<PAGE>
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PROSPECTUS OCTOBER 30, 1995
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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.
Generally, the Fund offers three classes of shares. Information on share
classes and their fee and sales charge structures may be found in the Fund's fee
table, "How to Buy Shares," "Alternative Sales Options," "Contingent Deferred
Sales and Waiver of Sales Charge," "Distribution Plans," and "Fund 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 30, 1995, 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.
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.
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.
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TABLE OF CONTENTS
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<TABLE>
<CAPTION>
Page Page
<S> <C> <C> <C>
Fee Table ......................................... 2 Contingent Deferred Sales Charge and
Financial Highlights .............................. 3 Waiver of Sales Charge ...................... 14
Fund Description .................................. 6 Distribution Plans ............................ 15
Fund Objective and Policies ....................... 6 How to Redeem Shares .......................... 16
Investment Restrictions ........................... 7 Monthly Distribution Plans .................... 18
Pricing Shares .................................... 8 Shareholder Services .......................... 19
Dividends and Taxes ............................... 9 Performance Data .............................. 20
Fund Management and Expenses ...................... 9 Fund Shares ................................... 20
How to Buy Shares ................................. 11 Additional Information ........................ 21
Alternative Sales Options ......................... 12 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. For more complete descriptions of the various costs and expenses,
see the following sections of this prospectus: "Fund Management and Expenses";
"How to Buy Shares"; "Alternative Sales Options"; "Contingent Deferred Sale
Charge and Waiver of Sales Charges"; "Distribution Plans"; and "Shareholder
Services."
<TABLE>
<CAPTION>
CLASS A SHARES CLASS B SHARES CLASS C SHARES
NO LOAD BACK END LEVEL LOAD
OPTION LOAD OPTION<F1> OPTION<F2>
SHAREHOLDER TRANSACTION EXPENSES -------------- --------------- --------------
<S> <C> <C> <C>
Sales Charge ...................................... None None None
(as a percentage of offering price)
Contingent Deferred Sales Charge .................. 0.00% 5.00% in the first year 1.00% in the first
(as a percentage of the lesser of cost or market declining to 1.00% in year and 0.00%
value of shares redeemed) the sixth 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 .................................... 0.33% 0.34% 0.32%
---- ---- ----
Total Fund Operating Expenses ..................... 0.92% 1.84% 1.82%
==== ==== ====
<CAPTION>
EXAMPLES<F6> 1 YEAR 3 YEARS 5 YEARS 10 YEARS
------ ------- ------- --------
<S> <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 ................................................................... $ 9.00 $29.00 $ 51.00 $113.00
Class B ................................................................... $69.00 $88.00 $120.00 n/a
Class C ................................................................... $28.00 $57.00 $ 99.00 $214.00
You would pay the following expenses on a $1,000 investment, assuming no
redemption at the end of each period:
Class A ................................................................... $ 9.00 $29.00 $ 51.00 $113.00
Class B ................................................................... $19.00 $58.00 $100.00 n/a
Class C ................................................................... $18.00 $57.00 $ 99.00 $214.00
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.
<FN>
- ----------
<F1> Class B shares purchased on or after June 1, 1995 convert tax free to Class
A shares after eight years. See "Class B Shares" for more information.
<F2> Class C shares are available only through dealers who have entered into
special distribution agreements with Keystone Investment Distributors
Company, 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, 1995.
<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%.
</FN>
</TABLE>
<PAGE>
FINANCIAL HIGHLIGHTS
KEYSTONE LIQUID TRUST
CLASS A SHARES
(For a share outstanding throughout the year)
The following table contains important 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 independent auditors'
report, in the Fund's Annual Report. The Fund's financial statements, related
notes, and independent auditors' report are included in the statement of
additional information.
<TABLE>
<CAPTION>
YEAR ENDED JUNE 30,
--------------------------------------------------------------------------------------------------
1995 1994 1993 1992 1991 1990 1989 1988 1987 1986
------ ------ ------ ------ ------ ------ ------ ------ ------ ------
<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
Net investment income ....... .0454 .0235 .0230 .0386 .0634 .0760 .0786 .0597 .0524 .0667
Net realized gain (loss) on
investments -0- -0- (.0001) .0003 -0- -0- .0001 (.0001) -0- (.0002)
------ ------ ------ ------ ------ ------ ------ ------ ------ ------
Total from investment
operations ................. .0454 .0235 .0229 .0389 .0634 .0760 .0787 .0596 .0524 .0665
------ ------ ------ ------ ------ ------ ------ ------ ------ ------
LESS DISTRIBUTIONS
Dividends from above sources. (.0454) (.0235) (.0229) (.0389) (.0634) (.0760) (.0787) (.0596) (.0524) (.0665)
------ ------ ------ ------ ------ ------ ------ ------ ------ ------
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 ................ 4.63% 2.37% 2.31% 3.96% 6.47% 7.81% 8.18% 6.31% 5.35% 6.85%
RATIOS/SUPPLEMENTAL DATA
Ratios to average net assets:
Net investment income ..... 4.42% 2.50% 2.29% 3.99% 6.51% 7.53% 7.88% 5.99% 5.30% 6.67%
Total expenses ............ 0.92% 1.02% 1.11% 1.10% 0.92% 1.00% 1.00% 1.00% 1.00% 1.00%
Net assets, end of year
(thousands) ................ $245,308 $398,617 $189,167 $227,115 $400,597 $406,306 $475,640 $461,032 $375,542 $326,149
</TABLE>
<PAGE>
FINANCIAL HIGHLIGHTS
KEYSTONE LIQUID TRUST
CLASS B SHARES
(For a share outstanding throughout the period)
The following table contains important 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 independent auditors'
report, in the Fund's Annual Report. The Fund's financial statements, related
notes, and independent auditors' report are included in the statement of
additional information.
<TABLE>
<CAPTION>
FEBRUARY 1, 1993
YEAR ENDED JUNE 30, (DATE OF INITIAL
----------------------------- PUBLIC OFFERING) TO
1995 1994 JUNE 30, 1993
---- ---- -------------------
<S> <C> <C> <C>
NET ASSET VALUE BEGINNING OF PERIOD .......................... $ 1.00 $ 1.00 $ 1.00
------- ------- -------
Income from investment operations
Net investment income ........................................ .0362 .0142 .0047
Net realized gain (loss) on investments ...................... -0- -0- (.0001)
------- ------- -------
Total from investment operations ............................. .0362 .0142 .0046
------- ------- -------
LESS DISTRIBUTIONS
Dividends from above sources ................................. (.0362) (.0142) (.0046)
------- ------- -------
NET ASSET VALUE, END OF PERIOD ............................... $ 1.00 $ 1.00 $ 1.00
======= ======= =======
TOTAL RETURN<F2> ............................................. 3.68% 1.43% 0.46%
RATIOS/SUPPLEMENTAL DATA
Ratios to average net assets:
Net investment income ...................................... 3.66% 1.84% 1.08%<F1>
Total expenses ............................................. 1.84% 1.85% 2.15%<F1>
Net assets, end of period (thousands) ........................ $ 7,281 $11,198 $ 241
<FN>
<F1> Annualized.
<F2> Excluding applicable sales charges.
</TABLE>
<PAGE>
FINANCIAL HIGHLIGHTS
KEYSTONE LIQUID TRUST
CLASS C SHARES
(For a share outstanding throughout the period)
The following table contains important 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 independent auditors'
report, in the Fund's Annual Report. The Fund's financial statements, related
notes, and independent auditors' report are included in the statement of
additional information.
<TABLE>
<CAPTION>
FEBRUARY 1, 1993
YEAR ENDED JUNE 30, (DATE OF INITIAL
------------------------------ PUBLIC OFFERING) TO
1995 1994 JUNE 30, 1993
---- ---- -------------------
<S> <C> <C> <C>
NET ASSET VALUE BEGINNING OF PERIOD ............................. $ 1.00 $ 1.00 $ 1.00
------- ------- -------
Income from investment operations
Net investment income ........................................... .0362 .0142 .0045
Net realized gain (loss) on investments ......................... -0- -0- (.0002)
------ ------ ------
Total from investment operations ................................ .0362 .0142 .0043
------- ------- -------
LESS DISTRIBUTIONS
Dividends from above sources .................................... (.0362) (.0142) (.0043)
------- ------- -------
NET ASSET VALUE, END OF PERIOD .................................. $ 1.00 $ 1.00 $ 1.00
======= ======= =======
TOTAL RETURN .................................................... 3.68% 1.43% 0.43%
RATIOS/SUPPLEMENTAL DATA
Ratios to average net assets:
Net investment income ......................................... 3.52% 1.97% 1.01%<F1>
Total expenses ................................................ 1.82% 1.86% 2.09%<F1>
Net assets, end of period (thousands) ........................... $ 4,112 $ 6,599 $ 34
<FN>
<F1> 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 funds managed or advised by Keystone
Investment Management Company (formerly named 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 Investment Company
Act of 1940 ("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 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.
