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Keystone Small Co GR Fd S 4 – ‘N-30D’ for 11/30/96

As of: Thursday, 3/6/97 · For: 11/30/96 · Accession #: 950146-97-306 · File #: 811-00101

  As Of                Filer                Filing    For·On·As Docs:Size              Issuer               Agent

 3/06/97  Keystone Small Co GR Fd S 4       N-30D      11/30/96    1:63K                                    Merrill/Daniels 01/FA

Annual or Semi-Annual Report Mailed to Shareholders — Rule 30d-1
Filing Table of Contents

Document/Exhibit                   Description                      Pages   Size 

 1: N-30D       Annual or Semi-Annual Report Mailed to                20    108K 
                          Shareholders

Document Table of Contents

Page	(sequential)	\|	(alphabetic)	Top
			Alternative Formats (Word, et al.) Keystone
1	1st Page - Filing Submission
20	Keystone

N-30D 1st Page of 20 TOC ↑Top Previous Next ↓Bottom Just 1st
 
PAGE 1                                                                          
--------------------------------------                                          

Keystone Small Company Growth Fund (S-4)                                        
Seeks long-term growth of capital by investing in emerging growth companies.    

Dear Shareholder:                                                               

We are writing to report to you on the activities of Keystone Small Company     
Growth Fund (S-4) for the six-month period ending November 30, 1996. Following  
this letter, we have included an interview with your new Fund manager, J. Gary  
Craven, discussing portfolio strategy. Mr. Craven joined the Keystone team on   
November 4.                                                                     

Performance                                                                     

For the six-month period ending November 30, 1996, your Fund produced a return  
of -8.61%. For the 12-month period, your Fund produced a -0.12% return. This    
trailed the Russell 2000 Index, which declined -1.35% for the six-month time    
frame and returned 16.57% for one year. The Russell 2000 Growth Index had a     
-8.83% return for six months and returned 11.56% for the 12-month period.       

  In contrast to your Fund's long-term record of positive performance, its
most recent performance was disappointing. We believe these short-term results  
reflect the repositioning of the Fund into smaller capitalization stocks in the 
first two quarters of 1996. Not only did small-cap stocks bear the brunt of a   
midsummer market sell-off, but the smaller-sized small companies, which your    
Fund was emphasizing, witnessed the greatest stock price declines. In addition, 
there were problems in stock and industry selection, particularly in the        
technology industries, which were heavily hit in the June-July market           
correction.                                                                     

We are reviewing the risk profile of your Fund, and are dedicated to  
providing more consistent results from period to period. Following this letter, 
Portfolio Manager J. Gary Craven discusses his risk management strategy in      
managing Keystone Small Company Growth Fund (S-4).                              

    As we have stated in the past, this small company stock investing strategy
offers investors attractive long-term growth potential, but is accompanied by   
risks. Investors should keep in mind that short-term losses, such as we have    
seen in the past six months, are a normal part of investing in small company    
stocks. We remain convinced that our strategy can play an important role in     
helping investors reach their long-term financial goals.                        

 Longer-term, we intend to maintain a philosophy of seeking the stock of
small companies that appear to have sustainable above-average growth prospects, 
not necessarily the companies which have the highest growth rates, or the       
greatest momentum. Our investment process requires that the present value of    
projected earnings justify the stock price. We seek to buy stocks of small      
companies that have attractive prospects with a two-year perspective. We believe
this discipline can produce consistent returns over the long term.              

Market Review                                                                   

The last six months have seen the largest stocks outperform their smaller       
counterparts by one of the largest margins in the last two decades. From the end
of May through the end of November, the Dow Jones Industrial Average leaped     
15.6%, to 6,521.70. Meanwhile, the Russell 2000, the premier index of           
small-stock performance, declined 1.35%. It appears investors were flocking to  
safer, more liquid blue-chip names in light of concerns that the economy may    
slow down.                                                                      

  Technology stocks led the market up for most of the past six years. This
summer they demonstrated that they can lead it down too. At the bottom of the   
slide, on July 16, the Dow was off 10% from an all-time high set on May 22.     
Smaller firms fared worse. At its low, on July 16, the technology-heavy NASDAQ  
Composite Index was off 19% from its record high.                               

Valuation Still Reasonable                                                      

One way we measure the attractiveness of small-cap stocks is by comparing the   
price-to-earnings ratio (P/E) of small-cap stocks to the Standard & Poor's 500  
Index (S&P 500) P/E. The S&P 500 is a broad market average of                   

--continued-- 

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PAGE 2                                                                          
--------------------------------------                                          

Keystone Small Company Growth Fund (S-4)                                        

large-cap stocks. Historically, the ratio of small caps versus the S&P 500 has  
ranged between 1.0 and 2.2. A ratio of 1.0 indicates that small-cap stocks offer
good value compared to large-cap stocks for the same level of earnings. A ratio 
of 2.2 indicates that small-cap stocks are relatively expensive compared to     
large-cap stocks. Our experience tells us that a ratio below 2.0 is reasonable. 
As of November 30, 1996, this ratio was 1.58.                                   

Our Outlook                                                                     

Looking at the next six months, our outlook for small company stocks is         
positive. Given the moderate pace of economic growth in the second half of 1996,
we expect small-cap stocks to post stronger earnings growth than larger         
companies. Also, the valuation of small caps has become more attractive relative
to large caps and other asset classes after the November rally. We believe the  
current economic backdrop of moderate economic growth, low inflation and        
moderate interest rates should bode well for the small company stock market in  
1997.                                                                           

Keystone Acquired By First Union Corporation                                    

On another note, we are pleased to inform you that Keystone has been acquired by
First Union Corporation. First Union, based in Charlotte, North Carolina, is the
nation's sixth largest bank holding company with assets of approximately $130   
billion. Keystone Investment Management Company will continue to be the         
investment adviser responsible for managing your Fund's portfolio. Your Fund    
will continue to be managed with the same style and philosophy as in the past.  
First Union is also the parent company of the investment advisers to another    
mutual fund family, the Evergreen Family of Funds. Together, the investment     
advisers to the Evergreen and Keystone Fund families manage approximately $30   
billion in assets. Some services will now be conducted under the "Evergreen     
Keystone Funds" umbrella.                                                       

   We believe the partnership between Evergreen and Keystone will strengthen
our ability to offer you outstanding investment management services.            

    Thank you for your continued support of Keystone Small Company Growth Fund
(S-4). If you have any questions or comments about your investments, we         
encourage you to write to us.                                                   

Sincerely,                              [photos of Elfner and Bissell]          

/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                                                                  

January 1997                                                                    

[photo captions]         Albert H. Elfner, III           George S. Bissell      

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PAGE 3                                                                          
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A Discussion With 
Your Fund Manager 
[photo of J. Gary Craven]                                                       
[photo caption                                                                  
J. Gary Craven is head of Keystone's Small Company Stock Team and senior        
portfolio manager of your Fund. Mr. Craven is a Chartered Financial Analyst.    
Prior to joining Keystone on November 4, he was a portfolio manager at Invista  
Capital Management, Inc., a subsidiary of The Principal Financial Group. At     
Invista, he managed an $860 million small company growth pension account and    
co-managed Princor Emerging Growth Fund and Princor Growth Fund, all of which   
had attractive performance records relative to small-cap benchmarks while under 
his management. Keystone's Small Company Stock Team is comprised of Mr. Craven  
and portfolio manager Margery C. Parker, with support from Keystone's 11 equity 
analysts. Together, they search for stocks of small companies with sustainable  
above-average growth rates. 

