Page 1
- ---------------------------------
Keystone Liquid Trust
Seeks stability of principal and liquidity with current income from high
quality money market instruments.
Dear Shareholder:
We are writing to report to you on the activities of Keystone Liquid Trust
for the six-month period which ended December 31, 1995.
Performance
Your Fund provided the following returns:
Class A shares returned 2.45% for the six-month period which includes
reinvestment of the 2.42 cent-per-share dividend. The twelve-month return was
5.00%.
Class B shares returned 1.96% for the six-month period which includes
reinvestment of the 1.94 cent-per-share dividend. The twelve-month return was
4.02%.
Class C shares returned 1.95% for the six-month period which includes
reinvestment of the 1.94 cent-per-share dividend. The twelve-month return was
4.02%.
Your Fund maintained a constant net asset value of $1 per share during the
period, and continued to focus on high-quality, short-term money market
instruments.
Market environment and strategy
Short-term interest rates generally declined during the second half of 1995.
Slower economic growth and well contained inflation set the stage for the
Federal Reserve Board (the Fed) to lower interest rates twice during the
six-month period. The downward trend in interest rates was evident throughout
most of 1995. This resulted in lower yields for money market investors.
At the beginning of the six-month period in July 1995, your Fund was
already prepared for declines in interest rates. In May, we lengthened the
average maturity to 50-55 days to lock-in interest rates. This was an
increase from 18 days on December 31, 1994. At the end of the period on
December 31, 1995, your Fund's average maturity was 60 days. In the
portfolio, we emphasized commercial paper and bank obligations with longer
maturities.
Quality commitment
Our policy with Keystone Liquid Trust is to seek to invest in the highest
quality, short-term marketable securities. On December 31, 1995, the average
credit quality of the portfolio was A1+/P1. We require our commercial paper
holdings to be of the highest quality and the issuer's long-term debt must be
rated at least single "A" by all major rating agencies. We monitor these
issuers on an ongoing basis, using liquidity ratios and other financial data
which are indicative of the company's creditworthiness. For bank obligations,
we purchase only obligations of the issuing bank, concentrating on large,
well capitalized banks with well diversified portfolios. During the six-
month period, your Fund did not invest in derivative securities.
Our outlook
Short-term interest rates should continue to decline over the next six
months. We expect the Fed to attempt to stimulate the slow growth economy by
lowering interest rates. The federal funds rate--a benchmark for short-term
interest rates--could reach a level as low as 5.0% or 4.75% by the end of the
year. Meanwhile, we think inflation remains under control and real,
inflation-adjusted yields are relatively attractive. In this environment, we
intend to maintain a relatively long average maturity in an attempt to
preserve income.
(continued on next page)
<PAGE>
PAGE 2
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Keystone Liquid Trust
We believe Keystone Liquid Trust provides a valuable haven for investors.
The Fund remains committed to high quality and liquid money market
instruments. We think that these securities can provide the stability and
safety that investors seek, especially during times of uncertainty. We intend
to continue with this conservative management approach in all market
environments.
We appreciate your continued support of Keystone funds. If you have any
questions or comments about your investment, we encourage you to write to us.
Sincerely,
/s/ Albert H. Elfner, III
Albert H. Elfner, III
Chairman and President
Keystone Investments, Inc.
