0.00 0.00 0.00 0.00 5,567.16 5,567.16 12.3513749 687.62
20.00 16-Sep-95 0.00 0.00 0.00 0.00 5,567.16 5,567.16 12.3513749 687.62
21.00 17-Sep-95 0.00 0.00 0.00 0.00 5,567.16 5,567.16 12.3513749 687.62
22.00 18-Sep-95 0.00 0.00 0.00 0.00 5,490.56 5,490.56 10.6958372 587.26
23.00 19-Sep-95 0.00 0.00 0.00 0.00 5,462.39 5,462.39 10.7129905 585.19
24.00 20-Sep-95 0.00 0.00 0.00 0.00 5,894.32 5,894.32 10.7129905 631.46
25.00 21-Sep-95 0.00 0.00 0.00 0.00 5,480.01 5,480.01 10.6353416 582.82
26.00 22-Sep-95 0.00 0.00 0.00 0.00 5,180.90 5,180.90 10.6353712 551.01
27.00 23-Sep-95 0.00 0.00 0.00 0.00 5,180.90 5,180.90 10.6353712 551.01
28.00 24-Sep-95 0.00 0.00 0.00 0.00 5,180.90 5,180.90 10.6353712 551.01
29.00 25-Sep-95 0.00 0.00 0.00 0.00 4,288.89 4,288.89 10.6353713 456.14
30.00 26-Sep-95 0.00 0.00 0.00 -16498.14 5,462.23 (11,035.91) 10.8378348 (1,196.05)
<PAGE>
<CAPTION>
Class Class Class
-------------------------------------- || 30 DAY 30 DAY 30 DAY
DAILY DAILY DAILY || ACCUMULATED ACCUMULATED ACCUMULATED
EXPENSES SHARES PRICE || INCOME EXPENSES SHARES
Input Input Input ||
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
1.00 54.15 372949.181 9.64 662.63 54.15 372,949.181
2.00 54.16 372949.181 9.64 1,407.50 108.31 745,898.362
3.00 54.15 372949.181 9.64 2,152.55 162.46 1,118,847.543
4.00 54.20 372949.181 9.64 2,897.60 216.66 1,491,796.724
5.00 54.19 375063.907 9.65 3,643.07 270.85 1,866,860.631
6.00 54.19 375063.907 9.65 4,388.54 325.04 2,241,924.538
7.00 54.19 375063.907 9.65 5,134.01 379.23 2,616,988.445
8.00 54.19 375063.907 9.65 5,879.48 433.42 2,992,052.352
9.00 54.54 375063.907 9.66 6,625.32 487.96 3,367,116.259
10.00 54.58 375063.907 9.66 7,371.21 542.54 3,742,180.166
11.00 54.58 375063.907 9.66 8,117.12 597.12 4,117,244.073
12.00 54.58 375063.907 9.66 8,862.97 651.70 4,492,307.980
13.00 54.58 375063.907 9.66 9,608.82 706.28 4,867,371.887
14.00 54.58 375063.907 9.66 10,354.67 760.86 5,242,435.794
15.00 54.58 375063.907 9.66 11,100.53 815.44 5,617,499.701
16.00 54.57 365540.097 9.66 11,789.30 870.01 5,983,039.798
17.00 53.19 365540.097 9.66 12,513.53 923.20 6,348,579.895
18.00 53.19 365540.097 9.66 13,237.76 976.39 6,714,119.992
19.00 53.22 344836.163 9.66 13,925.38 1,029.61 7,058,956.155
20.00 53.22 344836.163 9.66 14,613.00 1,082.83 7,403,792.318
21.00 53.21 344836.163 9.66 15,300.62 1,136.04 7,748,628.481
22.00 50.20 293076.329 9.66 15,887.88 1,186.24 8,041,704.810
23.00 42.67 293593.927 9.66 16,473.07 1,228.91 8,335,298.737
24.00 42.75 293593.927 9.66 17,104.53 1,271.66 8,628,892.664
25.00 42.75 291212.975 9.66 17,687.35 1,314.41 8,920,105.639
26.00 42.37 291212.975 9.65 18,238.36 1,356.78 9,211,318.614
27.00 42.37 291212.975 9.65 18,789.37 1,399.15 9,502,531.589