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.
The Fund may enter into reverse repurchase agreements and purchase and sell
securities on a when issued or delayed delivery basis.
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 associated risks, see
"Additional Investment Information" and the statement of additional
information.
Of course, there can 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 summarized below, which
may not be changed without the vote of a majority of the Fund's outstanding
shares (as defined in the 1940 Act). These restrictions and certain other
fundamental and nonfundamental 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.
Generally, 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.
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 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 (2) money market investments maturing in more than sixty days for which
market quotations are readily available are valued 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
- ------------------------------------------------------------------------------
The Fund has qualified and intends to qualify in the future as a regulated
investment company under the Internal Revenue Code (the "Code"). The Fund
qualifies if, among other things, it distributes to its shareholders at least
90% of its net investment income for its fiscal year. The Fund also intends to
make timely distributions, if necessary, sufficient in amount to avoid the
nondeductible 4% excise tax imposed on a regulated investment company to the
extent that it fails to distribute, with respect to each calendar year, at
least 98% of its ordinary income for such calendar year and 98% of its net
capital gains for the one-year period ending on October 31 of such calendar
year. Any taxable distribution declared in October, November, or December to
shareholders of record in such a month, and paid by the following January 31,
will be includable in the taxable income of shareholders on December 31 of the
year in which such distributions were declared. If the Fund qualifies and if
it distributes substantially 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 and net
capital gains, if any, and makes distributions to its shareholders monthly.
Shareholders receive Fund distributions in the form of additional shares of
that class of shares upon which the distribution is based or, at the
shareholder's option, in cash. Fund distributions in the form of additional
shares are made at net asset value without the imposition of a sales charge.
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.
For federal income tax purposes, income dividends and net short-term gains
distributions are taxable as ordinary 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
- ------------------------------------------------------------------------------
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 funds in the Keystone Fund Family and to certain other
funds in the Keystone Investments Family of 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.
Keystone, located at 200 Berkeley Street, Boston, Massachusetts 02116-5034,
has provided investment advisory and management services to investment
companies and private accounts since it was organized in 1932. Keystone is a
wholly-owned subsidiary of Keystone Investments, Inc. (formerly named Keystone
Group, Inc.) ("Keystone Investments"), located at 200 Berkeley Street, Boston,
Massachusetts 02116-5034.
Keystone Investments is a corporation predominantly owned by current and
former members of management of Keystone and its affiliates. The shares of
Keystone Investments common stock beneficially owned by management are held in
a number of voting trusts, the trustees of which are George S. Bissell, Albert
H. Elfner, III, Edward F. Godfrey and Ralph J. Spuehler, Jr. Keystone
Investments provides accounting, bookkeeping, legal, personnel and general
corporate services to Keystone Management, Keystone, their affiliates and the
Keystone Investments Family of 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, 1995, the Fund paid or accrued to
Keystone Management investment management fees and administrative service fees
of $1,923,870, which represented 0.50% of the Fund's average net assets. Of
such amount paid to Keystone Management, $1,635,290 was paid to Keystone for
its services to the Fund.
The Fund has adopted a Code of Ethics incorporating policies on personal
securities trading as recommended by the Investment Company Institute.
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, 1995, the Fund paid or accrued $24,777
to Keystone Investments, as reimbursement for certain accounting and printing
services provided to the Fund, and $866,507 was paid or accrued to Keystone
Investor Resource Center, Inc. ("KIRC"), the Fund's transfer and dividend
disbursing agent, 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
- ------------------------------------------------------------------------------
Keystone Investment Distributors Company (formerly named Keystone
Distributors, Inc.) (the "Principal Underwriter") serves as the Fund's
principal underwriter. The Principal Underwriter is a wholly-owned subsidiary
of Keystone and is located at 200 Berkeley Street, Boston, Massachusetts
02116-5034.
All classes of Fund 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, call KIRC at the telephone number listed above.
- ------------------------------------------------------------------------------
ALTERNATIVE SALES OPTIONS
- ------------------------------------------------------------------------------
Generally, 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, with certain exceptions, subject to a contingent deferred sales charge if
they are redeemed. Class B shares purchased on or after June 1, 1995 are
subject to a contingent deferred sales charge if redeemed during the 72 month
period commencing with and including the month of purchase. Class B shares
purchased prior to June 1, 1995 are subject to a deferred sales charge upon
redemption during the four calendar years following purchase. Class B shares
purchased on or after June 1, 1995 that have been outstanding for eight years
from and including the month of purchase will automatically convert to Class A
shares without the imposition of a front-end sales charge or exchange fee.
Class B shares purchased prior to June 1, 1995 will retain their existing
conversion rights.
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 the Principal
Underwriter.
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.
In general, three Fund share classes 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 Fund 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 the Principal Underwriter 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 respect to Class B shares purchased on or after June 1, 1995, the Fund,
with certain exceptions, imposes a deferred sales charge in accordance with
the following schedule:
DEFERRED
SALES
CHARGE
REDEMPTION TIMING IMPOSED
- ----------------- -------
First twelve month period .................... 5.00%
Second twelve month period ................... 4.00%
Third twelve month period .................... 3.00%
Fourth twelve month period ................... 3.00%
Fifth twelve month period .................... 2.00%
Sixth twelve month period .................... 1.00%
No deferred sales charge is imposed on amounts redeemed thereafter.
With respect to Class B shares sold prior to June 1, 1995, the Fund, with
certain exceptions, imposes 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 the Principal Underwriter. Amounts
received by the Principal Underwriter under the Class B Distribution Plans are
reduced by deferred sales charges retained by the Principal Underwriter. See
"Contingent Deferred Sales Charge and Waiver of Sales Charges" below.
Class B shares purchased on or after June 1, 1995 that have been outstanding
for eight years from and including the month of purchase will automatically
convert to Class A shares (which are subject to a lower Distribution Plan
charge) without imposition of a front-end sales charge or exchange fee. Class
B shares purchased prior to June 1, 1995 will similarly convert to Class A
shares at the end of seven calendar years after the year of purchase.
(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 PLANS
The Fund has adopted Distribution Plans with respect to its Class B shares
("Class B Distribution Plans") that provide for expenditures at an annual rate
of up to 1.00% of the average daily net asset value of Class B shares to pay
expenses of the distribution of Class B shares. Payments under the Class B
Distribution Plans are currently made to the Principal Underwriter (which may
reallow all or part to others, such as dealers) (1) as commissions for Class B
shares sold and (2) as shareholder service fees. Amounts paid or accrued to
the Principal Underwriter under (1) and (2) in the aggregate may not exceed
the annual limitation referred to above.
The Principal Underwriter generally reallows to brokers or others a
commission equal to 4.00% of the price paid for each Class B share sold plus
the first year's service fee in advance in the amount of 0.25% of the price
paid for each Class B share sold. Beginning approximately 12 months after the
purchase of a Class B share, the broker or other party will receive service
fees at an annual rate of 0.25% of the average daily net asset value of such
Class B share maintained by the recipient 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 the Principal Underwriter. 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 the Principal Underwriter. See
"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 outstanding on the
books of the Fund for specified periods. See "Distribution Plans" below.
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 asset value at the time of purchase 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 or more than 72 months after
purchase, as the case may be. 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
the Principal Underwriter 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; (5) automatic withdrawals under
an automatic withdrawal plan of up to 1 1/2% per month of the shareholder's
initial account balance; (6) withdrawals consisting of loan proceeds to a
retirement plan participant; (7) financial hardship withdrawals made by a
retirement plan participant; or (8) withdrawals consisting of returns of
excess contributions or excess deferral amounts made to a retirement plan
participant.
ARRANGEMENTS WITH BROKER-DEALERS AND OTHERS
The Principal Underwriter 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. The Principal Underwriter 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.
The Principal Underwriter may, at its own expense, pay concessions in
addition to those described above to dealers that satisfy certain criteria
established from time to time by the Principal Underwriter. These conditions
relate to increasing sales of shares of the Keystone funds over specified
periods and certain other factors. Such payments may, depending on the
dealer's satisfaction of the required conditions, be periodic and may be up to
0.25% of the value of shares sold by such dealer.
The Principal Underwriter 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.
- ------------------------------------------------------------
DISTRIBUTION PLANS
- ------------------------------------------------------------------------------
As discussed above, 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.
