-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, OQlpIq0CSKkKXrjwOX+YotoKhb3kYWrg/iPt47UvkS31twGNJHQW9SoRaAkMjfiX rWLFhYo6+fHCCyGf2oKi0A== 0000950146-96-001555.txt : 19960906 0000950146-96-001555.hdr.sgml : 19960906 ACCESSION NUMBER: 0000950146-96-001555 CONFORMED SUBMISSION TYPE: N-30D PUBLIC DOCUMENT COUNT: 1 CONFORMED PERIOD OF REPORT: 19960630 FILED AS OF DATE: 19960904 SROS: NONE FILER: COMPANY DATA: COMPANY CONFORMED NAME: KEYSTONE LIQUID TRUST CENTRAL INDEX KEY: 0000005384 STANDARD INDUSTRIAL CLASSIFICATION: UNKNOWN SIC - 0000 [0000] IRS NUMBER: 046196129 STATE OF INCORPORATION: NJ FISCAL YEAR END: 0630 FILING VALUES: FORM TYPE: N-30D SEC ACT: 1940 Act SEC FILE NUMBER: 811-02521 FILM NUMBER: 96625391 BUSINESS ADDRESS: STREET 1: 200 BERLELEY ST CITY: BOSTON STATE: MA ZIP: 02116 BUSINESS PHONE: 6173383200 FORMER COMPANY: FORMER CONFORMED NAME: AMERICAN LIQUID TRUST DATE OF NAME CHANGE: 19830523 FORMER COMPANY: FORMER CONFORMED NAME: AMERICAN LIQUITY FUND INC DATE OF NAME CHANGE: 19751102 N-30D 1 KEYSTONE LIQUID TRUST ANNUAL REPORT [front cover] KEYSTONE [photo of man teaching boy to ride two-wheeler] LIQUID TRUST [keystone logo] ANNUAL REPORT JUNE 30, 1996 PAGE 1 - ---------------------- Keystone Liquid Trust Seeks stability of principal and liquidity with current income from high quality money market instruments. Dear Shareholder: We are pleased to report to you on the activities of Keystone Liquid Trust for the twelve-month period which ended June 30, 1996. Performance Your Fund provided the following returns: Class A shares returned 4.73% for the period, which includes reinvestment of the 4.6 cent-per-share dividend. Class B shares returned 3.76% for the period, which includes reinvestment of the 3.7 cent-per-share dividend. Class C shares returned 3.75% for the period, which includes reinvestment of the 3.7 cent-per-share dividend. Your Fund maintained a constant net asset value of $1 per share during the period, and continued to focus on high-quality, short-term money market instruments. We believe this was satisfactory performance, reflecting a transition from a generally declining interest rate environment in the second half of 1995 to a period of rising rates during the first half of 1996. Market Environment and Strategy Short-term interest rates responded to changing expectations of economic strength during the twelve-month period. Throughout the last half of 1995 and early 1996, money market yields declined on expectations that the Federal Reserve Board would continue to reduce interest rates. Those beliefs changed in the first quarter of 1996 as strength in employment growth laid the foundation for a stronger economy. Investors became concerned that this growth might cause inflation to rise. As a result, short-term interest rates rose modestly. We believe that Keystone Liquid Trust was well positioned for this changing environment. We shortened your Fund's average maturity to 37 days from 60 days, just before interest rates began to rise. This enabled us to invest the portfolio's assets in higher yielding securities sooner. We emphasized commercial paper, which offered higher yields and we believe better value than other short-term obligations. As of June 30, 1996, the Fund's average maturity was 37 days. Keystone's Commitment to Quality and Liquidity Our policy with respect to Keystone Liquid Trust is to emphasize quality and liquidity. As of June 30, 1996, the average credit quality of the portfolio was A-1+/P-1, the highest commercial paper rating given by Moody's and Standard & Poor's. Your Fund also requires an issuer to have the highest commercial paper rating, as well as a minimum of a single "A" rating by all major credit rating agencies on its long-term debt. For bank obligations, we concentrate on large, well capitalized banks with diverse investment portfolios; and invest only in the obligations of the bank itself. Our research team tracks eligible issuers on an ongoing basis, monitoring liquidity ratios and other financial data that measures a company's creditworthiness. During this twelve-month period, your Fund did not invest in derivative securities. Our Outlook We believe that short-term rates may move modestly higher over the next few months, if strong economic growth continues. Longer term, we think that the current level of higher interest rates should slow future economic growth. We think inflation could move a bit higher than in the recent past, but should be well contained by historical standards. PAGE 2 - ---------------------- Keystone Liquid Trust Keystone Liquid Trust remains committed to providing investors with safety and liquidity by investing in high quality money market instruments. We intend to continue with our conservative management policies in all market environments, and we believe these instruments can provide particular value during periods of uncertainty. As you evaluate your investment and market conditions, we encourage you to remember a few investment principles