<PAGE> 1
SBSF FUNDS, INC.
SUPPLEMENT DATED DECEMBER 1, 1995
TO PROSPECTUS AND STATEMENT OF ADDITIONAL INFORMATION DATED APRIL 3, 1995, AS
SUPPLEMENTED NOVEMBER 3, 1995
The prospectus and statement of additional information for SBSF Funds,
Inc. ("Company") are each hereby supplemented as follows:
1. Effective December 1, 1995, the Company has begun doing business as
"Key Mutual Funds." All references in the prospectus and statement of
additional information to the name of the Company should be read accordingly.
<PAGE> 2
PROSPECTUS
SBSF FUNDS, INC.
[SBSF Logo ] 45 ROCKEFELLER PLAZA
NEW YORK, NEW YORK 10111
SBSF Funds, Inc., (the "Company") are professionally managed, no-load, open end,
diversified mutual funds consisting of four different portfolios ("Funds"). Each
portfolio is managed as a separate fund with its own investment objective and
policies. The Funds have no sales charges, redemption fees or exchange fees.
Spears, Benzak, Salomon & Farrell, Inc., an indirect wholly owned subsidiary of
KeyCorp with over $3.5 billion in assets under its management as of October 31,
1995, serves as investment adviser to the Funds. The Funds were created to
provide informed investors with experienced, professional investment management
and personal service.
The four portfolios are:
SBSF FUND - its investment objective is to seek a high total return over the
long term consistent with reasonable risk. In seeking its objective, the SBSF
Fund will invest primarily in common stocks which in the opinion of the Adviser
have the potential for capital appreciation in excess of market averages during
periods of market strength while attempting to preserve capital during periods
of market weakness.
CONVERTIBLE SECURITIES FUND - its investment objective is to seek a high level
of current income together with long-term capital appreciation. The Convertible
Securities Fund will invest primarily in convertible bonds, corporate notes,
convertible preferred stocks and other securities convertible into common stock.
CAPITAL GROWTH FUND - its investment objective is to seek capital appreciation
by investing in equity securities of companies which the Adviser believes are
likely to have rapid growth in earnings or cash flow. The Capital Growth Fund
will invest primarily in the securities of small to medium capitalization
companies.
MONEY MARKET FUND - its investment objective is to provide high current income
to the extent consistent with preservation of capital. The Money Market Fund
invests in bank certificates of deposit, bankers acceptances, high grade
commercial paper and securities issued or guaranteed by the U.S. Government or
its agencies and instrumentalities.
SHARES OF THE FUNDS ARE NOT DEPOSITS OR OBLIGATIONS OF, OR GUARANTEED OR
ENDORSED BY, SPEARS, BENZAK, SALOMON & FARRELL, INC., ANY KEYCORP BANK, ANY OF
THEIR AFFILIATES, OR ANY OTHER BANK. THE SHARES OF THE FUNDS ARE NOT FEDERALLY
INSURED BY THE FEDERAL DEPOSIT INSURANCE CORPORATION (FDIC), THE FEDERAL RESERVE
BOARD, OR ANY OTHER AGENCY. AN INVESTMENT IN MUTUAL FUND SHARES IS SUBJECT TO
INVESTMENT RISKS, INCLUDING THE POSSIBLE LOSS OF THE PRINCIPAL AMOUNT INVESTED.
THE MONEY MARKET FUND IS NOT INSURED OR GUARANTEED BY THE U.S. GOVERNMENT OR ANY
AGENCY, AND THERE CAN BE NO ASSURANCE THAT THE MONEY MARKET FUND WILL BE ABLE TO
MAINTAIN A STABLE NET ASSET VALUE OF $1.00 PER SHARE.
This Prospectus sets forth concisely the information about the Funds that a
prospective investor ought to know before investing. It should be retained for
future reference. Additional information about the Funds has been filed with the
Securities and Exchange Commission in a Statement of Additional Information
dated April 3, 1995, as supplemented November 3, 1995, which is incorporated
herein by reference and is available without charge upon request by writing or
calling the Funds at 1-800-539-3863.
Investors are advised to read and retain this Prospectus for future reference.
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THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY
IS A CRIMINAL OFFENSE.
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SPEARS, BENZAK, SALOMON & FARRELL, INC.
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The date of this Prospectus is April 3, 1995
As supplemented November 3, 1995
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TABLE OF CONTENTS
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<TABLE>
<S> <C>
Fund Expenses.................................... 1
Financial Information Summary.................... 2
Yield Information................................ 4
Investment Objectives............................ 4
Management of the Funds.......................... 8
Distribution Plan and Expenses................... 10
Determination of Net Asset Value................. 11
Purchasing Shares................................ 11
Redeeming Shares................................. 12
Retirement Plans................................. 14
Automatic Asset Builder.......................... 14
Automatic Withdrawal Plan........................ 14
Exchange Privileges.............................. 15
Dividend Reinvestment
and Distributions.............................. 15
Federal Income Taxes............................. 15
Description of Common Stock...................... 16
Custodian, Transfer Agent
and Dividend Disbursing Agent.................. 16
Shareholder Reports.............................. 17
</TABLE>
<PAGE> 4
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FUND EXPENSES
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THE FOLLOWING TABLE SETS FORTH THE FEES THAT AN INVESTOR IN THE FUNDS MIGHT
PAY AND THE EXPENSES PAID BY EACH OF THE FUNDS DURING THE FISCAL YEAR ENDED
NOVEMBER 30, 1994.
<TABLE>
<CAPTION>
MONEY CONVERTIBLE CAPITAL
SBSF MARKET SECURITIES GROWTH
FUND FUND FUND FUND
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
Shareholder Transaction Expenses:
Maximum sales load imposed on purchases...... None None None None
Maximum sales load imposed on reinvested
dividends.................................. None None None None
Deferred sales load.......................... None None None None
Redemption Fees.............................. None None None None
Exchange Fees................................ None None None None
Annual Fund Operating Expenses:
(as a percentage of average net assets)
Advisory Fees (after waiver)................. 0.75% -- * 0.75% 0.75%**
Other Expenses............................... 0.48% 0.59% 0.55% 1.47%**
------------- ------------- ------------- -------------
Total Fund Operating Expenses (after waiver)... 1.23% 0.59%* 1.30% 2.22%**
=========== =========== =========== ===========
</TABLE>
The purpose of this table is to assist an investor in understanding the
various costs and expenses that an investor in the Funds will bear directly
(shareholder transaction expenses) or indirectly (annual Fund operating
expenses). "Other Expenses" includes such expenses as administration fees,
custodial and transfer agent fees, audit, legal and other business expenses. For
further details, see the Funds' annual report which accompanies the Statement of
Additional Information. SBSF Fund was formerly known as SBSF Growth Fund.
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* During the fiscal year ended November 30, 1994, Spears, Benzak, Salomon &
Farrell, Inc. (the "Adviser" or "Spears") voluntarily agreed to waive the
advisory fee of the Money Market Fund in the amount of 0.25%. Had there been no
such waiver, the annual operating expense of the Money Market Fund would have
been 0.84%.
** During the fiscal year ended November 30, 1994, Spears voluntarily agreed to
waive both the advisory and administrative fees of the Capital Growth Fund in
the amounts of 0.75% and 0.25%, respectively. Spears discontinued its voluntary
waiver of advisory fees on October 1, 1995 and anticipates that it will
discontinue its voluntary waiver of administrative fees on January 1, 1996. The
table reflects the expenses of the Capital Growth Fund determined as if the
advisory and administrative fees had been paid in full by the Capital Growth
Fund for the fiscal year ended November 30, 1994.
The following example demonstrates the projected dollar amount of total
cumulative expenses that would be incurred over various periods with respect to
each of the Funds.
<TABLE>
<CAPTION>
MONEY CONVERTIBLE CAPITAL
SBSF MARKET SECURITIES GROWTH
FUND FUND FUND FUND
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Example
You would pay the following expenses on a
$1,000 investment, assuming (1) 5% annual
return and (2) redemption at the end of each
time period:
1 Year....................................... $ 13 $ 6 $ 13 $ 23
3 Years...................................... 39 19 41 69
5 Years...................................... 68 33 71 119
10 Years..................................... 149 74 157 255
</TABLE>
THIS EXAMPLE SHOULD NOT BE CONSIDERED A REPRESENTATION OF PAST OR FUTURE
EXPENSES AND ACTUAL EXPENSES MAY BE GREATER OR LESS THAN THOSE SHOWN. MOREOVER,
WHILE THE TABLE ASSUMES A 5% ANNUAL RETURN, THE FUND'S ACTUAL PERFORMANCE WILL
VARY AND MAY RESULT IN AN ACTUAL RETURN GREATER OR LESS THAN 5%. YOU WOULD PAY
THE SAME AMOUNT OF EXPENSES ON THE SAME INVESTMENT ASSUMING NO REDEMPTION AT THE
END OF EACH TIME PERIOD.
<PAGE> 5
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FINANCIAL INFORMATION SUMMARY
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FINANCIAL HIGHLIGHTS (For a share outstanding throughout each period.)
The following information has been audited by Price Waterhouse LLP, independent
accountants, whose unqualified report on the five years ended November 30, 1994
is contained in the Fund's Annual Report and should be read in conjunction with
the financial statements and notes thereto.
<TABLE>
<CAPTION>
SBSF FUND (FORMERLY GROWTH FUND)
--------------------------------------------------------------------------
FISCAL YEAR ENDED
NOVEMBER 30,
--------------------------------------------------------------------------
1994 1993 1992 1991 1990 1989 1988
-------- -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
Per Share Operating Performance:
Net asset value,
beginning of period.................................. $17.59 $15.64 $16.47 $15.57 $16.74 $13.31 $11.80
Net investment income (loss)......................... 0.21 0.34 0.42 0.50 0.59 0.47 0.42
Net realized and unrealized gain (loss) on
investments........................................ (0.94) 3.01 0.91 1.40 (0.67) 3.43 1.97
-------- -------- -------- -------- -------- -------- --------
Total from investment operations...................... (0.73) 3.35 1.33 1.90 (0.08) 3.90 2.39
Less: dividends and distributions:
Dividends from net investment income................. (0.20) (0.39) (0.56) (0.59) (0.51) (0.40) (0.48)
Distributions from net realized
gains on investments............................... (2.12) (1.01) (1.60) (0.41) (0.58) (0.07) (0.40)
-------- -------- -------- -------- -------- -------- --------
Total dividends and distributions..................... (2.32) (1.40) (2.16) (1.00) (1.09) (0.47) (0.88)
-------- -------- -------- -------- -------- -------- --------
Net asset value, end of period........................ $14.54 $17.59 $15.64 $16.47 $15.57 $16.74 $13.31
========== ========== ========== ========== ========== ========== ==========
Total Investment Return............................... -4.99% 22.95% 8.56% 12.89% -0.66% 30.10% 21.30%
Ratios/Supplemental Data:
Net assets end of period (in thousands)............... $109,733 $122,555 $105,325 $103,171 $92,464 $97,513 $81,018
Ratio of expenses to average net assets............... 1.23% 1.15% 1.16% 1.15% 1.15% 1.20% 1.16%
Ratio of net investment income (loss)
to average net assets................................ 1.31% 2.05% 2.68% 3.11% 3.66% 3.12% 3.12%
Decrease reflected in above expense ratios due to
advisory and administration fees waived.............. -- -- -- -- -- -- --
Portfolio Turnover Rate............................... 83% 70% 45% 50% 42% 44% 47%
<CAPTION>
SBSF FUND (FORMERLY GROWTH FUND)
--------------------------------
FISCAL YEAR ENDED
NOVEMBER 30,
-------------------------------
1987 1986 1985
-------- -------- --------
<S> <C> <C> <C>
Per Share Operating Performance:
Net asset value,
beginning of period.................................. $14.16 $13.53 $10.81
Net investment income (loss)......................... 0.39 0.37 0.31
Net realized and unrealized gain (loss) on
investments........................................ (1.33) 1.13 2.81
-------- -------- --------
Total from investment operations...................... (0.94) 1.50 3.12
Less: dividends and distributions:
Dividends from net investment income................. (0.37) (0.32) (0.40)
Distributions from net realized
gains on investments............................... (1.05) (0.55) (0.00)
-------- -------- --------
Total dividends and distributions..................... (1.42) (0.87) (0.40)
-------- -------- --------
Net asset value, end of period........................ $11.80 $14.16 $13.53
========== ========== ==========
Total Investment Return............................... -7.30% 11.55% 29.43%
Ratios/Supplemental Data:
Net assets end of period (in thousands)............... $83,308 $90,058 $60,736
Ratio of expenses to average net assets............... 1.10% 1.17% 1.40%
Ratio of net investment income (loss)
to average net assets................................ 1.67% 1.80% 1.96%
Decrease reflected in above expense ratios due to
advisory and administration fees waived.............. -- -- --
Portfolio Turnover Rate............................... 66% 65% 80%
<FN>
- ---------------
(1) From March 23, 1988 (commencement of operations) to November 30, 1988.
(2) From April 14, 1988 (commencement of operations) to November 30, 1988.
(3) From November 1, 1993 (commencement of operations) to November 30, 1993.
(4) Not annualized.
(5) Annualized.
(6) Calculated using weighted average shares outstanding.
</TABLE>
2
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The Fund's Annual Report, which is incorporated by reference into the Statement
of Additional Information, includes a discussion of those factors, strategies
and techniques that materially affected their performance during the period of
the report, as well as certain related information. A copy of the Fund's Annual
Report is available without charge upon request. See "Management of the Funds"
for a discussion of the waiver of Advisory and Administration fees.
