Keystone Mid-Cap Growth Fund (S-3)
(formerly Keystone Custodian Fund, Series S-3)
Seeks capital appreciation from a diversified portfolio of growth-oriented
companies.
Dear Shareholder:
We are pleased to report on the activities of Keystone Mid-Cap Growth Fund
(S-3) for the twelve-month period which ended August 31, 1995. At the
beginning of 1995, your Fund's investment strategy was revised to include
increased flexibility to invest in a broader range of medium-sized growth
companies. These strategic changes have not altered your Fund's investment
objective or Keystone's fundamental investment discipline.
Performance
Your Fund returned 21.42% for the twelve-month period. Some of your Fund's
strongest performance was achieved during the second six months of the fiscal
period when it reported a 22.89% return. This return exceeded the 16.89%
six-month return of the Standard and Poor's 500--a broad-based index of
common stock prices; for the twelve-month period the S&P 500 returned 21.45%.
The twelve-month return reflects both the new and old investment strategies;
the six-month return represents only the Fund's revised strategy.
We regard this performance favorably, especially in light of your Fund's
new investment orientation adopted at the beginning of 1995. While we believe
investors should not be unduly influenced by short-term performance, we take
encouragement from your Fund's strong results so far this year.
Technology Stocks Led the Way
Since January, visible signs of a slowing economy in combination with
relatively low interest rates and subdued inflation created a positive
investment environment. A strong bull market, fueled by technology stocks,
contributed to your Fund's performance. At the close of the period,
technology stocks accounted for 28% of the Fund's net assets. We believe that
much of the growth in technology companies is part of a long-term trend that
should benefit investors for many years. From supermarket scanners to global
wireless communications, there has been a revolution in the way we process
information, communicate with one another and manufacture and sell products.
We believe the use of new technologies will continue to enhance productivity
and lower costs for many companies. This should benefit both the companies
themselves, and the businesses which use their products and services to stay
competitive.
Advantages of New Investment Strategy
Many mid-capitalization stocks are not household names, but we believe they
may offer investors greater opportunities for dynamic growth than the stocks
of established companies. At the same time, mid-cap stocks have historically
provided more steady returns than small company stocks. Many of the companies
in the mid-cap range are involved in growing industries. We believe that over
time, the flexibility offered by a broader approach should help your Fund
achieve more consistent returns with lower price volatility.
--continued--
1
<PAGE>
Keystone Mid-Cap Growth Fund (S-3)
(formerly Keystone Custodian Fund, Series S-3)
The Stock Selection Process
In managing your Fund, we pursue a disciplined approach to investing that
begins with the setting of investment policy. This policy is based upon a
detailed evaluation of economic trends. Within this context, Keystone's
managers and analysts seek to invest in companies that have a leading market
position. In addition to having a strong growth record, they must also have
good management and a solid financial base. As part of our extensive hands-on
research, we also evaluate other important indicators of long-term success,
such as employee morale and the likelihood that a company may be bought out.
We seek to invest in the top growth companies, regardless of overall market
and economic conditions. We also invest in a broad range of industries in
seeking to reduce price volatility and risk.
Outlook
We believe the combination of moderate, sustainable economic growth and low
inflation should continue to provide a positive investment environment for
stocks in 1996. We think technology stocks will likely remain strong,
although we do not expect a continuation of 1995's returns. As the past year
has shown, investors with a long-term perspective and the patience to hold
their investment through difficult markets have tended to be rewarded.
We appreciate your continued support of Keystone Mid-Cap Growth Fund
(S-3). If you have any questions or comments about your investment, please
feel free to write to us.
Sincerely,
/s/ Albert H. Elfner, III
Albert H. Elfner, III
Chairman and President
Keystone Investments, Inc.
/s/ George S. Bissell
George S. Bissell
Chairman of the Board
Keystone Funds
October 1995
[Photo: Albert H. Elfner, III]
Albert H. Elfner, III
[Photo: George S. Bissell]
George S. Bissell
2
<PAGE>
A Discussion With
Your Fund's Manager
[Photo: Margery C. Parker]
Margery C. Parker is portfolio manager of Keystone Mid-Cap Growth Fund (S-3).
Ms. Parker has more than 15 years of investment management experience. She
holds a BA from Wellesley College and an MBA from Babson College.
Q What are the advantages of mid-cap stocks?
A Historically, mid-capitalization stocks have tended to exhibit higher
growth rates than larger-cap stocks, such as those in the Standard & Poor's
500 (see chart on p. 6). They also generally provided more consistent
earnings than smaller or start-up companies. We define mid-cap as stocks of
companies with market capitalizations generally between $750 million and $3
billion. A stock's market capitalization is determined by multiplying its
current price by the number of shares outstanding.
Q How did the bull market in technology stocks affect the Fund's
performance?
A Technology has been a very strong theme for the Fund. To compete in a
global economy, US companies must offer better products or services at lower
costs. We believe technology, whether electronic components, computerized
manufacturing systems or software, will play a major role in improving
corporate productivity. We think the Fund was well positioned to take
advantage of the rise in technology stocks, with about 28% of net assets in
technology-related issues on August 31, 1995. This area includes electronics,
software, office equipment and telecommunications companies.
One of your Fund's best performing stocks was Thermo Electron. Through its
subsidiaries, Thermo Electron is involved in a wide range of products and
services, including cogeneration systems, toxic waste remediation, bomb
detection systems and cardiovascular devices. Other technology holdings
included KLA Instruments, which makes equipment that tests semiconductors,
and Maxim Integrated which designs, manufactures and markets a broad range of
linear and mixed signal integrated circuits used in a variety of electronic
products. We also held Adobe Systems, a leading player in desktop publishing
software.
Q What other types of industries are represented in the portfolio?
A We believe that many businesses that can provide services or tools that
save time or money and enhance productivity have great growth potential. Our
largest holding, CUC International, which provides consum-
ers with travel and restaurant discounts, is growing steadily. Loewen Group,
another stable growth company, owns and operates a chain of funeral homes
throughout Canada and the United States. Its earnings have grown at
approximately 25% per year for the past five years.