that have withstood the test of time in all types of markets. Diversify your investments. By putting your money in different types of investments, you can minimize your risk. Take a long-term perspective. The longer you keep your money invested, the more time you have to weather the market's fluctuations. Invest regularly. By making periodic investments over time, you can lower your average cost per share. Of course, your investment will fluctuate with market conditions, and there is no assurance that it will be worth more when you sell shares. Your investment adviser can help you with these strategies by developing a plan to meet your particular needs. He or she is a professional with the resources and expertise to help you achieve your investment goals. We encourage you to take advantage of the services your adviser can provide. We appreciate your continued support of Keystone funds. If you have any questions or comments about your investment, we encourage you to write to us. Sincerely, /s/Albert H. Elfner, III /s/George S. Bissell Albert H. Elfner, III George S. Bissell Chairman and President Chairman of the Board Keystone Investments, Inc. Keystone Funds August 1996 [dalbar Dalbar Key Honors logo] Honoring Commitment to Excellence Keystone was recently recognized by Dalbar, an independent mutual fund rating organization, for demonstrating a commitment to serving the needs of customers. The award is intended to distinguish companies who are committed to investors and have a proven ability to provide good service. [receiver Keystone Introduces Investment Insight Line for Shareholders graphic] Now you can keep up-to-date on your fund's current strategy and outlook by calling Keystone Investment Insight Line. You can hear Keystone portfolio managers discuss their latest strategies or listen to Keystone's overall market outlook from James McCall, chief investment officer. Of course, your financial adviser can provide you with more complete information on Keystone Funds. This service is available 24 hours a day, seven days a week and updated at least monthly. Keystone Investment Insight Line 1-800-346-3858, Press 2 after the greeting [telephone graphic] PAGE 3 - ---------------------- SCHEDULE OF INVESTMENTS--June 30, 1996
Maturity Principal Market Date Amount Value - -------------------------------------------------------- ------- ---------- ------------- CERTIFICATES OF DEPOSIT (17.4%) Algemene Bank Nederland NV, Euro CD, 5.08% 07/16/96 $ 5,000,000 $ 4,999,222 Bayerische Landesbank, Euro CD, 5.41% 10/29/96 5,000,000 4,996,354 Bayerische Vereinsbank, Euro CD, 5.35% 07/05/96 5,000,000 4,999,919 Bayerische Vereinsbank, Yankee CD, 5.12% 08/05/96 5,000,000 4,998,157 Deutsche Bank, Yankee CD, 5.37% 07/15/96 5,000,000 4,999,933 Deutsche Bank AG, New York, Yankee CD, 5.62% 01/15/97 5,000,000 4,994,081 First Alabama Bank, CD, 5.34% 07/29/96 10,000,000 9,999,346 NBD Bank NA, CD, 5.35% 08/07/96 10,000,000 9,999,992 Rabobank Nederland NV, Yankee CD, 5.31% 07/18/96 5,000,000 4,999,562 Union Bank Switzerland, Euro CD, 5.05% 07/08/96 5,000,000 4,999,595 - -------------------------------------------------------- ------- ---------- ------------- TOTAL CERTIFICATES OF DEPOSIT (Cost--$60,002,903) 59,986,161 - --------------------------------------------------------------------------------- ------------- COMMERCIAL PAPER (62.7%) ABN-AMRO North America Finance Co. 08/22/96 5,000,000 4,961,000 American Express Credit Corp. 07/16/96 5,000,000 4,988,875 American Express Credit Corp. 07/17/96 5,000,000 4,988,156 Ameritech Corp. (b) 08/12/96 7,000,000 6,955,900 Ameritech Corp. 08/23/96 8,000,000 7,936,871 Associates Corp. 07/03/96 5,000,000 4,998,533 Associates Corp. of North America 07/09/96 5,000,000 4,994,122 Associates Corp. of North America 07/12/96 5,000,000 4,991,918 Bell Atlantic Capital Funding Corp. 07/01/96 4,815,000 4,815,000 Bell Atlantic Financial Services, Inc. 07/26/96 10,000,000 9,962,778 BellSouth Telecommunications, Inc. 07/25/96 9,000,000 8,968,320 BellSouth Telecommunications, Inc. 08/27/96 5,000,000 4,957,329 Coca-Cola Co. 07/19/96 5,000,000 4,986,750 Coca-Cola Co. 07/22/96 10,000,000 9,968,967 Commerzbank AG, New York 07/08/96 5,000,000 4,994,828 duPont (E.I.) deNemours & Co. 07/12/96 5,000,000 4,991,887 duPont (E.I.) deNemours & Co. 07/24/96 5,000,000 4,983,006 duPont (E.I.) deNemours & Co. 08/15/96 5,000,000 4,966,563 Emerson Electric Co. 07/23/96 5,000,000 4,983,744 General Electric Co. 07/26/96 6,000,000 5,976,681 General Electric Capital Corp. 08/13/96 5,000,000 4,967,571 General Electric Capital Corp. 01/06/97 5,000,000 4,851,688 Heinz (H.J.) Co. 07/02/96 5,000,000 4,999,267 Heinz (H.J.) Co. 07/18/96 4,500,000 4,488,695 Heinz (H.J.) Co. 07/30/96 5,000,000 4,978,371 Hewlett Packard Co. 07/11/96 5,000,000 4,992,597 Hewlett Packard Co. 07/30/96 5,000,000 4,978,451 Hewlett Packard Co. 08/29/96 4,200,000 4,162,486 (continued on next page) PAGE 4 - ---------------------- Keystone Liquid Trust Maturity Principal Market Date Amount Value - -------------------------------------------------------- ------- ---------- ------------- COMMERCIAL PAPER (continued) Kellogg Co. 07/31/96 $10,400,000 $ 10,353,633 Nestle Capital Corp. 07/02/96 7,000,000 6,998,973 Nestle Capital Corp. 07/16/96 3,100,000 3,093,141 Pitney Bowes Credit Corp. 07/23/96 5,200,000 5,183,285 Proctor & Gamble Co. 07/10/96 10,000,000 9,986,675 Proctor & Gamble Co. 08/28/96 4,500,000 4,460,705 Unilever Capital Corp. (b) 07/09/96 5,000,000 4,994,111 Unilever Capital Corp. (b) 09/03/96 5,500,000 5,446,711 Unilever Capital Corp. (b) 10/15/96 5,000,000 4,919,322 Wal Mart Stores, Inc. 07/01/96 3,825,000 3,825,000 - -------------------------------------------------------- ------- ---------- ------------- TOTAL COMMERCIAL PAPER (Cost--$217,073,278) 217,051,910 - --------------------------------------------------------------------------------- ------------- U.S. GOVERNMENT (AND AGENCY) ISSUES (14.4%) FFCB, 5.30% 08/01/96 7,000,000 6,999,551 FHLB Medium Term Notes, 5.82% 05/01/97 3,000,000 2,997,639 FHLMC Discount Notes 07/03/96 10,000,000 9,997,083 FHLMC Discount Notes 07/15/96 5,000,000 4,989,763 FHLMC Discount Notes 08/05/96 5,000,000 4,974,333 FHLMC Discount Notes 08/22/96 5,000,000 4,961,650 FNMA Discount Notes 08/06/96 5,150,000 5,122,808 FNMA Discount Notes 08/20/96 5,000,000 4,963,056 FNMA Discount Notes 09/10/96 5,000,000 4,947,243 - -------------------------------------------------------- ------- ---------- ------------- TOTAL U.S. GOVERNMENT (AND AGENCY) ISSUES (Cost--$49,956,759) 49,953,126 - --------------------------------------------------------------------------------- ------------- Maturity Value - -------------------------------------------------------- ------- ---------- ------------- REPURCHASE AGREEMENTS (5.6%) Keystone Joint Repurchase Agreement (Investments in repurchase agreements, in a joint trading account, 5.55%, purchased 6/28/96) (c) 07/01/96 $18,008,325 18,000,000 State Street Bank & Trust, Co., 5.00%, purchased 6/28/96 (Collateralized by $1,080,000 U.S. Treasury Bond, 10.75%, due 8/15/05) 07/01/96 1,400,583 1,400,000 - -------------------------------------------------------- ------- ---------- ------------- TOTAL REPURCHASE AGREEMENTS (Cost--$19,400,000) 19,400,000 - --------------------------------------------------------------------------------- ------------- TOTAL INVESTMENTS (COST--$346,432,940) (a) 346,391,197 OTHER ASSETS AND LIABILITIES--NET (-0.1%) (268,054) - --------------------------------------------------------------------------------- ------------- NET ASSETS--(100.0%) $346,123,143 - --------------------------------------------------------------------------------- -------------
PAGE 5 - ---------------------- SCHEDULE OF INVESTMENTS--June 30, 1996 (a) The cost of investments for federal income tax purposes is identical. Gross unrealized appreciation and depreciation of investments, based on identified tax cost, at June 30, 1996 are as follows: Gross unrealized appreciation $ 0 Gross unrealized depreciation (41,743) --------- Net unrealized depreciation $(41,743) ========= (b) Securities that may be resold to "qualified institutional buyers" under Rule 144A or securities offered pursuant to Section 4(2) of the Federal Securities Act of 1933, as amended. These securities have been determined to be liquid under guidelines established by the Board of Trustees. (c) The repurchase agreements are fully collateralized by U.S. government and/or agency obligations based on market prices at June 30, 1996. Legend of Portfolio Abbreviations FFCB--Federal Farm Credit Bank FHLB--Federal Home Loan Bank FHLMC--Federal Home Loan Mortgage Corporation FNMA--Federal National Mortgage Association See Notes to Financial Statements. PAGE 6 - ---------------------- Keystone Liquid Trust FINANCIAL HIGHLIGHTS--CLASS A SHARES (For a share outstanding throughout each year)
Year Ended June 30, ---------------------------------------------------------- 1996 1995 1994 1993 1992 --------------------------------------- ------------ ------- ------- ------- --------- Net asset value beginning of year $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 --------------------------------------- ------------ ------- ------- ------- --------- Income from investment operations: Net investment income .0464 .0454 .0235 .0230 .0386 Net realized and unrealized gain (loss) on investments (.0001) 0 0 (.0001) .0003 --------------------------------------- ------------ ------- ------- ------- --------- Total from investment operations .0463 .0454 .0235 .0229 .0389 --------------------------------------- ------------ ------- ------- ------- --------- Less distributions to shareholders (.0463) (.0454) (.0235) (.0229) (.0389) --------------------------------------- ------------ ------- ------- ------- --------- Net asset value end of year $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 --------------------------------------- ------------ ------- ------- ------- --------- Total return 4.73% 4.63% 2.37% 2.31% 3.96% Ratios/supplemental data Ratios to average net assets: Net investment income 4.66% 4.42% 2.50% 2.29% 3.99% Total expenses 0.98%(a) 0.92% 1.02% 1.11% 1.10% Net assets end of year (thousands) $332,796 $245,308 $398,617 $189,167 $227,115 --------------------------------------- ------------ ------- ------- ------- ---------