<TABLE>
<CAPTION>
MONEY MARKET FUND CONVERTIBLE SECURITIES FUND
------------------------------------------------------------------- -----------------------------------------------
FISCAL YEAR ENDED FISCAL YEAR ENDED
NOVEMBER 30, NOVEMBER 30,
------------------------------------------------------------------- -----------------------------------------------
1994 1993 1992 1991 1990 1989 1988(1) 1994 1993 1992 1991 1990
------- ------- ------- ------- ------- ------- ------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
$1.000 $1.000 $1.000 $1.000 $1.000 $1.000 $1.000 $12.48 $10.98 $10.65 $ 9.15 $10.65
0.034 0.026 0.034 0.058 0.077 0.086 0.050 0.61 0.57 0.59 0.67 0.87
-- -- -- -- -- -- -- (1.12) 1.79 0.56 1.63 (1.38)
------- ------- ------- ------- ------- ------- ------- ------- ------- ------- ------- -------
0.034 0.026 0.034 0.058 0.077 0.086 0.050 (0.51) 2.36 1.15 2.30 (0.51)
(0.034) (0.026) (0.034) (0.58) (0.077) (0.086) (0.050) (0.61) (0.57) (0.72) (0.71) (0.80)
-- -- -- -- -- -- -- (0.31) (0.29) (0.10) (0.09) (0.19)
------- ------- ------- ------- ------- ------- ------- ------- ------- ------- ------- -------
(0.034) (0.026) (0.034) (0.058) (0.077) (0.086) (0.050) (0.92) (0.86) (0.82) (0.80) (0.99)
------- ------- ------- ------- ------- ------- ------- ------- ------- ------- ------- -------
$1.000 $1.000 $1.000 $1.000 $1.000 $1.000 $1.000 $11.05 $12.48 $10.98 $10.65 $ 9.15
========= ========= ========= ========= ========= ========= ========= ========= ========= ========= ========= =========
3.37% 2.61% 3.48% 6.00% 8.07% 8.87% 4.76% -4.36% 22.42% 11.20% 26.33% -5.18%
$28,606 $16,222 $12,531 $20,493 $22,424 $21,627 $24,354 $58,845 $64,537 $42,442 $28,123 $15,200
0.59% 0.55% 0.72% 0.59% 0.62% 0.68% 0.49% 1.30% 1.24% 1.32% 1.37% 1.52%
3.35% 3.16% 4.20% 6.38% 8.29% 9.29% 7.80% 5.20% 4.75% 6.78% 8.50% 10.64%
0.25% 0.25% 0.25% 0.25% 0.25% 0.25% 0.30% -- -- -- -- --
-- -- -- -- -- -- -- 49% 30% 42% 53% 32%
<CAPTION>
CAPITAL GROWTH FUND
--------------------
FISCAL YEAR ENDED
NOVEMBER 30,
--------------------
1989 1988(2) 1994 1993(3)
------- ------- ------- --------
<S> <C> <C> <C> <C>
$ 9.91 $10.00 $ 7.88 $ 8.00
0.84 0.44 (0.01)(6) (0.05)
0.86 (0.30) (0.31)(6) (0.07)
------- ------- ------- --------
1.70 0.14 (0.32) (0.12)
(0.96) (0.23) -- --
-- -- -- --
------- ------- ------- --------
(0.96) (0.23) -- --
------- ------- ------- --------
$10.65 $ 9.91 $7.56 $7.88
========= ========= ========= ==========
17.88% 1.42% -4.06% -1.50%(4)
$12,061 $5,044 $4,141 $1,656
1.15% 0.84% 1.22% 2.50%(5)
9.87% 8.74% -0.17% -12.65%(5)
0.55% 0.98% 1.00% 0.93%
76% 9% 80% 0%
</TABLE>
3
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YIELD INFORMATION
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The yield of the Money Market Fund for the seven days ended November 30, 1994
was 4.76%. The compounded "effective yield" for the same seven day period was
4.87%. The yield of the Money Market Fund for the seven days ended March 28,
1995 was 5.42% and the effective yield for that period was 5.57%. See
"Computation of Yields and Total Return" in the Statement of Additional
Information for information about the method of calculating these yields.
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INVESTMENT OBJECTIVES
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The investment objective of each of the four Funds is set forth below.
SBSF FUND
The SBSF Fund's investment objective is to seek a high total return over the
longer term consistent with reasonable risk. Total return consists of dividends
and interest income and realized and unrealized appreciation on portfolio
securities. In seeking its objective, the SBSF Fund will invest in securities
which in the opinion of the Adviser have the potential for capital appreciation
in excess of market averages during periods of market strength while attempting
to preserve capital during periods of market weakness. The SBSF Fund will invest
primarily in common stocks, but may also invest in preferred stocks, securities
convertible into common stocks and fixed income securities.
In pursuit of its objective, SBSF Fund may invest in the securities of
companies that possess valuable fixed assets, or are undervalued in the
marketplace in relation to such factors as the issuer's assets, earnings or
growth potential. The SBSF Fund is not restricted to investments in any specific
market sector or industry group, and it may invest in securities traded on
national securities exchanges, the NASDAQ national market, over the counter
securities and securities privately placed.
Periods of market strength are, with respect to equity securities, those in
which the prices of such securities, as reflected in standard industry indices
(such as the Dow Jones Industrial Average and the Standard & Poor's Composite
Index), rise and, with respect to fixed income securities, those in which yields
fall (with consequent increases in price). Periods of market weakness are the
converse of periods of market strength. Because periods of market strength or
weakness in equity and fixed income securities do not necessarily coincide, the
Adviser in seeking a high total return has the flexibility to invest in a wide
range of equity and fixed income securities.
With respect to fixed income securities, the SBSF Fund will invest primarily
in U.S. Government securities, corporate bonds, securities convertible into
common stock, high grade commercial paper and bankers acceptances.
CONVERTIBLE SECURITIES FUND
The investment objective of the Convertible Securities Fund is to seek a high
level of current income together with long-term capital appreciation. It is a
fundamental policy of the Convertible Securities Fund that it will invest at
least 65% of its total assets (except when maintaining a temporary defensive
position) in convertible securities. The Convertible Securities Fund is not
required to sell securities for the purpose of assuring that at least 65% of its
total assets are invested in convertible securities if a market decline should
cause this threshold to be breached. The balance of the Convertible Securities
Fund's assets may be invested in other securities which, in the aggregate, are
considered to be consistent with the Fund's investment objective. Such other
investments may include preferred stocks, dividend and non-dividend paying
common stocks, U.S. Government securities, corporate bonds, high grade
commercial paper, banker's acceptances and other short-term instruments,
floating rate notes, securities of the foregoing types issued by foreign issuers
and repurchase agreements. A decision to maintain a temporary defensive position
will depend on the Adviser's outlook for interest rates and fixed income and
equity securities, and when such a position is adopted there can be no assurance
that the Fund's investment objective will be achieved.
A convertible security is a fixed-income security, such as a bond or preferred
stock, which may be converted at a stated price within a specified period of
time into a specified number of shares of common stock of the same or a
different issuer. Convertible securities are usually senior to common stock in a
corporation's capital structure, but usually are
4
<PAGE> 8
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subordinate to similar non-convertible securities. While providing a fixed
income stream (generally higher in yield than the income derivable from a common
stock but lower than that afforded by a similar non-convertible security), a
convertible security also affords an investor the opportunity, through its
conversion feature, to participate in the capital appreciation of the common
stock into which it is convertible.
The Convertible Securities Fund will purchase convertible securities which may
or may not be rated by a national rating agency. When purchasing rated
securities, the Convertible Securities Fund may make substantial investments in
securities rated Baa, Ba, B or Caa by Moody's Investor Services, Inc.
("Moody's") and BBB, BB, B or CCC by Standard & Poor's Corporation ("S&P") (see
the description of the rating systems contained in Appendix A to the Statement
of Additional Information).
The medium to lower-rated and unrated securities in which the Convertible
Securities Fund may invest tend to offer higher yields than higher-rated
securities with the same maturities because the historical financial condition
of the issuers of such securities may not be as strong as that of the other
issuers. Debt obligations rated lower than A by Moody's or S&P tend to have
speculative characteristics or are speculative, and generally involve more risk
of loss of principal and income than higher rated securities. Also, their yields
and market value tend to fluctuate more than higher quality securities. These
risks cannot be eliminated, but may be reduced by diversifying holdings to
minimize the portfolio impact of any single investment. In addition,
fluctuations in market value do not affect the cash income from the securities,
but are reflected in the Fund's net asset value. When interest rates rise, the
net asset value of the Fund tends to decrease. When interest rates decline, the
net asset value of the Fund tends to increase.
The Fund is not restricted from investing in the lower-rated categories of
securities. However, the Fund will not invest in securities rated Ba or lower by
Moody's or BB or lower by S&P or unrated securities, unless the Adviser believes
that positive factors mitigate or reduce the investment risks and that the
investment is expected to provide a return commensurate with such risks.
Positive factors would include operating strengths or improvements which will
enable a company to service its debt with a wider margin of comfort than
anticipated by rating agencies. Such strengths or improvements, such as growing
market share or improved cost structure or margins, result in strong or
improving cash flow. A superior management also can improve the value of assets
within a company. Thus, a company can build financial flexibility, enabling it
to reduce its leverage or otherwise reduce financial risk at will.
In general, the market value of a convertible security is at least the higher
of its "investment value" (i.e., its value as a fixed income security) or its
"conversion value" (i.e., the value of the underlying shares of common stock if
the security is converted). As a fixed-income security, a convertible security
tends to increase in market value when interest rates decline and tends to
decrease in value when interest rates rise. However, the price of a convertible
security also is influenced by the market value of the security's underlying
common stock. Thus, the price of a convertible security tends to increase as the
market value of the underlying stock increases, but tends to decrease as the
market value of the underlying stock declines. While no securities investment is
without some risk, investments in convertible securities generally entail less
risk than investments in the common stock of the same issuer.
Securities received upon conversion of convertible securities or upon exercise
of call options or warrants forming elements of synthetic convertibles
(described below) may be retained temporarily to permit orderly disposition or
to defer realization of gain or loss for Federal tax purposes, and will be
included in calculating the amount of the Fund's total assets invested in true
and synthetic convertibles.
The Convertible Securities Fund may also invest in synthetic convertibles. A
"synthetic convertible" is created by combining separate securities which
possess the two principal characteristics of a true convertible security, i.e.,
fixed income ("fixed-income component") and the right to acquire equity
securities ("convertibility component"). The fixed-income component is achieved
by investing in non-convertible fixed-income securities such as non-convertible
bonds, preferred stocks and money market instruments. The convertibility
component is achieved by investing in warrants or exchange listed call options
or stock index call options granting the holder the right to purchase a
specified quantity of securities within a specified period of time at a
specified price or to receive cash in the case of stock index options.
The synthetic convertible differs from the true convertible security in
several respects. Unlike a true convertible security, which is a single security
having a unitary market value, a synthetic convertible is com-
5
<PAGE> 9
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prised of two or more separate securities, each with its own market value.
Therefore, the "market value" of a synthetic convertible is the sum of the
values of its fixed-income component and its convertibility component. For this
reason, the values of a synthetic convertible and a true convertible security
will respond differently to market fluctuations.
A holder of a synthetic convertible faces the risk of a decline in the price
of the stock or the level of the index involved in the convertibility component,
causing a decline in the value of the option or warrant. Should the price of the
stock fall below the exercise price and remain there throughout the exercise
period, the entire amount paid for the call option or warrant would be lost.
Since a synthetic convertible includes the fixed-income component as well, the
holder of a synthetic convertible also faces the risk that interest rates will
rise, causing a decline in the value of the fixed-income instrument.
CAPITAL GROWTH FUND
The Capital Growth Fund's investment objective is to provide capital
appreciation. The production of any current income is incidental to this
objective. The Capital Growth Fund invests primarily in growth oriented common
stocks of domestic corporations and, to a limited extent, foreign corporations
listed on any national securities exchange or traded in the over-the-counter
market. Such corporations may or may not pay dividends and such a factor would
not be considered a relevant criteria in selecting an investment.
The Adviser employs a flexible investment program in pursuit of the Fund's
investment objective. The Fund is not restricted to investments in specific
market sectors and may invest in any market sector. The Capital Growth Fund will
invest in small to medium capitalized companies, i.e., issuers having a market
capitalization of $500 million to $1.5 billion, but may also invest in companies
of any size and may take advantage of any investment opportunity with attractive
long-term growth prospects including preferred stocks, convertible securities
and bonds. Bonds might be purchased in situations where the Adviser believes
interest rates will decline or where it is believed that a bond will provide a
greater return than common stocks. This might be the case, for example, in a
weak economic environment where stock prices are performing poorly. The Adviser
takes advantage of its market access and the research available to it to select
investments in promising emerging growth companies that are involved in new
technology, natural resources, foreign markets and special developments, such as
research discoveries, acquisitions, recapitalizations, liquidations or
management changes, and companies whose stock may be undervalued by the market.
These situations are only illustrative of the types of investments the Fund may
make. The Fund is free to invest in any common stock which in the Adviser's
judgment provides above average potential for capital appreciation.
Although the Capital Growth Fund intends to be fully invested, it may hold up
to 100% of its assets in cash or short-term debt securities for temporary
defensive purposes. The Fund will adopt a temporary defensive position when, in
the opinion of the Adviser, such position is likely to provide protection
against unfavorable market conditions.
The Fund intends to manage its portfolio actively to accomplish its investment
objective. Since the Fund has a long-term investment perspective, it does not
intend to respond to short-term market fluctuations or to acquire securities for
the purpose of short-term trading; however, it may take advantage of short-term
trading opportunities that are consistent with its objective.
MONEY MARKET FUND
The investment objective of the Money Market Fund is to provide high current
income to the extent consistent with the preservation of capital. The Money
Market Fund will not purchase securities with maturities greater than thirteen
months and will maintain a weighted average maturity of 90 days or less. The
Money Market Fund seeks to attain its objective by investing in the following
types of money market instruments:
(1) Bank certificates of deposit, bankers' acceptances and other obligations
issued or guaranteed by domestic banks having total assets in excess of one
billion dollars (except as provided below) and subject to regulation by the
United States Government; foreign branches of these banks ("Euros"); and, United
States branches of foreign banks of equivalent size ("Yankees"). The Money
Market Fund may invest in certificates of deposit and other obligations issued
by smaller domestic banks and savings and loan associations with assets of less
than one billion dollars if the principal amounts of the instruments are fully
insured by the Federal Deposit Insurance Corporation. In the event the Money
Market Fund purchases any certificates of deposit issued by such smaller banks
or sav-
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ings and loan associations that are not readily marketable, the purchases will
not exceed 10% of the Money Market Fund's net assets at the time of purchase.
(2) Commercial paper rated P-1 by Moody's and A-1 by S&P or, if not rated,
issued by corporations having an outstanding unsecured debt issue currently
rated Aa by Moody's or AA by S&P. (For a description of such ratings see
Appendix A in the Statement of Additional Information).
(3) Obligations of, or guaranteed by, the United States Government, its
agencies or instrumentalities, including such obligations subject to repurchase
agreements. These include issues of the United States Treasury, such as bills,
certificates of indebtedness, notes and bonds, and issues of agencies and
instrumentalities established under the authority of an act of Congress. Some of
the latter category of securities are supported by the full faith and credit of
the United States Treasury, others are supported by the right of the issuer to
borrow from the Treasury, and still others are supported only by the credit of
the agency or instrumentality. Examples of each of the three types of securities
described in the preceding sentence are (i) obligations guaranteed by the
Export-Import Bank of the United States, (ii) obligations of the Federal
National Mortgage Association and (iii) obligations of the Student Loan
Marketing Association, respectively.
Such instruments may produce a lower yield than would be available from less
highly rated instruments. There can be, of course, no assurance that the Money
Market Fund will achieve its investment objective. The Money Market Fund may not
achieve as high a current level of income as other funds which may invest in
securities of lesser quality and longer maturities.
INVESTMENT TECHNIQUES
In pursuit of their objectives, the Funds may utilize certain special
investment methods. The SBSF Fund, the Convertible Securities Fund and the
Capital Growth Fund may, in certain circumstances, purchase and write call
options that are traded on U.S. securities exchanges. At the time of purchase or
sale, the market value of such options would not exceed 5% of the total assets
of the respective Fund. A call option is a short-term contract (having a
duration of nine months or less) pursuant to which the purchaser of the call
option, in return for a premium paid, has the right to buy the security
underlying the option at a specified exercise price at any time during the term
of the option.
