SBSF FUNDS INC, N-30D, 1996-08-08

SBSF FUNDS INC
N-30D, 1996-08-08

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<PAGE> 1

KEY MONEY MARKET MUTUAL FUND
- --------------------------------------------------------------------------------
SEMI-ANNUAL REPORT
MAY 31, 1996

LOGO
<PAGE> 2

LOGO

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

Key Mutual Funds is a series
investment company consisting of
several different portfolios, one of
which, the Key Money Market Mutual
Fund, is included in this
semi-annual report (the "Fund").
Spears, Benzak, Salomon & Farrell,
Inc. ("Spears"), an indirect wholly
owned subsidiary of KeyCorp, is the
investment adviser to the Fund.
Spears and Key Trust Company of
Ohio, N.A., the Fund's custodian and
also a subsidiary of KeyCorp,
receive fees from the Fund for their
services. The Fund is distributed by
BISYS Fund Services, which is not
affiliated with Spears, KeyCorp, any
KeyCorp bank or their affiliates.

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

SHARES OF THE FUND ARE NOT DEPOSITS
OR OTHER OBLIGATIONS OF, OR
GUARANTEED OR ENDORSED BY SPEARS,
ANY KEYCORP BANK, ANY OF THEIR
AFFILIATES OR ANY OTHER BANK. THE
SHARES OF THE FUND ARE NOT FEDERALLY
INSURED BY THE FEDERAL DEPOSIT
INSURANCE CORPORATION, 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.

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

This report is submitted for the
general information of the
shareholders of the Fund. It is not
authorized for distribution to
prospective investors in the Fund
unless preceded or accompanied by an
effective prospectus, which includes
information regarding the Fund's
objectives and policies, experience
of its management, marketability of
shares, and other information. The
financial statements included herein
have been taken from the records of
the Fund without audit by the
independent accountants and,
accordingly, they do not express an
opinion thereon.

------------------------------------
<PAGE> 3

KEY MONEY MARKET MUTUAL FUND
- --------------------------------------------------------------------------------

Dear Shareholders:

We are pleased to present our Semi-Annual Report of the Key Money Market
Mutual Fund, formerly known as the SBSF Money Market Fund, for the six month
period ended May 31, 1996. While the Fund is operating under a different name,
its objective remains the same and the principals of Spears, Benzak, Salomon &
Farrell, Inc. continue to provide active management of the portfolio as
investment adviser to the Fund.

FIRST HALF REVIEW

Although long-term interest rates increased by nearly 100 basis points in
the first six months of our fiscal year, the short end of the yield curve moved
in the opposite direction, as three-month Treasury bill rates dropped from
almost 5.4% at the end of November to just over 5.0% on May 31. The Federal
Reserve contributed to this decline when it lowered the Fed Funds target rate by
25 basis points on January 31, reacting to near-recession conditions exacerbated
by debilitating weather in the northeast and the temporary shut-downs of the
Federal Government. As a result, the 7-day effective yield of the Key Money
Market Mutual Fund fell from 4.90% (7-day yield 4.78%) at the end of November to
4.58% (7-day yield 4.48%) at the end of May.+

SECOND HALF OUTLOOK

We think that the weight of the evidence points to a slowdown in economic
growth in the second half of 1996, which promises to keep the trajectory of
corporate profits modest. Of greatest concern is the substantial build-up in
debt on individual balance sheets. Over the past two and a half years, consumer
installment debt has increased 40%, while incomes have increased only 14% over
the same period. Hence, even though job growth has been impressive and the stock
market's rise has added nearly $2 trillion to household net worth over the last
18 months, bankruptcies have risen sharply and credit card delinquencies are at
a cyclical high. Such stress imperils consumption growth in the months ahead,
putting two-thirds of overall gross domestic product at risk of deceleration.

The economy is not without its bright spots; industrial activity is
satisfactory, and lean inventories suggest that production will likely remain
elevated in the second half; the outlook for trade is improving, as overseas
growth appears to have bottomed; and election-year policies may yield some
fiscal stimulus before November. Unemployment is likely to remain low, which
could put modest upward pressure on wages and keep inflation in the 2.7% to 3.2%
range, even if commodity prices fall further. This adds up to what we believe
will be nominal GDP growth of 5% to 6% for the balance of the year. Although
slower than the second quarter's expansion, this pace of economic activity is
likely to be strong enough to keep fixed income investors vigilant and long-term
interest rates centered near 7%. The Fed is likely to keep a close eye on unit
labor costs for signs of inflation, and we would not be surprised to see some
modest tightening on the short end of the yield curve before summer's end; such
a decision would likely raise the yield of the Fund modestly.

(Continued)
<PAGE> 4

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The Key Money Market Mutual Fund remains dedicated to its objective of
providing our investors with high current income consistent with the
preservation of capital. The Fund has recently implemented certain new
investment policies that will keep the portfolio fully invested in securities
issued or guaranteed by the U.S. Government, its agencies and instrumentalities
as well as repurchase agreements with respect to such securities. Spears,
Benzak, Salomon & Farrell, Inc. is pleased to act as the Fund's adviser, and
looks forward to serving your investment needs.

Respectfully submitted,

For the Adviser:

/s/ LOUIS R. BENZAK

Louis R. Benzak
Spears, Benzak, Salomon & Farrell, Inc.
Vice Chairman
July 19, 1996

For the Key Mutual Funds'
Board of Directors:

/s/ FRANK A. WEIL

Frank A. Weil
Non-Executive Chairman
July 19, 1996

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An investment in the Key Money Market Mutual Fund is neither insured nor
guaranteed by the U.S. Government. Yields will fluctuate and there can be no
assurance that the Key Money Market Mutual Fund will be able to maintain a
stable net asset value of $1.00 per share. Yields quoted represent past
performance and are not predictive of future results.

+ The advisory fee for the Key Money Market Mutual Fund was waived during these
periods. Had such fees not been waived, the unsubsidized 7-day effective
yields would have been 4.63% and 4.32% for the periods ended November 30, 1995
and May 31, 1996, respectively. In addition, the 7-day yield would have been
4.53% at November 30, 1995 and 4.23% at May 31, 1996. The advisory fee waiver
was voluntary and may be modified or terminated at any time.
- --------------------------------------------------------------------------------

2
<PAGE> 5

KEY MONEY MARKET MUTUAL FUND
STATEMENT OF INVESTMENTS
MAY 31, 1996
(UNAUDITED)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
- ----------- ------------
<S> <C> <C>
U.S. GOVERNMENT SECURITIES -- 99.9%
U.S. TREASURY BILLS++ -- 99.9%
$ 10,000 4.800%, 6/06/96............ $ 9,993
1,000,000 4.970%, 6/06/96............ 999,310
60,000 5.015%, 6/06/96............ 59,958
185,000 5.045%, 6/06/96............ 184,870
330,000 5.185%, 6/06/96............ 329,763
510,000 5.200%, 6/06/96............ 509,632
1,500,000 4.935%, 6/13/96............ 1,497,531
85,000 4.950%, 6/13/96............ 84,860
70,000 4.960%, 6/13/96............ 69,883
1,775,000 4.965%, 6/13/96............ 1,772,061
450,000 5.020%, 6/13/96............ 449,247
500,000 4.695%, 6/20/96............ 498,761
40,000 4.730%, 6/20/96............ 39,900
675,000 4.880%, 6/20/96............ 673,262
230,000 4.730%, 7/11/96............ 228,791
630,000 4.920%, 7/11/96............ 626,556
500,000 5.000%, 7/11/96............ 497,222
1,500,000 4.695%, 7/25/96............ 1,489,436
850,000 4.690%, 8/08/96............ 842,470
245,000 4.710%, 8/08/96............ 242,820
1,010,000 4.790%, 8/08/96............ 1,000,862
280,000 4.775%, 8/22/96............ 276,955
210,000 4.800%, 8/22/96............ 207,697
1,500,000 4.980%, 8/22/96............ 1,482,985
150,000 4.980%, 8/22/96............ 148,298
600,000 4.990%, 8/22/96............ 593,180
150,000 4.990%, 8/22/96............ 148,295
240,000 4.970%, 9/05/96............ 236,816
260,000 4.975%, 9/05/96............ 256,551
90,000 4.990%, 9/05/96............ 88,802

<CAPTION>
PRINCIPAL
AMOUNT VALUE
- ----------- ------------
<S> <C> <C>
U.S. GOVERNMENT SECURITIES (CONTINUED)
U.S. TREASURY BILLS++ (CONTINUED)
$ 575,000 5.010%, 9/05/96............ $ 567,310
970,000 5.030%, 9/05/96............ 956,976
925,000 5.025%, 10/10/96........... 908,086
150,000 5.030%, 10/17/96........... 147,108
110,000 5.070%, 10/17/96........... 107,860
1,000,000 5.090%, 10/17/96........... 980,488
60,000 5.050%, 10/31/96........... 58,721
200,000 5.055%, 10/31/96........... 195,731
160,000 5.055%, 10/31/96........... 156,585
385,000 5.060%, 10/31/96........... 376,775
790,000 5.070%, 10/31/96........... 773,089
200,000 5.075%, 10/31/96........... 195,714
200,000 5.085%, 10/31/96........... 195,706
1,165,000 5.120%, 10/31/96........... 1,139,815
1,000,000 5.080%, 11/07/96........... 977,563
240,000 5.105%, 11/14/96........... 234,350
1,000,000 5.160%, 11/29/96........... 974,056
925,000 5.105%, 12/12/96........... 899,553
235,000 5.155%, 12/12/96........... 228,472
80,000 5.155%, 12/12/96........... 77,778
------------
Total U.S. Treasury Bills
(Cost $25,698,503)....... 25,698,503
------------
Total Investments
(Cost $25,698,503)+........ 99.9% 25,698,503
Other assets, net of other
liabilities................ 0.1% 19,574
------ ------------
Net Assets................... 100.0% $ 25,718,077
===== ===========
<FN>
- --------------------------------------------------------------------------------
NOTES TO STATEMENT OF INVESTMENTS:
+ At May 31, 1996, the cost of investments for Federal income tax
purposes was the same as the cost for financial reporting purposes.
++ Rate shown represents annualized yield on date of purchase.
</TABLE>

3
<PAGE> 6

KEY MONEY MARKET MUTUAL FUND
STATEMENT OF ASSETS AND LIABILITIES
MAY 31, 1996
(UNAUDITED)
- --------------------------------------------------------------------------------

<TABLE>
<S> <C>
ASSETS:
Investment in securities, at value........................................................... $ 25,698,503
Cash......................................................................................... 22,788
Receivable for Fund shares sold.............................................................. 5,000
Prepaid expenses............................................................................. 17,868
------------
Total Assets.......................................................................... 25,744,159
------------
LIABILITIES:
Payable for Fund shares redeemed............................................................. 8,650
Due to administrator -- Note 3(a)............................................................ 5,126
Accrued expenses and other liabilities....................................................... 12,306
------------
Total Liabilities..................................................................... 26,082
------------
NET ASSETS -- Applicable to 25,716,531 shares of common stock outstanding
(2.925 billion shares authorized)........................................... $ 25,718,077
===========
NET ASSET VALUE AND REDEMPTION VALUE PER SHARE................................................. $1.00
===========
IDENTIFIED COST OF INVESTMENT SECURITIES....................................................... $ 25,698,503
===========
ANALYSIS OF NET ASSETS:
Paid-in capital.............................................................................. $ 25,718,077
------------
NET ASSETS..................................................................................... $ 25,718,077
===========
</TABLE>

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

STATEMENT OF OPERATIONS
FOR THE SIX-MONTH PERIOD ENDED MAY 31, 1996
(UNAUDITED)
- --------------------------------------------------------------------------------

<TABLE>
<S> <C>
INVESTMENT INCOME:
Interest Income................................................................................. $ 691,987
---------
Expenses:
Investment advisory fees -- Note 3(a)......................................................... 33,070
Administration fees -- Note 3(a).............................................................. 33,070
Transfer agent fees........................................................................... 8,754
Professional fees............................................................................. 8,910
Custodian fees -- Note 3(d)................................................................... 4,034
Directors fees and expenses................................................................... 3,177
Shareholder reports........................................................................... 2,880
Federal and state registration fees........................................................... 6,173
Miscellaneous................................................................................. 10,682
---------
Total Expenses........................................................................... 110,750
Less advisory fees waived -- Note 3(a)........................................................ (33,070)
---------
Total Expenses after fees waived......................................................... 77,680
---------
NET INVESTMENT INCOME AND
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS............................................ $ 614,307
========
</TABLE>

See accompanying Notes to Financial Statements.

