<PAGE>
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PROSPECTUS OCTOBER 28, 1994
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KEYSTONE LIQUID TRUST
200 BERKELEY STREET, BOSTON, MASSACHUSETTS 02116-5034
CALL TOLL FREE 1-800-343-2898
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Keystone Liquid Trust (the "Fund") is a money market mutual fund that seeks
high current income from short-term securities while preserving capital and
maintaining liquidity.
WHILE THE FUND INTENDS TO MAINTAIN A NET ASSET VALUE PER SHARE OF $1.00,
THERE IS NO ASSURANCE THAT IT WILL BE ABLE TO DO SO. SHARES OF THE FUND ARE
NEITHER INSURED NOR GUARANTEED BY THE U.S. GOVERNMENT.
The Fund offers three classes of 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 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 Distributors, Inc. ("KDI"),
the Fund's principal underwriter. Each class makes service fee payments under a
Distribution Plan pursuant to Rule 12b-1 under the Investment Company Act of
1940 (the "1940 Act"). Both Class B and Class C shares make commission related
payments under their Distribution Plans. See "How to Buy Shares."
This prospectus sets forth concisely the information about the Fund that you
should know before investing. Please read it and retain it for future reference.
Additional information about the Fund is contained in a statement of
additional information dated October 28, 1994, 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 toll free telephone number listed above.
SHARES OF THE FUND ARE NOT DEPOSITS OR OBLIGATIONS OF, OR GUARANTEED OR
ENDORSED BY, ANY BANK, AND SHARES ARE NOT FEDERALLY INSURED BY THE FEDERAL
DEPOSIT INSURANCE CORPORATION, THE FEDERAL RESERVE BOARD, OR ANY OTHER AGENCY.
<TABLE>
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TABLE OF CONTENTS
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Page Page
<S> <C>
Fee Table ................................. 2 Alternative Sales Options ............. 11
Financial Highlights ...................... 3 Distribution Plans .................... 13
Fund Description .......................... 5 How to Redeem Shares .................. 14
Fund Objective and Policies ............... 5 Monthly Distribution Plans ............ 16
Investment Restrictions ................... 6 Shareholder Services .................. 17
Pricing Shares ............................ 7 Performance Data ...................... 18
Dividends and Taxes ....................... 8 Fund Shares ........................... 18
Fund Management and Expenses .............. 8 Additional Information ................ 18
How to Buy Shares ......................... 10 Additional Investment Information....... (i)
</TABLE>
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THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
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<PAGE>
FEE TABLE
KEYSTONE LIQUID TRUST
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.
<TABLE>
<CAPTION>
CLASS A SHARES CLASS B SHARES CLASS C SHARES
NO LOAD BACK END LEVEL LOAD
SHAREHOLDER TRANSACTION EXPENSES OPTION LOAD OPTION<F1> OPTION<F2>
--------- --------- ---------
<S> <C> <C> <C>
Sales Charge ...................................... None None None
(as a percentage of offering price)
Contingent Deferred Sales Charge .................. 0.00% 3.00% in the first year 1.00% in the first
(as a percentage of the lesser of cost or market declining to 1.00% in the year and 0.00%
value of shares redeemed) fourth year and 0.00% thereafter
thereafter
Exchange Fee (per exchange)<F3> ................... $10.00 $10.00 $10.00
ANNUAL FUND OPERATING EXPENSES<F4>
(as a percentage of average net assets)
Management Fees ................................... 0.50% 0.50% 0.50%
12b-1 Fees ........................................ 0.09% 1.00%<F5> 1.00%<F5>
Other Expenses .................................... 0.43% 0.35% 0.36%
---- ---- ----
Total Fund Operating Expenses ..................... 1.02% 1.85% 1.86%
==== ==== ====
<CAPTION>
EXAMPLES<F6> 1 YEAR 3 YEARS 5 YEARS 10 YEARS
------ ------- ------- --------
<S> <C> <C> <C> <C>
You would pay the following expenses on a $1,000 investment, assuming (1)
5% annual return and (2) redemption at the end of each period:
Class A ................................................................... $10.00 $32.00 $ 56.00 $125.00
Class B ................................................................... $49.00 $68.00 $100.00 N/A
Class C ................................................................... $29.00 $58.00 $101.00 $218.00
You would pay the following expenses on a $1,000 investment, assuming no
redemption at the end of each period:
Class A ................................................................... $10.00 $32.00 $ 56.00 $125.00
Class B ................................................................... $19.00 $58.00 $100.00 N/A
Class C ................................................................... $20.00 $58.00 $101.00 $218.00
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.
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<FN>
<F1>Class B Shares convert tax free to Class A shares after seven calendar
years.
<F2>Class C shares are available only through dealers who have entered into
special distribution agreements with Keystone Distributors, Inc., the Fund's
principal underwriter.
<F3>There is no exchange fee for exchange orders received by the Fund from
individual investors over the Keystone Automated Response Line ("KARL").
(For a description of KARL, see "Shareholder Services.")
<F4>Expense ratios are for the Fund's fiscal year ended June 30, 1994.
<F5>Long term shareholders may pay more than the economic equivalent of the
maximum front end sales charges otherwise permitted by the National
Association of Securities Dealers, Inc. ("NASD").
<F6>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%.
</TABLE>
<PAGE>
FINANCIAL HIGHLIGHTS
KEYSTONE LIQUID TRUST
CLASS A SHARES
(For a share outstanding throughout the year)
The following table contains significant financial information with respect
to the Fund and has been audited by KPMG Peat Marwick LLP, the Fund's
independent auditors. The table has been taken from 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 auditors' report, in the Fund's
Annual Report. The Fund's financial statements, related notes, and 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>
YEAR ENDED JUNE 30,
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1994 1993 1992 1991 1990 1989 1988 1987 1986 1985
------ ------ ------ ------ ------ ------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE,
BEGINNING OF YEAR.. $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
Income from investment
operations
Investment income --
net ............... .0235 .0230 .0386 .0634 .0760 .0786 .0597 .0524 .0667 .0860
Realized gain (loss)
on investments .... -0- (.0001) .0003 -0- -0- .0001 (.0001) -0- (.0002) .0003
------ ------ ------ ------ ------ ------ ------ ------ ------ ------
Total from investment
operations ........ .0235 .0229 .0389 .0634 .0760 .0787 .0596 .0524 .0665 .0863
------ ------ ------ ------ ------ ------ ------ ------ ------ ------
LESS DISTRIBUTIONS
Dividends from above
sources ........... (.0235) (.0229) (.0389) (.0634) (.0760) (.0787) (.0596) (.0524) (.0665) (.0863)
------ ------ ------ ------ ------ ------ ------ ------ ------ ------
NET ASSET VALUE, END
OF YEAR ........... $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
====== ====== ====== ====== ====== ====== ====== ====== ====== ======
TOTAL RETURN ........ 2.37% 2.31% 3.96% 6.47% 7.81% 8.18% 6.31% 5.35% 6.85% 8.95%
RATIOS/SUPPLEMENTAL DATA
Ratios to average net
assets:
Investment income
-- net .......... 2.50% 2.29% 3.99% 6.51% 7.53% 7.88% 5.99% 5.30% 6.67% 8.69%
Operating and
management
expenses ........ 1.02% 1.11% 1.10% 0.92% 1.00% 1.00% 1.00% 1.00% 1.00% 1.00%
Net assets, end of
year (thousands) .. $398,617 $189,167 $227,115 $400,597 $406,306 $475,640 $461,032 $375,542 $326,149 $219,563
</TABLE>
<PAGE>
FINANCIAL HIGHLIGHTS
KEYSTONE LIQUID TRUST
CLASS B AND C SHARES
(For a share outstanding throughout the period)
The following table contains significant financial information with respect
to the Fund and has been audited by KPMG Peat Marwick LLP, the Fund's
independent auditors. The table has been taken from 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 auditors' report, in the Fund's
Annual Report. The Fund's financial statements, related notes, and 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>
CLASS B SHARES CLASS C SHARES
------------------------------------------- -------------------------------------------
FEBRUARY 1, 1993 FEBRUARY 1, 1993
(DATE OF INITIAL (DATE OF INITIAL
YEAR ENDED PUBLIC OFFERING) TO YEAR ENDED PUBLIC OFFERING) TO
JUNE 30, 1994 JUNE 30, 1993 JUNE 30, 1994 JUNE 30, 1993
------------- ------------------- ------------- -------------------
<S> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING
OF PERIOD.................... $ 1.00 $ 1.00 $ 1.00 $ 1.00
Income from investment operations
Investment income -- net....... .0142 .0047 .0142 .0045
Realized gain (loss) on
investments ................. -0- (.0001) -0- (.0002)
------ ------ ------ ------
Total from investment
operations .................. .0142 .0046 .0142 .0043
------ ------ ------ ------
LESS DISTRIBUTIONS
Dividends from above sources .. (.0142) (.0046) (.0142) (.0043)
------ ------ ------ ------
NET ASSET VALUE,
END OF PERIOD................ $ 1.00 $ 1.00 $ 1.00 $ 1.00
====== ====== ====== ======
TOTAL RETURN................... 1.43% 0.46% 1.43% 0.43%
RATIOS/SUPPLEMENTAL DATA
Ratios to average net assets:
Investment income -- net .... 1.84% 1.08%* 1.97% 1.01%*
Operating and management
expenses ................... 1.85% 2.15%* 1.86% 2.09%*
Net assets, end of period
(thousands) ................. $11,198 $ 241 $ 6,599 $ 34
*Annualized.
</TABLE>
<PAGE>
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FUND DESCRIPTION
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The Fund (formerly American Liquid Trust) is an open-end, diversified
management investment company, commonly known as a mutual fund. The Fund has
been operating continuously since May 22, 1975, when it was created under
Massachusetts law as a Massachusetts business trust. The Fund is one of twenty
funds managed by Keystone Management, Inc. ("Keystone Management"), the Fund's
investment manager and is one of thirty-one funds managed or advised by Keystone
Custodian Funds, Inc. ("Keystone"), the Fund's investment adviser. Keystone and
Keystone Management are, from time to time, also collectively referred to as
"Keystone."
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FUND OBJECTIVE AND POLICIES
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The Fund's investment objective is to provide shareholders with high current
income from short-term money market instruments while emphasizing preservation
of capital and maintaining excellent liquidity. The Fund pursues this objective
by investing in money market instruments maturing in 397 days or less. Such
instruments include (1) commercial paper, including master demand notes; (2)
obligations issued or guaranteed by the United States ("U.S.") government or by
any U.S. agency or instrumentality; (3) obligations, including certificates of
deposit and bankers' acceptances of banks or savings and loan associations
having at least $1 billion in assets as of the date of their most recently
published financial statements that are members of the Federal Deposit Insurance
Corporation, including U.S. branches of foreign banks and foreign branches of
U.S. banks; and (4) corporate obligations that at the date of investment are
rated AA or better by Standard & Poor's Corporation ("S&P") or Aa or better by
Moody's Investor's Service, Inc. ("Moody's"). The Fund may invest up to 100% of
its assets in U.S. government securities, obligations of domestic branches of
U.S. banks and repurchase agreements of such banks.
The Fund will limit its investments, including repurchase agreements, to
those U.S. dollar-denominated instruments that Keystone determines present
minimal credit risk and are at the time of acquisition eligible securities
("Eligible Securities") as defined under Rule 2a-7 of the 1940 Act. Eligible
Securities include (1) securities rated by the requisite rating agencies at the
date of investment in one of the two highest short-term rating categories; (2)
securities of issuers receiving such rating with respect to other short-term
debt securities; and (3) comparable unrated securities. Requisite rating
agencies means any two agencies that have issued a rating with respect to a
security or class of debt obligations of an issuer or one rating agency, if only
one agency has issued a rating with respect to such security or issuer. If the
Fund purchases securities that are unrated or that have been rated by a single
rating agency, the purchase must be approved or ratified by the Fund's Board of
Trustees.
The short-term ratings are as follows: A-1 and A-2, the two highest ratings
given by S&P; Prime-1 and Prime-2, the two highest ratings given by Moody's; and
F-1 and F-2, the two highest ratings given by Fitch Investors Service, Inc.
("Fitch").
While the Fund may purchase single rated or unrated securities, the Fund
anticipates that at least 95% of its assets will be invested in instruments that
at the date of investment are rated or deemed to be of comparable quality to
securities rated in the highest short-term rating categories by any two rating
agencies. The Fund will not invest more than 5% of its assets in securities
issued by any one issuer, except for securities issued or guaranteed by the U.S.
government, its agencies or instrumentalities. The Fund will not invest more
than 5% of its assets in securities rated in the second highest short-term
rating category.
The Fund may invest in restricted securities, including securities eligible
for resale pursuant to Rule 144A under the Securities Act of 1933 (the "1933
Act"). Generally, Rule 144A establishes a safe harbor from the registration
requirements of the 1933 Act for resales by large institutional investors of
securities not publicly traded in the U.S. The Fund may purchase Rule 144A
securities when such securities present an attractive investment opportunity and
otherwise meet the Fund's selection criteria. The Board of Trustees has adopted
guidelines and procedures pursuant to which the liquidity of the Fund's Rule
144A securities is determined by Keystone and monitors Keystone's implementation
of such guidelines and procedures.
At the present time, the Fund cannot accurately predict exactly how the
market for Rule 144A securities will develop. A Rule 144A security that was
readily marketable upon purchase may subsequently become illiquid. In such an
event, the Board of Trustees will consider what action, if any, is appropriate.
The Fund is designed for individuals and institutions, including counselors,
brokers, lawyers, accountants, charitable and religious organizations and others
acting in a fiduciary, advisory, agency, custodial or similar capacity. The Fund
offers a convenient alternative to investing directly in money market
instruments by eliminating the mechanical problems normally associated with
direct investments while, most importantly, providing the opportunity to obtain
the higher yields often available from money market investments made in large
denominations.
Investors should consider that, because interest rates on money market
instruments fluctuate in response to economic factors, the rates on short-term
investments made by the Fund and the daily dividend paid to shareholders will
vary, rising or falling with short-term rates generally, and that yields from
short-term securities may be lower than yields from longer term securities.
Also, the value of the Fund's securities will fluctuate inversely with interest
rates, the amount of outstanding debt and other factors. In addition, the Fund's
investments in certificates of deposit issued by U.S. branches of foreign banks
and foreign branches of U.S. banks involve somewhat more risk, but also more
potential reward (higher interest rates), than investments in comparable
domestic obligations.
The Fund may enter into reverse repurchase agreements and purchase and sell
securities on a when issued or delayed delivery basis.
The securities in which the Fund may invest may not earn as high a level of
current income as longer term or lower quality securities, which generally have
less liquidity, greater market risk and more price fluctuation.
The average weighted maturity of the Fund's investments will not exceed 90
days.
For further information about the types of investments and investment
techniques available to the Fund, including the risks associated with such
investments and investment techniques, see the section of this prospectus
entitled "Additional Investment Information" and the statement of additional
information.
There can, of course, be no assurance that the Fund will achieve its
investment objective since there is uncertainty in every investment.
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INVESTMENT RESTRICTIONS
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The Fund has adopted the fundamental restrictions set forth below, which may
not be changed without the vote of a majority of the Fund's outstanding shares.
These restrictions and certain other fundamental restrictions are set forth in
the statement of additional information. Unless otherwise stated, all references
to the Fund's assets are in terms of current market value.
The Fund will not (1) invest more than 5% of its assets in the securities of
any one issuer other than the U.S. government; (2) borrow money, except that, in
an aggregate amount not to exceed one-third of the Fund's assets, including the
amount borrowed, the Fund may borrow money from banks on a temporary basis or
enter into reverse repurchase agreements; (3) pledge more than 15% of its assets
to secure borrowings; and (4) invest more than 10% of its assets in repurchase
agreements maturing in more than seven days.
The Fund intends to follow policies of the Securities and Exchange
Commission as they are adopted from time to time with respect to illiquid
securities, including, at this time, (1) treating as illiquid, securities which
may not be sold or disposed of in the ordinary course of business within seven
days at approximately the value at which the Fund has valued the investment on
its books and (2) limiting its holdings of such securities to less than 10% of
net assets.
