<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JULY 12, 1996
FILE NO. 2-84920
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM N-1A
REGISTRATION STATEMENT UNDER
THE SECURITIES ACT OF 1933
POST-EFFECTIVE AMENDMENT NO. 24 /X/
(Check appropriate box or boxes)
REGISTRATION STATEMENT UNDER
THE INVESTMENT COMPANY ACT OF 1940
AMENDMENT NO. 25 /X/
SBSF FUNDS, INC.
(Exact Name of Registrant as Specified in Charter)
45 Rockefeller Plaza
New York, New York 10111
(Address of Principal Executive Offices)(Zip Code)
Registrant's Telephone Number, including Area Code: (212) 903-1255
LEIGH A. WILSON
c/o Karen F. Haber
KeyCorp Management Company
127 Public Square, 13th Floor
Cleveland, Ohio 44114
(Name and Address of Agent for Service)
COPIES TO:
MICHAEL R. PARKER, ESQ.
Spears, Benzak, Salomon & Farrell, Inc.
45 Rockefeller Plaza
New York, New York 10111
------------------------
ROBERT M. KURUCZA, ESQ.
MARCO E. ADELFIO, ESQ.
Morrison & Foerster LLP
2000 Pennsylvania Ave., NW
Washington, DC 20006
It is proposed that this filing will become effective (check appropriate box)
<TABLE>
<S> <C>
/X/ immediately upon filing pursuant to Rule 485(b), / / on (date) pursuant to Rule 485(b),
or or
/ / 60 days after filing pursuant to Rule 485(a)(1), / / on (date) pursuant to Rule 485(a)(1),
or or
/ / 75 days after filing pursuant to Rule 485(a)(2), / / on (date) pursuant to paragraph (a)(2) of
or Rule 485
</TABLE>
If appropriate, check the following box:
/ / this post-effective amendment designates a new effective date for a
previously filed post-effective amendment.
No filing fee is required under the Securities Act of 1933 because an indefinite
number of shares of the Registrant's Common Stock, par value $.01 per share, has
previously been registered pursuant to Rule 24f-2 under the Investment Company
Act of 1940. The Registrant filed the notice required by Rule 24f-2 on January
29, 1996 for its fiscal year ended November 30, 1995.
<PAGE> 2
EXPLANATORY NOTE
This Post-Effective Amendment No. 24 to the Registration Statement (the
"Amendment") of SBSF Funds, Inc. (d/b/a Key Mutual Funds)(the "Company") is
being filed (a) pursuant to a filing exemption granted by the staff of the
Securities and Exchange Commission under Rule 485(b) under the Securities Act of
1933, to reflect certain changes to the distribution plan adopted by the Key
Money Market Mutual Fund, the SBSF Fund, the SBSF Convertible Securities Fund
and the SBSF Capital Growth Fund and to add a shareholder servicing plan for
such Funds; (b) to separate the Prospectus for the Key Money Market Mutual Fund,
formerly the SBSF Money Market Fund, from the Prospectus for the SBSF Fund, the
SBSF Convertible Securities Fund and the SBSF Capital Growth Fund; and (c) to
make certain other non-material changes. This Amendment does not affect the
Registration Statement for the Key Stock Index Fund and the Key International
Index Fund currently in effect, or the Registration Statement for the Key Growth
Fund, Key Moderate Growth Fund, and Key Conservative Growth Fund, filed as
Post-Effective Amendment No. 22 to the Company's Registration Statement on June
7, 1996.
<PAGE> 3
KEY MONEY MARKET MUTUAL FUND
CROSS REFERENCE SHEET
(AS REQUIRED BY RULE 495)
<TABLE>
<CAPTION>
N-1A ITEM NO. LOCATION
- -------------- -------------------------------------------------
<S> <C> <C>
PART A PART A
Item 1. Cover Page............................ Cover Page
Item 2. Synopsis.............................. Fund Expenses
Item 3. Condensed Financial Information....... Financial Information Summary; Performance
Item 4. General Description of Registrant..... Description of Common Stock; Investment
Objectives and Policies;
Item 5. Management of the Fund................ Management of the Fund; Expenses and Distribution
Plan
Item 5A. Management's Discussion of Fund
Performance......................... Annual Report
Item 6. Capital Stock and Other Securities.... Description of Common Stock; Shareholder Reports;
Dividends and Distributions; Federal Income Taxes
Item 7. Purchase of Securities Being
Offered............................. Expenses, Distribution Plan and Shareholder
Servicing Plan; Determination of Net Asset Value;
Purchasing Shares; Investing for Retirement; The
Systematic Investment Plan; The Systematic
Withdrawal Plan; Exchange Privileges
Item 8. Redemption or Repurchase.............. Redeeming Shares
Item 9. Pending Legal Proceedings............. Not Applicable
PART B PART B
Item 10. Cover Page............................ Cover Page
Item 11. Table of Contents..................... Table of Contents
Item 12. General Information and History....... Additional Information
Item 13. Investment Objectives and Policies.... Investment Objectives and Policies; Investment
Restrictions; Portfolio Turnover
Item 14. Management of the Fund................ Management of the Fund
Item 15. Control Persons and Principal Holders
of Securities....................... Security Holders
Item 16. Investment Advisory and Other
Services............................ The Investment Adviser and Administrator;
Expenses, Distributor, Distribution Plan and
Shareholder Servicing Plan; Custodian, Transfer
Agent, Dividend Disbursing Agent and Shareholder
Servicing Agent; Independent Accountants
Item 17. Brokerage Allocation and Other
Practices........................... Portfolio Transactions and Brokerage
Item 18. Capital Stock and Other Securities.... Additional Information
Item 19. Purchase, Redemption and Pricing of
Securities Being Offered............ Purchase, Redemption and Pricing; Financial
Statements
Item 20. Tax Status............................ Federal Income Taxes
Item 21. Underwriters.......................... Expenses, Distributor, Distribution Plan and
Shareholder Servicing Plan
Item 22. Calculation of Performance Data....... Performance Information
Item 23. Financial Statements.................. Financial Statements
</TABLE>
PART C
Information required to be included in Part C is set forth under the appropriate
Item, so numbered in Part C to this Registration Statement.
<PAGE> 4
SBSF FUND
SBSF CONVERTIBLE SECURITIES FUND
SBSF CAPITAL GROWTH FUND
CROSS REFERENCE SHEET
(AS REQUIRED BY RULE 495)
<TABLE>
<CAPTION>
N-1A ITEM NO. LOCATION
- -------------- -------------------------------------------------
<S> <C> <C>
PART A PART A
Item 1. Cover Page............................ Cover Page
Item 2. Synopsis.............................. Fund Expenses
Item 3. Condensed Financial Information....... Financial Information Summary; Performance
Item 4. General Description of Registrant..... Description of Common Stock; Investment
Objectives and Policies
Item 5. Management of the Fund................ Management of the Funds; Expenses, Distribution
Plan and Shareholder Servicing Plan
Item 5A. Management's Discussion of Fund
Performance......................... Annual Report
Item 6. Capital Stock and Other Securities.... Description of Common Stock; Shareholder Reports;
Dividends and Distributions; Federal Income Taxes
Item 7. Purchase of Securities Being
Offered............................. Expenses, Distribution Plan and Shareholder
Servicing Plan; Determination of Net Asset Value;
Purchasing Shares; Investing for Retirement; The
Systematic Investment Plan; The Systematic
Withdrawal Plan; Exchanging Shares
Item 8. Redemption or Repurchase.............. Redeeming Shares
Item 9. Pending Legal Proceedings............. Not Applicable
PART B PART B
Item 10. Cover Page............................ Cover Page
Item 11. Table of Contents..................... Table of Contents
Item 12. General Information and History....... Additional Information
Item 13. Investment Objectives and Policies.... Investment Objectives and Policies; Investment
Restrictions; Portfolio Turnover
Item 14. Management of the Fund................ Management of the Funds
Item 15. Control Persons and Principal Holders
of Securities....................... Security Holders
Item 16. Investment Advisory and Other
Services............................ The Investment Adviser, Administrator and Sub-
Administrator; Expenses, Distributor,
Distribution Plan and Shareholder Servicing Plan;
Custodian, Transfer Agent, Dividend Disbursing
Agent and Shareholder Servicing Agent;
Independent Accountants
Item 17. Brokerage Allocation and Other
Practices........................... Portfolio Transactions and Brokerage
Item 18. Capital Stock and Other Securities.... Additional Information
Item 19. Purchase, Redemption and Pricing of
Securities Being Offered............ Purchase, Redemption and Pricing; Financial
Statements
Item 20. Tax Status............................ Federal Income Taxes
Item 21. Underwriters.......................... Expenses, Distributor, Distribution Plan and
Shareholder Servicing Plan
Item 22. Calculation of Performance Data....... Performance Information
Item 23. Financial Statements.................. Financial Statements
</TABLE>
PART C
Information required to be included in Part C is set forth under the appropriate
Item, so numbered in Part C to this Registration Statement.
<PAGE> 5
PROSPECTUS
[Logo]
KEY MUTUAL FUNDS
800-KEY-FUND
Key Mutual Funds, formerly known as SBSF Funds, Inc., (the "Company") is a
professionally managed, no-load, open-end, series investment company currently
consisting of several different portfolios, one of which is described in this
Prospectus, the Key Money Market Mutual Fund (the "Fund"). The Fund was formerly
known as SBSF Money Market Fund. The Fund is a separately managed diversified
portfolio with its own investment objective and policies. The Fund has no sales
charges, redemption fees or exchange fees.
Spears, Benzak, Salomon & Farrell, Inc. (the "Adviser" or "Spears"), an indirect
wholly owned subsidiary of KeyCorp with over $4.0 billion in assets under its
management as of March 31, 1996, serves as investment adviser to the Fund. The
Fund was created to provide informed investors with experienced, professional
investment management and personal service.
KEY MONEY MARKET MUTUAL FUND -- its investment objective is to provide high
current income to the extent consistent with preservation of capital. The Key
Money Market Mutual Fund invests in securities issued or guaranteed by the U.S.
Government or its agencies and instrumentalities, as well as repurchase
agreements with respect to such securities.
SHARES OF THE FUND ARE NOT DEPOSITS OR 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 ("FDIC"), THE FEDERAL RESERVE BOARD OR ANY OTHER AGENCY. AN
INVESTMENT IN MUTUAL FUND SHARES IS SUBJECT TO INVESTMENT RISKS, INCLUDING THE
POSSIBLE LOSS OF THE PRINCIPAL AMOUNT INVESTED. THE KEY MONEY MARKET MUTUAL FUND
IS NOT INSURED OR GUARANTEED BY THE U.S. GOVERNMENT OR ANY AGENCY, 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.
This Prospectus sets forth concisely the information about the Fund that a
prospective investor ought to know before investing. Additional information
about the Fund has been filed with the Securities and Exchange Commission in a
Statement of Additional Information dated July 12, 1996, as supplemented from
time to time, which is incorporated herein by reference and is available without
charge upon request by writing to Key Mutual Funds at P.O. Box 8527, Boston, MA
02266 or calling the Fund at 800-KEY-FUND or 800-539-3863.
Investors are advised to read and retain this Prospectus for future reference.
- --------------------------------------------------------------------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY
IS A CRIMINAL OFFENSE.
- --------------------------------------------------------------------------------
The date of this Prospectus is July 12, 1996
<PAGE> 6
- --------------------------------------------------------------------------------
TABLE OF CONTENTS
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
Fund Expenses.................................... 1
Financial Information Summary.................... 3
Investment Objective and Policies................ 4
Management of the Fund........................... 4
Expenses, Distribution Plan and Shareholder
Servicing Plan................................. 6
Determination of Net Asset Value................. 7
Purchasing Shares................................ 7
The Systematic Investment Plan................... 9
The Systematic Withdrawal Plan................... 9
Redeeming Shares................................. 10
Exchange Privileges.............................. 12
Investing For Retirement......................... 13
Dividends and Distributions...................... 13
Federal Income Taxes............................. 14
Performance...................................... 14
Description of Common Stock...................... 15
Custodian, Transfer Agent, Shareholder Servicing
Agent and Dividend Disbursing Agent............ 15
Shareholder Reports.............................. 16
</TABLE>
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<PAGE> 7
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FUND EXPENSES
- --------------------------------------------------------------------------------
EXPENSES ARE ONE OF SEVERAL FACTORS TO CONSIDER WHEN INVESTING IN THE FUND.
THE FOLLOWING TABLE SUMMARIZES SHAREHOLDER TRANSACTION EXPENSES AND ANNUAL FUND
OPERATING EXPENSES FOR THE FUND.
<TABLE>
<CAPTION>
KEY MONEY
MARKET MUTUAL FUND
------------------
<S> <C>
Shareholder Transaction Expenses (1):
Maximum sales load imposed on purchases................................................. None
Maximum sales load imposed on reinvested dividends...................................... None
Deferred sales load..................................................................... None
Redemption Fees......................................................................... None
Exchange Fees........................................................................... None
Annual Fund Operating Expenses:
(as a percentage of average net assets)
Management Fees (2)..................................................................... 0.25%
Other Expenses (3)(4)................................................................... 0.55%
------
Total Fund Operating Expenses (3)(4)...................................................... 0.80%
<FN> ===================
- --------------------------------------------------------------------------------
(1) Investors may be charged a fee if orders are placed through a broker or
agent, including affiliated banks and non-bank affiliates of KeyCorp. (See
"Purchasing Shares.")
(2) During the fiscal year ended November 30, 1995, the Adviser voluntarily
waived the Fund's advisory fee in an amount of 0.25%. It is anticipated that the
Adviser will discontinue its voluntary waiver of the advisory fee due from the
Fund.
(3) "Other Expenses" include such expenses as administration fees, custodial and
transfer agent fees, audit, legal and other business expenses. "Other Expenses"
also include the shareholder servicing fees that the Fund expects to pay during
the current fiscal year. The Fund may pay shareholder servicing fees at an
annual rate of up to 0.25% of its average daily net assets. See "Expenses,
Distribution Plan and Shareholder Servicing Plan" for additional information.
(4) "Other Expenses," and therefore "Total Fund Operating Expenses," have been
restated to reflect the adoption, by the Fund, of a shareholder servicing plan,
reductions in certain expense ratios that are expected to occur and changes in
fee waiver or reimbursement arrangements.
</TABLE>
- --------------------------------------------------------------------------------
The purpose of this table is to assist an investor in understanding the
various costs and expenses that an investor in the Fund will bear directly
("Shareholder Transaction Expenses") or indirectly ("Annual Fund Operating
Expenses"). For a more complete description of the Fund's operating expenses,
see "Expenses, Distribution Plan and Shareholder Servicing Plan." The Adviser
and/or the Fund's administrator may, from time to time, waive fees due from the
Fund or reimburse expenses paid by the Fund in order to enhance the Fund's
performance. For further details, see the Fund's Annual Report which is
available upon request and without charge by writing to the Fund or by calling
the Fund at 800-539-3863.
[Continued]
1
<PAGE> 8
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FUND EXPENSES [CONT.]
- --------------------------------------------------------------------------------
The following example demonstrates the projected dollar amount of total
cumulative expenses that would be incurred over various periods with respect to
the Fund.
<TABLE>
<CAPTION>
KEY MONEY
MARKET MUTUAL FUND
------------------
<S> <C>
Example
You would pay the following expenses on a $1,000 investment, assuming (1) 5% annual return
and (2) redemption at the end of each time period:
1 Year.................................................................................. $ 8
3 Years................................................................................. 26
5 Years................................................................................. 44
10 Years................................................................................ 99
</TABLE>
THIS EXAMPLE SHOULD NOT BE CONSIDERED A REPRESENTATION OF PAST OR FUTURE
EXPENSES AND ACTUAL EXPENSES MAY BE GREATER OR LESS THAN THOSE SHOWN. MOREOVER,
WHILE THE TABLE ASSUMES A 5% ANNUAL RETURN, THE FUND'S ACTUAL PERFORMANCE WILL
VARY AND MAY RESULT IN AN ACTUAL RETURN GREATER OR LESS THAN 5%. YOU WOULD PAY
THE SAME AMOUNT OF EXPENSES ON THE SAME INVESTMENT ASSUMING NO REDEMPTION AT THE
END OF EACH TIME PERIOD.
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2
<PAGE> 9
- --------------------------------------------------------------------------------
FINANCIAL INFORMATION SUMMARY
- --------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS (For a share outstanding throughout each period.)
The following information has been audited by Price Waterhouse LLP, independent
accountants, whose unqualified report on the five years ended November 30, 1995
is contained in the Fund's Annual Report and should be read in conjunction with
the financial statements and notes thereto.
The Fund's Annual Report, which is incorporated by reference into the
Statement of Additional Information, includes a discussion of those factors,
strategies and techniques that materially affected its performance during the
period of the report, as well as certain related information. A copy of the
Fund's Annual Report is available without charge upon request. See "Management
of the Fund" for a discussion of the waiver of Advisory and Administration fees.
<TABLE>
<CAPTION>
KEY MONEY MARKET
MUTUAL FUND (2)
-------------------
FISCAL YEAR ENDED
NOVEMBER 30,
-------------------
1995 1994 1993 1992 1991
---- ---- ---- ---- ----
Per Share Operating Performance:
<S> <C> <C> <C> <C> <C>
Net asset value,
beginning of period................................................... $1.000 $1.000 $1.000 $1.000 $1.000
Net Investment income................................................. 0.051 0.034 0.026 0.034 0.058
-------- -------- -------- -------- --------
Total from investment operations....................................... 0.051 0.034 0.026 0.034 0.058
Less: dividends and distributions:
Dividends from net investment income.................................. (0.051) (0.034) (0.026) (0.034) (0.058)
-------- -------- -------- -------- --------
Total dividends and distributions...................................... (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
========== ========== ========== ========== ==========
Total investment return................................................ 5.26% 3.37% 2.61% 3.48% 6.00%
Ratios/Supplemental Data:
Net assets end of period (in thousands)................................ $21,848 $28,606 $16,222 $12,531 $20,493
Ratio of expenses to average net assets................................ 0.63% 0.59% 0.55% 0.72% 0.59%
Ratio of net investment income to average net assets................... 5.15% 3.35% 3.16% 4.20% 6.38%
Decrease reflected in above expense ratios due to advisory and
administration fees waived............................................ 0.25% 0.25% 0.25% 0.25% 0.25%
<CAPTION>
1990 1989 1988 (1)
---- ---- ----
Per Share Operating Performance:
<S> <C> <C> <C>
Net asset value,
beginning of period................................................... $1.000 $1.000 $1.000
Net Investment income................................................. 0.077 0.086 0.050
-------- -------- --------
Total from investment operations....................................... 0.077 0.086 0.050
Less: dividends and distributions:
Dividends from net investment income.................................. (0.077) (0.086) (0.050)
-------- -------- --------
Total dividends and distributions...................................... (0.077) (0.086) (0.050)
-------- -------- --------
Net asset value, end of period......................................... $1.000 $1.000 $1.000
========== ========== ==========
Total investment return................................................ 8.07% 8.87% 4.76%
Ratios/Supplemental Data:
Net assets end of period (in thousands)................................ $22,424 $21,627 $24,354
Ratio of expenses to average net assets................................ 0.62% 0.68% 0.49%
Ratio of net investment income to average net assets................... 8.29% 9.29% 7.80%
Decrease reflected in above expense ratios due to advisory and
administration fees waived............................................ 0.25% 0.25% 0.30%
<FN>
- ---------------
(1) March 23, 1988 (commencement of operations) to November 30, 1988.
(2) From commencement of operations through July 11, 1996, Key Money Market
Mutual Fund was known as SBSF Money Market Fund.
</TABLE>
3
<PAGE> 10
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INVESTMENT OBJECTIVE AND POLICIES
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The investment objective and policies of the Fund are set forth below.
The investment objective of Key Money Market Mutual Fund is to provide high
current income to the extent consistent with preservation of capital. Portfolio
securities held by the Fund have remaining maturities of 397 days or less (with
certain exceptions) and the Fund will maintain a weighted average maturity of 90
days or less. The Key Money Market Mutual Fund seeks to attain its objective by
investing in obligations of, or guaranteed by, the United States Government, its
agencies or instrumentalities, including such obligations subject to repurchase
agreements. These include issues of the United States Treasury, such as bills,
certificates of indebtedness, notes and bonds, and issues of agencies and
instrumentalities established under the authority of an act of Congress. Some of
the latter category of securities are supported by the full faith and credit of
the United States Treasury, others are supported by the right of the issuer to
borrow from the Treasury, and still others are supported only by the credit of
the agency or instrumentality. Examples of each of the three types of securities
described in the preceding sentence are (i) obligations guaranteed by the
Export-Import Bank of the United States, (ii) obligations of the Federal
National Mortgage Association and (iii) obligations of the Student Loan
Marketing Association, respectively. Such instruments may produce a lower yield
than would be available from less highly rated instruments.
To the extent required by Ohio law applicable to permissible investments by
Ohio public entities other than the State, all obligations held by the Fund will
mature or be redeemable within two years from the date of purchase and
obligations securing repurchase agreements entered into by the Fund will mature
or be redeemable within two years of the date of consummation of the repurchase
agreement. A repurchase agreement is an instrument under which the purchaser
(i.e., the Fund) acquires a debt security and the seller agrees, at the time of
the sale, to repurchase the obligation at a mutually agreed upon time and price,
thereby determining the yield during the purchaser's holding period. This
results in a fixed rate of return insulated from market fluctuations during such
period.
There can be, of course, no assurance that the Key Money Market Mutual Fund
will achieve its investment objective. The Key Money Market Mutual Fund may not
achieve as high a current level of income as other funds that may invest in
securities of lesser quality and/or longer maturities.
The Key Money Market Mutual Fund reserves the right to concentrate in
securities issued or guaranteed as to principal and interest by the United
States Government, its agencies or instrumentalities or U.S. bank obligations.
The Key Money Market Mutual Fund currently intends to concentrate in securities
issued or guaranteed as to principal and interest by the United States
Government, its agencies or instrumentalities.
Investments in the Fund are not insured against loss of principal. No single
Fund should be considered, by itself, to provide a complete investment program
for any investor.
The investment policies of the Fund set forth above may be changed or altered
by the Board of Directors subject to certain investment restrictions, which set
percentage and other limitations on certain investments and investment
strategies, certain of which constitute fundamental policies. Fundamental
policies, which include the investment objective of the Fund, cannot be changed
without the approval of the holders of a majority of the outstanding voting
securities of the Fund. The restrictions are set forth under "Investment
Restrictions" in the Statement of Additional Information.
In order to permit the sale of the Fund's shares in certain states, the
Company may, on behalf of the Fund, make commitments to a state or states that
are more restrictive than the investment policies and limitations described in
the Prospectus and in the Statement of Additional Information.
- --------------------------------------------------------------------------------
MANAGEMENT OF THE FUND
- --------------------------------------------------------------------------------
DIRECTORS AND OFFICERS
The directors, in addition to reviewing the actions of the Fund's Adviser,
Administrator and Distributor, as set forth below, decide upon matters of
general policy. The Company's officers conduct and supervise the daily business
operations of the Fund. The names, addresses and business affiliations of the
directors and officers of the Company are set forth in the Statement of
Additional Information.
4
<PAGE> 11
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THE INVESTMENT ADVISER
The investment adviser to the Fund is Spears, Benzak, Salomon & Farrell, Inc.,
a New York corporation that is registered as an investment adviser with the
Securities and Exchange Commission. The Adviser is a wholly owned subsidiary of
KeyCorp Asset Management Holdings, Inc. ("KAMHI") and is an indirect wholly
owned subsidiary of KeyBank National Association ("KeyBank"), a wholly-owned
subsidiary of KeyCorp, one of the largest financial services holding companies
in the United States. KeyCorp's principal offices are located at 127 Public
Square, Cleveland, Ohio 44114.
The Adviser was, at March 31, 1996, investment adviser for assets aggregating
in excess of $4.0 billion. In addition, at March 31, 1996, the Adviser and its
affiliates managed approximately $48 billion for numerous clients. The Adviser's
advisory clients include, in addition to the Fund and other Funds of Key Mutual
Funds, individuals, pension and profit-sharing trusts, partnerships, endowments
and foundations. The Adviser's principal offices are located at 45 Rockefeller
Plaza, New York, New York 10111. Affiliates of the Adviser serve as investment
adviser or investment sub-adviser to The Victory Portfolios.
Pursuant to an Investment Advisory Agreement, the Adviser furnishes a
continuous investment program for the Fund, makes the day-to-day investment
decisions for the Fund, executes the purchase and sale orders for the portfolio
transactions of the Fund and generally manages the Fund's investments in
accordance with the stated policies of the Fund, subject to the general
supervision of the Board of Directors of the Company.
The Investment Advisory Agreement provides that the Key Money Market Mutual
Fund is obligated to pay the Adviser a fee, computed daily and payable monthly,
equal to 0.25% per annum of its average daily net assets. The Adviser
voluntarily waived its advisory fee of 0.25% due from Key Money Market Mutual
Fund for the year ended November 30, 1995. The Adviser is obligated to waive
fees payable by the Fund and, in certain circumstances, reimburse the Fund in
the event the Fund's expenses exceed certain prescribed limits. See "Expenses,
Distribution Plan and Shareholder Servicing Plan."
THE ADMINISTRATOR, DISTRIBUTOR AND SUB-ADMINISTRATOR
BISYS Fund Services ("BISYS") serves as Administrator to the Fund. In this
capacity, BISYS administers certain of the Fund's operations subject to the
supervision of the Board of Directors. Pursuant to an Administration Agreement,
in consideration of its administration fee, BISYS performs clerical, accounting
and office service functions for the Fund and provides the Fund with personnel
to perform accounting and related services. BISYS also is responsible for
calculating the Fund's net asset value and yield, preparing reports to and
filings with regulatory authorities, servicing shareholder accounts and
performing such other services as the Fund may from time to time request. The
Administration Agreement provides that in the absence of willful misfeasance,
bad faith or negligence on the part of BISYS, or of reckless disregard of its
obligations thereunder, BISYS shall not be liable for any error of judgment or
mistake of law or for any loss suffered by the Company in connection with
matters to which the Administration Agreement relates. Concord Holding
Corporation succeeded Spears as the Administrator of the Fund on April 1, 1996,
and BISYS Fund Services succeeded Concord Holding Corporation as the
Administrator for the Fund on July 12, 1996.
Under the Administration Agreement, as compensation for the administrative
services rendered to the Fund and related expenses borne by BISYS, the Fund is
obligated to pay BISYS an annual fee, computed daily and payable monthly, equal
to 0.25% of its average daily net assets up to $50,000,000, plus 0.15% of such
assets greater than $50,000,000. For the fiscal year ended November 30, 1995,
the Key Money Market Mutual Fund (then known as the SBSF Money Market Fund) paid
Spears, under prior administration arrangements, fees at the effective annual
rate of 0.25% of the Fund's average daily net assets.
BISYS also serves as the independent underwriter and distributor of the shares
of the Fund ("BISYS" or the "Distributor"). Pursuant to the Distribution
Agreement between the Company and BISYS, BISYS is obligated to use its best
efforts to sell shares of the Fund. In addition, under the Distribution
Agreement, BISYS may enter into agreements with selected dealers for the
distribution of shares. Spears neither participates in nor is responsible for
the underwriting of Fund shares. BISYS Fund Services succeeded Concord Financial
Group, Inc. as the Fund's distributor as of July 1, 1996.
5
<PAGE> 12
- --------------------------------------------------------------------------------
Pursuant to a Sub-Administration Agreement between Spears and BISYS Fund
Services, Spears provides the Key Money Market Mutual Fund, the SBSF Fund, the
SBSF Convertible Securities Fund and the SBSF Capital Growth Fund with certain
subadministrative and fund accounting services. For its services as sub-
administrator, BISYS pays Spears an annual fee of $500,000.