4
<PAGE> 7

KEY MONEY MARKET MUTUAL FUND
STATEMENTS OF CHANGES IN NET ASSETS
FOR THE SIX-MONTH PERIOD ENDED MAY 31, 1996 AND THE YEAR ENDED NOVEMBER 30, 1995
(UNAUDITED)
- --------------------------------------------------------------------------------

<TABLE>
<CAPTION>
1996 1995
------------ ------------
<S> <C> <C>
INCREASE IN NET ASSETS FROM OPERATIONS:
Net investment income...................................................... $ 614,307 $ 1,344,444
------------ ------------
DIVIDENDS TO SHAREHOLDERS FROM:
Net investment income...................................................... (614,307) (1,344,444)
------------ ------------
CAPITAL STOCK TRANSACTIONS:
Proceeds from sales of shares.............................................. 32,167,219 43,066,229
Reinvestment of dividends -- Note 2(c)..................................... 610,494 1,297,266
------------ ------------
32,777,713 44,363,495
Cost of shares redeemed.................................................... (28,908,150) (51,120,683)
------------ ------------
Net increase (decrease) in net assets from capital stock transactions...... 3,869,563 (6,757,188)
------------ ------------
Total increase (decrease) in net assets.................................. 3,869,563 (6,757,188)
NET ASSETS:
Beginning of period........................................................ 21,848,514 28,605,702
------------ ------------
End of period.............................................................. $ 25,718,077 $ 21,848,514
=========== ===========
SHARE TRANSACTIONS:
Shares sold................................................................ 32,167,219 43,066,229
Dividends reinvested....................................................... 610,494 1,297,266
------------ ------------
32,777,713 44,363,495
Shares redeemed............................................................ (28,908,150) (51,120,683)
------------ ------------
Net increase (decrease).................................................... 3,869,563 (6,757,188)
=========== ===========
</TABLE>

See accompanying Notes to Financial Statements.

5
<PAGE> 8

KEY MONEY MARKET MUTUAL FUND
FINANCIAL HIGHLIGHTS
(UNAUDITED)
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<TABLE>
<CAPTION>
SIX MONTH
PERIOD ENDED FISCAL YEAR ENDED NOVEMBER 30,
MAY 31, -------------------------------------------------------
1996 1995 1994 1993 1992 1991
------------ ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C>
Per Share Operating Performance:
Net asset value, beg. of period...... $ 1.000 $1.000 $1.000 $1.000 $1.000 $1.000
Net investment income.............. 0.023 0.051 0.034 0.026 0.034 0.058
------------ ------- ------- ------- ------- -------
Total from investment operations..... 0.023 0.051 0.034 0.026 0.034 0.058
Less dividends from net investment
income............................. (0.023) (0.051) (0.034) (0.026) (0.034) (0.058)
------------ ------- ------- ------- ------- -------
Net asset value, end of period....... $ 1.000 $1.000 $1.000 $1.000 $1.000 $1.000
========== ======= ======= ======= ======= =======
Total Investment Return.............. +2.34%* +5.26% +3.37% +2.61% +3.48% +6.00%
Ratios/Supplemental Data:
Net assets end of period (in
thousands)......................... $ 25,718 $21,849 $28,606 $16,222 $12,531 $20,493
Ratio of expenses to average net
assets............................. 0.59%** 0.63% 0.59% 0.55% 0.72% 0.59%
Ratio of net investment income to
average net assets................. 4.67%** 5.15% 3.35% 3.16% 4.20% 6.38%
Decrease reflected in above expense
ratios due to advisory fees
waived............................. 0.25%** 0.25% 0.25% 0.25% 0.25% 0.25%
</TABLE>

* Not Annualized.
** Annualized.

See accompanying Notes to Financial Statements.

6
<PAGE> 9

KEY MONEY MARKET MUTUAL FUND
NOTES TO FINANCIAL STATEMENTS
(UNAUDITED)
- --------------------------------------------------------------------------------

NOTE 1 -- GENERAL

Key Mutual Funds (the "Company") is registered under the Investment Company Act
of 1940 (the "Act"), as an open-end management investment company. The Company,
incorporated in Maryland on May 26, 1983 under the name SBSF Funds, Inc., is
currently doing business under the name "Key Mutual Funds." The Company is a
series company currently issuing capital stock of several different investment
portfolios one of which, Key Money Market Mutual Fund (the "Fund"), is included
in this semi-annual report. The Company has 25 billion shares of $.01 par value
capital stock authorized. Prior to July 12, 1996, the Fund was known as SBSF
Money Market Fund.
- --------------------------------------------------------------------------------

NOTE 2 -- SIGNIFICANT ACCOUNTING POLICIES

The following is a summary of significant accounting policies consistently
followed by the Fund in the preparation of its financial statements. The
policies are in conformity with generally accepted accounting principles. The
preparation of financial statements requires the Administrator to make estimates
and assumptions that affect the reported amounts and disclosures. Actual results
could differ from those estimates.

(a) INVESTMENT VALUATION: The Fund values its portfolio securities at 2:00 p.m.
(Eastern Time) on each business day of the Fund at amortized cost, which
approximates market value.

(b) SECURITIES TRANSACTIONS AND INVESTMENT INCOME: Securities transactions are
recorded on a trade date basis. Realized gains and losses from securities
transactions are recorded on the identified cost method. Interest income is
recognized on the accrual basis. Discounts on debt securities are accreted to
interest income over the life of the security with a corresponding increase in
the security's cost basis.

(c) DIVIDENDS TO SHAREHOLDERS: Dividends payable to shareholders are recorded
by the Fund on the ex-dividend date. The Fund declares dividends daily from net
investment income; such dividends are paid monthly. Distributions from net
realized capital gains, offset by loss carryovers, if any, are declared and paid
annually. The amount of dividends and distributions from net investment income
and net realized capital gains are determined in accordance with federal income
tax regulations which may differ from generally accepted accounting principles.
These "book/tax" differences may be considered either temporary or permanent in
nature. To the extent these differences are permanent in nature, such amounts
are reclassified within the capital accounts based on their federal tax-basis
treatment; temporary differences do not require reclassification. Dividends and
distributions which exceed net investment income and net realized capital gains
for financial reporting purposes but not for tax purposes are reported as
dividends in excess of net investment income or distributions in excess of net
realized capital gains. To the extent they exceed net investment income and net
realized capital gains for tax purposes, they are reported as distributions of
paid-in capital.

(d) EXPENSES: Assets, liabilities and operations are accounted for separately
by each investment portfolio of the Company. Expenses directly attributable to
the Fund are charged to the Fund's operations; expenses which are applicable to
the several investment portfolios of the Company are allocated among them in
relation to the net assets of each investment portfolio or on another reasonable
basis.
- --------------------------------------------------------------------------------

NOTE 3 -- INVESTMENT ADVISORY AND ADMINISTRATION FEES AND OTHER TRANSACTIONS
WITH AFFILIATES:

(a) INVESTMENT ADVISORY AND ADMINISTRATION FEES

On January 18, 1995, Spears, Benzak, Salomon & Farrell, Inc., the Fund's
investment adviser (the "Adviser" or "Spears") entered into a Share Exchange
Agreement and Plan of Reorganization which provided for the subsequent
acquisition of the Adviser by KeyCorp Asset Management Holdings, Inc. ("KAMHI"),
on April 5, 1995. As a result of the acquisition, the Adviser became a wholly
owned subsidiary of KAMHI, and an indirect wholly owned subsidiary of KeyBank
National Association (formerly Society National Bank, N.A.) and KeyCorp, a
financial services company. This change of control of the Adviser was deemed
under the Act to be an assignment of the Investment Advisory Agreement then in
effect between the Fund and the Adviser, which, in accordance with the terms of
the Act, resulted in the termination of such Investment Advisory Agreement. At
the Annual Meeting of Shareholders of the Fund held on March 29, 1995, the
shareholders of the Fund approved a new Investment Advisory Agreement with the
Adviser, which was substantially similar to, including the same fee schedules
as, the Fund's previous agreement. At a meeting of the Board of Directors of the
Company held on February 15, 1996, the Board approved the continuance of the
Investment Advisory Agreement until its next annual consideration required under
the Act.

7
<PAGE> 10

KEY MONEY MARKET MUTUAL FUND
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)
- --------------------------------------------------------------------------------

Fees incurred by the Fund, pursuant to the provisions of the Investment Advisory
Agreement with the Adviser, are payable monthly and are computed based on the
value of the average daily net assets of the Fund at the annual rate of 0.25%.
The Investment Advisory Agreement further provides that if in any fiscal year
the aggregate expenses of the Fund, excluding interest, taxes, brokerage
commissions, and extraordinary expenses, exceed the expense limitation of any
state having jurisdiction over the Fund, the Adviser will reimburse the Fund for
the excess expense to the extent required by such state laws. During the
six-month period ended May 31, 1996, advisory fees incurred by the Fund amounted
to $33,070, which were voluntarily waived by the Adviser.

Prior to April 1, 1996, Spears, in addition to serving the Fund as Adviser,
served as Administrator to the Fund pursuant to an Administration Agreement. For
services rendered by Spears and related expenses borne by Spears as
Administrator, the Fund was obligated to pay Spears a fee, computed daily and
payable monthly, based on the average daily net assets of the Fund at an annual
rate of 0.25 of 1% of the first $50 million; 0.15 of 1% of the next $50 million;
and 0.05 of 1% of such net assets in excess of $100 million.

Concord Holding Corporation ("Concord") served as Administrator to the Fund (the
"Administrator") during the period from April 1, 1996 through July 11, 1996
pursuant to an Administration Agreement. In this capacity, Concord provided
facilities, equipment, statistical and research data, clerical services, fund
accounting and internal compliance services and personnel necessary to carry out
all administrative services required for the operation of the business affairs
of the Fund. For services rendered by Concord and related expenses borne by
Concord as Administrator, the Fund was obligated to pay Concord a fee, computed
daily and payable monthly, based on the average daily net assets of the Fund at
an annual rate of 0.25 of 1% of the first $50 million and 0.15 of 1% of such net
assets in excess of $50 million. Pursuant to its authority to delegate its
responsibilities under the Administration Agreement, Concord entered into a
Sub-Administration Agreement with Spears whereby Spears performed certain
sub-administrative and fund accounting services for the Fund at the expense of
Concord.

On July 12, 1996, BISYS Fund Services Limited Partnership, operating under the
name BISYS Fund Services, ("BISYS") assumed responsibilities as Administrator to
the Fund. The service and fee arrangements under the new Administration
Agreement with BISYS are substantially similar to the previous agreement with
Concord. Spears continues to serve as Sub-Administrator pursuant to a new
Sub-Administration Agreement with BISYS dated July 12, 1996. In addition to
serving the Fund as Administrator, BISYS also serves as independent distributor
(the "Distributor") of the Fund's capital stock.

(b) DIRECTORS' FEES: Fees of $7,500 per annum, and $750 per meeting, are paid
to each director of the Company.

(c) DISTRIBUTION PLAN AND SHAREHOLDER SERVICING PLAN: Prior to July 12, 1996,
pursuant to a plan of distribution adopted under Rule 12b-1 under the Act, the
Fund was permitted to make payments for certain distribution related expenses
and to compensate or reimburse brokers, dealers and others in connection with
sales of Fund shares and service to shareholder accounts in an amount up to
0.25% of the net average daily asset value of shares of the Fund on an
annualized basis. No payments were made by the Fund under this plan during the
six-month period ended May 31, 1996. On July 12, 1996, the Company implemented a
revised distribution plan for the Fund (the "Distribution Plan"). Separate
payments are not currently authorized under the Distribution Plan except to the
extent that any portion of fees paid under a Shareholder Servicing Plan
(described below) are subsequently deemed to be for services primarily intended
to result in the sale of Fund shares.

Also on July 12, 1996, the Company implemented a Shareholder Servicing Plan
under which the Fund may pay fees of up to an annual rate of 0.25% of its
average daily net assets for fees incurred in connection with the personal
service and the maintenance of accounts holding the shares of the Fund. Such
agreements may be entered between the Company, on behalf of the Fund, and
various shareholder servicing agents including the Distributor and affiliates of
KeyCorp and the Adviser.

(d) CUSTODIAN FEES: Key Trust Company of Ohio, N.A. ("Key Trust"), a subsidiary
of KeyCorp and an affiliate of the Adviser, is the custodian for the Fund's cash
and securities. Custodian fees, as reflected in the accompanying statement of
operations, represent fees paid by the Fund to Key Trust for services it
performs as custodian.
- --------------------------------------------------------------------------------

NOTE 4 -- FEDERAL INCOME TAX STATUS

It is the policy of the Fund to comply with the requirements of the Internal
Revenue Code applicable to regulated investment companies and to distribute all
of its taxable income to shareholders. Therefore, no federal income tax
provision is required. Each investment portfolio of the Company is treated as a
separate entity for the purpose of determining such compliance.