G&K Services has also been a strong performer. G&K is one of the leading
U.S. suppliers of uniforms
- --------------------------------------------------------------------------------
Fund Profile
Objective: Seeks capital appreciation from a diversified portfolio of
growth-oriented companies.
Commencement of investment operations: September 11, 1935
Net assets: $276 million
Newspaper listing: MidCapS3
- --------------------------------------------------------------------------------
3
<PAGE>
Keystone Mid-Cap Growth Fund (S-3)
(formerly Keystone Custodian Fund, Series S-3)
- --------------------------------------------------------------------------------
Your Fund Invests In . . .
(bullet) Dynamic companies with earnings growth rates of 20% or more
(bullet) Companies with strong management, a leading market position and
solid balance sheets
(bullet) Primarily medium-sized companies, with market capitalizations
between $750 million and $3 billion
(bullet) U.S. stocks and stocks of established foreign companies
- --------------------------------------------------------------------------------
for a wide range of businesses. The company specializes in manufacturing and
distributing uniforms through its own distribution network. Earnings have
trended steadily higher this year due to intensified marketing efforts and
greater productivity. In addition, we see good opportunities in banking,
where consolidation and automation are changing the way financial
institutions do business.
Q What do you look for in the companies in which you invest?
A We evaluate each company on its own merits. We look for companies that
have strong management and that are leaders in their industry. Typically,
this means companies with anticipated earnings growth rates of 20% or more.
The portfolio is somewhat concentrated, because we focus on quality, not
quantity in stock selection, limiting our holdings to those we deem to be top
players in each industry sector.
Q How do you control the risks associated with stock investing?
A We manage risk in several ways. First of all, we own a diversified group
of stocks in a variety of industries, including some fairly predictable
sectors such as banks and utilities, so that no single issue can exert too
much influence on the portfolio. Second, we are very selective about the
stocks we buy. We do the research to find out which companies are the best at
what they do. If they are growing at 20% or more a
Top 5 Industries
As of August 31, 1995
Percent of
Industry net assets
- --------------------------------------------
Finance 13.1
- --------------------------------------------
Electronics products 10.4
- --------------------------------------------
Software services 10.0
- --------------------------------------------
Advertising & publishing 7.2
- --------------------------------------------
Business services 7.1
- --------------------------------------------
year and are also well managed and financially sound in our opinion, we will
consider adding a position to the portfolio. Our goal is to have a portfolio
of growing companies that we expect to prosper regardless of specific
economic conditions.
Q What are your guidelines for selling a stock?
A We attempt to sell when a stock has reached our price objective or if
there is a change in the company's fundamental outlook. We keep a close eye
on valuations, and often sell over a period of time as a stock rises. We are
alert to the possibility that a stock may become over-extended, and sell
shares when we feel we have made a good profit.
Q What is your investment outlook?
A We believe that 1995 will continue to be a good year for mid-cap stocks,
although the pace of returns could moderate. We believe these stocks are
still attractively valued on a relative basis, and they have historically
performed well especially in the later stages of a market rally. As we move
into 1996, our number one goal is to seek to maintain a consistent level of
performance and minimize price volatility in your Fund. We feel there is
still strength left in technology and finance stocks. We think growth in both
these sectors will be supported by the ongoing need of many businesses to
streamline and modernize to stay competitive.
4
<PAGE>
Your Fund's Performance
[Mountain Graph]
Growth of an investment in
Keystone Mid-Cap Growth Fund (S-3)
Initial Reinvested
Investment Distributions
---------- -------------
8/85 10,000 10,000
8/86 12,240 13,149
8/87 12,649 17,257
8/88 8,331 13,841
8/89 10,898 18,482
8/90 9,183 16,488
8/91 11,272 21,668
8/92 10,478 21,952
8/93 11,575 26,190
8/93 10,945 26,507
8/95 10,758 32,184
A $10,000 investment in Keystone Mid-Cap Growth Fund (S-3) made on August 31,
1985 with all distributions reinvested was worth $32,184 on August 31, 1995.
Past performance is no guarantee of future results.
Top 10 Holdings
As of August 31, 1995
Percentage
of
Company Industry net assets
- ----------------------------------------------------------------------------
CUC International Consumer goods 3.2
- ----------------------------------------------------------------------------
Bank of Boston Finance 2.7
- ----------------------------------------------------------------------------
Maxim Integrated Electronics products 2.6
- ----------------------------------------------------------------------------
Broderbund Software Software services 2.4
- ----------------------------------------------------------------------------
KLA Instruments Electronics products 2.2
- ----------------------------------------------------------------------------
Thermo Electron Business services 2.2
- ----------------------------------------------------------------------------
Golden West Financial Finance 2.1
- ----------------------------------------------------------------------------
BMC Software Software services 2.0
- ----------------------------------------------------------------------------
Potash Corp. of Saskatchewan Chemicals 2.0
- ----------------------------------------------------------------------------
Infinity Broadcasting Advertising & publishing 1.9
- ----------------------------------------------------------------------------
Twelve-Month Performance as of August 31, 1995
- -------------------------------------------------------
Total return* 21.42%
Net asset
value 8/31/94 $9.38
8/31/95 $9.22
Dividends $0.06
Capital gains $1.86
* Before deduction of contingent deferred sales charge (CDSC).
Historical Record as of August 31, 1995
- -------------------------------------------------------
If you If you did
Cumulative total return redeemed not redeem
1-year 18.47% 21.42%
5-year 95.19% 95.19%
10-year 221.84% 221.84%
Average annual total return
1-year 18.47% 21.42%
5-year 14.31% 14.31%
10-year 12.40% 12.40%
The one-year return reflects the deduction of the 3% contingent deferred
sales charge for those investors who sold Fund shares after one calendar
year. Investors who retained their fund investment received the one-year
return reported in the second column of the table.
The investment return and principal value will fluctuate so that your
shares, when redeemed, may be worth more or less than the original cost.
