PAGE 1
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Keystone Liquid Trust
Seeks stability of principal and liquidity with current income from high quality
money market instruments.
Dear Shareholder:
We are pleased to report to you on the activities of Keystone Liquid Trust for
the six-month period which ended December 31, 1996.
Performance
Your Fund provided the following returns:
Class A shares returned 2.25% for the period, which includes reinvestment of
the 2.2 cent-per-share dividend.
Class B shares returned 1.79% for the period, which includes reinvestment of
the 1.8 cent-per-share dividend.
Class C shares returned 1.81% for the period, which includes reinvestment of
the 1.8 cent-per-share dividend.
Your Fund maintained a constant net asset value of $1 per share during the
period and continued to focus on high-quality, short-term money market
instruments.
Market Environment and Strategy
Short-term interest rates were steady to modestly lower over the past six
months, in response to a confirmed trend of moderate economic growth and low
inflation. This atmosphere of stability was in sharp contrast to the rising
interest rate environment of the first half of 1996. At that time, the economy
had begun to grow faster than many investors expected. The uncertainty regarding
the economy's strength stimulated concerns about future inflation. Interest
rates moved higher, as investors adjusted their economic outlooks and waited for
a clear trend to emerge.
We structured Keystone Liquid Trust to take advantage of this more stable and
lower interest rate environment by actively managing the Fund's average
maturity. As of June 30, 1996, the average maturity stood at 37 days. We then
extended it in anticipation of declining rates, enabling the Fund to maximize
income for a longer period of time. On December 31, 1996, the Fund's average
maturity was 54 days. This reflects our expectations for a neutral interest rate
environment over the coming months and is comparable to the industry average.
We also sought to maximize income through asset-allocation. As of December 31,
1996, approximately 54% of the Fund's net assets were invested in commercial
paper, which has consistently provided the highest short-term yields over the
past six months. The Fund continues to emphasize quality and liquidity. The
average credit quality of the portfolio was A1+/P1 on December 31, 1996. A1+/P1
is the highest commercial paper rating given by Moody's and Standard & Poors.
Keystone's Continued Emphasis on Quality and Liquidity
Keystone Liquid Trust requires an issuer to have the highest commercial paper
rating, as well as a minimum single "A" rating by all major credit rating
agencies on its longer-term debt. For bank obligations, we concentrate on large,
well-capitalized banks with diverse investment portfolios and invest only in the
obligations of the bank itself. Our research team monitors eligible issuers on
an ongoing basis, utilizing liquidity ratios and other financial data that
measures a company's creditworthiness. During this six-month period, your Fund
did not invest in derivative securities.
(continued on next page)
<PAGE>
PAGE 2
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Keystone Liquid Trust
Our Outlook
As we enter 1997, we anticipate a steady interest rate environment, similar to
that experienced over the past few months. We expect the economy to grow at a
pace of 1-1/2% to 3% and for inflation to remain well-contained. The economy
still exhibits signs of strength, particularly in the housing and manufacturing
sectors and in consumer confidence. However, consumer borrowing has slowed. This
could dampen the rate of growth since consumer spending accounts for two-thirds
of domestic economic activity.
We believe that the U.S. economy is in a prolonged moderate growth cycle with
periodic over-heating and recessionary scares. This leads to a bond market that
should trade in a volatile pattern within a generally well- defined range.
Longer term, we do not see excesses in the real economy embedded with higher
inflation.
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
Keystone Investment Management Company
/s/ George S. Bissell
George S. Bissell
Chairman of the Board
Keystone Funds
February 1997
<PAGE>
PAGE 3
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Glossary of
Mutual Fund Terms
MUTUAL FUND--A company which combines the investment money of many people
whose financial goals are similar, and invests that money in a variety of
securities. A mutual fund allows the smaller investor the benefits of
diversification, professional management and constant supervision usually
available only to large investors.
PORTFOLIO MANAGER--An investment professional who is responsible for managing
a portfolio's assets prudently and making appropriate investment decisions, such
as which securities to buy, hold and sell, based on the investment objectives of
the portfolio.
STOCK--Equity or ownership interest in a corporation, which represents a claim
on the corporation's assets and earnings.