The SBSF Fund, the Convertible Securities Fund and the Capital Growth Fund may
also invest up to 10% of their assets in securities of foreign issuers.
Securities of foreign issuers may, in the opinion of the Adviser, present
attractive investment opportunities. Foreign investments may be affected
favorably or unfavorably by changes in exchange rates and currency control
regulations, including currency blockage. There may be less information
available about a foreign company than about a U.S. company, and foreign
companies may not be subject to reporting standards and requirements comparable
to those applicable to U.S. companies. Foreign securities and their markets may
not be as liquid as U.S. securities and their markets. Securities of some
foreign companies may involve greater market risk than securities of U.S.
companies, and foreign brokerage commissions and custody fees are generally
higher than those in the United States. Investments in foreign securities may
also be subject to local economic or political risks, such as political
instability of some foreign governments and the possibility of nationalization
or expropriation of issuers.
The SBSF Fund, the Convertible Securities Fund and the Capital Growth Fund may
also invest up to 5% of each Fund's respective net assets in warrants, excluding
attached warrants. None, however, will invest more than 2% of its net assets in
warrants which are not traded on the New York or American Stock Exchanges.
The SBSF Fund, the Convertible Securities Fund and the Capital Growth Fund may
invest up to 10% of each Fund's total assets in illiquid securities, including
securities that are illiquid due to the absence of a readily available market or
due to legal or contractual restrictions on resale, including privately issued
debt securities. However, illiquid securities for purposes of this limitation do
not include securities eligible for resale to qualified institutional buyers
pursuant to Rule 144A under the Securities Act of 1933, as amended (the "1933
Act"), which the Fund's Board of Directors or the Fund's Adviser has determined
are liquid. Such a determination would take into consideration, among other
factors, valuation, liquidity and availability of information. At the present
time, the market for Rule 144A securities is relatively new and there is no
assurance that this market will grow. An insufficient number of qualified
institutional buyers interested in purchasing Rule 144A securities held by the
Funds could adversely affect the liquidity of such securities. The Funds might
be unable to dispose of such securities promptly or at reasonable prices. The
Funds may
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invest up to 10% of their total assets in Rule 144A securities.
To increase income, the SBSF Fund, the Convertible Securities Fund and the
Capital Growth Fund may lend portfolio securities to certain brokers or dealers,
banks or other institutional investors, such as insurance companies and pension
funds. The Adviser has not previously, nor has it any present intention, to loan
portfolio securities. All of the Funds may also invest in repurchase agreements
relating to certain types of securities and member banks of the Federal Reserve
System. A repurchase agreement is an instrument under which the purchaser (i.e.,
the Fund) acquires a debt security and the seller agrees, at the time of the
sale, to repurchase the obligation at a mutually agreed upon time and price,
thereby determining the yield during the purchaser's holding period. This
results in a fixed rate of return insulated from market fluctuations during such
period. From time to time, all of the Funds may trade in securities for the
short term. It is anticipated that the annual turnover rates will not exceed 75%
for the SBSF Fund and the Convertible Securities Fund and may be substantially
higher than 100% for the Capital Growth Fund. A turnover rate in excess of 100%
may increase a Fund's expenses. A fuller description of all of the special
investment methods described in this paragraph and of the conditions under which
the Fund may utilize them may be found under "Investment Objectives and
Policies" in the Statement of Additional Information. The Funds are subject to
the usual market risks incident to their investments and therefore there can be
no assurances that the objectives of the Funds will be attained.
The investment policies of the Funds set forth above may be changed or altered
by the Board of Directors subject to certain investment restrictions, which set
percentage and other limitations on certain investments and investment
strategies, certain of which constitute fundamental policies. Fundamental
polices, which include the investment objective of each of the Funds, cannot be
changed without the approval of the holders of a majority of the outstanding
voting securities of each of the Funds. The restrictions are set forth under
"Investment Restrictions" in the Statement of Additional Information.
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MANAGEMENT OF THE FUNDS
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DIRECTORS AND OFFICERS
The directors, in addition to reviewing the actions of the Funds' Adviser,
Administrator and Distributor, as set forth below, decide upon matters of
general policy. The Funds' officers conduct and supervise the daily business
operations of the Funds. The names, addresses and business affiliations of the
directors and officers of the Funds are set forth in the Statement of Additional
Information.
THE INVESTMENT ADVISER
The investment adviser to the Funds is Spears, Benzak, Salomon & Farrell,
Inc., a New York Corporation that is registered as an investment adviser with
the Securities and Exchange Commission. The Adviser is a wholly owned subsidiary
of KeyCorp Asset Management Holdings, Inc. ("KAMHI") and is an indirect wholly
owned subsidiary of Society National Bank, N.A. and KeyCorp, one of the largest
financial services holding companies in the United States. KeyCorp's principal
offices are located at 127 Public Square, Cleveland, Ohio 44114.
The Adviser was acquired by KAMHI on April 5, 1995. This change of control of
the Adviser was deemed under the Investment Company Act of 1940 (the "Act") to
be an assignment of the Investment Advisory Agreement between the Funds and the
Adviser, which, in accordance with its terms and the Act, terminated upon such
assignment. At an annual meeting of shareholders of the Funds held on March 29,
1995, the shareholders of the Funds approved a new Investment Advisory Agreement
between the Funds and the Adviser, which agreement became effective upon the
consummation of the acquisition of the Adviser by KAMHI. The Adviser has
continued operating under its previous management and staff, and there has been
no change to the Adviser's business or investment strategies.
The Adviser was, at October 31, 1995, investment adviser for assets
aggregating in excess of $3.5 billion. In addition to the Funds, the Adviser's
advisory clients include individuals, pension and profit-sharing trusts,
partnerships, endowments and foundations. The Adviser's principal offices are
located at 45 Rockefeller Plaza, New York, New York 10111.
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Pursuant to an Investment Advisory Agreement, the Adviser furnishes a
continuous investment program for the Funds' portfolios, makes the day-to-day
investment decisions for the Funds, executes the purchase and sale orders for
the portfolio transactions of the Funds and generally manages the Funds'
investments in accordance with the stated policies of the Funds, subject to the
general supervision of the Board of Directors of the Funds.
Due to certain regulatory restrictions imposed on banking organizations and
their subsidiaries, employees of the Adviser are not permitted to serve as
officers or directors of the Funds. Pursuant to a Sub-Administration Agreement
between the Adviser and Concord Holding Corporation ("Concord"), Concord
currently provides persons satisfactory to the Company's Board of Directors to
serve as officers of the Funds.
The principal portfolio manager of the SBSF Fund, the Convertible Securities
Fund and the Money Market Fund is Louis R. Benzak. Mr. Benzak is a Managing
Director and Vice Chairman of the Adviser and has been the principal portfolio
manager of the SBSF Fund, Convertible Securities Fund and Money Market Fund
since their inception. The principal portfolio manager of the Capital Growth
Fund is Charles G. Crane. Mr. Crane is a Managing Director of the Adviser and
has been the Capital Growth Fund's principal portfolio manager since its
inception.
As compensation for the services rendered and related expenses borne by the
Adviser under the Investment Advisory Agreement, the SBSF Fund, the Convertible
Securities Fund and the Capital Growth Fund pay the Adviser a fee, computed
daily and payable monthly, equal to .75% per annum of each Fund's average daily
net assets. This fee is higher than that paid by most investment companies. The
Investment Advisory Agreement further provides that the Money Market Fund will
pay the Adviser a fee, computed daily and payable monthly, equal to .25% per
annum of its average daily net assets. This fee is lower than that paid by most
investment companies. The Adviser is obligated to reimburse the Fund in the
event any Fund's expenses exceed certain prescribed limits. See "Distribution
Plan and Expenses". For the fiscal year ended November 30, 1994, the SBSF Fund
and the Convertible Securities Fund paid the Adviser a fee at the effective
annual rate of .75% of its average daily net assets. For the fiscal year ended
November 30, 1994, the Adviser voluntarily waived its advisory fees for the
Money Market Fund and the Capital Growth Fund. On October 1, 1995, the Adviser
discontinued its voluntary waiver of the advisory fees for the Capital Growth
Fund.
Spears also serves as Administrator to the Funds. In this capacity, Spears
administers certain of the Funds' operations subject to the supervision of the
Board of Directors. Pursuant to an Administration Agreement, in consideration of
its administrative fee, Spears performs clerical, accounting and office service
functions for the Funds and provides the Funds with personnel to perform
accounting and related services, oversees the calculation of net asset value and
yield, prepares reports to and filings with regulatory authorities, services
shareholder accounts and performs such other services as the Funds may from time
to time request. The Administration Agreement provides that in the absence of
willful misfeasance, bad faith or gross negligence on the part of Spears, or of
reckless disregard of its obligations thereunder, Spears shall not be liable for
any action or failure to act in accordance with its duties thereunder. The
acquisition of Spears by KAMHI was deemed to be an assignment of the
Administration Agreement, which terminated upon such assignment. At a meeting of
the Board of Directors of the Funds on February 9, 1995, the Board of Directors
approved a new Administration Agreement between the Funds and Spears, which
agreement became effective upon the consummation of the acquisition of Spears by
KAMHI.
As compensation for the administrative services rendered to the Funds and
related expenses borne by Spears, each of the Funds pays Spears an annual fee,
computed daily and payable monthly, equal to .25% of its average daily net
assets up to $50,000,000, plus .15% of the next $50,000,000, plus .05% of such
assets greater than $100,000,000. For the fiscal year ended November 30, 1994
Spears voluntarily waived its administration fee for the Capital Growth Fund.
Spears anticipates that it will discontinue its voluntary waiver of its
administration fee for the Capital Growth Fund on January 1, 1996. Spears is
obligated to reimburse the Funds in the event the Funds' expenses exceed certain
prescribed limits. See "Distribution Plan and Expenses".
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DISTRIBUTION PLAN AND EXPENSES
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Except as set forth above under "Management of the Funds" and as set forth
below, each of the Funds would bear the expenses directly applicable to it and a
portion of the general administrative expenses, applicable to all the Funds
which may be allocated among the Funds in a manner believed by the Adviser to be
fair and equitable. Expenses that would be directly applicable to a Fund include
expenses of portfolio transactions, shareholder servicing costs, expenses of
registering the shares under Federal and state securities laws, pricing costs
(including the daily calculation of net asset value), interest, certain taxes,
legal and auditing expenses directly incurred by the Fund, and charges of
Spears, the Custodian, the Transfer Agent and the Distributor. General expenses
which would be allocated include directors' fees, general corporate legal and
auditing expenses, state franchise taxes, costs of printing proxies, stock
certificates, shareholder reports and prospectuses sent to existing
shareholders, trade association fees, Securities and Exchange Commission fees,
and accounting costs. Depending upon the nature of a lawsuit, litigation costs
may be directly applicable to a Fund or allocated among the Funds.
As a result of certain regulatory restrictions imposed on banking
organizations and their subsidiaries, the Company is not permitted to sell
shares of the Funds directly without an independent underwriter. Concord
Financial Group, Inc. ("Concord Financial") serves as independent
underwriter/distributor of the Funds' shares pursuant to a distribution
agreement between the Funds and Concord Financial which provides that Concord
Financial will use its best efforts to sell shares of the Funds. Under the
distribution agreement, Concord Financial may enter into agreements with
selected dealers for the distribution of shares.
Under a plan adopted pursuant to Rule 12b-1 under the Investment Company Act
of 1940 (the "Distribution Plan"), the Company pays the promotional and
advertising expenses relating to the distribution of the Funds' shares and for
the printing of all Fund prospectuses used in connection with the distribution
and sale of the Funds' shares. In addition, under the Distribution Plan the
Company may compensate Concord Financial, or reimburse expenses incurred by
Concord Financial, for distribution-related and sales support or shareholder
account services. All amounts expended pursuant to the Plan are paid to Concord
Financial which may pay all or any portion of such payments to compensate or
reimburse brokers, dealers and others which make sales of shares of a Fund or
which service shareholder accounts. Total payments under the Distribution Plan
may not exceed 0.25% of the average daily net asset value of the shares of a
Fund on an annual basis. The Rule 12b-1 plan requires that written reports of
the amounts expended and the purposes for which such expenditures were made be
provided to the Board of Directors, at least quarterly, for its review. See
"Management of the Fund" for information regarding fee arrangements.
The Adviser has agreed that if in any fiscal year the sum of each Fund's
expenses exceeds the limits set by applicable regulations of state securities
commissions, the amounts payable by the Funds to Spears for the advisory fee and
the administration fee for that year shall each be proportionately reduced. For
further information see "Distribution Plan and Expenses" in the Statement of
Additional Information.
The Adviser has paid the organization expenses of each of the Funds and
expenses incurred in the initial offering of their shares. Such organization
expenses are borne by the Funds and are amortized prospectively on a straight
line basis over a period not to exceed 60 months following commencement of
operations.
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DETERMINATION OF NET ASSET VALUE
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The net asset values of the SBSF Fund's shares, the Convertible Securities
Fund's shares and the Capital Growth Fund's shares are determined as of the
close of the New York Stock Exchange, which is ordinarily at 4:00 P.M., New York
time, each business day. The net asset value of the Money Market Fund is
determined at 12:00 P.M., New York time, each business day.
The Money Market Fund will seek to maintain a constant net asset value per
share of $1.00; however there can be no assurance that this will be attained.
In general, a Fund's net asset value is equal to the value of the securities,
cash and other assets less liabilities divided by the number of shares
outstanding. Securities traded on securities exchanges or the NASDAQ national
market are valued at the last sales price on the exchange where the security is
primarily traded or, lacking any sales, at the mean between the most recent bid
and asked quotation. Securities traded over-the-counter are valued at the mean
between the most recent bid and asked price. Securities for which quotations are
not readily available and any other assets are valued at fair value as
determined in good faith by the Board of Directors. The Money Market Fund values
all its portfolio securities using the amortized cost method. The SBSF,
Convertible Securities and Capital Growth Funds value money market instruments
at market value except money market instruments having a maturity of less than
60 days which are valued at amortized cost.
Generally, trading in foreign securities, as well as corporate bonds, United
States Government securities and money market instruments, is substantially
completed each day at various times prior to the close of the New York Stock
Exchange. The values of such securities used in computing the net asset value of
the SBSF, Convertible Securities and Capital Growth Funds' shares are determined
as of such times. Foreign currency exchange rates are also generally determined
prior to the close of the New York Stock Exchange. Occasionally events affecting
the values of such securities and such exchange rates may occur between the
times at which they are determined and the close of the New York Stock Exchange
which will not be reflected in the computation of the Funds' net asset values.
If events materially affecting the value of such securities occur during such
period, then these securities will be valued at their fair value as determined
in good faith by the Board of Directors.
The net asset values per share of the SBSF Fund and the Convertible Securities
Fund appear daily in The Wall Street Journal and most major newspapers. The net
asset value per share of the Capital Growth Fund can be obtained by calling
1-800-539-3863.