8
<PAGE> 11

BOARD OF DIRECTORS

EDWARD P. CAMPBELL, DIRECTOR
Director, Executive Vice President
and Chief Operating Officer of
Nordson Corporation
Westlake, Ohio

EUGENE J. MCDONALD, DIRECTOR
Executive Vice President for Asset Management of
Duke University, and President of Duke Management Co.
Durham, North Carolina

FRANK A. WEIL, DIRECTOR AND NON-EXECUTIVE CHAIRMAN
Chairman and Chief Executive Officer of
Abacus Associates, Inc.
New York, New York

LEIGH A. WILSON, DIRECTOR AND PRESIDENT
Chairman and Chief Executive Officer of
Glenleigh International Limited
New York, New York

LOGO
<PAGE> 12

KEY MONEY MARKET MUTUAL FUND

INVESTMENT ADVISER AND SUB-ADMINISTRATOR
Spears, Benzak, Salomon & Farrell, Inc.
45 Rockefeller Plaza
New York, New York 10111

COUNSEL
Morrison & Foerster LLP
2000 Pennsylvania Avenue, N.W.
Washington, DC 20006

INDEPENDENT ACCOUNTANTS
Price Waterhouse LLP
1177 Avenue of the Americas
New York, New York 10036

CUSTODIAN
KeyTrust Company of Ohio, N.A.
127 Public Square
Cleveland, Ohio 44114

TRANSFER AGENT
State Street Bank and Trust Company
225 Franklin Street
Boston, Massachusetts 02110-2875

ADMINISTRATOR AND DISTRIBUTOR
BISYS Fund Services
3435 Stelzer Road
Columbus, Ohio 43219-3035

KeyFunds Logo
<PAGE> 13

KEY MUTUAL FUNDS
SBSF FUND
SBSF CONVERTIBLE SECURITIES FUND
SBSF CAPITAL GROWTH FUND
- --------------------------------------------------------------------------------
SEMI-ANNUAL REPORT
MAY 31, 1996

LOGO
<PAGE> 14

LOGO

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

Key Mutual Funds is a series
investment company consisting of
several different portfolios, three
of which are included in this
semi-annual report (the "Funds").
Spears, Benzak, Salomon & Farrell,
Inc. ("Spears"), an indirect wholly
owned subsidiary of KeyCorp, is the
investment adviser to the Funds.
Spears and Key Trust Company of
Ohio, N.A., the Funds' custodian and
also a subsidiary of KeyCorp,
receive fees from the Funds for
their services. The Funds are
distributed by BISYS Fund Services,
which is not affiliated with Spears,
KeyCorp, any KeyCorp bank or their
affiliates.

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

SHARES OF THE FUNDS ARE NOT DEPOSITS
OR OTHER OBLIGATIONS OF, OR
GUARANTEED OR ENDORSED BY SPEARS,
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, 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.

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

This report is submitted for the
general information of the
shareholders of the Funds. It is not
authorized for distribution to
prospective investors in the Funds
unless preceded or accompanied by an
effective prospectus, which includes
information regarding the Funds'
objectives and policies, experience
of its management, marketability of
shares, and other information. The
financial statements included herein
have been taken from the records of
the Funds without audit by the
independent accountants and,
accordingly, they do not express an
opinion thereon.

------------------------------------
<PAGE> 15

KEY MUTUAL FUNDS
- --------------------------------------------------------------------------------
Dear Shareholders:

We are pleased to present the Semi-Annual Report for the SBSF portfolios of the
Key Mutual Funds for the six month period ended May 31, 1996.

FIRST HALF REVIEW

The domestic equity market defied the odds in the first half of our fiscal year,
delivering above-average returns despite the typically challenging combination
of rising long-term interest rates and decelerating corporate profits. Investors
poured money into equities at an unprecedented pace, marking their most dramatic
short-term shift in the composition of household balance sheets in forty years.
An unusually high percentage of these cash flows were directed at the most
aggressive, highest risk asset classes, contributing to a meaningful increase in
day-to-day and week-to-week volatility. Nowhere was this more evident than in
smaller capitalization issues, which lagged their larger capitalization
counterparts in early 1996 before soaring to record heights in April and May.

Our equity funds participated in the market's advance, as illustrated in the
charts that follow this commentary, which depict each Fund's performance, net of
expenses and fees.

SBSF FUND

The performance of the SBSF Fund was helped in the first half by its relative
overweighting in the energy and natural resources sector, which benefited from
generally rising energy prices throughout the period. Our holdings in gold
mining also contributed positively. Rising interest rates hindered the
performance of the Fund's financial stocks, although a number of its insurance
holdings still bested the benchmarks thanks to surprisingly strong earnings
reports. We continue to believe that financial stocks represent one of the few
remaining undervalued sectors of the market, and the Fund enters the second half
of its fiscal year with an important commitment to these issues.

SBSF CONVERTIBLE SECURITIES FUND

The stock market's buoyancy helped the SBSF Convertible Securities Fund overcome
declines in the bond market and post another strong result in the first six
months of the fiscal year. Appreciation in issuers' underlying equity
neutralized the impact of higher interest rates, particularly for the Fund's oil
and gas and capital spending related holdings. The Fund's strategy of seeking
high yield (in addition to appreciation) also aided performance, as its dividend
and interest income contributed a meaningful portion of its total return for the
period.

SBSF CAPITAL GROWTH FUND

As evidence of slowing profits mounted in early 1996, investors flocked to those
companies that continued to generate strong earnings gains, often ignoring
valuation in favor of a good growth story. Even technology stocks, shunned in
the first quarter, came back into favor in April and May, which helped the SBSF
Capital Growth Fund rebound from a slow start to record a strong first half of
the fiscal year. While the Fund retains substantial holdings in technology,
telecommunications and biotechnology, it enters the second half of the fiscal
year well-diversified across a broad range of industries, with investments in
companies sporting an average earnings growth rate of over 40%.

(Continued)
<PAGE> 16

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

SECOND HALF OUTLOOK

Investors enter the second half of the year faced with a confusing array of
conflicting economic and financial market signals. Business activity has been
surprisingly strong in recent months, fostering fears of labor shortages and
nascent inflation, pressuring long-term interest rates and sparking predictions
of Fed tightening before summer's end. On the other hand, evidence of
over-stretched consumer balance sheets portends an eventual slowdown in
consumption, commodity prices are easing and intense competition is provoking
price wars in everything from air fares to corn flakes. Stock market bulls
highlight the mountain of cash and equivalents that could fuel demand for shares
and argue that price/earnings multiples are reasonable given current inflation
and interest rates. Bears note that speculation is rife and valuations are
excessive by nearly every measure other than P/E, suggesting that the setback
suffered by small stocks in June was a warning shot across the bow of the
overall market.

We think that the weight of the evidence points to a slowdown in economic growth
in the second half of 1996, which promises to keep the trajectory of corporate
profits modest. Of greatest concern is the substantial build-up in
debt on individual balance sheets. Over the past two and a half years, consumer
installment debt has increased 40%, while incomes have increased only 14% over
the same period. Hence, even though job growth has been impressive and the stock
market's rise has added nearly $2 trillion to household net worth over the last
18 months, bankruptcies have risen sharply and credit card delinquencies are at
a cyclical high. Such stress imperils consumption growth in the months ahead,
putting two-thirds of overall gross domestic product at risk of deceleration.

The economy is not without its bright spots: industrial activity is
satisfactory, and lean inventories suggest that production will likely remain
elevated in the second half; the outlook for trade is improving, as overseas
growth appears to have bottomed; and election-year politics may yield some
fiscal stimulus before November. Unemployment is likely to remain low, which
could put modest upward pressure on wages and keep inflation in the 2.7% to 3.2%
range, even if commodity prices fall further. This adds up to what we believe
will be nominal GDP growth, which is a proxy for overall corporate revenue
growth, of 5% to 6% for the balance of the year.

Based on our analysis of productivity and the inability of companies to pass
through increased costs due to the evaporation of pricing power, we believe that
operating margins have reached their cyclical peak, and we therefore expect
profits to grow by 5% or less for the balance of 1996. Without vigorous profit
growth, stocks will have to rely upon valuation to propel further gains. We see
little help from bonds; though slower, economic activity is likely to remain
strong enough to keep fixed income investors vigilant and long-term interest
rates centered near 7%. Moreover, regardless of the valuation measure employed,
stocks appear fully (if not excessively) valued, and despite the lure of
liquidity, we are not tempted to say "It's different this time." Any multiple
expansion will merely accentuate the potential risk of meaningful loss in the
event of subsequent negative surprises. Such risk is already visible in certain
pockets of the market, where speculation has created valuation bubbles that are
just waiting to burst.

The market's heightened volatility, while unsettling, actually enhances the
value of our disciplined approach to buying and selling securities. Emotional
swings can dramatically impact the price of a security in a matter of days,
while its intrinsic value tends to change much more slowly. By maintaining
strict limits, we have been able to establish or add to positions in outstanding
companies on temporary price weakness; similarly, we have taken advantage of
investors' fervor to sell positions at prices that equal or exceed our estimate
of their underlying worth.

(Continued)

2
<PAGE> 17

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

Finding value is rarely easy. With so many investors, professional and amateur
alike, scouring the markets for opportunities, inefficiencies are quickly
corrected and the likelihood of finding an "undiscovered" story is low.
Nonetheless, we believe that sound fundamental research can point us toward
reasonably priced securities that can generate superior long-term returns, and
we relish the challenge of singling out these great investments for inclusion in
our Funds. We appreciate your support, and we welcome your questions and
comments.

Respectfully submitted,

For the Adviser:

/s/ Louis R. Benzak
Louis R. Benzak
Spears, Benzak, Salomon & Farrell, Inc.
Vice Chairman
July 19, 1996

For the Key Mutual Funds'
Board of Directors:

/s/ Frank A. Weil
Frank A. Weil
Non-Executive Chairman

July 19, 1996
- --------------------------------------------------------------------------------

The SBSF Capital Growth Fund maintains investments in small capitalization
companies. These investments have historically experienced a greater degree of
volatility than their large capitalization counterparts.
- --------------------------------------------------------------------------------

TOP 5 EQUITY POSITIONS AT MAY 31, 1996

<TABLE>
<CAPTION>
SBSF FUND* SBSF CONVERTIBLE SECURITIES FUND*
- -------------------------------------------------------------- --------------------------------------------------------------
% OF % OF
MARKET NET MARKET NET
COMPANY VALUE ASSETS COMPANY VALUE ASSETS
- ----------------------------------------- ----------- ------ ----------------------------------------- ----------- ------
<S> <C> <C> <C> <C> <C>
1. American International Group, Inc. $7,540,000 6.0% 1. AK Steel Holding Corp., 7%, $2.1525,
2. General Electric Co. 6,206,250 4.9 Conv. Pfd. $3,775,563 5.0%
3. Cellular Communications, Inc. Class A 5,912,500 4.7 2. Unocal Corp., 7%, $3.50, Conv. Pfd. 3,390,000 4.5
4. PartnerRe Ltd. 4,365,000 3.5 3. Bankers Trust NY Corp 3,005,000 3.9
5. J.P. Morgan & Co., Inc. 4,343,750 3.5 4. First Bank System, Inc., $3.5625,
Conv. Pfd. 2,650,000 3.5
5. Amax Gold, Inc., $3.75, Series B,
Conv. Pfd. 2,637,500 3.5
</TABLE>

<TABLE>
<CAPTION>
SBSF CAPITAL GROWTH FUND*
--------------------------------------------------------------
% OF
NET
COMPANY VALUE ASSETS
---------------------------------------- ----------- ------
<S> <C> <C>
1. PartnerRe Ltd. $981,000 2.6%
2. Tosco Corp. 742,500 2.0
3. Borg-Warner Automotive, Inc. 711,000 1.9
4. Uniphase Corp. 652,500 1.7
5. Anchor Gaming 640,000 1.7
</TABLE>

* Each Fund's composition is subject
to change as market conditions warrant.