BOND--Security issued by a government or corporation to those from whom it has
borrowed money. A bond usually promises to pay interest income to the bondholder
at regular intervals and to repay the entire amount borrowed at maturity date.
CONVERTIBLE SECURITY--A corporate security (usually preferred stock or bonds)
that is exchangeable for a set number of another security type (usually common
stocks) at a pre-stated price.
MONEY MARKET FUND--A mutual fund whose assets are invested in a diversified
portfolio of short- term securities, including commercial paper, bankers'
acceptances, certificates of deposit and other short-term instruments. The fund
pays income which can fluctuate daily. Liquidity and safety of principal are
primary objectives.
NET ASSET VALUE (NAV) PER SHARE--The value of one share of a mutual fund. The
NAV per share is determined by subtracting a fund's total liabilities from its
total assets, and dividing that amount by the number of fund shares outstanding.
DIVIDEND--A per share distribution of the income earned from the fund's
portfolio holdings. When a dividend distribution is made, the fund's net asset
value drops by the amount of the distribution because the distribution is no
longer considered part of the fund's assets.
CAPITAL GAIN--The profit from the sale of securities, less any losses. Capital
gains are paid to fund shareholders on a per share basis. When a capital gain
distribution is made, the fund's net asset value drops by the amount of the
distribution because the distribution is no longer considered part of the fund's
assets.
YIELD--The annualized rate of income as measured against the current net asset
value of fund shares.
TOTAL RETURN--The change in value of a fund investment over a specified period
of time, taking into account the change in a fund's market price and the
reinvestment of all fund distributions.
SHORT-TERM--An investment with a maturity of one year or less.
LONG-TERM--An investment with a maturity of greater than one year.
AVERAGE MATURITY--The average number of days until the notes, drafts,
acceptances, bonds or other debt instruments in a portfolio become due and
payable.
OFFERING PRICE--The offering price of a share of a mutual fund is the price at
which the share is sold to the public.
<PAGE>
PAGE 4
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Keystone Liquid Trust
SCHEDULE OF INVESTMENTS--December 31, 1996
(Unaudited)
<TABLE>
<CAPTION>
Maturity Principal Market
Date Amount Value
- ------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
BANKERS' ACCEPTANCES (4.9%)
First National Bank of Chicago 01/09/97 $ 2,000,000 $ 1,997,931
Morgan Guaranty Trust Co. of New York 03/25/97 3,000,000 2,962,827
Republic National Bank, New York 06/02/97 2,000,000 1,954,448
Republic National Bank, New York 06/16/97 2,000,000 1,950,225
Sun Bank Orlando 01/06/97 2,000,000 1,998,829
- ------------------------------------------------------------------------------------------------
TOTAL BANKERS' ACCEPTANCES (Cost--$10,867,841) 10,864,260
- ------------------------------------------------------------------------------------------------
BANK NOTES (6.3%)
Fifth Third Bancorp, 5.36% 01/06/97 10,000,000 9,999,953
Morgan Guaranty Trust Co. of New York, 5.25% 01/15/97 2,000,000 1,999,683
Wachovia Bank & Trust, 6.65% 09/05/97 2,000,000 2,012,900
- ------------------------------------------------------------------------------------------------
TOTAL BANK NOTES (Cost--$14,012,866) 14,012,536
- ------------------------------------------------------------------------------------------------
CERTIFICATES OF DEPOSIT (17.0%)
Algemene Bank Nederland NV, Yankee CD, 5.50% 04/09/97 5,000,000 4,998,917
Bayerische Landesbank, Euro CD, 5.54% 02/07/97 5,000,000 4,999,931
Commerzbank, New York, CD, 5.40% 03/11/97 5,000,000 4,998,896