Q    What is your investment philosophy?                                        

A    As a growth-style investment manager, I strive to allocate capital to      
companies with strong competitive positions. We look for ways to increase       
sustainable above-average growth prospects in the portfolio, at prices that are 
economically sensible. The price you pay for a growth stock is reflected in the 
price-to-earnings ratio, or P/E. It is how many times earnings the market thinks
a stock is worth. We look for strong growth at a reasonable price.              

 We analyze numerous factors before selecting a stock for the portfolio.
First of all, we look at the need for a product or service the company offers.  
Secondly, does the company have an advantage over its competition. We also look 
at the growth prospects for the next two to five years, and how the earnings    
growth will look.                                                               

Q    What about your sell discipline?                                           

A    If we choose the stock correctly, we will graduate it from the small-cap   
asset class. This generally takes two to six years. I have a set methodology    
that is pretty strict on weeding stocks out of a portfolio. I sell a stock when 
I feel it has obtained its optimal price, or if the fundamental outlook         
deteriorates. Also, if a stock does not develop as anticipated, I will sell it  
to make room for more compelling ideas.                                         

Q    What is the small-cap universe that the Fund invests in?                   

A    The bottom 20% of the stock market capitalization. This is generally in the
$1 billion and under market capitalization range.                               

Q    How do you manage the risk inherent in small company stocks in your        
portfolio, especially during volatile periods?                                  

A    First of all, volatility is a part of the small company asset class. But   
above-average growth prospects is also a characteristic of this asset class.    
Therefore, investing in small company stocks requires patience.                 

   Risk management is a key element of my investment strategy. First of all,
my main emphasis is on finding small companies with what I believe are the best 
business models. These models can include: low cost production, technological   
leaders, exceptional distribution systems or management teams that run companies
smarter than their competition. Gravitating to companies with the best business 
models I believe is one way to manage risk. That's because these companies,     
which I consider to be high quality companies, tend to be able to better deal   
with problems when they occur and therefore usually carry less risk. Also, we   
analyze the two- to five-year business outlook for every small-cap issue we add 
to the Fund. Additionally, I believe attention to valuation lowers risk and     
improves the risk/reward ratio.                                                 

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PAGE 4                                                                          
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Keystone Small Company Growth Fund (S-4)                                        

[boxed text]                                                                    

Stock Selection Criteria                                                        

[bullet] High quality companies                                                 

[bullet] Improving growth prospects                                             

[bullet] Reasonable valuation                                                   

Sell Discipline                                                                 

[bullet] Low portfolio turnover is a goal                                       

[bullet] Overvalued and dynamic forces moving prices are in danger of           
dissipating                                                   

[bullet] Fundamental performance varies from expectation                        

[bullet] More promising ideas discovered                                        

[end boxed text]                                                                

Q    How has this risk control strategy affected your decisions recently?       

A    In an effort to minimize risk during the past few months, we shifted some  
of the Fund's assets to interest-rate-sensitive stocks. As the economy slows,   
we expect interest rates to be lowered to stop the economy from weakening too   
much. Financial stocks tend to go up when interest rates slide, as do mortgage  
and home building firms. Everen Capital, Legg Mason, North Fork Bancorp. and    
Toll Brothers are all names added to the portfolio that we feel will benefit    
from declining interest rates.                                                  

    We also trimmed back on some issues that had high price-to-earnings ratios
to again minimize risk in the portfolio.                                        

Q    How would you describe the overall investment environment for small company
stocks during the past six months?                                              

A    It has been a difficult six months for small company stocks. Small company 
stocks were hit the hardest during a midsummer market correction. In the third  
quarter, the                                                                    

Top 5 Industries                                                                

as of November 30, 1996                                                         

                                                                [Download Table]

                          Percentage of 
Industry                  net assets    
---------------------    ---------------
                                        
Software services            18.4%      
---------------------    ---------------
Retail                       9.7%       
---------------------    ---------------
Health care services         8.3%       
---------------------    ---------------
Finance                      8.1%       
---------------------    ---------------
Electronics products         7.7%       
---------------------    ---------------

market witnessed a rotation into large company stocks and away from small       
company stocks due to fears of a weakening economy in the United States.        
Historically, small caps have been more susceptible to market mood swings than  
large caps when there are signs of a slowing economy. This was reflected in the 
stock market during the past few months, as evidenced by the Russell 2000       
Index's decline of 1.35% from May 31 to November 30. Meanwhile, the Dow Jones   
average of 30 blue-chip stocks gained 15.6% for that time frame.                

Q    The Fund's technology holdings were trimmed back a little from 35% of the  
Fund's total assets during the past six months. It seems that you've directed   
more of the fund's assets into the financial services sector?                   

A    I am bullish on financial service firms. I believe there are numerous      
attractive growth prospects in this sector. But I also remain bullish on select 
tech stocks. Financial stocks have been experiencing strong earnings growth, and
lower interest rates should help their earnings even more.                      

 As the mortgage industry continues to evolve in favor of low-cost, high
personal service marketing firms, we believe several mortgage firms will        
experience attractive earnings growth. One example is First Alliance Co., which 
has a niche in non-conventional mortgage loans. The company originates,         
purchases, sells and services non-conventional mortgage loans secured primarily 
by first mortgages on single-family residences. First Alliance is expected to   
grow earnings at 20% over the next few years.                                   

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PAGE 5                                                                          
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Top 10 Holdings                                                                 
as of November 30, 1996                                                         

                                                                [Download Table]

                                                           Percentage of 
Company                           Industry                 net assets    
-----------------------------    ---------------------    ---------------
                                                                         
Ensco International               Oil services             1.96          
-----------------------------    ---------------------    ---------------
BMC Software                      Software services        1.96          
-----------------------------    ---------------------    ---------------
McAfee Associates                 Software services        1.76          
-----------------------------    ---------------------    ---------------
Maxim Integrated Products         Electronic products      1.49          
-----------------------------    ---------------------    ---------------
TCF Financial Corp.               Finance                  1.49          
-----------------------------    ---------------------    ---------------
Seacor Holdings, Inc.             Oil services             1.43          
-----------------------------    ---------------------    ---------------
CDW Computer Centers, Inc.        Retail                   1.26          
-----------------------------    ---------------------    ---------------
CMAC Investment Corp.             Finance                  1.26          
-----------------------------    ---------------------    ---------------
Synopsys, Inc.                    Software services        1.23          
-----------------------------    ---------------------    ---------------
HCC Insurance Holdings, Inc.      Insurance                1.22          
-----------------------------    ---------------------    ---------------

Q    What other sectors do you favor?                                           

A    Energy and oil services companies are benefitting from the escalation of   
oil prices as well as operating leverage based on exploration budgets of larger 
oil companies. We expect this trend to continue in 1997.                        

  As I previously mentioned, I remain high on technology stocks. I believe
software, telecommunications infrastructure and computer service firms are some 
of the most exciting areas to be invested in throughout the 1990s. I believe    
there is a technology revolution going on right now. New technology should spur 
further earnings growth around the globe as companies through technological     
advances push to become more productive and more efficient.                     

     We believe several of the Fund's positions will benefit from this worldwide
trend. For example, one of the Fund's largest holdings, BMC Software (accounted 
for 1.96% of the Fund's assets as of November 30), develops and sells           
systems-software-products for use in large-scale transaction-intensive computing
environments. Microchip Technology (accounted for 1.19% of the Fund's assets as 
of November 30), which develops field-programmable microcontrollers and related 
memory products for systems used in consumer, automotive, office-automation and 
industrial markets, is another example. It has tapped into foreign markets, and 
overseas sales now account for about 65% of the company's total sales.          

Q    What is your outlook for the next six to ten months?                       

