<PAGE>
PAGE 1
KEYSTONE LIQUID TRUST
Dear Shareholders:
We are pleased to have the opportunity to provide the annual report, which is
also the final report, for Keystone Liquid Trust, covering the fiscal year
through June 30, 1997.
PERFORMANCE
For the 12-month period that ended on June 30, 1997, your Fund provided the
following results:
Class A Shares returned 4.57%.
Class B Shares returned 3.60%
Class C Shares returned 3.61%.
We believe your Fund performed well, consistent with its objective of
providing monthly income while preserving capital and maintaining liquidity.
MERGER
Effective July 31, 1997, Keystone Liquid Trust was acquired by, or effectively
merged with, Evergreen Money Market Fund in a tax-free transaction for
investors. Shareholders of Keystone Liquid Trust now are shareholders of
Evergreen Money Market Fund. We believe Evergreen Money Market Fund, with its
solid record, is an excellent fund for shareholders who had chosen Keystone
Liquid Trust.
We thank you for your investment in, and support of, Keystone Liquid Trust.
Sincerely,
/s/ Albert H. Elfner, III (Photo of Albert (Photo of George
Albert H. Elfner, III H. Elfner, III S. Bissell
CHAIRMAN appears here) appears here)
KEYSTONE INVESTMENT MANAGEMENT COMPANY
/s/ George S. Bissell
George S. Bissell
CHAIRMAN OF THE BOARD
KEYSTONE FUNDS
<TABLE>
<S> <C>
ALBERT H. ELFNER, III GEORGE S. BISSELL
</TABLE>
August 1997
<PAGE>
PAGE 2
KEYSTONE LIQUID TRUST
SCHEDULE OF INVESTMENTS-- JUNE 30, 1997
<TABLE>
<CAPTION>
PRINCIPAL MARKET
AMOUNT VALUE
<C> <C> <S> <C>
<CAPTION>
BANKERS' ACCEPTANCE-- (2.2%)
<C> <C> <S> <C>
(COST-- $4,988,333)
$ 5,000,000 CoreStates Bank, N.A.,
7/16/97..................... $ 4,988,354
<CAPTION>
CERTIFICATES OF DEPOSIT-- (17.2%)
<C> <C> <S> <C>
5,000,000 ABN-AMRO Bank, New York,
Yankee CD,
5.68%, 7/22/97.............. 5,000,065
5,000,000 Bank of New York, CD,
5.93%, 9/3/97............... 4,999,999
5,000,000 Commerzbank, New York, Yankee
CD,
5.67%, 9/18/97.............. 4,998,931
2,000,000 Credit Suisse, CD,
5.45%, 8/14/97.............. 1,999,360
5,000,000 Deutsche Bank AG, New York,
CD, 5.91%, 3/17/98.......... 4,996,451
3,000,000 Deutsche Bank, Yankee CD,
5.52%, 7/28/97.............. 2,999,475
3,000,000 Deutsche Bank, Yankee CD,
5.56%, 7/17/97.............. 2,999,963
5,000,000 Northern Trust Co., CD,
5.96%, 6/17/98.............. 4,999,825
5,000,000 Rabobank Nederland NV, Yankee
CD,
5.78%, 12/8/97.............. 4,999,835
1,000,000 Rabobank Nederland NV, Yankee
CD,
5.99%, 3/24/98.............. 999,733
TOTAL CERTIFICATES OF DEPOSIT
(COST-- $39,000,390)........................... 38,993,637
<CAPTION>
COMMERCIAL PAPER-- (67.7%)
<C> <C> <S> <C>
5,000,000 ABN-AMRO North America Finance
Co., 7/9/97................. 4,993,674
10,000,000 Abbott Laboratories, Inc.,
7/31/97..................... 9,954,167
5,000,000 American Express Credit Corp.,
8/29/97..................... 4,954,521
5,000,000 American Express Credit Corp.,
9/12/97..................... 4,943,425
3,000,000 Ameritech Corp., 9/25/97
(a)......................... 2,960,082
8,000,000 Ameritech Corp., 10/6/97...... 7,879,504
<CAPTION>
PRINCIPAL MARKET
AMOUNT VALUE
<C> <C> <S> <C>
<CAPTION>
COMMERCIAL PAPER-- CONTINUED
<C> <C> <S> <C>
$ 5,000,000 Associates Corp. of North
America, 8/20/97............ $ 4,960,201
750,000 Associates Corp. of North
America, 11/15/97........... 751,732