February 1996
/s/George S. Bissell
George S. Bissell
Chairman of the Board
Keystone Funds
<PAGE>
PAGE 3
- -------------------------------------
SCHEDULE OF INVESTMENTS--December 31, 1995
(Unaudited)
<TABLE>
<CAPTION>
Maturity Principal Market
Date Amount Value
- ----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
BANKERS' ACCEPTANCES (11.8%)
Algemene Bank Nederland NV 03/14/96 $5,000,000 $ 4,944,700
First Chicago Bank 01/31/96 3,000,000 2,986,007
Morgan Guaranty Co. of New York 03/01/96 5,000,000 4,954,275
Morgan Guaranty Co. of New York 04/17/96 5,000,000 4,918,881
National Bank of Detroit 03/12/96 3,000,000 2,967,917
Sun Bank Orlando 01/29/96 5,000,000 4,978,250
Trust Co. Bank of Atlanta 06/03/96 5,000,000 4,885,250
- ----------------------------------------------------------------------------------------------------------------
TOTAL BANKERS' ACCEPTANCES (COST--$30,636,031) 30,635,280
- ----------------------------------------------------------------------------------------------------------------
BANK NOTE (1.9%)
Wachovia Bank & Trust, 5.75% (Cost--$5,000,052) 01/22/96 5,000,000 4,999,824
- ----------------------------------------------------------------------------------------------------------------
CERTIFICATES OF DEPOSIT (9.6%)
Bayerische Vereinsbank CD, 5.79% 01/10/96 5,000,000 4,999,923
Bayerische Vereinsbank CD, 5.74% 02/29/96 5,000,000 5,000,502
Credit Suisse, Yankee CD, 5.77% 01/22/96 5,000,000 5,000,080
First Alabama Bank, CD, 5.59% 03/18/96 5,000,000 4,999,515
Rabobank Nederland NV, Yankee CD, 5.81% 04/02/96 5,000,000 5,001,581
- ----------------------------------------------------------------------------------------------------------------
TOTAL CERTIFICATES OF DEPOSIT (COST--$25,001,467) 25,001,601
- ----------------------------------------------------------------------------------------------------------------
COMMERCIAL PAPER (43.2%)
ABN-AMRO North America Finance Co. 01/30/96 5,000,000 4,977,639
Ameritech Corp. 02/12/96 7,000,000 6,955,356
Associates Corp. North America 01/08/96 5,000,000 4,995,250
Associates Corp. North America 02/20/96 5,000,000 4,962,433
BellSouth Telecommunications Inc. 01/18/96 5,000,000 4,987,333
Coca-Cola Co. 03/14/96 5,000,000 4,945,300
Coca-Cola Co. 03/15/96 6,000,000 5,933,570
Commerzbank AG, New York 01/03/96 3,400,000 3,399,452
Commerzbank AG, New York 06/24/96 7,000,000 6,820,683
Commerzbank U.S. Financial Corp. 01/03/96 5,000,000 4,999,194
duPont (E.I.) deNemours & Co. (a) 01/12/96 5,000,000 4,992,028
duPont (E.I.) deNemours & Co. (a) 01/17/96 5,000,000 4,988,062
General Electric Capital Corp. 01/04/96 5,000,000 4,998,403
General Electric Capital Corp. 04/04/96 5,000,000 4,930,250
General Electric Credit Capital Service of Puerto Rico 01/16/96 3,000,000 2,993,292
Heinz (H.J.) Co. 01/09/96 5,000,000 4,994,410
Hewlett Packard Co. 01/05/96 5,000,000 4,997,596
Hewlett Packard Co. 01/18/96 5,000,000 4,987,133
Nestle Capital Corp. 02/23/96 5,000,000 4,959,917
(continued on next page)
<PAGE>
PAGE 4
- -------------------------------------
Keystone Liquid Trust
COMMERCIAL PAPER (CONTINUED)
Pitney Bowes Inc. 02/05/96 $3,395,000 $ 3,376,820
Pitney Bowes Inc. 02/09/96 4,000,000 3,976,356
Procter & Gamble Co. 01/25/96 4,000,000 3,985,433
Procter & Gamble Co. 02/06/96 5,000,000 4,972,632
- ----------------------------------------------------------------------------------------------------------------
TOTAL COMMERCIAL PAPER (COST--$112,128,590) 112,128,542
- ----------------------------------------------------------------------------------------------------------------
U.S. GOVERNMENT (AND AGENCY) ISSUES (25.5%)
FHLB Discount Notes 05/02/96 5,000,000 4,912,611
FHLB Discount Notes 05/28/96 6,000,000 5,872,600
FHLMC Discount Notes 02/08/96 5,000,000 4,970,263
FHLMC Discount Notes 02/08/96 5,000,000 4,970,263
FHLMC Discount Notes 02/12/96 5,000,000 4,968,225
FNMA Discount Notes 02/02/96 5,000,000 4,975,889
FNMA Discount Notes 03/13/96 8,000,000 7,915,431
FNMA Discount Notes 03/20/96 8,000,000 7,907,093
FNMA Discount Notes 04/22/96 5,000,000 4,918,292
FNMA Discount Notes 05/13/96 5,000,000 4,904,667