You may exchange your shares to another Keystone fund for a $10 fee by
contacting Keystone directly. The exchange fee is waived for individual
investors who make an exchange using Keystone's Automated Response Line
(KARL). The Fund reserves the right to change or terminate the exchange
offer.
5
<PAGE>
Keystone Mid-Cap Growth Fund (S-3)
(formerly Keystone Custodian Fund, Series S-3)
Growth of an Investment
Comparison of change in value of a $10,000 investment in Keystone Mid-Cap
Growth Fund (S-3), the Standard and Poor's 400 MidCap Index, the Standard and
Poor's 500 Index and the Consumer Price Index.
August 31, 1985 through August 31, 1995
In Thousands
Fund S&P 400 CPI S&P 500
---- ------- --- -------
8/85 10,000 10,000 10,000 10,000
8/86 13,149 13,818 10,157 13,873
8/87 17,257 16,632 10,593 18,627
8/88 13,841 14,456 11,019 15,280
8/89 18,482 20,380 11,537 21,192
8/90 16,488 18,777 12,185 20,102
8/91 21,668 26,579 12,648 25,500
8/92 21,952 29,382 13,046 27,542
8/93 26,190 36,572 13,407 31,730
8/94 26,507 38,271 13,796 33,467
8/95 32,184 46,115 14,120 40,647
Fund Average
Total Returns
- ---------------------------------
1 Year 5 Year 10 Year
18.47% 14.31% 12.40%
Past performance is no guarantee of future results. The one-year return reflects
the deduction of the fund's 3% contingent deferred sales charge for shares held
for at least one year. Consumer Price Index is through July 31, 1995.
This chart graphically compares your Fund's total return performance to
certain investment indexes. It is the result of fund performance guidelines
issued by the Securities and Exchange Commission. The intent is to provide
investors with more information about their investment.
The Fund's benchmark index was changed with the change in investment
strategy from the Standard and Poor's 500 Index (S&P 500) to the Standard and
Poor's 400 MidCap Index (S&P 400) to provide a more useful comparison of Fund
performance.
Components of the Chart
The chart is composed of several lines that represent the accumulated value
of an initial $10,000 investment for the period indicated. The lines
illustrate a hypothetical investment in:
1. Keystone Mid-Cap Growth Fund (S-3)
The Fund seeks capital appreciation from a diversified portfolio of
growth-oriented companies. The return is quoted after deducting sales charges
(if applicable), fund expenses and transaction costs and assumes reinvestment
of all distributions.
2. Standard & Poor's 400 MidCap Index (S&P 400)
The S&P 400 is a broad-based unmanaged index of common stock prices. The
index is comprised of stocks of medium-sized U.S. companies. The average
market capitalization of the index is $2.8 billion and ranges from
approximately $200 million to $6.5 billion.
3. Standard & Poor's 500 Index (S&P 500)
The S&P 500 is a broad-based unmanaged index of common stock prices. The
index is comprised of stocks of the largest U.S. companies.
4. Consumer Price Index (CPI)
This index is a widely recognized measure of the cost of goods and services
produced in the US. The index contains factors such as prices of services,
housing, food, transportation and electricity which are compiled by the US
Bureau of Labor Statistics. The CPI is generally considered a valuable
benchmark for investors who seek to outperform increases in the cost of
living.
These indexes do not include transaction costs associated with buying and
selling securities, and do not hold cash to meet redemptions. Stocks that
comprise S&P indexes are selected and compiled by Standard & Poor's
Corporation according to criteria that may be unrelated to your Fund's
investment objective. It would be difficult for most individual investors to
duplicate these indexes.
6
<PAGE>
Understanding What the Chart Means
The chart demonstrates your Fund's total return performance in relation to a
well known investment index and to increases in the cost of living. It is
important to understand what the chart shows and does not show.
This illustration is useful because it charts Fund and index performance over
the same time frame and over a long period. Long-term performance is a more
reliable and useful measure of performance than measurements of short-term
returns or temporary swings in the market. Your financial adviser can help you
evaluate fund performance in conjunction with the other important financial
considerations such as safety, stability and consistency.
Limitations of the Chart
The chart, however, limits the evaluation of Fund performance in several
ways. Because the measurement is based on total returns over an extended
period of time, the comparison often favors those funds which emphasize
capital appreciation when the market is rising. Likewise, when the market is
declining, the comparison usually favors those funds which take less risk.
Performance Can Be Distorted
Funds which are more conservative in their orientation and which place an
emphasis on capital preservation will tend to compare less favorably when the
market is rising. In addition, funds which have income as one of their
objectives also will tend to compare less favorably to relevant indexes.
Indexes may also reflect the performance of some securities which a fund may
be prohibited from buying. A bond fund, for example, may be limited to
investments in only high quality bonds, or a stock fund may only be able to buy
stocks that have been traded on a stock exchange for a minimum number of years
or stocks that have a certain market capitalization. Indexes usually do not have
the same investment restrictions as your Fund.
Indexes Do Not Include Costs of Investing
The comparison is further limited in its utility because the indexes do not
take into account any deductions for sales charges, transaction costs or
other fund expenses. Your Fund's performance figures do reflect such
deductions. Sales charges--whether up-front or deferred--pay for the cost of
the investment advice of your financial adviser. Transaction costs pay for
the costs of buying and selling securities for your Fund's portfolio. Fund
expenses pay for the costs of investment management and various shareholder
services. None of these costs are reflected in index total returns. The
comparison is not completely realistic because an index cannot be duplicated
by an investor--even an unmanaged index--without incurring some charges and
expenses.
One of Several Measures
The chart is one of several tools you can use to understand your investment.
It should be read in conjunction with the Fund's prospectus, and annual and
semiannual reports. Also, your financial adviser, who understands your
personal financial situation, can best explain the features of your Keystone
fund and how it applies to your financial needs.