5,000,000 Bayerische Landesbank,
7/28/97..................... 4,979,337
5,000,000 Bell Atlantic Financial
Services, Inc., 7/7/97...... 4,995,392
5,000,000 Bell Atlantic Financial
Services, Inc., 7/14/97..... 4,990,106
5,000,000 Coca-Cola Co., 8/25/97........ 4,957,833
5,000,000 DuPont (E.I.) deNemours & Co.,
7/10/97..................... 4,992,792
5,000,000 DuPont (E.I.) deNemours & Co.,
7/21/97..................... 4,984,500
5,000,000 Ford Motor Credit Co.,
8/5/97...................... 4,973,167
5,000,000 Ford Motor Credit Co.,
9/12/97..................... 4,943,019
2,000,000 Ford Motor Credit Co.,
10/28/97.................... 1,962,779
5,000,000 General Electric Capital
Corp., 7/23/97.............. 4,982,604
5,000,000 General Electric Capital
Corp., 9/25/97.............. 4,933,111
5,000,000 Heinz (H.J.) Co., 7/21/97..... 4,984,722
5,395,000 Kellogg Co., 7/15/97.......... 5,383,461
5,000,000 Kellogg Co., 8/8/97........... 4,970,972
5,000,000 Merrill Lynch & Co., Inc.,
7/7/97...................... 4,995,317
5,000,000 Merrill Lynch & Co., Inc.,
10/15/97.................... 4,916,967
5,000,000 Minnesota Mining &
Manufacturing, Co.,
7/29/97..................... 4,978,378
5,000,000 Minnesota Mining &
Manufacturing, Co.,
8/22/97..................... 4,958,954
5,000,000 Nestle Capital Corp.,
7/3/97...................... 4,998,486
5,000,000 Nestle Capital Corp.,
8/26/97..................... 4,956,911
5,000,000 Pfizer Inc., 7/10/97.......... 4,993,150
5,000,000 Proctor & Gamble Co.,
8/14/97..................... 4,965,016
5,000,000 UBS Finance Delaware, Inc.,
7/14/97..................... 4,990,033
TOTAL COMMERCIAL PAPER
(COST-- $153,193,136).......................... 153,184,313
</TABLE>
<PAGE>
PAGE 3
SCHEDULE OF INVESTMENTS-- JUNE 30, 1997
<TABLE>
<CAPTION>
PRINCIPAL MARKET
AMOUNT VALUE
U.S. GOVERNMENT (AND AGENCY)
ISSUES-- (8.8%)
<C> <C> <S> <C>
$ 5,000,000 FHLMC Discount Notes, 9/2/97.. $ 4,952,050
5,000,000 FHLMC Discount Notes, 2/26/98
(b)......................... 4,997,943
5,000,000 FNMA Discount Notes, 10/2/97.. 4,929,346
5,000,000 FNMA Discount Notes,
2/13/98 (b)................. 4,999,434
TOTAL U.S. GOVERNMENT
(AND AGENCY) ISSUES
(COST-- $19,880,364)........................... 19,878,773
<CAPTION>
MATURITY MARKET
VALUE VALUE
<C> <C> <S> <C>
<CAPTION>
REPURCHASE AGREEMENT-- (10.2%)
<C> <C> <S> <C>
(COST-- $23,085,000)
$23,088,873 Keystone Joint Repurchase Agreement
(Investments in repurchase
agreements, in a joint
trading
account, 6.04%, dated
6/30/97, due 7/1/97) (c).... $ 23,085,000
</TABLE>
<TABLE>
<C> <C> <S> <C> <C>
TOTAL INVESTMENTS--
(COST-- $240,147,223) 106.1% 240,130,077
OTHER ASSETS AND
LIABILITIES-- NET (6.1) (13,864,774)
NET ASSETS 100.0% $226,265,303
</TABLE>
(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.
(b) Security is a variable or floating rate instrument with periodic demand
features. The Fund is entitled to full payment of principal and accrued
interest upon surrendering the security to the issuing agent according to
the terms of the demand features.
(c) The repurchase agreements are fully collateralized by U.S. government
and/or agency obligations based on market prices at June 30, 1997.
LEGEND OF PORTFOLIO ABBREVIATIONS
FHLMC-- Federal Home Loan Mortgage Corporation
FNMA-- Federal National Mortgage Association
SEE NOTES TO FINANCIAL STATEMENTS.