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 Plans, plus
interest at the prime rate plus 1% on such amounts (less any contingent
deferred sales charges paid by shareholders to the Principal Underwriter)
remaining unpaid from time to time.
The Principal Underwriter intends, but is not obligated, to continue to pay
or accrue distribution charges incurred in connection with the Class B
Distribution Plans that exceed current annual payments permitted to be
received by the Principal Underwriter from the Fund. The Principal Underwriter
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.
If the Fund's Independent Trustees authorize such payments, the effect would
be to extend the period of time during which the Fund incurs the maximum
amount of costs allowed by a Distribution Plan. If a Distribution Plan is
terminated, the Principal Underwriter will ask the Independent Trustees to
take whatever action they deem appropriate under the circumstances with
respect to payment of such amounts.
In connection with financing its distribution costs, including commission
advances to dealers and others, the Principal Underwriter has sold to a
financial institution substantially all of its 12b-1 fee collection rights and
contingent deferred sales charge collection rights in respect of Class B
shares sold during the two-year period commencing approximately June 1, 1995.
The Fund has agreed not to reduce the rate of payment of 12b-1 fees in respect
of such Class B shares unless it terminates such shares' Distribution Plan
completely. If it terminates such Distribution Plan, the Fund may be subject
to possible adverse distribution consequences.
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.
Unreimbursed distribution expenses at year-end June 30, 1995 for Class B and
Class C shares were $746,584 (10.25% of Class B net assets) and $825,276
(20.07% of Class C net assets), respectively.
For the year ended June 30, 1995, the Fund paid the Principal Underwriter
$343,747, $119,037 and $70,834 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.
- ------------------------------------------------------------------------------
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.
If imposed, the deferred sales charge is deducted from the redemption
proceeds otherwise payable to you.
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 may delay the
mailing of a redemption check or the wiring or Electronic Fund Transfer
("EFT") of redemption proceeds until good payment has been collected for the
purchase of such shares. This may take 15 days. Any delay may be avoided by
purchasing shares either with a certified check or by Federal Reserve or bank
wire of funds or by EFT. Although the mailing of a redemption check or the
wiring or EFT of redemption proceeds may be delayed, the redemption value will
be determined and the redemption processed in the ordinary course of business
upon receipt of proper documentation. In such a case, after the redemption and
prior to the release of the proceeds, no appreciation or depreciation will
occur in the value of the redeemed shares, and no interest will be paid on the
redemption proceeds. If the payment of a redemption has been delayed, the
check will be mailed or the proceeds wired or sent EFT promptly after good
payment has been collected.
The Fund computes the amount due you at the close of the Exchange at the end
of the day on which it has received all proper documentation from you. Payment
of the amount due on redemption, less any applicable contingent deferred sales
charge (as described above), will be made within seven days thereafter except
as discussed herein.
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 the Principal
Underwriter 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 the
Principal Underwriter will be liable when following instructions received over
KARL or by telephone that KIRC reasonably believes to be genuine.
- ------------------------------------------------------------------------------
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 the exchange restrictions set forth below and any other
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, if you have obtained the appropriate prospectus, you may exchange
Class A shares of the Fund that you purchased directly for shares of any of
the funds in the Keystone Fund Family, 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 fund
in the Keystone Fund Family, 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, except as noted below, may be exchanged for the same type
of Class B shares of certain Keystone America Funds; and
Class C shares may be exchanged for Class C shares of certain Keystone
America Funds.
Class B shares purchased on or after June 1, 1995 cannot be exchanged for
Class B shares of Keystone Capital Preservation and Income Fund during the 24
month period commencing with and including the month of original purchase.
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:
(1) Class B shares which have been held for less than 72 months or four
years, as the case may be, or
(2) 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.
Subject to the foregoing restrictions, 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 as described above 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. Eastern time 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. Eastern time 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.
- ------------------------------------------------------------------------------
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. See the SAI
for more complete information concerning performance calculations.
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., Morningstar, Inc., Standard & Poor's
Corporation and Ibbotson Associates or other industry publications.
- ------------------------------------------------------------------------------
FUND SHARES
- ------------------------------------------------------------------------------
Generally, the Fund currently issues three classes of shares that
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
generally 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.
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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 factor is 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
(Title)
time (a) to complete and ex- ecute 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>
[Logo} KEYSTONE
INVESTMENTS
Keystone Investment Distributors Company
200 Berkeley Street
Boston, Massachusetts 02116-5034
[Recycle Logo]
KLT-P 10/95
16M
KEYSTONE
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Photo:
Grandfather pushing
Grandson on Bicycle
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LIQUID
TRUST
[Logo]
PROSPECTUS AND
APPLICATION
<PAGE>
KEYSTONE LIQUID TRUST
PART B
STATEMENT OF ADDITIONAL INFORMATION
<PAGE>
STATEMENT OF ADDITIONAL INFORMATION
KEYSTONE LIQUID TRUST
OCTOBER 30, 1995
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 30, 1995. A copy of the prospectus may
be obtained from Keystone Investment Distributors Company (formerly named
Keystone Distributors, Inc.) (the "Principal Underwriter"), the Fund's principal
underwriter, 200 Berkeley Street, Boston, MA 02116-5034, or your broker-dealer.
- -------------------------------------------------------------------------------
TABLE OF CONTENTS
- -------------------------------------------------------------------------------
Page
The Fund's Objective and Policies 2
Investment Restrictions 2
Valuation and Redemption of Securities 4
Distributions and Taxes 5
Yield Quotations 5
Sales Charges 6
Distribution Plans 9
Trustees and Officers 12
Declaration of Trust 16
Investment Manager 17
Investment Adviser 20
Principal Underwriter 21
Brokerage 22
Additional Information 24
Appendix A-1
Financial Statements F-1
Independent Auditors' Report F-13
<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 (a)
borrow money from banks on a temporary basis; or (b) 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 has no current intention of attempting to increase its net
income by borrowing and currently intends to repay any borrowings made in
accordance with the fourth investment restriction enumerated above before it
makes any additional investments.
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.
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.
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.
- -------------------------------------------------------------------------------
VALUATION AND REDEMPTION OF SECURITIES
- -------------------------------------------------------------------------------
The Fund values its money market instruments as follows: (1) 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
(2) 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.
- -------------------------------------------------------------------------------
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, subtracting a hypothetical charge
reflecting deductions from shareholder accounts, and dividing the difference by
the value of the account at the beginning of the base period to obtain the base
period return, and then 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, 1995, the current yields of
Class A, Class B and Class C shares were 4.88%, 3.87%, and 3.88%, 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, 1995, the effective yields of
Class A, Class B and Class C shares were 5.00%, 3.94%, and 3.96%, 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 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
Generally, 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 purchased on or after June 1, 1995 are subject to a contingent deferred
sales charge if redeemed during the 72 month period commencing with and
including the month of purchase. Class B shares purchased prior to June 1, 1995
are subject to a contingent deferred sales charge upon redemption during the
four calendar years following the year of purchase ("Back End Load Option").
Class B shares purchased on or after June 1, 1995 that have been outstanding
eight years from and including the month of purchase will automatically convert
to Class A shares without the imposition of a sales charge or exchange fee.
Class B shares purchased prior to June 1, 1995 that have been outstanding during
seven calendar years will similarly convert to Class A shares. (Conversion of
Class B shares represented by stock certificates will require the return of the
stock certificates to Keystone Investor Resource Center, Inc., the Fund's
transfer and dividend disbursing agent ("KIRC").) Class B shares purchased on or
after June 1, 1995 cannot be exchanged for Keystone Capital Preservation and
Income Fund Class B shares during the 24 month period commencing with and
including the month of purchase. 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 the Principal
Underwriter. The prospectus contains a general description of how investors may
buy shares of the Fund and 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 is imposed at the time of
redemption of certain Fund shares (other than Class A shares), as follows:
CLASS B SHARES
With respect to Class B shares purchased on or after June 1, 1995, the
Fund, with certain exceptions, will impose a deferred sales charge as a
percentage of the lesser of net asset value or net cost of such Class B shares
redeemed during succeeding twelve-month periods as follows: 5% during the first
twelve month period; 4% during the second twelve month period; 3% during the
third twelve month period; 3% during the fourth twelve month period; 2% during
the fifth twelve month period; and 1% during the sixth twelve month period. No
deferred sales charge is imposed on amounts redeemed thereafter.
With respect to Class B shares sold prior to June 1, 1995, the Fund,
with certain exceptions, will impose a deferred sales charge of 3% on shares
redeemed during the calendar year of purchase and during the first calendar year
after purchase; 2% on shares redeemed during the second calendar year after
purchase; and 1% on shares redeemed during the third calendar year after
purchase. No deferred sales charge is imposed on amounts redeemed thereafter.