In order to comply with Securities and Exchange Commission regulations
relating to money market funds, the Fund will apply the 5% limit of assets
invested in the securities of any one issuer, set forth in the first investment
restriction above, to 100% of the Fund's assets.
As a matter of practice, the Fund treats reverse repurchase agreements as
borrowings for purposes of compliance with the limitations of the 1940 Act.
Reverse repurchase agreements will be taken into account along with borrowings
from banks for purposes of the one-third limit set forth in the second
investment restriction above.
If and when the Fund invests in zero coupon bonds, the Fund does not expect
to have enough zero coupon bonds to have a material effect on dividends. The
Fund has undertaken to a state securities authority to disclose that zero coupon
securities pay no interest to holders prior to maturity, and the interest on
these securities is reported as income to the Fund and distributed to its
shareholders. These distributions must be made from the Fund's cash assets or,
if necessary, from the proceeds of sales of portfolio securities. The Fund will
not be able to purchase additional income producing securities with cash used to
make such distributions and its current income ultimately may be reduced as a
result.
In addition, the Fund may, notwithstanding any other investment policy or
restriction, invest all of its assets in the securities of a single open-end
management investment company with substantially the same fundamental investment
objectives, policies and restrictions as the Fund. The Fund does not currently
intend to implement this policy and would do so only if the Trustees were to
determine such action to be in the best interest of the Fund and its
shareholders. In the event of such implementation, the Fund will comply with
such requirements as to written notice to shareholders as are then in effect.
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PRICING SHARES
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The net asset value of a Fund share is computed each day on which the New
York Stock Exchange (the "Exchange") is open as of the close of trading on the
Exchange (currently 4:00 p.m. Eastern time for the purpose of pricing Fund
shares) except on days when changes in the value of the Fund's securities do not
affect the current net asset value of its shares. The Exchange is currently
closed on weekends, New Year's Day, Presidents' Day, Good Friday, Memorial Day,
Independence Day, Labor Day, Thanksgiving Day and Christmas Day. The net asset
value per share of the Fund is arrived at by determining the value of all of the
Fund's assets, subtracting its liabilities and dividing the result by the number
of its outstanding shares.
Since the net income of the Fund is declared as a dividend each time net
income is determined, the net asset value per share is expected to remain at
$1.00 immediately after each dividend declaration. The Fund expects to have net
income at the time of each dividend determination. If for any reason there is a
net loss, the Fund will first offset such amount pro rata against dividends
accrued during the month in each shareholder account. To the extent that such a
net loss would exceed such accrued dividends, the Fund will reduce the number of
its outstanding shares by having each shareholder contribute to the Fund's
capital his pro rata portion of the total number of shares required to be
cancelled in order to maintain a net asset value of $1.00 per share of the Fund.
EACH SHAREHOLDER WILL BE DEEMED TO HAVE AGREED TO SUCH A CONTRIBUTION IN THESE
CIRCUMSTANCES BY HIS INVESTMENT IN THE FUND.
The Fund values its money market investments as follows: (1) money market
investments maturing in 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; and (2) money market
investments maturing in more than sixty days for which market quotations are
readily available at current market value. All other investments are valued at
market value or, where market quotations are not readily available, at fair
value as determined in good faith by the Fund's Board of Trustees.
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DIVIDENDS AND TAXES
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The Fund has qualified and intends to qualify in the future as a regulated
investment company under the Internal Revenue Code. The Fund qualifies if, among
other things, it distributes to its shareholders at least 90% of its net
investment income for its fiscal year. The Fund also intends to make timely
distributions, if necessary, sufficient in amount to avoid the nondeductible 4%
excise tax imposed on a regulated investment company when it fails to
distribute, with respect to each calendar year, at least 98% of its ordinary
income for such calendar year and 98% of its net capital gains for the one-year
period ending on October 31 of such calendar year. Any taxable distributions
would be (1) declared by December 31 to shareholders of record in December, (2)
paid by the following January 31, and (3) includable in the taxable income of
the shareholder for the year in which such distributions were 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. The Fund declares dividends daily from its net investment
income, including realized and unrealized gains and losses, and distributes to
its shareholders all of such income monthly. Because Class B and Class C shares
bear the costs of distribution of their shares through a higher annual
distribution fee than Class A shares, expenses attributable to Class B shares
and Class C shares will generally be higher, and income distributions paid by
the Fund with respect to Class A shares will generally be greater, than those
paid with respect to Class B and Class C shares.
Distributions will be automatically invested in additional shares of the
Fund unless the shareholder elects to receive them in cash. For federal income
tax purposes, income dividends and net short-term gains distributions are
taxable as ordinary income, and net long-term gains are taxable as capital gains
to shareholders who are subject to taxes on their income. Dividends and
distributions may also be subject to state and local taxes. The Fund advises its
shareholders annually as to the federal tax status of all distributions made
during the year.
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FUND MANAGEMENT AND EXPENSES
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FUND MANAGEMENT
Subject to the general supervision of the Fund's Board of Trustees, Keystone
Management, located at 200 Berkeley Street, Boston, Massachusetts 02116-5034,
serves as investment manager to the Fund and is responsible for the overall
management of the Fund's business and affairs. Keystone Management, organized in
1989, is a wholly-owned subsidiary of Keystone. Its directors and principal
executive officers have been affiliated with Keystone, a seasoned investment
adviser, for a number of years. Keystone Management also serves as investment
manager to each of the Keystone Custodian Funds and to certain other funds in
the Keystone Group of Mutual Funds.
The Fund pays Keystone Management a fee for its services at the following
annual rate:
(1) .50 of 1% of the average daily value of the net assets of the Fund on
the first $500,000,000 of such assets; plus
(2) .45 of 1% of the average daily value of the net assets of the Fund
that exceed $500,000,000 and are less than $1,000,000,000; plus
(3) .40 of 1% of the average daily value of the net assets of the Fund
that are $1,000,000,000 or more
computed and accrued as of the close of each business day.
Pursuant to its Management Agreement with the Fund, Keystone Management has
delegated its investment management functions, except for certain administrative
and management services to be performed by Keystone Management, to Keystone and
has entered into an Advisory Agreement with Keystone under which Keystone
provides investment advisory and management services to the Fund. Services
performed by Keystone Management include (1) performing research and planning
with respect to (a) the Fund's qualification as a regulated investment company
under Subchapter M of the Code, (b) tax treatment of the Fund's portfolio
investments, (c) tax treatment of special corporate actions (such as
reorganizations), (d) state tax matters affecting the Fund, and (e) the Fund's
distributions of income and capital gains; (2) preparing the Fund's federal and
state tax returns; (3) providing services to the Fund's shareholders in
connection with federal and state taxation and distributions of income and
capital gains; and (4) storing documents relating to the Fund's activities.
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 Group, Inc. ("Keystone Group"), located at 200 Berkeley
Street, Boston, Massachusetts 02116-5034.
Keystone Group is a corporation privately owned by current and former
members of management of Keystone and its affiliates. The shares of Keystone
Group 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
Group provides accounting, bookkeeping, legal, personnel and general corporate
services to Keystone Management, Keystone, their affiliates and the Keystone
Group of Mutual Funds.
Pursuant to its Advisory Agreement with Keystone Management, Keystone
receives for its services an annual fee representing 85% of the management fee
received by Keystone Management under its Management Agreement with the Fund.
During the fiscal year ended June 30, 1994, the Fund paid or accrued to
Keystone Management investment management fees and administrative service fees
of $1,407,708, which represented 0.50% of the Fund's average net assets. Of such
amount paid to Keystone Management, $1,196,552 was paid to Keystone for its
services to the Fund.
FUND EXPENSES
In addition to the investment advisory and management fees discussed above,
the principal expenses that the Fund is expected to pay include, but are not
limited to, expenses of its transfer agent, its custodian and its independent
auditors; fees of its independent Trustees ("Independent Trustees"); expenses of
shareholders' and Trustees' meetings; fees payable to government agencies,
including registration and qualification fees of the Fund and its shares under
federal and state securities laws; expenses of preparing, printing and mailing
Fund prospectuses, notices, reports and proxy material and certain extraordinary
expenses. In addition, each class will pay all of the expenses attributable to
it. Such expenses are currently limited to Distribution Plan expenses. The Fund
will also pay its brokerage commissions, interest charges and taxes.
During the fiscal year ended June 30, 1994, the Fund paid or accrued to
Keystone Group and Keystone Investor Resource Center, Inc. ("KIRC"), the Fund's
transfer and dividend disbursing agent, $24,977 for the cost of certain
accounting and printing services. The Fund paid KIRC $856,617 for shareholder
services. KIRC is a wholly-owned subsidiary of Keystone.
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-dealers. In addition, broker-dealers may, from time
to time, be affiliated with the Fund, Keystone Management, Keystone, the Fund's
principal underwriter or their affiliates.
PORTFOLIO TURNOVER
The Fund will not trade in securities for short-term profits, but, when
circumstances warrant, securities may be sold without regard to the length of
time held.
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HOW TO BUY SHARES
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KDI, a wholly-owned subsidiary of Keystone, located at 200 Berkeley Street,
Boston, Massachusetts 02116-5034, serves as the Fund's principal underwriter
("Principal Underwriter").
Shares are sold on a continuing basis without a sales load at net asset
value, which is expected to be $1.00 per share on each day on which banks in
both Boston and New York are open for business. An initial purchase of Fund
shares must be at least $1,000. There is no minimum amount for subsequent
purchases.
Investors may purchase shares by the methods described below.
BY FEDERAL RESERVE OR BANK WIRE (immediate credit for purchase of funds)
Instruct your bank to forward federal funds to:
State Street Bank and Trust Co. -- Boston
ABA #0110-0002-8
Keystone Liquid Trust No. 0127-654-2
Shareholder Account Name (As registered
Shareholder Account Number with the Fund)
Attn: Dept. H.L.
To open a new account, please observe the following procedures:
(1) The wire must (a) carry the account name as it is to be registered and
(b) state that it is a "new account." An account number will be assigned
when the account is opened.
(2) A completed application and order form must be mailed to the Fund at the
address shown at the top of the form. The completed form may be sent
after the wire.
The minimum amount for subsequent wire investments is $2,500. Some banks may
charge for wires.
BY CHECK
Make your check or negotiable bank draft payable to "Keystone Liquid Trust,"
include the check with a completed application and mail to:
Keystone Investor Resource Center, Inc.
P.O. Box 2121
Boston, MA 02106-2121
For subsequent purchases be sure to include the detachable purchase stub
from your account statement.
GENERAL
Brokers, banks and other financial institutions may assist their clients in
effecting transactions in the Fund's shares and may charge a fee for these
services.
Orders for the purchase of Fund shares become effective at the next
transaction time after federal funds or bank wire monies become available to
State Street Bank and Trust Company ("State Street") for a shareholder's
investment. The Fund's transaction time is the close of trading on the Exchange
(currently 4:00 p.m. Eastern time). Investments by wire received before 4:00
p.m. will become effective as of 4:00 p.m. and begin accruing dividends the next
business day. Purchase orders are accepted only on a day on which the Exchange
and State Street are open for business.
Money transmitted by a check drawn on a member of the Federal Reserve System
is converted to federal funds in one or two business days following receipt.
Checks drawn on banks that are not members of the Federal Reserve System may
take longer. Investments by checks that are scheduled for conversion to federal
funds on a given day will become effective as of 4:00 p.m. and receive the
dividend on Fund shares declared as of 4:00 p.m. on the following day. All
payments other than in federal funds (including checks from individual
investors) must be in U.S. dollars.
Your purchase of shares will be confirmed to you and your shares credited to
your account at the net asset value. Share certificates are not issued, except
upon the written request of a shareholder. Certificates are not issued for
fractional shares. Certificate shares are not eligible for the checking,
telephone, or monthly or quarterly redemption procedures. The Fund reserves the
right to reject any purchase order.
If you desire assistance in filling out the application form or have
questions, call KIRC toll free at 1-800-343-2898.
SUB-ACCOUNTING
The Fund offers free "sub-accounting" service to banks, brokers, investment
advisers and others who have multiple accounts. Multiple accounts may be carried
under one master account. Transaction advices and monthly reports are provided
for each sub-account individually, and that information also is included in
summary master account reports. For information concerning sub-accounting,
telephone or wire the Fund.
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ALTERNATIVE SALES OPTIONS
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The Fund offers three classes of shares:
CLASS A SHARES -- NO LOAD OPTION
Class A shares are sold without a sales charge at the time of purchase.
CLASS B SHARES -- BACK END LOAD OPTION
Class B shares are sold without a sales charge at the time of purchase, but
are subject to a deferred sales charge if they are redeemed in the calendar
years of purchase or within three calendar years after the calendar year of
purchase. Class B shares will automatically convert to Class A shares at the end
of seven calendar years after purchase.
CLASS C SHARES -- LEVEL LOAD OPTION
Class C shares are sold without a sales charge at the time of purchase, but
are subject to a deferred sales charge if they are redeemed within one year
after the date of purchase. Class C shares are available only through dealers
who have entered into special distribution agreements with KDI.
Each class of shares, pursuant to its Distribution Plan, pays an annual
service fee of 0.25% of the Fund's average daily net assets attributable to that
class. In addition to the 0.25% service fee, the Class B and C Distribution
Plans provide for the payment of an annual distribution fee of up to 0.75% of
the average daily net assets attributable to their respective classes. As a
result, income distributions paid by the Fund with respect to Class B and Class
C shares will generally be less than those paid with respect to Class A shares.
The three classes of shares of the Fund have been established so that
investors in each class of any Keystone America Fund who wish to take advantage
of the exchange privilege within the Keystone America Family can have a money
market fund exchange option available to them. Investors purchasing shares of
the Fund without regard to the availability of exchanges should consider Class A
shares because there is no distribution fee. (In the event of an exchange for
Class A shares of a Keystone America Fund, the applicable front end sales charge
will be imposed.) Investors who wish to have the ability to exchange their
shares for Class B or Class C shares of other Keystone America Funds should
consider purchasing Class B or Class C shares of the Fund, depending on the
amount and intended length of the investment. The Fund will not normally accept
any purchase of Class B shares in the amount of $250,000 or more, and will not
normally accept any purchase of Class C shares in the amount of $1,000,000 or
more.
CLASS A SHARES
Class A shares are offered at net asset value without an initial sales
charge.
CLASS A DISTRIBUTION PLAN
The Fund has adopted a Distribution Plan with respect to its Class A shares
("Class A Distribution Plan") that 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 KDI 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 recipients and outstanding on the books of the Fund for specified periods.
CLASS B SHARES
Class B shares are offered at net asset value without an initial sales
charge. With certain exceptions, the Fund may impose a deferred sales charge of
3.00% on shares redeemed during the calendar year of purchase and the first
calendar year after the year of purchase; 2.00% on shares redeemed during the
second calendar year after the year of purchase; and 1.00% on shares redeemed
during the third calendar year after the year of purchase. No deferred sales
charge is imposed on amounts redeemed thereafter. If imposed, the deferred sales
charge is deducted from the redemption proceeds otherwise payable to you. The
deferred sales charge is retained by KDI. Amounts received by KDI under the
Class B Distribution Plan are reduced by deferred sales charges retained by KDI.
See "Calculation of Contingent Deferred Sales Charge and Waiver of Sales
Charges" below.
Class B shares which have been outstanding during seven calendar years will
automatically convert to Class A shares, which are subject to a lower
Distribution Plan charge, without imposition of a front end sales charge or
exchange fee. (Conversion of Class B shares represented by share certificates
will require the return of the share certificates to KIRC.) The Class B shares
so converted will no longer be subject to the higher expenses borne by Class B
shares. Under current law, it is the Fund's opinion that such a conversion will
not constitute a taxable event under federal income tax law. In the event that
this ceases to be the case, the Board of Trustees will consider what action, if
any, is appropriate and in the best interests of the Class B shareholders.