28.00 42.38 291212.975 9.65 19,340.38 1,441.53 9,793,744.564
29.00 42.37 291212.975 9.65 19,796.52 1,483.90 10,084,957.539
30.00 42.34 297430.592 9.65 18,600.47 1,526.24 10,382,388.131
</TABLE>
<PAGE>
FUND #: 4252 SEC STANDARDIZED ADVERTISING YIELD
FUND NAME: KIARF CLASS Z PHASE II-ROLLING
PRICING DATE 26-Sep-95
TOTAL INCOME FOR PERIOD 129,228.90
TOTAL EXPENSES FOR PERIOD 5,826.94
30 DAY YTM 6.35674%% AVERAGE SHARES OUTSTANDING 2,445,797.93
LAST PRICE DURING PERIOD 9.65
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------------
PRICE ST FIXED OID AMORT. GAIN / LONG TERM TOTAL DIV ADJUSTED
DATE INCOME INCOME INCOME LOSS ADJ INCOME INCOME FACTOR INCOME
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1.00 28-Aug-95 0.00 0.00 0.00 4,994.25 4,994.25 86.7321369 4,331.62
2.00 29-Aug-95 0.00 0.00 0.00 5,614.12 5,614.12 86.7321488 4,869.25
3.00 30-Aug-95 0.00 0.00 0.00 5,615.47 5,615.47 86.7321488 4,870.42
4.00 31-Aug-95 0.00 0.00 0.00 5,615.47 5,615.47 86.7321488 4,870.42
5.00 01-Sep-95 0.00 0.00 0.00 5,609.13 5,609.13 86.7096627 4,863.66
6.00 02-Sep-95 0.00 0.00 0.00 5,609.13 5,609.13 86.7096627 4,863.66
7.00 03-Sep-95 0.00 0.00 0.00 5,609.13 5,609.13 86.7096627 4,863.66
8.00 04-Sep-95 0.00 0.00 0.00 5,609.13 5,609.13 86.7096746 4,863.66
9.00 05-Sep-95 0.00 0.00 0.00 5,611.88 5,611.88 86.7096746 4,866.04
10.00 06-Sep-95 0.00 0.00 0.00 5,612.29 5,612.29 86.7096746 4,866.40
11.00 07-Sep-95 0.00 0.00 0.00 5,612.41 5,612.41 86.7096746 4,866.50
12.00 08-Sep-95 0.00 0.00 0.00 5,611.99 5,611.99 86.7096746 4,866.14
13.00 09-Sep-95 0.00 0.00 0.00 5,611.99 5,611.99 86.7096746 4,866.14
14.00 10-Sep-95 0.00 0.00 0.00 5,611.98 5,611.98 86.7096746 4,866.13
15.00 11-Sep-95 0.00 0.00 0.00 5,612.02 5,612.02 86.7096746 4,866.16
16.00 12-Sep-95 0.00 0.00 0.00 5,299.54 5,299.54 87.0033003 4,610.77
17.00 13-Sep-95 0.00 0.00 0.00 5,572.50 5,572.50 87.0034174 4,848.27
18.00 14-Sep-95 0.00 0.00 0.00 5,572.50 5,572.50 87.0034291 4,848.27
19.00 15-Sep-95 0.00 0.00 0.00 5,567.16 5,567.16 87.6486251 4,879.54
20.00 16-Sep-95 0.00 0.00 0.00 5,567.16 5,567.16 87.6486251 4,879.54
21.00 17-Sep-95 0.00 0.00 0.00 5,567.16 5,567.16 87.6486251 4,879.54
22.00 18-Sep-95 0.00 0.00 0.00 5,490.56 5,490.56 89.3041628 4,903.30
23.00 19-Sep-95 0.00 0.00 0.00 5,462.39 5,462.39 89.2870095 4,877.20
24.00 20-Sep-95 0.00 0.00 0.00 5,894.32 5,894.32 89.2870095 5,262.86
25.00 21-Sep-95 0.00 0.00 0.00 5,480.01 5,480.01 89.3646584 4,897.19
26.00 22-Sep-95 0.00 0.00 0.00 5,180.90 5,180.90 89.3646288 4,629.89
27.00 23-Sep-95 0.00 0.00 0.00 5,180.90 5,180.90 89.3646288 4,629.89
28.00 24-Sep-95 0.00 0.00 0.00 5,180.90 5,180.90 89.3646288 4,629.89