FNMA Discount Notes 06/12/96 5,000,000 4,996,689
FNMA Discount Notes 08/20/96 5,000,000 4,836,054
- ----------------------------------------------------------------------------------------------------------------
TOTAL U.S. GOVERNMENT (AND AGENCY) ISSUES (COST--$66,133,767) 66,148,077
- ----------------------------------------------------------------------------------------------------------------
Maturity
Value
- ----------------------------------------------------------------------------------------------------------------
REPURCHASE AGREEMENTS (7.6%)
Goldman, Sachs & Co., 5.90%, purchased 12/29/95 (Collateralized by
$10,935,000 FNMA Pool #295541, 6.38%, due 10/1/32) 01/02/96 $9,944,515 9,938,000
Paine Webber Inc., 5.92%, purchased 12/29/95 (Collateralized by
$10,988,000 GNMA Pool #8565, 7.00%, due 12/20/24) 01/02/96 9,944,537 9,938,000
- ----------------------------------------------------------------------------------------------------------------
TOTAL REPURCHASE AGREEMENTS (COST--$19,876,000) 19,876,000
- ----------------------------------------------------------------------------------------------------------------
TOTAL INVESTMENTS (COST--$258,775,907) 258,789,324
OTHER ASSETS AND LIABILITIES--NET (0.4%) 1,019,403
- ----------------------------------------------------------------------------------------------------------------
NET ASSETS--(100.0%) $259,808,727
- ----------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
PAGE 5
- -------------------------------------
(a) 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
FHLB--Federal Home Loan Bank
FHLMC--Federal Home Loan Mortgage Corporation
FNMA--Federal National Mortgage Association
GNMA--Government National Mortgage Association
See Notes to Financial Statements.
<PAGE>
PAGE 6
- -------------------------------------
Keystone Liquid Trust
FINANCIAL HIGHLIGHTS
(For a share outstanding throughout each period)
<TABLE>
<CAPTION>
CLASS A SHARES
---------------------------------------------------------------------
Six Months
Ended Year Ended June 30,
December 31, 1995 1995 1994 1993 1992 1991
- ------------------------------------------------------------------------------------------------------------------
(Unaudited)
<S> <C> <C> <C> <C> <C> <C>
Net asset value, beginning of period $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
- ------------------------------------------------------------------------------------------------------------------
Income from investment operations
Net investment income 0.0241 .0454 .0235 .0230 .0386 .0634
Net realized and unrealized gain
(loss) on investments 0.0001 0 0 (.0001) .0003 0
- ------------------------------------------------------------------------------------------------------------------
Total from investment operations 0.0242 .0454 .0235 .0229 .0389 .0634
- ------------------------------------------------------------------------------------------------------------------
Less distributions
Dividends from above sources (0.0242) (.0454) (.0235) (.0229) (.0389) (.0634)
- ------------------------------------------------------------------------------------------------------------------
Net asset value, end of period $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
- ------------------------------------------------------------------------------------------------------------------
Total return 2.45% 4.63% 2.37% 2.31% 3.96% 6.47%
Ratios/supplemental data
Ratios to average net assets:
Net investment income 4.83%(a) 4.42% 2.50% 2.29% 3.99% 6.51%
Total expenses 1.02%(a)(b) 0.92% 1.02% 1.11% 1.10% 0.92%
Net assets, end of period (thousands) $243,308 $245,308 $398,617 $189,167 $227,115 $400,597
- ------------------------------------------------------------------------------------------------------------------
</TABLE>
(a) Annualized.
(b) "Ratio of total expenses to average net assets" for the six months ended
December 31, 1995 includes indirectly paid expenses. Excluding indirectly
paid expenses for the six months ended December 31, 1995, the expense
ratio would have been 0.99% (annualized).