3
<PAGE> 18

SBSF FUND

PERFORMANCE FOR THE PERIOD FROM
DECEMBER 1, 1985 TO MAY 31, 1996

SBSF FUND
VS.
S&P 500

<TABLE>
<CAPTION>
SBSF Fund S&P 500
<S> <C> <C>
1986 11,155 12,768
1987 10,323 12,169
1988 12,525 14,980
1989 16,288 19,572
1990 16,181 18,879
1991 18,267 22,717
1992 19,830 26,938
1993 24,381 29,707
1994 23,165 30,052
1995 30,200 41,174
1996* 33,920 46,036
(Fiscal Years Ending November 30)

</TABLE>

<TABLE>
<CAPTION>
SBSF
FUND
------
<S> <C>
Fiscal 1996 Total Return* +12.32%
1 Year Total Return* +25.28%
5 Year Average Annual Total Return +13.55%
10 Year Average Annual Total Return +11.61%
Average Annual Return since inception (October 17, 1983) +13.29%
</TABLE>

* Through May 31, 1996.

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

The above presentation is a hypothetical illustration of the results of a
$10,000 investment on December 1, 1985 and the subsequent reinvestment of all
dividends and capital gain distributions through May 31, 1996. Investment return
and principal value of an investment in the SBSF Fund will fluctuate so that an
investor's shares, when redeemed, may be worth more or less than their original
cost. Total return represents past performance and is not predictive of future
results.

The S&P 500 Composite Stock Index is an index of widely held common stocks which
is unmanaged and therefore not subject to any fees or expenses. The performance
figures presented for the SBSF Fund are net of fees and expenses.

4
<PAGE> 19
SBSF CONVERTIBLE SECURITIES FUND
PERFORMANCE FOR THE PERIOD FROM
APRIL 14, 1988 (INCEPTION) TO MAY 31, 1996

SBSF CONVERTIBLE SECURITIES FUND
VS.
LIPPER CONVERTIBLE SECURITIES FUND INDEX
VS.
S&P 500

<TABLE>
<CAPTION>
SBSF Lipper
Convertible Convertible
Securities Securities
Fund Fund Index S&P 500
<S> <C> <C> <C>
1988 10,142 10,419 10,821
1989 11,944 12,224 14,138
1990 11,326 11,455 13,638
1991 14,308 13,897 16,411
1992 15,910 16,461 19,459
1993 19,477 18,869 21,460
1994 18,628 18,334 21,709
1995 22,433 21,622 29,743
1996 24,619 23,736 33,255
(Fiscal Years Ending November 30)

</TABLE>

<TABLE>
<CAPTION>
SBSF
CONVERTIBLE
SECURITIES FUND
---------------
<S> <C>
Fiscal 1996 Total Return* +9.75%
1 Year Total Return* +20.65%
5 Year Average Annual Total Return +12.97%
Average Annual Return since inception (April 14, 1988) +11.73%
</TABLE>

* Through May 31, 1996.

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

The above presentation is a hypothetical illustration of the results of a
$10,000 investment on April 14, 1988 (inception) and the subsequent reinvestment
of all dividends and capital gain distributions through May 31, 1996. Investment
return and principal value of an investment in the SBSF Convertible Securities
Fund will fluctuate so that an investor's shares, when redeemed, may be worth
more or less than their original cost. Total return represents past performance
and is not predictive of future results.

The Lipper Convertible Securities Fund Index is an equal-weighted, unmanaged
index of the largest mutual funds whose portfolios consist primarily of
convertible bonds and convertible preferred stocks. The S&P 500 Composite Stock
Index is an index of widely held common stocks which is unmanaged and therefore
not subject to any fees or expenses. The performance figures presented for the
SBSF Convertible Securities Fund are net of fees and expenses.

5
<PAGE> 20

SBSF CAPITAL GROWTH FUND

PERFORMANCE FOR THE PERIOD FROM
NOVEMBER 1, 1993 (INCEPTION) TO MAY 31, 1996

SBSF CAPITAL GROWTH FUND
VS.
NASDAQ COMPOSITE
VS.
S&P MIDCAP INDEX

<TABLE>
<CAPTION>
SBSF
CAPITAL NASDAQ S&P MIDCAP
GROWTH FUND COMPOSITE INDEX
<S> <C> <C> <C>
11/30/93 10,000 10,000 10,000
5/31/94 9,450 9,380 9,791
11/30/94 9,450 9,572 9,745
5/31/95 10,475 11,057 11,118
11/30/95 12,288 13,589 12,909
5/31/96 13,657 15,963 14,278
</TABLE>

<TABLE>
<CAPTION>
SBSF
CAPITAL
GROWTH
FUND
-------
<S> <C>
Fiscal 1996 Total Return* +11.14%
1 Year Total Return* +30.37%
Average Annual Return since inception (November 1, 1993) +12.82%
</TABLE>

* Through May 31, 1996.

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

The above presentation is a hypothetical illustration of the results of a
$10,000 investment on November 1, 1993 (inception) and the subsequent
reinvestment of all dividends and capital gain distributions through May 31,
1996. Investment return and principal value of an investment in the SBSF Capital
Growth Fund will fluctuate so that an investor's shares, when redeemed, may be
worth more or less than their original cost. Total return represents past
performance and is not predictive of future results.

The Nasdaq Composite is an index of stocks listed on The Nasdaq Stock Market,
Inc. The S&P MidCap Index is an index of 400 medium capitalization stocks listed
on major exchanges and traded in the over-the-counter-market. These indices are
unmanaged and therefore not subject to any fees or expenses. The performance
figures presented for the SBSF Capital Growth Fund are net of fees and expenses.

6
<PAGE> 21

SBSF FUND
STATEMENT OF INVESTMENTS
MAY 31, 1996
(UNAUDITED)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SHARES VALUE
- ----------- ------------
<S> <C> <C>
COMMON STOCKS -- 94.6%
AUTOMOBILE -- 2.0%
70,000 Ford Motor Co.............. $ 2,555,000
------------
BANKS & BANK HOLDING CO. -- 8.8%
30,000 BankAmerica Corp........... 2,257,500
50,000 Deposit Guaranty Corp...... 2,262,500
100,000 ISB Financial Corp......... 1,587,500
50,000 J.P. Morgan & Co., Inc..... 4,343,750
100,000 Poughkeepsie Savings Bank.. 537,500
------------
10,988,750
------------
BIOTECHNOLOGY -- 5.8%
44,000 Genentech, Inc.*........... 2,315,500
50,000 Genetics Institute,
Inc.*.................... 3,425,000
30,000 Smithkline Beecham, ADR.... 1,530,000
------------
7,270,500
------------
BROADCASTING -- 3.7%
125,000 News Corp. Ltd., ADR....... 2,796,875
181,800 Osborn Communications*..... 1,908,900
------------
4,705,775
------------
CONGLOMERATES -- 5.4%
150,000 Hanson, PLC, ADR........... 2,193,750
225,000 Noel Group, Inc.*.......... 1,856,250
125,000 U.S. Industries, Inc.*..... 2,718,750
------------
6,768,750
------------
CONSUMER PRODUCTS -- 4.9%
75,000 General Electric Co........ 6,206,250
------------
FINANCE & FINANCIAL SERVICES -- 2.4%
37,000 Federal Home Loan
Mortgage Corp. .......... 3,057,125
------------
HOMEBUILDING -- 2.4%
175,000 Beazer Homes USA, Inc.*.... 2,996,875
------------
HOSPITAL & HEALTH CARE -- 2.6%
30,000 Columbia/HCA Healthcare.... 1,616,250
75,000 Tenet Healthcare Corp.*.... 1,612,500
------------
3,228,750
------------
INSURANCE -- 10.6%
145,500 PartnerRe Ltd.............. 4,365,000
80,000 American Int'l. Group...... 7,540,000
250,077 First Central Financial.... 1,469,202
------------
13,374,202
------------

<CAPTION>
SHARES VALUE
- ----------- ------------
<S> <C> <C>
COMMON STOCKS (CONTINUED)
LEISURE & ENTERTAINMENT -- 2.1%
65,000 Time Warner, Inc........... $ 2,624,375
------------
METALS & MINING -- 2.9%
35,202 Newmont Mining Corp........ 2,120,921
100,000 Santa Fe Pacific Gold
Corp..................... 1,525,000
------------
3,645,921
------------
OIL & GAS AND RELATED -- 12.5%
28,000 ENSERCH Corp............... 605,500
355,160 Santa Fe Energy
Resources*............... 4,261,920
50,000 Tosco Corp................. 2,475,000
175,000 USX-Marathon Group......... 3,828,125
50,000 Union Pacific Resources
Group, Inc............... 1,287,500
100,000 Unocal Corp................ 3,250,000
------------
15,708,045
------------
REAL ESTATE -- 6.4%
119,347 Avatar Holdings, Inc.*..... 4,177,145
100,000 Cousins Properties, Inc.... 1,950,000
30,000 Milwaukee Land Co.*........ 202,500
100,000 Security Capital Industrial
Trust (REIT)............. 1,725,000
------------
8,054,645
------------
STEEL -- 4.8%
100,000 AK Steel Holding Corp ..... 4,325,000
100,000 J & L Specialty Steel,
Inc...................... 1,737,500
------------
6,062,500
------------
TECHNOLOGY -- 7.8%
35,000 Applied Materials, Inc.*... 1,303,750
35,000 Cablevision Systems Corp.
Class A*................. 1,680,000
30,000 Intel Corp................. 2,265,000
30,000 International Business
Machines Corp............ 3,202,500
38,000 Komag, Inc.*............... 1,315,750
------------
9,767,000
------------
</TABLE>

See accompanying Notes to Financial Statements.

7
<PAGE> 22

SBSF FUND
STATEMENT OF INVESTMENTS (CONTINUED)
MAY 31, 1996
(UNAUDITED)
- --------------------------------------------------------------------------------

<TABLE>
<CAPTION>
SHARES VALUE
- ----------- ------------
<S> <C> <C>
COMMON STOCKS (CONTINUED)
TELECOMMUNICATIONS -- 8.7%
115,000 AirTouch Communications,
Inc.*.................... $ 3,665,625
110,000 Cellular Communications,
Inc. Class A*............ 5,912,500
58,000 Vanguard Cellular Systems,
Inc. Class A*............ 1,399,250
------------
10,977,375
------------
MISCELLANEOUS -- 0.8%
110,000 Mail-Well, Inc.*........... 948,750
------------
Total Common Stocks
(Cost $88,459,066)....... 118,940,588
------------
CONVERTIBLE PREFERRED STOCKS -- 1.4%
STEEL -- 1.4%
44,000 AK Steel Holding Corp. 7%,
$2.1525.................. 1,721,500
------------
Total Convertible
Preferred Stocks
(Cost $1,273,640)........ 1,721,500
------------
</TABLE>

<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
- ----------- ------------
<S> <C> <C>
U.S. GOVERNMENT SECURITIES -- 4.8%
U.S. TREASURY BILLS++ -- 4.8%
$ 150,000 4.755%, 8/15/96............ $ 148,410
75,000 4.940%, 8/15/96............ 74,205
350,000 5.000%, 8/22/96............ $ 345,940
1,000,000 5.005%, 8/22/96............ 988,400
150,000 5.020%, 8/22/96............ 148,260
575,000 4.860%, 9/05/96............ 567,123
150,000 4.960%, 9/05/96............ 147,945
1,340,000 5.000%, 9/05/96............ 1,321,641
200,000 5.020%, 9/05/96............ 197,260
50,000 5.040%, 10/17/96........... 49,010
450,000 5.040%, 10/17/96........... 441,090
1,125,000 5.050%, 10/17/96........... 1,102,725
150,000 5.090%, 10/17/96........... 147,030
230,000 5.025%, 10/24/96........... 225,262
75,000 5.050%, 10/24/96........... 73,455
------------
Total U.S. Government
Securities
(Cost $5,980,115)........ 5,977,756
------------
Total Investments
(Cost $95,712,821)+........ 100.8% $126,639,844
Other liabilities, net of
other assets............... (0.8%) (1,005,555)
----- ------------
Net Assets................... 100.0% $125,634,289
===== ============
</TABLE>

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

NOTES TO STATEMENT OF INVESTMENTS:

<TABLE>
<S> <C>
* Non-income producing.
+ At May 31, 1996, the net unrealized appreciation on investments based on cost for Federal income tax
purposes of $95,721,821, amounted to $30,927,023, which consisted of gross unrealized appreciation of
$31,529,432 and gross unrealized depreciation of $602,409.
++ Rate shown represents annualized yield on date of purchase.
ADR American Depository Receipt.
REIT Real Estate Investment Trust.
</TABLE>

See accompanying Notes to Financial Statements.