A    Our outlook for small company stocks is very positive. They have lagged    
large company stocks during the past six months. However, we expect small caps  
to catch up over the next several months. Given the moderate pace of economic   
growth thus far in the second half of 1996, small-cap stocks are expected to    
post stronger earnings growth than larger companies. Also, the valuation of     
small caps has become more attractive relative to large caps after the November 
rally of large caps.                                                            

We believe moderate economic growth of around 2.5%, tame inflation and
moderate interest rates are creating a positive economic backdrop for small     
company stocks. We have had a moderate economic growth environment in the United
States for several years now. Therefore, we do not expect to witness a recession
as there are no excesses to be wrung out of the system.                         

 There are a lot of new and exciting opportunities emerging in software,
telecommunications and business services. We believe small companies are best   
situated to profit from such cutting-edge innovations.                          

Q    What should investors reasonably expect from this Fund over a three- to    
five-year period?                                                               

A    With long-term interest rates below 7%, the longer parade of time looks    
positive for small company stocks. Historically, small company stocks have      
returned an average of 11% to 12% for the long-term. With the economic          
environment the way it is, we expect the performance of small company stocks to 
remain in that range. Of course, it is important to remember that small caps can
be volatile for the short-term.                                                 

[boxed text]                                                                    

If you have a question about your Fund, please write to:              
Evergreen Keystone Investment Services, Inc.                          
Attn: Shareholder Communications, 22nd Floor                          
200 Berkeley Street, Boston, Massachusetts 02116-5034.                

[end boxed text]                                                                

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PAGE 6                                                                          
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Keystone Small Company Growth Fund (S-4)                                        

Your Fund's Performance                                                         

[typeset representation of mountain chart]                                      

Growth of an investment in                                                      
Keystone Small Company Growth Fund (S-4)                                        

Initial    Reinvested                                         
Investment   Distributions                                        
11/86    10000          10000                                                   
7426.71        8269.68                                      
11/88     7263.84        9814.62                                                
9250.81       12608.7                                       
11/90     8289.9        11400.5                                                 
12003.3        17615.8                                        
11/92    11628.7        21773.6                                                 
12801.3        26798.3                                        
11/94    12198.7        27969.6                                                 
15423.5        39180.2                                        
11/96    13745.9        39134                                                   

A $10,000 investment in Keystone Small Company Growth Fund (S-4) made on        
November 30, 1986 with all distributions reinvested was worth $39,134 on        
November 30, 1996. Past performance is no guarantee of future results.          

[end mountain chart]                                                            

The "If you redeemed" returns reflect the deduction of the 3% contingent        
deferred sales charge (CDSC) for those investors who bought and sold Fund shares
after one calendar year. Investors who retained their fund investment earned the
returns reported in the second column of the table.                             

The investment return and principal value will fluctuate so that your 
shares, when redeemed, may be                                                   

Six-Month Performance   as of November 30, 1996                                 

--------------------------------------                                          

                                                                [Download Table]
                                           
Total return*                        -8.61%
Net asset value       5/31/96      $ 10.35 
                     11/29/96      $  8.44 
Dividends                             None 
Capital gains                      $  1.02 

*Before deduction of contingent deferred sales charge (CDSC).                   

Historical Record      as of November 30, 1996                                  

--------------------------------------                                          

                                                                [Download Table]

                                    If you        If you did
Cumulative total return            redeemed       not redeem
                                                            
1-year                               -2.79%          -0.12% 
5-year                              122.15%         122.15% 
10-year                             291.34%         291.34% 

Average annual total return                                 
1-year                               -2.79%          -0.12% 
5-year                               17.31%          17.31% 
10-year                              14.62%          14.62% 

worth more or less than their original cost. You may exchange your shares for   
another Keystone fund by calling or writing to Keystone directly, or through    
Keystone's Automated Response Line (KARL). The Fund reserves the right to change
or terminate the exchange offer.                                                

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PAGE 7                                                                          
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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.                                       

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PAGE 8                                                                          
--------------------------------------                                          
Keystone Small Company Growth Fund (S-4)                                        

SCHEDULE OF INVESTMENTS--November 30, 1996                                      
(Unaudited)                                                                     

                                                                [Download Table]

                                                          Market    
                                          Shares           Value    
---------------------------------------  ----------    -------------
                                                                    
COMMON STOCKS (96.7%) (a)                                           
ADVERTISING & PUBLISHING (1.6%)                                     
 Clear Channel Communications, Inc.        300,000     $ 20,700,000 
 Outdoor Systems, Inc.                     291,750        7,421,391 
---------------------------------------  ----------    -------------
                                                         28,121,391 
---------------------------------------  ----------    -------------
AEROSPACE (0.3%)                                                    
 Rohr Industries, Inc.                     349,100        6,109,250 
---------------------------------------  ----------    -------------
AIR TRANSPORTATION (0.3%)                                           
 Atlantic Southeast Airlines, Inc. (b)     250,000        5,718,750 
---------------------------------------  ----------    -------------
AMUSEMENTS (1.9%)                                                   
 Casino America, Inc.                      254,027          889,095 
 Colorado Gaming & Entertainment Co.       494,014        2,470,070 
 Hollywood Casino Corp., Class A            67,100          285,175 
 La Quinta Inns, Inc. (b)                  300,000        5,775,000 
 Promus Hotel Corp.                        650,000       20,962,500 
 Station Casinos, Inc.                     395,400        4,201,125 
---------------------------------------  ----------    -------------
                                                         34,582,965 
---------------------------------------  ----------    -------------
AUTOMOTIVE (1.6%)                                                   
 Gentex Corp.                              600,000       11,737,500 
 Tower Automotive, Inc.                    517,700       16,566,400 
                                         ----------    -------------
                                                         28,303,900 
---------------------------------------  ----------    -------------
BUILDING MATERIALS (2.4%)                                           
 Amre, Inc.                                880,500        2,421,375 
 Champion Enterprises, Inc.                650,000       13,568,750 
 Oakwood Homes Corp. (b)                   900,000       19,912,500 
 Toll Brothers, Inc.                       390,200        7,755,225 
---------------------------------------  ----------    -------------
                                                         43,657,850 
---------------------------------------  ----------    -------------
BUSINESS SERVICES (1.6%)                                            
 Alternative Resources Corp.               700,000       11,856,250 
 Rental Service Corp.                      250,000        6,437,500 
 Strategic Distribution, Inc.              350,000        2,428,125 
 Vincam Group, Inc.                        250,300        8,744,856 
---------------------------------------  ----------    -------------
                                                         29,466,731 
---------------------------------------  ----------    -------------
CHEMICALS (0.7%)                                                    
 OM Group, Inc. (b)                        326,800       13,398,800 
---------------------------------------  ----------    -------------