CLASS B DISTRIBUTION PLAN
The Fund has adopted a Distribution Plan with respect to its Class B shares
("Class B Distribution Plan") that provides 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 of the distribution of Class B shares. Amounts paid by the Fund under
the Class B Distribution Plan are currently used to pay others (dealers) (1) a
commission at the time of purchase normally equal to 3.00% of the value of each
share sold; and/or (2) service fees at an annual rate of 0.25% of the average
daily net asset value of shares maintained by such recipients and outstanding on
the books of the Fund for specified periods. See "Distribution Plans" below.
CLASS C SHARES
Class C shares are available only through dealers who have entered into
special distribution agreements with KDI. Class C shares are offered at net
asset value without an initial sales charge. With certain exceptions, the Fund
may impose a deferred sales charge of 1.00% on shares redeemed within one year
after the date of purchase. No deferred sales charge is imposed on amounts
redeemed thereafter. If imposed, the deferred sales charge is deducted from the
redemption proceeds otherwise payable to you. The deferred sales charge is
retained by KDI. See "Calculation of Contingent Deferred Sales Charge and Waiver
of Sales Charges" below.
CLASS C DISTRIBUTION PLAN
The Fund has adopted a Distribution Plan with respect to its Class C shares
("Class C Distribution Plan") that 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 of the distribution of Class C shares. Amounts paid by the Fund under
the Class C Distribution Plan are currently used to pay others (dealers) (1) a
payment at the time of purchase normally equal to 1.00% of the value of each
share sold, such payment to consist of a commission in the amount of 0.75% plus
the first year's service fee in advance in the amount of 0.25%; and (2)
beginning approximately fifteen months after purchase, a commission at an annual
rate of 0.75% (subject to NASD rules -- see "Distribution Plans") plus service
fees at an annual rate of 0.25%, respectively, of the average daily net asset
value of each share maintained by such recipients and outstanding on the books
of the Fund for specified periods. See "Distribution Plans" below.
CALCULATION OF CONTINGENT DEFERRED SALES CHARGE AND WAIVER OF SALES CHARGES
Any contingent deferred sales charge imposed upon the redemption of Class B
or Class C shares is a percentage of the lesser of (1) the net asset value of
the shares redeemed or (2) the net cost of such shares. No contingent deferred
sales charge is imposed when you redeem amounts derived from (1) increases in
the value of your account above the net cost of such shares due to increases in
the net asset value per share of the Fund; (2) certain shares with respect to
which the Fund did not pay a commission on issuance, including shares acquired
through reinvestment of dividend income and capital gains distributions; (3)
Class C shares held for more than one year from the date of purchase; or (4)
Class B shares held during more than four consecutive calendar years.Upon
request for redemption, shares not subject to the contingent deferred sales
charge will be redeemed first. Thereafter, shares held the longest will be the
first to be redeemed.
The Fund also may sell Class A, Class B or Class C shares at net asset value
without a contingent deferred sales charge to certain Directors, Trustees,
officers and employees of the Fund and Keystone and certain of their affiliates,
to registered representatives of firms with dealer agreements with KDI and to a
bank or trust company acting as a trustee for a single account.
In addition, no contingent deferred sales charge is imposed on a redemption
of shares of the Fund in the event of (1) death or disability of the
shareholder; (2) a lump-sum distribution from a 401(k) plan or other benefit
plan qualified under the Employee Retirement Income Security Act of 1974
("ERISA"); (3) automatic withdrawals from ERISA plans if the shareholder is at
least 59 1/2 years old; (4) involuntary redemptions of accounts having an
aggregate net asset value of less than $1,000; or (5) automatic withdrawals
under an automatic withdrawal plan of up to 1 1/2% per month of the
shareholder's initial account balance.
ARRANGEMENTS WITH BROKER-DEALERS AND OTHERS
KDI may, from time to time, provide promotional incentives, including
reallowance of up to the entire sales charge, to certain dealers whose
representatives have sold or are expected to sell significant amounts of Fund
shares. In addition, dealers may from time to time receive additional cash
payments. KDI may also 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 NASD.
KDI also may pay banks and other financial services firms that facilitate
transactions in shares of the Fund for their clients a transaction fee up to the
level of the payments made allowable to dealers for the sale of such shares as
described above. 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.
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DISTRIBUTION PLANS
- ------------------------------------------------------------------------------
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. Payments under the Class A Distribution Plan
are currently limited to up to 0.25% annually of the average daily net asset
value of Class A shares. The Class B Distribution Plan and the Class C
Distribution Plan provide for expenditures at an annual rate of up to 1.00% of
the average daily net asset value of Class B shares and Class C shares,
respectively.
NASD rules limit the amount that a 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 such distribution costs and 0.25% may
be used to pay shareholder service fees. NASD rules also limit the aggregate
amount which 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 (less any contingent deferred sales
charges paid by shareholders to KDI).
KDI intends, but is not obligated, to continue to pay or accrue distribution
charges incurred in connection with the Class B Distribution Plan that exceed
current annual payments permitted to be received by KDI from the Fund. KDI
intends to seek full payment of such charges from the Fund (together with annual
interest thereon at the prime rate plus one percent) at such time in the future
as, and to the extent that, payment thereof by the Fund would be within the
permitted limits.
Each of the Distribution Plans may be terminated at any time by vote of the
Independent Trustees or by vote of a majority of the outstanding voting shares
of the respective class. After the termination of the Class B Distribution Plan,
KDI would be entitled to receive payment, at the annual rate of 1.00% of the
average daily net asset value of Class B shares, as compensation for its
services which had been earned at any time during which the Class B Distribution
Plan was in effect. Such unreimbursed distribution expenses at June 30, 1994 for
Class B shares were $668,772 (5.97% of Class B net assets). Unreimbursed
distribution expenses at June 30, 1994 for Class C shares were $508,698.
For the year ended June 30, 1994, the Fund paid KDI $243,607, $34,127 and
$25,089 in Distribution Plan fees for Class A, Class B and Class C,
respectively. These fees represent 0.09%, 1.00% and 1.00% of the average net
assets of Class A, B, and C shares, respectively.
Dealers or others may receive different levels of compensation depending on
which class of shares they sell. Payments pursuant to a Distribution Plan are
included in the operating expenses of the class.
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HOW TO REDEEM SHARES
- ------------------------------------------------------------------------------
Shareholders may redeem Fund shares at their net asset value, expected to be
a constant $1.00 per share, next determined after receipt by the Fund of a
proper redemption request as described below. Shareholders may use one or more
of the methods listed below to redeem shares. Shareholders wishing to use a
redemption method other than the mail must complete the appropriate portions of
the Fund's application and may be asked to provide additional documentation as
more fully described under "Applications" below.
At various times, the Fund may be requested to redeem shares for which it
has not yet received good payment. In such a case, the Fund will mail the
redemption proceeds upon clearance of the purchase check, which may take up to
15 days or more. Any delay may be avoided by purchasing shares either with a
certified check or by bank wire of funds.
When requesting a redemption, a shareholder should state the redemption
amount. The redemption order should also include the account name as registered
with the Fund and the account number.
If a shareholder withdraws the entire amount in his or her account at any
time during the month, all dividends declared but not yet paid on the
shareholder's shares will be paid at the time of such withdrawal. Any former
shareholder, when reinvesting, should indicate his or her former account number
on the application or correspondence.
BY CHECK
If requested, the Fund will establish a checking account for each class of
shares held by the shareholder with State Street. Checks may be drawn for $500
or more payable to anyone. When a check is presented to State Street for
payment, it will cause the Fund to redeem at the net asset value next determined
a sufficient number of the shareholder's shares to cover the check. A
shareholder thereby receives the daily dividends declared on the shares to be
redeemed to cover the check through the day State Street instructs the Fund to
redeem them. There is currently no charge to the shareholder for this checking
account.
BY TELEPHONE
A shareholder may redeem any amount from his or her account by calling toll-
free 1-800-343-2898 or by using the Keystone Automated Response Line ("KARL").
(See the "Shareholder Services" section of this prospectus for a description of
KARL.)
In order to insure that instructions received by KIRC are genuine when you
initiate a telephone transaction, you will be asked to verify certain criteria
specific to your account. At the conclusion of the transaction, you will be
given a transaction number confirming your request, and written confirmation of
your transaction will be mailed the next business day. Your telephone
instructions will be recorded. Redemptions by telephone are allowed only if the
address and bank account of record have been the same for a minimum period of 30
days.
If the redemption proceeds are less than $2,500, they will be mailed by
check. If they are $2,500 or more, they will be mailed or wired to your
previously designated bank account as you direct. If you do not specify how you
wish your redemption proceeds to be sent, they will be mailed by check.
If you cannot reach the Fund by telephone, you should follow the procedures
for redeeming by mail or through a broker as set forth herein.
BY MAIL
A shareholder may withdraw any amount from his or her account at any time by
mail. Written requests for withdrawal, accompanied by properly endorsed
certificates, if issued, should be sent to the Fund, c/o KIRC. Each written
request for redemption and all accompanying certificates must be signed by the
shareholder with SIGNATURES GUARANTEED in the manner prescribed under
"Applications" below. Further documentation may be required from corporations,
fiduciaries, partnerships and other shareholders.
When a written redemption request is received, the Fund redeems the required
amount at the net asset value next determined. Redemption proceeds are normally
mailed by check the next business day. If instructed in the written redemption
request, the Fund will mail the check to a designated account at the
shareholder's bank.
APPLICATIONS
In order to use any of the foregoing redemption methods other than by mail,
or to change the authority of any person to make redemptions under any such
method, a shareholder must sign and complete the appropriate portions of the
Fund's application. Shareholders other than individuals who wish to use any of
the other redemption methods may be required to provide other documentation. An
application accompanies this prospectus. Applications are also available from
the Fund by calling toll-free 1-800-343-2898 or by writing KIRC. When a
shareholder submits an application, the Fund will notify the shareholder of any
additional documents it requires to permit the shareholder to use the redemption
methods the shareholder has designated.
If the designated redemption methods are to be used for the shareholder's
existing account, or if the authority of a person to make redemptions under any
of the redemption methods is being changed (including a change in a signature on
a signature card for a checking account), the shareholder's signature on the
application (or the signature card) must be guaranteed by a member firm of the
New York, American, Boston, Midwest or Pacific Stock Exchanges, by any U.S.
national banking association or by other persons eligible to guarantee
signatures under the Securities Exchange Act of 1934 and KIRC's policies.
SMALL ACCOUNTS
Because of the high cost of maintaining small accounts, the Fund reserves
the right to redeem your account if its value has fallen below $1,000, the
current minimum investment level, as a result of your redemptions (but not as a
result of market action). You will be notified in writing and allowed 60 days to
increase the value of your account to the minimum investment level.
GENERAL
The checking account described in this prospectus will be subject to State
Street's rules and regulations governing checking accounts. If there is an
insufficient number of shares in a shareholder's account when a check is
presented to State Street for payment, the check will be returned. If a
shareholder presents a check on his or her account in person to State Street, it
will be treated as a redemption by mail received that day.
Since the aggregate amount in a shareholder's account changes each day
because of the daily dividend, a shareholder should not attempt to withdraw the
full amount in his or her account by using a check.
For Fund purposes, a business day (during which purchases and redemptions of
Fund shares can become effective and the transmittal of redemption proceeds can
occur) is any day the Exchange is open for trading that is not an official bank
holiday for the Fund's custodian bank. The right of redemption may be suspended
or the date of payment postponed (1) for any period during which the Exchange is
closed, other than customary weekend and holiday closings; (2) when trading on
the Exchange is restricted or an emergency exists, as determined by the
Securities and Exchange Commission; or (3) when the Securities and Exchange
Commission has ordered such a suspension for the protection of shareholders.
Subject to the limitation described above for shares purchased by check,
redemption proceeds are normally wired or mailed either the same or the next
business day, but in no event later than seven days after receipt of a proper
redemption request unless redemptions have been suspended or postponed as
described above.
The value of a shareholder's investment at the time of redemption may be
more or less than his or her cost depending on the market value of the
securities held by the Fund at such time and the income earned.
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 fees. State Street reserves the right, at any
time, to terminate, suspend or change the terms of the offered checking account
and to impose fees.
Except as otherwise noted, neither the Fund, KIRC nor KDI assumes
responsibility for the authenticity of any instructions received by any of them
from a shareholder in writing, over KARL or by telephone. KIRC will employ
reasonable procedures to confirm that instructions received over KARL or by
telephone are genuine. Neither the Fund, KIRC nor KDI will be liable when
following instructions received over KARL or by telephone that KIRC reasonably
believes to be genuine.
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MONTHLY DISTRIBUTION PLANS
- ------------------------------------------------------------------------------
Without affecting the shareholder's right to use any of the methods of
redemption described above, a shareholder may also elect to participate in the
plans described below.
AUTOMATIC EXCHANGE PLAN
Subject to any applicable exchange restrictions, you may elect to have a
prestated amount automatically exchanged from your Fund account to any other
Keystone fund. This exchange may be made either monthly or quarterly. There is a
$100 minimum for each exchange, and there may be a minimal charge for each
transaction. Upon written notice, you may change the amount to be exchanged, the
frequency or the fund designated to receive such exchanges.
AUTOMATIC WITHDRAWAL PLAN
Under the Fund's Automatic Withdrawal Plan, shareholders may request that
they receive a monthly check in any specified amount of $100 or more. Upon
written notice, the frequency and amount of such payments may be changed by the
shareholder at any time. Depending upon the amount requested to be paid, the
Fund's yield and the size of the shareholder's account, the specified
distribution may in part include some return of capital. If the return of
capital is continued it may possibly exhaust the shareholder's investment in the
Fund.
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SHAREHOLDER SERVICES
- ------------------------------------------------------------------------------
KEYSTONE AUTOMATED RESPONSE LINE
The Keystone Automated Response Line offers shareholders specific fund
account information and price and yield quotations as well as the ability to
effect account transactions, including investments, exchanges and redemptions.
Shareholders may access KARL by dialing toll free 1-800-346-3858 on any touch-
tone telephone, 24 hours a day, seven days a week.
EXCHANGES
Generally speaking, if you have obtained the appropriate prospectus you may
exchange shares of the Fund for shares of any of the Keystone Custodian Funds,
Keystone Precious Metals Holdings, Inc. ("KPMH"), Keystone International Fund
Inc. ("KIF"), Keystone Tax Exempt Trust ("KTET") or Keystone Tax Free Fund
("KTFF"). This exchange privilege may be restricted for shareholders wishing to
exchange Fund shares that the shareholder acquired in a prior exchange
transaction using shares of any Keystone Custodian Fund, KPMH, KIF, KTET or
KTFF.
A Fund shareholder exchanging into any such Keystone fund acquires his or
her shares subject to the sales charges, deferred sales charges or other fees
imposed by the new fund as they may apply.
In addition, you may exchange shares of the Fund for shares of Keystone
America Funds as follows:
Class A shares may be exchanged for Class A shares of certain Keystone
America Funds;
Class B shares may be exchanged for Class B shares of certain Keystone
America Funds; and
Class C shares may be exchanged for Class C shares of certain Keystone
America Funds.
The exchange of Class B shares and Class C shares will not be subject to a
contingent deferred sales charge. However, if the shares being tendered for
exchange are:
(i) Class B shares which have been held for less than four years, or
(ii) Class C shares which have been held for less than one year,
and are still subject to a deferred sales charge, such charge will carry over to
the shares being acquired in the exchange transaction.
You may exchange shares by calling toll free 1-800-343-2898, by writing KIRC
or by calling KARL.
Fund shares purchased by check may be exchanged for shares of the named
funds, other than KPMH, KTET or KTFF, after 15 days provided good payment for
the purchase of Fund shares has been collected. In order to exchange Fund shares
for shares of KPMH, KTET or KTFF, a shareholder must have held Fund shares for a
period of six months.
You may exchange your shares for another Keystone fund for a $10 fee by
calling or writing to Keystone. The exchange fee is waived for individual
investors who make an exchange using KARL. Shares of the Fund purchased directly
and not by prior exchange into the Fund are not subject to an exchange fee upon
exchange into another fund. The Fund reserves the right to change the fee
charged for any exchange.
Orders for exchanges received by the Fund prior to 4:00 p.m. on any day the
funds are open for business will be executed at the respective net asset values
determined as of the close of business that day. Orders for exchanges received
after 4:00 p.m. on any business day will be executed at the respective net asset
values determined at the close of the next business day.