When imposed, the deferred sales charge is deducted from the redemption
proceeds otherwise payable to you. The deferred sales charge is retained by the
Principal Underwriter. Amounts received by the Principal Underwriter under the
Class B Distribution Plans are reduced by deferred sales charges retained by the
Principal Underwriter. See "Calculation of Contingent Deferred Sales Charge"
below.
CLASS C SHARES
With certain exceptions, the Fund will 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.
When imposed, the deferred sales charge is deducted from the redemption
proceeds otherwise payable to you. The deferred sales charge is retained by the
Principal Underwriter. 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 more
than one year from date of purchase; or (4) Class B shares held more than four
consecutive calendar years or more than 72 months, as the case may be.
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;
(5) automatic withdrawals under an automatic withdrawal plan of up to 1 1/2% per
month of the shareholder's initial account balance; (6) withdrawals consisting
of loan proceeds to a retirement plan participant; (7) financial hardship
withdrawals made by a retirement plan participant; or (8) withdrawals consisting
of returns of excess contributions or excess deferral amounts made to a
retirement plan participant.
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DISTRIBUTION PLANS
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Rule 12b-1 under the 1940 Act permits investment companies, such as the
Fund, to use their assets to bear expenses of distributing their shares if they
comply with various conditions, including adoption of a distribution plan
containing certain provisions set forth in Rule 12b-1. The Fund's Class A, B and
C Distribution Plans have been 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 Distribution Plans or any agreement
related thereto (the "Rule 12b-1 Trustees" who are the same as the Independent
Trustees).
The National Association of Securities Dealers, Inc. ("NASD") limits
the amount that the 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 the Principal
Underwriter).
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 (currently the Principal Underwriter) to
enable the Principal Underwriter to pay or to have paid to others who sell Class
A shares a service fee or other fee, at such intervals as the Principal
Underwriter may determine, in respect of Class A shares maintained by such
recipients on the books of the Fund for specified periods.
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 daily net asset value of Class A shares maintained by
such recipients on the books of the Fund for specified periods.
CLASS B DISTRIBUTION PLANS
The Fund has adopted Distribution Plans for its Class B shares that
provide 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 (currently the Principal Underwriter) (1) to
enable the Principal Underwriter to pay to others 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 on the books of the Fund for
specified periods.
The Principal Underwriter generally reallows to brokers or others a
commission equal to 4.00% of the price paid for each Class B share sold plus the
first year's service fee in advance in the amount of 0.25% of the price paid for
each Class B share sold. Beginning approximately 12 months after the purchase of
a Class B share, the broker or other party receives service fees at an annual
rate of 0.25% of the average daily net asset value of such Class B share
maintained by such recipients on the books of the Fund for specified periods.
In connection with financing its distribution costs, including
commission advances to dealers and others, the Principal Underwriter has sold to
a financial institution substantially all of its 12b-1 fee collection rights and
contingent deferred sales charge collection rights in respect of Class B shares
sold during the two-year period commencing approximately June 1, 1995. The Fund
has agreed not to reduce the rate of payment of 12b-1 fees in respect of such
Class B shares unless it terminates such shares' Distribution Plan completely.
If it terminates such Distribution Plan, the Fund may be subject to possible
adverse distribution consequences.
The Principal Underwriter intends, but is not obligated, to continue to
pay or accrue distribution charges incurred in connection with each Class B
Distribution Plan that exceed current annual payments permitted to be received
by the Principal Underwriter from the Fund. The Principal Underwriter intends to
seek full payment of such charges from the Fund (together with annual interest
thereon at the prime rate plus 1%) at such time in the future as, and to the
extent that, payment thereof by the Fund would be within the permitted limits.
If the Fund's Independent Trustees authorize such payments, the effect
would be to extend the period of time during which the Fund incurs the maximum
amount of costs allowed by a Class B Distribution Plan. If a Class B
Distribution Plan is terminated, the Principal Underwriter will ask the
Independent Trustees to take whatever action they deem appropriate under the
circumstances with respect to payment of such amounts.
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 that 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
(currently the Principal Underwriter) (1) to enable the Principal Underwriter to
pay to others 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 on the
books of the Fund for specified periods.
The Principal Underwriter generally reallows to brokers or others a
commission in the amount of 0.75% of the price paid for each Class C share sold
plus the first year's service fee in advance in the amount of 0.25% of the price
paid for each Class C share sold. Beginning approximately 15 months after
purchase of a Class C share, brokers or others receive a commission at an annual
rate of 0.75% (subject to NASD rules) plus service fees at the annual rate of
0.25% of the average daily net asset value of each Class C share maintained by
such recipients on the books of the Fund for specified periods.
DISTRIBUTION PLANS - GENERAL
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. Any change in a Distribution
Plan that would materially increase the distribution expenses provided for in
the Distribution Plan requires shareholder approval. Otherwise, the Distribution
Plans 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, 1995, the Fund paid the Principal
Underwriter $343,747, $119,037 and $70,834 in Distribution Plan fees for Class
A, Class B and Class C shares, 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:
*ALBERT H. ELFNER, III: President, Chief Executive Officer and Trustee of the
Fund; Chairman of the Board, President, Director and Chief Executive
Officer of Keystone Investments, Inc. (formerly named Keystone Group,
Inc.) ("Keystone Investments"); President, Chief Executive Officer and
Trustee or Director of all 30 funds in the Keystone Investments Family
of Funds; Director and Chairman of the Board, Chief Executive Officer
and Vice Chairman of Keystone Investment Management Company (formerly
named Keystone Custodian Funds, Inc.) ("Keystone"); Chairman of the
Board and Director of Keystone Institutional Company, Inc. ("Keystone
Institutional") (formerly named Keystone Investment Management
Corporation), and Keystone Fixed Income Advisors ("KFIA"); Director,
Chairman of the Board, Chief Executive Officer and President of
Keystone Management, Inc. ("Keystone Management"), Keystone Software
Inc. ("Keystone Software"); formerly Director and President of Hartwell
Keystone Advisers, Inc. ("Hartwell Keystone"); Director and President
of Keystone Asset Corporation, Keystone Capital Corporation, and
Keystone Trust Company; Director of the Principal Underwriter, KIRC,
and Fiduciary Investment Company, Inc. ("FICO"); formerly Director and
Vice President of Robert Van Partners, Inc.; Director of Boston
Children's Services Association; Trustee of Anatolia College, Middlesex
School, and Middlebury College; Member, Board of Governors, New England
Medical Center; and former Trustee of Neworld Bank.
FREDERICK AMLING: Trustee of the Fund; Trustee or Director of all other Keystone
Investments Funds; Professor, Finance Department, George Washington
University; President, Amling & Company (investment advice); Member,
Board of Advisers, Credito Emilano (banking); and former Economics and
Financial Consultant, Riggs National Bank.
CHARLES A. AUSTIN III: Trustee of the Fund; Trustee or Director of all other
Keystone Investments Funds; Investment Counselor to Appleton Partners,
Inc.; former Managing Director, Seaward Management Corporation
(investment advice) and former Director, Executive Vice President and
Treasurer, State Street Research & Management Company (investment
advice).
*GEORGE S. BISSELL: Chairman of the Board and Trustee of the Fund; Director of
Keystone Investments; Chairman of the Board and Trustee or Director of
all other Keystone Investments Funds; Director and Chairman of the
Board of Hartwell Keystone; Chairman of the Board and Trustee of
Anatolia College; Trustee of University Hospital (and Chairman of its
Investment Committee); former Chairman of the Board and Chief Executive
Officer of Keystone Investments; and former Chief Executive Officer of
the Fund.
EDWIN D. CAMPBELL: Trustee of the Fund; Trustee or Director of all other
Keystone Investments Funds; Executive Director, Coalition of Essential
Schools, Brown University; Director and former Executive Vice
President, National Alliance of Business; former Vice President,
Educational Testing Services; and former Dean, School of Business,
Adelphi University.
CHARLES F. CHAPIN: Trustee of the Fund; Trustee or Director of all other
Keystone Investments Funds; former Group Vice President, Textron Corp.;
and former Director, Peoples Bank (Charlotte, N.C).
LEROY KEITH, JR.: Trustee of the Fund; Trustee or Director of all other
Keystone Investments Funds; Director of Phoenix Total Return Fund and
Equifax, Inc.; Trustee of Phoenix Series Fund, Phoenix Multi-Portfolio
Fund and The Phoenix Big Edge Series Fund; and former President,
Morehouse College.