Deutsche Bank AG, New York, Yankee CD, 5.62% 01/15/97 5,000,000 5,000,028
Deutsche Bank AG, Yankee CD, 5.57% 02/03/97 3,000,000 3,000,155
Rabobank Nederland NV, Yankee CD, 5.53% 02/05/97 10,000,000 9,999,777
Republic National Bank, New York, CD, 5.51% 04/30/97 5,000,000 4,998,969
- ------------------------------------------------------------------------------------------------
TOTAL CERTIFICATES OF DEPOSIT (Cost--$38,002,285) 37,996,673
- ------------------------------------------------------------------------------------------------
COMMERCIAL PAPER (53.9%)
ABN-AMRO North America Finance Co. 01/07/97 5,000,000 4,996,298
Abbott Laboratories, Inc. 01/16/97 5,000,000 4,989,617
American Express Credit Corp. 01/10/97 5,000,000 4,994,089
American Express Credit Corp. 06/20/97 5,000,000 4,873,250
Ameritech Corp. 01/17/97 5,000,000 4,988,854
Associates Corp. of North America 01/13/97 5,000,000 4,991,842
Associates Corp. of North America 01/24/97 5,000,000 4,983,653
Bayerische Landesbank 02/18/97 5,000,000 4,964,554
Bayerische Vereinsbank AG 01/08/97 5,000,000 4,995,550
BellSouth Telecommunications, Inc. 03/26/97 7,000,000 6,912,204
Commerzbank AG, New York 01/10/97 2,000,000 1,997,627
Commerzbank U.S. Financial Corp. 02/28/97 3,000,000 2,973,875
Dean Witter, Discover & Co. 01/30/97 5,000,000 4,979,194
Deutsche Bank Financial, Inc. 05/08/97 2,000,000 1,961,990
duPont (E.I.) deNemours & Co. 01/28/97 5,000,000 4,980,789
<PAGE>
PAGE 5
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COMMERCIAL PAPER (continued)
General Electric Capital Corp. 01/06/97 $ 5,000,000 $ 4,997,033
General Electric Capital Corp. 02/04/97 5,000,000 4,975,433
Heinz (H.J.) Co. 01/09/97 5,000,000 4,994,828
Heinz (H.J.) Co. 01/16/97 3,000,000 2,993,735
Kellogg Co. 01/14/97 3,600,000 3,593,688
Merrill Lynch & Co., Inc. 01/17/97 5,000,000 4,988,792
Merrill Lynch & Co., Inc. 02/25/97 5,000,000 4,958,900
Proctor & Gamble Co. 01/21/97 7,000,000 6,980,235
Proctor & Gamble Co. 02/10/97 3,000,000 2,982,580
UBS Finance Delaware, Inc. 01/02/97 10,000,000 10,000,000
- ------------------------------------------------------------------------------------------------
TOTAL COMMERCIAL PAPER (Cost--$120,057,722) 120,048,610
- ------------------------------------------------------------------------------------------------
U.S. GOVERNMENT (AND AGENCY) ISSUES (13.4%)
FHLMC Discount Notes 04/01/97 3,000,000 2,960,321
FHLMC Discount Notes 08/28/97 5,000,000 4,997,090
FNMA Discount Notes 01/03/97 5,000,000 4,999,274
FNMA Discount Notes 03/17/97 5,000,000 4,944,808
FNMA Discount Notes 03/27/97 4,000,000 3,949,880
U.S. Treasury Notes 08/31/97 5,000,000 5,015,508
U.S. Treasury Notes 11/30/97 3,000,000 3,011,894
- ------------------------------------------------------------------------------------------------
TOTAL U.S. GOVERNMENT (AND AGENCY) ISSUES (Cost--$29,874,976) 29,878,775
- ------------------------------------------------------------------------------------------------
Maturity
Value
- ------------------------------------------------------------------------------------------------
REPURCHASE AGREEMENT (4.1%) (Cost--$9,054,000)
Keystone Joint Repurchase Agreement
(Investments in repurchase agreements,
in a joint trading account,
6.72%, purchased 12/31/96) (a) 01/02/97 9,057,380 9,054,000
- ------------------------------------------------------------------------------------------------
TOTAL INVESTMENTS (Cost--$221,869,690) 221,854,854
OTHER ASSETS AND LIABILITIES--NET (0.4%) 836,080
- ------------------------------------------------------------------------------------------------
NET ASSETS--(100.0%) $222,690,934
- ------------------------------------------------------------------------------------------------
</TABLE>
(a) The repurchase agreements are fully collateralized by U.S. government
and/or agency obligations based on market prices at December 31, 1996.