An excessive number of exchanges may be disadvantageous to the Fund.
Therefore, the Fund, in addition to its right to reject any exchange, reserves
the right to terminate the exchange privilege of any shareholder who makes more
than five exchanges of shares of the funds in a year or three in a calendar
quarter.
An exchange order must comply with the requirements for a redemption or
repurchase order and must specify the dollar value or number of shares to be
exchanged. Exchanges are subject to the minimum initial purchase requirements of
the fund being acquired. An exchange constitutes a sale for federal income tax
purposes.
The exchange privilege is available only in states where shares of the fund
being acquired may legally be sold.
RETIREMENT PLANS
The Fund has various pension and profit-sharing plans available to
investors, including Individual Retirement Accounts ("IRAs"); Rollover IRAs;
Simplified Employee Pension Plans ("SEPs"); Tax Sheltered Annuity Plans
("TSAs"); 401(k) Plans; Keogh Plans; Corporate Profit-Sharing Plans, Pension and
Target Benefit Plans; Money Purchase Pension Plans and Salary-Reduction Plans.
For details, including fees and application forms, call toll free 1-
800-247-4075 or write to KIRC.
AUTOMATIC INVESTMENT PLAN
Shareholders may take advantage of investing on an automatic basis by
establishing an automatic investment plan. Additional investments are drawn on a
shareholder's checking account monthly and used to purchase Fund shares.
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PERFORMANCE DATA
- ------------------------------------------------------------------------------
From time to time the Fund may advertise "yield" and "effective yield." BOTH
YIELD FIGURES ARE BASED ON HISTORICAL EARNINGS AND ARE NOT INTENDED TO INDICATE
FUTURE PERFORMANCE. Yields are calculated separately for each class of shares of
the Fund. The "yield" of a class refers to the income generated by an investment
in the Fund over a seven-day period (which period will be stated in the
advertisement). This income is then "annualized." That is, the amount of income
generated by the investment during that week is assumed to be generated each
week over a 52-week period and is shown as a percentage of the investment. The
"effective yield" is calculated similarly but, when annualized, the income
earned by an investment in the Fund is assumed to be reinvested. The "effective
yield" will be slightly higher than the "yield" because of the compounding
effect of this assumed reinvestment.
The Fund may also include comparative performance information for each class
of shares in advertising or marketing the Fund's shares, such as data from
Lipper Analytical Services, Inc. or other industry publications.
- ------------------------------------------------------------------------------
FUND SHARES
- ------------------------------------------------------------------------------
The Fund currently issues three 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; (3) each class
has different exchange privileges; and (4) each class has a different
designation. When issued and paid for, the shares will be fully paid and
nonassessable by the Fund. Shares may be exchanged as explained under
"Shareholder Services," but will have no other preference, conversion, exchange
or preemptive rights. Shareholders are entitled to one vote for each full share
owned and fractional votes for fractional shares. Shares of the Fund vote
together except when required by law to vote separately by class. Shares are
redeemable, transferable and freely assignable as collateral.
- ------------------------------------------------------------------------------
ADDITIONAL INFORMATION
- ------------------------------------------------------------------------------
KIRC, 101 Main Street, Cambridge, Massachusetts 02142-1519, is a wholly-
owned subsidiary of Keystone and serves as the Fund's transfer agent and
dividend disbursing agent.
When the Fund determines from its records that more than one account in the
Fund is registered in the name of a shareholder or shareholders having the same
address, upon written notice to those shareholders, the Fund intends, when an
annual report or semi-annual report of the Fund is required to be furnished, to
mail one copy of such report to that address.
Except as otherwise stated in this prospectus or required by law, the Fund
reserves the right to change the terms of the offer stated in this prospectus
without shareholder approval, including the right to impose or change fees for
services provided.
<PAGE>
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ADDITIONAL INVESTMENT INFORMATION
- ------------------------------------------------------------------------------
DESCRIPTION OF CERTAIN INVESTMENTS AND
INVESTMENT TECHNIQUES AVAILABLE TO THE FUND
COMMERCIAL PAPER
The Fund's investments in commercial paper are limited to those rated A-1 by
S&P, Prime-1 by Moody's or F-1 by Fitch. These are the highest ratings assigned
by such rating services.
OBLIGATIONS OF FOREIGN BRANCHES OF UNITED STATES BANKS
The obligations of foreign branches of U.S. banks may be general obligations
of the parent bank in addition to the issuing branch, or may be limited by the
terms of a specific obligation and by government regulation. Payment of interest
and principal upon these obligations may also be affected by governmental action
in the country of domicile of the branch (generally referred to as sovereign
risk). In addition, evidences of ownership of such securities may be held
outside the U.S., and the Fund may be subject to the risks associated with the
holding of such property overseas. Various provisions of federal law governing
domestic branches do not apply to foreign branches of domestic banks.
OBLIGATIONS OF UNITED STATES BRANCHES OF FOREIGN BANKS
Obligations of U.S. branches of foreign banks may be general obligations of
the parent bank in addition to the issuing branch or may be limited by the terms
of a specific obligation and by federal and state regulation as well as by
governmental action in the country in which the foreign bank has its head
office. In addition, there may be less publicly available information about a
U.S. branch of a foreign bank than about a domestic bank.
MASTER DEMAND NOTES
Master demand notes are unsecured obligations that permit the investment of
fluctuating amounts by the Fund at varying rates of interest pursuant to direct
arrangements between the Fund, as lender, and the issuer, as borrower. Master
demand notes may permit daily fluctuations in the interest rate and daily
changes in the amount borrowed. The Fund has the right to increase the amount
under the note at any time up to the full amount provided by the note agreement
or to decrease the amount, and the borrower may repay up to the full amount of
the note without penalty. Notes purchased by the Fund permit the Fund to demand
payment of principal and accrued interest at any time (on not more than seven
days' notice). Notes acquired by the Fund may have maturities of more than one
year, provided that (1) the Fund is entitled to payment of principal and accrued
interest upon not more than seven days' notice, and (2) the rate of interest on
such notes is adjusted automatically at periodic intervals which normally will
not exceed 31 days but may extend up to one year. The notes are deemed to have a
maturity equal to the longer of the period remaining to the next interest rate
adjustment or the demand notice period. Because these types of notes are direct
lending arrangements between the lender and the borrower, such instruments are
not normally traded, and there is no secondary market for these notes, although
they are redeemable and thus repayable by the borrower at face value plus
accrued interest at any time. Accordingly, the Fund's right to redeem is
dependent on the ability of the borrower to pay principal and interest on
demand. In connection with master demand note arrangements, Keystone considers,
under standards established by the Fund's Board of Trustees, earning power, cash
flow and other liquidity ratios of the borrower and will monitor the ability of
the borrower to pay principal and interest on demand. These notes typically are
not rated by credit rating agencies. Unless rated, the Fund will invest in them
only if the issuer meets the criteria established for commercial paper discussed
in the Statement of Additional Information, which limit such investments to
commercial paper rated A-1 by S&P, Prime-1 by Moody's and F-1 by Fitch.
REPURCHASE AGREEMENTS
The Fund may enter into repurchase agreements with member banks of the
Federal Reserve System which have 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 are required to 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. The seller under a repurchase agreement will be
required to maintain the value of the securities subject to the agreement at not
less than the repurchase price, and such value will be 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 which provide
for settlement within a year and usually within seven days. Securities subject
to repurchase agreements will be held by the Fund's custodian or in the Federal
Reserve book entry system. The Fund does not bear the risk of a decline in the
value of the underlying security unless the seller defaults under its repurchase
obligation. In the event of a bankruptcy or other default of a seller of a
repurchase agreement, the Fund could experience both delays in liquidating the
underlying securities and losses including (1) possible declines in the value of
the underlying securities during the period while the Fund seeks to enforce its
rights thereto; (2) possible subnormal levels of income and lack of access to
income during this period; and (3) expenses of enforcing its rights. The Board
of Trustees has established procedures to evaluate the creditworthiness of each
party with whom the Fund enters into repurchase agreements by setting guidelines
and standards of review for Keystone and monitoring Keystone's actions with
regard to repurchase agreements.
REVERSE REPURCHASE AGREEMENTS
Under a reverse repurchase agreement, the Fund would sell securities and
agree to repurchase them at a mutually agreed upon date and price. The Fund
intends to enter into reverse repurchase agreements to avoid otherwise having to
sell securities during unfavorable market conditions in order to meet
redemptions. At the time the Fund enters into a reverse repurchase agreement, it
will establish a segregated account with the Fund's custodian containing liquid
assets 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 which 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. This is the factor known as leverage. 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.
"WHEN ISSUED" SECURITIES
The Fund may purchase securities on a when issued or delayed delivery basis
and may purchase or sell securities on a forward commitment basis. When issued
or delayed delivery transactions arise when securities are purchased by the Fund
with payment and delivery taking place in the future in order to secure what is
considered to be an advantageous price and yield to the Fund at the time of
purchase. A forward commitment transaction is an agreement by the Fund to
purchase or sell securities at a specified future date. When the Fund engages in
when issued and delayed delivery transactions, the Fund relies on the buyer or
seller, as the case may be, to consummate the sale. Failure to do so may result
in the Fund missing the opportunity to obtain a price or yield considered to be
advantageous. When issued and delayed delivery transactions may be expected to
occur a month or more before delivery is due. However, no payment or delivery is
made by the Fund until it receives payment or delivery from the other party to
the transaction. The Securities and Exchange Commission has established certain
requirements to assure that the Fund is able to meet its obligations under these
contracts; for example, a separate account of liquid assets equal to the value
of such purchase commitments may be maintained until payment is made. When
issued and delayed delivery agreements are subject to risks from changes in
value based upon changes in the level of interest rates and other market
factors, both before and after delivery. The Fund does not accrue any income on
such securities or currencies prior to their delivery. To the extent the Fund
engages in when issued and delayed delivery transactions, it will do so for the
purpose of acquiring portfolio securities consistent with its investment
objectives and policies and not for the purpose of investment leverage. The Fund
currently does not intend to invest more than 5% of its assets in when issued or
delayed delivery transactions.
<PAGE>
CERTIFICATE OF RESOLUTIONS
INSTRUCTIONS: Please fill in all information requested. Any change in the
information must be made by a new Certificate of Resolutions.
1. VOTED: That STATE STREET BANK AND TRUST COMPANY, Boston, Massachusetts
("State Street"), its successors or assigns, be and hereby is designated a
depository of this corporation or business trust, and is authorized and
directed to pay and to charge to the account of this corporation or business
trust without limit as to amount and without inquiry as to circumstance of
issue or disposition of the proceeds, even if drawn or endorsed to any
signing or endorsing officer or other officer of this corporation or
business trust or tendered in payment of the individual obligation of any
such officer or for his credit or for deposit to his personal account, any
and all checks, drafts, notes, bills of exchange, or other orders for the
payment of money upon State Street, its successors or assigns, or payable at
the office thereof and signed on behalf of this corporation or business
trust by any ________________ of its following officers, to wit (insert
titles of officers rather than their names):
___________________________________________________________________________
___________________________________________________________________________
___________________________________________________________________________
___________________________________________________________________________
___________________________________________________________________________
___________________________________________________________________________
2. VOTED: That __________________ is hereby authorized from time to time (a) to
(Title)
complete and execute on behalf of this corporation or business trust one or
more applications issued by Keystone Liquid Trust substantially in the form
attached to its current prospectus and (b) to designate the bank and account
referred to under Paragraph F-2, TELEPHONE REDEMPTIONS of such application.
3. VOTED: That the preceding votes shall remain in full force and effect until
terminated by a subsequent vote and until written notice signed by the
Secretary (Clerk) of this corporation or business trust of such subsequent
vote is delivered in the case of Vote 1 to State Street and in the case of
Vote 2 to Keystone Liquid Trust.
I, _______________________________, (Secretary) (Clerk) of ______________
_____________________, a corporation or business trust organized under the
laws of the State of __________________________ do hereby certify that the
above votes were duly adopted by the Board of Directors or Trustees of said
corporation or business trust on the _______ day of _________19__, in
conformity with its Charter (or Trust Agreement) and By-Laws and are in full
force and effect.
I further certify that the following persons are authorized to act in
accordance with the foregoing vote, that the signatures set opposite their
names are their true and correct signatures and that they have been duly
elected or appointed to the offices in this corporation or business trust,
if any, set opposite their names:
________________________ _________________________ ________________________
Name Signature Title
________________________ _________________________ ________________________
Name Signature Title
In witness whereof, I hereunto set my hand and the seal of said corporation or
business trust this ________ day of ____________________ 19 _____.
*Confirmed:
_________________________________ _________________________________
Secretary
Clerk
_________________________________
(Title)
*If the Secretary, Clerk or other recording officer is authorized to act by the
above resolutions, this certificate must be signed by another officer.
<PAGE>
KEYSTONE CUSTODIAN
FAMILY OF FUNDS
B-1 High Grade Bond Fund
B-2 Diversified Bond Fund
B-4 High Income Bond Fund
K-1 Balanced Income Fund
K-2 Strategic Growth Fund
S-1 Blue Chip Stock Fund
S-3 Capital Growth Fund
S-4 Small Company Growth Fund
International Fund
Precious Metals Holdings
Tax Free Fund
Tax Exempt Trust
Liquid Trust
KEYSTONE
Distributors, Inc.
200 Berkeley Street
Boston, Massachusetts 02116-5034
KLT-P 10/94
15M
KEYSTONE
LIQUID TRUST
PROSPECTUS AND
APPLICATION
<PAGE>
STATEMENT OF ADDITIONAL INFORMATION
KEYSTONE LIQUID TRUST
OCTOBER 28, 1994
This statement of additional information is not a prospectus, but
relates to, and should be read in conjunction with, the prospectus of Keystone
Liquid Trust (the "Fund") dated October 28, 1994. A copy of the prospectus may
be obtained from Keystone Distributors, Inc. ("KDI"), the Fund's principal
underwriter ("Principal Underwriter"), 200 Berkeley Street, Boston, MA
02116-5034.
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TABLE OF CONTENTS
- -------------------------------------------------------------------------------
Page
The Fund's Objective and Policies 2
Investment Restrictions 2
Valuation and Redemption of Securities 4
Distributions and Taxes 4
Yield Quotations 5
Sales Charges 6
Distribution Plans 8
Trustees and Officers 11
Declaration of Trust 17
Investment Manager 18
Investment Adviser 21
Principal Underwriter 22
Brokerage 23
Additional Information 25
Appendix A-1
Financial Statements F-1
Independent Auditors' Report F-12
<PAGE>
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THE FUND'S OBJECTIVE AND POLICIES
- -------------------------------------------------------------------------------
The Fund's investment objective is to provide shareholders with high current
income from short-term money market instruments while emphasizing preservation
of capital and maintaining excellent liquidity. The Fund pursues this objective
by investing in securities maturing in 397 days or less. See the Appendix to
this statement of additional information for descriptions of instruments in
which the Fund may invest.