<PAGE>
PAGE 7
- -------------------------------------
<TABLE>
<CAPTION>
CLASS B SHARES
-----------------------------------------------------------------
February 1, 1993
Six Months Year Ended June 30, (Date of Initial
Ended ------------------- Public Offering) to
December 31, 1995 1995 1994 June 30, 1993
- ------------------------------------------------------------------------------------------------------------
(Unaudited)
<S> <C> <C> <C> <C>
Net asset value, beginning of period $1.00 $1.00 $1.00 $1.00
- ------------------------------------------------------------------------------------------------------------
Income from investment operations
Net investment income 0.0193 .0362 .0142 .0047
Net realized and unrealized gain
(loss) on investments 0.0001 0 0 (.0001)
- ------------------------------------------------------------------------------------------------------------
Total from investment operations 0.0194 .0362 .0142 .0046
- ------------------------------------------------------------------------------------------------------------
Less distributions
Dividends from above sources (0.0194) (.0362) (.0142) (.0046)
- ------------------------------------------------------------------------------------------------------------
Net asset value, end of period $ 1.00 $ 1.00 $ 1.00 $ 1.00
- ------------------------------------------------------------------------------------------------------------
Total return (c) 1.96% 3.68% 1.43% 0.46%
Ratios/supplemental data
Ratios to average net assets:
Net investment income 3.89%(a) 3.66% 1.84% 1.08% (a)
Total expenses 1.94%(a)(b) 1.84% 1.85% 2.15% (a)
Net assets, end of period (thousands) $ 14,001 $ 7,281 $11,198 $ 241
- ------------------------------------------------------------------------------------------------------------
</TABLE>
(a) Annualized.
(b) "Ratio of total expenses to average net assets" for the six months ended
December 31, 1995 includes indirectly paid expenses. Excluding indirectly
paid expenses for the six months ended December 31, 1995, the expense
ratio would have been 1.91% (annualized).
(c) Excluding applicable sales charges.
<PAGE>
PAGE 8
- -------------------------------------
Keystone Liquid Trust
<TABLE>
<CAPTION>
CLASS C SHARES
-----------------------------------------------------------------
February 1, 1993
Six Months Year Ended June 30, (Date of Initial
Ended -------------------- Public Offering) to
December 31, 1995 1995 1994 June 30, 1993
- ------------------------------------------------------------------------------------------------------------
(Unaudited)
<S> <C> <C> <C> <C>
Net asset value, beginning of period $ 1.00 $ 1.00 $ 1.00 $ 1.00
- ------------------------------------------------------------------------------------------------------------
Income from investment operations
Net investment income 0.0193 .0362 .0142 .0045
Net realized and unrealized gain (loss)
on investments 0.0001 0 0 (.0002)
- ------------------------------------------------------------------------------------------------------------
Total from investment operations 0.0194 .0362 .0142 .0043
- ------------------------------------------------------------------------------------------------------------
Less distributions
Dividends from above sources (0.0194) (.0362) (.0142) (.0043)
- ------------------------------------------------------------------------------------------------------------
Net asset value, end of period $ 1.00 $ 1.00 $ 1.00 $ 1.00
- ------------------------------------------------------------------------------------------------------------
Total return (c) 1.95% 3.68% 1.43% 0.43%
Ratios/supplemental data
Ratios to average net assets:
Net investment income 3.84%(a) 3.52% 1.97% 1.01% (a)
Total expenses 1.98%(a)(b) 1.82% 1.86% 2.09% (a)
Net assets, end of period (thousands) $ 2,499 $ 4,112 $ 6,599 $ 34
- ------------------------------------------------------------------------------------------------------------
</TABLE>
(a) Annualized.
(b) "Ratio of total expenses to average net assets" for the six months ended
December 31, 1995 includes indirectly paid expenses. Excluding indirectly
paid expenses for the six months ended December 31, 1995, the expense
ratio would have been 1.95% (annualized).
(c) Excluding applicable sales charges.