8
<PAGE> 23

SBSF CONVERTIBLE SECURITIES FUND
STATEMENT OF INVESTMENTS
MAY 31, 1996
(UNAUDITED)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SHARES VALUE
- ----------- ------------
<S> <C> <C>
COMMON STOCKS -- 10.8%
BANKS & BANK HOLDING COMPANIES -- 4.0%
40,000 Bankers Trust NY Corp...... $ 3,005,000
------------
CONGLOMERATES -- 1.2%
60,000 Hanson, PLC, ADR........... 877,500
------------
INSURANCE -- 0.9%
5,860 CIGNA Corp................. 673,167
------------
OIL & GAS -- 1.0%
56,818 Lomak Petroleum, Inc....... 781,248
------------
TELECOMMUNICATIONS -- 0.3%
15,000 Comcast Corp.
Class A Special.......... 260,625
------------
UTILITIES -- 3.4%
100,000 Houston Industries, Inc.... 2,187,500
20,000 Washington Gas Light Co.... 415,000
------------
2,602,500
------------
Total Common Stocks
(Cost $7,032,317)........ 8,200,040
------------
PREFERRED STOCKS -- 51.7%
CONVERTIBLE PREFERRED STOCKS -- 46.7%
BANKS & BANK HOLDING COMPANIES -- 7.4%
25,000 First Bank System, Inc.
$3.5625.................. 2,650,000
35,000 Glendale Federal Bank
8.75%, Series E.......... 1,640,625
50,000 Independence Bancorp, Inc.
9%, Series A............. 750,000
25,000 Matewan BancShares, Inc.
7.50%, Series A.......... 628,125
------------
5,668,750
------------
ELECTRONICS EQUIPMENT -- 2.5%
110,000 Westinghouse Electric
$1.30, Series C*......... 1,897,500
------------
HOMEBUILDING -- 2.2%
60,000 Beazer Homes USA, Inc. 8%,
Series A................. 1,650,000
------------

<CAPTION>
SHARES VALUE
- ----------- ------------
<S> <C> <C>
PREFERRED STOCKS (CONTINUED)
CONVERTIBLE PREFERRED STOCKS (CONTINUED)
INSURANCE -- 3.9%
28,000 Jefferson-Pilot Corp.
7.25%.................... $ 2,275,000
10,000 PennCorp Financial Group
$3.375................... 725,000
------------
3,000,000
------------
LEISURE & ENTERTAINMENT -- 1.5%
20,000 AMC Entertainment, Inc.
$1.75.................... 1,137,500
------------
METALS & MINING -- 3.5%
50,000 Amax Gold, Inc.
$3.75, Series B.......... 2,637,500
------------
OIL & GAS -- 10.0%
20,000 Diamond Shamrock, Inc.
$2.50*................... 1,260,000
40,000 Enron Corp., 6.25%......... 970,000
58,600 Noble Drilling Corp.
$1.50.................... 1,992,400
60,000 Unocal Corp., 7%, $3.50.... 3,390,000
------------
7,612,400
------------
PAPER & FOREST PRODUCTS -- 4.9%
50,000 Int'l. Paper Co., 5.25%.... 2,300,000
30,000 James River Corp.
$3.50, Series L.......... 1,402,500
------------
3,702,500
------------
REAL ESTATE -- 3.5%
27,000 Catellus Development
$3.625, Series B*........ 1,431,000
50,000 Oasis Residential, Inc.
$2.25, Series A.......... 1,256,250
------------
2,687,250
------------
STEEL -- 5.0%
96,500 AK Steel Holding Corp. 7%,
$2.1525.................. 3,775,563
------------
</TABLE>

See accompanying Notes to Financial Statements.

9
<PAGE> 24

SBSF CONVERTIBLE SECURITIES FUND
STATEMENT OF INVESTMENTS (CONTINUED)
MAY 31, 1996
(UNAUDITED)
- --------------------------------------------------------------------------------

<TABLE>
<CAPTION>
SHARES VALUE
- ----------- ------------
<S> <C> <C>
PREFERRED STOCKS (CONTINUED)
CONVERTIBLE PREFERRED STOCKS (CONTINUED)
TECHNOLOGY -- 2.3%
50,000 Cablevision Systems Corp.
8.50%, Series I.......... $ 1,318,750
14,500 Unisys Corp.
$3.75, Series A.......... 476,687
------------
1,795,437
------------
Total Convertible
Preferred Stocks
(Cost $30,149,633)....... 35,564,400
------------
NON-CONVERTIBLE PREFERRED STOCKS -- 5.0%
BANKS & BANK HOLDING COMPANIES -- 5.0%
30,000 Chevy Chase Savings Bank
13%, Series A............ 907,500
45,000 Fidelity Federal Bank
12%, Series A............ 1,226,250
59,000 Riggs National Corp.
10.75%, Series B......... 1,652,000
------------
3,785,750
------------
Total Non-Convertible
Preferred Stocks
(Cost $3,485,750)........ 3,785,750
------------
Total Preferred Stocks
(Cost $33,635,383)....... 39,350,150
------------
</TABLE>
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT
- -----------
<S> <C> <C>
CORPORATE BONDS -- 34.3%
CONVERTIBLE BONDS -- 32.0%
BANKS & BANK HOLDING COMPANIES -- 2.4%
$ 600,000 First Republic Bancorp
Sub. Debs., 7.25%,
12/1/02.................. 678,000
400,000 Fort Bend Holding Corp.
Sub. Debs., 8.00%,
12/1/05.................. 402,000
600,000 Midlantic Bank, Inc.
Sub. Debs., 8.25%,
7/1/10................... 766,500
------------
1,846,500
------------
<CAPTION>
PRINCIPAL
AMOUNT VALUE
- ----------- ------------
<S> <C> <C>
CORPORATE BONDS (CONTINUED)
CONVERTIBLE BONDS (CONTINUED)
DRUGS & HEALTH CARE -- 5.2%
$ 3,655,000 Centocor, Inc.
Euro, Sub. Debs., 6.75%,
10/16/01................. $ 3,417,425
142,000 Medical Imaging Centers of
America, Inc.
Sub. Debs., 6.00%,
4/30/99**................ 92,100
500,000 Quantum Health Resources,
Inc.
Sub. Debs., 4.75%,
10/1/00.................. 456,250
------------
3,965,775
------------
INSURANCE -- 2.8%
600,000 American Travellers Corp.
Sub. Debs., 6.50%,
10/1/05.................. 968,250
300,000 First Central Financial
Sub. Debs., 9.00%,
8/1/00**................. 300,000
250,000 Pioneer Financial Services
Sub. Notes, 6.50%,
4/1/03................... 253,750
600,000 Trenwick Group, Inc.
Sub. Debs., 6.00%,
12/15/99................. 642,000
------------
2,164,000
------------
LODGING -- 0.7%
500,000 Hilton Hotels Corp.
Sub. Notes, 5.00%,
5/15/06.................. 520,000
------------
METALS & MINING -- 2.1%
1,500,000 Homestake Mining Co.
Sub. Deb.,
5.50%, 6/23/00*.......... 1,561,875
------------
</TABLE>

See accompanying Notes to Financial Statements.

10
<PAGE> 25

SBSF CONVERTIBLE SECURITIES FUND
STATEMENT OF INVESTMENTS (CONTINUED)
MAY 31, 1996
(UNAUDITED)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
- ----------- ------------
<S> <C> <C>
CORPORATE BONDS (CONTINUED)
CONVERTIBLE BONDS (CONTINUED)
OIL & GAS -- 1.9%
$ 500,000 ENSERCH Corp.
Euro, Sub. Debs., 6.375%,
4/1/02................... $ 486,875
650,000 Pennzoil Co.
Sub. Debs., 6.50%,
1/15/03.................. 943,313
------------
1,430,188
------------
RETAIL -- 0.7%
500,000 Price/Costco, Inc.
Sub. Debs., 6.75%,
3/01/01.................. 520,000
------------
STEEL -- 2.4%
2,000,000 USX-Corp.
Sub. Debs., 5.75%,
7/1/01................... 1,825,000
------------
TECHNOLOGY -- 10.1%
500,000 Convex Computer Corp.
Sub. Debs., 6.00%,
3/1/12................... 450,000
1,500,000 Data General Corp.
Sub. Debs., 7.75%,
6/1/01................... 1,470,000
1,000,000 General Signal Corp.
Sub. Debs., 5.75%,
6/1/02................... 1,065,000
500,000 Molten Metal Technology
Sub. Notes, 5.50%,
5/1/06*.................. 498,750
2,061,000 Recognition Equipment
Sub. Debs., 7.25%,
4/15/11.................. 1,947,645
300,000 3 Com Corp., Sub. Notes,
10.25%, 11/1/01*......... 493,500
1,000,000 Unisys Corp., Sub. Notes,
8.25%, 8/1/00............ 1,028,750
750,000 VLSI Technology, Inc.
Sub. Note, 8.25%,
10/1/05.................. 690,000
------------
7,643,645
------------
<CAPTION>
PRINCIPAL
AMOUNT VALUE
- ----------- ------------
<S> <C> <C>
CORPORATE BONDS (CONTINUED)
CONVERTIBLE BONDS (CONTINUED)
TELECOMMUNICATIONS -- 0.3%
$ 200,000 International CableTel
Sub. Debs., 7.25%,
4/15/05*................. $ 253,000
------------
UTILITIES -- 3.4%
2,500,000 Consolidated Natural Gas
Sub. Debs., 7.25%,
12/15/15................. 2,625,000
------------
Total Convertible Bonds
(Cost $22,926,777)....... 24,354,983
------------
NON-CONVERTIBLE BONDS -- 2.3%
INSURANCE -- 0.7%
500,000 National Re Corp.
Sr. Notes 8.85%,
1/15/05.................. 520,625
------------
OIL & GAS -- 0.3%
200,000 Equitable Resources
Sub. Debs., 7.50%,
7/1/99................... 203,000
------------
TELECOMMUNICATIONS -- 1.3%
1,000,000 Comcast Corp.
Sub. Debs., 9.375%,
5/15/05.................. 990,000
------------
Total Non-Convertible Bonds
(Cost $1,727,410)........ 1,713,625
------------
Total Corporate Bonds
(Cost $24,654,187)....... 26,068,608
------------
U.S. GOVERNMENT SECURITIES -- 2.1%
U.S. TREASURY BILLS++ -- 0.4%
115,000 5.075%, 10/31/96........... 112,631
100,000 5.080%, 10/31/96........... 97,940
100,000 5.110%, 10/31/96........... 97,940
------------
Total U.S. Treasury Bills
(Cost $308,233).......... 308,511
------------
</TABLE>

See accompanying Notes to Financial Statements.

11
<PAGE> 26

SBSF CONVERTIBLE SECURITIES FUND
STATEMENT OF INVESTMENTS (CONTINUED)
MAY 31, 1996
(UNAUDITED)
- --------------------------------------------------------------------------------

<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
- ----------- ------------
<S> <C> <C>
U.S. GOVERNMENT SECURITIES (CONTINUED)
U.S. TREASURY NOTES -- 1.7%
$ 1,290,000 7.250%, 11/30/96
(Cost $1,288,045)........ $ 1,300,079
------------
Total U.S. Government Se-
curities
(Cost $1,596,278)........ 1,608,590
------------
</TABLE>

<TABLE>
<CAPTION>
VALUE
------------
<S> <C> <C>
Total Investments
(Cost $66,918,165)+ 98.9% 75,227,388
Other assets, net of other
liabilities 1.1% 850,818
------ ------------
Net Assets................... 100.0% $ 76,078,206
===== ===========
</TABLE>

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

NOTES TO STATEMENT OF INVESTMENTS:

<TABLE>
<S> <C>
* These securities are restricted to resale to qualified institutional investors only.
** The following securities are restricted:
</TABLE>

<TABLE>
<CAPTION>
% OF
SECURITY ACQUISITION COST DATE ACQUIRED NET ASSETS
---------------------------------------------------------- ---------------- -------------------- ----------
<S> <C> <C> <C>
First Central Financial Corp., Sub. Deb., 9%, 8/1/00...... $296,625 August 1988 0.4%
Medical Imaging Centers of America, Inc.
Conv. Sub. Deb., 6%, 4/30/99.............................. $142,000 May 1989 0.1%
The Fund's prospectus permits the acquisition of restricted securities consistent with the Fund's
investment objective and policies.
The Fund has the right to include its shares, upon conversion, in any registration undertaken by the
issuing company.
These securities are valued as determined in good faith under the supervision of the Board of
Directors.
++ Rate shown represents annualized yield on date of purchase.
+ At May 31, 1996, the net unrealized appreciation on investments, based on cost for Federal income tax
purposes of $66,918,165, amounted to $8,309,223 which consisted of gross unrealized appreciation of
$8,983,745 and gross unrealized depreciation of $674,522.
ADR American Depository Receipt.
</TABLE>

See accompanying Notes to Financial Statements.