The Distributor, at its expense, may provide additional cash compensation to
dealers in connection with sales of shares of the Fund. The maximum cash
compensation payable by the Distributor is 0.25%, on an annual basis, of the net
asset value of the shares of the Fund. In addition, the Distributor will, from
time to time and at its own expense, provide compensation, including financial
assistance, to dealers in connection with conferences, sales or training
programs for their employees, seminars for the public, advertising campaigns
regarding one or more Key Mutual Funds and/or other dealer-sponsored special
events, including payment for travel expenses and lodging incurred in connection
with trips taken by invited registered representatives and members of their
families to locations within or outside of the United States for meetings or
seminars of a business nature. Compensation will include the following types of
non-cash compensation offered through sales contests: (1) vacation trips,
including the provision of travel arrangements and lodging; (2) tickets for
entertainment events (such as concerts, cruises and sporting events) and (3)
merchandise (such as clothing, trophies, clocks and pens). Dealers may not use
sales of the Fund's shares to qualify for this compensation if prohibited by the
laws of any state or any self-regulatory organization, such as the National
Association of Securities Dealers, Inc. None of the aforementioned compensation
is paid for by the Fund or its shareholders.
Morrison & Foerster LLP, counsel to the Company and special counsel to Spears,
has advised the Company and Spears that Spears and its affiliates may perform
the services contemplated by the Investment Advisory Agreement and this
Prospectus without violation of the Glass-Steagall Act. Such counsel has pointed
out, however, that there are no controlling judicial or administrative
interpretations or decisions and that future judicial or administrative
interpretations of, or decisions relating to, present federal or state statutes,
including the Glass-Steagall Act, and regulations relating to the permissible
activities of banks and their subsidiaries or affiliates, as well as future
changes in such statutes, regulations and judicial and administrative decisions
or interpretations, could prevent such entities from continuing to perform, in
whole or in part, such services. If any such entity were prohibited from
performing any of such services, it is expected that new agreements would be
proposed or entered into with another entity or entities qualified to perform
such services.
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EXPENSES, DISTRIBUTION PLAN AND SHAREHOLDER SERVICING PLAN
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Except as set forth above under "Management of the Fund" and as set forth
below, the Fund bears the expenses directly applicable to it and a portion of
the general administrative expenses, applicable to all the Funds of Key Mutual
Funds, which may be allocated among the Funds in a manner believed to be fair
and equitable. Expenses that are directly applicable to a Fund include expenses
of portfolio transactions, shareholder servicing costs, expenses of registering
shares under federal and state securities laws, pricing costs (including the
daily calculation of net asset value), interest, certain taxes, legal and
auditing expenses directly incurred by the Fund, and charges of Spears, BISYS,
the Custodian, the Transfer Agent, the Shareholder Servicing Agent, and the
Distributor. General expenses which would be allocated include directors' fees,
general corporate legal and auditing expenses, state franchise taxes, costs of
printing and mailing proxies, shareholder reports and prospectuses sent to
existing shareholders, trade association fees, Securities and Exchange
Commission fees and accounting costs.
The Company has adopted a Distribution Plan (the "Distribution Plan") for the
Key Money Market Mutual Fund pursuant to Rule 12b-1 under the 1940 Act. No
separate payments are authorized to be made by the Fund under the Plan. Rather,
the Plan provides that to the extent that any portion of the fees payable under
the Shareholder Servicing Plan or any Shareholder Servicing Agreement (described
below) is deemed to be for services primarily intended to result in the sale of
Fund shares, such fees are deemed approved and may be paid pursuant to the Plan
and in accordance with Rule 12b-1.
The Company has adopted a Shareholder Servicing Plan for the Key Money Market
Mutual Fund. In accordance with the Shareholder Servicing Plan, the Company, on
behalf of the Fund, may enter into shareholder service agreements under which
the Fund may
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pay fees of up to 0.25% of its average daily net assets for expenses incurred in
connection with the personal service and the maintenance of accounts holding the
shares of the Fund. Such agreements are entered between the Company, on behalf
of the Fund, and various shareholder servicing agents, including Spears, the
Distributor, Key Trust Company of Ohio, N.A. and its affiliates, and other
financial institutions and securities brokers (each a "Shareholder Servicing
Agent"). Each Shareholder Servicing Agent generally will provide support
services to shareholders by establishing and maintaining accounts and records,
processing dividend and distribution payments, providing account information,
arranging for bank wires, responding to routine inquiries, forwarding
shareholder communications, assisting in the processing of purchase, exchange
and redemption requests, and assisting shareholders in changing dividend
options, account designations and addresses. Shareholder Servicing Agents may
periodically waive all or a portion of their respective shareholder servicing
fees with respect to the Fund.
The Adviser has agreed that if in any fiscal year the sum of the Fund's
expenses exceeds the limits set by applicable regulations of state securities
commissions, the amounts payable by the Fund to Spears for the advisory fee for
that year shall be reduced accordingly. In addition, in certain circumstances,
Spears is obligated to reimburse the expenses of the Fund to the extent they
exceed any such state expense limitations. For further information see
"Expenses, Distributor, Distribution Plan and Shareholder Servicing Plan" in the
Statement of Additional Information.
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DETERMINATION OF NET ASSET VALUE
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The net asset value of the shares of the Key Money Market Mutual Fund is
determined at 2:00 P.M., Eastern Time, each Business Day (a "Valuation Time"). A
"Business Day" is a day on which the New York Stock Exchange ("NYSE") is open
for trading. The NYSE will be closed in observance of the following holidays:
New Year's Day, Presidents' Day, Good Friday, Memorial Day, Independence Day,
Labor Day, Thanksgiving and Christmas.
The Key Money Market Mutual Fund will seek to maintain a constant net asset
value per share of $1.00; however there can be no assurance that this will be
attained.
In general, the Fund's net asset value is equal to the value of its
securities, cash and other assets, less liabilities, divided by the number of
shares outstanding. The Key Money Market Mutual Fund values all its portfolio
securities using the amortized cost method.
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PURCHASING SHARES
- --------------------------------------------------------------------------------
Shares may be purchased directly or through an Investment Professional of a
securities broker or other financial institution that has entered into selling
or servicing agreements with Key Mutual Funds or BISYS. An Investment
Professional is a salesperson, financial planner, investment adviser or trust
officer who provides you with information regarding the investment of your
assets. Shares are also available to clients of bank trust departments who have
qualified trust accounts. The minimum investment is $500 ($250 for Individual
Retirement Accounts) for the initial purchase and $25 thereafter. Accounts set
up through a bank trust department or an Investment Professional may be subject
to different minimums, features, requirements and fees. The Investment
Professional will provide this information to you.
Shares of the Fund are sold at the net asset value per share (see
"Determination of Net Asset Value") next determined after receipt and acceptance
by State Street Bank and Trust Company, the Fund's transfer agent (the "Transfer
Agent"), of an order to purchase shares. There are no sales commissions.
Purchases of shares will be effected only on a Business Day (as defined in
"Determination of Net Asset Value") of Key Mutual Funds. An order received and
accepted prior to the Valuation Time on any Business Day will be executed at the
net asset value determined as of the next Valuation Time on that Business Day.
An order accepted after the Valuation Time on any Business Day will be executed
at the net asset value determined as of the next Valuation Time on the next
Business Day of Key Mutual Funds. Generally, shares of the Fund begin accruing
income dividends on the day they are purchased.
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INVESTING DIRECTLY
BY MAIL:
You may purchase shares by completing and signing an Account Application
(initial purchase only) and mailing it, together with a check (or other
negotiable bank draft or money order) in at least the minimum investment
requirement to:
Key Mutual Funds
P.O. Box 8527
Boston, Massachusetts 02266-8527
Subsequent purchases may be made in the same manner.
BY TELEPHONE:
Subsequent purchases of shares of the Fund may be made by telephone if you
have checked the Telephone Authorization box and supplied the necessary bank
information on the Account Application. The purchase amount will be transferred
between the bank account designated and your fund account via Automated Clearing
House ("ACH"). Only a bank account maintained in a domestic financial
institution which is an ACH member may be so designated. The Fund may modify or
terminate the telephone and/or ACH privilege at any time or charge a service fee
upon notice to shareholders. No such fee is currently contemplated. If the
designated bank account does not contain sufficient assets at the time your
order is processed, the order may be canceled, and you could be liable for
resulting fees and/or losses. Note that this service requires approximately 15
days to establish. Therefore, it may not be applicable to request your initial
purchase utilizing this method.
BY WIRE:
If an Account Application has been previously received by the Transfer Agent,
you may also purchase shares by wiring funds to: State Street Bank and Trust
Co., ABA #011000028, For Credit to DDA Account #9905-201-1, for Further Credit
to Key Mutual Funds Account #[insert your account number, name and control
number assigned by the Transfer Agent]. The Transfer Agent does not charge a
wire fee. PRIOR TO WIRING ANY FUNDS AND IN ORDER TO ENSURE THAT WIRE ORDERS ARE
INVESTED PROMPTLY, YOU MUST CALL THE TRANSFER AGENT AT 800-539-3863.
INVESTING THROUGH INVESTMENT PROFESSIONALS OR A BANK TRUST DEPARTMENT
Shares may be purchased by investors who designate an Investment Professional
or a bank trust department through procedures established by the Transfer Agent
in connection with requirements of qualified accounts maintained by or on behalf
of certain persons by Investment Professionals and bank trust departments. With
respect to such purchases, it is the responsibility of the Investment
Professional or bank trust department to transmit purchase orders to the
Transfer Agent and to deliver federal funds for purchase on a timely basis in
order to receive that day's price. Accounts set up through an Investment
Professional or bank trust department may be subject to different minimums,
features, requirements and fees in connection with purchases and redemptions of
shares. Contact your Investment Professional or trust representative for
complete information. Investors should note that they may not be able to access
their account on days on which the Fund is open for business but their
Investment Professional or bank trust department is closed.
The services rendered by your bank trust department, including affiliates of
the Adviser, in the management of its accounts are not duplicative of any of the
services for which the Adviser is compensated. The additional fees paid by
clients of bank trust departments, their affiliates, or an Investment
Professional should be considered in calculating the net yield on investment in
the Fund, although such charges do not affect the Fund's dividends or
distributions.
ADDITIONAL INVESTMENT REQUIREMENTS
All purchases must be made in U.S. dollars. Checks must be drawn on U.S.
banks. No cash will be accepted. All purchases made by check should be in U.S.
dollars and made payable to Key Mutual Funds, or, in the case of a retirement
account, to the custodian or trustee. Third party checks will not be accepted.
When purchases are made by check or periodic account investment, redemptions
will not be allowed until the investment being redeemed has been in the account
for 15 calendar days. If you make a purchase with more than one check, each
check must have a value of at least $25, and the minimum investment requirement
still applies. Key Mutual Funds and its servicing agents reserve the right to
limit the number of checks processed at one time. If your check does not clear,
your purchase may be canceled and you could be liable for any losses and/or fees
incurred. Payment for purchase is expected at the time of the order. If pay-
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ment is not received within three business days of the order, the order may be
canceled, and you could be held liable for resulting fees and/or losses.
You may initiate any transaction by telephone through your Investment
Professional, or bank trust department. Subsequent investments by telephone may
be made directly. Note that Key Mutual Funds and its agents will not be
responsible for any losses resulting from unauthorized transactions if they
follow reasonable procedures designed to verify the identity of the caller.
These procedures may include requesting additional information, or using
personalized security codes. Your Investment Professional or the Transfer Agent
also may record calls, and you should verify the accuracy of your confirmation
statements immediately after you receive them. The Transfer Agent may reject any
purchase order for the Fund's shares within its sole discretion.
You will receive a monthly statement reflecting all transactions that affect
the share balance or the registration of your Fund account. You will receive a
confirmation after every transaction that affected the share balance in your
Fund account, except for dividend reinvestment, systematic investment and
systematic withdrawal transactions. These transactions will be detailed in your
Fund account statement. The Fund does not issue stock certificates for the
shares.
Although the Fund continuously offers its shares for sale, the Fund reserves
the right to reject any purchase request.
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THE SYSTEMATIC INVESTMENT PLAN
- --------------------------------------------------------------------------------
Under the Systematic Investment Plan, you may make regular systematic monthly,
quarterly, semi-annual or annual purchases of shares of the Fund through
automatic deductions from your bank account(s). Upon obtaining your
authorization, the Fund's Transfer Agent will deduct the specified amount from
your designated bank account, which amount will then be automatically invested
in shares of the Fund at the net asset value next determined. Bank accounts will
be debited on any day from the 1st through the 28th of the relevant month, as
selected by the shareholder. You must first meet the Fund's initial investment
requirement of $500 and are subject to a minimum subsequent investment of $25.
For officers, trustees, directors and employees, including retired directors and
employees, of Spears, Key Mutual Funds, BISYS, KeyCorp and its affiliates, (and
family members of each of the foregoing) who participate in the Systematic
Investment Plan, there is no minimum initial investment required.
To participate in the Systematic Investment Plan, complete the appropriate
section of the account application and attach a voided personal check with the
bank's magnetic ink coding number across the front. If the bank account is
jointly owned, all owners must sign. Account applications can be obtained by
calling the Transfer Agent at 800-539-3863. To change or discontinue existing
Systematic Investment Plan instructions, submit a written request to or call the
Transfer Agent at 800-539-3863.
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THE SYSTEMATIC WITHDRAWAL PLAN
- --------------------------------------------------------------------------------
The Systematic Withdrawal Plan enables shareholders to make regular monthly,
quarterly, semi-annual or annual redemptions of shares. With your authorization,
the Transfer Agent will automatically redeem shares at the net asset value on
the date of the withdrawal and have the proceeds transferred according to your
written instructions. Fund accounts will be debited on any day from the 1st
through the 28th of each month.
You can have proceeds sent from your Fund account directly to you, to your
bank account or to a third person. If you opt to have the proceeds sent to your
bank checking account, a voided personal check with the bank's magnetic coding
number across the front must be attached to the account application. The
proceeds will be transferred between your fund account and the bank account via
ACH. If the bank checking account is jointly owned, all owners must sign the
application.
To participate in the Systematic Withdrawal Plan, the required minimum balance
is $5,000 per Fund. The required minimum withdrawal is $25.
To participate in the Systematic Withdrawal Plan, call 800-539-3863 for more
information. Systematic Withdrawal Plan payments are drawn from share re-
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demptions. If Systematic Withdrawal Plan redemptions exceed income and capital
gain dividend distributions earned on Fund shares, the Fund account may
eventually be exhausted. Your account cannot be closed automatically by
depleting the assets in your Systematic Withdrawal Plan. The Systematic
Withdrawal Plan is not necessarily appropriate for use in conjunction with the
Systematic Investment Plan. To change or terminate Systematic Withdrawal Plan
instructions, submit a written request to, or call the Transfer Agent at
800-539-3863. The Systematic Withdrawal Plan may be modified or terminated at
any time without notice.
If the amount of the automatic withdrawal exceeds the income accrued for the
period, the principal balance invested will be reduced and shares will be
redeemed.
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REDEEMING SHARES
- --------------------------------------------------------------------------------
Shares may ordinarily be redeemed by mail or telephone. However, all or part
of your shares may be redeemed in accordance with instructions and limitations
pertaining to your account with an Investment Professional. For example, if you
have agreed with an Investment Professional to maintain a minimum balance in
your account with the Investment Professional, and the balance in that account
falls below that minimum, you may be obligated to redeem, or the Investment
Professional may redeem for you and on your behalf, all or part of your shares.
BY MAIL:
In order to redeem shares by mail, send a written request to:
Key Mutual Funds
P.O. Box 8527
Boston, MA 02266-8527
The Transfer Agent may require a signature guarantee by an eligible guarantor
institution. A signature guarantee is designed to protect you, the Fund, and
your and the Fund's agents from fraud. A written redemption request requires a
signature guarantee for redemptions of more than $10,000 worth of shares; if
your Fund account registration has changed within the last 60 days; if the check
is not being mailed to the address on your account; if the check is not being
made out to the account owner; or if the redemption proceeds are being
transferred to another account within Key Mutual Funds or The Victory Portfolios
with a different registration. The following institutions should be able to
provide you with a signature guarantee: banks, brokers, dealers, credit unions
(if authorized under state law), securities exchanges and associations, clearing
agencies, and savings associations. A signature guarantee may not be provided by
a notary public. The Transfer Agent reserves the right to reject any signature
guarantee if (1) it has reason to believe that the signature is not genuine, (2)
it has reason to believe that the transaction would otherwise be improper, or
(3) the guarantor institution is a broker or dealer that is neither a member of
a clearing corporation nor maintains net capital of at least $100,000.
BY TELEPHONE:
Arrangements for the payment of redemption proceeds may be made by telephone
if you have checked the Telephone Authorization box and supplied the necessary
bank information on the Fund's Account Application. Proceeds may be wired to a
domestic financial institution, sent via ACH, mailed to the address of record,
or mailed to a previously designated alternate address. If you select the ACH
method, only a bank account maintained in a domestic financial institution which
is an ACH member may be so designated.
It is not necessary to confirm telephone redemption requests in writing. If
you did not originally select the telephone authorization privilege, you must
provide written instructions as well as a signature guarantee to the Transfer
Agent to add this feature. Neither Key Mutual Funds nor its service agents will
be liable for any loss, damages, expense or cost arising out of any telephone
redemption effected in accordance with Key Mutual Funds' telephone redemption
procedures and pursuant to instructions reasonably believed to be genuine. Key
Mutual Funds will employ procedures designed to provide reasonable assurance
that instructions by telephone are genuine; if these procedures are not
followed, Key Mutual Funds or its service agents may be liable for any losses
due to unauthorized or fraudulent instructions. These procedures include, but
are not limited to, recording of phone conversations, sending confirmations to
shareholders within 72 hours of the telephone transaction, verification of
account name and account number or tax identification number, and sending
redemption
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proceeds to the address of record, a previously designated bank account or
alternate address. For telephone redemptions, call the Transfer Agent at
800-539-3863. If you are unable to reach the Transfer Agent by telephone (for
example, during time of unusual market activity), consider placing your order by
mail directly to the Transfer Agent.
ADDITIONAL REDEMPTION INFORMATION
Redemption orders are effected at the net asset value per share next
determined after the shares are properly tendered for redemption, as described
above. The proceeds paid upon redemption of shares in the Fund may be more or
less than the amount invested. A redemption, including those under the
Systematic Withdrawal Plan, may therefore result in gain or loss for federal
income tax purposes. Furthermore, purchases of additional shares concurrent with
redemptions may have adverse tax consequences. Payment to shareholders for
shares redeemed will be made within three Business Days after receipt by the
Transfer Agent of the request for redemption in proper form.
At various times, Key Mutual Funds may be requested to redeem shares of a Fund
for which good payment has not yet been received. In such circumstances, Key
Mutual Funds may delay the forwarding of proceeds for 15 days or more without
interest to the shareholder until payment has been collected for the purchase of
such shares. Key Mutual Funds intends to pay cash for all shares redeemed, but
under unusual circumstances, Key Mutual Funds may make payment wholly or partly
in portfolio securities at their then-current market value equal to the
redemption price. In such cases, an investor may incur brokerage costs in
converting such securities to cash.
Due to the relatively high cost of handling small investments, Key Mutual
Funds reserves the right to redeem, at net asset value, shares in your account
if, because of redemptions of shares by you or on your behalf, your account with
respect to a Fund has a value of less than $500 (except with respect to
officers, trustees, directors and employees, including retired directors and
employees, of Spears, Key Mutual Funds, KeyCorp and its affiliates, (and family
members of each of the foregoing) participating in the Systematic Investment
Plan, to whom no minimum balance requirement applies). IRA and Keogh accounts
are exempt from this mandatory redemption. Before Key Mutual Funds exercises the
right to redeem such shares and to send the proceeds to you, you will be given
notice that the value of the shares in your account is less than the minimum
amount and will be allowed 60 days to make an additional investment in the Fund
in an amount which will increase the value of the account to at least $500, if
applicable.
Key Mutual Funds reserves the right to reject any order for purchase of its
shares in whole or in part.
Key Mutual Funds may suspend the right of redemption during any period when
(a) trading on the NYSE is restricted as determined by the Securities and
Exchange Commission or such Exchange is closed, other than customary weekend and
holiday closings; (b) the Securities and Exchange Commission has by order
permitted such suspension or postponement; or (c) an emergency, as defined by
rules of the Securities and Exchange Commission, exists making disposal of
portfolio securities or determination of the value of assets of the Funds not
reasonably practicable. In case of a suspension of the right of redemption, the
offer of redemption may be withdrawn by the shareholder, or payment will be made
at the net asset value next determined after the suspension has been terminated.
FREE CHECKING
Investors in the Key Money Market Mutual Fund may request a supply of checks
from the Transfer Agent. A check may be made payable to the order of anyone in
an amount of $100 or more. These checks may be used as one would use any
ordinary commercial bank check except that the checks may not be certified. The
payee of such a check may deposit it. The checks are drawn on a special account
maintained by the Key Money Market Mutual Fund at State Street Bank and Trust
Company. When such a check is presented to State Street Bank and Trust Company
for payment, it, as agent for the shareholder, redeems a sufficient number of
full and fractional shares in the shareholder's account to cover the amount of
the check.
A shareholder in the Key Money Market Mutual Fund who uses a check to make a
redemption receives dividends on the shares to be redeemed up to and including
the Business Day the check clears.
There is no charge to the shareholder for this checking service. Each check
sent to a shareholder has his or her name and Key Money Market Mutual Fund
account number printed thereon. Shareholders electing the checking option are
subject to the procedures, rules and regulations of State Street Bank and Trust
Company governing checking accounts. Checks drawn on a jointly owned account, at
the option of the joint owners, may require only one signature. State Street
Bank and Trust Company will not honor checks which are in
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amounts exceeding the value of the shareholder's account at the time the check
is presented for payment. Since the dollar value of the account changes daily,
the total value of the account cannot be determined in advance and the account
cannot be entirely redeemed by check.
An investor wishing to avail himself or herself of this method of redemption
should elect it on the subscription order form. Individuals and joint tenants
are not required to furnish any supporting documentation. However, corporations
and other entities are required to furnish a certified resolution or other
evidence of authorization in accordance with normal banking practices.
Appropriate authorization forms are available from the Transfer Agent. As soon
as such forms are filed in good order with the Transfer Agent, it will provide
the shareholder with a supply of checks.
This checking service may be terminated at any time by the Fund or by the
Transfer Agent.
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EXCHANGE PRIVILEGES
- --------------------------------------------------------------------------------
Shares of the Fund may be exchanged for shares of any Fund of Key Mutual
Funds. You may also exchange shares of the Fund for shares of funds in the
Victory Group (each a "Victory Fund") that are not subject to either a front-end
or a contingent deferred sales charge. In addition, shareholders of Key Mutual
Funds who qualify for a waiver of a front-end sales charge otherwise applicable
to a purchase of shares of a Victory Fund may exchange their shares of the Fund
for shares of a Victory Fund. Shares of the Fund may also be exchanged for Key
Class shares of a Victory Fund, when and if such shares become available.
Exchanges will be made on the basis of the relative net asset value of the
shares of the respective Funds. To exchange shares, several conditions must be
met:
(1) Shares of the fund selected for exchange must be available for sale in your
state of residence.
(2) The prospectuses of this Fund and the fund whose shares you want to buy must
offer the exchange privilege.
(3) You must hold the shares you buy when you establish your account for at
least 7 days before you can exchange them; after the account is open 7 days,
you can exchange shares on any Business Day.
(4) You must meet the minimum purchase requirements for the fund you purchase by
exchange.
(5) The registration and tax identification numbers of the two accounts must be
identical.
(6) BEFORE EXCHANGING, OBTAIN AND READ THE PROSPECTUS FOR THE FUND YOU WISH TO
PURCHASE BY EXCHANGE.
Telephone exchange requests may be made either by calling your Investment
Professional or the Transfer Agent at 800-539-3863 prior to Valuation Time on
any Business Day. (See "Determination of Net Asset Value.")
Exchange of shares involve a redemption of the shares exchanged and a purchase
of shares acquired. There are certain exchange policies you should be aware of:
- Shares are normally redeemed from one fund and issued from the other fund in
the exchange transaction on the same Business Day on which the Transfer
Agent receives an exchange request by Valuation Time (normally 2:00 p.m.
Eastern time for the money market fund) that is in proper form, but either
fund may delay the issuance of shares of the fund into which you are
exchanging if it determines it would be disadvantaged by a same-day transfer
of the proceeds to buy shares. For example, the receipt of multiple exchange
requests from a dealer in a "market-timing" strategy might create excessive
turnover in the Fund's portfolio and associated expenses disadvantageous to
the Fund.
- Because excessive trading can hurt fund performance and harm shareholders,
the Fund reserves the right to refuse any exchange request that will impede
the Fund's ability to invest effectively or otherwise have the potential to
disadvantage the Fund, or to refuse multiple exchange requests submitted by
a shareholder or dealer.
- Key Mutual Funds may amend, suspend or terminate the exchange privilege at
any time upon 60 days' written notice to shareholders.
- If the Transfer Agent cannot exchange all the shares you request because of
a restriction cited above, only the shares eligible will be exchanged.
- Each exchange may result in a gain or loss for federal income tax purposes.
See "Redeeming Shares -- By Telephone" for a discussion of certain limitations
on the liability of Key Mutual Funds and the Transfer Agent in connection with
unauthorized telephone transactions.
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INVESTING FOR RETIREMENT
- --------------------------------------------------------------------------------
You may wish to invest in Key Mutual Funds in connection with Individual
Retirement Accounts (IRAs) and other retirement plans such as Simplified
Employee Pension Plans (SEP/IRA), Salary Reduction Simplified Employee Pension
Plans (SAR-SEP/IRA), 401(k) Plans, and 403(b) Plans. For more information about
investing in Key Mutual Funds through tax-deferred accounts, call 800-539-3863.
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DIVIDENDS AND DISTRIBUTIONS
- --------------------------------------------------------------------------------
The Fund distributes to shareholders substantially all of its net investment
income and any net realized taxable capital gains resulting from sales of
portfolio securities.
Dividends on shares of the Key Money Market Mutual Fund are declared daily,
and paid monthly on or about the first business day of the following month.
Unless the shareholder instructs otherwise, all dividends and distributions of
the Key Money Market Mutual Fund are reinvested in additional shares, at net
asset value, on the payment date.
DISTRIBUTION OPTIONS
When you fill out your Account Application, you can specify how you want to
receive your dividends and distributions. Currently, there are five available
options:
1. REINVESTMENT OPTION. Your dividends and capital gain distributions, if any,
will be automatically reinvested in additional shares of the Fund. Dividends
and capital gain distributions will be reinvested at the net asset value of
the Fund as of the day after the record date. If you do not indicate a choice
on your Account Application, you will be assigned this option.
2. CASH OPTION. You will receive a check for each dividend or capital gain
distribution, if any. Checks will be mailed no later than seven days after
the payment date, which may be more than seven days after the record date.
3. INCOME EARNED OPTION. You will have your capital gain distributions, if any,
reinvested automatically in the Fund at the NAV as of the day after the
record date, and have your dividends paid in cash.
4. DIRECTED DIVIDENDS OPTION. You will have dividends and capital gain
distributions, or only capital gain distributions, automatically reinvested
in shares of another Key Mutual Fund, in shares of a Victory Fund or in Key
Class shares of a Victory Fund, when and if such shares become available, as
you have designated. Shares will generally be purchased at the NAV as of the
day after the record date. If, however, you are reinvesting dividends of a
fund sold without a sales charge in shares of a fund sold with a sales
charge, the shares will be purchased at the public offering price (i.e.,
subject to the applicable sales charge). Similarly, if you are reinvesting
dividends of a fund which does not impose a contingent deferred sales charge
upon redemption in shares of a fund which does impose such a charge, a
contingent deferred sales charge may be imposed on the redemption of the
shares acquired with reinvested dividends. Dividend distributions can be
directed only to an existing account with a registration that is identical to
that of your Fund account.
5. DIRECTED BANK ACCOUNT OPTION. You will have your dividends and capital gain
distributions or only the dividends, automatically transferred to your bank
checking or savings account. The amount will be determined on the record date
and will normally be transferred to your account within 7 days of the record
date. Dividend distributions can be directed only to an existing account with
a registration that is identical to that of your Fund account. Please call or
write the Transfer Agent to learn more about this option.
Any election or revocation of any of the above dividend and distribution
options may be made in writing to the Fund and sent to Key Mutual Funds, P.O.
Box 8527, Boston, MA 02266-8527, or by calling the Transfer Agent at
800-539-3863, and will become effective with respect to distributions having
record dates after receipt of the Account Application or request by the Transfer
Agent.