29.00 25-Sep-95 0.00 0.00 0.00 4,288.89 4,288.89 89.3646287 3,832.75
30.00 26-Sep-95 0.00 0.00 -16498.14 5,462.23 (11,035.91) 89.1621652 (9,839.86)
<PAGE>
<CAPTION>
Class Class Class
-------------------------------------- || 30 DAY 30 DAY 30 DAY
DAILY DAILY DAILY || ACCUMULATED ACCUMULATED ACCUMULATED
EXPENSES SHARES PRICE || INCOME EXPENSES SHARES
Input Input Input ||
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
1.00 193.09 2437964.460 9.64 4,331.62 193.09 2,437,964.460
2.00 193.14 2437964.460 9.64 9,200.87 386.23 4,875,928.920
3.00 193.08 2437964.460 9.64 14,071.29 579.31 7,313,893.380
4.00 193.25 2437964.460 9.64 18,941.71 772.56 9,751,857.840
5.00 193.19 2447003.080 9.65 23,805.37 965.75 12,198,860.920
6.00 193.19 2447003.080 9.65 28,669.03 1,158.94 14,645,864.000
7.00 193.19 2447003.080 9.65 33,532.69 1,352.13 17,092,867.080
8.00 193.19 2447003.080 9.65 38,396.35 1,545.32 19,539,870.160
9.00 194.11 2447003.080 9.66 43,262.39 1,739.43 21,986,873.240
10.00 194.26 2447003.080 9.66 48,128.79 1,933.69 24,433,876.320
11.00 194.24 2447003.080 9.66 52,995.29 2,127.93 26,880,879.400
12.00 194.22 2447003.080 9.66 57,861.43 2,322.15 29,327,882.480
13.00 194.22 2447003.080 9.66 62,727.57 2,516.37 31,774,885.560
14.00 194.22 2447003.080 9.66 67,593.70 2,710.59 34,221,888.640
15.00 194.22 2447003.080 9.66 72,459.86 2,904.81 36,668,891.720
16.00 194.86 2447003.080 9.66 77,070.63 3,099.67 39,115,894.800
17.00 194.21 2447003.080 9.66 81,918.90 3,293.88 41,562,897.880
18.00 194.21 2447003.080 9.66 86,767.17 3,488.09 44,009,900.960
19.00 195.77 2447003.080 9.66 91,646.71 3,683.86 46,456,904.040
20.00 195.77 2447003.080 9.66 96,526.25 3,879.63 48,903,907.120
21.00 195.78 2447003.080 9.66 101,405.79 4,075.41 51,350,910.200
22.00 198.00 2447003.080 9.66 106,309.09 4,273.41 53,797,913.280
23.00 194.27 2447003.080 9.66 111,186.29 4,467.68 56,244,916.360
24.00 194.32 2447003.080 9.66 116,449.15 4,662.00 58,691,919.440
25.00 194.52 2447003.080 9.66 121,346.34 4,856.52 61,138,922.520
26.00 194.20 2447003.080 9.65 125,976.23 5,050.72 63,585,925.600
27.00 194.21 2447003.080 9.65 130,606.12 5,244.93 66,032,928.680
28.00 194.21 2447003.080 9.65 135,236.01 5,439.14 68,479,931.760
29.00 194.17 2447003.080 9.65 139,068.76 5,633.31 70,926,934.840
30.00 193.63 2447003.080 9.65 129,228.90 5,826.94 73,373,937.920
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
KIARF-Y MTD YTD ONE YEAR THREE YEAR THREE YEAR
29-Sep-95 TOTAL RETURN COMPOUNDED
<S> <C> <C> <C> <C> <C>
with cdsc N/A N/A N/A N/A N/A
W/O CDSC 0.63% 6.51% 6.60% 7.06% 5.16%
Beg dates 31-Aug-95 30-Dec-94 30-Sep-94 23-May-94 23-May-94
Beg Value (no load) 10,639 10,053 10,044 10,000 10,000
End Value (W/O CDSC) 10,706 10,706 10,706 10,706 10,706