12
<PAGE> 27

SBSF CAPITAL GROWTH FUND
STATEMENT OF INVESTMENTS
MAY 31, 1996
(UNAUDITED)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SHARES VALUE
- --------- -----------
<S> <C> <C>
COMMON STOCKS -- 97.6%
AUTOMOTIVE -- 3.4%
18,000 Borg-Warner Automotive, Inc... $ 711,000
15,000 Lear Corp.*................... 579,375
-----------
1,290,375
-----------
BANKS & BANK HOLDING CO. -- 0.1%
2,500 Roosevelt Fin'l. Group,
Inc......................... 44,688
-----------
BIOTECHNOLOGY -- 16.1%
20,000 Advanced Tissue Sciences*..... 365,000
7,100 Biogen, Inc.*................. 429,550
25,000 CellPro, Inc.*................ 456,250
20,000 Curative Technologies,
Inc.*....................... 515,000
6,000 Genetics Institute, Inc.*..... 411,000
10,600 Genzyme Corp.*................ 617,450
50,000 IBAH, Inc.*................... 425,000
13,000 Incyte Pharmaceuticals,
Inc.*....................... 445,250
15,000 Interneuron Pharmaceuticals*.. 581,250
29,000 Ligand Pharmaceuticals Class
B*.......................... 485,750
53,550 NeoRx Corp.*.................. 381,544
30,000 NABI, Inc.*................... 406,875
18,700 Noven Pharmaceuticals, Inc.*.. 322,575
13,000 SangStat Medical Corp.*....... 258,375
-----------
6,100,869
-----------
BROADCASTING -- 0.2%
6,000 Osborn Communications*........ 63,000
-----------
COMMERCIAL SERVICES -- 1.9%
7,000 Norrell Corp.................. 289,625
20,000 Pre-Paid Legal Services,
Inc.*....................... 417,500
-----------
707,125
-----------
COMPUTER SOFTWARE SERVICES -- 10.4%
40,000 ForeFront Group, Inc.*........ 635,000
15,000 Geoworks*..................... 530,625
15,000 NETCOM On-Line Communication,
Inc......................... 511,875
10,000 Open Market, Inc.*............ 317,500
15,000 PRI Automation, Inc.*......... 598,125
20,000 SPSS, Inc.*................... 498,750
18,000 Sunquest Information
Systems*.................... 321,750
10,000 Viasoft, Inc.*................ 535,000
-----------
3,948,625
-----------

<CAPTION>
SHARES VALUE
- --------- -----------
<S> <C> <C>
COMMON STOCKS (CONTINUED)
ELECTRONICS -- 8.8%
15,000 Cyrix Corp.*.................. $ 463,125
8,000 Hutchison Technology, Inc.*... 454,000
20,000 Sheldahl, Inc.*............... 517,500
13,000 Silicon Valley Group, Inc.*... 312,000
25,000 Supertex, Inc.*............... 503,125
10,000 Uniphase Corp.*............... 652,500
30,000 Zenith Electronics Corp.*..... 435,000
-----------
3,337,250
-----------
FINANCE & FINANCIAL SERVICES -- 1.0%
12,000 Capital One Financial Corp.... 364,500
900 Westcorp...................... 16,200
-----------
380,700
-----------
FOOD & LODGING -- 1.0%
15,000 Landry's Seafood Restaurants.. 360,000
-----------
HEALTH CARE -- 7.1%
12,000 American Oncology Resources,
Inc.*....................... 564,000
12,000 EmCare Holdings, Inc.*........ 375,000
20,000 FPA Medical Mgmt., Inc.*...... 352,500
20,000 Fuisz Technologies, Ltd.*..... 530,000
10,000 OrthoLogic Corp.*............. 442,500
15,000 Vivus, Inc.*.................. 444,375
-----------
2,708,375
-----------
HOMEBUILDING -- 1.0%
21,999 Castle & Cooke, Inc.*......... 384,982
-----------
INSURANCE -- 2.6%
32,700 PartnerRe Ltd................. 981,000
-----------
LEISURE & ENTERTAINMENT -- 4.0%
10,000 Anchor Gaming*................ 640,000
16,012 Gaylord Entertainment, Cl. A.. 418,327
8,000 Regal Cinemas, Inc.*.......... 371,000
3,100 Sodak Gaming, Inc.*........... 94,550
-----------
1,523,877
-----------
OIL & GAS -- 12.9%
10,000 BJ Services Co.*.............. 337,500
12,000 Diamond Offshore Drilling.*... 574,500
15,000 Global Industries Ltd.*....... 465,000
50,000 Marine Drilling Co., Inc.*.... 506,250
15,500 Noble Affiliates, Inc......... 525,062
15,000 Reading & Bates Corp.*........ 330,000
10,000 Sonat Offshore Drilling,
Inc.*....................... 530,000
</TABLE>

See accompanying Notes to Financial Statements.

13
<PAGE> 28

SBSF CAPITAL GROWTH FUND
STATEMENT OF INVESTMENTS (CONTINUED)
MAY 31, 1996
(UNAUDITED)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SHARES VALUE
- --------- -----------
<S> <C> <C>
COMMON STOCKS (CONTINUED)
OIL & GAS (CONTINUED)
15,000 Tosco Corp.................... $ 742,500
25,000 Varco International, Inc...... 415,625
15,000 Weatherford Enterra, Inc.*.... 472,500
-----------
4,898,937
-----------
PACKAGING -- 1.3%
26,000 BWAY Corp.*................... 487,500
-----------
RAILROADS -- 1.1%
4,000 Wisconsin Central
Transportation Corp.*....... 424,000
-----------
RETAIL -- 7.0%
16,000 Borders Group, Inc.*.......... 524,000
14,000 Hannaford Brothers Co......... 442,750
10,000 Saks Holdings, Inc.*.......... 325,000
40,000 Sotheby's Hldgs, Inc., Class
A........................... 570,000
25,000 Stein Mart, Inc.*............. 425,000
14,600 Wet Seal, Inc., Class A*...... 370,475
-----------
2,657,225
-----------
STEEL -- 1.6%
10,000 AK Steel Holding Corp......... 432,500
10,000 Northwest Pipe Co.*........... 162,500
-----------
595,000
-----------
TECHNOLOGY -- 6.6%
15,000 Ciprico, Inc.*................ 330,000
12,000 Gateway 2000, Inc.*........... 454,500
12,000 Komag, Inc.*.................. 415,500
20,000 Micrografx, Inc.*............. 340,000
24,000 Phoenix Technologies Ltd.*.... 477,000
10,000 Systemsoft Corp.*............. 467,500
-----------
2,484,500
-----------

<CAPTION>
SHARES VALUE
- --------- -----------
<S> <C> <C>
COMMON STOCKS (CONTINUED)
TELECOMMUNICATIONS EQUIPMENT -- 6.6%
10,000 ADC Telecommunications*....... $ 460,000
15,000 Comverse Technology, Inc.*.... 440,625
10,000 DSC Communications Corp.*..... 301,250
20,000 EIS International, Inc.*...... 585,000
10,000 InterVoice, Inc.*............. 222,500
10,000 Premiere Technologies, Inc.*.. 472,500
-----------
2,481,875
-----------
MISCELLANEOUS -- 2.9%
70,000 Mail-Well, Inc.*.............. 603,750
60,600 Strategic Distribution, Inc.* 507,525
-----------
1,111,275
-----------
Common Stocks
(Cost $32,251,773).......... 36,971,178
-----------
</TABLE>

<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT
- ---------
<S> <C> <C>
U.S. GOVERNMENT SECURITIES -- 0.5%
U.S. TREASURY BILLS -- 0.5%++
$ 205,000 5.110%, 10/31/96.............. 200,777
-----------
Total U.S. Government
Securities
(Cost $200,428)............. 200,777
-----------
Total Investments
(Cost $32,452,201)+........ 98.1% 37,171,955
Other assets, net of other
liabilities................ 1.9% 704,029
------ ------------
100.0% $ 37,875,984
===== ===========
</TABLE>

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

NOTES TO STATEMENTS OF INVESTMENTS:

<TABLE>
<S> <C>
* Non-income producing.
+ At May 31, 1996, the net unrealized appreciation on investments based on cost for Federal income tax
purposes of $32,452,201, amounted to $4,719,754, which consisted of gross unrealized appreciation of
$5,424,348 and gross unrealized depreciation of $704,594.
++ Rate shown represents annualized yield on date of purchase.
</TABLE>

See accompanying Notes to Financial Statements.

14
<PAGE> 29

KEY MUTUAL FUNDS
STATEMENTS OF ASSETS AND LIABILITIES
MAY 31, 1996
(UNAUDITED)
- --------------------------------------------------------------------------------

<TABLE>
<CAPTION>
SBSF SBSF
CONVERTIBLE CAPITAL
SBSF SECURITIES GROWTH
FUND FUND FUND
-------------- ------------ ------------
<S> <C> <C> <C>
ASSETS:
Investment in securities, at value............................ $ 126,639,844 $ 75,227,388 $ 37,171,955
Cash.......................................................... 12,369 48,551 13,170
Receivable for investment securities sold..................... -- 139,785 3,228,183
Receivable for Fund shares sold............................... 150,015 108,650 --
Dividends and interest receivable............................. 128,865 742,694 15,558
Deferred organizational expenses -- Note 2(e)................. -- -- 14,362
Prepaid expenses.............................................. 15,076 9,111 3,019
------------- ------------ ------------
Total Assets........................................... 126,946,169 76,276,179 40,446,247
------------- ------------ ------------
LIABILITIES:
Payable for investment securities purchased................... 1,152,000 -- 2,491,089
Payable for Fund shares redeemed.............................. -- 100,425 34,352
Due to investment advisor -- Note 3(a)........................ 80,074 49,626 23,322
Due to administrator -- Note 3(a)............................. 18,162 14,172 7,774
Distribution fees payable -- Note 3(c)........................ 436 1,501 73
Accrued expenses and other liabilities........................ 61,208 32,249 13,653
------------- ------------ ------------
Total Liabilities...................................... 1,311,880 197,973 2,570,263
------------- ------------ ------------
NET ASSETS -- Applicable to 7,161,109, 5,995,734 and 3,576,404
shares, respectively, of common stock outstanding (25 million
shares authorized for each Fund).............................. $ 125,634,289 $ 76,078,206 $ 37,875,984
============= ============ ============
NET ASSET VALUE AND REDEMPTION
VALUE PER SHARE............................................... $17.54 $12.69 $10.59
============= ============ ============
IDENTIFIED COST OF INVESTMENT SECURITIES........................ $ 95,712,821 $ 66,918,165 $ 32,452,201
============ ============ ============
ANALYSIS OF NET ASSETS:
Paid-in capital............................................... $ 89,545,019 $ 64,459,554 $ 33,181,757
Accumulated net investment income (loss)...................... 243,184 609,586 (75,363)
Accumulated net realized gains................................ 4,919,063 2,699,843 49,836
Net unrealized appreciation/depreciation...................... 30,927,023 8,309,223 4,719,754
------------- ------------ ------------
NET ASSETS...................................................... $ 125,634,289 $ 76,078,206 $ 37,875,984
============= ============ ============
</TABLE>

See accompanying Notes to Financial Statements.

15
<PAGE> 30

KEY MUTUAL FUNDS
STATEMENTS OF OPERATIONS
FOR THE SIX-MONTH PERIOD ENDED MAY 31, 1996
(UNAUDITED)
- --------------------------------------------------------------------------------

<TABLE>
<CAPTION>
SBSF SBSF
CONVERTIBLE CAPITAL
SBSF SECURITIES GROWTH
FUND FUND FUND
------------ ----------- -----------
<S> <C> <C> <C>
INVESTMENT INCOME
Income:
Dividends (net of foreign tax withheld of $14,223,
$5,083 and $0, respectively)................................. $ 902,349 $ 1,395,201 $ 77,441
Interest....................................................... 177,026 1,010,635 56,213
------------ ----------- -----------
Total Income.............................................. 1,079,375 2,405,836 133,654
------------ ----------- -----------
Expenses:
Investment advisory fees -- Note 3(a).......................... 457,285 283,600 113,732
Administration fees -- Note 3(a)............................... 109,915 81,789 37,911
Transfer agent fees............................................ 27,427 13,053 8,345
Professional fees.............................................. 52,544 31,433 14,267
Custodian fees -- Note 3(d).................................... 15,312 9,859 6,481
Directors fees and expenses.................................... 17,550 10,881 4,377
Shareholder reports............................................ 16,839 7,546 4,330
Federal and state registration fees............................ 12,796 11,701 4,998
Distribution fees -- Note 3(c)................................. 2,204 8,189 419
Amortization of deferred organization expenses -- Note 2(e).... -- -- 2,972
Miscellaneous.................................................. 42,119 29,089 13,669
------------ ----------- -----------
Total Expenses............................................ 753,991 487,140 211,501
Less administration fees waived -- Note 3(a)................... (4,115) -- (2,484)
------------ ----------- -----------
Total Expenses after fees waived.......................... 749,876 487,140 209,017
------------ ----------- -----------
NET INVESTMENT INCOME (LOSS)....................................... 329,499 1,918,696 (75,363)
------------ ----------- -----------
NET REALIZED AND UNREALIZED GAINS:
Net realized gains............................................. 4,919,036 2,699,165 64,222
Net change in unrealized appreciation/depreciation............. 8,760,379 2,194,085 3,382,053
------------ ----------- -----------
Net Realized and Unrealized Gains......................... 13,679,415 4,893,250 3,446,275
------------ ----------- -----------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS............... $ 14,008,914 $ 6,811,946 $ 3,370,912
============ =========== ===========
</TABLE>

See accompanying Notes to Financial Statements.