Legend of Portfolio Abbreviations
FHLMC--Federal Home Loan Mortgage Corporation
FNMA--Federal National Mortgage Association
See Notes to Financial Statements.
<PAGE>
PAGE 6
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Keystone Liquid Trust
FINANCIAL HIGHLIGHTS--CLASS A SHARES
(For a share outstanding throughout each period)
<TABLE>
<CAPTION>
Six Months
Ended
December 31, Year Ended June 30,
1996 --------------------------------------------------------
(Unaudited) 1996 1995 1994 1993 1992
- --------------------------------------------------------------------------------------------------------
<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 .0222 .0464 .0454 .0235 .0230 .0386
Net realized and
unrealized gain (loss)
on investments .0001 (.0001) 0 0 (.0001) .0003
- --------------------------------------------------------------------------------------------------------
Total from investment
operations .0223 .0463 .0454 .0235 .0229 .0389
- --------------------------------------------------------------------------------------------------------
Less distributions to
shareholders (.0223) (.0463) (.0454) (.0235) (.0229) (.0389)
- --------------------------------------------------------------------------------------------------------
Net asset value end of
period $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
- --------------------------------------------------------------------------------------------------------
Total return 2.25% 4.73% 4.63% 2.37% 2.31% 3.96%
Ratios/supplemental data
Ratios to average net assets:
Net investment income 4.41%(b) 4.66% 4.42% 2.50% 2.29% 3.99%
Total expenses (a) 1.06%(b) 0.98% 0.92% 1.02% 1.11% 1.10%
Net assets end of period
(thousands) $207,960 $332,796 $245,308 $398,617 $189,167 $227,115
- --------------------------------------------------------------------------------------------------------
</TABLE>
(a) Beginning with the year ended June 30, 1996, the ratio of total expenses to
average net assets includes indirectly paid expenses. Excluding indirectly
paid expenses, the expense ratios would have been 1.04% (annualized) for the
six months ended December 31, 1996 and 0.95% for the year ended June 30,
1996.
(b) Annualized.
See Notes to Financial Statements.
<PAGE>
PAGE 7
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FINANCIAL HIGHLIGHTS--CLASS B SHARES
(For a share outstanding throughout each period)
<TABLE>
<CAPTION>
Six Months February 1, 1993
Ended Year Ended June 30, (Date of Initial
December 31, ---------------------------- Public Offering)
1996 1996 1995 1994 to June 30, 1993
- ---------------------------------------------------------------------------------------------------------------
(Unaudited)
<S> <C> <C> <C> <C> <C>
Net asset value beginning of period $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
- ---------------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income .0178 .0369 .0362 .0142 .0047
Net realized and unrealized gain
(loss) on investments .0001 0 0 0 (.0001)
- ---------------------------------------------------------------------------------------------------------------
Total from investment operations .0179 .0369 .0362 .0142 .0046
- ---------------------------------------------------------------------------------------------------------------
Less distributions to shareholders (.0179) (.0369) (.0362) (.0142) (.0046)
- ---------------------------------------------------------------------------------------------------------------
Net asset value end of period $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
- ---------------------------------------------------------------------------------------------------------------
Total return (c) 1.79% 3.76% 3.68% 1.43% 0.46%
Ratios/supplemental data
Ratios to average net assets:
Net investment income 3.56%(b) 3.73% 3.66% 1.84% 1.08% (b)
Total expenses (a) 1.92%(b) 1.91% 1.84% 1.85% 2.15% (b)
Net assets end of period (thousands) $10,942 $10,042 $ 7,281 $11,198 $ 241
- ---------------------------------------------------------------------------------------------------------------
</TABLE>
(a) Beginning with the year ended June 30, 1996, the ratio of total expenses to
average net assets includes indirectly paid expenses. Excluding indirectly
paid expenses, the expense ratios would have been 1.90% (annualized) for the
six months ended December 31, 1996 and 1.88% for the year ended June 30,
1996.
(b) Annualized.
(c) Excluding applicable sales charges.
See Notes to Financial Statements.