End Value (with cdsc) 10,405 10,405 10,607 10,607
beg nav 9.64 9.49 9.61 9.73 9.73
end nav 9.65 9.65 9.65 9.65 9.65
shares originally purchased 1,103.65 1,059.27 1,045.13 1,027.75 1,027.75
TIME 1.36
<CAPTION>
KIARF-Y FIVE YEAR FIVE YEAR TEN YEAR TEN YEAR
29-Sep-95 TOTAL RETURN COMPOUNDED TOTAL RETURN COMPOUNDED
<S> <C> <C> <C> <C>
with cdsc N/A N/A N/A N/A
W/O CDSC 7.06% 5.16% NA NA
Beg dates 23-May-94 23-May-94 23-May-94 23-May-94
Beg Value (no load) 10,000 10,000 10,000 10,000
End Value (W/O CDSC) 10,706 10,706 10,706 10,706
End Value (with cdsc) 10,706 10,706 10,706 10,706
beg nav 9.73 9.73 9.73 9.73
end nav 9.65 9.65 9.65 9.65
shares originally purchased 1,027.75 1,027.75 1,027.75 1,027.75
TIME 1.36 1.36
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
KIARF-Z MTD YTD ONE YEAR THREE YEAR THREE YEAR
29-Sep-95 TOTAL RETURN COMPOUNDED
<S> <C> <C> <C> <C> <C>
with cdsc N/A N/A N/A N/A N/A
W/O CDSC 0.65% 6.71% 6.87% 14.38% 4.58%
Beg dates 31-Aug-95 30-Dec-94 30-Sep-94 30-Sep-92 30-Sep-92
Beg Value (no load) 11,977 11,298 11,281 10,539 10,539
End Value (W/O CDSC) 12,055 12,055 12,055 12,055 12,055
End Value (with cdsc) 11,716 11,717 11,952 11,952
beg nav 9.64 9.49 9.61 9.88 9.88
end nav 9.65 9.65 9.65 9.65 9.65
shares originally purhased 1,242.43 1,190.48 1,173.85 1,066.73 1,066.73
TIME 3
<CAPTION>
KIARF-Z FIVE YEAR FIVE YEAR TEN YEAR TEN YEAR
29-Sep-95 TOTAL RETURN COMPOUNDED TOTAL RETURN COMPOUNDED
<S> <C> <C> <C> <C>
*** n/a till 10/1/96*** n/a till 10/1/96*** n/a till 10/1/01*** n/a till 10/1/01
with cdsc N/A N/A N/A N/A
W/O CDSC 20.55% 4.78% NA NA
Beg dates 01-Oct-91 01-Oct-91 01-Oct-91 01-Oct-91
Beg Value (no load) 10,000 10,000 10,000 10,000
End Value (W/O CDSC) 12,055 12,055 12,055 12,055
End Value (with cdsc) 12,055 12055.267158197 12,055 12055.267158197
beg nav 10.00 10 10.00 10
end nav 9.65 9.65 9.65 9.65
shares originally purchased 1,000.00 1,000.00 1,000.00 1,000.00
TIME 4 4
</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
<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
<TABLE> <S> <C>
<PAGE>
<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
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> SEP-30-1995
<PERIOD-START> OCT-01-1994
<PERIOD-END> SEP-30-1995
<INVESTMENTS-AT-COST> 26,230,822
<INVESTMENTS-AT-VALUE> 26,177,097
<RECEIVABLES> 462,541
<ASSETS-OTHER> 58
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 26,639,696
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 152,981
<TOTAL-LIABILITIES> 152,981
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 2,842,288
<SHARES-COMMON-STOCK> 297,431
<SHARES-COMMON-PRIOR> 103
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> (2,348)