<PAGE>
PAGE 9
- -------------------------------------
STATEMENT OF ASSETS AND LIABILITIES--
December 31, 1995 (Unaudited)
Assets (Note 1)
Investments at market value
(identified cost--$258,775,907) $258,789,324
Cash 1,995
Receivable for:
Fund shares sold 1,946,070
Interest 305,333
Prepaid expenses and other assets 48,111
- -------------------------------------------------- -----------
Total assets 261,090,833
- -------------------------------------------------- -----------
Liabilities (Note 3)
Payable for:
Fund shares redeemed 134,690
Distributions to shareholders 1,054,366
Investment management fee payable 3,351
Accrued transfer agent fees 4,962
Accrued reimbursable expenses 1,833
Other accrued expenses 82,904
- -------------------------------------------------- -----------
Total liabilities 1,282,106
- -------------------------------------------------- -----------
Net assets $259,808,727
- -------------------------------------------------- -----------
Net assets represented by paid-in capital (Note 2)
Class A Shares ($1.00 a share on 243,307,837
shares outstanding) $243,307,837
Class B Shares ($1.00 a share on 14,001,468
shares outstanding) 14,001,468
Class C Shares ($1.00 a share on 2,499,422 shares
outstanding) 2,499,422
- -------------------------------------------------- -----------
$259,808,727
- -------------------------------------------------- -----------
Net asset value and offering price per share
(Classes A, B and C) $ 1.00
- -------------------------------------------------- -----------
STATEMENT OF OPERATIONS--
Six Months Ended December 31, 1995 (Unaudited)
Investment income (Note 1)
Interest $7,485,550
Expenses (Notes 2 and 3)
Management fees $ 644,432
Transfer agent fees 379,487
Accounting, auditing and legal fees 28,349
Custodian fees 66,837
Trustees' fees and expenses 20,261
Printing 9,013
Registration fees 90,753
Distribution Plan expenses 120,539
Insurance expenses 8,836
Miscellaneous 7,994
- ---------------------------------------- ------ ---------
Total expenses 1,376,501
- ---------------------------------------- ------ ---------
Less: Expenses paid indirectly (Note 3) (35,939)
- ---------------------------------------- ------ ---------
Net expenses 1,340,562
- ---------------------------------------- ------ ---------
Net investment income 6,144,988
- ---------------------------------------- ------ ---------
Net realized and unrealized gain
on investments
Net realized loss on investments (749)
Net change in unrealized appreciation
on investments 15,380
- ---------------------------------------- ------ ---------
Net realized and unrealized gain on
investments 14,631
- ---------------------------------------- ------ ---------
Net increase in net assets resulting
from operations $6,159,619
- ---------------------------------------- ------ ---------
See Notes to Financial Statements.
<PAGE>
PAGE 10
- -------------------------------------
Keystone Liquid Trust
STATEMENTS OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
Six Months
Ended Year Ended
December 31, 1995 June 30, 1995
=============================================================== ================== ===================
(Unaudited)
<S> <C> <C>
Operations
Net investment income $ 6,144,988 $ 16,854,349
Net realized loss on investments (749) (71)
Net change in unrealized appreciation (depreciation) on
investments 15,380 (685)
- --------------------------------------------------------------- ---------------- ------------------
Net increase in net assets resulting from operations 6,159,619 16,853,593
- --------------------------------------------------------------- ---------------- ------------------
Distributions to shareholders (Note 1)
Class A Shares (5,884,985) (16,168,849)
Class B Shares (215,119) (435,508)
Class C Shares (59,515) (249,236)
- --------------------------------------------------------------- ---------------- ------------------
Total distributions to shareholders (6,159,619) (16,853,593)
- --------------------------------------------------------------- ---------------- ------------------
Capital share transactions (Note 2)
Class A Shares (2,000,246) (153,308,964)
Class B Shares 6,719,909 (3,916,029)
Class C Shares (1,612,251) (2,487,651)
- --------------------------------------------------------------- ---------------- ------------------
Net increase (decrease) in net assets resulting from capital
share transactions 3,107,412 (159,712,644)
- --------------------------------------------------------------- ---------------- ------------------
Total increase (decrease) in net assets 3,107,412 (159,712,644)
Net assets
Beginning of period 256,701,315 416,413,959
- --------------------------------------------------------------- ---------------- ------------------
End of period $259,808,727 $ 256,701,315
- --------------------------------------------------------------- ---------------- ------------------
</TABLE>
See Notes to Financial Statements.