Future Returns May Be Different
Shareholders also should be mindful that the long-run performance of either
the Fund or the indexes is not representative of what shareholders should
expect to receive from their Fund investment in the future; it is presented
to illustrate only past performance and is not a guarantee of future returns.
7
<PAGE>
Keystone Mid-Cap Growth Fund (S-3)
(formerly Keystone Custodian Fund, Series S-3)
SCHEDULE OF INVESTMENTS--August 31, 1995
Market
Shares Value
============================================================
COMMON STOCKS (97.5%)
Advertising & Publishing (7.2%)
American Radio Systems Corp.,
Class A (a) 160,000 $ 4,620,000
Clear Channel Communications,
Inc. (a) 54,400 4,059,600
Infinity Broadcasting, Corp.,
Class A (a) 145,900 5,234,163
Lin Television Corp. (a) 100,000 3,625,000
Omnicom Group, Inc. 38,000 2,384,500
- ------------------------------------------------------------
19,923,263
- ------------------------------------------------------------
Aerospace (2.4%)
Loral Corp. 60,000 3,285,000
Sundstrand Corp. 50,000 3,406,250
- ------------------------------------------------------------
6,691,250
- ------------------------------------------------------------
Amusements (3.7%)
Circus Circus Enterprises, Inc. (a) 77,500 2,538,125
Harrahs Entertainment, Inc. (a) 130,000 4,143,750
Mirage Resorts, Inc. (a) 100,000 3,437,500
- ------------------------------------------------------------
10,119,375
- ------------------------------------------------------------
Automotive (2.6%)
Danaher Corp. 140,000 4,620,000
Volvo A.B., ADR, Class B 133,100 2,670,319
- ------------------------------------------------------------
7,290,319
- ------------------------------------------------------------
Building Materials (1.0%)
Fastenal Co. 86,600 2,857,800
- ------------------------------------------------------------
Business Services (7.1%)
G & K Services, Class A 224,400 4,656,300
Loewen Group, Inc. 120,000 4,605,000
Thermo Electron Corp. (a) 142,000 6,123,750
Zebra Technologies Corp. (a) 70,000 4,103,750
- ------------------------------------------------------------
19,488,800
- ------------------------------------------------------------
Capital Goods (2.1%)
AGCO Corp. 65,500 3,184,938
Lincoln Electric Co. 90,000 2,688,750
- ------------------------------------------------------------
5,873,688
- ------------------------------------------------------------
Chemicals (4.3%)
Arcadian Corp. (a) 175,000 3,259,375
See Notes to Schedule of Investments.
============================================================
Chemicals -- continued
Loctite Corp. 67,700 $ 3,249,600
Potash Corp. of Saskatchewan, Inc. 95,000 5,403,125
- ------------------------------------------------------------
11,912,100
- ------------------------------------------------------------
Consumer Goods (5.6%)
Alberto Culver Co. 105,000 2,992,500
CUC International, Inc. (a) 256,800 8,763,300
Mohawk Industries, Inc. (a) 205,600 3,700,800
- ------------------------------------------------------------
15,456,600
- ------------------------------------------------------------
Electronics Products (10.4%)
Analog Devices, Inc. (a) 100,000 3,462,500
KLA Instruments Corp. (a) 72,500 6,180,625
Maxim Integrated Products, Inc. (a) 95,000 7,255,625
MEMC Electronic Materials, Inc. (a) 150,000 4,612,500
Microchip Technology, Inc. (a) 120,000 4,560,000
Xilinx, Inc. (a) 61,200 2,620,125
- ------------------------------------------------------------
28,691,375
- ------------------------------------------------------------
Finance (13.1%)
Bank of Boston Corp. 171,400 7,541,600
BISYS Group, Inc. (The) (a) 150,900 3,697,050
Golden West Financial Corp. Del. 120,000 5,730,000
Greenpoint Financial Corp. 90,700 2,511,256
Northern Trust Corp. 63,000 2,819,250
Norwest Corp. 102,200 3,078,775
Oasis Residential, Inc. (REIT) 110,000 2,488,750
Standard Federal Bancorp., Inc. 130,000 5,070,000
TCF Financial Corp. 60,000 3,337,500
- ------------------------------------------------------------
36,274,181
- ------------------------------------------------------------
Foods (1.6%)
Pioneer Hi-Bred International,
Inc. 100,000 4,293,750
- ------------------------------------------------------------
Healthcare Services (5.2%)
Apria Healthcare Group, Inc. (a) 65,000 1,803,750
Boston Scientific Corp. (a) 120,000 4,770,000
Pacificare Health Systems, Inc. (a) 75,000 4,275,000
St. Jude Medical, Inc. (a) 60,000 3,577,500
- ------------------------------------------------------------
14,426,250
- ------------------------------------------------------------
8
<PAGE>
============================================================
Insurance (1.2%)
MBIA, Inc. 50,500 $ 3,434,000
- ------------------------------------------------------------
Natural Gas (3.3%)
Anadarko Petroleum Corp. 76,400 3,648,100
Apache Corp. 92,100 2,682,413
Louisiana Land & Exploration Co. 70,000 2,677,500
- ------------------------------------------------------------
9,008,013
- ------------------------------------------------------------
Office & Business Equipment (2.6%)
Indigo N.V. (a) 90,200 2,818,750
Synopsys, Inc. (a) 75,000 4,321,875
- ------------------------------------------------------------
7,140,625
- ------------------------------------------------------------
Oil (1.5%)
Murphy Oil Corp. 100,000 4,050,000
- ------------------------------------------------------------
Oil Services (1.2%)
Weatherford International (a) 250,000 3,281,250
- ------------------------------------------------------------
Paper & Packaging (0.3%)
Bowater, Inc. 20,200 964,550
- ------------------------------------------------------------
Restaurants (1.3%)
Apple South, Inc. 150,000 3,675,000
- ------------------------------------------------------------
Retail (2.6%)
Gymboree Corp. (a) 130,000 3,891,870
Staples, Inc. (a) 127,500 3,259,219
- ------------------------------------------------------------
7,151,089
- ------------------------------------------------------------
============================================================
Software Services (10.0%)
Adobe Systems, Inc. 100,000 $ 5,087,500
America Online, Inc. (a) 50,900 3,353,038
BMC Software, Inc. (a) 130,100 5,529,250
Broderbund Software, Inc. (a) 89,300 6,574,713
Parametric Technology Corp. (a) 60,000 3,322,500
Peoplesoft, Inc. (a) 2,000 138,250
Symantec Corp. (a) 120,000 3,472,500
- ------------------------------------------------------------
27,477,751
- ------------------------------------------------------------
Telecommunications (3.7%)
Bay Networks, Inc. (a) 83,000 3,937,313
Cisco Systems, Inc. (a) 45,000 2,950,313
DSC Communications Corp. (a) 61,000 3,198,688
- ------------------------------------------------------------
10,086,314
- ------------------------------------------------------------