16
<PAGE> 31

KEY MUTUAL FUNDS
STATEMENTS OF CHANGES IN NET ASSETS
FOR THE SIX-MONTH PERIOD ENDED MAY 31, 1996 AND THE YEAR ENDED NOVEMBER 30, 1995
(UNAUDITED)
- --------------------------------------------------------------------------------

<TABLE>
<CAPTION>
SBSF CONVERTIBLE SBSF CAPITAL
SBSF FUND SECURITIES FUND GROWTH FUND
------------------------------ -------------------------- -------------------------
1996 1995 1996 1995 1996 1995
-------------- -------------- ------------ ------------ ------------ -----------
<S> <C> <C> <C> <C> <C> <C>
INCREASE IN NET ASSETS
FROM OPERATIONS:
Net investment income (loss)........... $ 329,499 $ 1,006,275 $ 1,918,696 $ 3,258,948 $ (75,363) $ (14,224)
Net realized gains..................... 4,919,036 13,315,892 2,699,165 1,851,621 64,222 348,226
Net change in unrealized appreciation/
depreciation......................... 8,760,379 14,528,504 2,194,085 6,158,941 3,382,053 1,389,568
------------- -------------- ------------ ------------ ------------ -----------
Net increase in net assets resulting
from operations...................... 14,008,914 28,850,671 6,811,946 11,269,510 3,370,912 1,723,570
------------- -------------- ------------ ------------ ------------ -----------
DIVIDENDS AND DISTRIBUTIONS
TO SHAREHOLDERS FROM:
Net investment income.................. (273,776) (1,381,885) (1,749,836) (3,264,148) -- --
Net realized gains..................... (12,645,835) (6,410,385) (1,805,432) (2,024,717) (257,870) --
------------- -------------- ------------ ------------ ------------ -----------
Total dividends and
distributions.................... (12,919,611) (7,792,270) (3,555,268) (5,288,865) (257,870) --
------------- -------------- ------------ ------------ ------------ -----------
CAPITAL STOCK TRANSACTIONS:
Proceeds from sales of shares.......... 4,884,635 9,655,102 10,784,196 10,607,323 27,618,744 2,870,339
Reinvestment of dividends Note 2(c).... 12,162,077 6,965,298 3,086,280 4,584,685 248,774 --
------------- -------------- ------------ ------------ ------------ -----------
17,046,712 16,620,400 13,870,476 15,192,008 27,867,518 2,870,339
Cost of shares redeemed................ (6,352,155) (33,561,293) (9,260,693) (11,805,600) (1,531,030) (308,806)
------------- -------------- ------------ ------------ ------------ -----------
Net increase (decrease) in net assets
from capital stock transactions...... 10,694,557 (16,940,893) 4,609,783 3,386,408 26,336,488 2,561,533
------------- -------------- ------------ ------------ ------------ -----------
Total increase in net assets....... 11,783,860 4,117,508 7,866,461 9,367,053 29,449,530 4,285,103
NET ASSETS:
Beginning of period.................... 113,850,429 109,732,921 68,211,745 58,844,692 8,426,454 4,141,351
------------- -------------- ------------ ------------ ------------ -----------
End of period**........................ $ 125,634,289 $ 113,850,429 $ 76,078,206 $ 68,211,745 $ 37,875,984 $ 8,426,454
============= ============= ============ ============ ============ ===========
**Includes accumulated net
investment income (loss)............. $ 243,184 $ 187,461 $ 609,586 $ 440,726 $ (75,363) $ --
============= ============= ============ ============ ============ ===========
SHARE TRANSACTIONS:
Shares sold............................ 287,740 635,920 868,836 932,395 2,849,657 343,971
Dividends reinvested................... 771,705 495,839 257,818 425,055 26,437 --
------------- -------------- ------------ ------------ ------------ -----------
1,059,445 1,131,759 1,126,654 1,357,450 2,876,094 343,971
Shares redeemed........................ (375,293) (2,203,122) (740,255) (1,074,238) (156,585) (34,601)
------------- -------------- ------------ ------------ ------------ -----------
Net increase (decrease)................ 684,152 (1,071,363) 386,399 283,212 2,719,509 309,370
============= ============= ============ ============ ============ ===========
</TABLE>

See accompanying Notes to Financial Statements.

17
<PAGE> 32

KEY MUTUAL FUNDS
FINANCIAL HIGHLIGHTS
(UNAUDITED)
- --------------------------------------------------------------------------------

<TABLE>
<CAPTION>
SBSF FUND
--------------------------------------------------------------------------
FISCAL YEAR ENDED NOVEMBER 30,
MAY 31, ------------------------------------------------------------
1996(5) 1995 1994 1993 1992 1991
-------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
Per Share Operating Performance:
Net asset value, beginning of period.......... $17.58 $14.54 $17.59 $15.64 $16.47 $15.57
Net investment income........................ 0.05 0.15 0.21 0.34 0.42 0.50
Net realized and unrealized gain (loss)...... 1.89 3.98 (0.94) 3.01 0.91 1.40
-------- -------- -------- -------- -------- --------
Total from investment operations.............. 1.94 4.13 (0.73) 3.35 1.33 1.90
Less dividends and distributions:
Dividends from net investment income......... (0.04) (0.20) (0.20) (0.39) (0.56) (0.59)
Distributions from net realized gains........ (1.94) (0.89) (2.12) (1.01) (1.60) (0.41)
-------- -------- -------- -------- -------- --------
Total dividends and distributions............. (1.98) (1.09) (2.32) (1.40) (2.16) (1.00)
-------- -------- -------- -------- -------- --------
Net asset value, end of period................ $17.54 $17.58 $14.54 $17.59 $15.64 $16.47
========= ========= ========= ========= ========= =========
Total Investment Return....................... +12.32%(2) +30.37% -4.99% +22.95% +8.56% +12.89%
Ratios/Supplemental Data:
Net assets end of period (in thousands)....... $125,634 $113,850 $109,733 $122,555 $105,325 $130,171
Ratio of expenses to average net assets....... 1.24%(3) 1.26% 1.23% 1.15% 1.16% 1.15%
Ratio of net investment income (loss) to
average net assets........................... 0.54%(3) 0.93% 1.31% 2.05% 2.68% 3.11%
Decrease reflected in above expense ratios due
to administration fees waived................ 0.01% -- -- -- -- --
Portfolio Turnover Rate....................... 18% 59% 83% 70% 45% 50%
Average Commission Rate per Share............. $0.03 -- -- -- -- --

Per Share Operating Performance:
Net asset value, beginning of period.................................................
Net investment income (loss)........................................................
Net realized and unrealized gain (loss).............................................

Total from investment operations.....................................................
Less dividends and distributions:
Distributions from net realized gains...............................................

Total dividends and distributions....................................................

Net asset value, end of period.......................................................

Total Investment Return..............................................................

Ratios/Supplemental Data:
Net assets end of period (in thousands)..............................................
Ratio of expenses to average net assets..............................................
Ratio of net investment income (loss) to average net assets..........................
Decrease reflected in above expense ratios due to advisory and administration
fees waived.........................................................................
Portfolio Turnover Rate..............................................................
Average Commission Rate per Share....................................................
</TABLE>

(1) From November 1, 1993 (commencement of operations) to November 30, 1993.
(2) Not annualized.
(3) Annualized.
(4) Calculated using weighted average shares outstanding.
(5) Six-month period ended May 31, 1996.

See accompanying Notes to Financial Statements.

18
<PAGE> 33

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

<TABLE>
<CAPTION>
SBSF CONVERTIBLE SECURITIES FUND
--------------------------------------------------------------------------
FISCAL YEAR ENDED NOVEMBER 30,
MAY 31, ------------------------------------------------------------
1996(5) 1995 1994 1993 1992 1991
-------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>

$12.16 $11.05 $12.48 $10.98 $10.65 $9.15
0.31 0.60 0.61 0.57 0.59 0.67
0.83 1.50 (1.12) 1.79 0.56 1.63
-------- -------- -------- -------- -------- --------
1.14 2.10 (0.51) 2.36 1.15 2.30

(0.29) (0.61) (0.61) (0.57) (0.72) (0.71)
(0.32) (0.38) (0.31) (0.29) (0.10) (0.09)
-------- -------- -------- -------- -------- --------
(0.61) (0.99) (0.92) (0.86) (0.82) (0.80)
-------- -------- -------- -------- -------- --------
$12.69 $12.16 $11.05 $12.48 $10.98 $10.65
======== ======== ======== ======== ======== ========
+9.75%(2) +20.43% -4.36% +22.42% +11.20% +26.33%

$76,078 $68,212 $58,845 $64,537 $42,442 $28,123
1.30%(3) 1.31% 1.30% 1.24% 1.32% 1.37%

5.12%(3) 5.36% 5.20% 4.75% 6.78% 8.50%

-- -- -- -- -- --
21% 52% 49% 30% 42% 53%
$0.04 -- -- -- -- --

<CAPTION>
SBSF CAPITAL GROWTH FUND
---------------------------------------------------
FISCAL YEAR ENDED
NOVEMBER 30,
-------------------------------
MAY 31, 1996(5) 1995 1994 1993(1)
--------------- ------- ------- -------
<S> <C> <C> <C>

$ 9.83 $ 7.56 $ 7.88 $ 8.00
(0.11) (0.02) (0.01)(4) (0.05)
1.17 2.29 (0.31)(4) (0.07)
--------- ------- ------- -------
1.06 2.27 (0.32) (0.12)

(0.30) -- -- --
--------- ------- ------- -------
(0.30) -- -- --
--------- ------- ------- -------
$ 10.59 $ 9.83 $ 7.56 $ 7.88
========= ======= ======= =======
+11.14%(2) +30.03% -4.06% -1.50%(2)

$ 37,876 $ 8,426 $ 4,141 $ 1,656
1.39%(3) 1.20% 1.22% 2.50%(3)
-0.50%(3) -0.22% -0.17% -12.65%(3)

0.02% 0.84% 1.00% 0.93%
126% 97% 80% 0%
$ 0.02 -- -- --
</TABLE>

See accompanying Notes to Financial Statements.

19
<PAGE> 34

KEY MUTUAL FUNDS
NOTES TO FINANCIAL STATEMENTS
(UNAUDITED)
- --------------------------------------------------------------------------------

NOTE 1 -- GENERAL

Key Mutual Funds (the "Company") is registered under the Investment Company Act
of 1940 (the "Act"), as an open-end management investment company. The Company,
incorporated in Maryland on May 26, 1983 under the name SBSF Funds, Inc., is
currently doing business under the name "Key Mutual Funds." Key Mutual Funds is
a series company currently issuing capital stock of several different investment
portfolios, three of which: the SBSF Fund, the SBSF Convertible Securities Fund
and the SBSF Capital Growth Fund (collectively, the "Funds"), are included in
this semi-annual report. The Company has 25 billion shares of $.01 par value
capital stock authorized.
- --------------------------------------------------------------------------------

NOTE 2 -- SIGNIFICANT ACCOUNTING POLICIES

The following is a summary of significant accounting policies consistently
followed by the Funds in the preparation of their financial statements. The
policies are in conformity with generally accepted accounting principles. The
preparation of financial statements requires the Administrator to make estimates
and assumptions that affect the reported amounts and disclosures. Actual results
could differ from those estimates.