Reinvested distributions receive the same tax treatment as distributions paid
in cash.
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FEDERAL INCOME TAXES
- --------------------------------------------------------------------------------
The Fund has qualified and intends to continue to qualify under Subchapter M
of the Internal Revenue Code of 1986, as amended (the "Code"), as a regulated
investment company so long as it is in the best interest of its shareholders to
do so. This qualification relieves the Fund (but not its shareholders) from
paying federal income tax on income which is currently distributed to
shareholders, assuming certain distribution requirements are met; it also
permits net capital gains of the Fund (i.e., the excess of net long-term capital
gain over net short-term capital loss) distributed to shareholders in the form
of capital gain distributions to be treated as long-term capital gain of the
shareholders, regardless of how long shares in the Fund are held. Other Fund
dividends will be treated as ordinary income to shareholders. Under the Tax
Reform Act of 1986, a nondeductible 4% excise tax may be imposed on the Fund to
the extent the Fund does not meet certain distribution requirements by the end
of each calendar year. The Fund intends to pay out substantially all of its
income annually and therefore expects not to be subject to federal income or
excise tax.
All dividend distributions to shareholders, including capital gain
distributions, are taxable to shareholders whether such distributions are taken
in cash or reinvested in additional shares. It is not expected that any of the
Fund's dividends will qualify for the dividends-received deduction available to
corporate shareholders.
Any gain or loss recognized upon a sale or redemption of Fund shares by a
shareholder who is not a dealer in securities will generally be treated as long-
term capital gain or loss if the shares have been held for more than one year.
Notwithstanding the above, any loss recognized by a shareholder upon the sale of
shares in the Fund held six months or less may be treated as long-term capital
loss to the extent of any long-term capital gain distributions received by the
shareholder.
The Company will inform you of the amount and nature of dividends and capital
gains distributions for each year in January of the following year. You should
keep all statements you receive to assist you in your record keeping. The
Company may be required to withhold, subject to certain exemptions, at a rate of
31% ("backup withholding") on dividends, capital gain distributions, and
redemption proceeds (including proceeds from exchanges) paid or credited to an
individual Fund shareholder, unless a shareholder certifies that the taxpayer
identification number ("TIN"), generally the shareholder's social security
number, provided is correct and that the shareholder is not subject to backup
withholding, or the IRS notifies the Company that the shareholder's TIN is
incorrect or the shareholder is subject to backup withholding. Such tax withheld
does not constitute an additional tax imposed on the shareholder, and may be
claimed as a tax payment on the shareholder's federal income tax return. A
failure to furnish a valid TIN may subject any investor to penalties imposed by
the IRS.
Dividends and distributions are generally subject to state and local taxes.
Shareholders are urged to consult their own tax advisers regarding specific
questions as to Federal, state or local taxes.
- --------------------------------------------------------------------------------
PERFORMANCE
- --------------------------------------------------------------------------------
From time to time the Key Money Market Mutual Fund may present "yield" and
"effective yield" of the shares of the Fund in advertisements, sales literature
and in reports to shareholders. Yield and effective yield figures are based on
historical earnings and are not intended to indicate future performance. The
"yield" of shares of the Fund refers to the net income generated by an
investment in the Fund over a seven-day period identified in the advertisement.
This income is then "annualized." That is, the amount of income generated by the
investment during that week is assumed to be generated each week over a 52-week
period and is shown as a percentage of the investment. The "effective yield" is
calculated similarly, but, when annualized, the income earned by an investment
in the Fund is assumed to be reinvested. The "effective yield" will be slightly
higher than the "yield" because of the compounding effect of this assumed
reinvestment.
Investors may also judge, and Key Mutual Funds may at times advertise, the
performance of the Fund by comparing it to the performance of other mutual funds
with comparable investment objectives and policies, which performance may be
contained in various unmanaged mutual fund or market indices or rankings such as
those prepared by Dow Jones & Co., Inc. and Standard & Poor's Corporation, in
publications issued by Lipper Analytical Services, Inc., and in the follow-
14
<PAGE> 21
- --------------------------------------------------------------------------------
ing publications: IBC's Money Fund Reports, Value Line Mutual Fund Survey,
Morningstar, CDA/Wiesenberger, Money Magazine, Forbes, Barron's, The Wall Street
Journal, The New York Times, Business Week, American Banker, Fortune,
Institutional Investor, U.S.A. Today and local newspapers. In addition, general
information about the Fund that appears in publications such as those mentioned
above may also be quoted or reproduced in advertisements, sales literature or in
reports to shareholders.
Performance is a function of the type and quality of instruments held in the
Fund's portfolio, operating expenses, and market conditions. Consequently,
performance will fluctuate and is not necessarily representative of future
results. Any fees charged by service providers with respect to customer accounts
for investing in shares of the Fund will not be reflected in performance
calculations.
Additional information regarding the performance of the Fund is included in
the Statement of Additional Information and in the Fund's annual and semi-annual
reports, which are available free of charge by calling 800-539-3863.
The "yield" of the Key Money Market Mutual Fund for the seven days ended
November 30, 1995 was 4.78%. The "effective yield" for the same seven day period
was 4.90%.
- --------------------------------------------------------------------------------
DESCRIPTION OF COMMON STOCK
- --------------------------------------------------------------------------------
The Company is an open-end, series investment company, incorporated under
Maryland law on May 26, 1983. Pursuant to the Articles of Incorporation, the
Board of Directors may authorize the creation of additional series of shares.
Pursuant to such authority, the Board of Directors has authorized the issuance
of nine series of shares, each representing shares in one of nine separate
Funds. The par value of the shares of each of the Funds is $.01 per share. The
assets of each Fund are segregated and separately managed and a shareholder's
interest is in the assets and earnings of the Fund in which he or she holds
shares. Each share of a Fund represents an equal proportionate interest in that
portfolio with each other share of the same series. In the event of the
liquidation or dissolution of the Company, shares of a Fund are entitled to
receive the assets belonging to that portfolio that are available for
distribution and a proportionate distribution, based upon the relative net
assets of the respective Funds, of any general assets not belonging to any
particular portfolio that are available for distribution. Shareholders are
entitled to one vote for each share held and will vote in the aggregate and not
by portfolio except as otherwise required by the 1940 Act or Maryland law. It is
anticipated that the Company will not hold annual shareholder meetings except
when required to do so by the 1940 Act or Maryland law.
- --------------------------------------------------------------------------------
CUSTODIAN, TRANSFER AGENT, SHAREHOLDER SERVICING AGENT, AND DIVIDEND DISBURSING
AGENT
- --------------------------------------------------------------------------------
Key Trust Company of Ohio, N.A., 127 Public Square, Cleveland, Ohio 44114, is
the Custodian for the Fund's cash and securities. Key Trust Company of Ohio,
N.A., does not assist in any way, and is not responsible for, investment
decisions involving assets of the Fund. Key Trust Company of Ohio, N.A., is a
subsidiary of KeyCorp and an affiliate of the Adviser and receives compensation
from the Funds for the services it performs as Custodian. State Street Bank and
Trust Company, 225 Franklin Street, Boston, MA 02110, is the Transfer Agent for
the shares of the Funds and receives a fee for its services. Boston Financial
Data Services, Inc., acts as the dividend disbursing agent and shareholder
servicing agent for the Fund and receives a fee for these services. Their
principal business address is Two Heritage Drive, Quincy, MA 02171.
15
<PAGE> 22
- --------------------------------------------------------------------------------
SHAREHOLDER REPORTS
- --------------------------------------------------------------------------------
The Fund will prepare and send to shareholders semi-annual unaudited and
annual audited reports which will include a list of investment securities held
by the Fund.
In addition, shareholders of the Fund will receive, monthly, a cumulative
account statement for the calendar year.
The Fund intends to eliminate duplicate mailings of Reports to an address at
which more than one shareholder of record with the same last name has indicated
that mail is to be delivered. Shareholders may receive additional copies of any
Report at no cost by writing to the Fund at the address listed below or by
calling 800-539-3863.
Shareholder inquiries should be addressed to the Fund at Key Mutual Funds,
P.O. Box 8527, Boston, MA 02266-8527. Shareholders may also call the Fund at
800-539-3863.
- --------------------------------------------------------------------------------
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATIONS NOT CONTAINED IN THIS PROSPECTUS IN CONNECTION WITH THE OFFERING
MADE BY THIS PROSPECTUS, AND, IF GIVEN OR MADE, SUCH INFORMATION OR
REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY KEY MUTUAL
FUNDS OR THE DISTRIBUTOR. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFERING BY KEY
MUTUAL FUNDS OR BY THE DISTRIBUTOR IN ANY JURISDICTION IN WHICH SUCH OFFERING
MAY NOT LAWFULLY BE MADE.
16
<PAGE> 23
KEY MUTUAL FUNDS
INVESTMENT ADVISER & SUB-ADMINISTRATOR
Spears, Benzak, Salomon & Farrell, Inc.
45 Rockefeller Plaza
New York, NY 10111
DISTRIBUTOR & ADMINISTRATOR
BISYS Fund Services
3435 Stelzer Road
Columbus, OH 43219
COUNSEL
Morrison & Foerster LLP
2000 Pennsylvania Avenue, NW
Washington, DC 20006
INDEPENDENT ACCOUNTANTS
Price Waterhouse LLP
1177 Avenue of the Americas
New York, NY 10036
CUSTODIAN
Key Trust Company of Ohio, N.A.
127 Public Square
Cleveland, OH 44114
TRANSFER AGENT
State Street Bank and Trust Company
225 Franklin Street
Boston, MA 02110
The date of this Prospectus is July 12, 1996
<PAGE> 24
KEY MUTUAL FUNDS
800-KEY-FUND
PROSPECTUS
[LOGO]
Key Mutual Funds, formerly known as SBSF Funds, Inc., (the "Company") is a
professionally managed, no-load, open-end, series investment company currently
consisting of several different portfolios, three of which are described in this
Prospectus ("Funds"). Each Fund is a separately managed diversified portfolio
with its own investment objective and policies. The Funds have no sales charges,
redemption fees or exchange fees.
Spears, Benzak, Salomon & Farrell, Inc. (the "Adviser" or "Spears"), an indirect
wholly owned subsidiary of KeyCorp with over $4.0 billion in assets under its
management as of March 31, 1996, serves as investment adviser to each of the
Funds. The Funds were created to provide informed investors with experienced,
professional investment management and personal service.
SBSF FUND - its investment objective is to seek a high total return over the
long term consistent with reasonable risk. In seeking its objective, the SBSF
Fund will invest primarily in common stocks which in the opinion of the Adviser
have the potential for capital appreciation in excess of market averages during
periods of market strength while attempting to preserve capital during periods
of market weakness.
SBSF CONVERTIBLE SECURITIES FUND - its investment objective is to seek a high
level of current income together with long-term capital appreciation. The SBSF
Convertible Securities Fund will invest primarily in convertible bonds,
corporate notes, convertible preferred stocks and other securities convertible
into common stock.
SBSF CAPITAL GROWTH FUND - its investment objective is to seek capital
appreciation. The SBSF Capital Growth Fund seeks to achieve its objective by
investing in equity securities of companies which the Adviser believes are
likely to have rapid growth in earnings or cash flow. The SBSF Capital Growth
Fund will invest primarily in the securities of small to medium capitalization
companies.
SHARES OF THE FUNDS ARE NOT DEPOSITS OR 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 ("FDIC"), THE FEDERAL RESERVE BOARD OR ANY OTHER AGENCY.
AN INVESTMENT IN MUTUAL FUND SHARES IS SUBJECT TO INVESTMENT RISKS, INCLUDING
THE POSSIBLE LOSS OF THE PRINCIPAL AMOUNT INVESTED.
This Prospectus sets forth concisely the information about the Funds that a
prospective investor ought to know before investing. Additional information
about the Funds has been filed with the Securities and Exchange Commission in a
Statement of Additional Information dated July 12, 1996, as supplemented from
time to time, which is incorporated herein by reference and is available without
charge upon request by writing to Key Mutual Funds at P.O. Box 8527, Boston, MA
02266 or calling the Funds at 800-KEY-FUND or 800-539-3863.
Investors are advised to read and retain this Prospectus for future reference.
- --------------------------------------------------------------------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY
IS A CRIMINAL OFFENSE.
- --------------------------------------------------------------------------------
The date of this Prospectus is July 12, 1996
<PAGE> 25
- --------------------------------------------------------------------------------
TABLE OF CONTENTS
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
Fund Expenses.................................... 1
Financial Information Summary.................... 3
Investment Objectives and Policies............... 5
Management of the Funds.......................... 8
Expenses, Distribution Plan and Shareholder
Servicing Plan................................. 11
Determination of Net Asset Value................. 12
Purchasing Shares................................ 12
The Systematic Investment Plan................... 14
The Systematic Withdrawal Plan................... 14
Redeeming Shares................................. 15
Exchange Privileges.............................. 16
Investing For Retirement......................... 17
Dividends and Distributions...................... 17
Federal Income Taxes............................. 18
Performance...................................... 19
Description of Common Stock...................... 20
Custodian, Transfer Agent, Shareholder Servicing
Agent and Dividend Disbursing Agent............ 20
Shareholder Reports.............................. 21
</TABLE>
- --------------------------------------------------------------------------------
<PAGE> 26
- --------------------------------------------------------------------------------
FUND EXPENSES
- --------------------------------------------------------------------------------
EXPENSES ARE ONE OF SEVERAL FACTORS TO CONSIDER WHEN INVESTING IN THE FUNDS.
THE FOLLOWING TABLE SUMMARIZES SHAREHOLDER TRANSACTION EXPENSES AND ANNUAL FUND
OPERATING EXPENSES FOR THE FUNDS.
<TABLE>
<CAPTION>
SBSF SBSF
CONVERTIBLE CAPITAL
SBSF SECURITIES GROWTH
FUND FUND FUND
------------- ------------- -------------
<S> <C> <C> <C>
Shareholder Transaction Expenses (1):
Maximum sales load imposed on purchases...................... None None None
Maximum sales load imposed on reinvested dividends........... None None None
Deferred sales load.......................................... None None None
Redemption Fees.............................................. None None None
Exchange Fees................................................ None None None
Annual Fund Operating Expenses:
(as a percentage of average net assets)
Management Fees.............................................. 0.75% 0.75% 0.75%
Other Expenses (2)(3)........................................ 0.51% 0.55% 0.60%
------------- ------------- -------------
Total Fund Operating Expenses (2)(3)........................... 1.26% 1.30% 1.35%
=========== =========== ===========
</TABLE>
(1) Investors may be charged a fee if orders are placed through a broker or
agent, including affiliated banks and non-bank affiliates of KeyCorp (see
"Purchasing Shares").
(2) "Other Expenses" include such expenses as administration fees, custodial and
transfer agent fees, audit, legal and other business expenses "Other
Expenses" also include the shareholder servicing fees the Funds expect to
pay during the current fiscal year. Each Fund may pay shareholder servicing
fees at an annual rate of up to 0.25% of its average daily net assets. See
"Expenses, Distribution Plan and Shareholder Servicing Plan" for additional
information.
(3) "Other Expenses," and therefore "Total Fund Operating Expenses," have been
restated to reflect the adoption, by each Fund, of a shareholder servicing
plan. In addition, with respect to each Fund, "Other Expenses" and "Total
Fund Operating Expenses" include amounts that have been restated to reflect
reductions in certain expense ratios payable by each Fund that are expected
to occur.
The purpose of this table is to assist an investor in understanding the
various costs and expenses that an investor in the Funds will bear directly
("Shareholder Transaction Expenses") or indirectly ("Annual Fund Operating
Expenses"). For a more complete description of the Funds' operating expenses,
see "Expenses, Distribution Plan and Shareholder Servicing Plan." The Adviser
and/or the Funds' administrator may, from time to time, waive fees due from one
or more Funds or reimburse expenses paid by a Fund in order to enhance such
Fund's performance. For further details, see the Funds' Annual Report which is
available upon request and without charge by writing to the Funds or by calling
the Funds at 800-539-3863.
1
<PAGE> 27
- --------------------------------------------------------------------------------
FUND EXPENSES [CONT.]
- --------------------------------------------------------------------------------
THE FOLLOWING EXAMPLE DEMONSTRATES THE PROJECTED DOLLAR AMOUNT OF TOTAL
CUMULATIVE EXPENSES THAT WOULD BE INCURRED OVER VARIOUS PERIODS WITH RESPECT TO
EACH OF THE FUNDS.
<TABLE>
<CAPTION>
SBSF SBSF
CONVERTIBLE CAPITAL
SBSF SECURITIES GROWTH
FUND FUND FUND
------------ ------------ ------------
<S> <C> <C> <C>
Example
You would pay the following expenses on a $1,000 investment,
assuming (1) 5% annual return and (2) redemption at the end of
each time period:
1 Year....................................................... $ 13 $ 13 $ 14
3 Years...................................................... 40 41 43
5 Years...................................................... 69 71 74
10 Years..................................................... 152 157 162
</TABLE>
THIS EXAMPLE SHOULD NOT BE CONSIDERED A REPRESENTATION OF PAST OR FUTURE
EXPENSES AND ACTUAL EXPENSES MAY BE GREATER OR LESS THAN THOSE SHOWN. MOREOVER,
WHILE THE TABLE ASSUMES A 5% ANNUAL RETURN, A FUND'S ACTUAL PERFORMANCE WILL
VARY AND MAY RESULT IN AN ACTUAL RETURN GREATER OR LESS THAN 5%. YOU WOULD PAY
THE SAME AMOUNT OF EXPENSES ON THE SAME INVESTMENT ASSUMING NO REDEMPTION AT THE
END OF EACH TIME PERIOD.
- --------------------------------------------------------------------------------
2
<PAGE> 28
- --------------------------------------------------------------------------------
FINANCIAL INFORMATION SUMMARY
- --------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS (For a share outstanding throughout each period.)
The following information has been audited by Price Waterhouse LLP, independent
accountants, whose unqualified report on the five years ended November 30, 1995
is contained in the Funds' Annual Report and should be read in conjunction with
the financial statements and notes thereto.
The Funds' Annual Report, which is incorporated by reference into the
Statement of Additional Information, includes a discussion of those factors,
strategies and techniques that materially affected their performance during the
period of the report, as well as certain related information. A copy of the
Funds' Annual Report is available without charge upon request. See "Management
of the Funds" for a discussion of the waiver of Advisory and Administration
fees.
<TABLE>
<CAPTION>
SBSF FUND
--------------------------------------------------------------------------
FISCAL YEAR ENDED
NOVEMBER 30,
--------------------------------------------------------------------------
1995 1994 1993 1992 1991 1990 1989
-------- -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
Per Share Operating Performance
Net asset value,
beginning of period.................................. $14.54 $17.59 $15.64 $16.47 $15.57 $16.74 $13.31
Net investment income................................ 0.15 0.21 0.34 0.42 0.50 0.59 0.47
Net realized and unrealized gain (loss).............. 3.98 (0.94) 3.01 0.91 1.40 (0.67) 3.43
-------- -------- -------- -------- -------- -------- --------
Total from investment operations...................... 4.13 (0.73) 3.35 1.33 1.90 (0.08) 3.90
Less: dividends and distributions:
Dividends from net investment income................. (0.20) (0.20) (0.39) (0.56) (0.59) (0.51) (0.40)
Distributions from net realized gains................ (0.89) (2.12) (1.01) (1.60) (0.41) (0.58) (0.07)
-------- -------- -------- -------- -------- -------- --------
Total dividends and distributions..................... (1.09) (2.32) (1.40) (2.16) (1.00) (1.09) (0.47)
-------- -------- -------- -------- -------- -------- --------
Net asset value, end of period........................ $17.58 $14.54 $17.59 $15.64 $16.47 $15.57 $16.74
========== ========== ========== ========== ========== ========== ==========
Total Investment Return............................... 30.37% -4.99% 22.95% 8.56% 12.89% -0.66% 30.10%
Ratios/Supplemental Data:
Net assets end of period (in thousands)............... $113,850 $109,733 $122,555 $105,325 $103,171 $92,464 $97,513
Ratio of expenses to average net assets............... 1.26% 1.23% 1.15% 1.16% 1.15% 1.15% 1.20%
Ratio of net investment income to average net
assets............................................... 0.93% 1.31% 2.05% 2.68% 3.11% 3.66% 3.12%
Portfolio Turnover Rate............................... 59% 83% 70% 45% 50% 42% 44%
<CAPTION>
SBSF FUND
------------------------------
FISCAL YEAR ENDED
NOVEMBER 30,
------------------------------
1988 1987 1986
-------- -------- --------
<S> <C> <C> <C>
Per Share Operating Performance
Net asset value,
beginning of period.................................. $11.80 $14.16 $13.53
Net investment income................................ 0.42 0.39 0.37
Net realized and unrealized gain (loss).............. 1.97 (1.33) 1.13
-------- -------- --------
Total from investment operations...................... 2.39 (0.94) 1.50
Less: dividends and distributions:
Dividends from net investment income................. (0.48) (0.37) (0.32)
Distributions from net realized gains................ (0.40) (1.05) (0.55)
-------- -------- --------
Total dividends and distributions..................... (0.88) (1.42) (0.87)
-------- -------- --------
Net asset value, end of period........................ $13.31 $11.80 $14.16
========== ========== ==========
Total Investment Return............................... 21.30% -7.30% 11.55%
Ratios/Supplemental Data:
Net assets end of period (in thousands)............... $81,018 $83,308 $90,058
Ratio of expenses to average net assets............... 1.16% 1.10% 1.17%
Ratio of net investment income to average net
assets............................................... 3.12% 1.67% 1.80%
Portfolio Turnover Rate............................... 47% 66% 65%
</TABLE>
[Continued]
3
<PAGE> 29
- --------------------------------------------------------------------------------
FINANCIAL INFORMATION SUMMARY [CONT.]
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SBSF CONVERTIBLE SECURITIES FUND
-----------------------------------------------------------------------------
FISCAL YEAR ENDED
NOVEMBER 30,
-----------------------------------------------------------------------------
1995 1994 1993 1992 1991 1990 1989 1988(1)
------- ------- ------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Per Share Operating
Performance:
Net asset value,
beginning of period......... $11.05 $12.48 $10.98 $10.65 $ 9.15 $10.65 $ 9.91 $10.00
Net investment income
(loss).................... 0.60 0.61 0.57 0.59 0.67 0.87 0.84 0.44
Net realized and unrealized
gain (loss)............... 1.50 (1.12) 1.79 0.56 1.63 (1.38) 0.86 (0.30)
------- ------- ------- ------- ------- ------- ------- -------
Total from investment
operations.................. 2.10 (0.51) 2.36 1.15 2.30 (0.51) 1.70 0.14
Less: dividends and
distributions:
Dividends from net
investment income......... (0.61) (0.61) (0.57) (0.72) (0.71) (0.80) (0.96) (0.23)
Distributions from net
realized gains............ (0.38) (0.31) (0.29) (0.10) (0.09) (0.19) -- --
------- ------- ------- ------- ------- ------- ------- -------
Total dividends and
distributions............... (0.99) (0.92) (0.86) (0.82) (0.80) (0.99) (0.96) (0.23)
------- ------- ------- ------- ------- ------- ------- -------
Net asset value, end of
period...................... $12.16 $11.05 $12.48 $10.98 $10.65 $ 9.15 $10.65 $ 9.91
========= ========= ========= ========= ========= ========= ========= =========
Total Investment Return...... 20.43% -4.36% 22.42% 11.20% 26.33% -5.18% 17.88% 1.42%(3)
Ratios/Supplemental Data:
Net assets end of period (in
thousands).................. $68,212 $58,845 $64,537 $42,442 $28,123 $15,200 $12,061 $5,044
Ratio of expenses to average
net assets.................. 1.31% 1.30% 1.24% 1.32% 1.37% 1.52% 1.15% 0.84%(4)
Ratio of net investment
income (loss)
to average net assets....... 5.36% 5.20% 4.75% 6.78% 8.50% 10.64% 9.87% 8.74%(4)
Decrease reflected in above
expense ratios due to
advisory and administration
fees waived................. -- -- -- -- -- -- 0.55% 0.98%
Portfolio Turnover Rate...... 52% 49% 30% 42% 53% 32% 76% 9%
<CAPTION>
SBSF
CAPITAL GROWTH FUND
------------------------------
FISCAL YEAR ENDED
NOVEMBER 30,
------------------------------
1995 1994 1993(2)
------- ------- --------
<S> <C> <C> <C>
Per Share Operating
Performance:
Net asset value,
beginning of period......... $ 7.56 $ 7.88 $ 8.00
Net investment income
(loss).................... (0.02) (0.01)(5) (0.05)
Net realized and unrealized
gain (loss)............... 2.29 (0.31)(5) (0.07)
------- ------- --------
Total from investment
operations.................. 2.27 (0.32) (0.12)
Less: dividends and
distributions:
Dividends from net
investment income......... -- -- --
Distributions from net
realized gains............ -- -- --
------- ------- --------
Total dividends and
distributions............... -- -- --
------- ------- --------
Net asset value, end of
period...................... $ 9.83 $ 7.56 $ 7.88
========= ========= ==========
Total Investment Return...... 30.03% -4.06% -1.50%(3)
Ratios/Supplemental Data:
Net assets end of period (in
thousands).................. $8,426 $4,141 $1,656
Ratio of expenses to average
net assets.................. 1.20% 1.22% 2.50%(4)
Ratio of net investment
income (loss)
to average net assets....... -0.22% -0.17% -12.65%(4)
Decrease reflected in above
expense ratios due to
advisory and administration
fees waived................. 0.84% 1.00% 0.93%
Portfolio Turnover Rate...... 97% 80% 0%
</TABLE>
-------------------------
(1) From April 14, 1988 (commencement of operations) to November 30,
1988.
(2) From November 1, 1993 (commencement of operations) to November 30,
1993.
(3) Not annualized.
(4) Annualized.
(5) Calculated using weighted average shares outstanding.
4
<PAGE> 30
- --------------------------------------------------------------------------------
INVESTMENT OBJECTIVES AND POLICIES
- --------------------------------------------------------------------------------
The investment objective and policies of each of the three Funds is set forth
below.
SBSF FUND
The SBSF Fund's investment objective is to seek a high total return over the
long term consistent with reasonable risk. Total return consists of dividends
and interest income and realized and unrealized appreciation on portfolio
securities. In seeking its objective, the SBSF Fund will invest in securities
which in the opinion of the Adviser have the potential for capital appreciation
in excess of market averages during periods of market strength while attempting
to preserve capital during periods of market weakness. The SBSF Fund will invest
primarily in common stocks, but also may invest in preferred stocks, securities
convertible into common stocks and fixed income securities.
In pursuing its objective, the SBSF Fund may invest in the securities of
companies that possess valuable fixed assets, or are undervalued in the
marketplace in relation to such factors as the issuer's assets, earnings or
growth potential. The SBSF Fund is not restricted to investments in any specific
market sector or industry group, and it may invest in securities traded on
national securities exchanges, the Nasdaq National Market, over the counter and
privately.
Periods of market strength are, with respect to equity securities, those in
which the prices of such securities, as reflected in standard industry indices
(such as the Dow Jones Industrial Average and the Standard & Poor's 500
Composite Stock Price Index), rise and, with respect to fixed income securities,
those in which yields fall (with consequent increases in price). By contrast,
periods of market weakness generally are marked by declines in prices of equity
securities, as reflected in market indices, and rises in yields on fixed income
securities. Because periods of market strength or weakness in equity and fixed
income securities do not necessarily coincide, the Adviser, in seeking a high
total return, has the flexibility to invest in a wide range of equity and fixed
income securities.
With respect to fixed income securities, the SBSF Fund will invest primarily
in U.S. Government securities, corporate bonds, securities convertible into
common stocks, high grade commercial paper and bankers acceptances.
The value of the common and preferred stocks and convertible securities held
by the SBSF Fund may decline over short or even extended periods. In addition,
the value of the Fund's investments in fixed income securities will tend to
decrease when interest rates rise and increase when interest rates fall. In
general, longer term debt instruments tend to fluctuate in value more than
shorter-term debt instruments in response to interest rate movements. In
addition, debt instruments that are not backed by the U.S. Government are
subject to credit risk, which is the risk that the issuer may not be able to pay
principal and/or interest when due.