- -------------------------------------------------------------------------------
INVESTMENT RESTRICTIONS
- -------------------------------------------------------------------------------
None of the restrictions enumerated below may 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 will not do the
following:
(1) invest more than 25% of its assets in the securities of issuers in any
single industry, exclusive of securities issued by banks or securities issued or
guaranteed by the United States ("U.S.") government, its agencies or
instrumentalities;
(2) invest more than 5% of its assets in the securities of any one issuer,
including repurchase agreements with any one bank or dealer, exclusive of
securities issued or guaranteed by the U.S. Government, its agencies or
instrumentalities;
(3) invest in more than 10% of the outstanding securities of any one issuer,
exclusive of securities issued or guaranteed by the U.S. government, its
agencies or instrumentalities;
(4) borrow money, except that, in an aggregate amount not to exceed
one-third of the Fund's assets, including the amount borrowed, the Fund may (1)
borrow money from banks on a temporary basis; or (2) enter into reverse
repurchase agreements; amounts borrowed shall be used exclusively to facilitate
the orderly maturation and sale of portfolio securities during any periods of
abnormally heavy redemption requests, if they should occur;
(5) pledge, hypothecate or in any manner transfer as security for
indebtedness any securities owned or held by the Fund, except as may be
necessary in connection with any borrowing mentioned above and in an aggregate
amount not to exceed 15% of the Fund's assets;
(6) make loans, provided that the Fund may purchase money market securities
or enter into repurchase agreements;
(7) enter into repurchase agreements if, as a result thereof, more than 10%
of the Fund's assets would be subject to repurchase agreements maturing in more
than seven days;
(8) make investments for the purpose of exercising control over any issuer;
(9) purchase securities of other investment companies, except in connection
with a merger, consolidation, acquisition or reorganization;
(10) invest in real estate, other than money market securities secured by
real estate or interests therein, or money market securities issued by companies
which invest in real estate or interests therein, commodities or commodity
contracts, interests in oil, gas or other mineral exploration or development
programs; except that the Fund may engage in currency or other financial futures
contracts and related options transactions;
(11) purchase any securities on margin;
(12) make short sales of securities or maintain a short position or write,
purchase or sell puts, calls, straddles, spreads or combinations thereof;
(13) invest in securities of issuers, other than agencies and
instrumentalities of the U.S. Government, having a record, together with
predecessors, of less than three years of continuous operation if more than 5%
of the Fund's assets would be invested in such securities;
(14) purchase or retain securities of an issuer if those officers or
Trustees of the Fund or Keystone who individually own more than 1/2% of the
outstanding securities of such issuer, together own more than 5% of the
securities of such issuer; and
(15) act as an underwriter of securities.
In order to comply with regulations adopted by the Securities and Exchange
Commission relating to money market funds, the Fund will apply the 5% limit of
assets invested in the securities of any one issuer, set forth in the third
investment restriction above, to 100% of the Fund's assets.
The Fund intends to follow policies of the Securities and Exchange
Commission as they are adopted from time to time with respect to illiquid
securities, including, at this time (1) treating as illiquid securities which
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 less than 10% of
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 the value of a security or
a decrease in Fund assets is not a violation of the limit.
While not a fundamental policy of the Fund, and in order to maintain its
registration in one state, the Fund will not pledge or hypothecate more than 10%
of its assets.
- -------------------------------------------------------------------------------
VALUATION AND REDEMPTION OF SECURITIES
- -------------------------------------------------------------------------------
Current value for the Fund's portfolio securities is determined in the
following manner: 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 and money market investments maturing in more than sixty
days for which market quotations are readily available are valued at current
market value. The money market securities in which the Fund invests are traded
primarily in the over-the-counter market and are valued at the mean between most
recent bid and asked prices or yield equivalent as obtained from dealers that
make markets in such securities. Investments for which market quotations are not
readily available, or for which the markets establishing the most recent bid and
asked prices are closed or inactive, are valued at fair value as determined
pursuant to procedures established in good faith by the Fund's Board of
Trustees.
The Fund has obligated itself 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 at the beginning of such period.
- -------------------------------------------------------------------------------
DISTRIBUTIONS AND TAXES
- -------------------------------------------------------------------------------
Net income of the Fund (net investment income plus realized and unrealized
gain (loss) on investments) is determined as of the close of trading on the New
York Stock Exchange (the "Exchange") (currently 4:00 p.m. Eastern time for the
purpose of pricing Fund shares) on each day that the Exchange is open for
trading (or at such other times as the Trustees may determine). The net income
so determined is thereupon declared as a dividend. Dividends are distributed on
the last business day of each month in the form of additional, full and
fractional shares at the rate of one share for each $1.00 distributed or, at the
election of the shareholder, in cash.
As long as the Fund remains qualified as a regulated investment company for
federal income tax purposes, it is not subject to income taxes by Massachusetts,
which is the state of its organization and the location of its principal office.
- -------------------------------------------------------------------------------
YIELD QUOTATIONS
- -------------------------------------------------------------------------------
The current yield of each class of the Fund, as it appears here and as it
may appear from time to time in advertisements, is calculated by determining the
net change exclusive of capital changes (all realized and unrealized gains and
losses) in the value of a hypothetical pre-existing account having a balance of
one share at the beginning of the period, dividing the net change in account
value by the value of the account at the beginning of the base period to obtain
the base period return, multiplying the base period return by (365/7) and
carrying the resulting current yield figure to the nearest hundredth of one
percent. The determination of net change in account value reflects the value of
additional shares purchased with the dividends from the original share and
dividends declared on both the original share and any such additional shares and
all fees charged to shareholder accounts in proportion to the length of the base
period and the average account size of a class.
If realized and unrealized gains and losses were included in the calculation
of the current yield, the current yield of a class of the Fund might vary
materially from that reported in advertisements. For the seven day period ended
June 30, 1994, the current yields of Class A, Class B and Class C were 3.24%,
2.33% and 2.33%, respectively.
In addition to the current yield of a class, its effective yield may appear,
from time to time, in advertisements. The effective yield will be calculated by
compounding the unannualized base period return by adding 1, raising the sum to
a power equal to 365 divided by 7, subtracting 1 from the result and carrying
the resulting effective yield figure to the nearest hundredth of one percent.
For the seven day period ended June 30, 1994, the effective yields of Class A,
Class B and Class C were 2.37%, 1.43% and 1.43%, respectively.
The current and effective yields, as quoted in such advertisements, will not
be based on information as of a date more than fourteen days prior to the date
of their publication. Each yield will vary depending on market conditions.
Principal is not insured. Each yield also depends on the quality, maturity and
type of instruments held in the Fund and operating expenses. The advertisements
will include, among other things, the length of and the date of the last day in
the base period used in computing the quotation.
The Fund may also include comparative performance information for each class
in advertising or marketing the Fund's shares, such as data from Lipper
Analytical Services, Inc. or other industry publications.
The yield of any investment is generally a function of quality and maturity,
type of investment and operating expenses. The current yield of a class of the
Fund will fluctuate from time to time and is not necessarily representative of
future results.
Current yield information is useful in reviewing the Fund's performance, but
because current yield will fluctuate, such information may not provide a basis
for comparison with bank deposits or other investments that pay a fixed yield
for a stated period of time. An investor's principal is not guaranteed by the
Fund.
- -------------------------------------------------------------------------------
SALES CHARGES
- -------------------------------------------------------------------------------
GENERAL
The Fund offers three classes of shares. Class A shares are offered at net
asset value without a sales charge ("No Load Option"). Class B shares are sold
subject to a contingent deferred sales charge payable upon redemption within
three calendar years after the year of purchase. ("Back End Load Option"). Class
B shares which have been outstanding during seven calendar years will
automatically convert to Class A shares, without imposition of a front end sales
charge. (Conversion of Class B shares represented by share certificates will
require the return of the share certificates to Keystone Investor Resource
Center, Inc. ("KIRC"), the Fund's transfer and dividend disbursing agent, Class
C shares are sold subject to a contingent deferred sales charge payable upon
redemption within one year after purchase ("Level Load Option"). Class C shares
are available only through dealers who have entered into special distribution
agreements with KDI, the Fund's Principal Underwriter. The Prospectus contains a
general description of how investors may buy shares of the Fund, as well as a
description of applicable contingent deferred sales charges.
CONTINGENT DEFERRED SALES CHARGE
In order to reimburse the Fund for certain expenses relating to the sale of
its shares, a contingent deferred sales charge may be imposed at the time of
redemption of certain Fund shares (other than Class A shares), as follows:
CLASS B SHARES
With certain exceptions, the Fund may impose a deferred sales charge of
3.00% on shares redeemed during the calendar year of purchase and during the
first calendar year after purchase; 2.00% on shares redeemed during the second
calendar year after purchase; and 1.00% on shares redeemed during the third
calendar year after purchase. No deferred sales charge is imposed on amounts
redeemed thereafter. If imposed, the deferred sales charge is deducted from the
redemption proceeds otherwise payable to you. The deferred sales charge is
retained by KDI. See "Calculation of Contingent Deferred Sales Charge" below.
CLASS C SHARES
With certain exceptions, the Fund may impose a deferred sales charge of 1%
on shares redeemed within one year after the date of purchase. No deferred sales
charge is imposed on amounts redeemed thereafter. If imposed, the deferred sales
charge is deducted from the redemption proceeds otherwise payable to you. The
deferred sales charge is retained by KDI. See "Calculation of Contingent
Deferred Sales Charge" below.
CALCULATION OF CONTINGENT DEFERRED SALES CHARGE
Any contingent deferred sales charge imposed upon the redemption of Class B
or Class C shares is a percentage of the lesser of (1) the net asset value of
the shares redeemed or (2) the net cost of such shares. No contingent deferred
sales charge is imposed when you redeem amounts derived from (1) increases in
the value of your account above the net cost of such shares; (2) certain shares
with respect to which the Fund did not pay a commission on issuance, including
shares acquired through reinvestment of dividend income and capital gains
distributions; (3) Class C shares held during more than one year; or (4) Class B
shares held during more than four consecutive calendar years. Upon request for
redemption, shares not subject to the contingent deferred sales charge will be
redeemed first. Thereafter, shares held the longest will be the first to be
redeemed. There is no contingent deferred sales charge when the shares of a
class are exchanged for the shares of the same class of another Keystone America
Fund. Moreover, when shares of one such class of a fund have been exchanged for
shares of another such class of a fund, the calendar year of the purchase of the
shares of the fund exchanged into is assumed to be the year shares tendered for
exchange were originally purchased.
WAIVER OF DEFERRED SALES CHARGE
No contingent deferred sales charge is imposed on a redemption of shares of
the Fund in the event of (1) death or disability of the shareholder, (2) a
lump-sum distribution from a benefit plan qualified under the Employee
Retirement Income Security Act of 1974 ("ERISA"), (3) automatic withdrawals from
ERISA plans if the shareholder is at least 59 1/2 years old, (4) involuntary
redemptions of accounts having an aggregate net asset value of less than $1,000
or (5) automatic withdrawals under an automatic withdrawal plan of up to 1 1/2%
per month of the shareholder's initial account balance.
- -------------------------------------------------------------------------------
DISTRIBUTION PLANS
- -------------------------------------------------------------------------------
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 January 20, 1983, the Fund's
Class A Distribution Plan was approved by the Fund's Board of Trustees,
including a majority of the Trustees who were not interested persons of the Fund
as defined in the 1940 Act ("Independent Trustees") and the Trustees who had no
direct or indirect financial interest in the Plan or any agreement related
thereto (the "Rule 12b-1 Trustees" who are the same as the Independent Trustees)
and the Fund's sole shareholder.
The National Association of Securities Dealers, Inc. ("NASD") limits the
amount that a Fund may pay annually in distribution costs for sale of its shares
and shareholder service fees. The rule 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. NASD rules limit 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 Plan, plus interest at the prime rate plus 1% on such amounts (less any
contingent deferred sales charges paid by shareholders to KDI).
CLASS A DISTRIBUTION PLAN
The Class A Distribution Plan provides that the Fund may expend daily
amounts at an annual rate, which is currently limited to up to 0.25% of the
Fund's average daily net asset value attributable to Class A shares to finance
any activity that is primarily intended to result in the sale of Class A shares,
including without limitation, expenditures consisting of payments to a principal
underwriter of the Fund ("Principal Underwriter") (currently KDI) to enable the
Principal Underwriter to pay or to have paid to others who sell Class A shares a
service or other fee, at such intervals as the Principal Underwriter may
determine, in respect of Class A shares previously sold by any such others and
remaining outstanding during the period in respect of which such fee is or has
been paid.
Amounts paid by the Fund 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 net asset value of Class A shares maintained by such
recipients outstanding on the books of the Fund for specified periods.
CLASS B DISTRIBUTION PLAN
The Class B Distribution Plan provides that the Fund may expend daily
amounts at an annual rate of up to 1.00% of the Fund's average daily net asset
value attributable to Class B shares to finance any activity that is primarily
intended to result in the sale of Class B shares, including, without limitation,
expenditures consisting of payments to a principal underwriter of the Fund
("Principal Underwriter") (currently KDI) to enable the Principal Underwriter to
pay to others (dealers) commissions in respect of Class B shares since inception
of the Distribution Plan; and (2) to enable the Principal Underwriter to pay or
to have paid to others a service fee, at such intervals as the Principal
Underwriter may determine, in respect of Class B shares previously maintained by
such recipients outstanding on the books of the Fund for specified periods.
Amounts paid by the Fund under the Class B Distribution Plan are currently
used to pay others (dealers) (1) a commission normally equal to 3.00% for each
share sold; and/or (2) service fees at an annual rate of 0.25% of the average
net asset value of shares maintained by such recipients outstanding on the books
of the Fund for specified periods.
KDI intends, but is not obligated, to continue to pay or accrue distribution
charges incurred in connection with the Class B Distribution Plan that exceed
current annual payments permitted to be received by KDI from the Fund. KDI
intends to seek full payment of such charges from the Fund (together with annual
interest thereon at the prime rate plus one percent) at such time in the future
as, and to the extent that, payment thereof by the Fund would be within the
permitted limits.
CLASS C DISTRIBUTION PLAN
The Class C Distribution Plan provides that the Fund may expend daily
amounts at an annual rate of up to 1.00% of the Fund's average daily net asset
value attributable to Class C shares to finance any activity which is primarily
intended to result in the sale of Class C shares, including, without limitation,
expenditures consisting of payments to a principal underwriter of the Fund
("Principal Underwriter") (currently KDI) to enable the Principal Underwriter to
pay to others (dealers) commissions in respect of Class C shares since inception
of the Distribution Plan; and (2) to enable the Principal Underwriter to pay or
to have paid to others a service fee, at such intervals as the Principal
Underwriter may determine, in respect of Class C shares maintained by such
recipients outstanding on the books of the Fund for specified periods.
Amounts paid by the Fund under the Class C Distribution Plan are currently
used to pay KDI or others (dealers) (1) a commission normally equal to 1.00% of
the value of each share sold, such payment to consist of a commission in the
amount of 0.75% of such value plus the first year's service fee in advance in
the amount of 0.25% of such value; and (2) beginning approximately 15 months
after purchase, a commission at an annual rate of 0.75% (subject to applicable
NASD limitations) plus service fees at an annual rate of 0.25%, respectively, of
the average daily net asset value of each Class C share maintained by such
recipients and outstanding on the books of the Fund for specified periods.
Each of the Distribution Plans may be terminated at any time by vote of the
Fund's Rule 12b-1 Trustees, or by vote of a majority of the outstanding voting
shares of the respective class of the Fund. However, after the termination of
the Class B Distribution Plan, KDI would be entitled to receive payment, at the
annual rate of 1.00% of the average daily net asset value of Class B shares, as
compensation for its services which had been earned at any time during which the
Class B Distribution Plan was in effect. Any change in the Distribution Plan
that would materially increase the distribution expenses of the Fund provided
for in the Distribution Plan requires shareholder approval. Otherwise the
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 Distribution Plan limit specified above, and the amounts and
purposes of expenditures under a 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 a Distribution Plan, and may also require
that total expenditures by the Fund under a Distribution Plan be kept within
limits lower than the maximum amount permitted by a Distribution Plan as stated
above.
During the year ended June 30, 1994, the Fund paid KDI $243,607, $34,127 and
$25,089 in Distribution Plan fees for Class A, Class B and Class C,
respectively, which represented 0.09%, 1.00% and 1.00%, respectively, of the
average net assets of each Class.
Whether any expenditure under a 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.
While a 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 shares resulting from payments under the Distribution Plans have
benefited the Fund.
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TRUSTEES AND OFFICERS
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The Trustees and officers of the Fund, together with their principal
occupations and some of their affiliations over the last five years, are listed
below:
*GEORGE S. BISSELL: Chairman of the Board, Trustee and Chief Executive Officer
of the Fund; Chairman of the Board, Director and Chief Executive Officer of
Keystone Group, Inc. ("Keystone Group"), Keystone Custodian Funds, Inc.
("Keystone"), Keystone Management, Inc. ("Keystone Management"), Keystone
Software Inc. ("Keystone Software"), Keystone Fixed Income Advisers, Inc.