Year Ended June 30, ---------------------------------------------------------- 1991 1990 1989 1988 1987 --------------------------------------- ------------ ------- ------- ------- --------- Net asset value beginning of year $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 --------------------------------------- ------------ ------- ------- ------- --------- Income from investment operations: Net investment income .0634 .0760 .0786 .0597 .0524 Net realized and unrealized gain (loss) on investments 0 0 .0001 (.0001) 0 --------------------------------------- ------------ ------- ------- ------- --------- Total from investment operations .0634 .0760 .0787 .0596 .0524 --------------------------------------- ------------ ------- ------- ------- --------- Less distributions to shareholders (.0634) (.0760) (.0787) (.0596) (.0524) --------------------------------------- ------------ ------- ------- ------- --------- Net asset value end of year $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 --------------------------------------- ------------ ------- ------- ------- --------- Total return 6.47% 7.81% 8.18% 6.31% 5.35% Ratios/supplemental data Ratios to average net assets: Net investment income 6.51% 7.53% 7.88% 5.99% 5.30% Total expenses 0.92% 1.00% 1.00% 1.00% 1.00% Net assets end of year (thousands) $400,597 $406,306 $475,640 $461,032 $375,542 --------------------------------------- ------------ ------- ------- ------- ---------
(a) "Ratio of total expenses to average net assets" for the year ended June 30, 1996 includes indirectly paid expenses. Excluding indirectly paid expenses for the year ended June 30, 1996, the expense ratio would have been 0.95%. See Notes to Financial Statements. PAGE 7 - ---------------------- FINANCIAL HIGHLIGHTS--CLASS B SHARES (For a share outstanding throughout each year)
February 1, 1993 Year Ended June 30, (Date of Initial -------------------------------- Public Offering) to 1996 1995 1994 June 30, 1993 - --------------------------------------------- ------------ ------ ------ -------------------- Net asset value beginning of year $ 1.00 $ 1.00 $ 1.00 $ 1.00 - --------------------------------------------- ------------ ------ ------ -------------------- Income from investment operations: Net investment income .0369 .0362 .0142 .0047 Net realized and unrealized loss on investments 0 0 0 (.0001) - --------------------------------------------- ------------ ------ ------ -------------------- Total from investment operations .0369 .0362 .0142 .0046 - --------------------------------------------- ------------ ------ ------ -------------------- Less distributions to shareholders (.0369) (.0362) (.0142) (.0046) - --------------------------------------------- ------------ ------ ------ -------------------- Net asset value end of year $ 1.00 $ 1.00 $ 1.00 $ 1.00 - --------------------------------------------- ------------ ------ ------ -------------------- Total return (c) 3.76% 3.68% 1.43% 0.46% Ratios/supplemental data Ratios to average net assets: Net investment income 3.73% 3.66% 1.84% 1.08%(b) Total expenses 1.91%(a) 1.84% 1.85% 2.15%(b) Net assets end of year (thousands) $10,042 $ 7,281 $11,198 $ 241 - --------------------------------------------- ------------ ------ ------ --------------------
(a) "Ratio of total expenses to average net assets" for the year ended June 30, 1996 includes indirectly paid expenses. Excluding indirectly paid expenses for the year ended June 30, 1996, the expense ratio would have been 1.88%. (b) Annualized. (c) Excluding applicable sales charges. See Notes to Financial Statements. PAGE 8 - ---------------------- Keystone Liquid Trust FINANCIAL HIGHLIGHTS--CLASS C SHARES (For a share outstanding throughout each year)
February 1, 1993 Year Ended June 30, (Date of Initial -------------------------------- Public Offering) to 1996 1995 1994 June 30, 1993 - --------------------------------------------- ------------ ------ ------ -------------------- Net asset value beginning of year $ 1.00 $ 1.00 $ 1.00 $ 1.00 - --------------------------------------------- ------------ ------ ------ -------------------- Income from investment operations: Net investment income .0370 .0362 .0142 .0045 Net realized and unrealized loss on investments (.0001) 0 0 (.0002) - --------------------------------------------- ------------ ------ ------ -------------------- Total from investment operations .0369 .0362 .0142 .0043 - --------------------------------------------- ------------ ------ ------ -------------------- Less distributions to shareholders (.0369) (.0362) (.0142) (.0043) - --------------------------------------------- ------------ ------ ------ -------------------- Net asset value end of year $ 1.00 $ 1.00 $ 1.00 $ 1.00 - --------------------------------------------- ------------ ------ ------ -------------------- Total return (c) 3.75% 3.68% 1.43% 0.43% Ratios/supplemental data Ratios to average net assets: Net investment income 3.72% 3.52% 1.97% 1.01% (b) Total expenses 1.94%(a) 1.82% 1.86% 2.09% (b) Net assets end of year (thousands) $ 3,285 $ 4,112 $ 6,599 $ 34 - --------------------------------------------- ------------ ------ ------ --------------------