<PAGE>
PAGE 4
KEYSTONE LIQUID TRUST
FINANCIAL HIGHLIGHTS-- CLASS A SHARES
(FOR A SHARE OUTSTANDING THROUGHOUT EACH YEAR)
<TABLE>
<CAPTION>
YEAR ENDED JUNE 30,
1997 1996 1995 1994 1993 1992 1991 1990 1989
<S> <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
INCOME FROM INVESTMENT
OPERATIONS:
Net investment income .0447 .0464 .0454 .0235 .0230 .0386 .0634 .0760 .0786
Net realized and unrealized
gain (loss) on investments .0001 (.0001) 0 0 (.0001) .0003 0 0 .0001
Total from investment
operations .0448 .0463 .0454 .0235 .0229 .0389 .0634 .0760 .0787
Less distributions to
shareholders (.0448) (.0463) (.0454) (.0235) (.0229) (.0389) (.0634) (.0760) (.0787)
NET ASSET VALUE END OF YEAR $1.00 $1.00 $1.00 $1.00 $1.00 $1.00 $1.00 $1.00 $1.00
TOTAL RETURN 4.57% 4.73% 4.63% 2.37% 2.31% 3.96% 6.47% 7.81% 8.18%
RATIOS/SUPPLEMENTAL DATA
RATIOS TO AVERAGE NET ASSETS:
Total expenses 1.02% 0.98% 0.92% 1.02% 1.11% 1.10% 0.92% 1.00% 1.00%
Total expenses excluding
indirectly paid expenses 0.99% 0.95% -- -- -- -- -- -- --
Net investment income 4.45% 4.66% 4.42% 2.50% 2.29% 3.99% 6.51% 7.53% 7.88%
NET ASSETS END OF YEAR
(THOUSANDS) $214,828 $332,796 $245,308 $398,617 $189,167 $227,115 $400,597 $406,306 $475,640
<CAPTION>
1988
<S> <C>
NET ASSET VALUE BEGINNING OF
YEAR $1.00
INCOME FROM INVESTMENT
OPERATIONS:
Net investment income .0597
Net realized and unrealized
gain (loss) on investments (.0001)
Total from investment
operations .0596
Less distributions to
shareholders (.0596)
NET ASSET VALUE END OF YEAR $1.00
TOTAL RETURN 6.31%
RATIOS/SUPPLEMENTAL DATA
RATIOS TO AVERAGE NET ASSETS:
Total expenses 1.00%
Total expenses excluding
indirectly paid expenses --
Net investment income 5.99%
NET ASSETS END OF YEAR
(THOUSANDS) $461,032
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
<PAGE>
PAGE 5
FINANCIAL HIGHLIGHTS-- CLASS B SHARES
(FOR A SHARE OUTSTANDING THROUGHOUT EACH YEAR)
<TABLE>
<CAPTION>
FEBRUARY 1, 1993
(DATE OF INITIAL
YEAR ENDED JUNE 30, PUBLIC OFFERING) TO
1997 1996 1995 1994 JUNE 30, 1993
<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 .0353 .0369 .0362 .0142 .0047
Net realized and unrealized gain (loss) on investments .0001 0 0 0 (.0001)
Total from investment operations .0354 .0369 .0362 .0142 .0046
Less distributions to shareholders (.0354) (.0369) (.0362) (.0142) (.0046)
NET ASSET VALUE END OF YEAR $1.00 $1.00 $1.00 $1.00 $1.00
TOTAL RETURN(A) 3.60% 3.76% 3.68% 1.43% 0.46%
RATIOS/SUPPLEMENTAL DATA
RATIOS TO AVERAGE NET ASSETS:
Total expenses 1.95% 1.91% 1.84% 1.85% 2.15%(b)
Total expenses excluding indirectly paid expenses 1.92% 1.88% -- -- --
Net investment income 3.52% 3.73% 3.66% 1.84% 1.08%(b)
NET ASSETS END OF YEAR (THOUSANDS) $7,424 $10,042 $7,281 $11,198 $241
</TABLE>
(a) Excluding applicable sales charges.
(b) Annualized.
SEE NOTES TO FINANCIAL STATEMENTS.