("KFIA") and Keystone Investor Resource Center, Inc. ("KIRC"); Chairman of
the Board, Chief Executive Officer and Trustee or Director of Keystone
America Capital Preservation and Income Fund, Keystone America Capital
Preservation and Income Fund II, Keystone America Intermediate Term Bond
Fund, Keystone America Strategic Income Fund, Keystone America World Bond
Fund, Keystone Tax Free Income Fund, Keystone America State Tax Free Fund,
Keystone America State Tax Free Fund - Series II, Keystone America Fund for
Total Return, Keystone America Global Opportunities Fund, Keystone America
Hartwell Emerging Growth Fund, Inc., Keystone America Hartwell Growth Fund,
Inc., Keystone America Omega Fund, Inc., Keystone Fund of the Americas
Luxembourg and Keystone Fund of the Americas - U.S., Keystone Strategic
Development Fund (collectively, "Keystone America Funds"); Keystone
Custodian Funds, Series B-1, B-2, B-4, K-1, K-2, S-1, S-3, and S-4; Keystone
International Fund, Keystone Precious Metals Holdings, Inc., Keystone Tax
Free Fund, Keystone Tax Exempt Trust (collectively, "Keystone Custodian
Funds"); Keystone Institutional Adjustable Rate Fund and Master Reserves
Trust (all such funds, collectively, "Keystone Group Funds"); Chairman of
the Board, Hartwell Keystone Advisers, Inc. ("Hartwell Keystone"); Director
of Keystone Investment Management Corporation ("KIMCO"); Chairman of the
Board and Trustee of Anatolia College; and Trustee of University Hospital
(and Chairman of its Investment Committee).
FREDERICK AMLING: Trustee of the Fund; Trustee or Director of all other Keystone
Group 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 Group Funds; Managing Director, Seaward Management Corporation
(investment advice); and former Director, Executive Vice President and
Treasurer, State Street Research & Management Company (investment advice).
*ALBERT H. ELFNER, III: President and Trustee of the Fund; President and Trustee
or Director of all other Keystone Group Funds; Director and Vice Chairman of
Keystone; Chief Operating Officer, President and Director of Keystone Group;
Chairman of the Board and Director of KIMCO and KFIA; President and Director
of Keystone Management, Hartwell Keystone and Keystone Software; Director of
Keystone Distributors, Inc. ("KDI"), KIRC, Fiduciary Investment Company,
Inc. ("FICO") and Robert Van Partners, Inc.; Director of Boston Children's
Services Association and Trustee of Anatolia College, Middlesex School and
Middlebury College ; Member, Board of Governors, New England Medical Center;
former Trustee of Neworld Bank and former President of Keystone.
EDWIN D. CAMPBELL: Trustee of the Fund; Trustee or Director of all other
Keystone Group 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 Group 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
Group 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
Group 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 Group and Keystone.
F. RAY KEYSER, JR.: Trustee of the Fund; Trustee or Director of all other
Keystone Group 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 Group 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
Group Funds; Consultant, Russell Miller, Inc. (investment bankers) 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
Group Funds; Partner, Farrell, Fritz, Caemmerer, Cleary, Barnosky &
Armentano, P.C.; President, Nassau County Bar Association; 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 Group Funds; Senior Vice President, Chief Financial
Officer and Treasurer of Keystone Group and KDI; Director, Senior Vice
President, Chief Financial Officer and Treasurer of Keystone; Treasurer of
KIMCO, Keystone Management, Keystone Software, Inc. and FICO; and Treasurer
and Director of Hartwell Keystone.
JAMES R. McCALL: Senior Vice President of the Fund; Senior Vice President of all
other Keystone Group Funds; and President of Keystone.
ROGER T. WICKERS: Senior Vice President of the Fund; Senior Vice President of
all other Keystone Group Funds; Director, Senior Vice President, General
Counsel and Secretary, Keystone Group and KDI; Director and Secretary,
Keystone and Vice President, Assistant Secretary and Director, Keystone
Management.
KEVIN J. MORRISSEY: Treasurer of the Fund; Treasurer of all other Keystone Group
Funds; Vice President of Keystone Group; and former Vice President and
Treasurer of KIRC.
ROSEMARY D. VAN ANTWERP: Vice President and Secretary of the Fund; Vice
President and Secretary of all other Keystone Group Funds; Senior Vice
President and General Counsel of Keystone, Keystone Management, Hartwell
Keystone, KIRC, KFIA, Keystone Software and KIMCO; Vice President, Assistant
Secretary and Associate General Counsel of Keystone Group; Senior Vice
President, General Counsel, Director and Assistant Clerk, FICO; Assistant
Secretary of KDI.
* This Trustee may be considered an "interested person" within the meaning of
the 1940 Act.
Mr. Bissell and Mr. Elfner are "interested persons" by virtue of their
positions as officers and/or Directors of Keystone Group and several of its
affiliates including Hartwell Keystone, KDI and KIRC. Mr. Bissell and Mr. Elfner
own shares of Keystone Group. Mr. Bissell is Chairman of the Board, Chief
Executive Officer and Director of Keystone Group. Mr. Elfner is President,
Director and Chief Operating Officer of Keystone Group.
The Board of Trustees of the Fund has established an Advisory Board composed
principally of former Trustees. The members of the Advisory Board are James R.
Dempsey, Knight Edwards, Donald T. Ellis, John M. Haffenreffer, Philip B.
Harley, Everett P. Pope, John W. Sharp, Spencer R. Stuart, Russel R. Taylor, and
Charles M. Williams. The Advisory Board will advise the Board of Trustees and
Keystone with respect to the management and operation of the Fund. The
recommendations of the Advisory Board will be considered by the Board of
Trustees and Keystone, but will not be binding on them.
The principal occupations and affiliations of the members of the Advisory
Board over the past five years are set forth below:
JAMES R. DEMPSEY: a private investor; Director or Trustee, Convest Energy
Corporation, Superior Electric Co.; former Chairman of the Board,
Transatlantic Investment Capital Corporation, Transatlantic Capital
Corporation; former Trustee or Director of 7 Keystone Group Funds and
Phoenix Total Return Fund, Phoenix Multi-Portfolio Fund, Phoenix Series
Fund, The Phoenix Big Edge Series Fund.
KNIGHT EDWARDS: Of Counsel, Edwards & Angell; Member of the Board of Managers of
7 variable annuity separate accounts of The Travelers Insurance Company
("Travelers"); Trustee, 5 mutual funds sponsored by Travelers; and former
Trustee or Director of 8 Keystone Group Funds.
DONALD T. ELLIS: President, D.T. Ellis Associates; Associate, Michael Saunders &
Co., real estate broker; former Senior Vice President, Goldman Financial
Services, Inc.; former President, Chief Executive Officer and Treasurer,
Scott Seaboard Corporation; and former Trustee or Director of 8 Keystone
Group Funds.
JOHN M. HAFFENREFFER: Vice President, Director and Treasurer of Haffenreffer &
Co.; Member of the Corporation and Treasurer of Haffenreffer Benevolent
Corp.; Director and Member of the Executive Committee of Liberty Bank and
Trust Company; Director of the Massachusetts Council of Churches; Vice
President, Director and Treasurer, Forest Hills Company; former Director of
Keystone; and former Trustee or Director of all Keystone Group Funds.
PHILIP B. HARLEY: Director of General Host Corporation, Stamford, Connecticut; a
private investor; former Director, President and Chief Executive Officer,
Baker Perkins, Inc.; former Director, Baker Perkins Holdings Ltd. (U.K.);
and former Trustee or Director of all Keystone Group Funds.
EVERETT P. POPE: former Chairman and Trustee, Bowdoin College; former Chairman
of the Board and President of Workingmens Cooperative Bank; former Chairman,
Massachusetts Higher Education Assistance Corporation (guarantor of student
loans); and former Trustee or Director of all Keystone Group Funds.
JOHNW. SHARP: Governor and past President of Montreal General Hospital, Canada;
Honorary Vice Chairman and former National President of Boy Scouts of
Canada; Honorary Colonel, The Black Watch Royal Highland Regiment of Canada;
former Director of Keystone and Unimed, Inc.; former Chairman and President,
Vilas Industries, Ltd. (Canada); former Chairman, Moyer School Supplies,
Ltd. (Canada); former Senior Economic Adviser, Province of Quebec, in New
York City; former registered representative with F.H. Deacon Hodgson Ltd.;
and former Trustee or Director of all Keystone Group Funds.
SPENCER R. STUART: Director of U.S. Tobacco Company, Asset Guaranty Inc.,
International Finance Group and Enhanced Financial Services Inc.; Director
and Chairman, Human Resources Committee, Allegheny International, Inc.;
former Director of Western Airlines, Inc., International Finance Group and
Keystone; former Chairman, Council of Managing Advisers, Dean Witter
Reynolds Bank; Founder/former Chairman of Spencer Stuart & Associates; and
former Trustee or Director of all Keystone Group Funds.
RUSSEL R. TAYLOR: Trustee of the Gintel Funds, Greenwich, Connecticut; Associate
Professor and Director, H.W. Taylor Institute of Entrepreneurial Studies,
College of New Rochelle; former Director of Annis Furs, Inc. and Minnetonka,
Inc.; and former Trustee or Director of all Keystone Group Funds.
CHARLES M. WILLIAMS: Director, Horace Mann Educator Corp.; President, Charles M.
Williams Associates; Advisory Director, Orix U.S.A., Inc.; Director of Fort
Dearborn Income Securities, Inc., 4 Merrill Lynch Funds, National Life
Insurance Company of Vermont and the Institute for Financial Management,
Inc.; President of Charles M. Williams Associates, Inc.; George Gund
Professor of Commercial Banking, Emeritus, at Harvard University Graduate
School of Business Administration; former Director of Keystone, Hammermill
Paper Co., Sonat, Inc., United States Leasing International, Inc.; and
former Trustee or Director of all Keystone Custodian Funds and Keystone
America Funds.
During the fiscal year ended June 30, 1994, no Trustee affiliated with
Keystone or any officer received any direct remuneration from the Fund. During
this same period the nonaffiliated Trustees received a total of $11,200 in
retainers and fees. As of July 31, 1994, the Trustees, officers and Advisory
Board members of the Fund beneficially owned less than 1% of the Fund's then
outstanding Class A shares and none of the Fund's then outstanding Class B and
Class C shares.
The address of all Trustees, officers and Advisory Board members of the Fund
and the address of the Fund is 200 Berkeley Street, Boston, Massachusetts
02116-5034.
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DECLARATION OF TRUST
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The Fund is organized as a Massachusetts business trust established under a
Declaration of Trust dated May 22, 1975, as amended and restated on December 1,
1985 pursuant to a First Supplemental Declaration of Trust (the "Declaration of
Trust"). The Fund is similar in most respects to a business corporation. The
principal distinction between the Fund and a corporation relates to the
shareholder liability described below. A copy of the Declaration of Trust is
filed as an exhibit to the Registration Statement of which this statement of
additional information is a part. This summary is qualified in its entirety by
reference to the Declaration of Trust.
SHAREHOLDER LIABILITY
Pursuant to certain decisions of the Supreme Judicial Court of
Massachusetts, shareholders of such a trust may, under certain circumstances, be
held personally liable as partners for the obligations of the trust. Even if,
however, the Fund were held to be a partnership, the possibility of the
shareholders incurring financial loss for that reason appears remote because the
Fund's Declaration of Trust contains an express disclaimer of shareholder
liability for obligations of the Fund and requires that notice of such
disclaimer be given in each agreement, obligation or instrument entered into or
executed by the Fund or the Trustees. In addition, the Declaration of Trust
provides for indemnification out of the trust property for any shareholder held
personally liable for the obligations of the Fund.
VOTING RIGHTS
Shareholders elected Trustees at a meeting held on July 27, 1993. No further
meetings of shareholders for the purpose of electing Trustees will be held,
except where required by law, unless and until such time as less than a majority
of the Trustees holding office have been elected by shareholders. At such time,
the Trustees then in office will call a shareholders' meeting for election of
Trustees.
Except as set forth above or otherwise required by law, the Trustees shall
continue to hold office, and may appoint successor Trustees. Any Trustee may be
removed from office (1) at any time by two-thirds vote of the Trustees; (2) by a
majority vote of Trustees when a Trustee becomes mentally or physically
incapacitated; and (3) at a special meeting of shareholders by a two-thirds vote
of the outstanding shares. Any Trustee may also voluntarily resign from office.
Voting rights are not cumulative. The holders of more than 50% of the shares
voting in the election of Trustees can, if they choose to do so, elect all of
the Trustees of the Fund, in which event the holders of the remaining shares
will be unable to elect any person as a Trustee.
Under the Declaration of Trust the Fund does not hold annual meetings.
Shares are entitled to one vote per share. Shares generally vote together as one
class on all matters. Classes of shares have equal voting rights except that
each class of shares has exclusive voting rights with respect to its
Distribution Plan. No amendment may be made to the Declaration of Trust,
however, that adversely affects any class of shares without the approval of a
majority of the shares of that class. Shares have non-cumulative voting rights.
LIMITATIONS 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.
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INVESTMENT MANAGER
- -------------------------------------------------------------------------------
Subject to the general supervision of the Fund's Board of Trustees, Keystone
Management, located at 200 Berkeley Street, Boston, Massachusetts 02116-5034,
serves as investment manager to the Fund and is responsible for the overall
management of the Fund's business and affairs. Keystone Management, organized in
1989, is a wholly-owned subsidiary of Keystone, and its directors and principal
executive officers have been affiliated with Keystone, a seasoned investment
adviser, for a number of years. Keystone Management also serves as investment
manager to each of the Keystone Custodian Funds and to certain other funds in
the Keystone Group of Funds.
Except as otherwise noted below, pursuant to its Management Agreement with
the Fund and subject to the supervision of the Fund's Board of Trustees,
Keystone Management 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 objectives and restrictions. The Management Agreement
stipulates that Keystone Management shall provide office space, all necessary
office facilities, equipment and personnel in connection with its services under
the Management Agreement and pay or reimburse the Fund for the compensation of
Fund officers and Trustees who are affiliated with the investment manager and
will pay all expenses of Keystone Management incurred in connection with the
provision of its services. All charges and expenses other than those
specifically referred to as being borne by Keystone Management will be paid by
the Fund, including, but not limited to, custodian charges and expenses;
bookkeeping and auditors' charges and expenses; transfer agent charges and
expenses; fees of Independent Trustees; brokerage commissions, brokers' fees and
expenses; issue and transfer taxes; costs and expenses under Distribution Plans;
taxes and trust fees payable to governmental agencies; the cost of share
certificates; fees and expenses of the registration and qualification of the
Fund and its shares with the Securities and Exchange Commission (sometimes
referred to herein as the "SEC" or the "Commission") or under state or other
securities laws; expenses of preparing, printing and mailing prospectuses,
statements of additional information, notices, reports and proxy materials to
shareholders of the Fund; expenses of shareholders' and Trustees' meetings;
charges and expenses of legal counsel for the Fund and for the Trustees of the
Fund on matters relating to the Fund; charges and expenses of filing annual and
other reports with the SEC and other authorities; and all extraordinary charges
and expenses of the Fund.
The Management Agreement permits Keystone Management to enter into an
agreement with Keystone or another investment adviser under which Keystone or
such other investment adviser, as investment adviser, will provide substantially
all the services to be provided by Keystone Management under the Management
Agreement. The Management Agreement also permits Keystone Management to delegate
to Keystone or another investment adviser substantially all of the investment
manager's rights, duties and obligations under the Agreement. Services performed
by Keystone Management include (1) performing research and planning with respect
to (a) the Fund's qualification as a regulated investment company under
Subchapter M of the Code, (b) tax treatment of the Fund's portfolio investments,
(c) tax treatment of special corporate actions (such as reorganizations), (d)
state tax matters affecting the Fund, and (e) the Fund's distributions of income
and capital gains; (2) preparing the Fund's federal and state tax returns; (3)
providing services to the Fund's shareholders in connection with federal and
state taxation and distributions of income and capital gains; and (4) storing
documents relating to the Fund's activities.