<PAGE>
PAGE 8
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Keystone Liquid Trust
FINANCIAL HIGHLIGHTS--CLASS C SHARES
(For a share outstanding throughout each period)
<TABLE>
<CAPTION>
Six Months February 1, 1993
Ended Year Ended June 30, (Date of Initial
December 31, ---------------------------- Public Offering)
1996 1996 1995 1994 to June 30, 1993
- ------------------------------------------------------------------------------------------------------
(Unaudited)
<S> <C> <C> <C> <C> <C>
Net asset value beginning of
period $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
- ------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income .0180 .0370 .0362 .0142 .0045
Net realized and unrealized
loss on investments 0 (.0001) 0 0 (.0002)
- ------------------------------------------------------------------------------------------------------
Total from investment operations .0180 .0369 .0362 .0142 .0043
- ------------------------------------------------------------------------------------------------------
Less distributions to shareholders (.0180) (.0369) (.0362) (.0142) (.0043)
- ------------------------------------------------------------------------------------------------------
Net asset value end of period $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
- ------------------------------------------------------------------------------------------------------
Total return (c) 1.81% 3.75% 3.68% 1.43% 0.43%
Ratios/supplemental data
Ratios to average net assets:
Net investment income 3.57%(b) 3.72% 3.52% 1.97% 1.01%(b)
Total expenses (a) 1.93%(b) 1.94% 1.82% 1.86% 2.09% (b)
Net assets end of period (thousands) $ 3,788 $ 3,285 $ 4,112 $ 6,599 $ 34
- ------------------------------------------------------------------------------------------------------
</TABLE>
(a) Beginning with the year ended June 30, 1996, the ratio of total expenses to
average net assets includes indirectly paid expenses. Excluding indirectly
paid expenses, the expense ratios would have been 1.91% (annualized) for the
six months ended December 31, 1996 and 1.91% for the year ended June 30,
1996.
(b) Annualized.
(c) Excluding applicable sales charges.
See Notes to Financial Statements.
<PAGE>
PAGE 9
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STATEMENT OF ASSETS AND LIABILITIES--
December 31, 1996 (Unaudited)
- ------------------------------------------------------------------------------
Assets (Note 2)
Investments at market value
(identified cost--$221,869,690) $221,854,854
Cash 339,701
Receivable for:
Fund shares sold 192,084
Interest 1,167,350
Other assets 48,112
- -----------------------------------------------------------------------------
Total assets 223,602,101
- -----------------------------------------------------------------------------
Liabilities (Notes 2 and 4)
Payable for:
Fund shares redeemed 57,151
Distributions to shareholders 738,158
Due to related parties 9,932
Accrued Trustees' fees and expenses 2,148
Other accrued expenses 103,778
- -----------------------------------------------------------------------------
Total liabilities 911,167
- -----------------------------------------------------------------------------
Net assets $222,690,934
- -----------------------------------------------------------------------------
Net assets represented by (Note 2)
Class A Shares ($1.00 a share on 207,960,367 shares
outstanding) $207,960,367
Class B Shares ($1.00 a share on 10,942,259 shares
outstanding) 10,942,259
Class C Shares ($1.00 a share on 3,788,308 shares
outstanding) 3,788,308
- -----------------------------------------------------------------------------
$222,690,934
- -----------------------------------------------------------------------------
Net asset value and offering price per share
(Class A, B and C) $1.00
- -----------------------------------------------------------------------------
STATEMENT OF OPERATIONS--
Six Months Ended December 31, 1996 (Unaudited)
- ------------------------------------------------------------------------------
Investment income
Interest $8,753,202
Expenses (Notes 3, 4 and 5)
Management fee $ 804,692
Transfer agent fees 417,167
Accounting, auditing and legal fees 34,164
Custodian fees 96,320
Trustees' fees and expenses 13,785
Distribution Plan expenses 255,302
Other 159,550
- -----------------------------------------------------------------------------
Total expenses 1,780,980
Less: Expenses paid indirectly (32,438)
- -----------------------------------------------------------------------------
Net expenses 1,748,542
- -----------------------------------------------------------------------------
Net investment income 7,004,660
- -----------------------------------------------------------------------------
Net realized and unrealized gain on investments
Net realized gain on investments 2,965
Net change in unrealized appreciation on investments 26,907
- -----------------------------------------------------------------------------
Net realized and unrealized gain on investments 29,872
- -----------------------------------------------------------------------------
Net increase in net assets resulting from operations $7,034,532
- -----------------------------------------------------------------------------
See Notes to Financial Statements.