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PURCHASING SHARES
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Investors may purchase shares of each Fund on any day on which the New York
Stock Exchange is open for business. The purchase price is the net asset value
determined next after the order is received. There are no sales commissions.
Except for certain qualified retirement plans, there is a minimum initial
investment of $500. The minimum for subsequent purchases is $25.
Purchases may be made by mailing a check (in United States funds) payable to
SBSF Funds, Inc., c/o Primary Funds Service Corporation, P.O. Box 9742,
Providence, RI 02940-9742. In the case of an initial purchase, the check must be
accompanied by a completed subscription order form (a copy of which is available
by calling 1-800-539-3863).
Purchase payments may be transmitted by bank wire directly to the Transfer
Agent at the following address:
Boston Safe Deposit & Trust Co.
ABA # 011001234
For Credit to PFSC DDA Account # 05-224-8
For Further Credit to Wire Control #
(please call 1-800-539-3863 to obtain the wire control #)
Prior to wiring any funds and in order to ensure that wire orders are
invested promptly, you must call the Transfer Agent to obtain a wire
control #.
Shares will be purchased for your account as of the next determination of net
asset value per share follow-
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ing acceptance of your subscription. Shares begin accruing income dividends on
the day they were purchased, except for Money Market Fund shares purchased by
check, or by wire after 12:00 P.M. New York time, which begin earning income
dividends on the following day. Each investment in shares of a Fund, including
dividends and capital gains distributions reinvested, is acknowledged by a
statement showing the number of shares purchased, the net asset value at which
the shares were purchased, and the new balance of Fund shares owned. The Funds
do not issue stock certificates for the shares.
The purchase or redemption of shares through broker-dealers or other financial
institutions may be subject to a service fee by those entities.
Although the Funds continuously offer their shares for sale, each Fund
reserves the right to reject any purchase request.
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REDEEMING SHARES
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Any shareholder of a Fund or Funds is entitled to require the Fund or Funds to
buy back all or any part of his or her shares. Redemptions of Fund shares may be
effected only on days on which the New York Stock Exchange is open for business.
The redemption price, which may be more or less than the price paid by the
shareholder, is the net asset value next determined after a request for
redemption in proper form is received by Primary Funds Service Corporation, the
Funds' transfer agent (the "Transfer Agent"). See "Determination of Net Asset
Value". The redemption of shares may result in a taxable gain or loss to the
shareholder.
WRITTEN REDEMPTION
A proper redemption request includes a written request for redemption properly
signed and, if any certificates are included in the request, presentation of
such certificates properly endorsed and in proper form for transfer. In the case
of joint ownership, all signatures are required on the redemption request and
any endorsement of certificates. In all cases, all the signatures on a
redemption request and/or certificates must be guaranteed by a member
organization of a national securities exchange, a commercial bank or trust
company in New York City (or commercial bank or trust company having a
correspondent in New York City) or an eligible grantor institution participating
in the Securities Transfer Association's Medallion Program (STAMP).
A written redemption request should specify the Fund or Funds for which
redemption is requested, state the account number and should be sent to SBSF
Funds, Inc., c/o Primary Funds Service Corporation, P.O. Box 9742, Providence,
RI 02940-9742.
Redemption requests which are not in proper form will be returned to the
shareholder. Redemptions will not become effective until all documents in proper
form have been received by the Transfer Agent. Redemption requests received by
the Funds will be forwarded to the Transfer Agent for processing and will be
effected at the net asset value next determined after all required documentation
is received by the Transfer Agent which may or may not be the same day the
request is received by the Funds. The Funds generally will send payments for
shares redeemed on the next business day after a redemption request, in proper
form, is received.
TELEPHONE REDEMPTION
The Funds accept telephone or telecopier requests for redemption from
shareholders who elect this option. The proceeds of such a redemption can be
sent only to the shareholder at his or her address or to a bank account, both as
set forth on the subscription order form (application). An investor may select
this option by so indicating on the application. The Funds may accept telephone
redemption instructions from authorized persons with respect to accounts of
shareholders who elect this service. Amounts withdrawn from an account in this
manner are transmitted by wire ($500 minimum) to the shareholder's designated
bank account, provided such account is at a domestic commercial bank which is a
member of the Federal Reserve System, or by check to the shareholder's
designated address.
To make a telephone redemption, call the Transfer Agent at 1-800-539-3863, ask
for the telephone redemption clerk, and state (i) the name of the registered
shareholder, (ii) the account number with the Fund, (iii) the amount to be
redeemed, (iv) whether such amount is to be forwarded to the shareholder's
designated bank account or address, and (v) the name of the person requesting
the redemption. Telephone
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requests must be made prior to 4:00 P.M. (New York time) for the SBSF Fund,
Convertible Securities Fund and Capital Growth Fund and prior to 12:00 P.M. (New
York time) for the Money Market Fund. To make a telephone redemption request by
telecopier, send your request containing the information set forth in (i) - (v)
above to 1-800-529-2244. Usually the proceeds are sent to the designated bank
account or address within one business day after the redemption. The Funds
reserve the right to terminate the telephone redemption service in whole or in
part at any time. If you select a telephone redemption privilege, you authorize
the Transfer Agent to act on telephone instructions from any person representing
himself or herself to be you, and reasonably believed by the Transfer Agent to
be genuine. The Fund will require the Transfer Agent to employ reasonable
procedures, such as requiring a form of personal identification, to confirm that
the instructions are genuine and, if it does not follow such procedures, it may
be liable for any losses due to unauthorized or fraudulent instructions. Neither
the Fund nor the Transfer Agent will be liable for following telephone
instructions reasonably believed to be genuine.
The Funds will not mail redemption proceeds until checks used to pay for
shares purchased have cleared, which will ordinarily not take longer than 15
days. The redemption price, which will be the price next determined after
receipt of the request in proper form, may be paid in cash or portfolio
securities, at the Funds' discretion. Money Market Fund shareholders continue to
receive dividends on Money Market Fund shares until the business day before the
redemption check clears.
Shareholders may also redeem shares through registered broker-dealers holding
such shares who have made arrangements with the Funds permitting them to redeem
such shares by telephone or telecopier and who may charge a fee for this
service.
FREE CHECKING
Investors in the Money Market Fund only may request a supply of checks from
the Transfer Agent. A check may be made payable to the order of anyone in an
amount of $100 or more. These checks may be used as one would use any ordinary
commercial bank check except that checks may not be certified. The payee of such
a check may deposit it. The checks are drawn on a special account maintained by
the Money Market Fund at Northern Trust Co. When such a check is presented to
Northern Trust Co. for payment, it, as agent for the shareholder, redeems a
sufficient number of full and fractional shares in the shareholder's account to
cover the amount of the check and returns the check to the investor.
The use of a check to make a redemption enables a shareholder in the Money
Market Fund to receive dividends on the shares to be redeemed up to and
including the business day the check clears.
There is no charge to the shareholder for this checking service. Each check
sent to a shareholder has his or her name and account number in the Money Market
Fund impressed thereon. Shareholders electing this checking option are subject
to the procedures, rules and regulations of Northern Trust Co. governing
checking accounts. Checks drawn on a jointly owned account, at the option of the
joint owners, may require only one signature. Northern Trust Co. will not honor
checks which are in amounts exceeding the value of the shareholder's account at
the time the check is presented for payment. Since the dollar value of the
account changes daily, the total value of the account cannot be determined in
advance and the account cannot be entirely redeemed by check.
An investor wishing to avail himself or herself of this method of redemption
should elect it on his or her application. Individuals and joint tenants are not
required to furnish any supporting documentation. However, corporations and
other entities making this election are required to furnish a certified
resolution or other evidence of authorization in accordance with normal banking
practices. Appropriate authorization forms will be sent by the Transfer Agent to
corporations and other such shareholders who select this option. As soon as such
forms are filed in good order with the Transfer Agent, it will provide the
shareholder with a supply of checks.
This checking service may be terminated at any time by the Fund or by the
Transfer Agent.
The Funds have reserved the right to redeem involuntarily the shares of any
shareholder if the net asset value of all remaining shares in the shareholder's
account after a redemption is less than $500. IRA and Keogh accounts are exempt
from this mandatory redemption. Written notices of a proposed mandatory
redemption will be given at least 60 days in advance to any shareholder whose
account is to be redeemed. During the notice period a shareholder may avoid
mandatory redemption by purchasing sufficient shares to increase his or her
total net asset value to at least $500.
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The Funds may suspend the right of redemption during any period when (a)
trading on the New York Stock Exchange is restricted as determined by the
Securities and Exchange Commission or such Exchange is closed, other than
customary weekend and holiday closings; (b) the Securities and Exchange
Commission has by order permitted such suspension or postponement; or (c) an
emergency, as defined by rules of the Securities and Exchange Commission, exists
making disposal of portfolio securities or determination of the value of assets
of the Funds not reasonably practicable. In case of a suspension of the right of
redemption, the shareholder may withdraw his certificate or offer of redemption,
or he will receive payment of the net asset value determined next after the
suspension has been terminated.
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RETIREMENT PLANS
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The Funds have available prototype IRA, Profit Sharing (Keogh) and Money
Purchase retirement plans. Documentation, applications and charges of Primary
Funds Service Corporation as custodian may be obtained from the Funds.
All contributions to such plans are invested in shares of the Fund or Funds
selected by the shareholder. The minimum investment to establish an IRA, Profit
Sharing or Money Purchase Plan is $250. The minimum for subsequent investments
is $25.
Persons desiring information concerning these retirement plans should call
1-800-539-3863 or write to the Funds.
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AUTOMATIC ASSET BUILDER
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Automatic Asset Builder permits you to purchase Fund shares (minimum of $25
per transaction) at regular intervals selected by you. Fund shares are purchased
by transferring funds from your checking, NOW or bank money market deposit
account (as permitted) designated by you. At your option, the account designated
by you will be debited in the specified amount, and Fund shares will be
purchased, once a month, on any business day from the 1st to the 28th of each
month. Only an account maintained at a domestic financial institution which is
an Automated Clearing House member may be so designated. To establish an
Automatic Asset Builder account, you must file an authorization form with the
Transfer Agent. You may obtain the necessary form from the Funds or Transfer
Agent. You may cancel this privilege or change the amount to be purchased at any
time by mailing written notification to SBSF Funds, Inc., c/o Primary Funds
Service Corporation, P.O. Box 9742, Providence, RI 02940-9742, and the
notification will be effective three business days following receipt. The Fund
may modify or terminate this privilege at any time.
- --------------------------------------------------------------------------------
AUTOMATIC WITHDRAWAL PLAN
- --------------------------------------------------------------------------------
Each of the Funds has established an automatic withdrawal plan for any
shareholder owning shares with a value of $5,000 or more who wishes to redeem a
portion of the shares on a regular periodic basis and receive checks for the
proceeds. The Plan provides for monthly or quarterly checks in any amount not
less than $25 (which amount is not necessarily recommended) and such checks are
paid on any day from the 1st through the 28th of each month, quarterly, semi-
annually or annually. A withdrawal plan is established by delivering to the
Transfer Agent an application form which may be obtained from the Funds. A
withdrawal plan may be terminated by the participant at any time without penalty
upon written notice to the Transfer Agent. Withdrawal payments that exceed
dividends and capital gain distributions paid in shares in the account may
deplete and eventually exhaust the account. The periodic withdrawal payments are
proceeds of redemptions and will be treated as such for tax purposes. See
"Federal Income Taxes".
14
<PAGE> 18
- --------------------------------------------------------------------------------
EXCHANGE PRIVILEGES
- --------------------------------------------------------------------------------
The Funds offer, at no charge to the shareholder, an exchange program which
permits shareholders to redeem, by telephone, shares of any of the four Funds
which have been held for more than 10 days and automatically invest the proceeds
of such redemptions in shares of any of the other SBSF Funds (See "Telephone
Redemption") at the then applicable net asset value. Exchanges must meet the
minimum initial investment and minimum subsequent purchase requirements for each
Fund. See "Purchasing Shares."
To establish an Exchange Program account shareholders must complete an
application which can be obtained from the Funds. More detailed information
concerning the Exchange Program will be sent with the application.
The Funds reserve the right to reject any exchange request or at any time to
terminate the Exchange Program.
- --------------------------------------------------------------------------------
DIVIDEND REINVESTMENT AND DISTRIBUTIONS
- --------------------------------------------------------------------------------
Each Fund distributes to shareholders substantially all of its net investment
income and any net realized taxable capital gains resulting from sales of
portfolio securities.
The Money Market Fund declares daily, and pays monthly on or about the first
business day of the following month, dividends equal to its entire net
investment income. Unless otherwise instructed, all dividends and distributions
of capital gains are reinvested in additional shares, at net asset value, on the
payment date.
The Convertible Securities Fund declares dividends, equal to its net
investment income, on or about the last business day of each calendar quarter
and pays such dividend shortly thereafter. Realized capital gains, if any, are
paid annually in December.
Dividends from the SBSF and Capital Growth Funds are ordinarily paid
semi-annually in June and December and capital gains distributions, if any, are
paid annually, in December. Unless the shareholder instructs otherwise, each
dividend and distribution will be reinvested for his or her account, in full and
fractional shares, at net asset value as of the close of the New York Stock
Exchange on the date fixed by the Board of Directors when the dividend or
distribution is declared. Shareholders of any of the Funds may elect to reinvest
income dividends in shares of any other Fund at net asset value. This option may
be elected on the subscription order form (application) or by writing or calling
the Funds at 1-800-539-3863. Shareholders are advised as to the source of each
distribution. A notice of each dividend or distribution reinvestment transaction
will be mailed to the shareholders by the Transfer Agent. If a shareholder
desires to receive any dividend or distribution in cash, he or she must notify
the Transfer Agent or the Funds in writing prior to the record date for such
dividend or distribution. A shareholder may also request that all future
dividends and distributions be paid in cash. Such request will remain in effect
until notification in writing by the shareholder to the contrary is received by
the Transfer Agent.
- --------------------------------------------------------------------------------
FEDERAL INCOME TAXES
- --------------------------------------------------------------------------------
Each Fund has qualified and intends to continue to qualify under Subchapter M
of the Internal Revenue Code as a regulated investment company when it is in the
best interest of its shareholders to do so. This will relieve the Funds (but not
their shareholders) from paying Federal income tax on income which is currently
distributed to shareholders, assuming certain distribution requirements are met;
it also permits net capital gains of the Funds (i.e., the excess of net long-
term capital gain over net short-term capital loss) to be treated as long-term
capital gains of the shareholders, regardless of how long shares in the Funds
are held. The Tax Reform Act of 1986 (the "Act") imposes a nondeductible 4%
excise tax on the Funds to the extent the Funds do not meet certain distribution
requirements by the end of each calendar year.
Dividend distributions to shareholders from net investment income or net
short-term capital gains are treated as ordinary income for Federal income tax
15
<PAGE> 19
- --------------------------------------------------------------------------------
purposes whether or not such distributions are taken in cash or reinvested in
additional shares.