                                                          Market    
                                          Shares           Value    
---------------------------------------  ----------    -------------
CONSUMER GOODS (3.1%)                                               
 Action Performance Cos., Inc.             499,800     $  8,496,600 
 Blyth Industries, Inc.                    200,000        8,675,000 
 DeVry, Inc. Del                           367,000       16,377,375 
 Furniture Brands International, Inc.      700,000        8,662,500 
 USA Detergents, Inc.                      384,500       14,418,750 
---------------------------------------  ----------    -------------
                                                         56,630,225 
---------------------------------------  ----------    -------------
DIVERSIFIED COMPANIES (0.3%)                                        
 Brown & Sharpe Manufacturing Co.          415,000        5,965,625 
---------------------------------------  ----------    -------------
DRUGS (3.6%)                                                        
 Agouron Pharmaceuticals, Inc.             200,000       11,025,000 
 Amylin Pharmaceuticals, Inc.              993,200       11,980,475 
 Cytotherapeutics                          345,000        3,105,000 
 Gilead Sciences, Inc.                     681,000       17,493,187 
 Magainin Pharmaceutical, Inc.             600,000        5,025,000 
 Neurogen Corp.                            390,000        7,215,000 
 Sequus Pharmaceuticals, Inc.              600,000        8,550,000 
 Virus Research Institute, Inc.            200,000        1,187,500 
---------------------------------------  ----------    -------------
                                                         65,581,162 
---------------------------------------  ----------    -------------
ELECTRONICS PRODUCTS (7.7%)                                         
 Altron, Inc.                              394,900        7,404,375 
 Analog Devices, Inc.                      600,000       19,275,000 
 BMC Industries, Inc. (b)                  309,600        8,901,000 
 DII Group, Inc.                           248,000        6,107,000 
 Dupont Photomasks, Inc.                   154,400        6,388,300 
 ETEC Systems, Inc.                        245,200        7,187,425 
 Linear Technology Corp. (b)               268,400       12,698,675 
 Maxim Integrated Products, Inc.           586,000       27,139,125 
 Microchip Technology, Inc.                450,000       21,543,750 
 Sipex Corp.                               310,400        8,788,200 
 Xilinx, Inc.                              312,400       13,745,600 
---------------------------------------  ----------    -------------
                                                        139,178,450 
---------------------------------------  ----------    -------------
FINANCE (8.1%)                                                      
 Amerin Corp.                              129,800        2,936,725 
 Astoria Financial Corp. (b)               583,500       21,954,188 
 BISYS Group, Inc.                         500,000       18,562,500 
 BostonFed Bancorp, Inc. (b)               300,000        4,462,500 
 Chronicle 2001 Mutual Fund              1,653,374          817,409 
 CMAC Investment Corp. (b)                 300,000       22,875,000 

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PAGE 9                                                                          
--------------------------------------                                          

SCHEDULE OF INVESTMENTS--November 30, 1996                                      
(Unaudited)                                                                     

                                                                [Download Table]

                                                       Market    
                                       Shares           Value    
------------------------------------   ---------    -------------
                                                                 
FINANCE--continued                                               
 Everen Capital Corp. (b)               223,000     $  5,017,500 
 First Alliance Co.                      84,000        2,425,500 
 First Merchants Acceptance Corp.        14,000          291,375 
 Hubco, Inc.                              4,300          105,350 
 Jayhawk Acceptance Corp.               400,000        4,875,000 
 Legg Mason, Inc.                        13,100          509,263 
 Long Islands Bancorp, Inc. (b)         275,000        8,782,812 
 North Fork Bancorporation, Inc.         25,000          850,000 
 Queen's County Bancorp (b)             193,333        9,038,318 
 RAC Financial Group, Inc.              300,000       16,200,000 
 TCF Financial Corp. (b)                600,000       27,000,000 
 Westamerica Bancorporation, Inc.         2,900          167,112 
------------------------------------   ---------    -------------
                                                     146,870,552 
------------------------------------   ---------    -------------
FOODS (1.2%)                                                     
 Flowers Industries, Inc. (b)           500,000       11,812,500 
 Hudson Foods, Inc. (b)                 600,000       10,950,000 
------------------------------------   ---------    -------------
                                                      22,762,500 
------------------------------------   ---------    -------------
HEALTH CARE SERVICES (8.3%)                                      
 CNS, Inc.                              600,000        8,437,500 
 Cytyc Corp. (b)                        193,700        4,939,350 
 Emeritus Corp.                         306,200        4,210,250 
 Health Management Associates, Inc.,                             
 Class A                                749,100       16,573,854 
 Heartport, Inc.                        220,100        5,062,300 
 Idexx Laboratories, Inc.               288,200       10,159,050 
 Lifecore Biomedical, Inc.              510,700        7,979,688 
 Norland Medical Systems, Inc.          216,400        1,217,250 
 Occusystems, Inc.                      400,000       11,650,000 
 Parexel International Corp.            291,000       15,041,063 
 Pediatrix Medical Group                150,000        5,793,750 
 Perclose, Inc.                         382,500        6,550,313 
 PhyMatrix Corp.                        600,000        9,150,000 
 Target Therapeutics, Inc.              200,000        6,912,500 
 Thermo Cardio Systems, Inc.            600,000       20,775,000 
 Total Renal Care Hldgs., Inc.          445,000       15,241,250 
 Urologix, Inc.                          65,000          958,750 
------------------------------------   ---------    -------------
                                                     150,651,868 
------------------------------------   ---------    -------------

                                                       Market    
                                       Shares           Value    
------------------------------------   ---------    -------------
INSURANCE (1.5%)                                                 
 Capital Re Corp. (b)                   136,100     $  5,222,838 
 HCC Insurance Hldgs., Inc. (b)         793,850       22,227,800 
-------------------------------------  ---------    -------------
                                                      27,450,638 
------------------------------------   ---------    -------------
METALS & MINING (0.3%)                                           
 RMI Titanium Co.                       242,700        5,642,775 
-------------------------------------  ---------    -------------
NATURAL GAS (1.1%)                                               
 Nuevo Energy Co.                       400,000       20,000,000 
-------------------------------------  ---------    -------------
OFFICE & BUSINESS EQUIPMENT (1.6%)                               
 Applied Magnetics Corp.                500,000       13,687,500 
 EMC Corp.                              500,000       16,125,000 
-------------------------------------  ---------    -------------
                                                      29,812,500 
                                                    -------------
OIL (0.4%)                                                       
 Triton Energy Corp.                    152,000        7,220,000 
-------------------------------------  ---------    -------------
OIL SERVICES (6.5%)                                              
 BJ Services Co.                        300,000       14,325,000 
 Carbo Ceramics, Inc. (b)               175,300        3,549,825 
 Ensco International, Inc.              810,025       35,539,847 
 Falcon Drilling, Inc.                  400,000       15,975,000 
 Global Industries, Inc.                549,600        9,618,000 
 Newpark Resources, Inc.                370,545       12,969,075 
 Seacor Hldgs., Inc.                    411,000       25,995,750 
-------------------------------------  ---------    -------------
                                                     117,972,497 
------------------------------------   ---------    -------------
RESTAURANTS (0.9%)                                               
 Applebee's International, Inc. (b)     362,100       10,591,425 
 Quality Dining, Inc.                   219,200        4,986,800 
-------------------------------------  ---------    -------------
                                                      15,578,225 
------------------------------------   ---------    -------------
RETAIL (9.7%)                                                    
 Abercrombie and Fitch Co.              340,600        6,258,525 
 Black Box Corp.                        250,000       10,187,500 
 CDW Computer Centers, Inc.             343,950       22,915,669 
 Corporate Express, Inc.                400,000       11,225,000 
 Global Directmail Corp.                275,000       12,375,000 
 Kohl's Corp.                           300,000       11,962,500 
 Mens Wearhouse, Inc.                   250,300        5,741,256 
 Nautica Enterprises, Inc.              600,000       19,050,000 
 O'Reilly Automotive, Inc.              166,600        5,664,400 

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PAGE 10                                                                         
--------------------------------------                                          
Keystone Small Company Growth Fund (S-4)                                        

SCHEDULE OF INVESTMENTS--November 30, 1996                                      
(Unaudited)                                                                     

                                                                [Download Table]

                                                        Market     
                                        Shares           Value     
------------------------------------   ---------    -------------  
                                                                   