<PAGE>
PAGE 10
- -----------------------------------------------------------------------------
Keystone Liquid Trust
STATEMENTS OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
Six Months
Ended
December 31, Year Ended
1996 June 30, 1996
- ------------------------------------------------------------------------------------------------------
(Unaudited)
<S> <C> <C>
Operations
Net investment income $ 7,004,660 $ 12,563,580
Net realized gain on investments 2,965 4,475
Net change in unrealized appreciation (depreciation) on investments 26,907 (39,780)
- ------------------------------------------------------------------------------------------------------
Net increase in net assets resulting from operations 7,034,532 12,528,275
- ------------------------------------------------------------------------------------------------------
Distributions to shareholders (Note 1)
Class A Shares (6,743,248) (12,043,595)
Class B Shares (220,772) (383,777)
Class C Shares (70,512) (100,903)
- ------------------------------------------------------------------------------------------------------
Total distributions to shareholders (7,034,532) (12,528,275)
- ------------------------------------------------------------------------------------------------------
Capital share transactions (Note 2)
Class A Shares (124,835,304) 87,487,588
Class B Shares 900,185 2,760,515
Class C Shares 502,910 (826,275)
- ------------------------------------------------------------------------------------------------------
Net increase (decrease) in net assets resulting from capital
share transactions (123,432,209) 89,421,828
- ------------------------------------------------------------------------------------------------------
Total increase (decrease) in net assets (123,432,209) 89,421,828
Net assets
Beginning of period 346,123,143 256,701,315
- ------------------------------------------------------------------------------------------------------
End of period $ 222,690,934 $346,123,143
- ------------------------------------------------------------------------------------------------------
</TABLE>
See Notes to Financial Statements.
<PAGE>
PAGE 11
- -----------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS (Unaudited)
(1.) Significant Accounting Policies
Keystone Liquid Trust (the "Fund") is a Massachusetts business trust for which
Keystone Investment Management Company ("Keystone") is the Investment Adviser
and Manager. Keystone was formerly a wholly-owned subsidiary of Keystone
Investments, Inc. ("KII") and is currently a subsidiary of First Union Keystone,
Inc. First Union Keystone, Inc. is a wholly-owned subsidiary of First Union
National Bank of North Carolina which in turn is a wholly-owned subsidiary of
First Union Corporation ("First Union"). The Fund is registered under the
Investment Company Act of 1940, as amended (the "1940 Act"), as a diversified,
open-end investment company. The Fund offers several classes of shares. 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 following is a summary of significant accounting policies consistently
followed by the Fund in the preparation of its financial statements. The
policies are in conformity with generally accepted accounting principles, which
require management to make estimates and assumptions that affect amounts
reported herein. Although actual results could differ from these estimates, any
such differences are expected to be immaterial to the net assets of the Fund.
A. Valuation of Securities
Money market investments maturing in sixty days or less are valued at amortized
cost. 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.
B. Repurchase Agreements
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.
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.
C. 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
amortization of discounts and premiums.
D. 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 (the
"Code"). Thus, the Fund is relieved of any federal income tax liability by
distributing all of its net taxable investment income and net taxable capital
gains, if any, to its shareholders. The Fund also intends to avoid excise tax
liability by making the required distributions under the Code. Accordingly, no
provision for federal income taxes is required.
E. Distributions
The Fund declares dividends daily, pays dividends monthly and automatically
reinvests such dividends in
<PAGE>
PAGE 12
- -----------------------------------------------------------------------------
Keystone Liquid Trust
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.