Dividends paid by the SBSF, Convertible Securities and Capital Growth Funds
may be eligible for the 70% dividends received deduction for corporate
shareholders to the extent that the Funds' income is derived from certain
dividends received from domestic corporations.
Distributions of net capital gains (i.e., the excess of net long-term capital
gain over net short-term capital loss) of the Funds are taxable to shareholders
as long-term capital gains whether such distributions are taken in cash or
reinvested in additional shares, and regardless of how long shares of the Funds
have been held. Capital gains dividends are not eligible for the dividends
received deduction.
Any gain or loss realized upon a sale or redemption of Fund shares by a
shareholder who is not a dealer in securities will be treated as long-term
capital gain or loss if the shares have been held for more than one year.
Notwithstanding the above, any loss realized by a shareholder upon the sale of
shares in a Fund held six months or less will be treated as long-term capital
loss to the extent of any long-term capital gain distributions received by the
shareholder.
Distributions may be subject to state and local taxes. Shareholders are urged
to consult their own tax advisers regarding specific questions as to Federal,
state or local taxes.
- --------------------------------------------------------------------------------
DESCRIPTION OF COMMON STOCK
- --------------------------------------------------------------------------------
The Company is an open-end, diversified management investment company,
incorporated under Maryland law on May 26, 1983. Pursuant to the Articles of
Incorporation, the Board of Directors may also authorize the creation of
additional series of shares. Pursuant to such authority, the Board of Directors
has authorized the issuance of four series of shares, each representing shares
in one of four separate Funds: SBSF Fund (25 million authorized shares); SBSF
Convertible Securities Fund (25 million authorized shares); SBSF Capital Growth
Fund (25 million authorized shares) and SBSF Money Market Fund (150 million
authorized shares). The par value of the shares of each of the Funds is $.01 per
share. The assets of each Fund are segregated and separately managed and a
shareholder's interest is in the assets and earnings of the Fund in which he or
she holds shares. Each share of a Fund represents an equal proportionate
interest in that portfolio with each other share of the same series. In the
event of the liquidation or dissolution of the Company, shares of a Fund are
entitled to receive the assets belonging to that portfolio that are available
for distribution and a proportionate distribution, based upon the relative net
assets of the respective Funds, of any general assets not belonging to any
particular portfolio that are available for distribution. Shareholders are
entitled to one vote for each share held and will vote in the aggregate and not
by portfolio except as otherwise required by the Investment Company Act of 1940
or Maryland law. Shares do not have cumulative voting rights; are fully paid,
transferrable and nonassessable when issued; have no preemptive, subscription or
conversion rights; and are redeemable. It is the present policy of the Company
to hold Annual Meetings of Shareholders in April although this policy may be
changed at any time.
- --------------------------------------------------------------------------------
CUSTODIAN, TRANSFER AGENT AND DIVIDEND DISBURSING AGENT
- --------------------------------------------------------------------------------
Key Trust Company of Ohio, N.A., 127 Public Square, Cleveland, Ohio 44114, is
the Custodian for the Fund's cash and securities and Primary Funds Service
Corporation is Transfer Agent and Dividend Disbursing Agent for the shares of
the Funds. Key Trust Company of Ohio, N.A. does not assist in any way, and is
not responsible for, investment decisions involving assets of the Funds. Key
Trust Company of Ohio, N.A. is a subsidiary of KeyCorp and an affiliate of the
Adviser and receives compensation from the Fund for the services it performs as
custodian.
16
<PAGE> 20
- --------------------------------------------------------------------------------
SHAREHOLDER REPORTS
- --------------------------------------------------------------------------------
The Funds will prepare and send to shareholders semi-annual unaudited and
annual audited reports which include a list of investment securities held by
each of the Funds.
In addition, shareholders of the Funds will receive, monthly, a cumulative
statement of his or her account for the calendar year. Shareholders of the SBSF
Fund, Convertible Securities Fund and Capital Growth Fund will also receive,
quarterly, information summarizing the Fund's investment performance.
Shareholders of the Money Market Fund receive monthly statements from the
Transfer Agent detailing all transactions.
Shareholder inquiries should be addressed to the Funds at Primary Funds
Service Corporation, P.O. Box 9742, Providence, RI 02940-9742. Shareholders may
also call the Funds at 1-800-539-3863.
17
<PAGE> 21
SBSF FUNDS, INC.
45 Rockefeller Plaza
New York, New York 10111
INVESTMENT ADVISER & ADMINISTRATOR
Spears, Benzak, Salomon & Farrell, Inc.
45 Rockefeller Plaza
New York, New York 10111
COUNSEL
Morrison & Foerster
2000 Pennsylvania Avenue, NW
Washington, DC 20006
INDEPENDENT ACCOUNTANTS
Price Waterhouse LLP
1177 Avenue of the Americas
New York, New York 10036
CUSTODIAN
Key Trust Company of Ohio, N.A.
127 Public Square
Cleveland, Ohio 44114
TRANSFER AGENT
Primary Funds Service Corporation
P.O. Box 9742
Providence, RI 02940-9742
DISTRIBUTOR
Concord Financial Group
125 West 55th Street
New York, NY 10019
The date of this Prospectus is April 3, 1995
As supplemented November 3, 1995
<PAGE> 22
SBSF FUNDS, INC.
45 Rockefeller Plaza
New York, New York 10111
STATEMENT OF ADDITIONAL INFORMATION
April 3, 1995
As Supplemented November 3, 1995
This Statement of Additional Information is not a prospectus and should be read
in conjunction with the prospectus of SBSF Funds, Inc., dated April 3, 1995 as
supplemented November 3, 1995, a copy of which may be obtained at the address
noted above.
<PAGE> 23
TABLE OF CONTENTS
<TABLE>
<S> <C>
INVESTMENT OBJECTIVEES AND POLICIES....................................................................... 3
Call Options.......................................................................................... 3
Foreign Securities.................................................................................... 4
Loans of Portfolio Securities......................................................................... 4
Repurchase Agreements................................................................................. 4
INVESTMENT RESTRICTIONS................................................................................... 5
PORTFOLIO TURNOVER........................................................................................ 6
SBSF Fund, Convertible Securities Fund and Capital Growth Fund........................................ 6
Money Market Fund..................................................................................... 6
MANAGEMENT OF THE FUNDS................................................................................... 6
Directors and Officers................................................................................ 6
SECURITY HOLDERS.......................................................................................... 7
THE INVESTMENT ADVISER AND ADMINISTRATOR.................................................................. 8
DISTRIBUTION PLAN AND EXPENSES............................................................................ 10
CUSTODIAN, TRANSFER AGENT AND DIVIDEND DISBURSING AGENT................................................... 11
INDEPENDENT ACCOUNTANTS................................................................................... 11
COMPUTATION OF YIELDS AND TOTAL RETURN.................................................................... 11
Money Market Fund..................................................................................... 11
SBSF Fund, Convertible Securities Fund and Capital Growth Fund........................................ 11
PORTFOLIO TRANSACTIONS AND BROKERAGE...................................................................... 12
PURCHASE, REDEMPTION AND PRICING.......................................................................... 13
FEDERAL INCOME TAXES...................................................................................... 14
APPENDIX A................................................................................................ 15
</TABLE>
2
<PAGE> 24
INVESTMENT OBJECTIVES AND POLICIES
SBSF Funds, Inc. (the "Company") is a professionally managed, no-load, mutual
fund consisting of four different portfolios (each a "Fund" and collectively the
"Funds"). Each portfolio is managed as a separate fund with its own investment
objective and policies. The Funds have no sales charges, redemption fees or
exchange fees. The four Funds are:
SBSF FUND -- its investment objective is to seek a high total return over the
longer term consistent with reasonable risk. In seeking its objective, the SBSF
Fund will invest primarily in common stocks which in the opinion of the Adviser
have the potential for capital appreciation in excess of market averages during
periods of market strength, while attempting to preserve capital during periods
of market weakness.
CAPITAL GROWTH FUND -- its investment objective is to seek long term capital
appreciation by investing in equity securities of companies which the Adviser
believes are likely to have rapid growth in revenue or earnings. The Capital
Growth Fund will invest primarily in the securities of small to medium
capitalized companies.
CONVERTIBLE SECURITIES FUND -- its investment objective is to seek a high
level of current income together with long-term capital appreciation. The
Convertible Securities Fund will invest primarily in bonds, corporate notes,
preferred stocks and other securities convertible into common stock.
MONEY MARKET FUND -- its investment objective is to provide high current
income to the extent consistent with preservation of capital. The Money Market
Fund invests only in obligations with maturities of one year or less including
bank certificates of deposit, bankers acceptances, high grade commercial paper
and securities issued or guaranteed by the U.S. Government or its agencies and
instrumentalities.
In addition, the Funds may use the investment methods described below.
CALL OPTIONS
The SBSF Fund, Convertible Securities Fund and Capital Growth Fund may
purchase and write call options that are traded on U.S. securities exchanges.
Call options are currently traded on the Chicago Board Options Exchange, the
American Stock Exchange, the Philadelphia Stock Exchange and the Pacific Stock
Exchange. A call option is a short-term contract (having a duration of nine
months or less) pursuant to which the purchaser of the call option, in return
for a premium paid, has the right to buy the security underlying the option at a
specified exercise price at any time during the term of the option. The writer
of the call option, who receives the premium, has the obligation, upon exercise
of the option, to deliver the underlying security against payment of the
exercise price during the option period. Brokerage commissions on call options
transactions are generally higher than those for exchange transactions in listed
common stocks.
A call option is "covered" if the Fund which writes it owns the underlying
security covered by the call or has an absolute and immediate right to acquire
that security without additional cash consideration (or for additional cash
consideration held in a segregated account by its custodian) upon conversion or
exchange of other securities held in its portfolio. A call option is also
covered if the Fund which writes it holds on a share-for-share basis a call on
the same security as the call written where the exercise price of the call held
is equal to or less than the exercise price of the call written or greater than
the exercise price of the call written if the difference is maintained by the
Fund in cash, Treasury bills or other high grade short-term obligations in a
segregated account with its custodian. The premium paid by the purchaser of an
option will reflect, among other things, the relationship of the exercise price
to the market price and volatility of the underlying security, the remaining
term of the option, supply and demand and interest rates.
If the writer of an option wishes to terminate his obligation, he may effect a
"closing purchase transaction". This is accomplished by buying an option of the
same series as the option previously written. The effect of the purchase is that
the writer's position will be canceled by the clearing corporation. However, a
writer may not effect a closing purchase transaction after it has been notified
of the exercise of an option. Likewise, an investor who is the holder of an
option may liquidate his position by effecting a "closing sale transaction".
This is accomplished by selling an option of the same series as the option
previously purchased. There is no guarantee that either a closing purchase or a
closing sale transaction can be effected.
Effecting a closing transaction in the case of a written call option will
permit the Fund which wrote it to write another call option on the underlying
security with either a different exercise price or expiration date or both.
Also, effecting a closing transaction will permit the cash or proceeds from the
concurrent sale of any securities subject to the option to be used for other
investments. If a Fund desires to sell a particular security from its portfolio
on which it has written a call option it will effect a closing transaction prior
to or concurrent with the sale of the security. If a Fund is unable to effect a
closing purchase transaction and is otherwise unable to keep the option that it
has written covered, as described above, the Fund will be unable to dispose of
the underlying security and engage in the foregoing transactions.
3
<PAGE> 25
A gain from a closing transaction will be realized if the price of the
transaction is less than the premium received from writing the option or is more
than the premium paid to purchase the option; a loss will be realized from a
closing transaction if the price of the transaction is more than the premium
received from writing the option or is less than the premium paid to purchase
the option. Because increases in the market price of a call option will
generally reflect increases in the market price of the underlying security, any
loss resulting from the repurchase of a call option is likely to be offset in
whole or in part by appreciation of the underlying security owned by the Fund.
The SBSF Fund, Capital Growth Fund and Convertible Securities Fund may write
call options only if they are covered, and the options must remain covered so
long as the Fund is obligated as a writer. The Funds have undertaken with
certain state securities commissions that, so long as shares of the Funds are
registered in those states, it will not (a) write calls if, after giving effect
to any additional call, more than 25% of any of the Funds' total assets would be
subject to calls; or (b) purchase call options (other than in closing purchase
transactions) if, after such purchase, the aggregate premiums paid for all such
options owned at that time would exceed 20% of the Fund's total net assets. In
addition, the Funds may be limited in engaging in options transactions by
certain provisions of the Internal Revenue Code which limit the amount of gross
income derived from the sale or other disposition of securities held for less
than three months to 30%. See "Federal Income Taxes".
FOREIGN SECURITIES
Securities of foreign issuers may, in the opinion of the Adviser, present
attractive investment opportunities, and the SBSF Fund, Capital Growth Fund and
Convertible Securities Fund may invest up to 10% of their assets in such
securities. Foreign investments may be affected favorably or unfavorably by
changes in currency rates and exchange control regulations, including currency
blockage. There may be less information available about a foreign company than
about a U.S. company, and foreign companies may not be subject to reporting
standards and requirements comparable to those applicable to U.S. companies.
Foreign securities and their markets may not be as liquid as U.S. securities and
their markets. Securities of some foreign companies may involve greater market
risk than securities of U.S. companies, and foreign brokerage commissions and
custody fees are generally higher than those in the United States. Investments
in foreign securities may also be subject to local economic or political risks,
such as political instability of some foreign governments and the possibility of
nationalization or expropriation of issuers.
LOANS OF PORTFOLIO SECURITIES
To increase its income, the Funds may lend portfolio securities to brokers or
dealers, banks or other institutional investors, such as insurance companies and
pension funds, selected by the Adviser in accordance with creditworthiness
standards adopted by the Board of Directors of the Company, provided that cash
or equivalent collateral, or a letter of credit drawn in favor of the Funds in
an amount equal to at least 100% of the market value of the securities loaned is
continuously maintained by the borrower with or in favor of the Fund or Funds
making the loan. Securities are borrowed for many purposes, including covering
short sales, avoiding failures to deliver securities and completing arbitrage
operations. By lending its portfolio securities, the Fund may receive income
through the receipt of interest on the loan as well as through the short-term
investment of cash or equivalent collateral. Any gain or loss in the market
price of the securities loaned that might occur during the term of the loan
would inure to the Fund or Funds making the loan.
If necessary, the Funds may pay reasonable negotiated fees to effect such
loans. The Funds do not have the right to vote securities that are on loan, but
would terminate the loan if a material event occurs affecting loaned securities;
the Funds will require the return of the loaned securities in order to regain
the right to vote. The Funds will not engage in securities loans with or through
persons affiliated with the Funds.
REPURCHASE AGREEMENTS
The Funds may invest in repurchase agreements with major dealers in U.S.