<PAGE>
PAGE 11
- -------------------------------------
NOTES TO FINANCIAL STATEMENTS (Unaudited)
(1.) Summary of Accounting Policies
Keystone Liquid Trust (the "Fund") is a no-load, open-end diversified
investment management 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, as amended (the
"1940 Act").
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 current and former members
of management of Keystone and its affiliates.
The following is a summary of significant accounting policies consistently
followed by the Fund in the preparation of its financial statements. The
policies are in conformity with generally accepted accounting principles.
Valuation of Securities--Money market investments maturing in sixty days or
less are valued at amortized cost (original purchase cost as adjusted for
amortization of premium or accretion of discount) which when combined with
accrued interest approximates market. Money market investments maturing in
more than sixty days for which market quotations are readily available are
valued at current market value. Money market investments maturing in more
than sixty days when purchased which are held on the sixtieth day prior to
maturity are valued at amortized cost (market value on the sixtieth day
adjusted for amortization of premium or accretion of discount) which when
combined with accrued interest approximates market.
Repurchase Agreements--When the Fund enters into a repurchase agreement (a
purchase of securities whereby the seller agrees to repurchase the securities
at a mutually agreed upon date and price) the repurchase price of the
securities will generally equal the amount paid by the Fund plus a negotiated
interest amount. The seller under the repurchase agreement will be required
to provide securities ("collateral") to the Fund whose value will be
maintained at an amount not less than the repurchase price. The Fund monitors
the value of collateral on a daily basis, and if the value of collateral
falls below required levels, the Fund intends to seek additional collateral
from the seller or terminate the repurchase agreement. If the seller
defaults, the Fund would suffer a loss to the extent that the proceeds from
the sale of the underlying securities were less than the repurchase price.
Any such loss would be increased by any cost incurred on disposing of such
securities. If bankruptcy proceedings are commenced against the seller under
the repurchase agreement, the realization on the collateral may be delayed or
limited. Repurchase agreements entered into by the Fund will be limited to
transactions with dealers or domestic banks believed to present minimal
credit risks, and the Fund will take constructive receipt of all securities
underlying repurchase agreements until such agreements expire.
<PAGE>
PAGE 12
- -------------------------------------
Keystone Liquid Trust
Pursuant to an exemptive order issued by the Securities and Exchange
Commission, the Fund, along with certain other Keystone funds, may transfer
uninvested cash balances into a joint trading account. These balances are
invested in one or more repurchase agreements that are fully collateralized
by U.S. Treasury and/or Federal Agency obligations.
Federal Income Taxes--The Fund has qualified, and intends to qualify in the
future, as a regulated investment company under the Internal Revenue Code of
1986, as amended ("Internal Revenue Code"). Thus, the Fund expects to be
relieved of any federal income tax liability by distributing all of its net
tax basis investment income and net tax basis capital gains, if any, to its
shareholders. The Fund intends to avoid any excise tax liability by making
the required distributions under the Internal Revenue Code.
Distributions--The Fund declares dividends daily, pays dividends monthly and
automatically reinvests such dividends in additional shares at net asset
value, unless shareholders request payment in cash. Dividends are declared
from the total of net investment income, plus realized and unrealized gain
(loss) on investments.
Securities Transactions and Investment Income--Securities transactions are
accounted for on the trade date. Realized gains and losses from securities
transactions are computed on the identified cost basis. All discounts are
amortized for both financial reporting and federal income tax purposes.
Interest income is accrued as earned.