RETAIL--continued                                                  
 PETsMART, Inc.                          600,000     $  15,450,000 
 Saks Hldgs., Inc.                       500,000        16,250,000 
 Sports Authority, Inc.                  750,000        18,562,500 
 Tiffany & Co. (b)                       320,000        11,800,000 
 West Marine, Inc.                       243,400         8,275,600 
------------------------------------   ---------    -------------- 
                                                       175,717,950 
------------------------------------   ---------    -------------- 
SERVICES (5.2%)                                                    
 Equity Corporation International        588,450        12,357,450 
 G & K Services, Class A (b)             334,900        12,223,850 
 GTS Duratek, Inc.                       400,000         5,075,000 
 Molten Metal Technology, Inc.           466,100         7,049,762 
 Peak Technologies Group, Inc.           400,000         4,625,000 
 Thermedics, Inc.                        600,000        12,525,000 
 USA Waste Services, Inc.                602,200        19,420,950 
 U.S. Filter Corp.                       600,000        20,550,000 
------------------------------------   ---------    -------------- 
                                                        93,827,012 
------------------------------------   ---------    -------------- 
SOFTWARE SERVICES (18.4%)                                          
 America Online, Inc.                    200,000         7,075,000 
 Applix, Inc.                            255,000         5,052,188 
 BDM International, Inc.                 402,000        18,994,500 
 BMC Software, Inc.                      811,800        35,516,250 
 Bitstream, Inc.                         150,000           712,500 
 CMG Information Services, Inc.           53,200           837,900 
 Cambridge Technology Partners Mgmt.     600,000        18,450,000 
 Ciber, Inc.                             165,000         5,362,500 
 Cognex Corp.                            500,000         9,937,500 
 Comdisco, Inc. (b)                      350,000        11,375,000 
 Dataworks Corp.                          58,900         1,295,800 
 Epic Design Technology, Inc.            500,000        12,500,000 
 Geoworks, Inc.                          500,000        11,093,750 
 INSO Corp.                              307,000        13,105,061 
 Integrated Systems, Inc.                132,500         2,799,062 
 McAfee Associates, Inc.                 675,000        32,062,500 
 Mechanical Dynamics, Inc.               239,800         3,492,088 
 National Data Corp. (b)                 500,200        19,945,475 
 Natural Microsystems Corp.              396,800        10,192,800 
 Parametric Technology Corp.             300,000        16,331,250 
 Project Software & Development, Inc.    309,900        13,015,800 
 Safeguard Scientifics, Inc.             520,000        18,200,000 

                                                        Market     
                                        Shares           Value     
------------------------------------   ---------    -------------- 
SOFTWARE SERVICES--continued                                       
 Security Dynamics Technologies, Inc.    358,800     $ 14,822,925  
 SQA, Inc.                               277,400         8,044,600 
 Synopsys, Inc.                          500,000        22,312,500 
 Transaction System Architects, Inc.,                              
 Class A                                 160,000         5,880,000 
 Wind River Systems, Inc.                286,250        14,151,484 
 Xionics Document Technologies, Inc.     204,000         2,601,000 
--------------------------------------  ---------    --------------
                                                       335,159,433 
--------------------------------------  ---------    --------------
TELECOMMUNICATIONS (6.7%)                                          
 Aspect Telecommunications Corp.         130,300         7,150,212 
 Boston Communications Group             142,500         1,282,500 
 Brooks Fiber Properties, Inc.           437,800        13,599,163 
 CAI Wireless Systems, Inc.              330,500           877,891 
 Comverse Technology, Inc.               200,000         6,800,000 
 Cox Radio, Inc.                         382,200         6,688,500 
 Heartland Wireless                                                
 Communications, Inc.                    700,000         8,400,000 
 Jacor Communications, Inc.              400,000         9,625,000 
 Mastec, Inc.                             98,600         4,683,500 
 P-Com, Inc.                             600,000        18,900,000 
 Proxim, Inc.                            166,300         3,128,519 
 TCSI Corp.                              642,100         5,658,506 
 Tel-Save Hldgs., Inc.                   593,500        12,760,250 
 TSX Corp.                                46,000           428,375 
 Winstar Communications, Inc.            600,000        12,487,500 
 Young Broadcasting, Inc.                305,500         9,203,187 
--------------------------------------  ---------    --------------
                                                       121,673,103 
--------------------------------------  ---------    --------------
TEXTILES (0.5%)                                                    
 Polymer Group, Inc.                     217,100         2,795,162 
--------------------------------------  ---------    --------------
TRANSPORTATION (1.5%)                                              
 Coach USA, Inc.                         130,200         3,303,825 
 Landstar System, Inc.                    79,500         1,813,594 
 Railtex, Inc.                           400,000         9,850,000 
 Swift Transportation Co., Inc.          500,000        12,031,250 
--------------------------------------  ---------    --------------
                                                        26,998,669 
--------------------------------------  ---------    --------------
TOTAL COMMON STOCKS                                                
 (Cost--$1,343,133,313)                              1,756,847,983 
--------------------------------------  ---------    --------------

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PAGE 11                                                                         
--------------------------------------                                          

SCHEDULE OF INVESTMENTS--November 30, 1996                                      
(Unaudited)                                                                     

                                                        [Enlarge/Download Table]

                                                                                        Maturity         Market     
                                                                                          Value          Value      
                                                                                       --------------  -------------
                                                                                                                    
SHORT-TERM INVESTMENTS (3.4%)                                                                                       
NOTES (1.8%)                                                                                                        
Federal Home Loan Mortgage Co., Discount notes, purchased 11/29/96, 5.700%,                                         
 maturing 12/02/96                                                                      $33,235,205     $33,251,000 
-------------------------------------------------------------------------------------   ------------    ------------
REPURCHASE AGREEMENTS (1.5%)                                                                                        
Investments in repurchase agreements, in a joint trading account purchased 11/29/96,                                
 5.6740%, maturing 12/02/96                                                              25,650,123      25,638,000 
-------------------------------------------------------------------------------------   ------------    ------------
State Street Bank & Trust Co., purchased 11/29/96 (Collateralized by $2,115,000                                     
 Federal Home Mortgage Loan, 6.070% due 11/20/98), maturing 12/02/96                      2,072,691       2,072,000 
-------------------------------------------------------------------------------------   ------------    ------------
TOTAL SHORT-TERM INVESTMENTS (Cost--$60,961,000) (b)(c)                                                  60,961,000 
-------------------------------------------------------------------------------------                   ------------

                                                        [Enlarge/Download Table]

                                                  Expiration                              
                                                    Date         Shares                   
                                                  ------------  ---------                 
                                                                                          
WARRANTS\RIGHTS (0.2%)                                                                    
AMUSEMENTS (0.0%)                                                                         
Casino America, Inc.                                5/03/2001    49,395            49,395 
------------------------------------------------   -----------  --------    ------------- 
SOFTWARE (0.2%)                                                                           
Sanchez Computer Associates, Inc.                    12/18/96    52,000           253,500 
------------------------------------------------   -----------  --------    ------------- 
TOTAL WARRANTS\RIGHTS (Cost--$1,866,383)                                          302,895 
------------------------------------------------                            ------------- 
TOTAL INVESTMENTS (Cost--$1,405,960,696)                                    1,818,111,878 
------------------------------------------------                            ------------- 
FOREIGN CURRENCY HOLDINGS (Cost--$7,366) (0.0%)                                     7,330 
------------------------------------------------                            ------------- 
OTHER ASSETS AND LIABILITIES--NET (-0.1%)                                      (1,490,863)
------------------------------------------------                            ------------- 
NET ASSETS (100%)                                                          $1,816,628,345 
------------------------------------------------                            ------------- 

NOTES TO SCHEDULE OF INVESTMENTS:                                               

(a) All securities unless otherwise indicated with a (b) are non-income         
producing.                                                              

(b) Income-producing security.                                                  

(c) The repurchase agreements are fully collateralized by U.S. government and/or
agency obligations based on market prices on November 30, 1996.         