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> (2,997)
<ACCUM-APPREC-OR-DEPREC> 33,642
<NET-ASSETS> 2,870,585
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 157,960
<OTHER-INCOME> 0
<EXPENSES-NET> (11,955)
<NET-INVESTMENT-INCOME> 146,005
<REALIZED-GAINS-CURRENT> (14,816)
<APPREC-INCREASE-CURRENT> 33,650
<NET-CHANGE-FROM-OPS> 164,839
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (136,345)
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 529,838
<NUMBER-OF-SHARES-REDEEMED> (244,779)
<SHARES-REINVESTED> 12,269
<NET-CHANGE-IN-ASSETS> 2,869,599
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> (6,561)
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> (11,955)
<AVERAGE-NET-ASSETS> 2,179,785
<PER-SHARE-NAV-BEGIN> 9.61
<PER-SHARE-NII> 0.64
<PER-SHARE-GAIN-APPREC> (0.02)
<PER-SHARE-DIVIDEND> (0.53)
<PER-SHARE-DISTRIBUTIONS> 0.00
<RETURNS-OF-CAPITAL> (0.05)
<PER-SHARE-NAV-END> 9.65
<EXPENSE-RATIO> 0.55
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<PAGE>
<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
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> SEP-30-1995
<PERIOD-START> OCT-01-1994
<PERIOD-END> SEP-30-1995
<INVESTMENTS-AT-COST> 26,230,822
<INVESTMENTS-AT-VALUE> 26,177,097
<RECEIVABLES> 462,541
<ASSETS-OTHER> 58
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 26,639,696
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 152,981
<TOTAL-LIABILITIES> 152,981
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 24,952,934
<SHARES-COMMON-STOCK> 2,447,003
<SHARES-COMMON-PRIOR> 2,623,282
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> (128,557)
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> (1,120,880)
<ACCUM-APPREC-OR-DEPREC> (87,367)
<NET-ASSETS> 23,616,130
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 1,694,347
<OTHER-INCOME> 0
<EXPENSES-NET> (73,258)
<NET-INVESTMENT-INCOME> 1,621,089
<REALIZED-GAINS-CURRENT> (218,830)
<APPREC-INCREASE-CURRENT> 244,625
<NET-CHANGE-FROM-OPS> 1,646,884
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (1,527,700)
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 22,876
<NUMBER-OF-SHARES-REDEEMED> (317,154)
<SHARES-REINVESTED> 117,999
<NET-CHANGE-IN-ASSETS> (1,583,934)
<ACCUMULATED-NII-PRIOR> 15,357
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> (73,258)
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> (73,258)
<AVERAGE-NET-ASSETS> 24,519,950
<PER-SHARE-NAV-BEGIN> 9.61
<PER-SHARE-NII> 0.63
<PER-SHARE-GAIN-APPREC> 0.01
<PER-SHARE-DIVIDEND> (0.55)
<PER-SHARE-DISTRIBUTIONS> 0.00
<RETURNS-OF-CAPITAL> (0.05)
<PER-SHARE-NAV-END> 9.65
<EXPENSE-RATIO> 0.30
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