(a) "Ratio of total expenses to average net assets" for the year ended June 30, 1996 includes indirectly paid expenses. Excluding indirectly paid expenses for the year ended June 30, 1996, the expense ratio would have been 1.91%. (b) Annualized. (c) Excluding applicable sales charges. See Notes to Financial Statements. PAGE 9 - ---------------------- STATEMENT OF ASSETS AND LIABILITIES June 30, 1996 Assets (Note 1) Investments at market value (identified cost--$346,432,940) $346,391,197 Cash 147,619 Receivable for: Fund shares sold 100 Interest 941,675 Prepaid expenses and other assets 56,798 - ------------------------------------------- ------------- Total assets 347,537,389 - ------------------------------------------- ------------- Liabilities (Note 1) Payable for: Fund shares redeemed 232,880 Distributions to shareholders 1,132,539 Accrued expenses 48,827 - ------------------------------------------- ------------- Total liabilities 1,414,246 - ------------------------------------------- ------------- Net assets $346,123,143 - ------------------------------------------- ------------- Net assets represented by (Note 2) Class A Shares ($1.00 a share on 332,795,671 shares outstanding) $332,795,671 Class B Shares ($1.00 a share on 10,042,074 shares outstanding) 10,042,074 Class C Shares ($1.00 a share on 3,285,398 shares outstanding) 3,285,398 - ------------------------------------------- ------------- $346,123,143 - ------------------------------------------- ------------- Net asset value and offering price per share (Class A, B and C) $1.00 - ------------------------------------------- ------------- STATEMENT OF OPERATIONS Year Ended June 30, 1996 Investment income (Note 1) Interest $15,264,626 - -------------------------------------- --------- ------------ Expenses (Notes 2 and 3) Management fees $1,359,239 Transfer agent fees 759,359 Accounting, auditing and legal fees 52,723 Custodian fees 148,640 Trustees' fees and expenses 34,299 Distribution Plan expenses 278,755 Miscellaneous 149,465 - -------------------------------------- --------- ------------ Total expenses 2,782,480 Less: Expenses paid indirectly (Note 3) (81,434) - -------------------------------------- --------- ------------ Net expenses 2,701,046 - -------------------------------------- --------- ------------ Net investment income 12,563,580 - -------------------------------------- --------- ------------ Net realized and unrealized gain (loss) on investments (Note 1) Net realized gain on investments 4,475 Net change in unrealized depreciation on investments (39,780) - -------------------------------------- --------- ------------ Net realized and unrealized loss on investments (35,305) - -------------------------------------- --------- ------------ Net increase in net assets resulting from operations $12,528,275 - -------------------------------------- --------- ------------ See Notes to Financial Statements. PAGE 10 - ---------------------- Keystone Liquid Trust STATEMENTS OF CHANGES IN NET ASSETS
Year Ended June 30, ----------------------------- 1996 1995 - ------------------------------------------------------------------------------ ----------- -------------- Operations Net investment income $ 12,563,580 $ 16,854,349 Net realized gain (loss) on investments 4,475 (71) Net change in unrealized depreciation on investments (39,780) (685) - ------------------------------------------------------------------------------ ----------- -------------- Net increase in net assets resulting from operations 12,528,275 16,853,593 - ------------------------------------------------------------------------------ ----------- -------------- Distributions to shareholders (Note 1) Class A Shares (12,043,595) (16,168,849) Class B Shares (383,777) (435,508) Class C Shares (100,903) (249,236) - ------------------------------------------------------------------------------ ----------- -------------- Total distributions to shareholders (12,528,275) (16,853,593) - ------------------------------------------------------------------------------ ----------- -------------- Capital share transactions (Note 2) Class A Shares 87,487,588 (153,308,964) Class B Shares 2,760,515 (3,916,029) Class C Shares (826,275) (2,487,651) - ------------------------------------------------------------------------------ ----------- -------------- Net increase (decrease) in net assets resulting from capital share transactions 89,421,828 (159,712,644) - ------------------------------------------------------------------------------ ----------- -------------- Total increase (decrease) in net assets 89,421,828 (159,712,644) Net assets Beginning of year 256,701,315 416,413,959 - ------------------------------------------------------------------------------ ----------- -------------- End of year $346,123,143 $ 256,701,315 - ------------------------------------------------------------------------------ ----------- --------------