K. DUN GIFFORD: Trustee of the Fund; Trustee or Director of all other
Keystone Investments Funds; Chairman of the Board, Director and
Executive Vice President, The London Harness Company; Managing Partner,
Roscommon Capital Corp.; Trustee, Cambridge College; Chairman Emeritus
and Director, American Institute of Food and Wine; Chief Executive
Officer, Gifford Gifts of Fine Foods; Chairman, Gifford, Drescher &
Associates (environmental consulting); President, Oldways Preservation
and Exchange Trust (education); and former Director, Keystone
Investments and Keystone.
F. RAY KEYSER, JR.: Trustee of the Fund; Trustee or Director of all other
Keystone Investments Funds; Of Counsel, Keyser, Crowley & Meub, P.C.;
Member, Governor's (VT) Council of Economic Advisers; Chairman of the
Board and Director, Central Vermont Public Service Corporation and
Hitchcock Clinic; Director, Vermont Yankee Nuclear Power Corporation,
Vermont Electric Power Company, Inc., Grand Trunk Corporation, Central
Vermont Railway, Inc., S.K.I. Ltd., Sherburne Corporation, Union Mutual
Fire Insurance Company, New England Guaranty Insurance Company, Inc.
and the Investment Company Institute; former Governor of Vermont;
former Director and President, Associated Industries of Vermont; former
Chairman and President, Vermont Marble Company; former Director of
Keystone; and former Director and Chairman of the Board, Green Mountain
Bank.
DAVID M. RICHARDSON: Trustee of the Fund; Trustee or Director of all other
Keystone Investments Funds; Executive Vice President, DHR
International, Inc. (executive recruitment); former Senior Vice
President, Boyden International Inc. (executive recruitment); and
Director, Commerce and Industry Association of New Jersey, 411
International, Inc. and J & M Cumming Paper Co.
RICHARD J. SHIMA: Trustee of the Fund; Trustee or Director of all other
Keystone Investments Funds; Chairman, Environmental Warranty, Inc., and
Consultant, Drake Beam Morin, Inc. (executive outplacement); Director
of Connecticut Natural Gas Corporation, Trust Company of Connecticut,
Hartford Hospital, Old State House Association and Enhanced Financial
Services, Inc.; Member, Georgetown College Board of Advisors; Chairman,
Board of Trustees, Hartford Graduate Center; Trustee, Kingswood-Oxford
School and Greater Hartford YMCA; former Director, Executive Vice
President and Vice Chairman of The Travelers Corporation; and former
Managing Director of Russell Miller, Inc.
ANDREW J. SIMONS: Trustee of the Fund; Trustee or Director of all other
Keystone Investments Funds; Partner, Farrell, Fritz, Caemmerer, Cleary,
Barnosky & Armentano, P.C.; President, Nassau County Bar Association;
and former Associate Dean and Professor of Law, St. John's University
School of Law.
EDWARD F. GODFREY: Senior Vice President of the Fund; Senior Vice President of
all other Keystone Investments Funds; Director, Senior Vice President,
Chief Financial Officer and Treasurer of Keystone Investments, the
Principal Underwriter, Keystone Asset Corporation, Keystone Capital
Corporation, Keystone Trust Company; Treasurer of Keystone
Institutional and FICO; Treasurer and Director of Keystone Management
and Keystone Software; Vice President and Treasurer of KFIA; Director
of KIRC; and formerly Treasurer of Robert Van Partners, Inc.; and
formerly Treasurer and Director of Hartwell Keystone.
JAMES R. McCALL: Senior Vice President of the Fund; Senior Vice President of
all other Keystone Investments Funds; and President of Keystone.
KEVIN J. MORRISSEY: Treasurer of the Fund; Treasurer of all other Keystone
Investments Funds; Vice President of Keystone Investments; Assistant
Treasurer of FICO and Keystone; and former Vice President and Treasurer
of KIRC.
CHRISTOPHER P. CONKEY: Vice President of the Fund; Vice President of certain
other Keystone Investments Funds; and Senior Vice President of
Keystone.
ROSEMARY D. VAN ANTWERP: Senior Vice President and Secretary of the Fund; Senior
Vice President and Secretary of all other Keystone Investments Funds;
Senior Vice President, General Counsel and Secretary of Keystone;
Senior Vice President, General Counsel, Secretary and Director of the
Principal Underwriter, Keystone Management and Keystone Software;
Senior Vice President and General Counsel of Keystone Institutional;
Senior Vice President, General Counsel and Director of FICO and KIRC;
formerly Senior Vice President and Secretary of Hartwell Keystone and
Robert Van Partners, Inc.; Vice President and Secretary of KFIA; Senior
Vice President, General Counsel and Secretary of Keystone Investments,
Keystone Asset Corporation, Keystone Capital Corporation and Keystone
Trust Company.
* This Trustee may be considered an "interested person" within the meaning of
the 1940 Act.
Mr. Elfner and Mr. Bissell are "interested persons" by virtue of their
positions as officers and/or Directors of Keystone Investments and several of
its affiliates including Keystone, the Principal Underwriter and KIRC. Mr.
Elfner and Mr. Bissell own shares of Keystone Investments. Mr. Elfner is
Chairman of the Board, Chief Executive Officer and Director of Keystone
Investments. Mr. Bissell is a Director of Keystone Investments.
During the fiscal year ended June 30, 1995, 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 $21,456 in
retainers and fees from the Fund. For the twelve month period ended December 31,
1994, aggregate compensation paid to Independent Trustees on a complex wide
basis was approximately $289,022. As of July 31, 1995, the Trustees and officers
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 and officers 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 a Massachusetts business 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
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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 funds in the Keystone Fund Family and to
certain other funds in the Keystone Investments Family of Funds.
Except as otherwise noted below, pursuant to an Investment Management
Agreement with the Fund (the "Management Agreement"), 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
objective 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 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 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 Management 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 Internal Revenue 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; and (3) providing services to the Fund's
shareholders in connection with federal and state taxation and distributions of
income and capital gains.
The Fund pays Keystone Management a fee for its services at the annual
rate of:
(1) 0.50 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) 0.45 of 1% 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 1% 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 reimbursements 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 are 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 limitations. 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.
- -------------------------------------------------------------------------------
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
Investment Advisory Agreement (the "Advisory Agreement") with Keystone under
which Keystone provides 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 Investments located at 200
Berkeley Street, Boston, Massachusetts 02116-5034.
Keystone Investments is a corporation predominantly owned by current
and former members of management of Keystone and its affiliates. The shares of
Keystone Investments common stock beneficially owned by management are held in a
number of voting trusts, the trustees of which are George S. Bissell, Albert H.
Elfner, III, Edward F. Godfrey and Ralph J. Spuehler, Jr. Keystone Investments
provides accounting, bookkeeping, legal, personnel and general corporate
services to Keystone Management, Keystone, their affiliates and the Keystone
Investments Family of 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 operation of the Fund, and manages the investment and
reinvestment of the Fund's assets in conformity with the Fund's investment
objective and restrictions. The Advisory Agreement stipulates that Keystone
shall provide office space, all necessary office facilities, equipment and
personnel in connection with its services under the Advisory Agreement and pay
or reimburse the Fund for the compensation of Fund officers and Trustees who are
affiliated with the investment manager and will pay all expenses of Keystone,
incurred in connection with the provision 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 fiscal year ended June 30, 1993, the Fund paid or accrued to
Keystone Management investment management and administrative 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 fiscal year ended June 30, 1994, the Fund paid or accrued to
Keystone Management investment management and administrative services 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.
During the fiscal year ended June 30, 1995, the Fund paid or accrued to
Keystone Management investment management and administrative fees of $1,923,870,
which represented 0.50% of the Fund's average net assets. Of such amount paid to
Keystone Management, $1,635,290 was paid to Keystone for its services to the
Fund.
- -------------------------------------------------------------------------------
PRINCIPAL UNDERWRITER
- -------------------------------------------------------------------------------
The Fund has entered into Principal Underwriting Agreements,
("Principal Underwriting Agreements") with the Principal Underwriter, a
wholly-owned subsidiary of Keystone. The Principal Underwriter, as agent, has
agreed to use its best efforts to find purchasers for the shares. The Principal
Underwriter 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 Agreements
provide that the Principal Underwriter will bear the expense of preparing,
printing and distributing advertising and sales literature and prospectuses used
by it. In its capacity as principal underwriter, the Principal Underwriter may
receive payments from the Fund pursuant to the Fund's Distribution Plans.
All subscriptions and sales of shares by the Principal Underwriter 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 Agreements, the Fund is not liable to
anyone for failure to accept any order.