SBSF CONVERTIBLE SECURITIES FUND
The investment objective of the SBSF Convertible Securities Fund is to seek a
high level of current income together with long-term capital appreciation. It is
a fundamental policy of the SBSF Convertible Securities Fund that it will invest
at least 65% of its total assets (except when maintaining a temporary defensive
position) in convertible securities. The SBSF Convertible Securities Fund is not
required to sell securities for the purpose of assuring that at least 65% of its
total assets are invested in convertible securities if a market decline should
cause this threshold to be breached. The balance of the SBSF Convertible
Securities Fund's assets may be invested in other securities which, in the
aggregate, are considered to be consistent with the Fund's investment objective.
Such other investments may include preferred stocks, dividend and non-dividend
paying common stocks, U.S. Government securities, corporate bonds, high grade
commercial paper, banker's acceptances and other short-term instruments,
floating rate notes, securities of the foregoing types issued by foreign issuers
and repurchase agreements. A decision to maintain a temporary defensive position
will depend on the Adviser's outlook for interest rates and fixed income and
equity securities, and when such a position is adopted there can be no assurance
that the Fund's investment objective will be achieved.
A convertible security is typically a bond or preferred stock that may be
converted at a stated price within a specified period of time into a specified
number of shares of common stock of the same or a different issuer. Convertible
securities are usually senior to common stock in a corporation's capital
structure, but usually are subordinate to similar non-convertible securities.
While providing a fixed income stream (generally higher in yield than the income
derivable from a common stock but lower than that afforded by a similar
non-convertible security), a convertible security also affords an investor the
opportunity, through its conversion feature, to participate in
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the capital appreciation of the common stock into which it is convertible.
The SBSF Convertible Securities Fund will purchase convertible securities
which may or may not be rated by a nationally recognized statistical rating
organization ("NRSRO"). When purchasing rated securities, the SBSF Convertible
Securities Fund may make substantial investments in securities rated Baa, Ba, B
or Caa by Moody's Investor Services, Inc. ("Moody's") and BBB, BB, B or CCC by
Standard & Poor's Corporation ("S&P") (see the description of the rating systems
contained in Appendix A to the Statement of Additional Information).
The medium to lower-rated and unrated securities in which the SBSF Convertible
Securities Fund may invest tend to offer higher yields than higher-rated
securities with the same maturities because the financial condition of the
issuers of such securities may not be as strong as that of issuers of
higher-rated securities. Debt obligations rated lower than A by Moody's or S&P
tend to have speculative characteristics or are speculative, and generally
involve more risk of loss of principal and income than higher-rated securities.
Also, their yields and market value tend to fluctuate more than higher quality
securities. These risks cannot be eliminated, but may be reduced by diversifying
holdings to minimize the portfolio impact of any single investment. In addition,
fluctuations in market value do not affect the cash income from the securities,
but are reflected in the Fund's net asset value. When interest rates rise, the
net asset value of the Fund tends to decrease. When interest rates decline, the
net asset value of the Fund tends to increase.
The Fund is not restricted from investing in the lower-rated categories of
securities. However, the Fund will not invest in securities rated Ba or lower by
Moody's or BB or lower by S&P or unrated securities, unless the Adviser believes
that positive factors mitigate or reduce the investment risks and that the
investment is expected to provide a return commensurate with such risks.
Positive factors would include operating strengths or improvements which will
enable a company to service its debt with a wider margin of comfort than
anticipated by rating agencies. Such strengths or improvements, such as growing
market share or improved cost structure or margins, result in strong or
improving cash flow. A superior management also can improve the value of assets
within a company. Thus, a company can build financial flexibility, enabling it
to reduce its leverage or otherwise reduce financial risk at will.
In general, the market value of a convertible security is at least the higher
of its "investment value" (i.e., its value as a fixed income security) or its
"conversion value" (i.e., the value of the underlying shares of common stock if
the security is converted). As a fixed-income security, a convertible security
tends to increase in market value when interest rates decline and tends to
decrease in value when interest rates rise. However, the price of a convertible
security also is influenced by the market value of the security's underlying
common stock. Thus, the price of a convertible security tends to increase as the
market value of the underlying stock increases, and tends to decrease as the
market value of the underlying stock declines. While no securities investment is
without some risk, investments in convertible securities generally entail less
risk than investments in the common stock of the same issuer.
Securities received upon conversion of convertible securities or upon exercise
of call options or warrants forming elements of synthetic convertibles
(described below) may be retained temporarily to permit orderly disposition or
to defer realization of gain or loss for federal tax purposes, and will be
included in calculating the amount of the Fund's total assets invested in true
and synthetic convertibles.
The SBSF Convertible Securities Fund also may invest in "synthetic
convertibles". A synthetic convertible is created by combining separate
securities which possess the two principal characteristics of a true convertible
security, i.e., fixed income ("fixed-income component") and the right to acquire
equity securities ("convertibility component"). The fixed-income component is
achieved by investing in non-convertible fixed-income securities such as
non-convertible bonds, preferred stocks and money market instruments. The
convertibility component is achieved by investing in warrants or exchange listed
call options or stock index call options granting the holder the right to
purchase a specified quantity of securities within a specified period of time at
a specified price or to receive cash in the case of stock index options.
The synthetic convertible differs from the true convertible security in
several respects. Unlike a true convertible security, which is a single security
having a unitary market value, a synthetic convertible is comprised of two or
more separate securities, each with its own market value. Therefore, the "market
value" of a synthetic convertible is the sum of the values of its fixed-income
component and its convertibility component. For this reason, the values of a
synthetic convert-
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ible and a true convertible security will respond differently to market
fluctuations.
A holder of a synthetic convertible faces the risk of a decline in the price
of the stock or the level of the index involved in the convertibility component,
causing a decline in the value of the option or warrant. Should the price of the
stock fall below the exercise price and remain there throughout the exercise
period, the entire amount paid for the call option or warrant would be lost.
Since a synthetic convertible includes the fixed-income component as well, the
holder of a synthetic convertible also faces the risk that interest rates will
rise, causing a decline in the value of the fixed-income instrument.
SBSF CAPITAL GROWTH FUND
The SBSF Capital Growth Fund's investment objective is to seek capital
appreciation. The Fund seeks to achieve its objective by investing in equity
securities of companies which the Adviser believes are likely to have rapid
growth in earnings or cash flow. The production of any current income is
incidental to this objective. SBSF Capital Growth Fund invests primarily in
growth oriented common stocks of domestic corporations and, to a limited extent,
foreign corporations listed on any national securities exchange or traded in the
over-the-counter market. Such corporations may or may not pay dividends and such
a factor would not be considered a relevant criteria in selecting an investment.
The Adviser employs a flexible investment program in pursuit of the Fund's
investment objective. The Fund is not restricted to investments in specific
market sectors and may invest in any market sector. The SBSF Capital Growth Fund
will invest primarily in small to medium capitalized companies, i.e., issuers
having a market capitalization of $500 million to $1.5 billion, but may invest
in companies of any size and may take advantage of any investment opportunity
with attractive long-term growth prospects including preferred stocks,
convertible securities and bonds. Bonds might be purchased in situations where
the Adviser believes interest rates will decline or where it is believed that a
bond will provide a greater return than common stocks. This might be the case,
for example, in a weak economic environment where stock prices are performing
poorly. The Adviser takes advantage of its market access and the research
available to it to select investments in promising emerging growth companies
that are involved in new technology, natural resources, foreign markets and
special developments, such as research discoveries, acquisitions,
recapitalizations, liquidations or management changes, and companies whose stock
may be undervalued by the market. These situations are illustrative of the types
of investments the Fund may make. The Fund is free to invest in any common stock
which in the Adviser's judgment provides above average potential for capital
appreciation.
Although the SBSF Capital Growth Fund intends to be fully invested, it may
hold up to 100% of its assets in cash or short-term debt securities for
temporary defensive purposes. The Fund will adopt a temporary defensive position
when, in the opinion of the Adviser, such position is likely to provide
protection against abnormal market or economic conditions.
The Fund intends to manage its portfolio actively to accomplish its investment
objective. Since the Fund has a long-term investment perspective, it does not
intend to respond to short-term market fluctuations or to acquire securities for
the purpose of short-term trading; however, it may take advantage of short-term
trading opportunities that are consistent with its objective. 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.
INVESTMENT TECHNIQUES
In pursuit of their objectives, the Funds may utilize certain special
investment methods. The Funds may, in certain circumstances, purchase and write
call options that are traded on U.S. securities exchanges. At the time of
purchase or sale, the market value of such options would not exceed 5% of the
total assets of the respective Fund. A call option is a short-term contract
(having a duration of nine months or less) pursuant to which the purchaser of
the call option, in return for a premium paid, has the right to buy the security
underlying the option at a specified exercise price at any time during the term
of the option. See "Investment Objectives and Policies--Call Options" in the
Statement of Additional Information for further information.
The Funds each may invest up to 10% of their total assets in securities of
foreign issuers. Securities of foreign issuers may, in the opinion of the
Adviser, present attractive investment opportunities. Foreign investments may be
affected favorably or unfavorably by changes in exchange rates and currency
control regulations, including currency blockage. There may be less information
available about a foreign company than about a U.S. company, and foreign
companies may not be subject to reporting standards and requirements comparable
to those applicable to U.S. compa-
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nies. Foreign securities and their markets may not be as liquid as U.S.
securities and their markets. Securities of some foreign companies may involve
greater market risk than securities of U.S. companies, and foreign brokerage
commissions and custody fees are generally higher than those in the United
States. Investments in foreign securities also may be subject to local economic
or political risks, such as political instability of some foreign governments
and the possibility of nationalization or expropriation of issuers.
The Funds each also may invest up to 5% of their net assets in warrants,
excluding attached warrants. None, however, will invest more than 2% of its net
assets in warrants which are not traded on the New York or American Stock
Exchanges.
The Funds each may invest up to 10% of their total assets in illiquid
securities, including securities restricted as to disposition under the federal
securities laws, securities as to which there are no readily available market
quotations and repurchase agreements with a maturity in excess of 7 days.
However, illiquid securities for purposes of this limitation do not include
securities eligible for resale to qualified institutional buyers pursuant to
Rule 144A under the Securities Act of 1933, as amended (the "1933 Act"), which
the Company's Board of Directors or the Fund's Adviser has determined are
liquid. Such a determination would take into consideration, among other factors,
valuation, liquidity and availability of information. An insufficient number of
qualified institutional buyers interested in purchasing Rule 144A securities
held by the Funds could adversely affect the liquidity of such securities. The
Funds might be unable to dispose of such securities promptly or at reasonable
prices.
To increase income, the Funds each may lend portfolio securities to certain
brokers or dealers, banks or other institutional investors, such as insurance
companies and pension funds. The Adviser has not previously, nor has it any
present intention, to loan portfolio securities. Each of the Funds may invest in
repurchase agreements relating to certain types of securities and member banks
of the Federal Reserve System. A repurchase agreement is an instrument under
which the purchaser (i.e., the Fund) acquires a debt security and the seller
agrees, at the time of the sale, to repurchase the obligation at a mutually
agreed upon time and price, thereby determining the yield during the purchaser's
holding period. This results in a fixed rate of return insulated from market
fluctuations during such period. From time to time, all of the Funds may trade
in securities for the short term. It is anticipated that the annual portfolio
turnover rates will not exceed 75% for the SBSF Fund and the SBSF Convertible
Securities Fund and may be substantially higher than 100% for the SBSF Capital
Growth Fund. A turnover rate in excess of 100% may increase a Fund's expenses.
Additional information with respect to the special investment methods described
in this paragraph and the conditions under which a Fund may utilize them may be
found under "Investment Objectives and Policies" in the Statement of Additional
Information. The Funds are subject to the usual market risks incident to their
investments and therefore there can be no assurance that the objectives of the
Funds will be attained. In addition, investments in a Fund are not insured
against loss of principal. No single Fund should be considered, by itself, to
provide a complete investment program for any investor.
The investment policies of the Funds set forth above may be changed or altered
by the Board of Directors subject to certain investment restrictions, which set
percentage and other limitations on certain investments and investment
strategies, certain of which constitute fundamental policies. Fundamental
policies, which include the investment objective of each of the Funds, cannot be
changed without the approval of the holders of a majority of the outstanding
voting securities of each of the Funds. The restrictions are set forth under
"Investment Restrictions" in the Statement of Additional Information.
In order to permit the sale of a Fund's shares in certain states, the Company
may, on behalf of a Fund, make commitments to a state or states that are more
restrictive than the investment policies and limitations described in the
Prospectus and in the Statement of Additional Information.
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MANAGEMENT OF THE FUNDS
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DIRECTORS AND OFFICERS
The directors, in addition to reviewing the actions of the Funds' Adviser,
Administrator and Distributor, as set forth below, decide upon matters of
general policy. The Company's officers conduct and supervise the daily business
operations of the Funds. The names, addresses and business affiliations of the
directors and officers of the Company are set forth in the Statement of
Additional Information.
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THE INVESTMENT ADVISER
The investment adviser to the Funds is Spears, Benzak, Salomon & Farrell,
Inc., a New York corporation that is registered as an investment adviser with
the Securities and Exchange Commission. The Adviser is a wholly owned subsidiary
of KeyCorp Asset Management Holdings, Inc. ("KAMHI") and is an indirect wholly
owned subsidiary of KeyBank National Association ("KeyBank"), a wholly-owned
subsidiary of KeyCorp, one of the largest financial services holding companies
in the United States. KeyCorp's principal offices are located at 127 Public
Square, Cleveland, Ohio 44114.
The Adviser was, at March 31, 1996, investment adviser for assets aggregating
in excess of $4.0 billion. In addition, at March 31, 1996, the Adviser and its
affiliates managed approximately $48 billion for numerous clients. The Adviser's
advisory clients include, in addition to the Funds, individuals, pension and
profit-sharing trusts, partnerships, endowments and foundations. The Adviser's
principal offices are located at 45 Rockefeller Plaza, New York, New York 10111.
Affiliates of the Adviser act as investment adviser or investment sub-adviser to
The Victory Portfolios.
Pursuant to an Investment Advisory Agreement, the Adviser furnishes a
continuous investment program for the Funds, makes the day-to-day investment
decisions for the Funds, executes the purchase and sale orders for the portfolio
transactions of the Funds and generally manages the Funds' investments in
accordance with the stated policies of the Funds, subject to the general
supervision of the Board of Directors of the Company.
Louis R. Benzak, a Managing Director and Vice Chairman of the Adviser, is the
primary portfolio manager of the SBSF Fund and has served as such since the
Fund's inception. Christopher C. Grisanti serves as a co-portfolio manager of
the SBSF Fund. Mr. Grisanti, a Vice President, Analyst and Portfolio Manager of
Spears, has been associated with Spears since 1994. Prior to that time, Mr.
Grisanti was an attorney with Simpson Thacher & Bartlett. Mr. Grisanti has
served as a portfolio manager of the SBSF Fund since April 1996. Mr. Benzak,
Richard A. Janus and James K. Kaesberg serve as co-portfolio managers of the
SBSF Convertible Securities Fund. Mr. Benzak has served as a portfolio manager
of the SBSF Convertible Securities Fund since the Fund's inception. Mr. Janus,
in addition to his position as a Vice President of Spears, is Senior Managing
Director and Chief Investment Officer of Convertible Securities Investments for
Society Asset Management, Inc. ("Society"), an affiliate of Spears and an
indirect wholly owned subsidiary of KeyCorp. Mr. Janus has held various
positions with Society (including its predecessors) since 1977, and has served
as a co-portfolio manager of the SBSF Convertible Securities Fund since April
1996. Mr. Kaesberg also is associated with Society and currently holds the
position of Vice President and Portfolio Manager--Convertible Securities. Mr.
Kaesberg has been employed by Society (including its predecessors) since 1985,
and has held his position as a co-portfolio manager of the SBSF Convertible
Securities Fund since April 1996. Mr. Kaesberg is a Vice President of Spears.
Charles G. Crane is the principal portfolio manager of the SBSF Capital Growth
Fund. Mr. Crane is a Managing Director of Spears and has been associated with
Spears since 1988. Mr. Crane has served as a portfolio manager of SBSF Capital
Growth Fund since the Fund's inception. Annette Longnon Geddes is a co-portfolio
manager of the SBSF Capital Growth Fund. Ms. Geddes, a Vice President of Spears,
has been associated with Spears, and has served as a portfolio manager of the
SBSF Capital Growth Fund, since April 1996. Ms. Geddes served as a portfolio
manager with Steinhardt Management Company during 1995 and, from 1987 to 1994,
held the position of Managing Director with Trust Company of the West.
Under the Investment Advisory Agreement, as compensation for the services
rendered and related expenses borne by the Adviser, the SBSF Fund, the SBSF
Convertible Securities Fund and the SBSF Capital Growth Fund each are obligated
to pay the Adviser a fee, computed daily and payable monthly, equal to 0.75% per
annum of each Fund's average daily net assets. This fee is higher than that paid
by most investment companies, although it is believed that this fee is
comparable to fees paid by other investment companies with investment objectives
comparable to each such Fund. For the fiscal year ended November 30, 1995, the
SBSF Fund and the SBSF Convertible Securities Fund paid the Adviser fees at the
effective annual rate of 0.75% of each Fund's average daily net assets. In
addition, during the fiscal year ended November 30, 1995, the SBSF Capital
Growth Fund incurred advisory fees at the effective annual rate of 0.16% of the
Fund's average daily net assets. Spears voluntarily waived the advisory fees
incurred by the SBSF Capital Growth Fund during the period from December 1, 1994
through September 30, 1995. The Adviser is obligated
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to waive fees payable by the Funds and, in certain circumstances, reimburse the
Funds in the event a Fund's expenses exceed certain prescribed limits. See
"Expenses, Distribution Plan and Shareholder Servicing Plan."
THE ADMINISTRATOR, DISTRIBUTOR AND SUB-ADMINISTRATOR
BISYS Fund Services ("BISYS") serves as Administrator to the Funds. In this
capacity, BISYS administers certain of the Funds' operations subject to the
supervision of the Board of Directors. Pursuant to an Administration Agreement,
in consideration of its administration fee, BISYS performs clerical, accounting
and office service functions for the Funds and provides the Funds with personnel
to perform accounting and related services. BISYS also is responsible for
calculating the Funds' net asset values and yields, preparing reports to and
filings with regulatory authorities, servicing shareholder accounts and
performing such other services as the Funds may from time to time request. The
Administration Agreement provides that in the absence of willful misfeasance,
bad faith or negligence on the part of BISYS, or of reckless disregard of its
obligations thereunder, BISYS shall not be liable for any error of judgment or
mistake of law or for any loss suffered by the Company in connection with
matters to which the Administration Agreement relates. Concord Holding
Corporation succeeded Spears as the Administrator of the Funds on April 1, 1996,
and BISYS Fund Services succeeded Concord Holding Corporation as the
Administrator for the Funds on July 12, 1996.
Under the Administration Agreement, as compensation for the administrative
services rendered to the Funds and related expenses borne by BISYS, each of the
Funds is obligated to pay BISYS an annual fee, computed daily and payable
monthly, equal to 0.25% of its average daily net assets up to $50,000,000, plus
0.15% of such assets greater than $50,000,000. For the fiscal year ended
November 30, 1995, the SBSF Fund and the SBSF Convertible Securities Fund each
paid Spears, under prior administration arrangements, fees at the effective
annual rates of 0.19% and 0.23%, respectively, of each such Fund's average daily
net assets. Spears voluntarily waived its administration fee for the SBSF
Capital Growth Fund for the same period.
BISYS also serves as the independent underwriter and distributor of the shares
of the Funds ("BISYS" or the "Distributor"). Pursuant to the Distribution
Agreement between the Company and BISYS, BISYS is obligated to use its best
efforts to sell shares of the Funds. In addition, under the Distribution
Agreement, BISYS may enter into agreements with selected dealers for the
distribution of shares. Spears neither participates in nor is responsible for
the underwriting of Fund shares. BISYS Fund Services succeeded Concord Financial
Group, Inc. as the Funds' distributor as of July 1, 1996.
Pursuant to a Sub-Administration Agreement between Spears and BISYS, Spears
provides the Key Money Market Mutual Fund, the SBSF Fund, the SBSF Convertible
Securities Fund and the SBSF Capital Growth Fund with certain sub-administrative
and fund accounting services. For its services as sub-administrator, BISYS pays
Spears an annual fee of $500,000.
The Distributor, at its expense, may provide additional cash compensation to
dealers in connection with sales of shares of the Funds. The maximum cash
compensation payable by the Distributor is 0.25%, on an annual basis, of the net
asset value of the shares of a Fund. In addition, the Distributor will, from
time to time and at its own expense, provide compensation, including financial
assistance, to dealers in connection with conferences, sales or training
programs for their employees, seminars for the public, advertising campaigns
regarding one or more Key Mutual Funds and/or other dealer-sponsored special
events, including payment for travel expenses and lodging incurred in connection
with trips taken by invited registered representatives and members of their
families to locations within or outside of the United States for meetings or
seminars of a business nature. Compensation will include the following types of
non-cash compensation offered through sales contests: (1) vacation trips,
including the provision of travel arrangements and lodging; (2) tickets for
entertainment events (such as concerts, cruises and sporting events) and (3)
merchandise (such as clothing, trophies, clocks and pens). Dealers may not use
sales of the Funds' shares to qualify for this compensation if prohibited by the
laws of any state or any self-regulatory organization, such as the National
Association of Securities Dealers, Inc. None of the aforementioned compensation
is paid for by the Funds or their shareholders.
Morrison & Foerster LLP, counsel to the Company and special counsel to Spears,
has advised the Company and Spears that Spears and its affiliates may perform
the services contemplated by the Investment Advisory Agreement and this
Prospectus without violation of the Glass-Steagall Act. Such counsel has pointed
out, however, that there are no controlling judicial or administrative
interpretations or decisions
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and that future judicial or administrative interpretations of, or decisions
relating to, present federal or state statutes, including the Glass-Steagall
Act, and regulations relating to the permissible activities of banks and their
subsidiaries or affiliates, as well as future changes in such statutes,
regulations and judicial and administrative decisions or interpretations, could
prevent such entities from continuing to perform, in whole or in part, such
services. If any such entity were prohibited from performing any of such
services, it is expected that new agreements would be proposed or entered into
with another entity or entities qualified to perform such services.
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EXPENSES, DISTRIBUTION PLAN AND SHAREHOLDER SERVICING PLAN
- --------------------------------------------------------------------------------
Except as set forth above under "Management of the Funds" and as set forth
below, each of the Funds bears the expenses directly applicable to it and a
portion of the general administrative expenses, applicable to all the Funds of
Key Mutual Funds, which may be allocated among the Funds in a manner believed to
be fair and equitable. Expenses that are directly applicable to a Fund include
expenses of portfolio transactions, shareholder servicing costs, expenses of
registering shares under federal and state securities laws, pricing costs
(including the daily calculation of net asset value), interest, certain taxes,
legal and auditing expenses directly incurred by the Fund, and charges of
Spears, BISYS, the Custodian, the Transfer Agent, the Shareholder Servicing
Agent and the Distributor. General expenses which would be allocated include
directors' fees, general corporate legal and auditing expenses, state franchise
taxes, costs of printing and mailing proxies, shareholder reports and
prospectuses sent to existing shareholders, trade association fees, Securities
and Exchange Commission fees and accounting costs.
The Company has adopted a Distribution Plan (the "Distribution Plan") for the
SBSF, SBSF Convertible Securities, and SBSF Capital Growth Funds pursuant to
Rule 12b-1 under the 1940 Act. No separate payments are authorized to be made by
the Funds under the Plan. Rather, the Plan provides that to the extent that any
portion of the fees payable under the Shareholder Servicing Plan or any
Shareholder Servicing Agreement (described below) is deemed to be for services
primarily intended to result in the sale of Fund shares, such fees are deemed
approved and may be paid pursuant to the Plan and in accordance with Rule 12b-1.
The Company has also adopted a Shareholder Servicing Plan for the SBSF, SBSF
Convertible Securities, and SBSF Capital Growth Funds. In accordance with the
Shareholder Servicing Plan, the Company, on behalf of the Funds, may enter into
shareholder service agreements under which each Fund may pay fees of up to 0.25%
of its average daily net assets for expenses incurred in connection with the
personal service and the maintenance of accounts holding the shares of the Fund.
Such agreements are entered between the Company, on behalf of the Funds, and
various shareholder servicing agents, including Spears, the Distributor, Key
Trust Company of Ohio, N.A. and its affiliates, and other financial institutions
and securities brokers (each a "Shareholder Servicing Agent"). Each Shareholder
Servicing Agent generally will provide support services to shareholders by
establishing and maintaining accounts and records, processing dividend and
distribution payments, providing account information, arranging for bank wires,
responding to routine inquiries, forwarding shareholder communications,
assisting in the processing of purchase, exchange and redemption requests, and
assisting shareholders in changing dividend options, account designations and
addresses. Shareholder Servicing Agents may periodically waive all or a portion
of their respective shareholder servicing fees with respect to the Funds.
The Adviser has agreed that if in any fiscal year the sum of a Fund's expenses
exceeds the limits set by applicable regulations of state securities
commissions, the amounts payable by the Fund to Spears for the advisory fee for
that year shall be reduced accordingly. In addition, in certain circumstances,
Spears is obligated to reimburse the expenses of a Fund to the extent they
exceed any such state expense limitations. For further information see
"Expenses, Distributor, Distribution Plan and Shareholder Servicing Plan" in the
Statement of Additional Information.
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DETERMINATION OF NET ASSET VALUE
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The net asset values of the shares of the SBSF Fund, the SBSF Convertible
Securities Fund and the SBSF Capital Growth Fund are determined as of the close
of regular trading of the New York Stock Exchange ("NYSE"), which is generally
at 4:00 P.M., Eastern Time, each Business Day (the "Valuation Time"). A
"Business Day" is a day on which the NYSE is open for trading. The NYSE is
closed in observance of the following holidays: New Year's Day, Presidents' Day,
Good Friday, Memorial Day, Independence Day, Labor Day, Thanksgiving and
Christmas.
In general, a Fund's net asset value is equal to the value of its securities,
cash and other assets, less liabilities, divided by the number of shares
outstanding. Securities traded on securities exchanges or the Nasdaq National
Market are valued at the last sales price on the exchange where the security is
primarily traded or, lacking any sales, at the mean between the most recent bid
and asked quotation. Securities traded over-the-counter are valued at the mean
between the most recent bid and asked price. Securities for which quotations are
not readily available and any other assets (other than money market instruments)
are valued at fair value as determined in good faith by the Board of Directors.
The SBSF Fund, the SBSF Convertible Securities Fund and the SBSF Capital Growth
Fund value money market instruments at market value except money market
instruments having a maturity of less than 60 days which are valued at amortized
cost.
Generally, trading in foreign securities, as well as corporate bonds, United
States Government securities and money market instruments, is substantially
completed each day at various times prior to the close of the NYSE. The values
of such securities used in computing the net asset values of the shares of the
SBSF Fund, the SBSF Convertible Securities Fund and the SBSF Capital Growth Fund
are determined as of such times. Foreign currency exchange rates also are
generally determined prior to the close of the NYSE. Occasionally, events
affecting the values of such securities and such exchange rates may occur
between the times at which they are determined and the close of the NYSE which
will not be reflected in the computation of the Funds' net asset values. If
events materially affecting the value of such securities occur during such
period, then these securities will be valued at their fair value as determined
in good faith by the Board of Directors.
The net asset values per share of the SBSF Fund, the SBSF Convertible
Securities Fund and the SBSF Capital Growth Fund appear daily in The Wall Street
Journal and most major newspapers.
- --------------------------------------------------------------------------------
PURCHASING SHARES
- --------------------------------------------------------------------------------
Shares may be purchased directly or through an Investment Professional of a
securities broker or other financial institution that has entered into selling
or servicing agreements with Key Mutual Funds or BISYS. An Investment
Professional is a salesperson, financial planner, investment adviser or trust
officer who provides you with information regarding the investment of your
assets. Shares are also available to clients of bank trust departments who have
qualified trust accounts. The minimum investment is $500 ($250 for an Individual
Retirement Account) for the initial purchase and $25 thereafter. Accounts set up
through a bank trust department or an Investment Professional may be subject to
different minimums, features, requirements and fees. The Investment Professional
will provide this information to you.