The Fund pays Keystone Management a fee for its services at the annual rate
of:
(1) 0.50% of the average daily value of the net assets of the Fund on the
first $500,000,000 of such assets; plus
(2) 0.45% of the average daily value of the net assets of the Fund on such
assets which exceed $500,000,000 and are less than $1,000,000,000; plus
(3) 0.40% of the average daily value of the net assets of the Fund on such
assets which are $1,000,000,000 or more.
The fee is calculated on a calendar-day basis, accrued as of the close of
each business day and paid monthly.
As a continuing condition of registration of shares in a state, Keystone
Management has agreed to reimburse the Fund annually for certain operating
expenses incurred by the Fund in excess of certain percentages of the Fund's
average daily net assets. Keystone Management is not required, however, to make
such reimbursement to the extent it would result in the Fund's inability to
qualify as a regulated investment company under provisions of the Internal
Revenue Code. This condition may be modified or eliminated in the future.
The Fund is subject to certain state annual expense limitations, the most
restrictive of which is as follows:
2.5% of the first $30 million of Fund average net assets;
2.0% of the next $70 million of Fund average net assets; and
1.5% of Fund average net assets over $100 million.
Capital charges and certain expenses, including a portion of the Fund's
Distribution Plan expenses, are not included in the calculation of the state
expense limitation. This limitation may be modified or eliminated in the future.
The Management Agreement continues in effect from year to year only if
approved at least annually by the Fund's Board of Trustees or by a vote of a
majority of the outstanding shares, 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 Management 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. The Management
Agreement will terminate automatically upon its "assignment" as that term is
defined in the 1940 Act.
For additional discussion of fees paid to Keystone Management, see
"Investment Adviser" below.
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INVESTMENT ADVISER
- -------------------------------------------------------------------------------
Pursuant to its Management Agreement with the Fund, Keystone Management has
delegated its investment management functions, except for certain administrative
and management services, to Keystone and has entered into an Advisory Agreement,
with Keystone under which Keystone will provide investment advisory and
management services to the Fund.
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 Group located at 200 Berkeley Street, Boston,
Massachusetts 02116-5034.
Keystone Group is a corporation privately owned by current and former
members of management of Keystone and its affiliates. The shares of Keystone
Group 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
Group provides accounting, bookkeeping, legal, personnel and general corporate
services to Keystone Management, Keystone, their affiliates and the Keystone
Group of Mutual Funds.
Pursuant to the Advisory Agreement, Keystone will receive for its services
an annual fee representing 85% of the management fee received by Keystone
Management under its Management Agreement with the Fund.
Pursuant to the Advisory Agreement with Keystone Management and subject to
the supervision of the Fund's Board of Trustees, Keystone manages and
administers the operations of the Fund, and manages the investment and
reinvestment of the Fund's assets in conformity with the Fund's investment
objectives 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 Fund officers and Trustees who are
affiliated with the investment manager and will pay all expenses of Keystone
incurred in connection with the provisions of its services. All charges and
expenses other than those specifically referred to as being borne by Keystone
will be paid by the Fund, including, but not limited to, custodian charges and
expenses; bookkeeping and auditors' charges and expenses; transfer agent charges
and expenses; fees of Independent Trustees; brokerage commissions, brokers' fees
and expenses; issue and transfer taxes; costs and expenses under the
Distribution Plans; taxes and trust fees payable to governmental agencies; the
cost of share certificates; fees and expenses of the registration and
qualification of the Fund and its shares with the SEC or under state or other
securities laws; expenses of preparing, printing and mailing prospectuses,
statements of additional information, notices, reports and proxy materials to
shareholders of the Fund; expenses of shareholders' and Trustees' meetings;
charges and expenses of legal counsel for the Fund and for the Trustees of the
Fund on matters relating to the Fund; charges and expenses of filing annual and
other reports with the SEC and other authorities; and all extraordinary charges
and expenses of the Fund.
During the year ended June 30, 1992, the Fund paid or accrued to Keystone
Management investment management and administrative fees of $1,505,598, which
represented 0.50% of the Fund's average net assets. Of such amount, $1,279,758
was paid to Keystone for its services to the Fund pursuant to the Advisory
Agreement with Keystone Management.
During the year ended June 30, 1993, the Fund paid or accrued to Keystone
Management investment management and administrative services fees of $1,050,015,
which represented 0.50% of the Fund's average net assets. Of such amount paid to
Keystone Management, $892,513 was paid to Keystone for its services to the Fund.
During the year ended June 30, 1994, the Fund paid or accrued to Keystone
Management investment management and administrative fees of $1,407,708, which
represented 0.50% of the Fund's average net assets. Of such amount, $1,196,552
was paid to Keystone for its services to the Fund pursuant to the Advisory
Agreement with Keystone Management.
- -------------------------------------------------------------------------------
PRINCIPAL UNDERWRITER
- -------------------------------------------------------------------------------
The Fund has entered into a Principal Underwriting Agreement, ("Principal
Underwriting Agreement") with KDI, a wholly-owned subsidiary of Keystone. KDI as
agent has agreed to use its best efforts to find purchasers for the shares. KDI
may retain and employ representatives to promote distribution of the shares and
may obtain orders from brokers, dealers and others, acting as principals, for
sales of shares to them. The Principal Underwriting Agreement provides that KDI
will bear the expense of preparing, printing and distributing advertising and
sales literature and prospectuses used by it. In its capacity as principal
underwriter, KDI may receive payments from the Fund pursuant to the Fund's
Distribution Plan.
All subscriptions and sales of shares by KDI are at the offering price of
the shares in accordance with the provisions of the Declaration of Trust,
By-Laws, the current prospectus and statement of additional information of the
Fund. 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 Principal
Underwriting Agreement, the Fund is not liable to anyone for failure to accept
any order.
KDI, as agent, currently offers shares of the Fund to investors in those
states in which the shares of the Fund are qualified and in which KDI is
qualified as a broker-dealer. The Principal Underwriting Agreement provides that
KDI may accept orders for shares of the Fund at net asset value since no sales
commission or load is charged to the investor.
From time to time, if in KDI's judgment it could benefit sales of Fund
shares, KDI may use its discretion in providing to selected dealers promotional
materials and selling aids including, but not limited to, personal computers,
related software and Fund data files.
The Principal Underwriting Agreement provides that it will remain in effect
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. The terms of the Principal
Underwriting Agreement were approved by the Board on December 16, 1992.
The Principal Underwriting 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. The Principal Underwriting 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. Management
weighs such considerations in determining the overall reasonableness of
brokerage commissions paid.
Subject to the foregoing, a factor in the selection of brokers is the
receipt of research services, such as analyses and reports concerning issuers,
industries, securities, economic factors and trends and other statistical and
factual information. Any such research and other statistical and factual
information provided by brokers to the Fund or Keystone is considered to be in
addition to and not in lieu of services required to be performed by Keystone
Management under the Management Agreement or Keystone under the Advisory
Agreement with Keystone Management. 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.
The Fund expects that purchases and sales of money market instruments
usually will be principal transactions. Money market 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 the spread between the bid and asked prices. 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
purchase directly 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.
Investment decisions for the Fund are made independently by Keystone
Management or Keystone from those of the other funds and investment accounts
managed by Keystone Management or 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 which 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.
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.
In no instance will portfolio securities be purchased from or sold to
Keystone Management, Keystone, KDI or any of their "affiliated persons", as said
term is defined in the 1940 Act and rules and regulations issued thereunder.
The Fund paid no brokerage commissions during its last three fiscal years.
- -------------------------------------------------------------------------------
ADDITIONAL INFORMATION
- -------------------------------------------------------------------------------
State Street Bank and Trust Company, 225 Franklin Street, Boston,
Massachusetts 02110, is the 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, One Boston Place, Boston, Massachusetts 02108,
Certified Public Accountants, are the independent auditors for the Fund.
KIRC, located at 101 Main Street, Cambridge, Massachusetts 02142-1519, 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, this
statement of additional information or in supplemental sales literature issued
by the Fund or the Principal Underwriter, and no person is entitled to rely on
any information or representation not contained therein.
The Fund's prospectus and this statement of additional information omit
certain information contained in the registration statement filed with the SEC,
which may be obtained from the SEC's principal office in Washington, D.C. upon
payment of the fee prescribed by the rules and regulations promulgated by the
SEC.
As of September 30, 1994, there were no shareholders of record owning 5% or
more of the Fund's outstanding Class A shares.
As of September 30, 1994, State Street BK & T Co Cust Michael Scammacca
PSRP, U/A 11-03-88, A/C Michael Scammacca, P. O. Box 303, Newtonville, NY
12128-0303, owned 5.89% of the outstanding Class B shares.
As of September 30, 1994, Kathleen Roland TTEE, W. P. Lycagh MPPP, P. O. Box
68, Barnesville, PA 18214-0068, owned 5.44% of the outstanding Class C shares;
as of September 30, 1994, Charles W. Hurd, 6004 Balcones Ct., El Paso, TX
79912-3319, owned 5.36% of the outstanding Class C shares.
<PAGE>
- -------------------------------------------------------------------------------
APPENDIX
- -------------------------------------------------------------------------------
MONEY MARKET INSTRUMENTS
The Fund's investments in commercial paper will consist of issues rated at
the time of investment A-1, by Standard & Poor's Corporation ("S&P"), PRIME-1 OR
PRIME-2 by Moody's Investors Service, Inc. ("Moody's") or F-1 OR F-2 by Fitch
Investors Service, Inc. ("Fitch").
COMMERCIAL PAPER RATINGS
STANDARD & POOR'S RATINGS
Commercial paper rated A-1 by S&P has the following characteristics:
Liquidity ratios are adequate to meet cash requirements. The issuer's long-term
senior debt is rated A or better, although in some cases BBB credits may be
allowed. The issuer has access to at least two additional channels of borrowing.
Basic earnings and cash flow have an upward trend with allowance made for
unusual circumstances. Typically, the issuer's industry is well established and
the issuer has a strong position within the industry.
MOODY'S RATINGS
The rating PRIME-1 is the highest commercial paper rating assigned by
Moody's. Among the factors considered by Moody's in assigning ratings are the
following: (1) evaluation of the management of the issuer; (2) economic
evaluation of the issuer's industry or industries and an appraisal of
speculative type risks which may be inherent in certain areas; (3) evaluation of
the issuer's products in relation to competition and customer acceptance; (4)
liquidity; (5) amount and quality of long-term debt; (6) trend of earnings over
a period of ten years; (7) financial strength of a parent company and the
relationships which exist with the issuer; and (8) recognition by the management
of obligations which may be present or may arise as a result of public
preparations to meet such obligations. Relative strength or weakness of the
above factors determines how the issuer's commercial paper is rated within
various categories.
FITCH'S RATINGS
The rating F-1 is the highest rating assigned by Fitch. Among the factors
considered by Fitch in assigning this rating are: (1) the issuer's liquidity;
(2) its standing in the industry; (3) the size of its debt; (4) its ability to
service its debt; (5) its profitability; (6) its return on equity; (7) its
alternative sources of financing; and (8) its ability to access the capital
markets. Analysis of the relative strength or weakness of these factors and
others determines whether an issuer's commercial paper is rated F-1.
UNITED STATES GOVERNMENT SECURITIES
Securities issued or guaranteed by the United States Government include a
variety of Treasury securities that differ only in their interest rates,
maturities and dates of issuance. Treasury bills have maturities of one year or
less. Treasury notes have maturities of one-to-ten years and Treasury bonds
generally have maturities of greater than ten years at the date of issuance.
Securities issued or guaranteed by the United States Government or its
agencies or instrumentalities include direct obligations of the United States
Treasury and securities issued or guaranteed by the Federal Housing
Administration, Farmers Home Administration, Export-Import Bank of the United
States, Small Business Administration, Government National Mortgage Association,
General Services Administration, Central Bank for Cooperatives, Federal Home
Loan Banks, Federal Loan Mortgage Corporation, Federal Intermediate Credit
Banks, Federal Land Banks, Maritime Administration, The Tennessee Valley
Authority, District of Columbia Armory Board and Federal National Mortgage
Association.
Some obligations of United States Government agencies and instrumentalities,
such as Treasury bills and Government National Mortgage Association pass-through
certificates, are supported by the full faith and credit of the United States;
others, such as securities of Federal Home Loan Banks, by the right of the
issuer to borrow from the Treasury; still others, such as bonds issued by the
Federal National Mortgage Association, a private corporation, are supported only
by the credit of the instrumentality. Because the United States Government is
not obligated by law to provide support to an instrumentality it sponsors, the
Fund will invest in the securities issued by such an instrumentality only when
Keystone determines that the credit risk with respect to the instrumentality
does not make its securities unsuitable investments. United States Government
securities will not include international agencies or instrumentalities in which
the United States Government, its agencies or instrumentalities participate,
such as the World Bank, the Asian Development Bank or the InterAmerican
Development Bank, or issues insured by the Federal Deposit Insurance
Corporation.