Utilities (3.5%)
CINergy Corp. 93,861 2,405,188
Compania Bolivia de Energia 16,700 511,438
Florida Progress Corp. 75,000 2,278,125
Hawaiian Electric Industries, Inc. 65,000 2,348,125
Teco Energy, Inc. 100,000 2,162,500
- ------------------------------------------------------------
9,705,376
- ------------------------------------------------------------
TOTAL COMMON STOCKS
(Cost--$229,081,593) 269,272,719
============================================================
9
<PAGE>
Keystone Mid-Cap Growth Fund (S-3)
(formerly Keystone Custodian Fund, Series S-3)
SCHEDULE OF INVESTMENTS--August 31, 1995
Maturity Market
Value Value
==========================================================
SHORT-TERM INVESTMENTS (4.7%)
Repurchase Agreements (4.7%)
Investments in repurchase
agreements, in a joint
trading account purchased
8/31/95, 5.8200%, maturing
9/01/95(b) $13,052,110 $ 13,050,000
- ----------------------------------------------------------
TOTAL SHORT-TERM INVESTMENTS
(Cost--$13,050,000) 13,050,000
==========================================================
TOTAL INVESTMENTS
(Cost--$242,131,593)(c) 282,322,719
==========================================================
OTHER ASSETS AND LIABILITIES--NET (-2.2%) (6,288,707)
- ----------------------------------------------------------
NET ASSETS (100%) $276,034,012
==========================================================
NOTES TO SCHEDULE OF INVESTMENTS:
(a) Non-income-producing security.
(b) The repurchase agreements are fully collateralized by U.S. government
and/or agency obligations based on market prices at August 31, 1995.
(c) The cost of investments for federal income tax purposes amounted to
$242,334,949. Gross unrealized appreciation and depreciation of
investments, based on identified tax cost, at August 31, 1995 are as
follows:
Gross unrealized appreciation $42,893,140
Gross unrealized depreciation (2,905,370)
----------
Net unrealized appreciation $39,987,770
==========
Legend of Portfolio Abbreviations:
ADR--American Depository Receipt
REIT--Real Estate Investment Trust
See Notes to Financial Statements.
10
<PAGE>
FINANCIAL HIGHLIGHTS
(For a share outstanding throughout the year)
Year Ended August 31,
-------------------------------------------------
1995 1994 1993 1992 1991
===========================================================================
Net asset value
beginning of year $9.38 $9.92 $8.98 $9.66 $7.87
- ---------------------------------------------------------------------------
Income from investment
operations:
Net investment income 0.04 0.02 (0.02) (0.01) 0.05
Net gain (loss) on
investments 1.72 0.09 1.69 0.10 2.23
Net commissions paid
on fund share sales (a) 0.00 0.00 0.00 0.00 0.00
- ---------------------------------------------------------------------------
Total income from
investment
operations 1.76 0.11 1.67 0.09 2.28
- ---------------------------------------------------------------------------
Less distributions from:
Net investment income (0.04) (0.02) 0.00 (0.03) (0.08)
In excess of net
investment income (0.02) (0.01) 0.00 (0.05) 0.00
Net realized gain on
investments (1.72) (0.57) (0.73) (0.69) (0.41)
In excess of net
realized gains (0.14) 0.00 0.00 0.00 0.00
Tax basis return of
capital 0.00 (0.05) 0.00 0.00 0.00
- ---------------------------------------------------------------------------
Total distributions (1.92) (0.65) (0.73) (0.77) (0.49)
- ---------------------------------------------------------------------------
Net asset value end of
year $9.22 $9.38 $9.92 $8.98 $9.66
===========================================================================
Total return (b) 21.42% 1.21% 19.31% 1.31% 31.42%
Ratios/supplemental data
Ratios to average
net assets:
Total expenses 1.32% 1.35% 1.74% 1.69% 1.47%
Net investment income 0.43% 0.16% (0.21%) (0.12%) 0.74%
Portfolio turnover
rate 172% 58% 69% 99% 66%
- ---------------------------------------------------------------------------
Net assets end of year
(thousands) $276,034 $252,351 $292,965 $262,696 $256,070
- ---------------------------------------------------------------------------
Year Ended August 31,
-------------------------------------------------
1990 1989 1988 1987 1986
===========================================================================
Net asset value
beginning of year $9.34 $7.14 $10.84 $10.49 $8.57
- ---------------------------------------------------------------------------
Income from investment
operations:
Net investment income 0.05 0.17 0.12 0.01 0.13
Net gain (loss) on
investments (1.02) 2.18 (2.00) 2.41 2.42
Net commissions paid
on fund share sales (a) 0.00 0.00 0.00 0.00 (0.07)
- ---------------------------------------------------------------------------
Total income from
investment
operations (0.97) 2.35 (1.88) 2.42 2.48
- ---------------------------------------------------------------------------
Less distributions from:
Net investment income (0.25) (0.12) (0.16) (0.14) (0.20)
In excess of net
investment income 0.00 0.00 0.00 0.00 0.00
Net realized gain on
investments (0.25) (0.03) (1.66) (1.93) (0.36)
In excess of net
realized gains 0.00 0.00 0.00 0.00 0.00
Tax basis return of
capital 0.00 0.00 0.00 0.00 0.00
- ---------------------------------------------------------------------------
Total distributions (0.50) (0.15) (1.82) (2.07) (0.56)
- ---------------------------------------------------------------------------
Net asset value end of
year $ 7.87 $ 9.34 $ 7.14 $10.84 $10.49
===========================================================================
Total return (b) (10.79%) 33.53% (19.80%) 31.24% 31.49%
Ratios/supplemental data
Ratios to average
net assets:
Total expenses 1.54% 1.50% 1.44% 2.05% 1.05%
Net investment income 0.93% 2.27% 1.43% 0.08% 1.41%
Portfolio turnover
rate 65% 65% 117% 118% 117%
- ---------------------------------------------------------------------------
Net assets end of year
(thousands) $199,881 $280,084 $223,624 $325,105 $255,893
- ---------------------------------------------------------------------------
(a) Prior to June 30, 1987, net commissions paid on new sales of shares under
the Fund's Rule 12b-1 Distribution Plan had been treated for both
financial statement and tax purposes as capital charges. On June 11,
1987, the Securities and Exchange Commission adopted a rule which
required for financial statements for periods ended on or after June 30,
1987, that net commissions paid under Rule 12b-1 Distribution plans be
treated as operating expenses rather than capital charges. Accordingly,
beginning with the fiscal year ended August 31, 1987, the Fund's
financial statements reflect 12b-1 Distribution Plan expenses (i.e.,
shareholder service fees plus commissions paid net of deferred sales
charges received by the Fund) as a component of net investment income.