F. Class Allocations
The Fund offers Class A, B, and C shares. Class A shares are offered without an
initial sales charge. Class B shares are offered without an initial sales
charge, although a contingent deferred sales charge is payable upon redemption
and decreases depending on how long the shares have been held. Class B shares
purchased on or after June 1, 1995 that have been outstanding for eight years
automatically convert to Class A shares. Class B shares purchased prior to June
1, 1995 that have been outstanding for seven years automatically convert to
Class A shares. Class C shares are offered without an initial sales charge,
although a contingent deferred sales charge is payable on shares redeemed within
one year of purchase.
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's Declaration of Trust authorizes the issuance of an unlimited number
of shares of beneficial interest with no par value. 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:
Six Months
Ended Year
December 31, Ended
Class A 1996 June 30, 1996
- -----------------------------------------------------------------------------
Shares sold $ 602,052,721 $ 1,105,810,542
Shares redeemed (732,901,073) (1,027,927,276)
Shares issued in reinvestment of
dividends and distributions 6,013,048 9,604,322
- -----------------------------------------------------------------------------
Net increase (decrease) $(124,835,304) $ 87,487,588
- -----------------------------------------------------------------------------
Class B
- -----------------------------------------------------------------------------
Shares sold $ 20,141,291 $ 31,488,209
Shares redeemed (19,428,017) (29,034,624)
Shares issued in reinvestment of
dividends and distributions 186,911 306,930
- -----------------------------------------------------------------------------
Net increase $ 900,185 $ 2,760,515
- -----------------------------------------------------------------------------
Class C
- -----------------------------------------------------------------------------
Shares sold $ 3,764,790 $ 7,581,549
Shares redeemed (3,324,177) (8,502,653)
Shares issued in reinvestment of
dividends and distributions 62,297 94,829
- -----------------------------------------------------------------------------
Net increase (decrease) $ 502,910 $ (826,275)
- -----------------------------------------------------------------------------
(3.) Distribution Plans
The Fund bears some of the costs of selling its shares under Distribution Plans
adopted for its Class A, B and C shares pursuant to Rule 12b-1 under the 1940
Act. Under the Distribution Plans, the Fund pays its
<PAGE>
PAGE 13
- -----------------------------------------------------------------------------
principal underwriter amounts which are calculated and paid monthly.
Prior to December 11, 1996, Evergreen Keystone Investment Services, Inc.
(formerly, Keystone Investment Distributors Company) ("EKIS"), a wholly-owned
subsidiary of Keystone, served as the Fund's principal underwriter. On December
11, 1996, the Fund entered into a principal underwriting agreement with
Evergreen Keystone Distributor, Inc. (formerly, Evergreen Funds Distributor,
Inc.) ("EKD"), a wholly-owned subsidiary of BISYS Group Inc. At that time, EKD
replaced EKIS as the Fund's principal underwriter.
The Class A Distribution Plan provides for expenditures, which are currently
limited to 0.25% annually of the average daily net assets of the Class A shares,
to pay expenses related to the distribution of Class A shares. During the six
months ended December 31, 1996, the Fund paid $173,450 to EKIS under the Class A
Distribution Plan.
Pursuant to the Fund's Class B and Class C Distribution Plans, the Fund pays a
distribution fee which may not exceed 1.00% annually of the average daily net
assets of Class B and Class C shares, respectively. Of that amount, 0.75% is
used to pay distribution expenses and 0.25% is used to pay service fees.
During the six months ended December 31, 1996, under the Class B Distribution
Plans, the Fund paid or accrued $42,382 for Class B shares purchased before June
1, 1995 and $19,690 for Class B shares purchased on or after June 1, 1995. The
Fund paid $19,780 under the Class C Distribution Plan.
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 earned
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.
At December 31, 1996 total unpaid distribution costs were $1,199,417 for Class
B shares purchased before June 1, 1995 and $287,222 for Class B shares purchased
on or after June 1, 1995. Unpaid distribution costs for Class C were $1,214,156
at December 31, 1996.
Contingent deferred sales charges paid by redeeming shareholders are paid to
EKD or its predecessor.
(4.) Investment Management Agreement and Other Affiliated Transactions
Under an investment advisory agreement dated December 11, 1996, Keystone serves
as the Investment Adviser and Manager to the Fund. Keystone provides the Fund
with investment advisory and management services. In return, Keystone 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 average daily net asset value of the Fund.