The Principal Underwriter, 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 the Principal Underwriter is qualified as a broker-dealer. The
Principal Underwriting Agreements provide that the Principal Underwriter 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 the Principal Underwriter's judgment it could
benefit sales of Fund shares, the Principal Underwriter 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 Agreements provide that they will remain in
effect as long as their 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 their continuance is approved annually by vote of a majority of
Trustees, or by vote of a majority of the outstanding shares.
The Principal Underwriting Agreements 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, Keystone Management 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. The cost, value and specific application of such
information are indeterminable and cannot be practically allocated among the
Fund and other clients of Keystone and Keystone Management 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, the Principal Underwriter 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 for securities transactions
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, 99 High Street, Boston, Massachusetts 02110,
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 July 31, 1995, there were no shareholders of record owning 5% or
more of the Fund's outstanding Class A shares.
As of July 31, 1995, Granville D. Grimes, Charitable Remainder
Uni-Trust 7-2, P.O. Box 1035, Decatur, AL 35601 owned 11.075% of the outstanding
Class B shares.
As of July 31, 1995, Michael Richer, 16 St. James Place, Palm Beach
Gardens, FL 33418 owned 6.514% of the outstanding Class C shares; Melinda
Frohling, TTEE, U/A DTD 08/02/91, Melinda Frohling Living Trust, 20 Hillsdale
Drive, Newport Beach, CA 92660, owned 5.599% of the outstanding Class C shares;
David Katz and Thomas Doyle TTS, U/A DTD 08/02/76, Western, Wisconsin Urology
SC, PSP Account B, 3203 Stein Blvd., Eau Claire, WI 54701, owned 5.017% 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 ("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 U.S. Government include a
variety of Treasury securities that differ only in their interest rates,
maturities and dates of issuance. Treasury bills have maturities of one year or
less. Treasury notes have maturities of one-to-ten years and Treasury bonds
generally have maturities of greater than ten years at the date of issuance.
Securities issued or guaranteed by the U.S. Government or its agencies
or instrumentalities include direct obligations of the U.S. 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 U.S. 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 U.S.; 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 U.S. 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. U.S. Government securities will not
include international agencies or instrumentalities in which the U.S.
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>
Keystone Liquid Trust
SCHEDULE OF INVESTMENTS--June 30, 1995
<TABLE>
<CAPTION>
Maturity Principal Market
Date Amount Value
- ------------------------------------------------------------------------------------------
<S> <C> <C> <C>
BANKERS' ACCEPTANCES (9.4%)
Bank of New York 07/24/95 $ 5,000,000 $ 4,982,821
First Union National Bank 07/07/95 9,000,000 8,994,120
National Bank of Detroit 07/14/95 5,000,000 4,990,940
Northern Trust Corp. 07/05/95 1,000,000 999,672
Northern Trust Corp. 07/18/95 1,300,000 1,296,783
Republic Bank, New York 08/16/95 3,000,000 2,978,006
- ------------------------------------------------------------------------------------------
TOTAL BANKERS' ACCEPTANCES (COST--$24,242,776) 24,242,342
- ------------------------------------------------------------------------------------------
BANK NOTES (3.9%)
Fifth Third Bank, Cincinnati, Ohio, 6.08% 11/10/95 5,000,000 5,002,231
Wachovia Bank & Trust, 5.76% 09/05/95 5,000,000 4,997,388
- ------------------------------------------------------------------------------------------
TOTAL BANK NOTES (COST--$9,999,408) 9,999,619
- ------------------------------------------------------------------------------------------
CERTIFICATES OF DEPOSIT (17.9%)
Algemene Bank Nederland NV, Yankee CD, 6.16% 07/05/95 5,000,000 5,000,023
Bayerische Landesbank, Yankee CD, 6.10% 07/12/95 8,000,000 8,000,058
Commerzbank, Yankee CD, 6.43% 08/07/95 5,000,000 5,001,937
Commerzbank, Yankee CD, 6.19% 09/26/95 5,000,000 5,001,042
First Alabama Bank, CD, 5.95% 08/08/95 10,000,000 9,999,310
Rabobank, Yankee CD, 5.81% 12/29/95 5,000,000 5,000,939
Swiss Bank, New York, Yankee CD, 6.01% 07/21/95 8,000,000 8,000,119
- ------------------------------------------------------------------------------------------
TOTAL CERTIFICATES OF DEPOSIT (COST--$46,004,382) 46,003,428
- ------------------------------------------------------------------------------------------
COMMERCIAL PAPER (27.2%)
ABN-AMRO North America Finance Co. 10/02/95 3,000,000 2,955,258
Associates Corp. North America 07/19/95 4,000,000 3,989,333
Associates Corp. North America 08/21/95 5,000,000 4,959,711
Bell Atlantic Network Funding 07/13/95 5,000,000 4,991,736
Caisse Nationale des Telecommunications 07/17/95 5,000,000 4,988,411
Coca Cola Co. 08/03/95 5,000,000 4,973,750
Coca Cola Financial Corp. 07/17/95 4,800,000 4,788,893
Emerson Electric Co. 08/16/95 5,000,000 4,963,654
General Electric Capital Corp. 09/11/95 5,000,000 4,943,125
Hewlett Packard Co. 09/28/95 5,000,000 4,928,588
Nestle Capital Corp. 09/05/95 5,000,000 4,947,556
Procter & Gamble Co. 08/02/95 3,600,000 3,581,883
Unilever Capital Corp. (b) 10/05/95 5,000,000 4,924,931
Unilever Capital Corp. (b) 12/11/95 5,000,000 4,874,107
Wal Mart Stores Inc. 07/06/95 5,000,000 4,997,513
- ------------------------------------------------------------------------------------------
TOTAL COMMERCIAL PAPER (COST--$69,819,595) 69,808,449
- ------------------------------------------------------------------------------------------
See Notes to Schedule of Investments.
<PAGE>
SCHEDULE OF INVESTMENTS--June 30, 1995
Maturity Principal Market
Date Amount Value
- -------------------------------------------------------------------------------------------
U.S. GOVERNMENT (AND AGENCY) ISSUES (34.3%)
FFCB, 6.02% 08/01/95 $ 8,000,000 $ 7,999,794
FHLB Discount Notes 08/30/95 10,000,000 9,903,000
FHLB Discount Notes 09/05/95 5,000,000 4,948,622
FHLB Discount Notes 11/06/95 5,000,000 4,902,000
FHLMC Discount Notes 07/19/95 5,000,000 4,986,667
FHLMC Discount Notes 08/18/95 10,000,000 9,925,634
FNMA Discount Notes 07/24/95 10,000,000 9,965,933
FNMA Discount Notes 09/14/95 5,000,000 4,941,600
FNMA Discount Notes 10/03/95 6,000,000 5,912,447
FNMA Discount Notes 10/18/95 10,000,000 9,831,772
FNMA Discount Notes 10/20/95 5,000,000 4,914,465
FNMA Discount Notes 11/01/95 5,000,000 4,905,553
U.S. Treasury Bills 11/16/95 5,000,000 4,896,489
- -------------------------------------------------------------------------------------------
TOTAL U.S. GOVERNMENT (AND AGENCY) ISSUES (COST--$88,023,616) 88,033,976
- -------------------------------------------------------------------------------------------
Maturity
Value
- -------------------------------------------------------------------------------------------
REPURCHASE AGREEMENTS (5.1%)
Paine Webber Inc., 6.10%, purchased 06/29/95
(Collateralized by $10,245,131 FNMA #66243,
6.17%, due 01/01/19) 07/03/95 $10,006,778 10,000,000
Sanwa-BGK Securities Co., 6.25%, purchased
06/30/95 (Collateralized by $2,982,058 FHLMC
#G10134, 7.50%, due 10/01/08) 07/03/95 2,981,552 2,980,000
- -------------------------------------------------------------------------------------------
TOTAL REPURCHASE AGREEMENTS (COST--$12,980,000) 12,980,000
- -------------------------------------------------------------------------------------------
TOTAL INVESTMENTS (COST--$251,069,777) (A) 251,067,814
- -------------------------------------------------------------------------------------------
OTHER ASSETS AND LIABILITIES--NET (2.2%) 5,633,501
- -------------------------------------------------------------------------------------------
NET ASSETS--(100.0%) $256,701,315
- -------------------------------------------------------------------------------------------
</TABLE>
See Notes to Schedule of Investments. (continued on next page)
<PAGE>
Keystone Liquid Trust
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, 1995, are as follows:
<TABLE>
<CAPTION>
<S> <C>
Gross unrealized appreciation $ 16,513
Gross unrealized depreciation (18,476)
----------
Net unrealized appreciation (depreciation) ($ 1,963)
==========
</TABLE>
(b) Securities that may be resold to "qualified institutional buyers" under
Rule 144A or securities offered pursuant to Section 4(2) of the Federal
Securities Act of 1933, as amended. These securities have been determined
to be liquid under guidelines established by the Board of Trustees.