(b) Excluding applicable sales charges.
See Notes to Financial Statements.
11
<PAGE>
Keystone Mid-Cap Growth Fund (S-3)
(formerly Keystone Custodian Fund, Series S-3)
STATEMENT OF ASSETS AND LIABILITIES
August 31, 1995
====================================================================
Assets:
Investments at market value (identified cost--
$242,131,593) (Note 1) $282,322,719
Cash 657
Receivable for:
Investments sold 316,716
Dividends and interest 221,241
Fund shares sold 73,048
Prepaid expenses and other assets 30,377
- --------------------------------------------------------------------
Total assets 282,964,758
- --------------------------------------------------------------------
Liabilities (Notes 2, 4 and 5):
Payable for:
Investments purchased 2,964,175
Fund shares redeemed 97,134
Distributions to shareholders 3,823,003
Other accrued expenses 46,434
- --------------------------------------------------------------------
Total liabilities 6,930,746
- --------------------------------------------------------------------
Net assets $276,034,012
====================================================================
Net assets represented by (Note 1):
Paid-in-capital $213,243,256
Net undistributed investment income 13,985,718
Accumulated net realized gain (loss) on
investments 8,613,912
Net unrealized appreciation (depreciation) on
investments 40,191,126
- --------------------------------------------------------------------
Total net assets applicable to outstanding
shares of beneficial interest ($9.22 a share on
29,928,715 shares outstanding) (Note 1) $276,034,012
====================================================================
See Notes to Financial Statements.
STATEMENT OF OPERATIONS
Year Ended August 31, 1995
=========================================================================
Investment income (Note 1):
Dividends (net of foreign withholding
taxes of $1,065) $ 2,944,798
Interest 1,410,936
- -------------------------------------------------------------------------
Total income 4,355,734
- -------------------------------------------------------------------------
Expenses (Notes 2 and 4):
Management fee $1,643,356
Transfer agent fees 731,710
Accounting 18,690
Auditing, printing and legal fees 47,590
Custodian fees 128,947
Trustees' fees and expenses 14,398
Distribution Plan expenses 681,265
Registration fees 32,117
Miscellaneous expenses 15,599
- -------------------------------------------------------------------------
Total expenses 3,313,672
- -------------------------------------------------------------------------
Net investment income (Note 1) 1,042,062
- -------------------------------------------------------------------------
Net realized gain (loss) on investments sold
(Notes 1 and 3) 52,906,920
- -------------------------------------------------------------------------
Net change in unrealized appreciation
(depreciation) on investments (3,702,097)
- -------------------------------------------------------------------------
Net gain (loss) on investments 49,204,823
- -------------------------------------------------------------------------
Net increase (decrease) in net assets
resulting from operations $50,246,885
=========================================================================
12
<PAGE>
STATEMENTS OF CHANGES IN NET ASSETS
Year Ended August 31,
----------------------------
1995 1994
===========================================================================
Operations (Notes 1 and 3):
Net investment income $ 1,042,062 $ 433,309
Net realized gain (loss) on investments 52,906,920 21,427,293
Net change in unrealized appreciation or
depreciation on investments (3,702,097) (18,376,078)
- ---------------------------------------------------------------------------
Net increase (decrease) in net assets
resulting from operations 50,246,885 3,484,524
- ---------------------------------------------------------------------------
Distributions to shareholders
(Notes 1 and 5):
Net investment income (1,042,062) (433,309)
In excess of net investment income (525,125) (314,852)
Net realized gain on investments (49,683,115) (16,153,937)
Tax basis return of capital 0 (1,520,710)
- ---------------------------------------------------------------------------
Total distributions to shareholders (51,250,302) (18,422,808)
- ---------------------------------------------------------------------------
Capital share transactions (Note 2):
Proceeds from shares sold 27,462,149 18,777,122
Payments for shares redeemed (47,931,858) (60,782,911)
Net asset value of shares issued in
reinvestment of dividends and
distributions 45,156,148 16,329,893
- ---------------------------------------------------------------------------
Net increase (decrease) in net assets
resulting from capital share
transactions 24,686,439 (25,675,896)
- ---------------------------------------------------------------------------
Total increase (decrease) in net assets 23,683,022 (40,614,180)
- ---------------------------------------------------------------------------
Net assets:
Beginning of year 252,350,990 292,965,170
- ---------------------------------------------------------------------------
End of year [Including undistributed net
investment income (accumulated
distributions in excess of net investment
income) as follows 1995--$13,985,718 and
1994--0] (Note 1) $276,034,012 $252,350,990
===========================================================================
See Notes to Financial Statements.