See Notes to Financial Statements. PAGE 11 - ---------------------- NOTES TO FINANCIAL STATEMENTS (1.) Summary of Accounting Policies Keystone Liquid Trust (the "Fund") is an open-end diversified investment management company for which Keystone Management, Inc. ("KMI") is the Investment Manager and Keystone Investment Management Company ("Keystone") is the Investment Adviser. The Fund is registered under the Investment Company Act of 1940, as amended (the "1940 Act"). The Fund is a money market mutual fund that seeks high current income from short-term securities while preserving capital and maintaining liquidity. The Fund offers Class A, B, and C shares. Class A shares are offered without an initial sales charge. Class B shares are offered without an initial sales charge, although a contingent deferred sales charge may be imposed at the time of redemption, which decreases depending on when the shares were purchased and how long the shares have been held. Class C shares are offered without an initial sales charge, although a contingent deferred sales charge may be imposed on redemptions within one year of purchase. Class C shares are available only through dealers who have entered into special distribution agreements with Keystone Investment Distributors Company ("KIDC"), the Fund's principal underwriter. Keystone is a wholly-owned subsidiary of Keystone Investments, Inc. ("KII"), a Delaware corporation. KII is a private corporation owned by an investor group consisting predominantly of current and former members of management of Keystone and its affiliates. The following is a summary of significant accounting policies consistently followed by the Fund in the preparation of its financial statements. The policies are in conformity with generally accepted accounting principles, which require management to make estimates and assumptions that affect amounts reported herein. Although actual results could differ from these estimates, any such differences are expected to be immaterial to the net assets of the Fund. Valuation of Securities--Money market investments maturing in sixty days or less are valued at amortized cost (original purchase cost as adjusted for amortization of premium or accretion of discount), which, when combined with accrued interest, approximates market. Money market investments maturing in more than sixty days for which market quotations are readily available are valued at current market value. Money market investments maturing in more than sixty days when purchased that are held on the sixtieth day prior to maturity are valued at amortized cost (market value on the sixtieth day adjusted for amortization of premium or accretion of discount), which, when combined with accrued interest approximates market. Repurchase Agreements--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. The Fund monitors the value of the collateral on a daily basis, and, if the value of the 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 agree- PAGE 12 - ---------------------- Keystone Liquid Trust ment, 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.Keystone Liquid Trust Pursuant to an exemptive order issued by the Securities and Exchange Commission, the Fund, along with certain other Keystone funds, may transfer uninvested cash balances into a joint trading account. These balances are invested in one or more repurchase agreements that are fully collateralized by U.S. Treasury and/or Federal Agency obligations. Distributions--The Fund declares dividends daily, pays dividends monthly and automatically reinvests such dividends in additional shares at net asset value, unless shareholders request payment in cash. Dividends are declared from the total of net investment income, plus realized and unrealized gain (loss) on investments. Securities Transactions and Investment Income--Secu rities transactions are accounted for no later than one business day after the trade date. Realized gains and losses from securities transactions are computed on the identified cost basis. Interest income is recorded on the accrual basis. Federal Income Taxes--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 tax basis investment income and net tax basis 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. (2.) Shares of Beneficial Interest The Fund's Declaration of Trust authorizes the issuance of an unlimited number of shares of beneficial interest without par value. Since the Fund sold, redeemed and reinvested shares at $1.00 net asset value, the shares and dollar amount are the same. Transactions in Fund shares were as follows: Year Ended