(a) INVESTMENT VALUATION: Securities traded on a national securities exchange
or the Nasdaq National Market are valued as of the close of regular trading of
the New York Stock Exchange which is generally 4:00 p.m. (Eastern Time) on each
business day of the Funds. Listed and unlisted securities for which such
information is regularly reported are valued at the last sales price or, in the
absence of sales, at the mean between the most recent bid and asked price.
Listed debt securities and over-the-counter securities 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 under the supervision of the Board of Directors.
Short-term investments with maturities of sixty days or less are valued at
amortized cost, which approximates market value.

(b) SECURITIES TRANSACTIONS AND INVESTMENT INCOME: Securities transactions are
recorded on a trade date basis. Realized gains and losses from securities
transactions are recorded on the identified cost method. Dividend income is
recognized on the ex-dividend date and interest income is recognized on the
accrual basis. Discounts on debt securities are accreted to interest income over
the life of the security with a corresponding increase in the security's cost
basis.

(c) DIVIDENDS TO SHAREHOLDERS: Dividends payable to shareholders are recorded
by the Funds on the ex-dividend date. The SBSF Convertible Securities Fund
declares and pays dividends from net investment income quarterly. The SBSF Fund
and SBSF Capital Growth Fund declare and pay dividends from net investment
income semi-annually. With respect to each Fund, distributions from net realized
capital gains, offset by loss carryovers, if any, are declared and paid
annually. The amount of dividends and distributions from net investment income
and net realized capital gains are determined in accordance with federal income
tax regulations which may differ from generally accepted accounting principles.
These "book/tax" differences may be considered either temporary or permanent in
nature. To the extent these differences are permanent in nature, such amounts
are reclassified within the capital accounts based on their federal tax-basis
treatment; temporary differences do not require reclassification. Dividends and
distributions which exceed net investment income and net realized capital gains
for financial reporting purposes but not for tax purposes are reported as
dividends in excess of net investment income or distributions in excess of net
realized capital gains. To the extent they exceed net investment income and net
realized capital gains for tax purposes, they are reported as distributions of
paid-in capital.

(d) EXPENSES: Assets, liabilities and operations are accounted for separately
by each investment portfolio of the Company. Expenses directly attributable to
each investment portfolio are charged to that investment portfolio's operations;
expenses which are applicable to the several investment portfolios are allocated
among them in relation to the net assets of each investment portfolio or on
another reasonable basis.

(e) ORGANIZATIONAL EXPENSES: Costs incurred in connection with the organization
of the SBSF Capital Growth Fund amounted to $29,638. Such amount is being
amortized on a straight-line basis over a period not to exceed sixty months from
the date the Fund commenced operations.

20
<PAGE> 35

KEY MUTUAL FUNDS
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)
- --------------------------------------------------------------------------------

NOTE 3 -- INVESTMENT ADVISORY AND ADMINISTRATION FEES AND OTHER TRANSACTIONS
WITH AFFILIATES:

(a) INVESTMENT ADVISORY AND ADMINISTRATION FEES

On January 18, 1995, Spears, Benzak, Salomon & Farrell, Inc., the Funds'
investment adviser (the "Adviser" or "Spears") entered into a Share Exchange
Agreement and Plan of Reorganization which provided for the subsequent
acquisition of the Adviser by KeyCorp Asset Management Holdings, Inc. ("KAMHI"),
on April 5, 1995. As a result of the acquisition, the Adviser became a wholly
owned subsidiary of KAMHI, and an indirect wholly owned subsidiary of KeyBank
National Association (formerly Society National Bank, N.A.) and KeyCorp, a
financial services company. This change of control of the Adviser was deemed
under the Act to be an assignment of the Investment Advisory Agreement then in
effect between the Funds and the Adviser, which, in accordance with the terms of
the Act, resulted in the termination of such Investment Advisory Agreement. At
the Annual Meeting of Shareholders of the Funds held on March 29, 1995, the
shareholders of each of the Funds approved a new Investment Advisory Agreement
with the Adviser, which is substantially similar to, including the same fee
schedules as, the Funds' previous agreements. At a meeting of the Board of
Directors of the Company held on February 15, 1996, the Board approved the
continuance of the Investment Advisory Agreement until its next annual
consideration required under the Act.

Fees incurred by the Funds, pursuant to the provisions of the Investment
Advisory Agreement with the Adviser, are payable monthly and are computed based
on the value of the average daily net assets of each Fund at the annual rate of
0.75%. The Investment Advisory Agreement further provides that if in any fiscal
year the aggregate expenses of any Fund, excluding interest, taxes, brokerage
commissions, and extraordinary expenses, exceed the expense limitation of any
state having jurisdiction over a Fund, the Adviser will reimburse that Fund for
the excess expense to the extent required by such state laws. The Adviser
discontinued its voluntary waiver of advisory fees for the SBSF Capital Growth
Fund on October 1, 1995.

Prior to April 1, 1996, Spears, in addition to serving the Funds as Adviser,
served as Administrator to the Funds pursuant to an Administration Agreement.
For services rendered by Spears and related expenses borne by Spears as
Administrator, each Fund was obligated to pay Spears a fee, computed daily and
payable monthly, based on the average daily net assets of each Fund at an annual
rate of 0.25 of 1% of the first $50 million; 0.15 of 1% of the next $50 million;
and 0.05 of 1% of such net assets in excess of $100 million. Spears voluntarily
waived administration fees due from the SBSF Capital Growth Fund during the
month of December 1995 in the amount of $2,484. On January 1, 1996, Spears
discontinued its voluntary waiver of administration fees due from the SBSF
Capital Growth Fund and, accordingly, received administration fees from such
Fund through March 31, 1996.

Concord Holding Corporation ("Concord") served as Administrator to the Funds
(the "Administrator") during the period from April 1, 1996 through July 11, 1996
pursuant to an Administration Agreement. In this capacity, Concord provided
facilities, equipment, statistical and research data, clerical services, fund
accounting and internal compliance services and personnel necessary to carry out
all administrative services required for the operation of the business affairs
of the Funds. For services rendered by Concord and related expenses borne by
Concord as Administrator, each Fund was obligated to pay Concord a fee, computed
daily and payable monthly, based on the average daily net assets of each Fund at
an annual rate of 0.25 of 1% of the first $50 million and 0.15 of 1% of such net
assets in excess of $50 million. During the period April 1, 1996 through July
11, 1996, Concord voluntarily waived administration fees for the SBSF Fund in
the amount of $4,115. Pursuant to its authority to delegate its responsibilities
under the Administration Agreement, Concord entered into a Sub-Administration
Agreement with Spears whereby Spears performed certain sub-administrative and
fund accounting services for the Funds at the expense of Concord.

On July 12, 1996, BISYS Fund Services Limited Partnership, operating under the
name BISYS Fund Services, ("BISYS") assumed responsibilities as Administrator to
the Funds. The service and fee arrangements under the new Administration
Agreement with BISYS are substantially similar to the previous agreement with
Concord. Spears continues to serve as Sub-Administrator pursuant to a new
Sub-Administration Agreement with BISYS dated July 12, 1996. In addition to
serving the Funds as Administrator, BISYS also serves as independent distributor
(the "Distributor") of the Funds' capital stock.

(b) DIRECTORS' FEES: Fees of $7,500 per annum, and $750 per meeting, are paid
to each director of the Company.

21
<PAGE> 36

KEY MUTUAL FUNDS
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)
- --------------------------------------------------------------------------------

(c) DISTRIBUTION PLAN AND SHAREHOLDER SERVICING PLAN: Prior to July 12, 1996,
pursuant to a plan of distribution adopted under Rule 12b-1 under the Act, the
Funds were permitted to make payments for certain distribution related expenses
and to compensate or reimburse brokers, dealers and others in connection with
sales of Fund shares and service to shareholder accounts in an amount of up to
0.25% of the average daily net asset value of shares of each Fund on an
annualized basis. During the six-month period ended May 31, 1996, the SBSF Fund,
SBSF Convertible Securities Fund and the SBSF Capital Growth Fund paid $2,204,
$8,189 and $419, respectively, under such distribution plan. On July 12, 1996,
the Company implemented a revised distribution plan for the Funds (the
"Distribution Plan"). Separate payments are not currently authorized under the
Distribution Plan except to the extent that any portion of fees paid under a
Shareholder Servicing Plan (described below) are subsequently deemed to be for
services primarily intended to result in the sale of Fund shares.

Also on July 12, 1996, the Company adopted a Shareholder Servicing Plan under
which the Funds may pay fees of up to an annual rate of 0.25% of their average
daily net assets for fees incurred in connection with the personal service and
the maintenance of accounts holding shares of the Funds. Such agreements may be
entered between the Company, on behalf of the Funds, and various shareholder
servicing agents including the Distributor and affiliates of KeyCorp and the
Adviser.

(d) CUSTODIAN FEES: Key Trust Company of Ohio, N.A. ("Key Trust"), a subsidiary
of KeyCorp and an affiliate of the Adviser, is the custodian for the Funds' cash
and securities. Custodian fees, as reflected in the accompanying statements of
operations, represent fees paid by the Funds to Key Trust for services it
performs as custodian.
- --------------------------------------------------------------------------------

NOTE 4 -- SECURITIES TRANSACTIONS

For the six-month period ended May 31, 1996, the cost of purchases and the
proceeds from sales of investment securities, excluding short-term securities,
for the Funds amounted to:

<TABLE>
<CAPTION>
PURCHASES SALES
----------- -----------
<S> <C> <C>
SBSF Fund:
Stocks and bonds....................................... $21,168,739 $25,748,722
SBSF Convertible Securities Fund:
Stocks and bonds....................................... 20,876,195 14,334,890
SBSF Capital Growth Fund:
Stocks................................................. 52,520,207 27,026,692
</TABLE>

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

NOTE 5 -- FEDERAL INCOME TAX STATUS

It is the policy of each of the Funds to comply with the requirements of the
Internal Revenue Code applicable to regulated investment companies and to
distribute all of their taxable income to shareholders. Therefore, no federal
income tax provision is required. Each Fund is treated as a separate entity for
the purpose of determining such compliance.

During the year ended November 30, 1995, the SBSF Capital Growth Fund utilized
net capital loss carryovers of $90,518 which were offset against 1995 capital
gain distributions and it reclassified its net investment loss of $14,224 from
accumulated net investment loss to accumulated net realized gain.
- --------------------------------------------------------------------------------

NOTE 6 -- SUBSEQUENT EVENTS

DIVIDEND DISTRIBUTION:

On June 21, 1996, the Funds declared the following dividends per share:

<TABLE>
<CAPTION>
SBSF
SBSF CONVERTIBLE
FUND SECURITIES FUND
----- ---------------
<S> <C> <C>
Net investment income........................................ $0.05 $0.17
===== ==============
</TABLE>

These dividends were paid on June 26, 1996 to shareholders of record as of June
24, 1996.

22
<PAGE> 37

[THIS PAGE LEFT BLANK INTENTIONALLY]
<PAGE> 38

[THIS PAGE LEFT BLANK INTENTIONALLY]
<PAGE> 39

BOARD OF DIRECTORS

EDWARD P. CAMPBELL, DIRECTOR
Director, Executive Vice President
and Chief Operating Officer of
Nordson Corporation
Westlake, Ohio

EUGENE J. MCDONALD, DIRECTOR
Executive Vice President for Asset Management of
Duke University, and President of Duke Management Co.
Durham, North Carolina

FRANK A. WEIL, DIRECTOR AND NON-EXECUTIVE CHAIRMAN
Chairman and Chief Executive Officer of
Abacus Associates, Inc.
New York, New York

LEIGH A. WILSON, DIRECTOR AND PRESIDENT
Chairman and Chief Executive Officer of
Glenleigh International Limited
New York, New York

KEYFUNDS LOGO
<PAGE> 40

KEY MUTUAL FUNDS

INVESTMENT ADVISER AND SUB-ADMINISTRATOR
Spears, Benzak, Salomon & Farrell, Inc.
45 Rockefeller Plaza
New York, New York 10111

COUNSEL
Morrison & Foerster LLP
2000 Pennsylvania Avenue, N.W.
Washington, DC 20006

INDEPENDENT ACCOUNTANTS
Price Waterhouse LLP
1177 Avenue of the Americas
New York, New York 10036

CUSTODIAN
KeyTrust Company of Ohio, N.A.
127 Public Square
Cleveland, Ohio 44114

TRANSFER AGENT
State Street Bank and Trust Company
225 Franklin Street
Boston, Massachusetts 02110-2875

ADMINISTRATOR AND DISTRIBUTOR
BISYS Fund Services
3435 Stelzer Road
Columbus, Ohio 43219-3035

KEYFUNDS LOGO