<PAGE>
PAGE 6
KEYSTONE LIQUID TRUST
FINANCIAL HIGHLIGHTS-- CLASS C SHARES
(FOR A SHARE OUTSTANDING THROUGHOUT EACH YEAR)
<TABLE>
<CAPTION>
FEBRUARY 1, 1993
(DATE OF INITIAL
YEAR ENDED JUNE 30, PUBLIC OFFERING) TO
1997 1996 1995 1994 JUNE 30, 1993
<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 .0355 .0370 .0362 .0142 .0045
Net realized and unrealized gain (loss) on investments 0 (.0001) 0 0 (.0002)
Total from investment operations .0355 .0369 .0362 .0142 .0043
Less distributions to shareholders (.0355) (.0369) (.0362) (.0142) (.0043)
NET ASSET VALUE END OF YEAR $1.00 $1.00 $1.00 $1.00 $1.00
TOTAL RETURN(A) 3.61% 3.75% 3.68% 1.43% 0.43%
RATIOS/SUPPLEMENTAL DATA
RATIOS TO AVERAGE NET ASSETS:
Total expenses 1.96% 1.94% 1.82% 1.86% 2.09%(b)
Total expenses excluding indirectly paid expenses 1.94% 1.91% -- -- --
Net investment income 3.55% 3.72% 3.52% 1.97% 1.01%(b)
NET ASSETS END OF YEAR (THOUSANDS) $4,013 $3,285 $4,112 $6,599 $34
</TABLE>
(a) Excluding applicable sales charges.
(b) Annualized.
SEE NOTES TO FINANCIAL STATEMENTS.
<PAGE>
PAGE 7
STATEMENT OF ASSETS AND LIABILITIES
JUNE 30, 1997
<TABLE>
<CAPTION>
<S> <C>
ASSETS
Investments at market value:
Securities (identified cost --
$217,062,223) $217,045,077
Repurchase agreement (identified cost --
$23,085,000) 23,085,000
Total investments 240,130,077
Cash 531
Receivable for Fund shares sold 4,200,720
Interest receivable 761,151
Prepaid expenses and other assets 51,549
Total assets 245,144,028
LIABILITIES
Payable for Fund shares redeemed 18,735,074
Distributions to shareholders 72,009
Due to related parties 14,052
Distribution fees payable 3,026
Accrued expenses and other liabilities 54,564
Total liabilities 18,878,725
NET ASSETS $226,265,303
NET ASSETS REPRESENTED BY
Class A Shares ($1.00 a share on 214,828,230
shares outstanding) $214,828,230
Class B Shares ($1.00 a share on 7,423,829
shares outstanding) 7,423,829
Class C Shares ($1.00 a share on 4,013,244
shares outstanding) 4,013,244
$226,265,303
NET ASSET VALUE AND OFFERING PRICE PER SHARE
(CLASS A, B AND C) $ 1.00
</TABLE>
STATEMENT OF OPERATIONS
YEAR ENDED JUNE 30, 1997
<TABLE>
<CAPTION>
<S> <C> <C>
INVESTMENT INCOME
Interest $15,084,042
EXPENSES
Management fee $1,386,249
Transfer agent fees 762,230
Distribution Plan expenses 378,433
Custodian fees 182,380
Registration and filing fees 158,299
Trustees' fees and expenses 36,242
Administrative services 33,538
Professional fees 33,198
Other 3,536
Total expenses 2,974,105
Less: Expenses paid indirectly (76,381)
Net expenses 2,897,724
Net investment income 12,186,318
NET REALIZED AND UNREALIZED GAIN ON
INVESTMENTS
Net realized gain on investments 3,091
Net change in unrealized
appreciation (depreciation) on
investments 24,597
Net realized and unrealized gain
on investments 27,688
Net increase in net assets
resulting from operations $12,214,006
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
<PAGE>
PAGE 8
KEYSTONE LIQUID TRUST
STATEMENTS OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
YEAR ENDED JUNE 30,
1997 1996
<S> <C> <C>
OPERATIONS
Net investment income $ 12,186,318 $ 12,563,580
Net realized gain on investments 3,091 4,475
Net change in unrealized appreciation (depreciation) on investments 24,597 (39,780)
Net increase in net assets resulting from operations 12,214,006 12,528,275
DISTRIBUTIONS TO SHAREHOLDERS
Class A Shares (11,694,559) (12,043,595)
Class B Shares (382,781) (383,777)
Class C Shares (136,666) (100,903)
Total distributions to shareholders (12,214,006) (12,528,275)
CAPITAL SHARE TRANSACTIONS
Class A Shares (117,967,441) 87,487,588
Class B Shares (2,618,245) 2,760,515
Class C Shares 727,846 (826,275)
Net increase (decrease) in net assets resulting from capital share transactions (119,857,840) 89,421,828
Total increase (decrease) in net assets (119,857,840) 89,421,828
NET ASSETS
Beginning of year 346,123,143 256,701,315
End of year $ 226,265,303 $346,123,143
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
<PAGE>
PAGE 9
NOTES TO FINANCIAL STATEMENTS
1. SIGNIFICANT ACCOUNTING POLICIES
Keystone Liquid Trust (the "Fund") is a Massachusetts business trust for which
Keystone Investment Management Company ("Keystone"), a subsidiary of First Union
Corporation ("First Union"), is the Investment Adviser and Manager. The Fund is
registered under the Investment Company Act of 1940, as amended (the "1940
Act"), as a diversified, open-end management investment company.