June 30, Class A Shares 1996 1995 - -------------------------- ------------ -------------- Sales $ 1,105,810,542 $ 725,781,933 Redemptions (1,027,927,276) (892,973,139) Reinvestment of distributions from available sources 9,604,322 13,882,242 - -------------------------- ------------ -------------- Net increase (decrease) $ 87,487,588 $(153,308,964) ========================== ============ ============== Class B Shares - -------------------------- ------------ -------------- Sales $ 31,488,209 $ 30,267,166 Redemptions (29,034,624) (34,518,836) Reinvestment of distributions from available sources 306,930 335,641 - -------------------------- ------------ -------------- Net increase (decrease) $ 2,760,515 $ (3,916,029) ========================== ============ ============== Class C Shares - -------------------------- ------------ -------------- Sales $ 7,581,549 $ 11,924,336 Redemptions (8,502,653) (14,624,256) Reinvestment of distributions from available sources 94,829 212,269 - -------------------------- ------------ -------------- Net decrease $ (826,275) $ (2,487,651) ========================== ============ ============== PAGE 13 - ---------------------- The Fund bears some of the costs of selling its shares under Distribution Plans adopted with respect to its Class A, Class B and Class C shares pursuant to Rule 12b-1 under the 1940 Act. The Fund's Class A Distribution Plan provides for expenditures, which are currently limited to 0.25% annually of the average daily net asset value of Class A shares, to pay expenses associated with the distribution of Class A shares. Amounts paid by the Fund to KIDC under the Class A Distribution Plan are currently used to pay others, such as dealers, service fees at an annual rate of up to 0.25% of the average daily net asset value of Class A shares maintained by such others. The Fund's Class B Distribution Plans provide for expenditures at an annual rate of up to 1.00% of the average daily net asset value of Class B shares to pay expenses associated with the distribution of Class B shares. For Class B shares sold on or after June 1, 1995, amounts paid by the Fund under such shares' Class B Distribution Plan are currently used to pay others (dealers) a commission at the time of purchase normally equal to 4.00% of the price paid for each Class B share sold plus the first year's service fee in advance in the amount of 0.25% of the price paid for each Class B share sold. Beginning approximately 12 months after the purchase of such Class B shares, the dealer or other party will receive service fees at an annual rate of 0.25% of the average daily net asset value of such Class B shares maintained by such others. A contingent deferred sales charge will be imposed, if applicable, on Class B shares purchased on or after June 1, 1995 at rates ranging from a maximum of 5% of amounts redeemed during the first 12 month period from and including the month of purchase to 1% of amounts redeemed during the sixth twelve month period. Class B shares purchased on or after June 1, 1995 that have been outstanding for eight years from and including the month of purchase will automatically convert to Class A shares without a front-end sales charge or exchange fee. Class B shares purchased prior to June 1, 1995 convert to Class A shares after seven years. The Fund's Class C Distribution Plan provides for expenditures at an annual rate of up to 1.00% of the average daily net asset value of Class C shares to pay expenses associated with the distribution of Class C shares. Amounts paid by the Fund under the Class C Distribution Plan are currently used to pay others (dealers) a commission at the time of purchase in the amount of 0.75% of the price paid for each Class C share sold plus the first year's service fee in advance in the amount of 0.25% of the price paid for each Class C share. Beginning approximately 15 months after purchase date, the dealer or other party will receive a commission at an annual rate of 0.75% of the average net asset value (subject to applicable limitations imposed by rules adopted by the National Association of Securities Dealers, Inc.("NASD")) plus service fees at the annual rate of 0.25% of the average net asset value of each Class C share maintained by such others on the Fund's books for specified periods. Each of the Distribution Plans may be terminated at any time by a vote of the Independent Trustees or by vote of a majority of the outstanding voting shares of the respective class. However, after the termination of any Distribution Plan, at the discretion of the Board of Trustees, payments to KIDC may continue as compensation for its services which had been earned while the Distribution Plans were in effect. During the year ended June 30, 1996, the Fund paid or accrued to KIDC $148,564 under its Class A Distribution Plan. During the year ended June 30, 1996 under its Class B Distribution Plans, the Fund PAGE 14 - ---------------------- Keystone Liquid Trust paid or accrued to KIDC $77,113 for