(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. Since the Fund sold,
redeemed and reinvested shares at $1.00 net asset value, the shares and
dollar amount are the same. Changes in Fund shares for the six months ended
December 31, 1995 were as follows:
Six Months
Ended Year
December 30, Ended
Class A Shares 1995 June 30, 1995
- ----------------- -------------- --------------
Sales $ 383,835,467 $ 725,781,933
Redemptions (390,567,950) (892,973,139)
Reinvestment of
distributions
from available
sources 4,732,237 13,882,242
- ----------------- ------------ ------------
Net decrease $ (2,000,246) $(153,308,964)
- ----------------- ------------ ------------
Class B Shares
- ---------------------- ----------- -------------
Sales $ 20,292,817 $ 30,267,166
Redemptions (13,732,796) (34,518,836)
Reinvestment of
distributions from
available sources 159,888 335,641
- ---------------------- --------- -----------
Net increase
(decrease) $ 6,719,909 $ (3,916,029)
- ---------------------- --------- -----------
Class C Shares
- ---------------------- ----------- -------------
Sales $ 2,870,028 $ 11,924,336
Redemptions (4,539,186) (14,624,256)
Reinvestment of
distributions from
available sources 56,907 212,269
- ---------------------- --------- -----------
Net decrease $(1,612,251) $ (2,487,651)
- ---------------------- --------- -----------
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.
<PAGE>
PAGE 13
- -------------------------------------
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 for the distribution of Class A shares. Amounts paid
by the Fund to KIDC under the Class A Distribution Plan are currently used to
pay others, such as dealers, service fees at an annual rate of up to 0.25% of
the average daily net asset value of Class A shares maintained by such others
and remaining 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 for 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
dealer or other party will receive service fees at an annual rate of 0.25% of
the average daily net asset value of such Class B shares maintained by such
others and remaining 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.
Beginning approximately 15 months after purchase date, the dealer or other
party will receive a commission at an annual rate of 0.75% of the average net
asset value (subject to applicable limitations imposed by a rule of the
National Association of Securities Dealers, Inc.) ("NASD Rule") plus service
fees at the annual rate of 0.25% of the average net asset value of each Class
C share maintained by such others and remaining 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 six months ended December 31, 1995, the Fund paid or accrued
Distribution Plan fees of $49,745, $55,307 and $15,487 for Class A, Class B
and Class C, respectively. These fees, which are charged to the operating
expenses of the Fund, represent 0.04%, 1.00% and 1.00%, respectively, of the
average net assets of each class on an annualized basis.
<PAGE>
PAGE 14
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Keystone Liquid Trust
Under the NASD Rule, the maximum uncollected amounts for which KIDC may seek
payment from the Fund under its Distribution Plans were, as of December 31,
1995, $1,159,801 for Class B shares purchased prior to June 1, 1995 (8.28% of
such Class B net assets at December 31, 1995) and $149,447 for Class B shares
purchased on or after June 1, 1995 (1.07% of such Class B net assets at
December 31, 1995) and $864,257 for Class C shares (34.58% of Class C net
assets at December 31, 1995).
(3.) Investment Management Agreement and Other Transactions
Under the terms of the Investment Management Agreement between KMI and the
Fund, KMI provides investment management and administrative services to the
Fund. In return, KMI is paid a management fee computed and paid daily
calculated by applying percentage rates, starting at 0.50%, and declining as
net assets increase, to 0.40% per annum, to the net asset value of the Fund.
KMI has entered into an Investment Advisory Agreement with Keystone under
which Keystone provides investment advisory and management services to the
Fund and receives for its services an annual fee representing 85% of the
management fee received by KMI.
During the six months ended December 31, 1995, the Fund paid or accrued to
KMI investment management and administration services fees of $644,432, which
represented 0.50% of the Fund's average net assets on an annualized basis. Of
such amount paid to KMI, $547,767 was paid to Keystone for its services to
the Fund.
During the six months ended December 31, 1995, the Fund paid or accrued
$8,980 to KII as reimbursement for certain accounting services provided to
the Fund.
Keystone Investor Resource Center, Inc. ("KIRC"), a wholly-owned subsidiary
of Keystone, is the Fund's transfer agent. For the six months ended December
31, 1995, the Fund paid or accrued $379,487 to KIRC for transfer agent fees.