The Fund offers Class A, Class B and Class C shares. Class A, Class B and
Class C shares are sold without an initial sales charge. Class B and Class C
shares pay a higher ongoing distribution fee than Class A. Class B shares are
sold subject to a contingent deferred sales charge that is payable upon
redemption and decreases depending on how long the shares have been held. Class
C shares are sold subject to a contingent deferred sales charge payable on
shares redeemed within one year after the month of purchase. Class B shares
purchased after January 1, 1997 will automatically convert to Class A shares
after seven years. Class B shares purchased prior to January 1, 1997 retain
their existing conversion rights.
The following is a summary of significant accounting policies consistently
followed by the Fund in the preparation of its financial statements. The
policies are in conformity with generally accepted accounting principles, which
require management to make estimates and assumptions that affect amounts
reported herein. Actual results could differ from these estimates.
A. VALUATION OF SECURITIES
Money market investments maturing in sixty days or less are valued at amortized
cost (original purchase cost as adjusted for amortization of premium or
accretion of discount), which, when combined with accrued interest, approximates
market. Money market investments maturing in more than sixty days for which
market quotations are readily available are valued at current market value.
Money market investments maturing in more than sixty days when purchased that
are held on the sixtieth day prior to maturity are valued at amortized cost
(market value on the sixtieth day adjusted for amortization of premium or
accretion of discount), which, when combined with accrued interest approximates
market.
B. REPURCHASE AGREEMENTS
The Fund may invest in repurchase agreements. Securities pledged as collateral
for repurchase agreements are held by the custodian on the Fund's behalf. The
Fund monitors the adequacy of the collateral daily and will require the seller
to provide additional collateral in the event the market value of the securities
pledged falls below the carrying value of the repurchase agreement, including
accrued interest. The Fund will only enter into repurchase agreements with banks
and other financial institutions which are deemed by the investment advisor to
be creditworthy pursuant to guidelines established by the Board of Trustees.
Pursuant to an exemptive order issued by the Securities and Exchange
Commission, the Fund, along with certain other funds managed by Keystone, 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.
C. REVERSE REPURCHASE AGREEMENTS
The Fund enters into reverse repurchase agreements with qualified third-party
broker-dealers. Interest on the value of reverse repurchase agreements is based
upon competitive market rates at the time of issuance. At the time the Fund
enters into a reverse repurchase agreement, it will establish and maintain a
segregated account with its custodian containing liquid assets having a value
not less than the repurchase price (including accrued interest). If the
counterparty to the transaction is rendered insolvent, the ultimate realization
of the securities to be repurchased by the Fund may be delayed or limited.
<PAGE>
PAGE 10
KEYSTONE LIQUID TRUST
D. SECURITY TRANSACTIONS AND INVESTMENT INCOME
Securities transactions are accounted for no later than one business day after
the trade date. Realized gains and losses are computed on the identified cost
basis. Interest income is recorded on the accrual basis and includes accretion
of discounts and amortization of premiums.
E. DISTRIBUTIONS
Distributions for the Fund are declared daily and paid monthly from the total of
net investment income, plus realized and unrealized gain (loss) on investments.
Distributions to shareholders are recorded at the close of business on the
ex-dividend date.
F. FEDERAL INCOME TAXES
The Fund has qualified and intends to continue to qualify as a regulated
investment company under the Internal Revenue Code of 1986, as amended (the
"Code"). Thus, the Fund will not incur any federal income tax liability since it
is expected to distribute all of its net investment company taxable income, net
tax-exempt income and net capital gains, if any, to its shareholders. The Fund
also intends to avoid any excise tax liability by making the required
distributions under the Code. Accordingly, no provision for federal income taxes
is required. To the extent that realized capital gains can be offset by capital
loss carryforwards, it is the Fund's policy not to distribute such gains.