Class B shares sold prior to June 1, 1995 and $25,876 for Class B shares sold on or after June 1, 1995. During the year ended June 30, 1996, the Fund paid or accrued $27,202 under its Class C Distribution Plan.Keystone Liquid Trust Under applicable NASD rules, the maximum uncollected amounts for which KIDC may seek payment from the Fund under its Distribution Plans as of June 30, 1996 are $1,069,672 for Class B shares purchased prior to June 1, 1995, $201,443 for Class B shares purchased on or after June 1, 1995, and $1,036,758 for Class C shares. Presently, the Fund's class-specific expenses are limited to Distribution Plan expenses incurred by a class of shares pursuant to its Distribution Plan. (3.) Investment Management Agreement and Other Transactions Under the terms of the Investment Management Agreement between KMI and the Fund, KMI provides investment management and administrative services to the Fund. In return, KMI is paid a management fee computed and paid daily calculated by applying percentage rates, starting at 0.50%, and declining as net assets increase, to 0.40% per annum, to the net asset value of the Fund. KMI has entered into an Investment Advisory Agreement with Keystone under which Keystone provides investment advisory and management services to the Fund and receives for its services an annual fee representing 85% of the management fee received by KMI. During the year ended June 30, 1996, the Fund paid or accrued to KMI investment management and administration services fees of $1,359,239, which represented 0.50% of the Fund's average net assets. Of such amount paid to KMI, $1,155,353 was paid to Keystone for its services to the Fund. During the year ended June 30, 1996, the Fund paid or accrued $17,571 to KII as reimbursement for certain accounting services provided to the Fund. Keystone Investor Resource Center, Inc. ("KIRC"), a wholly-owned subsidiary of Keystone, is the Fund's transfer and dividend disbursing agent. For the year ended June 30, 1996, the Fund paid or accrued $759,359 to KIRC for transfer agent fees. The Fund has entered into an expense offset arrangement with its custodian. For the year ended June 30, 1996, the Fund paid custody fees in the amount of $67,206 and received a credit of $81,434 pursuant to the expense offset arrangement, resulting in a total expense of $148,640. The assets deposited with the custodian under this expense offset arrangement could have been invested in income-producing assets. 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. - ------------------------------------------------------------------------------ FEDERAL TAX STATUS--FISCAL 1996 DISTRIBUTIONS (Unaudited) During the fiscal year ended June 30, 1996, dividends of $0.0463, $0.0369 and $0.0369 per share were paid or are payable to shareholders of Keystone Liquid Trust Class A, B, and C, respectively. All dividends are taxable to shareholders as ordinary income in the year in which received by them or credited to their accounts and are not eligible for the corporate dividend received deduction. In January 1997 we will send you information on the distributions paid during the calendar year to help you in completing your federal tax return. PAGE 15 - ---------------------- INDEPENDENT AUDITORS' REPORT The Trustees and Shareholders Keystone Liquid Trust We have audited the accompanying statement of assets and liabilities of Keystone Liquid Trust, including the schedule of investments, as of June 30, 1996, 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 each of the years in the ten-year period then ended for Class A shares, and for each of the years in the three-year period then ended and the period from February 1, 1993 (date of initial public offering) to June 30, 1993 for Class B and Class C 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 June 30, 1996, by correspondence with the custodian. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our 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 Liquid Trust as of June 30, 1996, 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 July 26, 1996 [back cover] KEYSTONE FAMILY OF FUNDS [diamond] Balanced Fund (K-1) Diversified Bond Fund (B-2) Growth and Income Fund (S-1) High Income Bond Fund (B-4) International Fund Inc. Liquid Trust Mid-Cap Growth Fund (S-3) Precious Metals Holdings, Inc. Quality Bond Fund (B-1) Small Company Growth Fund (S-4) Strategic Growth Fund (K-2) Tax Free Fund This report was prepared primarily for the information of the Fund's shareholders. It is authorized for distribution if preceded or accompanied by the Fund's current prospectus. The prospectus contains important information about the Fund including fees and expenses. Read it carefully before you invest or send money. For a free prospectus on other Keystone funds, contact your financial adviser or call Keystone. [keystone logo] KEYSTONE INVESTMENTS P.O. Box 2121 Boston, Massachusetts 02106-2121 KLT-R-8/96 17.6M [recycle logo] -----END PRIVACY-ENHANCED MESSAGE-----