The Fund has entered into an expense offset arrangement with its custodian.
For the six months ended December 31, 1995, the Fund paid custody fees in the
amount of $30,898 and received a credit of $35,939 pursuant to the expense
offset arrangement, resulting in a total expense of $66,837. The assets
deposited with the custodian under this expense offset arrangement could have
been invested in an income-producing asset.
Certain officers and/or Directors of Keystone are also officers and/or
Trustees of the Fund. Officers of Keystone and affiliated Trustees receive no
compensation directly from the Fund.
<PAGE>
PAGE 15
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Keystone's Services
for Shareholders
KEYSTONE AUTOMATED RESPONSE LINE (KARL)--Receive up-to-date account
information on your balance, last transaction and recent Fund distribution.
You may also process transactions such as investments, redemptions and
exchanges using a touch-tone telephone as well as receive quotes on price,
yield, and total return of your Keystone Fund. Call toll-free,
1-800-346-3858.
EASY ACCESS TO INFORMATION ON YOUR ACCOUNT--Information about your Keystone
account is available 24 hours a day through KARL. To speak with a Shareholder
Services representative about your account, call toll-free 1-800-343-2898
between 8:00 A.M. and 6:00 P.M. Eastern time. Retirement Plan investors
should call 1-800-247- 4075.
ADDITIONS TO YOUR ACCOUNT--You can buy additional shares for your account at
any time, with no minimum additional investment.
REINVESTMENT OF DISTRIBUTIONS--You can compound the return on your
investment by automatically reinvesting your Fund's distributions at net
asset value with no sales charge.
EXCHANGE PRIVILEGE--You may move your money among funds in the same Keystone
family quickly and easily for a nominal service fee. KARL gives you the added
ability to move your money any time of day, any day of the week. Keystone
offers a variety of funds with different investment objectives for your
changing investment needs.
ELECTRONIC FUNDS TRANSFER (EFT)--Referred to as the "paper-less
transaction," EFT allows you to take advantage of a variety of preauthorized
account transactions, including automatic monthly investments and systematic
monthly or quarterly withdrawals. EFT is a quick, safe and accurate way to
move money between your bank account and your Keystone account.
CHECK WRITING--Shareholders of Keystone Liquid Trust may exercise the check
writing privilege to draw from their accounts.
EASY REDEMPTION--KARL makes redemption services available to you 24 hours a
day, every day of the year. The amount you receive may be more or less than
your original account value depending on the value of fund shares at time of
redemption.
RETIREMENT PLANS--Keystone offers a full range of retirement plans,
including IRA, SEP-IRA, profit sharing, money purchase, and defined
contribution plans. For more information, please call Retirement Plan
Services, toll-free at 1-800-247-4075.
Keystone is committed to providing you with quality, responsive account
service. We will do our best to assist you and your financial adviser in
carrying out your investment plans.
<PAGE>
[cover]
KEYSTONE
FAMILY OF FUNDS
[Diamond]
Balanced Fund (K-1)
Diversified Bond Fund (B-2)
Growth and Income Fund (S-1)
High Income Bond Fund (B-4)
International Fund, Inc.
Liquid Trust
Mid-Cap Growth Fund (S-3)
Precious Metals Holdings, Inc.
Quality Bond Fund (B-1)
Small Company Growth Fund (S-4)
Strategic Growth Fund (K-2)
Tax Exempt Trust
Tax Free Fund
This report was prepared primarily for the information of the Fund's
shareholders. It is authorized for distribution if preceded or accompanied by
the Fund's current prospectus. The prospectus contains important information
about the Fund including fees and expenses. Read it carefully before you
invest or send money. For a free prospectus on other Keystone funds, contact
your financial adviser or call Keystone.
[keystone logo] KEYSTONE
INVESTMENTS
P.O. Box 2121
Boston, Massachusetts 02106-2121
KLT-SAR-2/96 [recycle logo]
14.6M
KEYSTONE
[picture of boy riding bike
with man helping him]
LIQUID TRUST
[keystone logo]
SEMIANNUAL REPORT
DECEMBER 31, 1995