Shares of the Funds are sold at the net asset value per share (see
"Determination of Net Asset Value") next determined after receipt and acceptance
by State Street Bank and Trust Company, the Funds' transfer agent (the "Transfer
Agent"), of an order to purchase shares. There are no sales commissions.
Purchases of shares will be effected only on a Business Day (as defined in
"Determination of Net Asset Value") of Key Mutual Funds. An order received and
accepted prior to the Valuation Time on any Business Day will be executed at the
net asset value determined as of the next Valuation Time on that Business Day.
An order accepted after the Valuation Time on any Business Day will be executed
at the net asset value determined as of the next Valuation Time on the next
Business Day of Key Mutual Funds. Generally, shares of the Funds begin accruing
income dividends on the day they are purchased.
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INVESTING DIRECTLY
BY MAIL:
You may purchase shares by completing and signing an Account Application
(initial purchase only) and mailing it, together with a check (or other
negotiable bank draft or money order) in at least the minimum investment
requirement to:
Key Mutual Funds
P.O. Box 8527
Boston, Massachusetts 02266-8527
Subsequent purchases may be made in the same manner.
BY TELEPHONE:
Subsequent purchases of shares of the Funds may be made by telephone if you
have checked the Telephone Authorization box and supplied the necessary bank
information on the Account Application. The purchase amount will be transferred
between the bank account designated and your fund account via Automated Clearing
House ("ACH"). Only a bank account maintained in a domestic financial
institution which is an ACH member may be so designated. The Funds may modify or
terminate the telephone and/or ACH privilege at any time or charge a service fee
upon notice to shareholders. No such fee is currently contemplated. If the
designated bank account does not contain sufficient assets at the time your
order is processed, the order may be cancelled, and you could be liable for
resulting fees and/or losses. Note that this service requires approximately 15
days to establish. Therefore, it may not be applicable to request your initial
purchase utilizing this method.
BY WIRE:
If an Account Application has been previously received by the Transfer Agent,
you may also purchase shares by wiring funds to: State Street Bank and Trust
Co., ABA #011000028, For Credit to DDA Account #9905-201-1, for Further Credit
to Key Mutual Funds Account #[insert your account number, name and control
number assigned by the Transfer Agent]. The Transfer Agent does not charge a
wire fee. PRIOR TO WIRING ANY FUNDS AND IN ORDER TO ENSURE THAT WIRE ORDERS ARE
INVESTED PROMPTLY, YOU MUST CALL THE TRANSFER AGENT AT 800-539-3863.
INVESTING THROUGH INVESTMENT PROFESSIONALS OR A BANK TRUST DEPARTMENT
Shares may be purchased by investors who designate an Investment Professional
or a bank trust department through procedures established by the Transfer Agent
in connection with requirements of qualified accounts maintained by or on behalf
of certain persons by Investment Professionals and bank trust departments. With
respect to such purchases, it is the responsibility of the Investment
Professional or bank trust department to transmit purchase orders to the
Transfer Agent and to deliver federal funds for purchase on a timely basis in
order to receive the price then in effect. Accounts set up through an Investment
Professional or bank trust department may be subject to different minimums,
features, requirements and fees in connection with purchases and redemptions of
shares. Contact your Investment Professional or trust representative for
complete information. Investors should note that they may not be able to access
their account on days on which the Funds are open for business but their
Investment Professional or bank trust department is closed.
The services rendered by your bank trust department, including affiliates of
the Adviser, in the management of its accounts are not duplicative of any of the
services for which the Adviser is compensated. The additional fees paid by
clients of bank trust departments, their affiliates, or an Investment
Professional should be considered in calculating the net yield on investment in
a Fund, although such charges do not affect the Fund's dividends or
distributions.
ADDITIONAL INVESTMENT REQUIREMENTS
All purchases must be made in U.S. dollars. Checks must be drawn on U.S.
banks. No cash will be accepted. All purchases made by check should be in U.S.
dollars and made payable to Key Mutual Funds, or, in the case of a retirement
account, to the custodian or trustee. Third party checks will not be accepted.
When purchases are made by check or periodic account investment, redemptions
will not be allowed until the investment being redeemed has been in the account
for 15 calendar days. If you make a purchase with more than one check, each
check must have a value of at least $25, and the minimum investment requirement
still applies. Key Mutual Funds and its servicing agents reserve the right to
limit the number of checks processed at one time. If your check does not clear,
your purchase may be canceled and you could be liable for any losses and/or fees
incurred. Payment for purchase is expected at the time of the order. If pay-
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ment is not received within three business days of the order, the order may be
canceled, and you could be held liable for resulting fees and/or losses.
You may initiate any transaction by telephone through your Investment
Professional, or bank trust department. Subsequent investments by telephone may
be made directly. Note that Key Mutual Funds and its agents will not be
responsible for any losses resulting from unauthorized transactions if they
follow reasonable procedures designed to verify the identity of the caller.
These procedures may include requesting additional information, or using
personalized security codes. Your Investment Professional or the Transfer Agent
also may record calls, and you should verify the accuracy of your confirmation
statements immediately after you receive them. The Transfer Agent may reject any
purchase order for the Funds' shares within its sole discretion.
You will receive a monthly statement reflecting all transactions that affect
the share balance or the registration of your Fund account. You will receive a
confirmation after every transaction that affected the share balance in your
Fund account, except for dividend reinvestment, systematic investment and
systematic withdrawal transactions. These transactions will be detailed in your
Fund account statement. The Funds do not issue stock certificates for the
shares.
Although the Funds continuously offer their shares for sale, each Fund
reserves the right to reject any purchase request.
- --------------------------------------------------------------------------------
THE SYSTEMATIC INVESTMENT PLAN
- --------------------------------------------------------------------------------
Under the Systematic Investment Plan, you may make regular systematic monthly,
quarterly, semi-annual or annual purchases of shares of a Fund through automatic
deductions from your bank account(s). Upon obtaining your authorization, Key
Mutual Funds' Transfer Agent will deduct the specified amount from your
designated bank account, which amount will then be automatically invested in
shares of the relevant Fund at the net asset value next determined. Bank
accounts will be debited on any day from the 1st through the 28th of the
relevant month, as selected by the shareholder. You must first meet a Fund's
initial investment requirement of $500 and are subject to a minimum subsequent
investment of $25. For officers, trustees, directors and employees, including
retired directors and employees, of Spears, Key Mutual Funds, BISYS, KeyCorp and
its affiliates, (and family members of each of the foregoing) who participate in
the Systematic Investment Plan, there is no minimum initial investment required.
To participate in the Systematic Investment Plan, complete the appropriate
section of the account application and attach a voided personal check with the
bank's magnetic ink coding number across the front. If the bank account is
jointly owned, all owners must sign. Account applications can be obtained by
calling the Transfer Agent at 800-539-3863. To change or discontinue existing
Systematic Investment Plan instructions, submit a written request to or call the
Transfer Agent at 800-539-3863.
- --------------------------------------------------------------------------------
THE SYSTEMATIC WITHDRAWAL PLAN
- --------------------------------------------------------------------------------
The Systematic Withdrawal Plan enables shareholders to make regular monthly,
quarterly, semi-annual or annual redemptions of shares. With your authorization,
the Transfer Agent will automatically redeem shares at the net asset value on
the date of the withdrawal and have the proceeds transferred according to your
written instructions. Fund accounts will be debited on any day from the 1st
through the 28th of each month.
You can have proceeds sent from your Fund account directly to you, to your
bank checking account or to a third person. If you opt to have the proceeds sent
to your bank checking account, a voided personal check with the bank's magnetic
coding number across the front must be attached to the account application. The
proceeds will be transferred between your fund account and the bank account via
ACH. If the bank checking account is jointly owned, all owners must sign the
application.
To participate in the Systematic Withdrawal Plan, the required minimum balance
is $5,000 per Fund. The required minimum withdrawal is $25.
To participate in the Systematic Withdrawal Plan, call 800-539-3863 for more
information. Systematic
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Withdrawal Plan payments are drawn from share redemptions. If Systematic
Withdrawal Plan redemptions exceed income and capital gain dividend
distributions earned on Fund shares, the Fund account may eventually be
exhausted. The Systematic Withdrawal Plan is not necessarily appropriate for use
in conjunction with the Systematic Investment Plan. To change or terminate
Systematic Withdrawal Plan instructions, submit a written request to, or call
the Transfer Agent at 800-539-3863. Your account cannot be closed automatically
by depleting the assets in your Systematic Withdrawal Plan. The Systematic
Withdrawal Plan may be modified or terminated at any time without notice.
If the amount of the automatic withdrawal exceeds the income accrued for the
period, the principal balance invested will be reduced and shares will be
redeemed.
- --------------------------------------------------------------------------------
REDEEMING SHARES
- --------------------------------------------------------------------------------
Shares may ordinarily be redeemed by mail or telephone. However, all or part
of your shares may be redeemed in accordance with instructions and limitations
pertaining to your account with an Investment Professional. For example, if you
have agreed with an Investment Professional to maintain a minimum balance in
your account with the Investment Professional, and the balance in that account
falls below that minimum, you may be obligated to redeem, or the Investment
Professional may redeem for you and on your behalf, all or part of your shares.
BY MAIL:
In order to redeem shares by mail, send a written request to:
Key Mutual Funds
P.O. Box 8527
Boston, MA 02266-8527
The Transfer Agent may require a signature guarantee by an eligible guarantor
institution. A signature guarantee is designed to protect you, the Fund, and
your and the Fund's agents from fraud. A written redemption request requires a
signature guarantee for redemptions of more than $10,000 worth of shares; if
your Fund account registration has changed within the last 60 days; if the check
is not being mailed to the address on your account; if the check is not being
made out to the account owner; or if the redemption proceeds are being
transferred to another account within Key Mutual Funds or The Victory Portfolios
with a different registration. The following institutions should be able to
provide you with a signature guarantee: banks, brokers, dealers, credit unions
(if authorized under state law), securities exchanges and associations, clearing
agencies, and savings associations. A signature guarantee may not be provided by
a notary public. The Transfer Agent reserves the right to reject any signature
guarantee if (1) it has reason to believe that the signature is not genuine, (2)
it has reason to believe that the transaction would otherwise be improper, or
(3) the guarantor institution is a broker or dealer that is neither a member of
a clearing corporation nor maintains net capital of at least $100,000.
BY TELEPHONE:
Arrangements for the payment of redemption proceeds may be made by telephone
if you have checked the Telephone Authorization box and supplied the necessary
bank information on the Fund's Account Application. Proceeds may be wired to a
domestic financial institution, sent via ACH, mailed to the address of record,
or mailed to a previously designated alternate address. If you select the ACH
method, only a bank account maintained in a domestic financial institution which
is an ACH member may be so designated.
It is not necessary to confirm telephone redemption requests in writing. If
you did not originally select the telephone authorization privilege, you must
provide written instructions as well as a signature guarantee to the Transfer
Agent to add this feature. Neither Key Mutual Funds nor its service agents will
be liable for any loss, damages, expense or cost arising out of any telephone
redemption effected in accordance with Key Mutual Funds' telephone redemption
procedures and pursuant to instructions reasonably believed to be genuine. Key
Mutual Funds will employ procedures designed to provide reasonable assurance
that instructions by telephone are genuine; if these procedures are not
followed, Key Mutual Funds or its service agents may be liable for any losses
due to unauthorized or fraudulent instructions. These procedures include, but
are not limited to, recording of phone conversations, sending confirmations to
shareholders within 72 hours of the telephone transaction, verification of
account name and account number or
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tax identification number, and sending redemption proceeds to the address of
record, a previously designated bank account or alternate address. For telephone
redemptions, call the Transfer Agent at 800-539-3863. If you are unable to reach
the Transfer Agent by telephone (for example, during a time of unusual market
activity), consider placing your order by mail directly to the Transfer Agent.
ADDITIONAL REDEMPTION INFORMATION
Redemption orders are effected at the net asset value per share next
determined after the shares are properly tendered for redemption, as described
above. The proceeds paid upon redemption of shares in a Fund may be more or less
than the amount invested. A redemption, including those under the Systematic
Withdrawal Plan, may therefore result in gain or loss for federal income tax
purposes. Furthermore, purchases of additional shares concurrent with
redemptions may have adverse federal income tax consequences. Payment to
shareholders for shares redeemed will be made within three Business Days after
receipt by the Transfer Agent of the request for redemption in proper form.
At various times, Key Mutual Funds may be requested to redeem shares of a Fund
for which good payment has not yet been received. In such circumstances, Key
Mutual Funds may delay the forwarding of proceeds for 15 days or more without
interest to the shareholder until payment has been collected for the purchase of
such shares. Key Mutual Funds intends to pay cash for all shares redeemed, but
under unusual circumstances, Key Mutual Funds may make payment wholly or partly
in portfolio securities at their then-current market value equal to the
redemption price. In such cases, an investor may incur brokerage costs in
converting such securities to cash.
Due to the relatively high cost of handling small investments, Key Mutual
Funds reserves the right to redeem, at net asset value, shares in your account
if, because of redemptions of shares by you or on your behalf, your account with
respect to a Fund has a value of less than $500 (except with respect to
officers, trustees, directors and employees, including retired directors and
employees, of Spears, Key Mutual Funds, KeyCorp and its affiliates (and family
members of each of the foregoing) participating in the Systematic Investment
Plan, to whom no minimum balance requirement applies). IRA and Keogh accounts
are exempt from this mandatory redemption. Before Key Mutual Funds exercises the
right to redeem such shares and to send the proceeds to you, you will be given
notice that the value of the shares in your account is less than the minimum
amount and will be allowed 60 days to make an additional investment in the Fund
in an amount which will increase the value of the account to at least $500, if
applicable.
Key Mutual Funds reserves the right to reject any order for the purchase of
its shares in whole or in part.
Key Mutual Funds may suspend the right of redemption during any period when
(a) trading on the NYSE is restricted as determined by the Securities and
Exchange Commission or such Exchange is closed, other than customary weekend and
holiday closings; (b) the Securities and Exchange Commission has by order
permitted such suspension or postponement; or (c) an emergency, as defined by
rules of the Securities and Exchange Commission, exists making disposal of
portfolio securities or determination of the value of assets of the Funds not
reasonably practicable. In case of a suspension of the right of redemption, the
offer of redemption may be withdrawn by the shareholder, or payment will be made
at the net asset value next determined after the suspension has been terminated.
- --------------------------------------------------------------------------------
EXCHANGE PRIVILEGES
- --------------------------------------------------------------------------------
Shares of a Fund may be exchanged for shares of any Fund of Key Mutual Funds.
You may also exchange shares of a Fund for shares of funds in the Victory Group
(each a "Victory Fund") that are not subject to either a front-end or a
contingent deferred sales charge. In addition, shareholders of Key Mutual Funds
who qualify for a waiver of a front-end sales charge otherwise applicable to a
purchase of shares of a Victory Fund may exchange their shares of a Fund of Key
Mutual Funds for shares of a Victory Fund. Shares of a Fund of Key Mutual Funds
may also be exchanged for Key Class shares of a Victory Fund, when and if such
shares become available. Exchanges will be made on the basis of the relative net
asset value of the shares of the respective Funds. To exchange shares, several
conditions must be met:
(1) Shares of the fund selected for exchange must be available for sale in your
state of residence.
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(2) The prospectuses of the Fund and the fund whose shares you want to buy must
offer the exchange privilege.
(3) You must hold the shares you buy when you establish your account for at
least 7 days before you can exchange them; after the account is open 7 days,
you can exchange shares on any Business Day.
(4) You must meet the minimum purchase requirements for the fund you purchase by
exchange.
(5) The registration and tax identification numbers of the two accounts must be
identical.
(6) BEFORE EXCHANGING, OBTAIN AND READ THE PROSPECTUS FOR THE FUND YOU WISH TO
PURCHASE BY EXCHANGE.
Telephone exchange requests may be made either by calling your Investment
Professional or the Transfer Agent at 800-539-3863 prior to Valuation Time on
any Business Day. (See "Determination of Net Asset Value.")
Exchanges of shares involve a redemption of the shares exchanged and a
purchase of shares acquired.
There are certain exchange policies you should be aware of:
- - Shares are normally redeemed from one fund and issued from the other fund in
the exchange transaction on the same Business Day on which the Transfer Agent
receives an exchange request by Valuation Time (normally 4:00 p.m. Eastern
time) that is in proper form, but either fund may delay the issuance of shares
of the fund into which you are exchanging if it determines it would be
disadvantaged by a same-day transfer of the proceeds to buy shares. For
example, the receipt of multiple exchange requests from a dealer in a
"market-timing" strategy might create excessive turnover in the Fund's
portfolio and associated expenses disadvantageous to the Fund.
- - Because excessive trading can hurt fund performance and harm shareholders, the
Funds reserve the right to refuse any exchange request that will impede a
Fund's ability to invest effectively or otherwise have the potential to
disadvantage a Fund, or to refuse multiple exchange requests submitted by a
shareholder or dealer.
- - Key Mutual Funds may amend, suspend or terminate the exchange privilege at any
time upon 60 days' written notice to shareholders.
- - If the Transfer Agent cannot exchange all the shares you request because of a
restriction cited above, only the shares eligible will be exchanged.
- - Each exchange may result in a gain or loss for federal income tax purposes.
See "Redeeming Shares -- By Telephone" for a discussion of certain limitations
on the liability of Key Mutual Funds and the Transfer Agent in connection with
unauthorized telephone transactions.
- --------------------------------------------------------------------------------
INVESTING FOR RETIREMENT
- --------------------------------------------------------------------------------
You may wish to invest in Key Mutual Funds in connection with Individual
Retirement Accounts (IRAs) and other retirement plans such as Simplified
Employee Pension Plans (SEP/IRA), Salary Reduction Simplified Employee Pension
Plans (SAR-SEP/IRA), 401(k) Plans, and 403(b) Plans. For more information about
investing in Key Mutual Funds through tax-deferred accounts, call 800-539-3863.
- --------------------------------------------------------------------------------
DIVIDENDS AND DISTRIBUTIONS
- --------------------------------------------------------------------------------
Each Fund distributes to shareholders substantially all of its net investment
income and any net realized taxable capital gains resulting from sales of
portfolio securities.
The SBSF Convertible Securities Fund declares dividends, equal to its net
investment income, on or about the last business day of each calendar quarter
and pays such dividends shortly thereafter. Realized capital gains, if any, are
paid annually in December. Dividends from the SBSF Fund and the SBSF Capital
Growth Fund are ordinarily paid semi-annually in June and December and capital
gains distributions, if any, are paid annually in December.
DISTRIBUTION OPTIONS
When you fill out your Account Application, you can specify how you want to
receive your dividends and distributions. Currently, there are five available
options:
1. REINVESTMENT OPTION. Your dividends and capital gain distributions, if any,
will be automatically reinvested in additional shares of the Fund.
17
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Dividends and capital gain distributions will be reinvested at the net asset
value of the Fund as of the day after the record date. If you do not indicate
a choice on your Account Application, you will be assigned this option.
2. CASH OPTION. You will receive a check for each dividend or capital gain
distribution, if any. Checks will be mailed no later than seven days after
the payment date, which may be more than seven days after the record date.
3. INCOME EARNED OPTION. You will have your capital gain distributions, if any,
reinvested automatically in the Fund at the NAV as of the day after the
record date, and have your dividends paid in cash.
4. DIRECTED DIVIDENDS OPTION. You will have dividends and capital gain
distributions, or only capital gain distributions, automatically reinvested
in shares of another Key Mutual Fund, in shares of a Victory Fund or in Key
Class shares of a Victory Fund, when and if such shares become available, as
you have designated. Shares will be purchased at the NAV as of the day after
the record date. If you are reinvesting dividends of a fund sold without a
sales charge in shares of a fund sold with a sales charge, the shares will be
purchased at the public offering price (i.e., subject to the applicable sales
charge). Similarly, if you are reinvesting dividends of a fund which does not
impose a contingent deferred sales charge upon redemption in shares of a fund
which does impose such a charge, a contingent deferred sales charge may be
imposed on the redemption of the shares acquired with reinvested dividends.
Dividend distributions can be directed only to an existing account with a
registration that is identical to that of your Fund account.
5. DIRECTED BANK ACCOUNT OPTION. You will have your dividends and capital gain
distributions, or only your dividends, automatically transferred to your bank
checking or savings account. The amount will be determined on the record date
and will normally be transferred to your account within 7 days of the record
date. Dividend distributions can be directed only to an existing account with
a registration that is identical to that of your Fund account. Please call or
write the Transfer Agent to learn more about this option.
Any election or revocation of any of the above dividend and distribution
options may be made in writing to a Fund and sent to Key Mutual Funds, P.O. Box
8527, Boston, MA 02266-8527, or by calling the Transfer Agent at 800-539-3863,
and will become effective with respect to distributions having record dates
after receipt of the Account Application or request by the Transfer Agent.
Reinvested distributions receive the same tax treatment as distributions paid
in cash.
- --------------------------------------------------------------------------------
FEDERAL INCOME TAXES
- --------------------------------------------------------------------------------
Each Fund has qualified and intends to continue to qualify under Subchapter M
of the Internal Revenue Code of 1986, as amended (the "Code"), as a regulated
investment company so long as it is in the best interest of its shareholders to
do so. This qualification relieves the Funds (but not their shareholders) from
paying federal income tax on income which is currently distributed to
shareholders, assuming certain distribution requirements are met; it also
permits net capital gains of the Funds (i.e., the excess of net long-term
capital gain over net short-term capital loss) distributed to shareholders in
the form of capital gain distributions to be treated as long-term capital gain
by the shareholders, regardless of how long shares in the Funds are held. Other
Fund dividends will be treated as ordinary income to shareholders. Under the Tax
Reform Act of 1986, a nondeductible 4% excise tax may be imposed on the Funds to
the extent the Funds do not meet certain distribution requirements by the end of
each calendar year. Each Fund intends to pay out substantially all of its income
annually and therefore expects not to be subject to federal income or excise
taxes.
All dividend distributions to shareholders, including capital gain
distributions, are taxable to shareholders whether such distributions are taken
in cash or reinvested in additional shares.
Dividends paid by the SBSF, SBSF Convertible Securities and SBSF Capital
Growth Funds may be eligible for the dividends received deduction for corporate
shareholders to the extent that the Funds' income is derived from certain
dividends received from domestic corporations. A corporate shareholder of a Fund
must hold the Fund shares upon which the qualifying dividend is paid for at
least 46 days to be entitled to the dividends-received deduction. The Code also
provides other limitations with respect to the ability of a quali-
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fying corporate shareholder to claim the dividends-received deduction in
connection with holding shares of a regulated investment company.
Any gain or loss recognized upon a sale or redemption of Fund shares by a
shareholder who is not a dealer in securities will generally be treated as long-
term capital gain or loss if the shares have been held for more than one year.
Notwithstanding the above, any loss recognized by a shareholder upon the sale of
shares in a Fund held six months or less may be treated as long-term capital
loss to the extent of any long-term capital gain distributions received by the
shareholder.
The Company will inform you of the amount and nature of dividends and capital
gain distributions for each year in January of the following year. You should
keep all statements you receive to assist you in your record keeping. The
Company may be required to withhold, subject to certain exemptions, at a rate of
31% ("backup withholding") on dividends, capital gain distributions, and
redemption proceeds (including proceeds from exchanges) paid or credited to an
individual Fund shareholder, unless a shareholder certifies that the taxpayer
identification number ("TIN"), generally the shareholder's social security
number, provided is correct and that the shareholder is not subject to backup
withholding, or the IRS notifies the Company that the shareholder's TIN is
incorrect or the shareholder is subject to backup withholding. Such tax withheld
does not constitute an additional tax imposed on the shareholder, and may be
claimed as a tax payment on the shareholder's federal income tax return. A
failure to furnish a valid TIN may subject any investor to penalties imposed by
the IRS.
Dividends and distributions are generally subject to state and local taxes.
Shareholders are urged to consult their own tax advisers regarding specific
questions as to federal, state or local taxes.
- --------------------------------------------------------------------------------
PERFORMANCE
- --------------------------------------------------------------------------------
From time to time a Fund may present "yield" and "total return" of its shares
in advertisements, sale literature, and in reports to shareholders. Yield and
total return figures are based on historical earnings and are not intended to
indicate future performance. The yield on shares of a Fund will be calculated by
dividing the net investment income per share during a recent 30-day (or one
month) period by the maximum public offering price per share of the Fund on the
last day of that period. The results are compounded on a bond equivalent
(semiannual) basis and then annualized. The "total return" of shares may be
calculated on an average annual total return basis or an aggregate total return
basis. Average annual total return refers to the average annual compounded rates
of return on shares over one-, five-, and ten-year periods or the life of the
Fund (as stated in the advertisement) that would equate an initial amount
invested at the beginning of the stated period to the ending redeemable value of
the investment, assuming the reinvestment of all dividend and capital gain
distributions. Aggregate total return reflects the total percentage change in
the value of the investment over the measuring period, again assuming the
reinvestment of all dividends and capital gain distributions. Total return may
also be presented for other periods.
Investors may also judge, and Key Mutual Funds may at times advertise, the
performance of the Funds by comparing any such Fund's performance to the
performance of other mutual funds with comparable investment objectives and
policies, which performance may be contained in various unmanaged mutual fund or
market indices or rankings such as those prepared by Dow Jones & Co., Inc. and
Standard & Poor's Corporation, in publications issued by Lipper Analytical
Services, Inc., and in the following publications: IBC's Money Fund Reports,
Value Line Mutual Fund Survey, Morningstar, CDA/Wiesenberger, Money Magazine,
Forbes, Barron's, The Wall Street Journal, The New York Times, Business Week,
American Banker, Fortune, Institutional Investor, U.S.A. Today and local
newspapers. In addition, general information about a Fund that appears in
publications such as those mentioned above may also be quoted or reproduced in
advertisements, sales literature or in reports to shareholders.
Investment performance, which will vary, is based on many factors, including
market conditions, the composition of the Fund's portfolio and such Fund's
operating expenses. Investment performance also often reflects the risks
associated with a Fund's investment objective and policies. These factors should
be considered when comparing a Fund's investment results to those of other
mutual funds and other investment vehicles. Since yields fluctuate, yield data
cannot necessarily be used to compare an investment in the Funds with bank
deposits, savings accounts and similar investment alternatives which often
provide for an
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agreed-upon or guaranteed fixed yield for a stated period of time.
Additional information regarding the performance of each of the Funds is
included in the Statement of Additional Information and in the Funds' annual and
semi-annual reports, which are available free of charge by calling 800-539-3863.
- --------------------------------------------------------------------------------
DESCRIPTION OF COMMON STOCK
- --------------------------------------------------------------------------------
The Company is an open-end, series investment company, incorporated under
Maryland law on May 26, 1983. Pursuant to the Articles of Incorporation, the
Board of Directors may authorize the creation of additional series of shares.
Pursuant to such authority, the Board of Directors has authorized the issuance
of nine series of shares, each representing shares in one of nine separate
Funds. The par value of the shares of each of the Funds is $.01 per share. The
assets of each Fund are segregated and separately managed and a shareholder's
interest is in the assets and earnings of the Fund in which he or she holds
shares. Each share of a Fund represents an equal proportionate interest in that
portfolio with each other share of the same series. In the event of the
liquidation or dissolution of the Company, shares of a Fund are entitled to
receive the assets belonging to that portfolio that are available for
distribution and a proportionate distribution, based upon the relative net
assets of the respective Funds, of any general assets not belonging to any
particular portfolio that are available for distribution. Shareholders are
entitled to one vote for each share held and will vote in the aggregate and not
by portfolio except as otherwise required by the 1940 Act or Maryland law. It is
anticipated that the Company will not hold annual shareholder meetings except
when required to do so by the 1940 Act or Maryland law.
As of June 28, 1996, Key Trust owned shares of the SBSF Capital Growth Fund
such that it may be presumed to "control" the Fund as that term is defined in
the 1940 Act.