Government securities and member banks of the Federal Reserve System which are
selected by the Adviser in accordance with procedures approved by the Board of
Directors. A repurchase agreement is an instrument under which the purchaser
(i.e., the Funds) acquires a debt security and the seller agrees, at the time of
the sale, to repurchase the obligation at a mutually agreed upon time and price,
thereby determining the yield during the purchaser's holding period. This
results in a fixed rate of return insulated from market fluctuations during such
period. The underlying securities are ordinarily U.S. Treasury or other
governmental obligations or high quality money market instruments. The Funds'
repurchase agreements require that at all times while the repurchase agreement
is in effect, the value of the collateral must equal or exceed the repurchase
price. While the maturities of the underlying securities in repurchase agreement
transactions may be more than one year, the term of each repurchase agreement
will always be less than one year. The Funds' risk is limited to the ability of
the seller to pay the agreed upon amount on the delivery date. In the opinion of
the Adviser, the risk is not material; if the seller defaults, the underlying
security constitutes collateral for the seller's obligation to pay although the
Funds may experience difficulties and incur certain costs in exercising its
rights to the collateral and may lose the interest it expected to receive in
respect of the repurchase agreement. Repurchase agreements usually are for short
periods, such as one week or less, but could be longer. The Funds will
4
<PAGE> 26
not enter into repurchase agreements of a duration of more than one week if,
taken together with illiquid securities and other securities for which there are
no readily available quotations, more than 10% of their respective total assets
would be so invested. Repurchase agreements are considered to be loans by the
Funds collateralized by the underlying securities.
The investment policies of the Funds set forth above may be changed or altered
by the Board of Directors of the Funds, except to the extent set forth under
"Investment Restrictions".
INVESTMENT RESTRICTIONS
The following investment restrictions are considered to be fundamental
policies of each of the Funds and may only be changed if approved by the holders
of a majority of the outstanding voting securities of the affected Fund. Under
the Investment Company Act of 1940 such approval requires the affirmative vote,
at a meeting of shareholders, of either (i) more than 50% of the Fund's
outstanding shares or (ii) at least 67% of the shares present in person or by
proxy, provided that the holders of more than 50% of the Fund's outstanding
shares are present in person or represented by proxy.
Each of the Funds will not:
1. As to 75% of their respective total assets, invest more than 5% in the
securities of any one issuer except securities of the U.S. Government, its
agencies or its instrumentalities.
2. Invest in companies for the purpose of influencing management or exercising
control, and will not purchase more than 10% of the voting securities of any one
issuer. This will not preclude the management of the Funds from voting proxies
in their discretion.
3. Lend any cash except in connection with the acquisition of a portion of an
issue of publicly distributed bonds, debentures, notes or other evidences of
indebtedness or in connection with the purchase of securities subject to
repurchase agreements. The Funds will not lend any other assets except as a
special investment method. See "Investment Objectives and Policies" herein and
"Investment Objectives" in the Prospectus.
4. Ordinarily borrow money, but each Fund reserves the right to borrow from
banks, on a temporary basis, an aggregate amount of not more than 5% of the
total asset value of the respective Fund at the time of borrowing. None of the
Funds has a policy limiting the uses for which borrowed funds may be used.
5. Purchase securities on margin or sell securities short.
6. Act as an underwriter of securities issued by others.
7. Purchase the securities of other investment companies except in the open
market and at the usual and customary brokerage commissions or except as part of
a merger, consolidation or other acquisition.
8. Purchase or hold any real estate, including real estate limited
partnerships, except that the Funds may invest in securities secured by real
estate or interests therein or issued by persons which deal in real estate or
interests therein. The Funds will not deal in commodities or commodity
contracts.
9. Purchase securities if such purchase would cause more than 25% of any of
the Funds' total assets to be invested in the securities of issuers in any one
industry, provided however that the Money Market Fund reserves the right to
concentrate in securities issued or guaranteed as to principal and interest by
the United States Government, its agencies or instrumentalities or U.S. bank
obligations.
10. Make a loan of its portfolio securities if, immediately thereafter and as
a result thereof, portfolio securities with a market value of 10% or more of the
total assets of any of the Funds would be subject to such loans.
11. Invest more than 10% of any of the Funds' total assets in (i) securities
restricted as to disposition under the Federal securities laws, (ii) securities
as to which there are no readily available market quotations or (iii) repurchase
agreements with a maturity in excess of 7 days.
In addition to the foregoing fundamental investment restrictions which may be
changed only with shareholder approval, each Fund has adopted the following
investment restrictions which may be changed at any time by the Board of
Directors provided that such change does not conflict with any fundamental
policy of the Funds.
Each of the Funds will not:
1. Invest more than 5% of its total assets in the securities of any one issuer
except in securities of the United States Government, its agencies or its
instrumentalities.
2. Invest in excess of 5% of its total assets in securities of issuers which,
including predecessors, do not have a record of at least three years' operation.
5
<PAGE> 27
3. Invest in interests in oil, gas or other mineral exploration or development
programs, including mineral leases.
4. Pledge or hypothecate any of the Fund's assets. For the purpose of this
limitation, collateral arrangements with respect to stock options are not deemed
to be a pledge of assets.
5. Purchase or retain the securities of any issuer if those officers and
directors of the Funds, or of its Investment Adviser, who own individually more
than 1/2% of the securities of such issuer or together own more than 5% of the
securities of such issuer.
6. Invest in excess of 10% of its total assets in the securities of foreign
issuers, excluding from such limitation securities listed on any United States
securities exchange.
7. Invest in excess of 10% of its net assets in other investment companies.
With respect to those investment restrictions involving percentages, if a
percentage restriction is complied with at the time of initial investment, a
subsequent increase or decrease in that percentage resulting from a change in
the value of portfolio securities or total net assets will not constitute a
violation of the investment restriction.
PORTFOLIO TURNOVER
SBSF FUND, CONVERTIBLE SECURITIES FUND AND CAPITAL GROWTH FUND
Purchases and sales of securities are made at such times as the Adviser deems
to be in the best interest of the Funds' shareholders without regard to
portfolio turnover, about which there are no restrictions. From time to time,
the Funds may trade in securities for the short term. It is anticipated that the
annual portfolio turnover rate of the SBSF Fund and the Convertible Securities
Fund will not exceed 75% and may be substantially higher than 100% for the
Capital Growth Fund. In any particular year, market conditions could result in
portfolio activity at a greater or lesser rate than anticipated. Portfolio
turnover rate is, generally, the percentage computed by dividing the lesser of
purchases or sales by the average value of the portfolio. High portfolio
turnover involves correspondingly higher brokerage commission expenses which are
borne directly by the Funds. In addition, the effect of engaging in options
transactions may be to increase portfolio turnover.
MONEY MARKET FUND
The Money Market Fund's policy of investing only in securities with maturities
of less than one year will result in a higher portfolio turnover than the SBSF
Fund or the Convertible Securities Fund. Since brokerage commissions are not
normally paid on investments which the Money Market Fund makes, turnover
resulting from such investments should not adversely affect the net asset value
or net income of the Fund.
MANAGEMENT OF THE FUNDS
DIRECTORS AND OFFICERS
Officers and employees of the Adviser are not permitted to serve as officers
or directors of the Funds due to certain regulatory restrictions imposed on
banking organizations and their subsidiaries. See "The Investment Adviser and
Administrator" below. The persons who have been elected to serve as officers and
directors of the Funds, their position with the Funds and their principal
occupations during the last five years are set forth below:
<TABLE>
<CAPTION>
NAME, ADDRESS, AGE AND PRINCIPAL OCCUPATION
DURING PAST FIVE YEARS POSITION WITH REGISTRANT
- --------------------------------------------------------------------------------- ----------------------------
<S> <C>
EDWARD P. CAMPBELL (45), Director, Executive Vice President and Chief Operating Director
Officer of Nordson Corporation (manufacturer of application equipment), 28601
Clemens Road, Westlake, Ohio 44145.
TED H. MCCOURTNEY, JR. (56), General Partner of Venrock Associates, a private Director
venture capital limited partnership, since 1970, 30 Rockefeller Plaza, New
York, New York 10020.
EUGENE J. MCDONALD (62), Executive Vice President for Asset Management of Duke Director
University and President of Duke Management Co., 2200 Main Street, Suite 1000,
Durham, NC 27705.
FRANK A. WEIL (64), Chairman and CEO of Abacus & Associates, Inc., a private Non-Executive Chairman and
investment office, 147 E. 48th Street, New York, New York 10017. Director
LEIGH A. WILSON (50), Chairman and Chief Executive Officer of Glenleigh President and Director
International Limited (merchant bank), 420 East 54th Street, New York, NY
10012; from 1993 to present, President of The Victory Funds.
</TABLE>
6
<PAGE> 28
<TABLE>
<CAPTION>
NAME, ADDRESS, AGE AND PRINCIPAL OCCUPATION
DURING PAST FIVE YEARS POSITION WITH REGISTRANT
- --------------------------------------------------------------------------------- ----------------------------
<S> <C>
WILLIAM B. BLUNDIN (57), Vice Chairman of Concord Holding Corp., 125 West 55th Vice President
Street, New York, NY 10019.
MARTIN R. DEAN (31), Associate Director of Accounting Services, BISYS Fund Treasurer
Services, Inc., 3435 Stelzer Road, Columbus, Ohio 43219 (May 1994 to present);
Senior Manager at KPMG Peat Marwick (January 1987 to April 1994).
KAREN A. DOYLE (38), Manager of Client Services, BISYS Fund Services, Inc., 125 Secretary
West 55th Street, New York, NY 10019 (October 1994 to present); Assistant
Treasurer at The Bank of New York (April 1979 to October 1994).
SCOTT A. ENGLEHART (33), Director of Client Services, BISYS Fund Services, Inc., Asst. Secretary
3435 Stelzer Road, Columbus, Ohio 43219 (October 1990 to present).
</TABLE>
Directors who are not "interested persons" of the Funds will receive an annual
fee of $7,500 plus $750 per meeting of the Board of Directors attended and
reasonable out-of-pocket expenses incurred in connection with attending such
meetings. Each director who is an "interested person" of the Company does not
receive any compensation from the Company.
<TABLE>
<CAPTION>
AGGREGATE COMPENSATION
NAME OF FROM COMPANY FOR THE FISCAL TOTAL COMPENSATION FROM
NON-INTERESTED DIRECTOR YEAR ENDED NOVEMBER 30, 1994 COMPANY AND VICTORY FUNDS
- ----------------------------------------- ---------------------------- -------------------------
<S> <C> <C>
Edward P. Campbell -- $41,684(1)
Ted H. McCourtney $ 9,750 9,750(2)
Eugene J. McDonald 9,750 9,750(2)
Frank A. Weil 9,750 9,750(2)
Leigh A. Wilson -- 34,667(1)
</TABLE>
- ---------------
(1) Total compensation paid with respect to service on the boards of seven
investment companies.
(2) Total compensation paid with respect to service on the board of the Company
only.
SECURITY HOLDERS
The name, address and percentage of ownership of each person who is known by
the Funds to have owned of record or beneficially 5 percent or more of any of
the Funds' shares as of February 28, 1995 is:
<TABLE>
<CAPTION>
SHARES OWNED (PERCENT OF CLASS)*
-----------------------------------------------------------------
MONEY CONVERTIBLE CAPITAL
NAME AND ADDRESS SBSF FUND MARKET SECURITIES GROWTH
- ---------------------------------------- --------- --------- ----------- ---------
<S> <C> <C> <C> <C>
Cost & Co. 299,057
c/o Mellon Bank (5.59%)
P.O. Box 320
Pittsburgh, PA 15230
Brookdale Hospital Medical Center 1,200,271
Linden Blvd. at Brookdale Plaza (22.43%)
Brooklyn, NY 11212
William W. McGuire 5,221,009
1270 French Creek Drive (22.95%)
Wayzata, MN 55391
Charles Schwab & Co. / FBO Cust. 413,499
101 Montgomery Street (7.73%)
San Francisco, CA 941
S. Weaver c/o Joel Faden & Co. 6,807,179
P.O. Box 277 FDR Sta. (27.31%)
New York, NY 10150
William W. McGuire 5,221,009
1270 French Creek Drive (22.95%)
Wayzata, MN 55391
The Sally E. Darling Rev. Trust 2,698,531
880 Indian Ridge (10.83%)
Waynesville, NC 28786
</TABLE>
7
<PAGE> 29
<TABLE>
<CAPTION>
SHARES OWNED (PERCENT OF CLASS)*
-----------------------------------------------------------------
MONEY CONVERTIBLE CAPITAL
NAME AND ADDRESS SBSF FUND MARKET SECURITIES GROWTH
- ---------------------------------------- --------- --------- ----------- ---------
<S> <C> <C> <C> <C>
J. & C. Paul Foundation 63,776
P.O. Box 20218 (10.23%)
Park West Finance Station
New York, NY
Gretchen Johnson & Gordon 516,489
c/o Danse, Balaam & Frank (6.91 %)
5 Independence Way
Princeton, NJ 08540
Frank A. Weil c/o Abacus Associates 280,460
147 East 48th Street (5.24%)
New York, NY 10017
Dani Seigel 848,241
c/o Glickman, Rubin & Graft (11.36 %)
310 Madison Avenue
New York, NY 10017
William G. Spears 48,657
45 Rockefeller Plaza (7.80%)
New York, NY 10111
Richard E. Salomon 2,943,199
45 Rockefeller Plaza (11.81%)
New York, NY 10111
Officers and Directors 416,596 3,195,800 584,399 106,257
as a group (5.58 %) (12.82%) (10.92%) (17.04%)
45 Rockefeller Plaza
New York, NY 10111
</TABLE>
- ---------------
* All shares are owned beneficially.
THE INVESTMENT ADVISER AND ADMINISTRATOR
The investment adviser to the Funds is Spears, Benzak, Salomon & Farrell,
Inc., (the "Adviser" or "Spears") a New York Corporation that is registered as
an investment adviser with the Securities and Exchange Commission. The Adviser
is a wholly owned subsidiary of KeyCorp Asset Management Holdings, Inc.
("KAMHI") and is an indirect wholly owned subsidiary of Society National Bank,
N.A. and KeyCorp, one of the largest financial services holding companies in the
United States. KeyCorp's principal offices are located at 127 Public Square,
Cleveland, Ohio 44114.
The Adviser was acquired by KAMHI on April 5, 1995. This change of control of
the Adviser was deemed under the Investment Company Act of 1940 (the "Act") to
be an assignment of the Investment Advisory Agreement between the Funds and the
Adviser, which, in accordance with its terms and the Act, terminated upon such
assignment. At an annual meeting of shareholders of the Funds held on March 29,
1995, the shareholders of the Funds approved a new Investment Advisory Agreement
between the Funds and the Adviser, which agreement became effective upon the
consummation of the acquisition of the Adviser by KAMHI. The Adviser has
continued operating under its previous management and staff, and there has been
no change to the Adviser's business or investment strategies.
In addition to the Funds, the Adviser's clients include individuals, pension
and profit-sharing trusts, partnerships, and endowments. The accounts which are
managed or advised by the Adviser for these clients have varying investment
objectives and the Adviser may invest assets for such accounts in investments
substantially similar to, or the same as, those which are expected to constitute
the principal investments of the SBSF Fund. Such accounts are supervised by
officers and employees of the Adviser who may also be acting in similar
capacities for the Funds.