Legend of Portfolio Abbreviations
FFCB--Federal Farm Credit Bank
FHLB--Federal Home Loan Bank
FHLMC--Federal Home Loan Mortgage Corporation
FNMA--Federal National Mortgage Association
See Notes to Financial Statements.
<PAGE>
FINANCIAL HIGHLIGHTS--CLASS A SHARES
(For a share outstanding throughout the year)
<TABLE>
<CAPTION>
Year Ended June 30,
-------------------------------------------------------------------
1995 1994 1993 1992 1991
- -----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net asset value beginning of year $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
- -----------------------------------------------------------------------------------------------------------
Income from investment operations
Net investment income .0454 .0235 .0230 .0386 .0634
Net realized gain (loss) on
investments 0 0 (.0001) .0003 0
- -----------------------------------------------------------------------------------------------------------
Total from investment operations .0454 .0235 .0229 .0389 .0634
- -----------------------------------------------------------------------------------------------------------
Less distributions
Dividends from above sources (.0454) (.0235) (.0229) (.0389) (.0634)
- -----------------------------------------------------------------------------------------------------------
Net asset value end of year $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
- -----------------------------------------------------------------------------------------------------------
Total return 4.63% 2.37% 2.31% 3.96% 6.47%
Ratios/supplemental data
Ratios to average net assets:
Net investment income 4.42% 2.50% 2.29% 3.99% 6.51%
Total expenses 0.92% 1.02% 1.11% 1.10% 0.92%
Net assets, end of year (thousands) $245,308 $398,617 $189,167 $227,115 $400,597
- -----------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
Year Ended June 30,
-------------------------------------------------------------------
1990 1989 1988 1987 1986
- -----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net asset value beginning of year $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
- -----------------------------------------------------------------------------------------------------------
Income from investment
operations
Net investment income .0760 .0786 .0597 .0524 .0667
Net realized gain (loss) on
investments 0 .0001 (.0001) 0 (.0002)
- -----------------------------------------------------------------------------------------------------------
Total from investment operations .0760 .0787 .0596 .0524 .0665
- -----------------------------------------------------------------------------------------------------------
Less distributions
Dividends from above sources (.0760) (.0787) (.0596) (.0524) (.0665)
- -----------------------------------------------------------------------------------------------------------
Net asset value
end of year $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
- -----------------------------------------------------------------------------------------------------------
Total return 7.81% 8.18% 6.31% 5.35% 6.85%
Ratios/supplemental data
Ratios to average net assets:
Net investment income 7.53% 7.88% 5.99% 5.30% 6.67%
Total expenses 1.00% 1.00% 1.00% 1.00% 1.00%
Net assets, end of year (thousands) $406,306 $475,640 $461,032 $375,542 $326,149
- -----------------------------------------------------------------------------------------------------------
</TABLE>
See Notes to Financial Statements.
<PAGE>
Keystone Liquid Trust
FINANCIAL HIGHLIGHTS--CLASS B SHARES
(For a share outstanding throughout the period)
<TABLE>
<CAPTION>
February 1, 1993
Year Ended June 30, (Date of Initial
------------------------ Public Offering) to
1995 1994 June 30, 1993
- --------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Net asset value beginning of period $ 1.00 $ 1.00 $ 1.00
- --------------------------------------------------------------------------------------------
Income from investment operations
Net investment income .0362 .0142 .0047
Net realized gain (loss) on investments 0 0 (.0001)
- --------------------------------------------------------------------------------------------
Total from investment operations .0362 .0142 .0046
- --------------------------------------------------------------------------------------------
Less distributions
Dividends from above sources (.0362) (.0142) (.0046)
- --------------------------------------------------------------------------------------------
Net asset value end of period $ 1.00 $ 1.00 $ 1.00
============================================================================================
Total return (b) 3.68% 1.43% 0.46%
Ratios/supplemental data
Ratios to average net assets:
Net investment income 3.66% 1.84% 1.08% (a)
Total expenses 1.84% 1.85% 2.15% (a)
Net assets, end of period (thousands) $7,281 $11,198 $ 241
- --------------------------------------------------------------------------------------------
</TABLE>
(a) Annualized.
(b) Excluding applicable sales charges.
See Notes to Financial Statements.
<PAGE>
FINANCIAL HIGHLIGHTS--CLASS C SHARES
(For a share outstanding throughout the period)
<TABLE>
<CAPTION>
February 1, 1993
Year Ended June 30, (Date of Initial
------------------------ Public Offering) to
1995 1994 June 30, 1993
- --------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Net asset value beginning of period $ 1.00 $ 1.00 $ 1.00
- --------------------------------------------------------------------------------------------
Income from investment operations
Net investment income .0362 .0142 .0045
Net realized gain (loss) on investments 0 0 (.0002)
- --------------------------------------------------------------------------------------------
Total from investment operations .0362 .0142 .0043
- --------------------------------------------------------------------------------------------
Less distributions
Dividends from above sources (.0362) (.0142) (.0043)
- --------------------------------------------------------------------------------------------
Net asset value end of period $ 1.00 $ 1.00 $ 1.00
- --------------------------------------------------------------------------------------------
Total return 3.68% 1.43% 0.43%
Ratios/supplemental data
Ratios to average net assets:
Net investment income 3.52% 1.97% 1.01% (a)
Total expenses 1.82% 1.86% 2.09% (a)
Net assets, end of period (thousands) $4,112 $6,599 $ 34
=============================================================================================
</TABLE>
(a) Annualized.
See Notes to Financial Statements.
<PAGE>
Keystone Liquid Trust
STATEMENT OF ASSETS AND LIABILITIES
June 30, 1995
<TABLE>
<CAPTION>
<S> <C>
===================================================================
Assets:
Investments at market value
(identified cost--$251,069,777) (Note 1) $251,067,814
Cash 497
Receivable for:
Fund shares sold 6,306,713
Interest 699,359
Prepaid expenses and other assets 61,061
- -------------------------------------------------------------------
Total assets 258,135,444
- -------------------------------------------------------------------
Liabilities (Note 3):
Payable for:
Fund shares redeemed 399,458
Distributions to shareholders 971,569
Due to related parties 16,661
Other accrued expenses 46,441
- -------------------------------------------------------------------
Total liabilities 1,434,129
- -------------------------------------------------------------------
Net assets $256,701,315
- -------------------------------------------------------------------
Net assets represented by paid-in capital (Note 2):
Class A Shares ($1.00 a share on 245,308,083
shares outstanding) $245,308,083
Class B Shares ($1.00 a share on 7,281,559 shares
outstanding) 7,281,559
Class C Shares ($1.00 a share on 4,111,673 shares
outstanding) 4,111,673
- -------------------------------------------------------------------
$256,701,315
- -------------------------------------------------------------------
Net asset value and offering price per share
(Classes A, B, and C) $1.00
- -------------------------------------------------------------------
</TABLE>
STATEMENT OF OPERATIONS
Year Ended June 30, 1995
<TABLE>
<CAPTION>
<S> <C> <C>
===============================================================
Investment income (Note 1):
Interest $20,575,720
- ---------------------------------------------------------------
Expenses (Notes 2 and 3):
Management fees $1,923,870
Transfer agent fees 866,507
Accounting, auditing and legal
fees 60,878
Custodian fees 89,690
Trustees' fees and expenses 21,456
Printing expenses 18,383
Registration fees 188,229
Distribution Plan expenses 533,618
Insurance expenses 12,814
Miscellaneous 5,926
- ---------------------------------------------------------------
Total expenses 3,721,371
- ---------------------------------------------------------------
Net investment income 16,854,349
- ---------------------------------------------------------------
Net realized and unrealized gain
(loss) on investments:
Net realized gain (loss) on
investments (71)
Net change in unrealized
appreciation (depreciation) on
investments (685)
- ---------------------------------------------------------------
Net gain (loss) on investments (756)
- ---------------------------------------------------------------
Net increase (decrease) in net
assets resulting from operations $16,853,593
===============================================================
</TABLE>
See Notes to Financial Statements.