- --------------------------------------------------------------------------------
CUSTODIAN, TRANSFER AGENT, SHAREHOLDER
SERVICING AGENT AND DIVIDEND DISBURSING AGENT
- --------------------------------------------------------------------------------
Key Trust Company of Ohio, N.A., 127 Public Square, Cleveland, Ohio 44114, is
the Custodian for the Funds' cash and securities. Key Trust Company of Ohio,
N.A., does not assist in any way, and is not responsible for, investment
decisions involving assets of the Fund. Key Trust Company of Ohio, N.A., is a
subsidiary of KeyCorp and an affiliate of the Adviser and receives compensation
from the Funds for the services it performs as Custodian. State Street Bank and
Trust Company, 225 Franklin Street, Boston, MA 02110, is the Transfer Agent for
the shares of the Funds and receives a fee for this service. Boston Financial
Data Services, Inc. acts as the dividend disbursing agent and shareholder
servicing agent for the Funds and receives a fee for these services. Their
principal business address is Two Heritage Drive, Quincy, MA 02171.
20
<PAGE> 46
- --------------------------------------------------------------------------------
SHAREHOLDER REPORTS
- --------------------------------------------------------------------------------
The Funds will prepare and send to shareholders unaudited semi-annual and
audited annual reports which will include a list of investment securities held
by each of the Funds.
In addition, shareholders of the Funds will receive, monthly, a cumulative
account statement for the calendar year. Shareholders of the SBSF Fund, SBSF
Convertible Securities Fund and SBSF Capital Growth Fund also will receive,
quarterly, information summarizing the Fund's investment performance.
The Funds intend to eliminate duplicate mailings of Reports to an address at
which more than one shareholder of record with the same last name has indicated
that mail is to be delivered. Shareholders may receive additional copies of any
Report at no cost by writing to the Funds at the address listed below or by
calling 800-539-3863.
Shareholder inquiries should be addressed to the Funds at Key Mutual Funds,
P.O. Box 8527, Boston, MA 02266-8527. Shareholders may also call the Funds at
800-539-3863.
- --------------------------------------------------------------------------------
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATIONS NOT CONTAINED IN THIS PROSPECTUS IN CONNECTION WITH THE OFFERING
MADE BY THIS PROSPECTUS, AND, IF GIVEN OR MADE, SUCH INFORMATION OR
REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY KEY MUTUAL
FUNDS OR THE DISTRIBUTOR. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFERING BY KEY
MUTUAL FUNDS OR BY THE DISTRIBUTOR IN ANY JURISDICTION IN WHICH SUCH OFFERING
MAY NOT LAWFULLY BE MADE.
21
<PAGE> 47
KEY MUTUAL FUNDS
INVESTMENT ADVISER & SUB-ADMINISTRATOR
Spears, Benzak, Salomon & Farrell, Inc.
45 Rockefeller Plaza
New York, NY 10111
DISTRIBUTOR & ADMINISTRATOR
BISYS Fund Services
3435 Stelzer Road
Columbus, OH 43219
COUNSEL
Morrison & Foerster LLP
2000 Pennsylvania Avenue, NW
Washington, DC 20006
INDEPENDENT ACCOUNTANTS
Price Waterhouse LLP
1177 Avenue of the Americas
New York, NY 10036
CUSTODIAN
Key Trust Company of Ohio, N.A.
127 Public Square
Cleveland, OH 44114
TRANSFER AGENT
State Street Bank and Trust Company
225 Franklin Street
Boston, MA 02110
The date of this Prospectus is July 12, 1996
<PAGE> 48
KEY MUTUAL FUNDS
SBSF FUND
SBSF CONVERTIBLE SECURITIES FUND
SBSF CAPITAL GROWTH FUND
KEY MONEY MARKET MUTUAL FUND
STATEMENT OF ADDITIONAL INFORMATION
July 12, 1996
This Statement of Additional Information is not a prospectus and should be read
in conjunction with the prospectus for SBSF Fund, SBSF Convertible Securities
Fund and SBSF Capital Growth Fund, and the prospectus for Key Money Market
Mutual Fund, each dated July 12, 1996, as supplemented from time to time. This
Statement of Additional Information is incorporated by reference in its entirety
into the prospectus for SBSF Fund, SBSF Convertible Securities Fund and SBSF
Capital Growth Fund and the prospectus for Key Money Market Mutual Fund. Copies
of the prospectuses may be obtained by writing to Key Mutual Funds at P.O. Box
8527, Boston, MA 02266-8527, or by telephoning toll-free 800-539-3863.
<PAGE> 49
TABLE OF CONTENTS
<TABLE>
<S> <C>
INVESTMENT OBJECTIVES AND POLICIES....................................................................... 3
Additional Information on Fund Investments........................................................... 3
INVESTMENT RESTRICTIONS.................................................................................. 5
PORTFOLIO TURNOVER....................................................................................... 6
SBSF Fund, SBSF Convertible Securities Fund and SBSF Capital Growth Fund............................. 6
Key Money Market Mutual Fund......................................................................... 7
MANAGEMENT OF THE FUNDS.................................................................................. 7
Directors and Officers............................................................................... 7
SECURITY HOLDERS......................................................................................... 9
THE INVESTMENT ADVISER, ADMINISTRATOR AND SUB-ADMINISTRATOR.............................................. 10
EXPENSES, DISTRIBUTOR, DISTRIBUTION PLAN AND SHAREHOLDER SERVICING PLAN.................................. 12
CUSTODIAN, TRANSFER AGENT, DIVIDEND DISBURSING AGENT AND SHAREHOLDER SERVICING AGENT..................... 13
INDEPENDENT ACCOUNTANTS.................................................................................. 13
PERFORMANCE INFORMATION.................................................................................. 13
Key Money Market Mutual Fund......................................................................... 13
SBSF Fund, SBSF Convertible Securities Fund and SBSF Capital Growth Fund............................. 14
PORTFOLIO TRANSACTIONS AND BROKERAGE..................................................................... 16
PURCHASE, REDEMPTION AND PRICING......................................................................... 18
FEDERAL INCOME TAXES..................................................................................... 18
ADDITIONAL INFORMATION................................................................................... 21
FINANCIAL STATEMENTS..................................................................................... 22
APPENDIX A............................................................................................... 23
</TABLE>
2
<PAGE> 50
INVESTMENT OBJECTIVES AND POLICIES
Key Mutual Funds, formerly known as SBSF Funds, Inc. (the "Company") is a
professionally managed, no-load, open-end series investment company consisting
of several different portfolios, four of which (each a "Fund" and collectively
the "Funds") are described in this Statement of Additional Information. Prior to
December 1995, the Company operated under its corporate name "SBSF Funds, Inc."
In December 1995, the Company began operating under the name "Key Mutual Funds."
Each Fund is a separately managed, diversified mutual fund with its own
investment objective and policies. The Funds have no sales charges, redemption
fees or exchange fees. The four Funds and their investment objectives are:
SBSF Fund -- its investment objective is to seek a high total return over the
long term consistent with reasonable risk. In seeking its objective, the SBSF
Fund will invest primarily in common stocks which in the opinion of the Adviser
have the potential for capital appreciation in excess of market averages during
periods of market strength, while attempting to preserve capital during periods
of market weakness.
SBSF Capital Growth Fund -- its investment objective is to seek capital
appreciation. The Fund will seek to achieve its objective by investing in equity
securities of companies which the Adviser believes are likely to have rapid
growth in earnings or cash flow. The SBSF Capital Growth Fund will invest
primarily in the securities of small to medium capitalization companies.
SBSF Convertible Securities Fund -- its investment objective is to seek a high
level of current income together with long-term capital appreciation. The SBSF
Convertible Securities Fund will invest primarily in convertible bonds,
corporate notes, convertible preferred stocks and other securities convertible
into common stock.
Key Money Market Mutual Fund -- its investment objective is to provide high
current income to the extent consistent with preservation of capital. The Key
Money Market Mutual Fund invests only in securities issued or guaranteed by the
U.S. Government or its agencies or instrumentalities, as well as repurchase
agreements with respect to such securities.
ADDITIONAL INFORMATION ON FUND INVESTMENTS
In addition, the Funds may use the investment methods described below.
CALL OPTIONS. The SBSF Fund, the SBSF Convertible Securities Fund and the
SBSF Capital Growth Fund may purchase and write call options that are traded on
U.S. securities exchanges. Call options are currently traded on the Chicago
Board Options Exchange, the American Stock Exchange, the Philadelphia Stock
Exchange and the Pacific Stock Exchange. A call option is a short-term contract
(having a duration of nine months or less) pursuant to which the purchaser of
the call option, in return for a premium paid, has the right to buy the security
underlying the option at a specified exercise price at any time during the term
of the option. The writer of the call option, who receives the premium, has the
obligation, upon exercise of the option, to deliver the underlying security
against payment of the exercise price during the option period. Brokerage
commissions on call options transactions are generally higher than those for
exchange transactions in listed common stocks.
A call option is "covered" if the Fund which writes it owns the underlying
security covered by the call or has an absolute and immediate right to acquire
that security without additional cash consideration (or for additional cash
consideration held in a segregated account by its custodian) upon conversion or
exchange of other securities held in its portfolio. A call option is also
covered if the Fund which writes it holds on a share-for-share basis a call on
the same security as the call written where the exercise price of the call held
is equal to or less than the exercise price of the call written or greater than
the exercise price of the call written if the difference is maintained by the
Fund in cash, Treasury bills or other high grade short-term obligations in a
segregated account with its custodian. The premium paid by the purchaser of an
option will reflect, among other things, the relationship of the exercise price
to the market price and volatility of the underlying security, the remaining
term of the option, supply and demand and interest rates.
If the writer of an option wishes to terminate his obligation, he may effect a
"closing purchase transaction." This is accomplished by buying an option of the
same series as the option previously written. The effect of the purchase is that
the writer's position will be canceled by the clearing corporation. However, a
writer may not effect a closing purchase transaction after it has been notified
of the exercise of an option. Likewise, an investor who is the holder of an
option may liquidate his position by effecting a "closing sale transaction."
This is accomplished by selling an
3
<PAGE> 51
option of the same series as the option previously purchased. There is no
guarantee that either a closing purchase or a closing sale transaction can be
effected.
Effecting a closing transaction in the case of a written call option will
permit the Fund which wrote it to write another call option on the underlying
security with either a different exercise price or expiration date or both.
Also, effecting a closing transaction will permit the cash or proceeds from the
concurrent sale of any securities subject to the option to be used for other
investments. If a Fund desires to sell a particular security from its portfolio
on which it has written a call option it will effect a closing transaction prior
to or concurrent with the sale of the security. If a Fund is unable to effect a
closing purchase transaction and is otherwise unable to keep the option that it
has written covered, as described above, the Fund will be unable to dispose of
the underlying security and engage in the foregoing transactions.
A gain from a closing transaction will be realized if the price of the
transaction is less than the premium received from writing the option or is more
than the premium paid to purchase the option; a loss will be realized from a
closing transaction if the price of the transaction is more than the premium
received from writing the option or is less than the premium paid to purchase
the option. Because increases in the market price of a call option will
generally reflect increases in the market price of the underlying security, any
loss resulting from the repurchase of a call option is likely to be offset in
whole or in part by appreciation of the underlying security owned by the Fund.
The SBSF Fund, the SBSF Capital Growth Fund and the SBSF Convertible
Securities Fund may write call options only if they are covered, and the options
must remain covered so long as the Fund is obligated as a writer. The Funds have
undertaken with certain state securities commissions that, so long as shares of
the Funds are registered in those states, each will not (a) write calls if,
after giving effect to any additional call, more than 25% of any of the Funds'
total assets would be subject to calls; or (b) purchase call options (other than
in closing purchase transactions) if, after such purchase, the aggregate
premiums paid for all such options owned at that time would exceed 20% of the
Fund's total net assets. In addition, the Funds may be limited in engaging in
options transactions by certain provisions of the Internal Revenue Code which
limit the amount of gross income derived from the sale or other disposition of
securities held for less than three months to 30%. See "Federal Income Taxes."
FOREIGN SECURITIES. Securities of foreign issuers may, in the opinion of the
Adviser, present attractive investment opportunities, and the SBSF Fund, the
SBSF Capital Growth Fund and the SBSF Convertible Securities Fund may invest up
to 10% of their respective total assets in such securities. Foreign investments
may be affected favorably or unfavorably by changes in currency rates and
exchange control regulations, including currency blockage. There may be less
information available about a foreign company than about a U.S. company, and
foreign companies may not be subject to reporting standards and requirements
comparable to those applicable to U.S. companies. Foreign securities and their
markets may not be as liquid as U.S. securities and their markets. Securities of
some foreign companies may involve greater market risk than securities of U.S.
companies, and foreign brokerage commissions and custody fees are generally
higher than those in the United States. Investments in foreign securities may
also be subject to local economic or political risks, such as political
instability of some foreign governments and the possibility of nationalization
or expropriation of issuers. Such foreign securities may also be subject to
withholding and other taxes imposed by foreign governments.
LOANS OF PORTFOLIO SECURITIES. To increase income, the SBSF Fund, the SBSF
Capital Growth Fund and the SBSF Convertible Securities Fund may lend portfolio
securities to brokers or dealers, banks or other institutional investors, such
as insurance companies and pension funds, selected by the Adviser in accordance
with creditworthiness standards adopted by the Board of Directors of the
Company, provided that cash or equivalent collateral, or a letter of credit
drawn in favor of the Funds in an amount equal to at least 100% of the market
value of the securities loaned is continuously maintained by the borrower with
or in favor of the Fund or Funds making the loan. Securities are borrowed for
many purposes, including covering short sales, avoiding failures to deliver
securities and completing arbitrage operations. By lending its portfolio
securities, a Fund may receive income through the receipt of interest on the
loan as well as through the short-term investment of cash or equivalent
collateral. Any gain or loss in the market price of the securities loaned that
might occur during the term of the loan would inure to the Fund or Funds making
the loan.
If necessary, the Funds may pay reasonable negotiated fees to effect such
loans. The Funds do not have the right to vote securities that are on loan, but
would terminate the loan if a material event occurs affecting loaned securities;
the Funds will require the return of the loaned securities in order to regain
the right to vote. The Funds will not engage in securities loans with or through
persons affiliated with the Funds.
4
<PAGE> 52
REPURCHASE AGREEMENTS. The Funds may invest in repurchase agreements with
major dealers in U.S. Government securities and member banks of the Federal
Reserve System which are selected by the Adviser in accordance with procedures
approved by the Board of Directors. A repurchase agreement is an instrument
under which the purchaser (i.e., a Fund) acquires a security and the seller
agrees, at the time of the sale, to repurchase the obligation at a mutually
agreed upon time and price, thereby determining the yield during the purchaser's
holding period. This results in a fixed rate of return insulated from market
fluctuations during such period. With respect to repurchase agreement
transactions entered into by the SBSF Fund, the SBSF Convertible Securities Fund
and the SBSF Capital Growth Fund, the underlying securities are ordinarily U.S.
Treasury or other governmental obligations or high quality money market
instruments. With respect to repurchase agreement transactions entered into by
the Key Money Market Mutual Fund, the underlying securities are bonds, notes or
other obligations of or guaranteed by the United States, or those for which the
faith of the United States is pledged for the payment of principal and interest
thereon, and bonds, notes, debentures or any other obligations or securities
issued by any federal government agency or instrumentality. The Funds'
repurchase agreements require that at all times while a repurchase agreement is
in effect, the value of the collateral must equal or exceed the repurchase
price.
With respect to repurchase agreement transactions entered into by the SBSF
Fund, the SBSF Convertible Securities Fund and the SBSF Capital Growth Fund, the
maturities of the obligations securing such transactions may be more than one
year. However, the term of each repurchase agreement entered into by such Funds
will always be less than one year. With respect to the Key Money Market Mutual
Fund, all obligations securing repurchase agreements entered into by such Fund
will mature or be redeemable within two years of the date of consummation of the
repurchase agreement. The Funds' risk is limited to the ability of the seller to
pay the agreed upon amount on the delivery date. In the opinion of the Adviser,
the risk is not material; if the seller defaults, the underlying security
constitutes collateral for the seller's obligation to pay although the Funds may
experience difficulties and incur certain costs in exercising its rights to the
collateral and may lose the interest it expected to receive in respect of the
repurchase agreement. Repurchase agreements usually are for short periods, such
as one week or less, but could be longer. The Funds will not enter into
repurchase agreements of a duration of more than one week if, taken together
with illiquid securities and other securities for which there are no readily
available quotations, more than 10% of their respective total assets would be so
invested. Repurchase agreements are considered to be loans by the Funds
collateralized by the underlying securities.
The investment policies of the Funds set forth above may be changed or altered
by the Board of Directors of the Funds, except to the extent set forth under
"Investment Restrictions."
INVESTMENT RESTRICTIONS
The following investment restrictions are considered to be fundamental
policies of each of the Funds and may only be changed if approved by the holders
of a majority of the outstanding voting securities of the affected Fund. Under
the Investment Company Act of 1940, as amended ("1940 Act") such approval
requires the affirmative vote, at a meeting of shareholders of a Fund, of (i) at
least 67% of the shares of the Fund present at the meeting, if the holders of
more than 50% of the outstanding shares of the Fund are present in person or
represented by proxy; or (ii) more than 50% of the outstanding shares of the
Fund, whichever is less.
EACH OF THE FUNDS WILL NOT:
1. As to 75% of their respective total assets, invest more than 5% in the
securities of any one issuer except securities of the U.S. Government, its
agencies or its instrumentalities.
2. Invest in companies for the purpose of influencing management or
exercising control, and will not purchase more than 10% of the voting
securities of any one issuer. This will not preclude the management of the
Funds from voting proxies in their discretion.
3. Lend any cash except in connection with the acquisition of a portion of an
issue of publicly distributed bonds, debentures, notes or other evidences
of indebtedness or in connection with the purchase of securities subject
to repurchase agreements. The Funds will not lend any other assets except
as a special investment method. See "Investment Objectives and Policies"
herein and "Investment Objectives" in the Prospectus.
5
<PAGE> 53
4. Ordinarily borrow money, but each Fund reserves the right to borrow from
banks, on a temporary basis, an aggregate amount of not more than 5% of
the total asset value of the respective Fund at the time of borrowing.
None of the Funds has a policy limiting the uses for which borrowed funds
may be used.
5. Purchase securities on margin or sell securities short.
6. Act as an underwriter of securities issued by others.
7. Purchase the securities of other investment companies except in the open
market and at the usual and customary brokerage commissions or except as
part of a merger, consolidation or other acquisition.
8. Purchase or hold any real estate, including real estate limited
partnerships, except that the Funds may invest in securities secured by
real estate or interests therein or issued by persons which deal in real
estate or interests therein. The Funds will not deal in commodities or
commodity contracts.
9. Purchase securities if such purchase would cause more than 25% of any of
the Funds' total assets to be invested in the securities of issuers in any
one industry, provided however that the Money Market Fund reserves the
right to concentrate in securities issued or guaranteed as to principal
and interest by the United States Government, its agencies or
instrumentalities or U.S. bank obligations.
10. Make a loan of its portfolio securities if, immediately thereafter and as
a result thereof, portfolio securities with a market value of 10% or more
of the total assets of any of the Funds would be subject to such loans.
11. Invest more than 10% of any of the Funds' total assets in (i) securities
restricted as to disposition under the Federal securities laws, (ii)
securities as to which there are no readily available market quotations or
(iii) repurchase agreements with a maturity in excess of 7 days.
In addition to the foregoing fundamental investment restrictions which may be
changed only with shareholder approval, each Fund has adopted the following
investment restrictions which may be changed at any time by the Board of
Directors provided that such change does not conflict with any fundamental
policy of the Funds.
EACH OF THE FUNDS WILL NOT:
1. Invest more than 5% of its total assets in the securities of any one
issuer except in securities of the United States Government, its agencies
or its instrumentalities.
2. Invest in excess of 5% of its total assets in securities of issuers which,
including predecessors, do not have a record of at least three years'
operation.
3. Invest in interests in oil, gas or other mineral exploration or
development programs, including mineral leases.
4. Pledge or hypothecate any of the Fund's assets. For the purpose of this
limitation, collateral arrangements with respect to stock options are not
deemed to be a pledge of assets.
5. Purchase or retain the securities of any issuer if those officers and
directors of the Funds, or of its Investment Adviser, who own individually
more than 1/2% of the securities of such issuer, together own more than 5%
of the securities of such issuer.
6. Invest in excess of 10% of its total assets in the securities of foreign
issuers, excluding from such limitation securities listed on any United
States securities exchange.
7. Invest in excess of 10% of its net assets in other investment companies.
With respect to those investment restrictions involving percentages, if a
percentage restriction is complied with at the time of initial investment, a
subsequent increase or decrease in that percentage resulting from a change in
the value of portfolio securities or total net assets will not constitute a
violation of the investment restriction.
PORTFOLIO TURNOVER
SBSF FUND, SBSF CONVERTIBLE SECURITIES FUND AND SBSF CAPITAL GROWTH FUND
Purchases and sales of securities are made at such times as the Adviser deems
to be in the best interest of the Funds' shareholders without regard to the rate
of portfolio turnover, about which there are no restrictions. From time to time,
the Funds may trade in securities for the short term. It is anticipated that the
annual portfolio
6
<PAGE> 54
turnover rate of the SBSF Fund and the SBSF Convertible Securities Fund will not
exceed 75% but may be substantially higher than 100% for the SBSF Capital Growth
Fund. In any particular year, market conditions could result in portfolio
activity at a greater or lesser rate than anticipated. Portfolio turnover rate
is, generally, the percentage computed by dividing the lesser of purchases or
sales by the average value of the portfolio. High portfolio turnover involves
correspondingly higher brokerage commission expenses which are borne directly by
the Funds. In addition, the effect of engaging in options transactions may be to
increase portfolio turnover.
KEY MONEY MARKET MUTUAL FUND
The Key Money Market Mutual Fund's policy of investing only in securities with
remaining maturities of 397 days or less (with certain exceptions) will result
in a higher portfolio turnover rate than the SBSF Fund or the SBSF Convertible
Securities Fund. Since brokerage commissions are not normally paid on
investments which the Key Money Market Mutual Fund makes, turnover resulting
from such investments should not adversely affect the net asset value or net
income of the Fund.
MANAGEMENT OF THE FUNDS
DIRECTORS AND OFFICERS
Officers and employees of the Adviser are not permitted to serve as officers
or directors of the Company due to certain regulatory restrictions imposed on
banking organizations and their subsidiaries. The persons who have been elected
to serve as officers and directors of the Company, their position with the
Company and their principal occupations during the last five years are set forth
below:
<TABLE>
<CAPTION>
NAME, AGE, ADDRESS AND PRINCIPAL
OCCUPATION DURING THE PAST FIVE YEARS POSITION WITH REGISTRANT
- ---------------------------------------------------------------------------------- ------------------------
<S> <C>
EDWARD P. CAMPBELL, Age: 46. 28601 Clemens Road, Westlake, Ohio 44145. From March Director
1994 to present, Executive Vice President and Chief Operating Officer of Nordson
Corporation (manufacturer of application equipment); from May 1988 to March
1994, Vice President of Nordson Corporation; from 1987 to December 1994, member
of Supervisory Committee of Society National Bank's Collective Investment
Retirement Fund; from May 1991 to August 1994, Trustee, Financial Reserves Fund;
and from May 1993 to August 1994, Trustee, Ohio Municipal Money Market Fund.
Currently, Trustee of The Victory Portfolios mutual fund complex.
EUGENE J. MCDONALD, Age: 63. 2200 Main Street, Suite 1000, Durham, North Carolina Director
27705. Executive Vice President for Asset Management of Duke University and
President of Duke Management Co.; Director of Central Carolina Financial Corp.;
Director of Flag Investors/ISI Funds and Alex. Brown Cash Reserve Fund, Inc.
Previously, Director of Sphinx Pharmaceuticals, Inc.
FRANK A. WEIL, Age: 64. 147 E. 48th Street, New York, New York 10017. Chairman and Non-Executive Chairman
Chief Executive Officer of Abacus & Associates, Inc. (private investment firm); and Director
Chairman of the Council for Excellence in Government and Director and President
of the Norman and Hickrill Foundations.
*LEIGH A. WILSON, Age: 51. 53 Sylvan Road N., Westport, CT 06880. From 1989 to President and Director
present, Chairman and Chief Executive Officer of Glenleigh International Limited
(merchant bank); from 1993 to present, President of The Victory Funds.
Currently, Principal of New Century Living, Inc.; Director of Chimney Rock
Vineyard & Chimney Rock Winery; and Trustee of The Victory Portfolios mutual
fund complex. Previously, Chief Executive Officer, Paribas North America and
Paribas Corporation.
WILLIAM B. BLUNDIN, Age: 57. 125 West 55th Street, New York, New York 10019. Vice Vice President
Chairman of Concord Holding Corp.
</TABLE>
7
<PAGE> 55
<TABLE>
<CAPTION>
NAME, AGE, ADDRESS AND PRINCIPAL
OCCUPATION DURING THE PAST FIVE YEARS POSITION WITH REGISTRANT
- ---------------------------------------------------------------------------------- ------------------------
<S> <C>
KEVIN L. MARTIN, Age 35. 3435 Stelzer Road, Columbus, OH, 43219. Vice President of Treasurer
Accounting Services, BISYS Fund Services, Inc. (February 1996 to present);
Senior Manager at Ernst & Young (1984 to February 1996).
KAREN A. DOYLE, Age: 38. 125 West 55th Street, New York, New York 10019. Manager Secretary
of Client Services, BISYS Fund Services, Inc. (October 1994 to present);
Assistant Treasurer at The Bank of New York (April 1979 to October 1994).
SCOTT A. ENGLEHART, Age: 33. 3435 Stelzer Road, Columbus, Ohio 43219. Director of Vice President and
Client Services, BISYS Fund Services, Inc. (October 1990 to present). Assistant Secretary
ROBERT L. TUCH, Age: 44. 3435 Stelzer Road, Columbus, Ohio 43219. Employee of Assistant Secretary
BISYS Fund Services, Inc. (June 1991 to present); Vice President and Associate
General Counsel, National Securities & Research Corp. (July 1990 to June 1991).
ALAINA V. METZ, Age 29. 3435 Stelzer Road, Columbus, Ohio 43219. Chief Assistant Secretary
Administrator, Administrative and Regulatory Services, BISYS Fund Services
Limited Partnership (June 1995 to present); Supervisor, Mutual Fund Legal
Department Alliance Capital Management (May 1989 to June 1995).
</TABLE>
- ---------------
* Mr. Wilson is an "interested person" of the Company solely by reason of his
position as President.
Directors who are not "interested persons" of either an investment adviser to
or principal underwriter for the Funds receive an annual fee of $7,500 plus $750
per meeting of the Board of Directors attended and reasonable out-of-pocket
expenses incurred in connection with attending such meetings. Directors who are
"interested persons" of either an investment adviser to or principal underwriter
for the Funds do not receive any compensation from the Company.
<TABLE>
<CAPTION>
TOTAL COMPENSATION
FROM COMPANY AND
VICTORY FUND
AGGREGATE COMPENSATION COMPLEX
FROM COMPANY FOR THE FISCAL FOR THE YEAR ENDED
NAME OF DIRECTOR YEAR ENDED NOVEMBER 30, 1995 NOVEMBER 30, 1995
- ----------------------- ---------------------------- ------------------
<S> <C> <C>
Edward P. Campbell $6,000 $ 42,200(2)
Ted H. McCourtney 9,375 9,375(1)(3)
Eugene J. McDonald 9,375 9,375(3)
Frank A. Weil 9,375 9,375(3)
Leigh A. Wilson 6,000 49,717(2)
</TABLE>
- ---------------
(1) Mr. McCourtney resigned his position as a Director of the Company effective
December 7, 1995.
(2) These amounts include compensation received from the Company and The Victory
Funds (which were reorganized into The Victory Portfolios as of June 5,
1995). There are presently 24 mutual funds in the Victory "Fund Complex"
from which Messrs. Campbell and Wilson receive compensation.
(3) Total compensation paid with respect to service on the Board of the Company
only.