Pursuant to the Investment Advisory Agreement, the Adviser furnishes a
continuous investment program for the Funds' portfolios, makes the day-to-day
investment decisions for the Funds, executes the purchase and sale orders for
the portfolio transactions of the Funds and generally manages the Funds'
investments in accordance with the stated policies of the Funds, subject to the
general supervision of the Board of Directors of the Funds.
Concord Holding Corp. ("Concord"), 125 West 55th Street, New York, New York
10019, pursuant to a sub-administration agreement with Spears, is responsible
for providing persons satisfactory to the Company's Board of Directors to serve
as officers of the Company.
8
<PAGE> 30
As compensation for the services rendered and related expenses borne by the
Adviser under the Investment Advisory Agreement, the SBSF Fund, the Convertible
Securities Fund and the Capital Growth Fund each pay the Adviser a fee, computed
daily and payable monthly, equal to .75 of l% per annum of the Funds' average
daily net assets. The Investment Advisory Agreement further provides that the
Money Market Fund will pay the Adviser a fee, computed daily and payable
monthly, equal to .25% per annum of its average daily net assets. The Adviser is
obligated to reimburse the Funds in the event expenses exceed certain prescribed
limits (see "Distribution Plan and Expenses"). The Adviser's compensation for
acting as adviser to the SBSF Fund and the Convertible Securities Fund was
$779,921 and $270,697, respectively, for fiscal year ended November 30, 1992;
$868,860 and $441,307, respectively, for fiscal year ended November 30, 1993;
and $889,354 and $446,901, respectively, for the fiscal year ended November 30,
1994. The Adviser waived its fees for advisory services rendered to the Money
Market Fund totaling $38,863, $34,146 and $42,413 for the fiscal years ended
November 30, 1992, 1993 and 1994, respectively. The Adviser waived its fee for
advisory services rendered to the Capital Growth Fund totaling $561 and $26,742
for the period November 1, 1993 through November 30, 1993 and for the fiscal
year ended November 30, 1994, respectively. Commencing October 1, 1995, the
Adviser discontinued its voluntary waiver of such advisory fees for the Capital
Growth Fund.
The Investment Advisory Agreement, dated February 8, 1988, between the Adviser
and the Funds remains in effect for a period of more than one year only if it is
specifically approved at least annually by its Board of Directors including a
majority of the directors who are not parties to the Investment Advisory
Agreement or "interested persons" of the Funds as defined by the Investment
Company Act of 1940, cast in person at a meeting called for the purpose of
voting on such approval. The acquisition of Spears by KAMHI on April 5, 1995
resulted in the assignment of the Investment Advisory Agreement and, therefore,
its termination under the Investment Company Act of 1940. At an annual meeting
of shareholders held on March 29, 1995, the shareholders of the Funds approved a
new Investment Advisory Agreement with Spears which became effective upon the
consummation of the acquisition on April 5, 1995. The Investment Advisory
Agreement so approved is substantially similar to, including the same fee
schedules as, the Funds' previous agreements. See "Management of the
Funds -- Directors and Officers". The Investment Advisory Agreement will
terminate automatically if assigned and is terminable at any time without
penalty by a vote of a majority of the directors who are not "interested
persons" of the Funds and who have no direct or indirect financial interest in
the Investment Advisory Agreement, or by a vote of the holders of a majority of
each Fund's outstanding shares on not less than 60 days' written notice to the
Adviser and by the Adviser on not less than 90 days' written notice to the
Funds.
Spears also serves as the Administrator of the Funds. In this capacity Spears
administers all aspects of the Funds' operations subject to the supervision of
the Board of Directors. Because of the services of Spears as Administrator and
Adviser, the Funds require no employees other than its officers, none of whom
receive compensation from the Funds and all of whom are employed by Concord. In
connection with its responsibilities as Administrator and in consideration of
its administrative fee, Spears (i) provides the Funds with the services of
persons competent to perform such supervisory, administrative, and clerical
functions as are necessary in order to provide effective administration of the
Funds, including the maintenance of certain books and records such as journals,
ledger accounts and other records described under Rule 31a-1 of the Investment
Company Act of 1940, transmitting purchase and redemption orders for shares,
initiating all money transfers from the Funds to the Custodian and from the
Funds account to appropriate customer accounts, notification of available funds
for investment, reconciliation of account information and balances among the
Custodian, Transfer Agent, and Adviser, and processing, investigating, and
responding to shareholder inquiries; (ii) oversees the performance of
administrative and professional services to the Funds by others, including the
Funds' Custodian, Transfer Agent and Dividend Disbursing Agent, as well as
accounting, and auditing and other services performed for the Funds; (iii)
provides the Funds with adequate office space and facilities; and (iv) prepares,
but does not pay for, the periodic updating of the Funds' registration statement
and prospectus, and provides for the printing of such documents for the purpose
of filings with the Securities and Exchange Commission and state securities
administrators, and the preparation of the Funds' tax returns and reports to the
Funds' shareholders and the Securities and Exchange Commission.
For the services rendered to the Funds and related expenses borne by Spears as
Administrator, each Fund pays Spears an annual fee, computed daily and payable
monthly, equal to .25 of 1% of the average daily net assets of each Fund up to
$50,000,000 plus .15 of l% of the next $50,000,000, plus .05 of 1% of such
assets greater than $100,000,000. For the fiscal years ended November 30, 1992,
1993, and 1994 the Adviser received the following amounts from the Funds for
administration:
<TABLE>
<CAPTION>
1992 1993 1994
--------- --------- ---------
<S> <C> <C> <C>
SBSF Fund...................................................... $ 202,530 $ 207,889 $ 209,164
Convertible Securities......................................... 90,232 137,870 139,949
Money Market................................................... 38,863 34,146 42,413
</TABLE>
The Adviser waived its fee for administration services rendered to the Capital
Growth Fund totaling $187 and $8,921 for the period November 1, 1993 through
November 30, 1993 and for the fiscal year ended November 30,
9
<PAGE> 31
1994, respectively. Commencing January 1, 1996, the Adviser anticipates that it
will discontinue its voluntary waiver of such administration fees.
As Administrator, Spears is obligated to reimburse the Funds in the event the
Funds' expenses exceed certain prescribed limits. See "Distribution Plan and
Expenses".
The initial term of the Administration Agreement expired on September 30, 1984
and may be renewed annually thereafter by the Board of Directors of the Funds,
including a majority of the directors who are not "interested persons" of the
Funds (as defined in the Investment Company Act of 1940) and have no direct or
indirect financial interest in the Administration Agreement, by vote cast in
person at a meeting called for such purpose. The change in control of the
Adviser resulted in the termination of the Funds' previous Administration
Agreement. The current Administration Agreement, which is substantially similar
to and includes the same fee schedules as the Funds' previous agreement, was
approved by the Board of Directors of February 9, 1995 and became effective upon
the acquisition of Spears by KAMHI on April 5, 1995. The Administration
Agreement terminates automatically in the event of its assignment and may be
terminated by the Funds at any time, without the payment of any penalty, by a
majority of those directors of the Funds who are not "interested persons" of the
Funds and have no direct or indirect financial interest in the Administration
Agreement or by vote of a majority of the outstanding voting securities (as
defined in the Investment Company Act of 1940) of the Funds, upon not more than
60 days written notice to Spears, or by Spears at any time, without payment of
any penalty, on not less than 90 days written notice to the Funds.
Coincident with the closing of the KeyCorp transaction, the Adviser and
Concord entered into a Sub-Administration Agreement. Pursuant to this agreement,
Concord is responsible for (i) providing persons satisfactory to the Funds'
Board of Directors to serve as officers of the Funds, (ii) all services relating
to the Funds' advertising and sales literature, including review and filing of
same with the appropriate regulatory agencies, and (iii) performing shareholder
servicing. For rendering such services, the Adviser pays Concord an annual
sub-administration fee equal to $100,000, plus certain shareholder servicing
fees of sub-servicing agents retained by Concord, but less fees paid by the
Funds for "Blue Sky" services.
The Administration Agreement provides that in the absence of willful
misfeasance, bad faith or gross negligence on the part of Spears, or of reckless
disregard of its obligations thereunder, Spears shall not be liable for any
action or failure to act in accordance with its duties thereunder.
DISTRIBUTION PLAN AND EXPENSES
Except as set forth above, and as set forth below, the Funds are responsible
for the payment of their expenses. Such expenses include the fees payable to
Spears; any brokerage fees and commissions; taxes; interest; the cost of any
liability insurance or fidelity bonds; costs, expenses, or losses arising out of
any liability of or claim for damages or other relief asserted against the Funds
for violation of any law; legal and auditing fees and expenses; the fees and
certain expenses of the Funds' Custodian, Transfer Agent and Distributor; the
fees of any trade association of which the Funds are a member; the expenses of
printing and mailing reports and notices to the Funds' shareholders; filing fees
for the registration or qualification of Funds shares under Federal or state
securities laws; the fees and expenses involved in registering and maintaining
registration of the Funds and of its shares with the Securities and Exchange
Commission; the costs of registering the Funds as a broker or dealer; the costs
of qualifying its shares under state securities laws; the expenses of servicing
shareholders and shareholder accounts not otherwise incurred by the Adviser or
the Administrator; and any extraordinary expenses incurred by the Funds.
As a result of certain regulatory restrictions imposed on banking
organizations and their subsidiaries, the Company is not permitted to sell
shares of the Funds directly without an independent underwriter. Upon the
acquisition of the Adviser by KeyCorp, the Funds' Board of Directors, including
its independent directors, approved a Distribution Agreement with Concord
Financial Group, Inc. ("Concord Financial") under which Concord Financial was
appointed to serve as independent underwriter/distributor of the Funds' shares.
Under the Distribution Agreement, Concord Financial may enter into agreements
with selected dealers for the distribution of shares of the Funds.
Pursuant to a distribution plan adopted in accordance with Rule 12b-1 under
the Act (the "Distribution Plan"), the Company is authorized to pay expenses
primarily intended to result in the sale of shares of a Fund of the Company
including, but not limited to, printing of prospectuses and statements of
additional information (and supplements thereto) and reports for other than
existing shareholders; and preparation, printing, and distribution of sales
literature and advertising materials. The Company also may compensate Concord
Financial, or reimburse expenses incurred by Concord Financial for
distribution-related and sales support or shareholder account services. In
addition, all amounts expended pursuant to the Distribution Plan are paid to
Concord Financial which may pay all or any portion of such payments to
compensate or reimburse brokers and dealers or others which make sales of shares
of a Fund or which service shareholder accounts. Total payments under the
Distribution Plan may not exceed .25% of the average daily net asset value of
the shares of a Fund on an annual basis.
10
<PAGE> 32
Rule 12b-1 requires that the Distribution Plan be approved by a vote of at
least a majority of the outstanding voting securities of the Funds and by a
majority of the Board of Directors, including those directors who are not
"interested persons" of the Funds (as defined in the Investment Company Act of
1940) and have no direct or indirect financial interest in the Distribution
Plan. The Distribution Plan must be approved at least annually in the manner
described in the foregoing sentence and may be terminated at any time by a vote
of a majority of the outstanding voting securities of the Funds or a majority of
those directors who are not "interested persons" and who have no direct or
indirect financial interest in the Distribution Plan.
While the Distribution Plan is in effect, the selection and nomination of
directors who are not "interested persons" of the Funds (as defined in the
Investment Company Act of 1940) is at the discretion of the directors who are
not interested persons of the Funds.
Spears has agreed that if in any fiscal year the sum of any of the Fund's
expenses exceeds the limits set by applicable regulations of state securities
commissions, the amounts payable by such Fund to Spears for the advisory fee and
the administration fee for that year shall each be proportionately reduced by
the amount of such excess. However, if the excess should be greater than the
total amounts payable to Spears in that year, Spears shall pay to such Fund the
difference between such excess and the fees paid to it for that year. For the
purpose of this calculation, expenses shall include the fees payable to Spears
under the Investment Advisory and Administration Agreements and the amortization
of organization expenses, but shall exclude taxes, interest, brokerage and
extraordinary expenses. The Funds believe that currently the most restrictive
expense ratio limitation imposed by any state is 2 1/2% of the first $30 million
of the Funds' net assets, 2% on the next $70 million of the Funds' net assets
and 1 1/2% of remaining average net assets.
CUSTODIAN, TRANSFER AGENT AND DIVIDEND DISBURSING AGENT
Key Trust Company of Ohio, N.A., 127 Public Square, Cleveland, Ohio 44114 has
been retained as custodian for the Funds' investments. Primary Funds Service
Corporation, P.O. Box 9742 Providence, RI 02940-9742 has been retained as the
Funds' Transfer Agent and Dividend Disbursing Agent. Key Trust Company of Ohio,
N.A. also maintains certain accounting and financial records of the Funds. Key
Trust Company of Ohio, N.A. is a subsidiary of KeyCorp and an affiliate of the
Adviser and receives compensation from the Funds for services it performs as
custodian.
INDEPENDENT ACCOUNTANTS
Price Waterhouse LLP, 1177 Avenue of Americas, New York, New York 10036, acts
as independent accountants for the Funds, and in that capacity audits the Funds'
annual financial statements.
COMPUTATION OF YIELDS AND TOTAL RETURN
MONEY MARKET FUND
The current and effective yields of the Fund may be quoted in reports, sales
literature, and advertisements published by the Fund. Current yield is computed
by determining the net change exclusive of capital changes in the value of a
hypothetical pre-existing account having a balance of one share at the beginning
of a seven-day calendar period, dividing the net change in account value by the
value of the account at the beginning of the period, and multiplying the return
over the seven-day period by 365/7. For purposes of the calculation, net change
in account value reflects the value of additional shares purchased with
dividends from the original share and dividends declared on both the original
share and any such additional shares, but does not reflect realized gains or
losses or unrealized appreciation or depreciation. Effective yield is computed
by annualizing the seven-day return with all dividends reinvested in additional
Fund shares.
SBSF FUND, CONVERTIBLE SECURITIES FUND AND CAPITAL GROWTH FUND
From time to time the SBSF Fund, the Convertible Securities Fund or the
Capital Growth Fund may advertise an "average annual total return" and "total
return." "Average annual total return" ("T" in the formula below) is an average
annual compounded rate of return. It is the rate of return based on factors
which include a hypothetical
11
<PAGE> 33
investment of $1,000 ("P" in the formula below) over a hypothetical number of
years ("n") with an Ending Redeemable Value ("ERV") of that investment,
according to the following formula:
P(1+T)n = ERV
The "total return" uses some of the same factors as "average annual total
return," but does not average the rate of return on an annual basis. Total
return measures the cumulative (rather than the average) change in value of a
hypothetical investment over the stated period. Total return is determined as
follows:
ERV-P
------ = Total Return
P
Both formulas assume that all dividends and capital gains distributions during
the period are reinvested at net asset value per share, and that the investment
is redeemed at the end of the period.