G. CLASS ALLOCATIONS
Income, expenses (other than class specific expenses) and realized and
unrealized gains and losses are prorated among the classes based on the relative
net assets of each class. Currently, class specific expenses are limited to
expenses incurred under the Distribution Plans for
each class.
2. CAPITAL SHARE TRANSACTIONS
The Fund has an unlimited number of shares of beneficial interest with no par
value authorized. Shares of beneficial interest of the Fund are currently
divided into Class A, Class B and Class C. Since the Fund sold, redeemed and
reinvested shares at $1.00 net asset value, the shares and dollar amount are the
same. Transactions in shares of the Fund were as follows:
<TABLE>
<CAPTION>
YEAR ENDED JUNE 30,
1997 1996
<S> <C> <C>
CLASS A
Shares sold 1,115,974,093 1,105,810,542
Shares issued in
reinvestment of
distributions 10,558,337 9,604,322
Shares redeemed (1,244,499,871) (1,027,927,276)
Net increase
(decrease) (117,967,441) 87,487,588
CLASS B
Shares sold 32,548,370 31,488,209
Shares issued in
reinvestment of
distributions 346,049 306,930
Shares redeemed (35,512,664) (29,034,624)
Net increase
(decrease) (2,618,245) 2,760,515
CLASS C
Shares sold 7,074,014 7,581,549
Shares issued in
reinvestment of
distributions 132,185 94,829
Shares redeemed (6,478,353) (8,502,653)
Net increase
(decrease) 727,846 (826,275)
</TABLE>
3. SECURITIES TRANSACTIONS
At June 30, 1997, the cost of investments for federal income tax purposes was
$240,147,223. Gross unrealized appreciation of investments was $4,022 and gross
unrealized depreciation of investments was $21,168, resulting in net unrealized
depreciation of $17,146 for federal income tax purposes.
<PAGE>
PAGE 11
The average daily balance of reverse repurchase agreements outstanding during
the year ended June 30, 1997 was $9,950,000 at a weighted average interest rate
of 5.025%. The maximum amount of borrowing during the year ended June 30, 1997
was $9,952,778 (including accrued interest).
4. DISTRIBUTION PLANS
Since December 11, 1996, Evergreen Keystone Distributor, Inc. ("EKD"), a
wholly-owned subsidiary of The BISYS Group Inc. ("BISYS"), has served as
principal underwriter to the Fund. Prior to December 11, 1996, Evergreen
Keystone Investment Services, Inc. ("EKIS"), a wholly-owned subsidiary of
Keystone, served as the Fund's principal underwriter.
The Fund has adopted Distribution Plans for each class of shares as allowed by
Rule 12b-1 of the 1940 Act. Distribution plans permit the Fund to reimburse its
principal underwriter for costs related to selling shares of the Fund and for
various other services. These costs, which consist primarily of commissions and
services fees to broker-dealers who sell shares of the Fund, are paid by
shareholders through expenses called "Distribution Plan expenses". Each class,
currently pays a service fee equal to 0.25% of the average daily net asset of
the class. Class B and Class C also presently pay distribution fees equal to
0.75% of the average daily net assets of the Class. Distribution Plan expenses
are calculated daily and paid monthly.
With respect to Class B and Class C shares, the principal underwriter may pay
12b-1 fees greater than the allowable annual amounts the Fund is permitted to
pay. The Fund may reimburse the principal underwriter for such excess amounts in
later years with annual interest at the prime rate plus 1.00%.
During the year ended June 30, 1997, amounts paid to EKD and/or EKIS pursuant
to each Fund's Class A, Class B and Class C Distribution Plans were $231,498,
$108,489 and $38,446, respectively.
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, and subject to the discretion of the Independent Trustees, payments to
EKIS and/or EKD may continue as compensation for services which had been
provided while the Distribution Plan was in effect.
EKD intends, but is not obligated, to continue to pay distribution costs that
exceed the current annual payments from the Fund. EKD intends to seek full
payment of such distribution costs from the Fund at such time in the future as,
and to the extent that, payment thereof by the Class B or Class C shares would
be within permitted limits.
Contingent deferred sales charges paid by redeeming shareholders are paid to
EKD or its predecessor.