<PAGE>
STATEMENTS OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
Year Ended June 30,
------------------------------
1995 1994
=================================================================================================================
<S> <C> <C>
Operations:
Net investment income $ 16,854,349 $ 6,954,755
Net realized gain (loss) on investments (71) (189)
Net change in unrealized appreciation (depreciation) on investments (685) 6,970
- -----------------------------------------------------------------------------------------------------------------
Net increase (decrease) in net assets resulting from operations 16,853,593 6,961,536
- -----------------------------------------------------------------------------------------------------------------
Distributions to shareholders (Note 1):
Class A Shares (16,168,849) (6,849,293)
Class B Shares (435,508) (62,830)
Class C Shares (249,236) (49,413)
- -----------------------------------------------------------------------------------------------------------------
Total distributions to shareholders (16,853,593) (6,961,536)
- -----------------------------------------------------------------------------------------------------------------
Capital share transactions (Note 2):
Proceeds from shares sold:
Class A Shares 725,781,933 905,957,790
Class B Shares 30,267,166 23,326,893
Class C Shares 11,924,336 14,136,918
Payment for shares redeemed:
Class A Shares (892,973,139) (701,655,443)
Class B Shares (34,518,836) (12,406,378)
Class C Shares (14,624,256) (7,601,012)
Net asset value of shares issued in reinvestment of distributions from net
investment income:
Class A Shares 13,882,242 5,148,145
Class B Shares 335,641 36,291
Class C Shares 212,269 29,614
- ----------------------------------------------------------------------------------------------------------------
Net increase (decrease) in net assets resulting from capital share
transactions (159,712,644) 226,972,818
- ----------------------------------------------------------------------------------------------------------------
Total increase (decrease) in net assets (159,712,644) 226,972,818
- ----------------------------------------------------------------------------------------------------------------
Net assets:
Beginning of year 416,413,959 189,441,141
- ----------------------------------------------------------------------------------------------------------------
End of year $ 256,701,315 $ 416,413,959
================================================================================================================
</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 Investment Management Company (formerly
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 when the
shares were purchased and how long the shares have been held. Class C shares
are offered without an initial sales charge, although a contingent deferred
sales charge may be imposed on redemptions within one year of purchase. Class
C shares are available only through dealers who have entered into special
distribution agreements with Keystone Investment Distributors Company
(formerly Keystone Distributors, Inc.) ("KIDC"), the Fund's underwriter.
Keystone is a wholly-owned subsidiary of Keystone Investments, Inc.
(formerly Keystone Group, Inc.) ("KII"), a Delaware corporation. KII 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
<PAGE>
risks, and the Fund will take constructive receipt of all securities
underlying repurchase agreements until such agreements expire.
Pursuant to an exemptive order issued by the Securities and Exchange
Commission, the Fund, along with certain other Keystone funds, may transfer
uninvested cash balances into a joint trading account. These balances are
invested in one or more repurchase agreements that are collateralized by U.S.
Treasury and/or Federal Agency obligations.
Federal Income Taxes--The Fund has qualified, and intends to qualify in
the future, as a regulated investment company under the Internal Revenue Code
of 1986, as amended ("Internal Revenue Code"). Thus, the Fund expects to be
relieved of any federal income tax liability by distributing all of its net
tax basis investment income and net tax basis capital gains, if any, to its
shareholders. The Fund intends to avoid 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:
<TABLE>
<CAPTION>
Class A Shares
------------------------------
Year Ended June 30,
1995 1994
- -----------------------------------------------------------
<S> <C> <C>
Shares sold 725,781,933 905,957,790
Shares redeemed (892,973,139) (701,655,443)
Shares issued in
reinvestment of
distributions from
available sources 13,882,242 5,148,145
---------- ------------
Net increase (decrease) (153,308,964) 209,450,492
========== ============
</TABLE>
<TABLE>
<CAPTION>
Class B Shares
----------------------------
Year Ended June 30,
1995 1994
- ---------------------------------------------------------
<S> <C> <C>
Shares sold 30,267,166 23,326,893
Shares redeemed (34,518,836) (12,406,378)
Shares issued in
reinvestment of
distributions from
available sources 335,641 36,291
--------- -----------
Net increase (decrease) (3,916,029) 10,956,806
========= ===========
</TABLE>
<TABLE>
<CAPTION>
Class C Shares
---------------------------
Year Ended June 30,
1995 1994
- --------------------------------------------------------
<S> <C> <C>
Shares sold 11,924,336 14,136,918
Shares redeemed (14,624,256) (7,601,012)
Shares issued in
reinvestment of
distributions from
available sources 212,269 29,614
--------- ----------
Net increase (decrease) (2,487,651) 6,565,520
========= ==========
</TABLE>
<PAGE>
Keystone Liquid Trust
The Fund bears some of the costs of selling its shares under a Distribution
Plan 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 KIDC under the Class A Distribution Plan are currently used to
pay others, such as dealers, service fees at an annual rate of up to 0.25% of
the average daily net asset value of Class A shares maintained by the
recipient and outstanding on the Fund's books 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) a commission at the time of purchase normally equal to 4.00% of the
price paid for each Class B share sold plus the first year's service fee in
advance in the amount of 0.25% of the price paid for each Class B share sold.
Beginning approximately 12 months after the purchase of a Class B share, the
broker or other party will receive service fees at an annual rate of 0.25% of
the average daily net asset value of such Class B shares maintained by the
recipient and outstanding on the Fund's books for specified periods. A
contingent deferred sales charge will be imposed, if applicable, on Class B
shares purchased after June 1, 1995 at rates ranging from a maximum of 5% of
amounts redeemed during the first 12 months following the date of purchase to
1% of amounts redeemed during the sixth twelve month period following the
date of purchase. Class B shares purchased on or after June 1, 1995 that have
been outstanding for eight years from the month of purchase will
automatically convert to Class A shares without a front end sales charge or
exchange fee. Class B shares purchased prior to June 1, 1995 will retain
their existing conversion rights.
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 for the distribution of Class C shares. Amounts paid by the Fund
under the Class C Distribution Plan are currently used to pay others
(dealers) a commission at the time of purchase in the amount of 0.75% of the
price paid for each Class C share sold, plus the first year's service fee in
advance in the amount of 0.25% of the price paid for each Class C share, and,
beginning approximately 15 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.) ("NASD Rule") plus service
fees at the annual rate of 0.25%, respectively, of the average net asset
value of each Class C share maintained by the recipient and outstanding on
the Fund's books for specified periods.
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. However, after the termination of any
Distribution Plan, at the discretion of the Board of Trustees, payments to
KIDC may continue as compensation for its services which had been earned
while the Distribution Plan was in effect.
For the year ended June 30, 1995, the Fund paid or accrued Distribution
Plan fees of $343,747, $119,037 and $70,834 for Class A, Class B and Class C,
respectively. These fees, which are charged to the operating expenses of the
Fund, represent 0.09%,
<PAGE>
1.00% and 1.00%, respectively, of the average net assets of each Class.
Under the NASD Rule, the maximum uncollected amounts for which KIDC may
seek payment from the Fund under its Distribution Plans are $746,584 and
$825,276 for Class B and C, respectively, as of June 30, 1995.
(3.) Investment Management and Other Transactions with Affiliates
Under the terms of the Investment Management Agreement between KMI and the
Fund KMI provides investment management and administrative services to the
Fund. In return, KMI is paid a management fee computed 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 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, 1995, the Fund paid or accrued to KMI
investment management and administration services fees of $1,923,870, which
represented 0.50% of the Fund's average net assets. Of such amount paid to
KMI, $1,635,290 was paid to Keystone for its services to the Fund.
During the year ended June 30, 1995, the Fund paid or accrued $24,777 to
KII as reimbursement for certain accounting and printing services provided to
the Fund, and $866,507 was paid or accrued to KIRC for transfer agent fees.
(4.) 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, 1995, the total amount of expenses incurred by
the Distribution Plan of each respective class is set forth in Note (2.)
"Shares of Beneficial Interest."
<PAGE>
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,
1995, and the related statement of operations for the year then ended, the
statements of changes in net assets for each of the years in the two-year
period then ended, and the financial highlights for each of the years in the
ten-year period then ended for Class A shares, and for each of the years in
the two-year period then ended and the period from February 1, 1993 (date of
initial public offering) to June 30, 1993 for Class B and Class C shares.
These financial statements and financial highlights are the responsibility of
the Fund's management. Our responsibility is to express an opinion on these
financial statements and financial highlights based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements and
financial highlights are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures
in the financial statements. Our procedures included confirmation of
securities owned as of June 30, 1995, by correspondence with the custodian.
An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of
Keystone Liquid Trust as of June 30, 1995, the results of its operations for
the year then ended, the changes in its net assets for each of the years in
the two-year period then ended, and the financial highlights for each of the
years or periods specified in the first paragraph above in conformity with
generally accepted accounting principles.
KPMG PEAT MARWICK LLP
Boston, Massachusetts
July 28, 1995