See Notes to Financial Statements.                                              

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PAGE 12                                                                         
--------------------------------------                                          

Keystone Small Company Growth Fund (S-4)                                        

FINANCIAL HIGHLIGHTS                                                            
(For a share outstanding throughout each period)                                

                                                        [Enlarge/Download Table]

                                                    Six Months                                                      
                                                      Ended                                                         
                                                 November 30, 1996                                                  
                                            ------------------------                                                
                                                  (Unaudited)                                                       
                                                                                                                    
Net asset value beginning of period                   $10.35                                                        
-------------------------------------------       ------------------                                                
Income from investment operations:                                                                                  
Net investment income (loss)                           (0.06)                                                       
Net realized and unrealized gain (loss) on                                                                          
investments                                            (0.83)                                                       
-------------------------------------------       ------------------                                                
Total from investment operations                       (0.89)                                                       
-------------------------------------------       ------------------                                                
Less distributions from                                                                                             
Net realized gain on investments                       (1.02)                                                       
-------------------------------------------       ------------------                                                
Total distributions                                    (1.02)                                                       
-------------------------------------------       ------------------                                                
Net asset value end of period                          $8.44                                                        
-------------------------------------------       ------------------                                                
Total return (b)                                        1.06%                                                       
Ratios/supplemental data                                                                                            
Ratios to average net assets:                                                                                       
 Total expenses                                         1.80%(c)                                                    
 Net investment (loss)                                 (1.32%)                                                      
Portfolio turnover rate                                   29%                                                       
Average commission rate paid                         $0.0610                                                        
-------------------------------------------       ------------------                                                
Net assets end of period (thousands)              $1,816,628                                                        
-------------------------------------------       ------------------                                                


                                                                       Year Ended May 31,                           
                                             -----------------------------------------------------------------------
                                                   1996            1995         1994         1993 (a)       1992 (a)
                                                  ---------     ---------    --------- -------------- ------------- 
                                                                                                                    
Net asset value beginning of period                   $8.62         $7.64        $7.95        $7.61          $7.17  
-------------------------------------------       ---------     ---------    ---------    -----------    ---------- 
Income from investment operations:                                                                                  
Net investment income (loss)                          (0.13)        (0.07)       (0.12)       (0.12)         (0.08) 
Net realized and unrealized gain (loss) on                                                                          
investments                                            2.87          1.68         0.63         1.82           0.98  
-------------------------------------------       ---------     ---------    ---------    -----------    -----------
Total from investment operations                       2.74          1.61         0.51         1.70           0.90  
-------------------------------------------       ---------     ---------    ---------    -----------    -----------
Less distributions from                                                                                             
Net realized gain on investments                      (1.01)        (0.63)       (0.82)       (1.36)         (0.46) 
-------------------------------------------       ---------     ---------    ---------    -----------    -----------
Total distributions                                   (1.01)        (0.63)       (0.82)       (1.36)         (0.46) 
-------------------------------------------       ---------     ---------    ---------    -----------    -----------
Net asset value end of period                        $10.35         $8.62        $7.64        $7.95          $7.61  
-------------------------------------------       ---------     ---------    ---------    -----------    -----------
Total return (b)                                      33.03%        23.58%       6.84%        28.76%         13.45% 
Ratios/supplemental data                                                                                            
Ratios to average net assets:                                                                                       
 Total expenses                                        1.73%(c)      1.78%        1.73%        2.04%          1.47% 
 Net investment (loss)                                (1.34%)       (1.10%)      (1.49%)      (1.68%)        (1.09%)
Portfolio turnover rate                                  94%           38%          60%          78%            81% 
Average commission rate paid                        $0.0563           N/A          N/A          N/A            N/A  
-------------------------------------------       ---------     ---------    ---------    -----------    -----------
Net assets end of period (thousands)             $2,005,803    $1,459,955   $1,005,595    $ 965,959      $ 702,442  
-------------------------------------------       ---------     ---------    ---------    -----------    -----------

(a) Calculation based on average shares outstanding.                            

(b) Excluding applicable sales charges.                                         

(c) The ratio of total expenses to average net assets includes indirectly paid  
 expenses. Excluding the indirectly paid expenses, the expense ratio would
  have been 1.79% and 1.72% for the six month period ended November 30, 1996
and the year ended May 31, 1996, respectively.                          

See Notes to Financial Statements.                                              

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PAGE 13                                                                         
--------------------------------------------------------------------            

STATEMENT OF ASSETS AND LIABILITIES                                             
November 30, 1996 (Unaudited)                                                   
--------------------------------------------------------------------------------

                                                                [Download Table]
                                                                       
Assets                                                                 
 Investments at market value:                                          
  (identified cost--$1,405,960,696)                     $1,818,111,878 
 Foreign currency holdings: (identified cost--$7,366)            7,330 
------------------------------------------------------  -------------- 
 Total investments and foreign currency holdings         1,818,119,208 
 Receivable for:                                                       
  Investments sold                                           2,994,008 
  Fund shares sold                                           5,781,317 
  Interest and dividends                                       168,519 
 Prepaid expenses                                               62,137 
 Other assets                                                   16,421 
------------------------------------------------------  -------------- 
  Total assets                                           1,827,141,610 
------------------------------------------------------  -------------- 
Liabilities                                                            
 Payable for:                                                          
  Investments purchased                                      6,353,353 
  Fund shares redeemed                                       3,134,805 
 Other accrued expenses and liabilities                      1,025,107 
------------------------------------------------------  -------------- 
  Total liabilities                                         10,513,265 
------------------------------------------------------  -------------- 
Net assets                                              $1,816,628,345 
------------------------------------------------------  -------------- 
Net assets represented by                                              
 Paid-in capital                                        $1,406,963,422 
 Accumulated distributions in excess on net                            
  investment income                                        (12,007,475)
 Accumulated net realized gains on investment                          
  transactions and foreign currency related                            
  transactions                                               7,654,869 
 Net unrealized appreciation on investments and                        
  foreign currency holdings                                414,017,529 
------------------------------------------------------  -------------- 
 Total net assets applicable to outstanding shares of                  
  beneficial interest ($8.44 a share on 215,279,315                    
  shares outstanding)                                   $1,816,628,345 
------------------------------------------------------  -------------- 

See Notes to Financial Statements.                                              

STATEMENT OF OPERATIONS                                                         
Six Months Ended November 30, 1996 (Unaudited)                                  
--------------------------------------------------------------------------------

                                                                [Download Table]
                                                                            
Investment income                                                           
 Dividends                                                    $   1,048,334 
 Interest                                                         3,265,193 
------------------------------------------                    ------------- 
  Total income                                                    4,313,527 
------------------------------------------                    ------------- 
Expenses (Notes 2 and 4)                                                    
 Management fee                               $4,156,308                    
 Transfer agent fees                           2,467,867                    
 Accounting, auditing and legal                   55,228                    
 Custodian fees                                  434,497                    
 Printing                                         44,677                    
 Trustees' fees and expenses                      46,816                    
 Distribution Plan expenses                    9,037,342                    
 Registration fees                               140,171                    
 Miscellaneous expenses                           47,529                    
------------------------------------------    -----------                   
  Total expenses                                                 16,430,435 
  Less: Expenses paid indirectly (Note 4)                          (116,916)
------------------------------------------                    ------------- 
  Net expenses                                                   16,313,519 
------------------------------------------                    ------------- 
 Net investment loss                                            (11,999,992)
------------------------------------------                    ------------- 
Net realized and unrealized                                                 
 gain (loss) on investments                                                 
 Net realized gain on investments                                13,012,552 
------------------------------------------                    ------------- 
 Net change in unrealized                                                   
  appreciation or depreciation                                              
  on investments                                               (176,007,161)
------------------------------------------                    ------------- 
 Net realized and unrealized gain                                           
  on investments                                               (162,994,609)
------------------------------------------                    ------------- 
 Net decrease in net assets resulting                                       
  from operations                                             ($174,994,601)
------------------------------------------                    ------------- 