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 U.S. 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
currently intend to purchase 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 (except certificates of deposit of
certain U.S. branches of 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>
SCHEDULE OF INVESTMENTS--JUNE 30, 1994
<TABLE>
<CAPTION>
Maturity Principal Market
Date Amount Value
<S> <C> <C> <C>
BANKERS' ACCEPTANCES (2.4%)
CoreStates Financial Corp. 07/18/94 $2,000,000 $ 1,995,958
Northern Trust Corp. 07/19/94 1,900,000 1,895,858
Northern Trust Corp. 07/25/94 2,100,000 2,094,008
Wachovia Bank & Trust 07/06/94 4,000,000 3,997,667
TOTAL BANKERS' ACCEPTANCES (Cost--$9,983,491) 9,983,491
BANK NOTES (3.4%)
Fifth Third Bank, Cincinnati, Ohio, 4.33% 07/05/94 4,000,000 3,999,999
National Bank of Detroit, 4.30% 07/21/94 10,000,000 10,000,105
TOTAL BANK NOTES (Cost--$14,000,104) 14,000,104
CERTIFICATES OF DEPOSIT (8.4%)
Algemene Yankee CD, 3.88% 07/07/94 5,000,000 4,999,695
Deutsche Bank Yankee CD, 3.25% 07/20/94 9,000,000 8,995,007
Hessische Landesbank, 4.35% 08/08/94 8,000,000 7,999,690
Rabobank Yankee CD, 3.25% 07/11/94 4,000,000 3,998,826
State Street Bank & Trust Co., 2.75% 08/01/94 45,400 45,400
Swiss Bank, New York, 4.40% 08/22/94 9,000,000 8,998,932
TOTAL CERTIFICATES OF DEPOSIT (Cost--$35,037,872) 35,037,550
COMMERCIAL PAPER (22.5%)
ABN-AMRO North America Finance Co. 08/08/94 5,000,000 4,976,514
AI Credit Co. 07/01/94 7,945,000 7,945,000
American General Finance Corp. 07/14/94 9,000,000 8,986,187
American Telephone & Telegraph Co. 08/24/94 3,000,000 2,979,975
Commerzbank U.S. Finance Inc. 07/25/94 4,000,000 3,988,293
Commerzbank U.S. Finance Inc. 07/29/94 6,000,000 5,979,467
Delaware Funding Corp. 07/27/94 9,000,000 8,971,725
Eiger Capital Corp. (b) 07/26/94 5,000,000 4,984,722
Eiger Capital Corp. (b) 07/28/94 5,000,000 4,983,425
Falcon Asset Securitization Corp. (b) 07/15/94 8,000,000 7,986,716
Ford Motor Credit Co. 07/01/94 14,000,000 14,000,000
Merrill Lynch & Co., Inc. 07/01/94 14,000,000 14,000,000
Motorola Credit Co. 07/01/94 4,000,000 4,000,000
TOTAL COMMERCIAL PAPER (Cost--$93,782,446) 93,782,024
U.S. GOVERNMENT (AND AGENCY) ISSUES (44.1%)
Federal Farm Credit Bank Discount Notes 07/18/94 12,000,000 11,976,200
Federal Farm Credit Bank Discount Notes 07/27/94 8,000,000 7,975,213
Federal Home Loan Bank Discount Notes 07/05/94 8,000,000 7,996,293
Federal Home Loan Bank Discount Notes 07/11/94 8,000,000 7,990,400
<PAGE>
U.S. GOVERNMENT (AND AGENCY) ISSUES (continued)
Federal Home Loan Bank Discount Notes 07/25/94 $8,000,000 $7,977,227
Federal Home Loan Bank Discount Notes 07/28/94 10,000,000 9,967,900
Federal Home Loan Bank Discount Notes 07/29/94 8,000,000 7,973,680
Federal Home Loan Bank Discount Notes 08/16/94 8,000,000 7,956,044
Federal Home Loan Bank Discount Notes 08/30/94 8,000,000 7,940,933
Federal National Mortgage Association Discount Notes 07/05/94 8,000,000 7,996,356
Federal National Mortgage Association Discount Notes 07/06/94 12,000,000 11,993,067
Federal National Mortgage Association Discount Notes 07/14/94 10,000,000 9,984,870
Federal National Mortgage Association Discount Notes 07/15/94 12,000,000 11,980,493
Federal National Mortgage Association Discount Notes 07/19/94 10,000,000 9,979,050
Federal National Mortgage Association Discount Notes 07/19/94 8,000,000 7,983,200
Federal National Mortgage Association Discount Notes 07/21/94 10,000,000 9,976,778
Federal National Mortgage Association Discount Notes 07/22/94 10,000,000 9,975,325
Federal National Mortgage Association Discount Notes 08/01/94 10,000,000 9,962,800
Federal National Mortgage Association Discount Notes 08/18/94 8,000,000 7,954,133
Federal National Mortgage Association Discount Notes 08/26/94 8,000,000 7,946,240
TOTAL U.S. GOVERNMENT (AND AGENCY) ISSUES
(Cost--$183,486,736) 183,486,202
Maturity
DEALER REPURCHASE AGREEMENTS (19.4%) Value
Goldman, Sachs & Co., 4.25%, purchased 6/30/94
(Collateralized by $47,396,000 FNMA #078462, 4.88%, due
11/1/26) 07/01/94 $20,802,456 20,800,000
HSBC Securities, Inc., 4.15%, purchased 6/30/94
(Collateralized by $2,245,000 U.S. Treasury Notes,
14.00%, due 11/15/11) 07/01/94 3,408,393 3,408,000
Prudential Securities Inc., 4.30%, purchased 6/30/94
(Collateralized by $22,553,000 FNMA #246171, 5.40%, due
10/1/23) 07/01/94 20,802,484 20,800,000
Sanwa-BGK Securities Co., 4.35%, purchased 6/30/94
(Collateralized by $23,642,000 GNMA #8060, 5.125%, due
10/20/22) 07/01/94 20,802,513 20,800,000
Smith Barney Harris Upham & Co., Inc., 4.25%, purchased
6/28/94 (Collateralized by $15,760,000 U.S. Treasury
Notes, 6.00%, due 10/15/99) 07/01/94 15,005,190 15,000,000
TOTAL DEALER REPURCHASE AGREEMENTS (Cost--$80,808,000) 80,808,000
TOTAL INVESTMENTS (Cost--$417,098,649) (a) 417,097,371
OTHER ASSETS AND LIABILITIES--NET (-0.2%) (683,412)
NET ASSETS (100.0%) $416,413,959
</TABLE>
<PAGE>
NOTES TO SCHEDULE OF INVESTMENTS:
(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, 1994, are as follows:
Gross unrealized appreciation $2,164
Gross unrealized depreciation (3,442)
Net unrealized depreciation ($1,278)
(b) Securities that may be resold to "qualified institutional buyers" under Rule
144A or securities offered pursuant to Section 4(2) of the Securities Act of
1933, as amended. These securities have been determined to be liquid under
guidelines established by the Board of Trustees.
<PAGE>
Keystone Liquid Trust
FINANCIAL HIGHLIGHTS
(For a share outstanding throughout the year)
<TABLE>
<CAPTION>
CLASS A SHARES
Year Ended June 30,
1994 1993 1992 1991 1990 1989 1988 1987 1986 1985
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Net asset value,
beginning of year $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
Income from investment
operations
Investment income--net .0235 .0230 .0386 .0634 .0760 .0786 .0597 .0524 .0667 .0860
Realized gain (loss) on
investments -0- (.0001) .0003 -0- -0- .0001 (.0001) -0- (.0002) .0003
Total from investment
operations .0235 .0229 .0389 .0634 .0760 .0787 .0596 .0524 .0665 .0863
Less distributions
Dividends from above
sources (.0235) (.0229) (.0389) (.0634) (.0760) (.0787) (.0596) (.0524) (.0665) (.0863)
Net asset value, end of
year $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
Total return 2.37% 2.31% 3.96% 6.47% 7.81% 8.18% 6.31% 5.35% 6.85% 8.95%
Ratios/supplemental data
Ratios to average net
assets:
Investment income--net 2.50% 2.29% 3.99% 6.51% 7.53% 7.88% 5.99% 5.30% 6.67% 8.69%
Operating and
management expenses 1.02% 1.11% 1.10% 0.92% 1.00% 1.00% 1.00% 1.00% 1.00% 1.00%
Net assets, end of year
(thousands) $398,617 $189,167 $227,115 $400,597 $406,306 $475,640 $461,032 $375,542 $326,149 $219,563
</TABLE>
See Notes to Financial Statements.
<PAGE>
Keystone Liquid Trust
FINANCIAL HIGHLIGHTS
(For a share outstanding throughout the period)
<TABLE>
<CAPTION>
CLASS B SHARES CLASS C SHARES
February 1, 1993 February 1, 1993
(Date of Initial (Date of Initial
Year Ended Public Offering) to Year Ended Public Offering) to
June 30, 1994 June 30, 1993 June 30, 1994 June 30, 1993
<S> <C> <C> <C> <C>
Net asset value, beginning of period $ 1.00 $1.00 $ 1.00 $1.00
Income from investment operations
Investment income--net .0142 .0047 .0142 .0045
Realized gain (loss) on investments -0- (.0001) -0- (.0002)
Total from investment operations .0142 .0046 .0142 .0043
Less distributions
Dividends from above sources (.0142) (.0046) (.0142) (.0043)
Net asset value, end of period $ 1.00 $1.00 $ 1.00 $1.00
Total return 1.43% 0.46% 1.43% 0.43%
Ratios/supplemental data
Ratios to average net assets:
Investment income--net 1.84% 1.08%* 1.97% 1.01%*
Operating and management expenses 1.85% 2.15%* 1.86% 2.09%*
Net assets, end of period (thousands) $11,198 $241 $6,599 $ 34
</TABLE>
* Annualized.
See Notes to Financial Statements.
<PAGE>
Keystone Liquid Trust
STATEMENT OF ASSETS AND LIABILITIES
June 30, 1994
Assets:
Investments at market value
(identified cost--$417,098,649)
(Note 1) $417,097,371
Cash 378
Receivable for:
Fund shares sold 180
Interest 317,190
Prepaid expenses and other assets 56,384
Total assets 417,471,503
Liabilities:
Payable for:
Income distributions 995,133
Payable to Investment Adviser (Note 4) 5,744
Accrued reimbursable expenses (Note 4) 2,268
Other accrued expenses 54,399
Total liabilities 1,057,544
Net assets $416,413,959
Net assets represented by paid-in capital (Note 2):
Class A Shares ($1.00 a share on 398,617,047 shares outstanding) $398,617,047
Class B Shares ($1.00 a share on 11,197,588 shares outstanding) 11,197,588
Class C Shares ($1.00 a share on 6,599,324 shares outstanding) 6,599,324
$416,413,959
Net asset value, offering and redemption price per
share (Classes A, B, and C) $ 1.00
See Notes to Financial Statements.
STATEMENT OF OPERATIONS
Year Ended June 30, 1994
Investment Income:
Interest $9,853,013
Expenses (Notes 2 and 4):
Investment management fee $1,407,708
Transfer agent fees 856,617
Accounting, auditing and legal 50,200
Custodian fees 92,026
Trustees' fees and expenses 17,826
Printing 14,656
Registration fees 98,079
Distribution Plan expenses 302,823
Insurance expense 13,793
Miscellaneous expenses 44,530
Total expenses 2,898,258
Investment income--net (Note 1) 6,954,755
Realized and unrealized gain (loss)
on investments--net:
Realized loss on investments--net (189)
Net unrealized appreciation (depreciation) on
investments:
Beginning of year (8,248)
End of year (1,278)
Increase (decrease) in unrealized appreciation
or depreciation--net 6,970
Net gain on investments 6,781
Net increase in net assets resulting from
operations $6,961,536
<PAGE>
STATEMENTS OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
Year Ended June 30,
1994 1993
<S> <C> <C>
Operations:
Investment income--net (Note 1) $ 6,954,755 $ 4,828,201
Realized gain (loss) on investments--net (189) 3,977
Increase (decrease) in unrealized
appreciation or depreciation--net 6,970 (25,884)
Net increase in net assets resulting from
operations 6,961,536 4,806,294
Distributions to shareholders (Note 1):
Class A Shares (6,849,293) (4,805,472)
Class B Shares (62,830) (652)
Class C Shares (49,413) (170)
Total distributions to shareholders (6,961,536) (4,806,294)
Capital share transactions (Note 2):
Proceeds from shares sold--
Class A Shares 905,957,790 544,460,592
Proceeds from shares sold--
Class B Shares 23,326,893 251,458
Proceeds from shares sold--
Class C Shares 14,136,918 93,748
Payments for shares redeemed--
Class A Shares (701,655,443) (586,622,021)
Payments for shares redeemed--
Class B Shares (12,406,378) (11,329)
Payments for shares redeemed--
Class C Shares (7,601,012) (60,010)
Net asset value of shares
issued in reinvestment of
distributions to shareholders:
Class A Shares 5,148,145 4,212,578
Class B Shares 36,291 653
Class C Shares 29,614 66
Net increase (decrease) in net
assets resulting from
capital share transactions 226,972,818 (37,674,265)
Total increase (decrease)
in net assets 226,972,818 (37,674,265)
Net assets:
Beginning of year 189,441,141 227,115,406
End of year $416,413,959 $189,441,141
</TABLE>
See Notes to Financial Statements.
<PAGE>
Keystone Liquid Trust
NOTES TO FINANCIAL STATEMENTS
(1.) Summary of Accounting Policies
Keystone Liquid Trust (the "Fund") is a no-load, open-end diversified
investment company for which Keystone Management, Inc. ("KMI") is the
Investment Manager and Keystone Custodian Funds, Inc. ("Keystone") is the
Investment Adviser. The Fund is registered under the Investment Company Act
of 1940.
The Fund currently offers three classes of 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 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 Distributors, Inc. ("KDI"), the Fund's underwriter.
Keystone is a wholly-owned subsidiary of Keystone Group, Inc. ("KGI"), a
Delaware corporation. KGI is privately owned by an investor group consisting
of members of current and former management of Keystone. 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.
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 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.
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 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.
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
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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 excise tax liability by making the
required distributions under the Internal Revenue Code.
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.
Other--Securities transactions are accounted for on the trade date. Interest
income is accrued as earned. Realized gains and losses from securities
transactions are computed on the identified cost basis.
(2.) Shares of Beneficial Interest
The Declaration of Trust authorizes the issuance of an unlimited number of
shares of beneficial interest with a par value of $1.00. Transactions in
shares of the Fund were as follows:
Class A Shares
Year Ended June 30,
1994 1993
Shares sold 905,957,790 544,460,592
Shares redeemed (701,655,443) (586,622,021)
Shares issued in reinvestment
of distributions
from available sources 5,148,145 4,212,578
Net increase (decrease) 209,450,492 (37,948,851)
Class B Shares
February 1, 1993
(Date of Initial
Year Ended Public Offering)
June 30, 1994 to June 30, 1993
Shares sold 23,326,893 251,458
Shares redeemed (12,406,378) (11,329)
Shares issued in reinvestment of
distributions from available sources 36,291 653
Net increase 10,956,806 240,782
Class C Shares
February 1, 1993
Year Ended (Date of Initial
June 30, Public Offering)
1994 to June 30, 1993
Shares sold 14,136,918 93,748
Shares redeemed (7,601,012) (60,010)
Shares issued in reinvestment
of distributions
from available sources 29,614 66
Net increase 6,565,520 33,804
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Keystone Liquid Trust
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 Investment Company Act of 1940 ("1940 Act").
The Class A Distribution Plan provides for payments which are currently limited
to 0.25% annually of the average daily net asset value of Class A shares, to pay
expenses of the distribution of Class A shares. Amounts paid by the Fund to KDI
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 sold by such others and remaining on the books of
the Fund for specified periods.
The Class B Distribution Plan provides for payments at an annual rate of up
to 1.00% of the average daily net asset value of Class B shares, to pay
expenses of the distribution of Class B shares. Amounts paid by the Fund
under the Class B Distribution Plan are currently used to pay others
(dealers) (i) a commission at the time of purchase normally equal to 3.00% of
the value of each share sold; and/or (ii) service fees at an annual rate of
0.25% of the average daily net asset value of shares sold by such others and
remaining outstanding on the books of the Fund for specified periods.
The Class C Distribution Plan provides for payments at an annual rate of up
to 1.00% of the average daily net asset value of Class C shares, to pay
expenses of the distribution of Class C shares. Amounts paid by the Fund
under the Class C Distribution Plan are currently used to pay others
(dealers) (i) a commission at the time of purchase normally equal to 1.00% of
the value of each share sold, such payment to consist of a commission in the
amount of 0.75% and the first year's service fee in advance in the amount of
0.25%; and (ii) beginning approximately fifteen months after purchase, a
commission at an annual rate of 0.75% (subject to applicable limitations
imposed by the rules of the National Association of Securities Dealers, Inc.)
and service fees at an annual rate of 0.25%, respectively, of the average
daily net asset value of each share sold by such others and remaining on the
books of the Fund for specified periods. Unreimbursed distribution expenses
at June 30, 1994 for Class C shares were $508,698.
The Distribution Plans may be terminated at any time by vote of the
Independent Trustees or by vote of a majority of the outstanding voting
shares of the respective class. However, after termination of the Class B
Distribution Plan, payments to KDI will continue at the annual rate of 1.00%
of the average daily net asset value of Class B shares, as compensation for
its services which had been earned while the Class B Distribution Plan was in
effect. Such unreimbursed distribution expenses at June 30, 1994 for Class B
shares were $668,772.
For year ended June 30, 1994, the Fund paid or accrued Distribution Plan fees
of $243,607, $34,127 and $25,089 for Class A, Class B and Class C,
respectively. These fees, which are charged to the operating expenses of the
Fund, represent 0.09%, 1.00% and 1.00%, respectively, of the average net
assets of each Class.
(3.) Purchases and Sales of Investment Securities
Cost of purchases and proceeds from sales (including proceeds received at
maturity) of short-term securities, excluding repurchase agreements and U.S.
Government obligations, for the year ended June 30, 1994, were $1,651,660,925
and $1,609,750,400 respectively.
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(4.) Investment Management Fees and Other Transactions with Affiliates Under
the terms of the Investment Management Agreement between KMI and the Fund,
dated December 29, 1989, KMI provides investment management and
administrative services to the Fund. In return, KMI is paid a management fee
computed daily and payable monthly 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, dated December 30, 1989, 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, 1994, the Fund paid or accrued to KMI
investment management and administration services fees of $1,407,708, which
represented 0.50% of the Fund's average net assets. Of such amount paid to
KMI, $1,196,552 was paid to Keystone for its services to the Fund.
During the year ended June 30, 1994, the Fund paid or accrued to KIRC and KGI
$24,977 as reimbursement for certain accounting and printing services, and to
KIRC $856,617 for transfer agent fees.
(5.) Class Level Expenses
Presently, the Fund's class-specific expenses are limited to expenses
incurred by a class of shares pursuant to its respective Distribution Plan.
For the year ended June 30, 1994, the total amount of expenses incurred by
the Distribution Plan of each respective class is set forth in Note (2.)
"Shares of Beneficial Interest."
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Keystone Liquid Trust
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,
1994, 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 the year 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, 1994, 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, 1994, 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
periods specified in the first paragraph above in conformity with generally
accepted accounting principles.
KPMG PEAT MARWICK
Boston, Massachusetts
July 29, 1994