8
<PAGE> 56
SECURITY HOLDERS
The name, address and percentage of ownership of each person who is known by
the Funds to have owned of record or beneficially 5 percent or more of any of
the Funds' shares as of June 28, 1996 is:
<TABLE>
<CAPTION>
SHARES OWNED (PERCENT OF CLASS)*
--------------------------------------------------------------------
KEY MONEY
MARKET MUTUAL SBSF CONVERTIBLE SBSF CAPITAL
NAME AND ADDRESS SBSF FUND FUND SECURITIES FUND GROWTH FUND
- ----------------------------------------- ----------- ------------- ---------------- -------------
<S> <C> <C> <C> <C>
Charles Schwab & Co./FBO Cust 666,779.030
101 Montgomery Street 11.39%
San Francisco, CA 94104
Dani Siegel 864,254.662
c/o Glickman, Rubin & Graft 12.19%
310 Madison Avenue
New York, NY 10017
MAC & Co. 354,450.450 332,538.104
c/o Mellon Bank 5.00% 5.68%
Mutual Funds Operation
P.O. Box 3198
Pittsburgh, PA 15230-3198
Brookdale Hospital Medical Center 1,334,645.631
Linden Blvd At Brookdale Plaza 22.80%
Brooklyn, NY 11212
S. Weaver c/o Joel Faden & Co. 1,806,714.090
P.O. Box 277 FDR Station 8.95%
New York, NY 10150
William W. McGuire 3,991,278.470
1270 French Creek Drive 19.76%
Wayzata, MN 55391
Key Trust 2,598,732.813
Attn: Jim Osborne 69.93%
4900 Tiedeman Road
P.O. Box 93971
Brooklyn, OH 44101
Richard E. Salomon 1,305,074.010
45 Rockefeller Plaza 6.46%
New York, NY 10111
Edna Salomon 1,365,844.84
45 Rockefeller Plaza 6.70%
New York, NY 10111
Ralph Salomon 1,694,767.51
45 Rockefeller Plaza 8.39%
New York, NY 10111
</TABLE>
- ---------------
* All shares are owned beneficially.
9
<PAGE> 57
THE INVESTMENT ADVISER, ADMINISTRATOR AND SUB-ADMINISTRATOR
INVESTMENT ADVISER. The investment adviser to the Funds is Spears, Benzak,
Salomon & Farrell, Inc. (the "Adviser" or "Spears"), a New York corporation that
is registered as an investment adviser with the Securities and Exchange
Commission. The Adviser is a wholly owned subsidiary of KeyCorp Asset Management
Holdings, Inc. ("KAMHI"), which is a wholly owned subsidiary of KeyBank National
Association ("KeyBank") and KeyCorp, one of the largest financial services
holding companies in the United States. KeyCorp's principal offices are located
at 127 Public Square, Cleveland, Ohio 44114.
As of March 31, 1996, KeyCorp had an asset base of $65 billion, with banking
offices in 26 states from Maine to Alaska, and trust and investment offices in
16 states. KeyCorp is the resulting entity of the 1994 merger of Society
Corporation, the bank holding company of which KeyBank, formerly Society
National Bank, was a wholly-owned subsidiary, and KeyCorp, the former bank
holding company. KeyCorp's major business activities include providing consumer,
business and traditional banking and associated financial services to consumer,
business and commercial markets. KeyCorp's non-bank subsidiaries include
investment advisory, securities brokerage, insurance, bank credit card
processing and leasing companies. KeyBank is the lead affiliate bank of KeyCorp.
In addition to the Funds, the Adviser's clients include individuals, pension
and profit-sharing trusts, partnerships, and endowments. The accounts which are
managed or advised by the Adviser for these clients have varying investment
objectives and the Adviser may invest assets for such accounts in investments
substantially similar to, or the same as, those which are expected to constitute
the principal investments of the SBSF Fund. Such accounts are supervised by
officers and employees of the Adviser who may also be acting in similar
capacities for the Funds.
Pursuant to the Investment Advisory Agreement, the Adviser furnishes a
continuous investment program for the Funds' portfolios, makes the day-to-day
investment decisions for the Funds, executes the purchase and sale orders for
the portfolio transactions of the Funds and generally manages the Funds'
investments in accordance with the stated policies of the Funds, subject to the
general supervision of the Board of Directors of the Funds.
As compensation for the services rendered and related expenses borne by the
Adviser under the Investment Advisory Agreement, the SBSF Fund, the SBSF
Convertible Securities Fund and the SBSF Capital Growth Fund each pay the
Adviser a fee, computed daily and payable monthly, equal to .75 of l% per annum
of each Fund's average daily net assets. The Investment Advisory Agreement
further provides that the Key Money Market Mutual Fund will pay the Adviser a
fee, computed daily and payable monthly, equal to .25% per annum of its average
daily net assets. The Adviser is obligated to reimburse the Funds in the event
expenses exceed certain prescribed limits (see "Expenses, Distributor,
Distribution Plan and Shareholder Servicing Plan"). The Adviser's compensation
for acting as adviser to the SBSF Fund and the SBSF Convertible Securities Fund
was $868,860 and $441,307, respectively, for fiscal year ended November 30,
1993; $889,354 and $446,901, respectively, for the fiscal year ended November
30, 1994; and $815,718 and $455,976, respectively, for the fiscal year ended
November 30, 1995. The Adviser waived its fees for advisory services rendered to
the Key Money Market Mutual Fund totaling $34,146, $42,413 and $65,340 for the
fiscal years ended November 30, 1993, 1994 and 1995 respectively. The Adviser
waived its fee for advisory services rendered to the SBSF Capital Growth Fund
totaling $561, $26,742 and $38,420 for the period November 1, 1993 through
November 30, 1993, for the fiscal year ended November 30, 1994, and for the
period from December 1, 1994 through September 30, 1995, respectively.
Commencing October 1, 1995, the Adviser discontinued its voluntary waiver of
such advisory fees for the SBSF Capital Growth Fund, and, for the fiscal year
ended November 30, 1995, earned $10,391 as compensation for acting as adviser to
such Fund.
The Investment Advisory Agreement, dated February 8, 1988, between the Adviser
and the Funds remains in effect for a period of more than one year only if it is
specifically approved at least annually by its Board of Directors including a
majority of the directors who are not parties to the Investment Advisory
Agreement or "interested persons" of any such party (as defined in the 1940 Act)
cast in person at a meeting called for the purpose of voting on such approval.
The acquisition of Spears by KAMHI on April 5, 1995 resulted in the assignment
of the Investment Advisory Agreement and, therefore, its termination under the
1940 Act. At an annual meeting of shareholders held on March 29, 1995, the
shareholders of the Funds approved a new Investment Advisory Agreement with
Spears which became effective upon the consummation of the acquisition on April
5, 1995. The Investment Advisory Agreement so approved is substantially similar
to, including the same fee schedules as, the Funds' previous agreements. The
Investment Advisory Agreement will terminate automatically if assigned and is
terminable at any time without penalty under certain circumstances by the Funds,
the shareholders of the Funds or the Adviser.
10
<PAGE> 58
Spears has agreed that if in any fiscal year the sum of any of the Fund's
expenses exceeds the limits set by applicable regulations of state securities
commissions, the amounts payable by such Fund to Spears for the advisory fee for
that year shall be reduced by the amount of such excess. However, if the excess
should be greater than the total amounts payable to Spears in that year, Spears
shall reimburse such Fund of the amount by which such expenses exceed such fees.
For the purpose of this calculation, expenses shall include the fees payable to
Spears under the Investment Advisory Agreement and the amortization of
organization expenses, but shall exclude taxes, interest, brokerage, litigation
and indemnification expenses and other extraordinary expenses. The Funds believe
that, currently, the most restrictive expense ratio limitation imposed by any
state is 2 1/2% of the first $30 million of a Fund's average net assets, 2% on
the next $70 million of the Fund's average net assets and 1 1/2% of remaining
average net assets for any fiscal year.
ADMINISTRATOR AND SUB-ADMINISTRATOR. BISYS Fund Services Limited Partnership
(d/b/a BISYS Fund Services) ("BISYS" or the "Administrator") serves as the
Administrator of the Funds pursuant to an administration agreement dated July
12, 1996 (the "Administration Agreement"). The Administrator assists in
supervising all operations of each Fund (other than those performed by Spears
under the Investment Advisory Agreement), subject to the supervision of the
Board of Directors. From April 1, 1996 through July 11, 1996 Concord Holding
Corporation, an affiliate of BISYS, served as administrator for the Funds.
For the services rendered to the Funds and related expenses borne by BISYS as
Administrator, each Fund pays BISYS an annual fee, computed daily and paid
monthly, equal to .25% of the average daily net assets of each Fund up to
$50,000,000, plus .15% of such assets greater than $50,000,000. BISYS may
periodically waive all or a portion of its fee with respect to any Fund in order
to increase the net income of one or more of the Funds of the Company available
for distribution to shareholders.
Unless sooner terminated, the Administration Agreement will continue in effect
as to the Funds for a period of one year, and, with respect to each Fund, for
successive one year terms thereafter, unless terminated by either party on not
less than 90 days prior written notice to the other party. The Administration
Agreement provides that BISYS shall not be liable for any action taken or
omitted by BISYS in the absence of bad faith, willful misfeasance, negligence or
reckless disregard by it of its obligations and duties thereunder.
Under the Administration Agreement, BISYS assists in the Funds' administration
and operation, including providing statistical and research data, clerical
services, internal compliance and various other administrative services,
including among other responsibilities, forwarding certain purchase and
redemption requests to the Transfer Agent, participation in the updating of the
prospectus, coordinating the preparation, filing, printing and dissemination of
reports to shareholders, coordinating the preparation of income tax returns,
performing certain fund accounting services, maintaining books and records and
providing office facilities necessary to carry out its duties thereunder. Under
the Administration Agreement, BISYS may delegate all or any part of its
responsibilities thereunder.
For the fiscal years ended November 30, 1993, 1994 and 1995, Spears, the prior
administrator for the Funds, received the following amounts from the Funds for
administration services:
<TABLE>
<CAPTION>
1993 1994 1995
--------- --------- ---------
<S> <C> <C> <C>
SBSF Fund.............................................................. $ 207,889 $ 209,164 $ 204,371
SBSF Convertible Securities Fund....................................... 137,870 139,949 141,195
Key Money Market Mutual Fund (then known as SBSF Money Market Fund).... 34,146 42,413 65,340
</TABLE>
Spears waived its fee for administration services rendered to the SBSF Capital
Growth Fund totaling $187, $8,921 and $16,210 for the period November 1, 1993
through November 30, 1993 and for the fiscal years ended November 30, 1994 and
1995, respectively. As of January 1, 1996, Spears discontinued its voluntary
waiver of such administration fees.
Pursuant to a Sub-Administration Agreement dated July 12, 1996, BISYS has
retained Spears to provide the Funds with certain sub-administrative and fund
accounting services. For its services as sub-administrator, BISYS pays Spears an
annual fee of $500,000.
11
<PAGE> 59
EXPENSES, DISTRIBUTOR, DISTRIBUTION PLAN AND SHAREHOLDER SERVICING PLAN
Except as set forth above, and as set forth below, the Funds are responsible
for the payment of their expenses. Such expenses include the fees payable to
Spears; any brokerage fees and commissions; taxes; interest; the cost of any
liability insurance or fidelity bonds; costs, expenses, or losses arising out of
any liability of or claim for damages or other relief asserted against the Funds
for violation of any law; legal and auditing fees and expenses; the fees and
certain expenses of the Funds' Custodian, Transfer Agent and Distributor; the
fees of any trade association of which the Funds are a member; the expenses of
printing and mailing reports and notices to the Funds' shareholders; filing fees
for the registration or qualification of Fund shares under federal or state
securities laws; the fees and expenses involved in registering and maintaining
registration of the Funds and of their shares with the Securities and Exchange
Commission; the costs of registering the Funds as a broker or dealer; the costs
of qualifying Fund shares under state securities laws; the expenses of servicing
shareholders and shareholder accounts not otherwise incurred by the Adviser or
the Administrator; and any extraordinary expenses incurred by the Funds.
As a result of certain regulatory restrictions imposed on banking
organizations and their subsidiaries, the Company is not permitted to sell
shares of the Funds directly without an independent underwriter. Accordingly,
pursuant to a distribution agreement dated as of July 1, 1996 (the "Distribution
Agreement"), BISYS was appointed to serve as independent underwriter/distributor
for the continuous offering of the shares of the Company. Under the Distribution
Agreement, BISYS is obligated to devote its best efforts to effect sales of
shares of the Funds, but is not required to sell any certain number of shares.
In addition, under the Distribution Agreement, BISYS may enter into agreements
with selected dealers for the distribution of shares of the Funds. During the
period from April 5, 1995 through June 30, 1996, Concord Financial Group, Inc.,
an affiliate of BISYS, served as the Funds' Distributor.
If not earlier terminated, the Distribution Agreement will continue in effect
for successive terms of one year, provided that such continuance is specifically
approved at least annually (a) by a majority of those members of the Board of
Directors of the Company who are not parties to the Agreement or "interested
persons" of any such party (the "Disinterested Directors"), pursuant to a vote
cast in person at a meeting called for the purpose of voting on such approval,
and (b) by the Board of Directors of the Company or by vote of a "majority of
the outstanding voting securities" of each Fund. The Distribution Agreement may
be terminated by the Company at any time with respect to any Fund, without the
payment of any penalty, by vote of a majority of the Disinterested Directors or
by vote of a "majority of the outstanding voting securities" of such Fund on 60
days' written notice to BISYS, or by BISYS, at any time, without the payment of
any penalty, on 60 days' written notice to the Fund. The Distribution Agreement
will automatically terminate in the event of its "assignment."
The Company has also adopted a Distribution Plan (the "Distribution Plan") for
the Funds pursuant to Rule 12b-1 under the 1940 Act. No separate payments are
authorized to be made by the Funds under the Plan. Rather, the Plan provides
that to the extent that any portion of the fees payable under the Shareholder
Servicing Plan or any Shareholder Servicing Agreement (described below) is
deemed to be for services primarily intended to result in the sale of Fund
shares, such fees are deemed approved and may be paid pursuant to the Plan and
in accordance with Rule 12b-1.
Rule 12b-1 requires that the Distribution Plan initially be approved by a vote
of at least a majority of the outstanding voting securities of the Funds and by
a majority of the Board of Directors, including those directors who are not
"interested persons" of the Funds (as defined in the 1940 Act) and who have no
direct or indirect financial interest in the Distribution Plan or any agreements
related to it. Thereafter, the Distribution Plan will continue in effect only if
approved, at least annually, by a vote of the Board of Directors, including a
majority of the directors who are not "interested persons" of the Funds and who
have no direct or indirect financial interest in the operation of the
Distribution Plan (or any agreements related to it), cast in person at a meeting
called for the purpose of voting on the Plan. The Distribution Plan may be
terminated at any time by a vote of a majority of the outstanding voting
securities of the Funds or a majority of those directors who are not "interested
persons" of the Funds and who have no direct or indirect financial interest in
the Distribution Plan or in any agreements related to it.
While the Distribution Plan is in effect, the selection and nomination of
directors who are not "interested persons" of the Funds (as defined in the 1940
Act) is committed to the discretion of the directors who are not interested
persons of the Funds.
12
<PAGE> 60
During the fiscal year ended November 30, 1995, the SBSF Fund, the SBSF
Convertible Securities Fund, the SBSF Capital Growth Fund and the Key Money
Market Mutual Fund paid $3,910, $8,815, $367 and $0, respectively, in fees
pursuant to the Distribution Plan in place prior to July 12, 1996. All such
amounts were paid out as a compensation to a dealer in connection with sales of
Fund shares.
The Company, on behalf of the Funds, has adopted a Shareholder Servicing Plan
to provide payments to shareholder servicing agents (including affiliates of the
Adviser) (each a "Shareholder Servicing Agent") that provide administrative
support services to customers who may from time to time beneficially own shares
of a Fund, which services may include: (i) aggregating and processing purchase
and redemption requests for shares from customers and promptly transmitting net
purchase and redemption orders to the distributor or transfer agent; (ii)
providing customers with a service that invests the assets of their accounts in
shares pursuant to specific or preauthorized instructions; (iii) processing
dividend and distribution payments on behalf of customers; (iv) providing
information periodically to customers showing their positions in shares; (v)
arranging for bank wires; (vi) responding to customer inquiries; (vii) providing
sub-accounting with respect to shares beneficially owned by customers or
providing the information to the Fund necessary for sub-accounting; (viii) if
required by law, forwarding shareholder communications from the Company (such as
proxies, shareholder reports, annual and semi-annual financial statements and
dividend, distribution and tax notices) to customers; (ix) forwarding to
customers proxy statements and proxies containing any proposals regarding this
Plan; and (x) providing such other similar services as reasonably requested to
the extent the Shareholder Servicing Agent is permitted to do so under
applicable statutes, rules or regulations. For expenses incurred and services
provided pursuant to the Shareholder Servicing Agreement, the Fund pays each
Shareholder Servicing Agent a fee computed daily and payable monthly, in amounts
aggregating not more than 0.25% on an annual basis, of the average daily net
assets of the Fund. A Shareholder Servicing Agent may periodically waive all or
a portion of its respective shareholder servicing fees with respect to the Fund
to increase the net income of the Fund available for distribution as dividends.
CUSTODIAN, TRANSFER AGENT, DIVIDEND DISBURSING AGENT AND SHAREHOLDER
SERVICING AGENT
Key Trust Company of Ohio, N.A., 127 Public Square, Cleveland, Ohio 44114 has
been retained as custodian for the Funds' investments. Key Trust Company of
Ohio, N.A. also maintains certain accounting and financial records of the Funds.
Key Trust Company of Ohio, N.A. is a subsidiary of KeyCorp and an affiliate of
the Adviser and receives compensation from the Funds for services it performs as
custodian. State Street Bank and Trust Company, 225 Franklin Street, Boston, MA
02110 is Transfer Agent for the Funds and receives a fee for this service.
Boston Financial Data Services, Inc., Two Heritage Drive, Quincy, MA 02171 acts
as dividend disbursing agent and shareholder servicing agent for the shares of
the Funds and receives a fee for this service.
INDEPENDENT ACCOUNTANTS
Price Waterhouse LLP, 1177 Avenue of Americas, New York, New York 10036, acts
as independent accountants for the Funds, and in that capacity audits the Funds'
annual financial statements.
PERFORMANCE INFORMATION
KEY MONEY MARKET MUTUAL FUND
The current and effective yields of the Fund may be quoted in reports, sales
literature, and advertisements published by the Fund. Current yield is computed
by determining the net change exclusive of capital changes in the value of a
hypothetical pre-existing account having a balance of one share at the beginning
of a seven-day calendar period, dividing the net change in account value by the
value of the account at the beginning of the period, and multiplying the return
over the seven-day period by 365/7. For purposes of the calculation, net change
in account value reflects the value of additional shares purchased with
dividends from the original share and dividends declared on both the original
share and any such additional shares, but does not reflect realized gains or
losses or unrealized appreciation or depreciation. Effective yield is computed
by annualizing the seven-day return with all dividends reinvested in additional
Fund shares. The current yield and effective yield for the Key Money Market
Mutual Fund for the seven day period ended November 30, 1995 were 4.78% and
4.90%, respectively.
13
<PAGE> 61
SBSF FUND, SBSF CONVERTIBLE SECURITIES FUND AND SBSF CAPITAL GROWTH FUND
From time to time, the "standardized yield," "dividend yield," "distribution
return," "average annual total return" and "total return" of an investment in
Fund shares may be advertised. An explanation of how yields and total returns
are calculated and the components of those calculations are set forth below.
Yield and total return information may be useful to investors in reviewing a
Fund's performance. A Fund's advertisement of its performance must, under
applicable Commission rules, include the average annual total returns for the
Fund for the 1, 5 and 10-year period (or the life of the Fund, if less) as of
the most recently ended calendar quarter. This enables an investor to compare a
Fund's performance to the performance of other funds for the same periods.
However, a number of factors should be considered before using such information
as a basis for comparison with other investments. An investment in a Fund is not
insured; yield and total return are not guaranteed and normally fluctuate on a
daily basis. Yield and total return for any given past period are not a
prediction or representation by the Company of future yields or rates of return
on its shares. The yield and total return of a Fund are affected by the types of
investments the Fund holds, operating expenses and credit or interest rate risk.
When redeemed, an investor's shares may be worth more or less than their
original cost.
STANDARDIZED YIELDS. A Fund's "yield" (referred to as "standardized yield")
for a given 30-day period for the shares of a Fund is calculated using the
following formula set forth in rules adopted by the Commission that apply to all
funds that quote yields:
<TABLE>
<S> <C> <C>
2[(a-b+1)(6)-1]
Standardized Yield = cd
</TABLE>
The symbols above represent the following factors:
a = dividends and interest earned during the 30-day period.
b = expenses accrued for the period (net of any expense reimbursements).
c = the average daily number of shares of the Fund outstanding during the
30-day period that were entitled to receive dividends.
d = the maximum offering price per share on the last day of the period,
adjusted for undistributed net investment income.
The standardized yield for a 30-day period may differ from its yield for any
other period. The Commission formula assumes that the standardized yield for a
30-day period occurs at a constant rate for a six-month period and is annualized
at the end of the six-month period. This standardized yield is not based on
actual distributions paid by the Fund to shareholders in the 30-day period, but
is a hypothetical yield based upon the net investment income from the Fund's
portfolio investments calculated for that period. The standardized yield may
differ from the "dividend yield," described below.
For the 30-day period ended November 30, 1995, the SBSF Fund and the SBSF
Convertible Securities Fund had yields of 0.46% and 5.08%, respectively.
DIVIDEND YIELD AND DISTRIBUTION RETURN. From time to time, a Fund may quote a
"dividend yield" or a "distribution return." Dividend yield is based on the
share dividends derived from net investment income during a stated period.
Distribution return includes dividends derived from net investment income and
from realized capital gains declared during a stated period. Under those
calculations, the dividends and/or distributions declared during a stated period
of one year or less (for example, 30 days) are added together, and the sum is
divided by the maximum offering price per share on the last day of the period.
When the result is annualized for a period of less than one year, the "dividend
yield" is calculated as follows:
<TABLE>
<S> <C> <C>
Dividends + Number of days (accrual period) X 365
Dividend Yield = Max. Offering Price (last day of period)
</TABLE>
TOTAL RETURN. The "average annual total return" is an average annual
compounded rate of return for each year in a specified number of years. It is
the rate of return based on the change in value of a hypothetical initial
investment of
14
<PAGE> 62
$1,000 ("P" in the formula below) held for a number of years ("n") to achieve an
Ending Redeemable Value ("ERV"), according to the following formula:
<TABLE>
<S> <C> <C>
ERV(1n)-1
(P) = Average Annual Total Return
</TABLE>
The cumulative "total return" calculation measures the change in value of a
hypothetical investment of $1,000 over an entire period of years. Its
calculation uses some of the same factors as average annual total return, but it
does not average the rate of return on an annual basis. Total return is
determined as follows:
<TABLE>
<S> <C> <C>
ERV-P
P = Total Return
</TABLE>
Total returns assume that all dividends and capital gains distributions during
the period are reinvested to buy additional shares at net asset value per share,
and that the investment is redeemed at the end of the period.
For the periods ended November 30, 1995, the average annual total returns of
the SBSF Fund, the SBSF Convertible Securities Fund and the SBSF Capital Growth
Fund were as follows:
<TABLE>
<CAPTION>
YEAR ENDED 5 YEARS ENDED 10 YEARS ENDED SINCE
FUND 11/30/95 11/30/95 11/30/95 INCEPTION
- ----------------------------------------- ---------- ------------- -------------- ---------
<S> <C> <C> <C> <C>
SBSF Fund................................ 30.37% 13.29% 11.69% 12.80%(1)
SBSF Convertible Securities Fund......... 20.43% 14.65% -- 11.18%(2)
SBSF Capital Growth Fund................. 30.03% -- -- 10.40%(3)
</TABLE>
- ---------------
(1) SBSF Fund commenced operations on October 17, 1983.
(2) SBSF Convertible Securities Fund commenced operations on April 14, 1988.
(3) SBSF Capital Growth Fund commenced operations on November 1, 1993.
OTHER PERFORMANCE COMPARISONS. From time to time, a Fund may publish the
ranking of the performance of its shares by Lipper Analytical Services, Inc.
("Lipper"), a widely-recognized independent mutual fund monitoring service.
Lipper monitors the performance of regulated investment companies, including the
Funds, and ranks the performance of the Funds against (i) all other funds,
excluding money market funds, and (ii) all other government bond funds. The
Lipper performance rankings are based on a total return that includes the
reinvestment of capital gains distributions and income dividends but does not
take sales charges or taxes into consideration.
From time to time, a Fund may publish the ranking of the performance of its
shares by Morningstar, Inc., an independent mutual fund monitoring service that
ranks mutual funds, including the Funds, in broad investment categories (equity,
taxable bond, tax-exempt and other) monthly, based upon each funds' three, five
and ten-year average annual total returns (when available) and a risk adjustment
factor that reflects Fund performance relative to three-month U.S. Treasury bill
monthly returns. Such returns are adjusted for fees and sales loads. There are
five ranking categories with a corresponding number of stars: highest (5), above
average (4), neutral (3), below average (2) and lowest (1). Ten percent of the
funds, series or classes in an investment category receive 5 stars, 22.5%
receive 4 stars, 35% receive 3 stars, 22.5% receive 2 stars, and the bottom 10%
receive one star.
From time to time, the yields and the total returns of the Funds may be quoted
in and compared to other mutual funds with similar investment objectives in
advertisements, shareholder reports or other communications to shareholders. The
Funds also may include calculations in such communications that describe
hypothetical investment results. (Such performance examples will be based on an
express set of assumptions and are not indicative of the performance of any
Fund.) Such calculations may from time to time include discussions or
illustrations of the effects of compounding in advertisements. "Compounding"
refers to the fact that, if dividends or other distributions on a Fund
investment are reinvested by being paid in additional Fund shares, any future
income or capital appreciation of the Fund would increase the value, not only of
the original Fund investment, but also of the additional Fund shares received
through reinvestment. As a result, the value of the Fund investment would
increase more quickly than if dividends or other distributions had been paid in
cash. A Fund may also include discussions or illustrations of the potential
investment goals of a prospective investor (including but not limited to tax
and/or
15
<PAGE> 63
retirement planning), investment management techniques, policies or investment
suitability of Fund, economic conditions, legislative developments (including
pending legislation), the effects of inflation and historical performance of
various asset classes, including but not limited to stocks, bonds and Treasury
bills. From time to time advertisements or communications to shareholders may
summarize the substance of information contained in shareholder reports
(including the investment composition of a Fund, as well as the views of the
investment adviser as to current market, economic, trade and interest rate
trends, legislative, regulatory and monetary developments, investment strategies
and related matters believed to be of relevance to a Fund. A Fund also may
include in advertisements, charts, graphs or drawings which illustrate the
potential risks and rewards of investment in various investment vehicles,
including but not limited to stock, bonds, Treasury bills and shares of the Fund
as well as charts or graphs which illustrate strategies such as dollar cost
averaging, and comparisons of hypothetical yields of investment in tax-exempt
versus taxable investments. In addition, advertisements or shareholder
communications may include a discussion of certain attributes or benefits to be
derived by an investment in a Fund. Such advertisements or communications may
include symbols, headlines or other material which highlight or summarize the
information discussed in more detail therein. With proper authorization, a Fund
may reprint articles (or excerpts) written regarding a Fund and provide them to
prospective shareholders.
Investors also may judge, and the Funds may at times advertise performance by
comparing it to the performance of other mutual funds or mutual fund portfolios
with comparable investment objectives and policies, which performance may be
contained in various unmanaged mutual fund or market indices or rankings such as
those prepared by Dow Jones & Co., Inc., Standard & Poor's Corporation, Lehman
Brothers, Merrill Lynch, and Salomon Brothers, and in publications issued by
Lipper Analytical Services, Inc. and in the following publications: IBC Money
Fund Reports, Value Line Mutual Fund Survey, Ibottson Associates, Morningstar,
CDA/Wiesenberger, Money Magazine, Forbes, Barron's, The Wall Street Journal, The
New York Times, Business Week, American Banker, Fortune, Institutional Investor
and U.S.A. Today. In addition to yield information, general information about
the Funds that appears in a publication such as those mentioned above may also
be quoted or reproduced in advertisements or in reports to shareholders.