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PAGE 14                                                                         
--------------------------------------                                          

Keystone Small Company Growth Fund (S-4)                                        

STATEMENTS OF CHANGES IN NET ASSETS                                             

                                                        [Enlarge/Download Table]

                                                                           Six Months Ended         Year Ended   
                                                                          November 30, 1996       May 31, 1996   
                                                                          ====================  =================
                                                                                (Unaudited)                      
                                                                                                                 
Operations                                                                                                       
 Net investment loss                                                          ($ 11,999,992)    ($   24,478,442) 
 Net realized gain on investments                                                13,012,552         389,754,504  
 Net change in unrealized appreciation or depreciation on investments          (176,007,161)        127,581,090  
------------------------------------------------------------------------       -------------     --------------- 
  Net increase (decrease) in net assets resulting from operations              (174,994,601)        492,857,152  
------------------------------------------------------------------------       -------------     --------------- 
Distributions to shareholders from net realized gains on investment                                              
 transactions                                                                  (200,513,309)       (173,760,139) 
------------------------------------------------------------------------       -------------     --------------- 
Capital share transactions (Note 2)                                                                              
 Proceeds from shares sold                                                      717,839,185       1,354,600,987  
 Payments for shares redeemed                                                  (699,872,428)     (1,267,570,849) 
 Net asset value of shares issued in reinvestment of distributions from                                          
 capital gains                                                                  168,366,921         139,720,568  
------------------------------------------------------------------------       -------------     --------------- 
  Net increase in net assets resulting from capital share transactions          186,333,678         226,750,706  
------------------------------------------------------------------------       -------------     --------------- 
   Total increase (decrease) in net assets                                     (189,174,232)        545,847,719  
Net assets                                                                                                       
 Beginning of period                                                          2,005,802,577       1,459,954,858  
------------------------------------------------------------------------       -------------     --------------- 
 End of period [including undistributed net investment income                                                    
 (distributions in excess of net investment income) as follows:                                                  
 November, 1996--($12,007,475) and May, 1996--($7,483)]                      $1,816,628,345      $2,005,802,577  
========================================================================       =============     =============== 

See Notes to Financial Statements.                                              

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PAGE 15                                                                         
--------------------------------------                                          

NOTES TO FINANCIAL STATEMENTS                                                   

1. Significant Accounting Policies                                              

Keystone Small Company Growth Fund (S-4) (the "Fund") is a Pennsylvania common  
law trust for which Keystone Management, Inc. ("KMI") is the Investment Manager 
and Keystone Investment Management Company ("Keystone") is the Investment       
Adviser. Keystone is a wholly-owned subsidiary of Keystone Investments, Inc.    
("KII") and KMI is in turn a wholly-owned subsidiary of Keystone. On December   
11, 1996 KII and in directly each of its subsidiaries, were acquired by First   
Union National Bank of North Carolina (Note 7). 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's investment objective is long-term growth
of capital.                                                                     

    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                                                      

Investments are usually valued at the closing sales price, or, in the absence of
sales and for over-the-counter securities, the mean of the bid and asked prices.
Securities for which valuations are not available from an independent pricing   
service (including restricted securities) are valued at fair value as determined
in good faith according to procedures established by the Board of Trustees.     

 Short-term investments with remaining maturities of 60 days or less are
carried at amortized cost, which approximates market value. Short-term          
securities with greater than 60 days to maturity are valued at market value.    

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. Foreign Currency                                                             

The books and records of the Fund are maintained in United States (U.S.)        
dollars. Foreign currency amounts are translated into U.S. 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 gain (loss) resulting from changes in foreign currency exchange
rates is a component of net unrealized appreciation (depreciation) on           
investments and foreign currency transactions. Net realized foreign currency    
gains and losses resulting from changes in exchange rates include foreign       
currency gains and losses between trade date and settlement date on investment  
securities transactions, foreign currency transactions and the difference       
between the amounts of interest and dividends recorded on the books of the Fund 
and the amount actually received. The portion of foreign currency gains and     
losses related to fluctuations in exchange rates between the initial purchase   
trade date and subsequent                                                       

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PAGE 16                                                                         
--------------------------------------                                          

Keystone Small Company Growth Fund (S-4)                                        

sale trade date is included in realized gain (loss) on foreign currency         
transactions.                                                                   

D. Forward Foreign Currency Exchange Contracts                                  

The Fund may enter into forward foreign currency exchange contracts ("forward   
contracts") to settle portfolio purchases and sales of securities denominated in
a foreign currency and to hedge certain foreign currency assets or liabilities. 
Forward contracts are recorded at the forward rate and are marked-to-market     
daily. Realized gains and losses arising from such transactions are included in 
net realized gain (loss) on foreign currency related transactions. The Fund     
bears the risk of an unfavorable change in the foreign currency exchange rate   
underlying the forward contract and is subject to the credit risk that the other
party will not fulfill their obligations under the contract. Forward contracts  
involve elements of market risk in excess of the amount reflected in the        
statement of assets and liabilities.                                            

E. Securities 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. Dividend income is recorded on the ex-dividend date.                     

F. 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 tax is required.                                   

G. Distributions                                                                

The Fund distributes net investment income and net capital gains, if any, at    
least annually. Distributions to shareholders are recorded at the close of      
business on the ex-dividend date.                                               

  Income and capital gains distributions to shareholders are determined in
accordance with income tax regulations, which may differ from generally accepted
accounting principles. These differences are primarily due to net operating     
losses generated by the Fund, and distributions paid through shareholder        
redemptions.                                                                    

2. Capital Share Transactions                                                   

The Fund's Declaration of Trust authorizes the issuance of an unlimited number  
of shares of beneficial interest with a par value of $1.00. Transactions in     
shares of the Fund were as follows:                                             

                                                                [Download Table]

                    Six Months Ended       Year Ended    
                    November 30, 1996     May 31, 1996   
                   ==================== =================
                                                         
Shares sold              84,759,624         141,592,081  
Shares redeemed         (83,232,240)       (131,599,635) 
Shares issued in                                         
 reinvestment of                                         
 distributions           19,925,079          14,560,340  
-----------------      ------------       -------------  
Net increase             21,452,463          24,552,786  
=================      ============       =============  

3. Securities Transactions                                                      

Cost of purchases and proceeds from sales of investment securities excluding    
short-term securities for the six months ended November 30, 1996 were           
$497,393,612 and $554,087,779, respectively.                                    

4. Distribution Plan                                                            

The Fund bears some of the costs of selling its shares under a Distribution Plan
(the "Plan") adopted pursuant to Rule 12b-1 under the 1940 Act. Under the Plan, 
the                                                                             

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PAGE 17                                                                         
--------------------------------------                                          

Fund pays its principal underwriter, Keystone Investment Distributors Company   
("KIDC"), a wholly-owned subsidiary of Keystone, amounts that are calculated and
paid daily.                                                                     

    Under the Plan, the Fund pays a distribution fee that may not exceed 1.00%
of the Fund's average daily net assets. Of that amount, 0.75% is used to pay    
distribution expenses and 0.25% may be used to pay service fees.                

 Contingent deferred sales charges paid by redeeming shareholders may be
paid to KIDC. During the six months ended November 30, 1996, the Fund received  
$2,370,791 in contingent deferred sales charges.                                