5. INVESTMENT ADVISORY AND MANAGEMENT AGREEMENT AND OTHER AFFILIATED
TRANSACTIONS
Keystone is the investment adviser and manager for the Fund. In return for
providing investment management and administrative services to the Fund, the
Fund pays Keystone a management fee that is calculated daily and paid monthly.
The management fee is computed at an annual rate of 0.50%, and declining as net
assets increase, to 0.40% per annum, to the average daily net asset value of the
Fund. Effective January 1, 1997, BISYS became the sub-administrator to the Fund
and is paid by Keystone for its services.
Prior to December 11, 1996, Keystone Management Inc. ("KMI"), a wholly-owned
subsidiary of Keystone, served as investment manager to the Fund and provided
investment management and administrative services. Under an investment advisory
agreement between KMI and Keystone, Keystone served as the investment adviser
and provided investment advisory and management services to the Fund. In return
for its services, Keystone received an annual fee equal to 85% of the management
fee received by KMI.
During the year ended June 30, 1997, the Fund paid or accrued to EKIS $33,538
for certain administrative services.
<PAGE>
PAGE 12
KEYSTONE LIQUID TRUST
Evergreen Keystone Service Company ("EKSC"), a wholly-owned subsidiary of
Keystone, serves as the transfer and dividend disbursing agent for the Fund.
Officers of the Fund and affiliated Trustees
receive no compensation directly from the Fund. As sub-administrator, BISYS
provides the officers of the Fund.
6. EXPENSE OFFSET ARRANGEMENT
The Fund has entered into an expense offset arrangement with its custodian. The
assets deposited with the custodian under this expense offset arrangement could
have been invested in income-producing assets.
7. MERGER
On June 18, 1997, the Board of Trustees approved the acquisition of
substantially all the Fund's assets and the assumption of the Fund's liabilities
by Evergreen Money Market Fund in exchange for shares of Class A, B and C shares
of Evergreen Money Market Fund. This transaction was approved by the Fund's
shareholders at a special meeting held on July 14, 1997.
<PAGE>
PAGE 13
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, 1997, 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 four-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, 1997, 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, 1997, 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
August 8, 1997
<PAGE>
PAGE 14
KEYSTONE LIQUID TRUST
OTHER INFORMATION-- MERGER WITH EVERGREEN MONEY MARKET FUND (UNAUDITED)
On July 14, 1997, the Fund held a special meeting of its shareholders, the
purpose of which was to approve an agreement and plan of reorganization
providing for the acquisition of all the assets and the assumption of certain
identified liabilities of the Fund by the Evergreen Money Market Fund. The plan
also provided for the distribution of shares of the Evergreen Money Market Fund
to shareholders of the Fund in liquidation of the Keystone Liquid Trust Fund.
On May 16, 1997, the record date for the meeting, the Fund had 262,719,253
shares outstanding, of which 111,790,457 shares of were represented at the
meeting. The vote at the meeting was as follows:
<TABLE>
<S> <C>
Affirmative 103,959,746
Against 2,027,228
Abstain 5,803,483
</TABLE>
The closing for the merger took place as of the close of business July 31, 1997.
<PAGE>
KEYSTONE
FAMILY OF FUNDS
(Diamond appears here)
Balanced Fund (K-1)
Diversified Bond Fund (B-2)
Growth and Income Fund (S-1)
High Income Bond Fund (B-4)
International Fund Inc.
Precious Metals Holdings, Inc.
Quality Bond Fund (B-1)
Small Company Growth Fund (S-4)
Strategic Growth Fund (K-2)
Tax Free Fund
This report was prepared primarily for the information of the Fund's
shareholders. It is authorized for distribution if preceded or accompanied by
the Fund's current prospectus. The prospectus contains important information
about the Fund including fees and expenses. Read it carefully before you invest
or send money. For a free prospectus on other Evergreen Keystone funds, contact
your financial adviser or call Evergreen Keystone.
Evergreen Keystone
(Evergreen tree appears here) FUNDS (Keystone logo appears here)
P.O. Box 2121
Boston, Massachusetts 02106-2121
KLT-R Rev01 7/97 (Recycle logo appears here)
KEYSTONE
(Photo of older man and little boy on bike appears here)
LIQUID TRUST
Evergreen Keystone
(Evergreen tree appears here) FUNDS (Keystone logo appears here)
ANNUAL REPORT
JUNE 30, 1997