Total return information may be useful to investors in reviewing performance.
However, certain factors should be taken into account before using this
information as a basis for comparison with alternative investments. No
adjustment is made for taxes payable on distributions. The total return will
fluctuate over time and the total return for any given past period is not an
indication or representation of future rates of return on its shares.
Yield quotations for the Convertible Securities Fund are based on a 30 day
period and are computed by dividing the net investment income per share earned
during the period by the maximum offering price per share on the last day of the
period, according to the following formula:
YIELD = 2[(a-b + 1) to the sixth power -1]
---
cd
Where: a = dividends and interest earned during the period.
b = expenses accrued for the period (net of reimbursements).
c = the average daily number of shares outstanding during the period
that were entitled to receive dividends.
d = the maximum offering price per share on the last day of the period.
PORTFOLIO TRANSACTIONS AND BROKERAGE
The Adviser is responsible for decisions to buy and sell securities for the
Funds, the selection of brokers and dealers to effect the transactions and the
negotiation of brokerage commissions. Purchases and sales of securities on a
securities exchange are effected through brokers who charge a commission for
their services. Brokerage commissions on United States securities exchanges are
subject to negotiation between the Adviser and the broker.
Fixed income securities and securities traded in the over-the-counter market,
are generally traded on a "net" basis with dealers acting as principal for their
own accounts without a stated commission, although the price of the security
usually includes a profit to the dealer. In underwritten offerings, securities
are purchased at a fixed price which includes an amount of compensation to the
underwriter, generally referred to as the underwriter's concession or discount.
On occasion, certain money market instruments may be purchased directly from an
issuer, in which case no commissions or discounts are paid.
In placing orders for portfolio securities of the Funds, the Adviser is
required to give primary consideration to obtaining the most favorable price and
efficient execution. Within the framework of this policy, the Adviser will
consider the research and investment services provided by brokers or dealers who
effect or are parties to portfolio transactions of the Funds or the Adviser's
other clients. Such research and investment services are those which brokerage
houses customarily provide to institutional investors and include statistical
and economic data and research reports on particular companies and industries.
Such services are used by the Adviser in connection with all of its investment
activities, and some of such services obtained in connection with the execution
of transactions for the Funds may be used in managing other investment accounts.
Conversely, brokers furnishing such services may be selected for the execution
of transactions of such other accounts, whose aggregate assets are far larger
than the Funds, and the services furnished by such brokers may be used by the
Adviser in providing investment management for the Funds. Commission rates are
established pursuant to negotiations with the broker based on the quality and
quantity of execution services provided by the broker in the light of generally
prevailing rates. In addition, the Adviser is authorized to pay higher
commissions on brokerage transactions for the Funds to brokers in order to
secure research and investment services described above, subject to review by
the Fund's Board of Directors from time to time as to the extent and
continuation of this practice. The allocation of orders among brokers and the
commission rates paid are reviewed periodically by the Funds' Board of
Directors. On behalf of the SBSF Fund, the Convertible Securities Fund and the
Capital Growth Fund, the Company, during the fiscal year ended November 30, 1994
directed $114,508,923, $23,254,369 and $4,930,084, respectively, in brokerage
transactions to brokers due to services they provided, and such brokers received
related commissions of $227,754, $40,657 and $14,523,
12
<PAGE> 34
respectively. Certain of this brokerage might be deemed to be directed in
consideration of research provided to the Company and the Adviser.
Transactions in options by the SBSF Fund, Convertible Securities Fund and
Capital Growth Fund will be subject to limitations established by each of the
exchanges on which options are traded governing the maximum number of options
which may be written or held by a single investor or group of investors acting
in concert, regardless of whether the options are written or held on the same or
different exchanges or are written or held in one or more accounts or through
one or more brokers. Thus, the number of options which the Funds may write or
hold may be affected by options written or held by the Adviser and other
investment advisory clients of the Adviser. An exchange may order the
liquidation of positions found to be in excess of these limits, and it may
impose certain other sanctions.
In October of 1993 the Adviser organized Edgewood Services, Inc. ("Edgewood"),
a broker/dealer registered as such with the Securities and Exchange Commission
that commenced its operations in August of 1994. Edgewood is an affiliated
broker of the Adviser because it is under common control with the Adviser.
Edgewood did not receive any commissions from the Funds during the fiscal year
ended November 30, 1994; however, it has received commissions from the Funds for
services rendered to it during the Fund's current fiscal year pursuant to
procedures that comply with a rule under the Act and that have been adopted by
the Fund's Board of Directors, including a majority of is non-interested
directors. For the period December 1, 1994 through February 28, 1995, the
commissions paid by the Funds to Edgewood were as follows: $11,360 from SBSF
Fund, $0 from the Convertible Securities Fund and $0 from the Capital Growth
Fund. On March 6, 1995, the shareholders of Edgewood entered into a Stock
Purchase Agreement pursuant to which Edgewood was sold to Federated Services
Company.
PURCHASE, REDEMPTION AND PRICING
Each Fund's shares are sold on a continuous basis, and may be redeemed by any
shareholder, on any day on which the New York Stock Exchange is open for
business. The New York Stock Exchange is scheduled to be closed on New Year's
Day, Martin Luther King's Birthday, Presidents Day, Good Friday, Memorial Day
(observed), Independence Day, Labor Day, Thanksgiving Day and Christmas Day. The
methods of purchase and redemption of shares, and special retirement, withdrawal
and exchange plans offered are fully set forth in the Prospectus. Shares may be
redeemed by submitting a written request to the Funds, by check in the case of
the Money Market Fund, or by telephone, as described in the Prospectus.
The price per share for a purchase or redemption order received prior to the
close of trading on the New York Stock Exchange on any day that the Exchange is
open for trading is the net asset value as next determined after the order is
received. The Funds' net asset values are determined on each day that the
Exchange is open for trading or on any other day in which there is a sufficient
degree of trading in the Funds' investments to affect the net asset values,
except that the net asset values may not be computed on a day in which no orders
to purchase, sell or redeem the shares of the Funds have been received.
The net asset values of the SBSF Fund, Convertible Securities Fund and Capital
Growth Fund are determined at 4:00 p.m., New York time, each business day, and
each is equal to the value of the securities, cash and other assets less
liabilities divided by the number of shares outstanding. The net asset value of
the Money Market Fund is determined at 12:00 p.m., New York time, each business
day, in the same manner. Securities traded on securities exchanges are valued at
the last sales price on the exchange where the security is primarily traded or,
lacking any sales, at the mean between the most recent bid and asked quotation.
Securities traded over-the-counter are valued at the mean between the most
recent bid and asked price. Securities for which quotations are not readily
available and any other assets are valued at fair value as determined in good
faith by the Board of Directors. Money market instruments are valued at
amortized cost in accordance with Rule 2a-7 of the Investment Company Act of
1940. The amortized cost method values a security initially at its cost and
thereafter assumes a constant amortization of any discount or premium regardless
of the impact of fluctuating interest rates on the market value of the security.
This method does not take into account unrealized gains or losses.
Generally, trading in foreign securities, as well as corporate bonds, United
States Government securities and money market instruments, is substantially
completed each day at various times prior to the close of the New York Stock
Exchange. The values of such securities used in computing the net asset values
of the shares of the SBSF Fund, Convertible Securities Fund and Capital Growth
Fund are determined as of such times. Foreign currency exchange rates are also
generally determined prior to the close of the New York Stock Exchange.
Occasionally, events affecting the values of such securities and such exchange
rates may occur between the times at which they are determined and the close of
the New York Stock Exchange which will not be reflected in the computation of
such Funds' net asset values. If events materially affecting the value of such
securities occur during such period, then these securities will be valued at
their fair value as determined in good faith by the Board of Directors.
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FEDERAL INCOME TAXES
Each Fund will be treated as a separate entity for purposes of the Internal
Revenue Code. Qualification as a regulated investment company under the Internal
Revenue Code requires for each Fund, among other things, that (a) at least 90%
of the Fund's annual gross income, without offset for losses from the sale or
other disposition of stock or securities, be derived from interest, payments
with respect to securities loans, dividends and gains from the sale or other
disposition of stock or securities or options thereon; (b) a Fund derive less
than 30% of its gross income from gains (without deduction for losses) from the
sale or other disposition of stock or securities (or options thereon) held less
than three months; and (c) a Fund diversify its holdings so that, at the end of
each quarter of the taxable year, (i) at least 50% of the market value of a
Fund's assets is represented by cash, cash items, U.S. Government securities and
other securities limited, in respect of any one issuer, to an amount not greater
than 5% of a Fund's assets and 10% of the outstanding voting securities of such
issuer, and (ii) not more than 25% of the value of a Fund's assets is invested
in the securities of any one issuer (other than U.S. Government securities). In
addition, the Funds will not be subject to Federal Income Tax on their net
investment income and gains, if any, that are distributed to shareholders,
provided each Fund distributes to its shareholders each year at least 90% of its
net investment income and short term capital gains, if any. Further, to avoid a
non-deductible 4% excise tax, each Fund must generally distribute by December 31
of each calendar year the required amount of capital gain net income and
investment company taxable income earned during that calendar year and any prior
year underdistribution.
Under Treasury Regulations, the Funds are required to withhold and remit to
the U.S. Treasury 31% of dividend and capital gain income on the accounts of
certain shareholders who provide either an incorrect taxpayer identification
number or no number at all.
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APPENDIX A
MOODY'S INVESTORS SERVICE, INC. ("MOODY'S")
MOODY'S BOND RATINGS
<TABLE>
<S> <C>
Aaa Bonds which are rated Aaa are judged to be of the best quality. They carry the smallest degree of
investment risk and are generally referred to as "gilt edge." Interest payments are protected by a
large or by an exceptionally stable margin and principal is secure. While the various protective
elements are likely to change, such changes as can be visualized are most unlikely to impair the
fundamentally strong positions of such issues.
Aa Bonds which are rated Aa are judged to be of high quality by all standards. Together with the Aaa
group they comprise what are generally known as high grade bonds. They are rated lower than the best
bonds because margins of protection may not be as large as in Aaa securities or fluctuation of
protective elements may be of greater amplitude or there may be other elements present which make the
long-term risks appear somewhat larger than in Aaa securities.
A Bonds which are rated A possess many favorable investment attributes and are to be considered as upper
medium grade obligations. Factors giving security to principal and interest are considered adequate,
but elements may be present which suggest a susceptibility to impairment sometime in the future.
Baa Bonds which are rated Baa are considered as medium grade obligations; i.e., they are neither highly
protected nor poorly secured. Interest payments and principal security appear adequate for the present
but certain protective elements may be lacking or may be characteristically unreliable over any great
length of time. Such bonds lack outstanding investment characteristics and in fact have speculative
characteristics as well.
Bonds rated Aaa, Aa, A and Baa are considered investment grade bonds.
Rating Refinements: Moody's may apply numerical modifiers, 1, 2 and 3 in each generic rating
classification from Aa through B in its corporate and municipal bond rating system. The modifier 1
indicates that the security ranks in the higher end of its generic rating category; the modifier 2
indicates a mid-range ranking; and a modifier 3 indicates that the issue ranks in the lower end of its
generic rating category.
</TABLE>
MOODY'S COMMERCIAL PAPER RATINGS
Moody's Commercial Paper ratings are opinions of the ability to repay
punctually promissory obligations not having an original maturity in excess of
nine months. Moody's employs the following three designations, all judged to be
investment grade, to indicate the relative repayment capacity of rated issuers:
Prime-1, Prime-2 and Prime-3.
Issuers rated Prime-1 have a superior capacity for repayment of short-term
promissory obligations. Issuers rated Prime-2 have a strong capacity for
repayment of short-term promissory obligations; and issuers rated Prime-3 have
an acceptable capacity for repayment of short-term promissory obligations.
Issuers rated Not Prime do not fall within any of the Prime rating categories.
STANDARD & POOR'S CORPORATION ("STANDARD & POOR'S")
STANDARD & POOR'S BOND RATINGS
A Standard & Poor's bond rating is a current assessment of the
creditworthiness of an obligor with respect to a specific obligation. This
assessment may take into consideration obligors such as guarantors, insurers or
lessees.
The ratings are based on current information furnished by the issuer or
obtained by Standard & Poor's from other sources it considers reliable. The
ratings are based, in varying degrees, on the following considerations: (1)
likelihood of default-capacity and willingness of the obligor as to the timely
payment of interest and repayment of principal in accordance with the terms of
the obligation; (2) nature of and provisions of the obligation; and (3)
protection afforded by, and relative position of, the obligation in the event of
bankruptcy, reorganization or other arrangement under the laws of bankruptcy and
other laws affecting creditors' rights.
Standard & Poors does not perform an audit in connection with any rating and
may, on occasion, rely on unaudited financial information. The ratings may be
changed, suspended or withdrawn as a result of changes in, or unavailability of,
such information, or for other reasons.
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<TABLE>
<S> <C>
AAA Debt rated AAA has the highest rating assigned by Standard & Poor's. Capacity to pay interest and
repay principal is extremely strong.
AA Debt rated AA has a very strong capacity to pay interest and repay principal and differs from the
highest-rated issues only in small degree.
A Debt rated A has a strong capacity to pay interest and repay principal although they are somewhat
more susceptible to the adverse effects of changes in circumstances and economic conditions than debt
in the higher-rated categories.
BBB Debt rated BBB is regarded as having an adequate capacity to pay interest and repay principal.
Whereas it normally exhibits adequate protection parameters, adverse economic conditions or changing
circumstances are more likely to lead to a weakened capacity to pay interest and repay principal for
debt in this category than for debt in higher rated categories.
Bonds rated AAA, AA, A and BBB are considered investment grade bonds.
NR Indicates that no rating has been requested, that there is insufficient information on which to base
a rating or that Standard & Poor's does not rate a particular type of obligation as a matter of
policy.
</TABLE>
STANDARD & POOR'S COMMERCIAL PAPER RATINGS
Standard and Poor's commercial paper rating is a current assessment of the
likelihood of timely payment of debt having an original maturity of no more than
365 days. The commercial paper rating is not a recommendation to purchase or
sell a security. The ratings are based upon current information furnished by the
issuer or obtained by S&P form other sources it considers reliable. The ratings
may be changed, suspended or withdrawn as a result of changes in or
unavailability of such information. Ratings are graded into two group
categories, ranging from "A" for the highest quality obligations to "D" for the
lowest. The categories are as follows:
Issues assigned A ratings are regarded as having the greatest capacity for
timely payment. Issues in this category are further refined with the designation
1, 2 or 3 to indicate the relative degree of safety.
A-1 indicates that the degree of safety regarding timely payment is very
strong.
A-2 indicates capacity for timely payment on issues with this designation is
strong. However, the relative degree of safety is not as overwhelming as
for issues designated A-1.
A-3 indicates a satisfactory capacity for timely payment. Obligations carrying
this designation are, however, somewhat more vulnerable to the adverse
effects of changes in circumstances than obligations carrying the higher
designations.
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