    The Plan 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 Fund. However, 
after the termination of the Plan, at the discretion of the Board of Trustees,  
payments to KIDC may continue as compensation for its services that had been    
earned while the Plan was in effect.                                            

   KIDC intends, but is not obligated, to continue to pay distribution costs
that exceed the current annual payments from the Fund. KIDC 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 Fund would be within permitted   
limits.                                                                         

Total unpaid distribution costs at November 30, 1996 amounted to      
$5,611,687.                                                                     

5. Investment Management Agreement and Other Affiliated Transactions            

Under the terms of the Investment Management Agreement between KMI and the Fund,
KMI provides investment management and administrative services to the Fund. In  
return, KMI is paid a management fee, computed and paid daily. The management   
fee is calculated by applying percentage rates starting at 0.70% and declining  
as net assets increase to 0.35% per annum, to the average daily 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.
In return for its services, Keystone receives an annual fee equal to 85% of the 
management fee received by KMI.                                                 

 During the six months ended November 30, 1996, the Fund paid or accrued
$7,514 to Keystone for certain accounting services. The Fund paid or accrued    
$2,467,867 to Keystone Investor Resource Center, Inc., a wholly-owned subsidiary
of Keystone, for services rendered as the Fund's transfer and dividend          
disbursing agent.                                                               

Certain officers and/or Directors of Keystone are also officers and/or
Trustees of the Fund. Officers of Keystone and affiliated Trustees receive no   
compensation directly from the Fund.                                            

6. Expense Offset Arrangement                                                   

The Fund has entered into an expense offset arrangement with its custodian. For 
the six months ended November 30, 1996, the Fund incurred total custody fees of 
$434,497 and received a credit of $116,916 pursuant to this expense offset      
arrangement, resulting in a net custody expense of $317,581. The assets         
deposited with the custodian under this expense offset arrangement could have   
been invested in income-                                                        
producing assets.                                                               

7. Agreement and Plan of Acquisition                                            

On December 11, 1996, KII and indirectly each of its subsidiaries, including    
Keystone, the Fund's investment adviser, were acquired (the "acquisition") by   
First Union National Bank of North Carolina ("FUNB"), a wholly-owned subsidiary 
of First Union Corporation ("First Union").                                     

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PAGE 18                                                                         
--------------------------------------                                          

Keystone Small Company Growth Fund (S-4)                                        

Consequently, the Fund entered into a new Investment Advisory and     
Management Agreement (the "New Advisory Agreement") with Keystone. Under the New
Advisory Agreement, Keystone will provide the Fund with all the services that   
previously may have been provided by KMI. As a result of the Acquisition, KMI no
longer acts as investment manager to the Fund. The annual fee paid by the Fund  
remains unchanged.                                                              

   In addition, the Fund has entered into a principal underwriting agreement
with Evergreen Keystone Distributors, Inc. (formerly, Evergreen Funds           
Distributor, Inc.) ("EKD"), a wholly- owned subsidiary of BISYS Fund Services.  
EKD replaces Evergreen Keystone Investment Services, Inc. (formerly, Keystone   
Investment Distributors Company ("KIDC") as the Fund's principal underwriter.   

Also, in connection with the Acquisition, the KIRC changed its name to
Evergreen Keystone Service Company.                                             

  It is expected that the Acquisition will not affect services provided to
the Fund.                                                                       

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PAGE 19                                                                         
--------------------------------------------------------------------            

Keystone's Services 
for Shareholders

KEYSTONE AUTOMATED RESPONSE LINE (KARL)--Receive up-to-date account   
information on your balance, last transaction and recent Fund distribution. You 
may also process transactions such as investments, redemptions and exchanges    
using a touch-tone telephone as well as receive quotes on price, yield, and     
total return of your Keystone Fund. Call toll-free, 1-800-346-3858.             

     EASY ACCESS TO INFORMATION ON YOUR ACCOUNT--Information about your Keystone
account is available 24 hours a day through KARL. To speak with a Shareholder   
Services representative about your account, call toll-free 1-800-343-2898       
between 8:00 A.M. and 6:00 P.M. Eastern time. Retirement Plan investors should  
call 1-800-247-4075.                                                            

   ADDITIONS TO YOUR ACCOUNT--You can buy additional shares for your account
at any time, with no minimum additional investment.                             

REINVESTMENT OF DISTRIBUTIONS--You can compound the return on your    
investment by automatically reinvesting your Fund's distributions at net asset  
value with no sales charge.                                                     

EXCHANGE PRIVILEGE--You may move your money among funds in the same   
Keystone family quickly and easily for a nominal service fee. KARL gives you the
added ability to move your money any time of day, any day of the week. Keystone 
offers a variety of funds with different investment objectives for your changing
investment needs.                                                               

ELECTRONIC FUNDS TRANSFER (EFT)--                                     
Referred to as the "paper-less transaction," EFT allows you to take advantage of
a variety of preauthorized account transactions, including automatic monthly    
investments and systematic monthly or quarterly withdrawals. EFT is a quick,    
safe and accurate way to move money between your bank account and your Keystone 
account.                                                                        

     CHECK WRITING--Shareholders of Keystone Liquid Trust may exercise the check
writing privilege to draw from their accounts.                                  

     EASY REDEMPTION--KARL makes redemption services available to you 24 hours a
day, every day of the year. The amount you receive may be more or less than your
original account value depending on the value of fund shares at time of         
redemption.                                                                     

RETIREMENT PLANS--Keystone offers a full range of retirement plans,   
including IRA, SEP-IRA, profit sharing, money purchase, and defined contribution
plans. For more information, please call Retirement Plan Services, toll-free at 
1-800-247-4075.                                                                 

 Keystone is committed to providing you with quality, responsive account
service. We will do our best to assist you and your financial adviser in        
carrying out your investment plans.                                             

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[cover]                                                                         

KEYSTONE
FAMILY OF FUNDS 

[diamond] 

Balanced Fund (K-1) 

Diversified Bond Fund (B-2) 

Growth and Income Fund (S-1)

High Income Bond Fund (B-4) 

International Fund Inc. 

Liquid Trust

Mid-Cap Growth Fund (S-3) 

Precious Metals Holdings, Inc.

Quality Bond Fund (B-1) 

Small Company Growth Fund (S-4) 

Strategic Growth Fund (K-2) 

Tax Free Fund 

This report was prepared primarily for the information of the Fund's            
shareholders. It is authorized for distribution if preceded or accompanied by   
the Fund's current prospectus. The prospectus contains important information    
about the Fund including fees and expenses. Read it carefully before you invest 
or send money. For a free prospectus on other Keystone funds, contact your      
financial adviser or call Keystone.                                             

[Keystone logo] KEYSTONE                                                        
I N V E S T M E N T S                           

P.O. Box 2121                                   
Boston, Massachusetts 02106-2121                

S-4 SAR 1/97             [recycle logo]                                         
107.5 M                                                                         

K E Y S T O N E 

[photo of little girl smelling flower]

SMALL COMPANY 
GROWTH FUND (S-4) 

[Keystone logo] 

SEMIANNUAL REPORT 
NOVEMBER 30, 1996

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Dates Referenced Herein and Documents Incorporated by Reference

		Referenced-On Page
This ‘N-30D’ Filing	Date	First	Last	Other Filings

Filed on:	3/6/97
	12/11/96	15	17	497
For Period End:	11/30/96	1	20	NSAR-A
	5/31/96	12	16	24F-2NT, N-30D, NSAR-B
				List all Filings

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Filing Submission 0000950146-97-000306 – Alternative Formats (Word / Rich Text, HTML, Plain Text, et al.)

Keystone Small Co GR Fd S 4 – ‘N-30D’ for 11/30/96

As of: Thursday, 3/6/97 · For: 11/30/96 · Accession #: 950146-97-306 · File #: 811-00101

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Annual or Semi-Annual Report Mailed to Shareholders — Rule 30d-1Filing Table of Contents

Document Table of Contents

Dates Referenced Herein and Documents Incorporated by Reference

Annual or Semi-Annual Report Mailed to Shareholders — Rule 30d-1
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