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
<PAGE>
PAGE 14
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Keystone Liquid Trust
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 six months ended December 31, 1996, the Fund paid or accrued
$14,341 to Keystone for certain accounting services. The Fund paid or accrued
$417,167 to Evergreen Keystone Service Company (formerly, Keystone Investor
Resource Center, Inc.), a wholly-owned subsidiary of Keystone, for services
rendered as the Fund's transfer and dividend disbursing agent.
Officers of the Fund and affiliated Trustees receive no compensation directly
from the Fund.
(5.) Expense Offset Arrangement
The Fund has entered into an expense offset arrangement with its custodian. For
the six months ended December 31, 1996, the Fund incurred total custody fees of
$96,320 and received a credit of $32,438 pursuant to this expense offset
arrangement, resulting in a net custody expense of $63,882. The assets deposited
with the custodian under this expense offset arrangement could have been
invested in income-producing assets.
<PAGE>
PAGE 15
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ADDITIONAL INFORMATION (Unaudited)
Shareholders of the Fund considered and acted upon the proposals listed below
at a special meeting of shareholders held Monday, December 9, 1996. In addition,
next to each proposal are the results of that vote.
Affirmative Withheld
------------- -------------
1. To elect the following Trustees:
Frederick Amling 174,614,490.186 9,827,496.960
Laurence B. Ashkin 174,499,798.106 9,712,804.880
Charles A. Austin III 174,573,127.716 9,754,167.350
Foster Bam 174,481,228.756 9,846,066.310
George S. Bissell 174,444,876.646 9,882,418.420
Edwin D. Campbell 174,571,976.386 9,755,318.680
Charles F. Chapin 174,513,556.876 9,813,738.190
K. Dun Gifford 174,599,806.346 9,727,488.720
James S. Howell 174,477,253.346 9,850,041.720
Leroy Keith, Jr. 174,536,145.346 9,791,149.720
F. Ray Keyser 174,502,970.576 9,824,324.490
Gerald M. McDonnell 174,484,684.226 9,842,610.840
Thomas L. McVerry 174,496,773.116 9,830,521.950
William Walt Pettit 174,475,109.256 9,852,185.810
David M. Richardson 174,599,806.346 9,727,488.720
Russell A. Salton, III MD 174,439,202.376 9,888,092.690
Michael S. Scofield 174,542,891.566 9,784,403.500
Richard J. Shima 174,484,681.016 9,842,614.050
Andrew J. Simons 174,384,040.676 9,943,254.390
Votes For Votes Against Abstentions
--------- ------------- -----------
2. To approve an
Investment Advisory
and Management
Agreement between the
Fund and Keystone
Investment Management
Company. 168,374,747.516 5,839,366.530 10,113,181.020
3. To amend the Fund's
Declaration of Trust
to permit the Board
Trustees to fix the
number of Trustees
from time to time. 168,189,259.926 7,378,193.920 8,759,841.220
<PAGE>
KEYSTONE
FAMILY OF FUNDS
[diamond]
Balanced Fund (K-1)
Diversified Bond Fund (B-2)
Growth and Income Fund (S-1)
High Income Bond Fund (B-4)
International Fund Inc.
Liquid Trust
Mid-Cap Growth Fund (S-3)
Precious Metals Holdings, Inc.
Quality Bond Fund (B-1)
Small Company Growth Fund (S-4)
Strategic Growth Fund (K-2)
Tax Free Fund
This report was prepared primarily for the information of the Fund's
shareholders. It is authorized for distribution if preceded or accompanied by
the Fund's current prospectus. The prospectus contains important information
about the Fund including fees and expenses. Read it carefully before you invest
or send money. For a free prospectus on other Evergreen Keystone funds, contact
your financial adviser or call Evergreen Keystone.
[GRAPHIC] Evergreen Keystone Logo
P.O. Box 2121
Boston, Massachusetts 02106-2121
KLT-R-2/97
15.5M [recycle logo]
KEYSTONE
[GRAPHIC] Man assisting child on bicycle
LIQUID TRUST
[GRAPHIC] Evergreen Keystone Logo
SEMIANNUAL REPORT
DECEMBER 31, 1996