13
<PAGE>
Keystone Mid-Cap Growth Fund (S-3)
(formerly Keystone Custodian Fund, Series S-3)
NOTES TO FINANCIAL STATEMENTS
(1.) Significant Accounting Policies
Keystone Mid-Cap Growth Fund (S-3) (formerly Keystone Custodian Fund, Series
S-3)(the "Fund") is a common law trust 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 a
diversified open-end investment company.
Keystone is a wholly-owned subsidiary of Keystone Investments, Inc. ("KII")
(formerly Keystone Group, Inc.), a Delaware corporation. KII is privately
owned by an investor group consisting of current and former members of
management of Keystone and its affiliates. KMI is a wholly-owned subsidiary
of Keystone. Keystone Investor Resource Center, Inc. ("KIRC") a wholly-owned
subsidiary of Keystone, is the Fund's transfer agent.
The following is a summary of significant accounting policies consistently
followed by the Fund in the preparation of its financial statements. The
policies are in conformity with generally accepted accounting principles.
A. Investments are usually valued at the closing sales price, or in the
absence of sales and for over-the-counter securities, the mean of bid and
asked quotations. Management values the following securities at prices it
deems in good faith by or under the direction of the Board of Trustees to be
fair: (a) securities (including restricted securities) for which complete
quotations are not readily available and (b) listed securities if, in the
opinion of management, the last sales price does not reflect a current value,
or if no sale occurred. Short-term 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. Short-term investments maturing in more
than sixty days for which market quotations are readily available are valued
at current market value. Short-term 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. Investments denominated in a foreign
currency are adjusted daily to reflect changes in exchange rates. Market
quotations are not considered to be readily available for long-term corporate
bonds and notes; such investments are stated at fair value on the basis of
valuations furnished by a pricing service, approved by the Trustees, which
determines valuations for normal, institutional-size trading units of such
securities using methods based on market transactions for comparable
securities and various relationships between securities which are generally
recognized by institutional traders.
The Fund enters into currency and other financial futures contracts as a
hedge against changes in interest or currency exchange rates. A futures
contract is an agreement between two parties to buy and sell a specific
amount of a commodity, security, financial instrument, or in the case of a
stock index, cash at a set price on a future date. Upon entering into a
futures contract, the Fund is required to deposit with a broker an amount
("initial margin") equal to a certain percentage of the purchase price
indicated in the futures contract. Subsequent payments ("variation margin")
are made or received by the Fund each day, as the value of the underlying
instrument or index fluctuates, and are recorded for book purposes as
unrealized gains or losses by the Fund. For federal tax purposes, any
14
<PAGE>
futures contracts which remain open at fiscal year-end are marked-to-market
and the resultant net gain or loss is included in federal taxable income.
Foreign currency amounts are translated into United States dollars as
follows: market value of investments, assets and liabilities at the daily
rate of exchange, purchases and sales of investments, income and expenses at
the rate of exchange prevailing on the respective dates of such transactions.
Net unrealized foreign exchange gains/losses are a component of unrealized
appreciation/depreciation of investments. In addition to the market risk, the
Fund is subject to the credit risk that the other party will not be able to
complete the obligations of the contract.
B. 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
dividend income is recorded on the ex-dividend date. Distributions to the
shareholders are recorded by the Fund at the close of business on the
ex-dividend date.
C. 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 is relieved of any federal
income or excise tax liability by distributing all of its net taxable
investment income and net taxable 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.
D. 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, which generally will be maintained at 101% of
the repurchase price. The Fund monitors the value of collateral on a daily
basis, and if the value of the 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.
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.
E. The Fund intends to distribute net investment income quarterly, and net
capital gains, if any, annually. Distributions are determined in accordance
with income tax regulations. Distributions from taxable net investment income
and net capital gains can exceed
15
<PAGE>
Keystone Mid-Cap Growth Fund (S-3)
(formerly Keystone Custodian Fund, Series S-3)
book basis net income and net capital gains. The significant differences
between financial statement amounts available for distribution and
distributions made in accordance with income tax regulations are primarily
due to differing treatment of 12b-1 expenses prior to April 1995.
(2.) Capital Share Transactions
The Trust Agreement authorizes the issuance of an unlimited number of shares
of beneficial interest with a par value of $1.00. Transactions in shares of
the Fund were as follows:
Year Ended August 31,
--------------------------
1995 1994
- ----------------------------------------------------
Shares sold 3,189,451 1,991,206
Shares redeemed (5,383,518) (6,406,646)
Shares issued in
reinvestment of
dividends and
distributions 5,233,815 1,767,304
- ----------------------------------------------------
Net increase
(decrease) 3,039,748 (2,648,136)
====================================================
The Fund bears some of the costs of selling its shares under a Distribution
Plan adopted pursuant to Rule 12b-1 under the Investment Company Act of 1940.
Under the Distribution Plan, the Fund pays Keystone Investment Distributors
Company (formerly Keystone Distributors, Inc.) ("KIDC"), the principal
underwriter and a wholly-owned subsidiary of Keystone, amounts which in total
may not exceed the Distribution Plan maximum.
In connection with the Distribution Plan and subject to the limitations
discussed below, Fund shares are offered for sale at net asset value without any
initial sales charge. From the amounts received by KIDC in connection with the
Distribution Plan, and subject to the limitations discussed below, KIDC
generally pays brokers or others a commission equal to 4.0% of the price paid to
the Fund for each sale of fund shares, as well as a shareholder service fee at a
rate of 0.25% per annum of the net asset value of shares sold by such brokers or
others and remaining outstanding on the books of the Fund for specified periods.
To the extent fund shares are purchased prior to January 1, 1992 are redeemed
within four calendar years of original issuance, the Fund may be eligible to
receive a deferred sales charge from the investor as partial reimbursement for
sales commissions previously paid on those shares. This charge is based on
declining rates, which begin at 4.0%, applied to the lesser of the net asset
value of shares redeemed or the total cost of such shares.
The Distribution Plan provides that the Fund may incur certain expenses which
may not exceed a maximum amount equal to 0.3125% of the Fund's average daily net
assets for any calendar quarter (approximately 1.25% annually) occurring after
the inception of the Distribution Plan. A rule of the National Association of
Securities Dealers, Inc. ("NASD") limits the annual expenditures which the Fund
may incur under the Distribution Plan to 1.0% of which 0.75% may be used to pay
such distribution expenses and 0.25% may be used to pay shareholder service
fees. The NASD Rule also limits the aggregate amount which the Fund may pay for
such distribution costs to 6.25% of gross share sales since the inception of the
Fund's Distribution Plan, plus interest at the prime rate plus 1% on unpaid
amounts thereof (less any contingent deferred sales charges paid by the
shareholders to KIDC).
KIDC intends, but is not obligated, to continue to pay or accrue distribution
charges which exceed current annual payments permitted to be received by KIDC
from the Fund. KIDC intends to seek full payment of such charges from the Fund
(together with annual interest thereon at the prime rate plus 1.0%) at
16
<PAGE>
such time in the future as, and to the extent that, payment thereof by the
Fund would be within permitted limits. KIDC currently intends to seek payment
of interest only on such charges paid or accrued by KIDC subsequent to
January 1, 1992.
Commencing on July 8, 1992, contingent deferred sales charges applicable to
shares of the Fund issued after January 1, 1992 have, to the extent permitted by
the NASD Rule, been paid to KIDC rather than to the Fund.
During the year ended August 31, 1995, the Fund recovered $127,273 in
deferred sales charges. During the year ended August 31, 1995, the Fund paid
KIDC $814,849 under the Distribution Plan. The amount paid by the Fund under its
Distribution Plan, net of deferred sales charges, was $681,265 (0.27% of the
Fund's average daily net asset value during the twelve month period). During the
year ended August 31, 1995, KIDC retained $173,145 and paid commissions on new
sales and maintenance fees to dealers and others of $641,704.
(3.) Securities Transactions
For the year ended August 31, 1995, purchases and sales of investment
securities (including proceeds received at maturity), were as follows:
Cost of Proceeds
Purchases from Sales
- -----------------------------------------------------------
Portfolio securities $ 388,697,615 $ 396,479,580
Short-term
investments 5,475,746,940 5,487,372,840
- -----------------------------------------------------------
$5,864,444,555 $5,883,852,420
===========================================================
(4.) Investment Management and Transactions with Affiliates
Under the terms of the Investment Management Agreement between KMI and the
Fund, KMI provides investment management and administrative services to the
Fund. In return, KMI is paid a management fee computed and paid daily. The
management fee is calculated by applying percentage rates, which start at
0.70% and decline, as net assets increase, to 0.35% per annum, to the net
asset value of the Fund. KMI has entered into an Investment Advisory
Agreement with Keystone, under which Keystone provides investment advisory
and management services to the Fund and receives for its services an annual
fee representing 85% of the management fee received by KMI.
During the year ended August 31, 1995 the Fund paid or accrued to KMI
investment management and administrative service fees of $1,643,356, which
represent 0.66% of the Fund's average daily net asset value during the year. Of
such amount paid to KMI, $1,396,853 was paid to Keystone for its services to the
Fund. During the year ended August 31, 1995, the Fund paid or accrued to KII and
KIRC $32,433 for certain accounting and printing services and $731,710 for
transfer agent fees.
17
<PAGE>
Keystone Mid-Cap Growth Fund (S-3)
(formerly Keystone Custodian Fund, Series S-3)
INDEPENDENT AUDITORS' REPORT
The Trustees and Shareholders
Keystone Mid-Cap Growth Fund (S-3)
We have audited the accompanying statement of assets and liabilities of
Keystone Mid-Cap Growth Fund (S-3), (formerly Keystone Custodian Fund, Series
S-3) including the schedule of investments, as of August 31, 1995, and the
related statement of operations for the year then ended, the statements of
changes in net assets for each of the years in the two-year period then ended,
and the financial highlights for each of the years in the ten-year period then
ended. 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
August 31, 1995 by correspondence with the custodian and brokers. 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 Mid-Cap Growth Fund (S-3), as of August 31, 1995, the results of its
operations for the year then ended, the changes in its net assets for each of
the years in the two-year period then ended, and the financial highlights for
each of the years in the ten-year period then ended, in conformity with
generally accepted accounting principles.
KPMG Peat Marwick LLP
Boston, Massachusetts
September 29, 1995
18
<PAGE>
FEDERAL TAX STATUS--FISCAL 1995 DISTRIBUTIONS (Unaudited)
During the fiscal year ended August 31, 1995, distributions of $1.92 per
share were paid in shares or cash. This total includes a taxable long-term
capital gain distribution of $1.86 per share. The remaining $0.06 per share is
taxable to shareholders as ordinary income in the year in which received by them
or credited to their accounts. Of the ordinary income distributions, 36% is
eligible for the corporate dividend received deduction.
The above figures may differ from those cited elsewhere in this report due to
differences in the calculation of income and capital gains for accounting (book)
purposes and Internal Revenue Service (tax) purposes.
In January 1996, we will send you complete information on the distributions
paid during the calendar year 1995 to help you in completing your federal tax
return.
19
<PAGE>
[begin 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
Liquid Trust
Mid-Cap Growth Fund (S-3)
Precious Metals Holdings
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 at 1-800-343-2898.
[Keystone logo] KEYSTONE
INVESTMENTS
P.O. Box 2121
Boston, Massachusetts 02106-2121
S-3-AR-10/95
19 M [recycle logo]
KEYSTONE
[photo of dad & daughter]
MID-CAP GROWTH
FUND (S-3)
[Keystone logo]
ANNUAL REPORT
AUGUST 31, 1995