Advertisements and sales literature may include discussions of specifics of
the portfolio manager's investment strategy and process, including, but not
limited to, descriptions of security selection and analysis.
Advertisements may also include descriptive information about the investment
adviser, including, but not limited to, its status within the industry, other
services and products it makes available, total assets under management and its
investment philosophy.
When comparing yield, total return and investment risk of an investment in a
Fund with other investments, investors should understand that certain other
investments have different risk characteristics than an investment in shares of
the Fund. For example, certificates of deposit may have fixed rates of return
and may be insured as to principal and interest by the FDIC, while a Fund's
returns will fluctuate and its share values and returns are not guaranteed.
Money market accounts offered by banks also may be insured by the FDIC and may
offer stability of principal. U.S. Treasury securities are guaranteed as to
principal and interest by the full faith and credit of the U.S. government.
Money market mutual funds seek to offer a fixed price per share.
PORTFOLIO TRANSACTIONS AND BROKERAGE
The Adviser is responsible for decisions to buy and sell securities for the
Funds, the selection of brokers and dealers to effect the transactions and the
negotiation of brokerage commissions. Purchases and sales of securities on a
securities exchange are effected through brokers who charge a commission for
their services. Brokerage commissions on United States securities exchanges are
subject to negotiation between the Adviser and the broker.
Fixed income securities and securities traded in the over-the-counter market,
are generally traded on a "net" basis with dealers acting as principal for their
own accounts without a stated commission, although the price of the security
usually includes a profit to the dealer. In underwritten offerings, securities
are purchased at a fixed price which includes an amount of compensation to the
underwriter, generally referred to as the underwriter's concession or discount.
On occasion, certain money market instruments may be purchased directly from an
issuer, in which case no commissions or discounts are paid.
In placing orders for portfolio securities of the Funds, the Adviser is
required to give primary consideration to obtaining the most favorable price and
efficient execution. Within the framework of this policy, the Adviser may
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<PAGE> 64
consider the research and brokerage services provided by brokers or dealers who
effect portfolio transactions for the Funds or the Adviser's other clients. Such
research and brokerage services are those which brokerage houses customarily
provide to institutional investors and include statistical and economic data and
research reports on particular companies and industries. Such services are used
by the Adviser in connection with all of its investment activities, and some of
such services obtained in connection with the execution of transactions for the
Funds may be used in managing other investment accounts. Conversely, brokers
furnishing such services may be selected for the execution of transactions of
such other accounts, whose aggregate assets are far larger than the Funds, and
the services furnished by such brokers may be used by the Adviser in providing
investment management for the Funds. Commission rates are established pursuant
to negotiations with the broker based on the quality and quantity of execution
services provided by the broker in the light of generally prevailing rates. In
addition, the Adviser is authorized to pay higher commissions on brokerage
transactions for the Funds to brokers in order to secure research and brokerage
services described above, subject to review by the Fund's Board of Directors
from time to time as to the extent and continuation of this practice. The
allocation of orders among brokers and the commission rates paid are reviewed
periodically by the Funds' Board of Directors. On behalf of the SBSF Fund, the
SBSF Convertible Securities Fund and the SBSF Capital Growth Fund, the Company,
during the fiscal year ended November 30, 1995 directed $87,506,009, $24,822,201
and $7,623,764 respectively, in aggregate brokerage transactions to brokers due
to research and brokerage services they provided, and such brokers received
related commissions of approximately $177,000, $55,000 and $22,000,
respectively.
In addition, for the fiscal years ended November 30, 1993, 1994 and 1995, the
Funds paid brokerage commissions approximately as follows:
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED YEAR ENDED
FUND 11/30/93 11/30/94 11/30/95
- --------------------------------------------------------------- ---------- ---------- ----------
<S> <C> <C> <C>
SBSF Fund...................................................... $207,000 $228,000 $177,000
SBSF Convertible Securities Fund............................... 30,000 41,000 55,000
SBSF Capital Growth Fund....................................... 2,000(1) 14,000 22,000
</TABLE>
- ---------------
(1) SBSF Capital Growth Fund commenced operations on November 1, 1993.
As of the end of the Funds' fiscal year on November 30, 1995, the SBSF Fund
held securities of its regular broker-dealers with a market value as follows:
J.P. Morgan Co., Inc. $3,925,000.
Transactions in options by the SBSF Fund, the SBSF Convertible Securities Fund
and the SBSF Capital Growth Fund will be subject to limitations established by
each of the exchanges on which options are traded governing the maximum number
of options which may be written or held by a single investor or group of
investors acting in concert, regardless of whether the options are written or
held on the same or different exchanges or are written or held in one or more
accounts or through one or more brokers. Thus, the number of options which the
Funds may write or hold may be affected by options written or held by the
Adviser and other investment advisory clients of the Adviser. An exchange may
order the liquidation of positions found to be in excess of these limits, and it
may impose certain other sanctions.
In October 1993 the Adviser organized Edgewood Services, Inc. ("Edgewood"), a
broker/dealer registered as such with the Securities and Exchange Commission
that commenced its operations in August 1994. On March 6, 1995, the shareholders
of Edgewood entered into a Stock Purchase Agreement pursuant to which Edgewood
was sold to Federated Services Company. Edgewood was an affiliated party of the
Adviser because it was under common control with the Adviser. Edgewood did not
receive any commissions from the Funds during the fiscal year ended November 30,
1994; however, Edgewood received commissions from the SBSF Fund during the
fiscal year ended November 30, 1995 in accordance with procedures adopted by the
Company's Board of Directors, including a majority of is non-interested
directors, pursuant to Rule 17e-1 under the 1940 Act. During the fiscal year
ended November 30, 1995, the commissions paid by the SBSF Fund to Edgewood
totaled $11,360. Such commissions represented 6.42% of the aggregate brokerage
commissions paid by the SBSF Fund, and 5.56% of the aggregate dollar amount of
transactions involving the payment of commissions by the SBSF Fund, during such
fiscal year.
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<PAGE> 65
PURCHASE, REDEMPTION AND PRICING
The net asset value of the shares of each Fund is calculated on each Business
Day. A "Business Day" is a day on which the New York Stock Exchange is open for
trading. The net asset values of shares of the SBSF Fund, the SBSF Convertible
Securities Fund and the SBSF Capital Growth Fund are determined as of the close
of the New York Stock Exchange, which is ordinarily at 4:00 P.M., Eastern time,
each Business Day, and the net asset value of shares of the Key Money Market
Mutual Fund is determined at 2:00 P.M., Eastern time, each Business Day. The New
York Stock Exchange will be closed in observance of the following holidays: New
Year's Day, Presidents' Day, Good Friday, Memorial Day, Independence Day, Labor
Day, Thanksgiving and Christmas. The methods of purchase and redemption of
shares, and special retirement, withdrawal and exchange plans offered are fully
set forth in the Prospectuses. Shares may be redeemed by submitting a written
request to the Funds, by check in the case of the Key Money Market Mutual Fund,
or by telephone, as described in the Prospectuses.
Securities traded on securities exchanges or the Nasdaq National Market are
valued at the last sales price on the exchange where the security is primarily
traded or, lacking any sales, at the mean between the most recent bid and asked
quotation. Securities traded over-the-counter are valued at the mean between the
most recent bid and asked price. Securities for which quotations are not readily
available and any other assets (other than money market instruments) are valued
at fair value as determined in good faith by the Board of Directors. The Key
Money Market Mutual Fund values all its portfolio securities at amortized cost
in accordance with Rule 2a-7 under the 1940 Act. The amortized cost method
values a security initially at its cost and thereafter assumes a constant
amortization of any discount or premium regardless of the impact of fluctuating
interest rates on the market value of the security. This method does not take
into account unrealized gains or losses. The SBSF Fund, the SBSF Convertible
Securities Fund and the SBSF Capital Growth Fund value money market instruments
at market value except for such instruments having a maturity of less than 60
days which are valued at amortized cost.
Generally, trading in foreign securities, as well as corporate bonds, United
States Government securities and money market instruments, is substantially
completed each day at various times prior to the close of the New York Stock
Exchange. The values of such securities used in computing the net asset values
of the shares of the SBSF Fund, SBSF Convertible Securities Fund and SBSF
Capital Growth Fund are determined as of such times. Foreign currency exchange
rates also are generally determined prior to the close of the New York Stock
Exchange. Occasionally, events affecting the values of such securities and such
exchange rates may occur between the times at which they are determined and the
close of the New York Stock Exchange which will not be reflected in the
computation of such Funds' net asset values. If events materially affecting the
value of such securities occur during such period, then these securities will be
valued at their fair value as determined in good faith by the Board of
Directors.
Pursuant to Rule 11a-3 under the 1940 Act, a Fund is required to give
shareholders at least 60 days' notice prior to terminating or modifying
materially its exchange privilege. Under the Rule, the 60-day notification
requirement may be waived if (1) the only effect of a modification would be to
reduce or eliminate an administrative fee, redemption fee, or deferred sales
charge ordinarily payable at the time of exchange, or (2) a Fund temporarily
suspends the offering of shares as permitted under the 1940 Act or by the SEC,
or because it is unable to invest amounts effectively in accordance with its
investment objective and policies.
FEDERAL INCOME TAXES
The Prospectus describes generally the tax treatment of distributions by the
Funds. This section of the SAI includes additional information concerning taxes.
Qualification as a "regulated investment company" under the Code requires,
among other things, that (a) at least 90% of each Fund's annual gross income be
derived from interest; payments with respect to securities loans; dividends; and
gains from the sale or other disposition of securities, foreign currencies or
other income (including but not limited to gains from options, futures, or
forward contracts) derived with respect to each Fund's business of investing in
such securities or currencies; (b) each Fund generally derives less than 30% of
its gross income from gains from the sale or other disposition of certain assets
held for less than 3 months, such as (i) stock or securities; (ii) options,
futures, and forward contracts (other than those on foreign currencies), and
(iii) foreign currencies (including options, futures, and forward contracts on
such currencies) not directly related to the Fund's principal business of
investing in stock or securities (or options and futures with respect to stocks
or securities); and (c) each Fund diversifies its holdings so that, at the end
of each quarter of its taxable year, (i) at least 50% of the
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<PAGE> 66
market value of each Fund's assets is represented by cash, U.S. Government
securities and other securities limited in respect of any one issuer to an
amount not greater than 5% of each Fund's assets and 10% of the outstanding
voting securities of such issuer, and (ii) not more than 25% of the value of its
assets is invested in the securities of any one issuer (other than U.S.
Government securities and the securities of other regulated investment
companies), or of two or more issuers which the Fund controls and which are
determined to be engaged in the same or similar trades or businesses or related
trades or businesses. As a regulated investment company, each Fund will not be
subject to federal income tax on its net investment income and any net capital
gains distributed to its shareholders, provided that it distributes to its
shareholders at least 90% of its net investment income, any short term capital
gains, and any net tax-exempt income earned in each year.
Generally, dividends and capital gain distributions are taxable to
shareholders when they are received. However, such dividends and distributions
declared payable as of a record date in October, November or December of any
calendar year are deemed under the Code to have been paid by a Fund and received
by the shareholder on December 31 of that calendar year if the dividend is
actually paid in the following January. Such dividends and distributions will,
accordingly, be taxable to the recipient shareholders in the year in which the
record date falls.
All income received by each Fund from sources within foreign countries (e.g.,
interest dividends) may be subject to withholding and other taxes imposed by
such countries. Tax conventions between certain countries and the United States
may reduce or eliminate such taxes. Because not more than 50% of the value of
the total assets of any Fund is expected to consist of securities of foreign
issuers, no Fund will be eligible to elect to "pass through" foreign tax credits
to shareholders.
Gains or losses on sales of portfolio securities by each Fund generally will
be long-term capital gains or losses if the securities have been held by it for
more than one year, except in certain cases including where a Fund acquires a
put or grants a call thereon. Gain recognized on the disposition of a debt
obligation (including tax-exempt obligations purchased after April 30, 1993)
purchased by a Fund at a market discount (generally, at a price less than its
principal amount) will generally be treated as ordinary income to the extent of
the portion of the market discount which accrued during the period of time the
Fund held the debt obligation. To the extent that a Fund recognizes long-term
capital gains, such gains will be distributed at least annually. Such
distributions will be taxable to shareholders as long-term capital gains,
regardless of how long a shareholder has held Fund shares. Such a distribution
will be designated as capital gain distributions in a written notice mailed by
the Fund to shareholders not later than 60 days after the close of the Fund's
taxable year.
If an option granted by a Fund lapses or is terminated through a closing
transaction, such as a repurchase by such Fund of the option from its holder,
the Fund will realize a short-term capital gain or loss, depending on whether
the premium income is greater or less than the amount paid by the Fund in the
closing transaction. If securities are sold by a Fund pursuant to the exercise
of a call option granted by it, the Fund will add the premium received to the
sale price of the securities delivered in determining the amount of gain or loss
on the sale. If securities are purchased by a Fund pursuant to the exercise of a
put option granted by it, the Fund will subtract the premium received from its
cost basis in the securities purchased.
Under Section 1256 of the Code, gain or loss recognized by a Fund from certain
financial forward, futures and options transactions is treated as 60% long-term
capital gain (or loss) and 40% short-term capital gain (or loss) (the "60%/40%
rule"). Gain or loss may arise upon the exercise or lapse of such forward
contracts, futures and options as well as from closing transactions. In
addition, any of such forward contracts, futures or options remaining
unexercised at the end of the regulated investment company's taxable year are
treated as sold for their then fair market value, resulting in additional gain
or loss to the Fund characterized in the manner described above (the
"marked-to-market rule"). Transactions that qualify as designated hedges are
excepted from the marked-to-market rule and 60%/40% rule. All or a portion of
the gain or loss from the disposition of non-U.S. dollar denominated securities
(including debt instruments, certain financial forward, futures and option
contracts, and certain preferred stock) may be treated as ordinary income or
loss under Section 988 of the Code (relating to the taxation of foreign currency
transactions). Furthermore, all or a portion of the gain realized from engaging
in "conversion transactions" may be treated as ordinary income under Section
1258. Conversion transactions are defined to include certain forward, futures,
option and straddle transactions, transactions marketed or sold to produce
capital gains, or transactions described in Treasury regulations to be issued in
the future.
Offsetting positions held by a Fund involving certain financial forward,
futures or option contracts may be considered, for tax purposes, to constitute
"straddles." Straddles are defined to include "offsetting positions" in
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actively traded personal property. The tax treatment of straddles is governed by
Section 1092 of the Code which, in certain circumstances, overrides or modifies
the provisions of Section 1256. If a Fund is considered to be in a straddle
because it entered into certain financial forward, futures or option positions,
the straddle could be characterized as "mixed straddle" if the positions
comprising the straddle are ordinarily governed by Section 1256. The Fund may
make one or more elections with respect to a mixed straddle, and, depending upon
the election(s) made, if any, the tax consequences with respect to the mixed
straddle may differ. Generally, to the extent the straddle rules apply to
positions established by a Fund, losses realized by the Fund may be deferred to
the extent of unrealized gain in any offsetting positions. Moreover, as a result
of the straddle and the conversion transaction rules, short-term capital loss on
straddle positions may be recharacterized as long-term capital loss, and
long-term capital gain may be characterized as short-term capital gain or
ordinary income.
If a Fund purchases an equity interest in a "passive foreign investment
company" ("PFIC"), the Fund may be subject to an interest charge by the IRS upon
distributions from the PFIC or the Fund's disposition of its interest in the
PFIC. If a Fund invests in a PFIC, the Fund intends to make an available
election under which the Fund will not be subject to the interest charge, but
must annually include its allocable share of income from the PFIC, regardless of
whether the Fund receives any distributions from the PFIC.
If, in the opinion of a Fund, ownership of its shares has or may become
concentrated to an extent that could cause the Fund to be deemed a personal
holding company within the meaning of the Code, the Fund may require the
redemption of shares or reject any order for the purchase of shares in an effort
to prevent such concentration.
Sales charges incurred to acquire Fund shares with reinvestment rights are not
taken into account when calculating the gain or loss on the disposition of such
Fund shares, if (i) the shares are disposed of within 90 days of acquisition and
(ii) Fund shares or shares of another regulated investment company are purchased
subsequently at a reduced or eliminated sales charge, pursuant to the
reinvestment rights attendant with the initial acquisition of Fund shares. Any
sales charge not taken into account is treated as having been incurred in the
subsequent acquisition. In addition, any loss realized on a redemption or
exchange of shares of a Fund will be disallowed to the extent substantially
identical shares are reacquired within the 61-day period beginning 30 days
before and ending 30 days after the disposition date of such Fund shares.
If a shareholder receives a designated capital gain distribution on a Fund
share and such Fund share is held for six months or less, then (unless otherwise
disallowed) any loss on the sale or exchange of that Fund share will be treated
as a long-term capital loss to the extent of the designated capital gain
distribution. In addition, any loss realized by a shareholder upon the sale or
redemption of Fund shares held less than six months will be disallowed to the
extent of any tax-exempt interest dividends received by the shareholder thereon.
These rules shall not apply to losses incurred under a periodic redemption plan.
As of the printing of this SAI, the maximum individual tax rate applicable to
ordinary income is 39.6% (marginal rates may be higher for some individuals due
to phase out of exemptions and elimination of deductions); the maximum
individual tax rate applicable to net capital gains is 28%; and the maximum
corporate tax rate applicable to ordinary income and net capital gains is 35%.
However, to eliminate the benefit of lower marginal corporate income tax rates,
corporations which have taxable income in excess of $100,000 for a taxable year
will be required to pay an additional amount of income tax of up to $11,750 and
corporations which have taxable income in excess of $15,000,000 for a taxable
year will be required to pay an additional amount of income tax of up to
$100,000.
An individual investor may be entitled to invest in Fund shares through a
tax-deferred retirement plan. Under the Code, an individual who is not active
participant (and does not have a spouse who is an active participant) in certain
types of retirement plans ("qualified retirement plans") may deduct
contributions to an individual retirement account ("IRA"), up to specified
limits ("deductible contributions"). Contributions to an IRA and investment
earnings thereon are generally tax-deferred until withdrawn.
The maximum annual deductible contribution to an IRA for individuals under age
seventy and a half is 100% of includible compensation up to a maximum of (i)
$2,000 for single individuals; (ii) $4,000 for a married couple when both
spouses earn income; and (iii) $2,250 when one spouse earns, or elects for IRA
purposes to be treated as earning, no income (together the "IRA contribution
limits"). A deductible contribution is also available for single individual
taxpayers and married couples who are active participants in qualified
retirement plans but who have adjusted gross incomes which do not exceed certain
specified limits. If their adjusted gross income exceeds these limits, the
amount of the deductible contribution is phased down and eventually eliminated.
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Any individual who works may make "nondeductible" contributions to an IRA in
addition to any deductible contributions. Nondeductible contributions are
taxable, but investment earnings thereon in the IRA are tax deferred until
withdrawn. Aggregate deductible and nondeductible contributions are limited to
the IRA contribution limits discussed above. Aggregate contributions in excess
of the applicable IRA contribution limit are "excess contributions." In
addition, contributions made to an IRA for the year in which an individual
attains the age of seventy and a half, or any year thereafter, are also excess
contributions. Excess contributions are subject to a 6% excise tax penalty which
is charged each year that the excess contribution remains in the IRA.
An employer also may contribute to an individual's IRA by establishing a
Simplified Employee Pension Plan, known as a "SEP-IRA." Participating employers
may make an annual contribution in an amount up to the lesser of 15% of earned
income or $30,000, subject to certain provisions of the Code. Investment
earnings will be tax-deferred until withdrawn.
FOREIGN SHAREHOLDERS. Under the Code, distributions of net investment income
by a Fund to a nonresident alien individual, nonresident alien fiduciary of a
trust or estate, foreign corporation, or foreign partnership (a "foreign
shareholder") will be subject to U.S. withholding(at a rate of 30% or a lower
treaty rate). Withholding will not apply if a dividend paid by a Fund to a
foreign shareholder is "effectively connected" with a U.S. trade or business, in
which case the reporting and withholding requirements applicable to U.S.
citizens, U.S. residents or domestic corporations will apply. Distributions of
net long-term capital gains are not subject to tax withholding, but in the case
of a foreign shareholder who is a nonresident alien individual, such
distributions ordinarily will be subject to U.S. withholding tax at a rate of
30% if the individual is physically present in the U.S. for more than 182 days
during the taxable year.
OTHER MATTERS. Investors should be aware that the investments to be made by a
Fund may involve sophisticated tax rules such as the original issue discount and
real estate mortgage investment conduit ("REMIC") rules that would result in
income or gain recognition by the Fund, without corresponding cash receipts.
Although the Funds will seek to avoid significant noncash income, such noncash
income could be recognized by the Funds, in which case a Fund may distribute
cash derived from other sources in order to meet the minimum distribution
requirements described above.
The foregoing discussion is based upon the federal tax laws in effect as of
the date of this SAI and summarizes only some of the important federal income
tax considerations generally affecting the Funds and their shareholders. It is
not intended as a substitute for careful tax planning. Investors should consult
their tax advisors with respect to their specific tax situations as well as with
respect to state and local taxes.
ADDITIONAL INFORMATION
The Company is an open-end management investment company that was organized as
a corporation under the laws of the State of Maryland on May 26, 1983. The Board
of Directors of the Company has authorized the issuance of shares of common
stock which represent interests in nine separate investment portfolios: SBSF
Fund, SBSF Convertible Securities Fund, SBSF Capital Growth Fund, Key Money
Market Mutual Fund, Key Stock Index Fund, Key International Index Fund, Key
Growth Fund, Key Moderate Growth Fund and Key Conservative Growth Fund. As of
the date of this Statement of Additional Information, the Company offers shares
of the following six separate portfolios: SBSF Fund, SBSF Convertible Securities
Fund, SBSF Capital Growth Fund, Key Money Market Mutual Fund, Key Stock Index
Fund and Key International Index Fund. Each Fund offers only one class of
shares. Shares of each Fund of the Company are redeemable at the net asset value
thereof at the option of the holders thereof or in certain circumstances at the
option of the Company. For information concerning the methods of redemption and
the rights of share ownership, see the Prospectuses under the caption "Redeeming
Shares."
Generally, on each matter submitted to a vote of shareholders, each
shareholder is entitled to one vote per share. In addition, all shares of each
Fund vote as a single class; provided, however, that (i) as to any matter with
respect to which a separate vote of any Fund is required by the 1940 Act or
under the Maryland General Corporation Law, the requirements as to a separate
vote by that Fund apply in lieu of single class voting; (ii) in the event that
the separate vote requirements referred to in (i) apply with respect to one or
more Funds, then, subject to (iii) below, the shares of all other Funds vote as
a single class; and (iv) as to any matter which does not affect the interest of
a particular Fund, only the holders of shares of the one or more affected Funds
are entitled to vote. And, notwithstanding any provision of the Maryland General
Corporation Law requiring a greater portion than a
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majority of the votes entitled to be cast in order to take or authorize any
action, any such action may be taken or authorized upon the concurrence of a
majority of the aggregate number of votes entitled to be cast thereon.
Shares of the Funds have no subscription or preemptive rights and only such
conversion or exchange privileges as the Directors may grant in their
discretion.
FINANCIAL STATEMENTS
The Annual Report of the Company for the fiscal year ended November 30, 1995,
and the report thereon of independent accountants dated January 17, 1996, are
incorporated by reference in this Statement of Additional Information. The
Letter to Shareholders contained in such Annual Report is not incorporated by
reference and is not part of the registration statement or this Statement of
Additional Information.
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APPENDIX A
MOODY'S INVESTORS SERVICE, INC. ("MOODY'S")
MOODY'S BOND RATINGS
<TABLE>
<S> <C>
Aaa Bonds which are rated Aaa are judged to be of the best quality. They carry the smallest degree of
investment risk and are generally referred to as "gilt edge." Interest payments are protected by a
large or by an exceptionally stable margin and principal is secure. While the various protective
elements are likely to change, such changes as can be visualized are most unlikely to impair the
fundamentally strong positions of such issues.
Aa Bonds which are rated Aa are judged to be of high quality by all standards. Together with the Aaa
group they comprise what are generally known as high grade bonds. They are rated lower than the best
bonds because margins of protection may not be as large as in Aaa securities or fluctuation of
protective elements may be of greater amplitude or there may be other elements present which make
the long-term risks appear somewhat larger than in Aaa securities.
A Bonds which are rated A possess many favorable investment attributes and are to be considered as
upper medium grade obligations. Factors giving security to principal and interest are considered
adequate, but elements may be present which suggest a susceptibility to impairment sometime in the
future.
Baa Bonds which are rated Baa are considered as medium grade obligations (i.e., they are neither highly
protected nor poorly secured). Interest payments and principal security appear adequate for the
present but certain protective elements may be lacking or may be characteristically unreliable over
any great length of time. Such bonds lack outstanding investment characteristics and in fact have
speculative characteristics as well.
Bonds rated Aaa, Aa, A and Baa are considered investment grade bonds.
Rating Refinements: Moody's may apply numerical modifiers, 1, 2 and 3 in each generic rating
classification from Aa through B in its corporate and municipal bond rating system. The modifier 1
indicates that the security ranks in the higher end of its generic rating category; the modifier 2
indicates a mid-range ranking; and a modifier 3 indicates that the issue ranks in the lower end of
its generic rating category.
</TABLE>
MOODY'S SHORT-TERM DEBT RATINGS
Moody's Short-Term Debt ratings are opinions of the ability of issuers to
repay punctually senior debt obligations which have an original maturity not
exceeding one year. Moody's employs the following three designations, all judged
to be investment grade, to indicate the relative repayment capacity of rated
issuers: Prime-1, Prime-2 and Prime-3.
Issuers rated Prime-1 have a superior capacity for repayment of senior
short-term obligations. Issurers rated Prime-2 have a strong ability for
repayment of short-term debt obligations; and issuers rated Prime-3 have an
acceptable ability for repayment of senior short-term promissory obligations.
Issuers rated Not Prime do not fall within any of the Prime rating categories.
STANDARD & POOR'S CORPORATION ("STANDARD & POOR'S")
STANDARD & POOR'S BOND RATINGS
A Standard & Poor's bond rating is a current assessment of the
creditworthiness of an obligor with respect to a specific obligation This
assessment may take into consideration obligors such as guarantors, insurers or
lessees.
The ratings are based on current information furnished by the issuer or
obtained by Standard & Poor's from other sources it considers reliable. The
ratings are based, in varying degrees, on the following considerations: (1)
likelihood of default-capacity and willingness of the obligor as to the timely
payment of interest and repayment of principal in accordance with the terms of
the obligation; (2) nature of and provisions of the obligation; and (3)
protection afforded by, and relative position of, the obligation in the event of
bankruptcy, reorganization or other arrangement under the laws of bankruptcy and
other laws affecting creditors' rights.
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Standard & Poors does not perform an audit in connection with any rating and
may, on occasion, rely on unaudited financial information The ratings may be
changed, suspended or withdrawn as a result of changes in, or unavailability of,
such information, or for other reasons.
<TABLE>
<S> <C>
AAA Debt rated AAA has the highest rating assigned by Standard & Poor's Capacity to pay interest and
repay principal is extremely strong.
AA Debt rated AA has a very strong capacity to pay interest and repay principal and differs from the
highest-rated issues only in small degree.
A Debt rated A has a strong capacity to pay interest and repay principal although they are somewhat
more susceptible to the adverse effects of changes in circumstances and economic conditions than
debt in the higher-rated categories.
BBB Debt rated BBB is regarded as having an adequate capacity to pay interest and repay principal.
Whereas it normally exhibits adequate protection parameters, adverse economic conditions or
changing circumstances are more likely to lead to a weakened capacity to pay interest and repay
principal for debt in this category than for debt in higher rated categories.
Bonds rated AAA, AA, A and BBB are considered investment grade bonds
NR Indicates that no rating has been requested, that there is insufficient information on which to
base a rating or that Standard & Poor's does not rate a particular type of obligation as a matter
of policy.
</TABLE>
STANDARD & POOR'S COMMERCIAL PAPER RATINGS
Standard and Poor's commercial paper rating is a current assessment of the
likelihood of timely payment of debt considered short-term in the relevant
market. The commercial paper rating is not a recommendation to purchase, sell or
hold a security inasmuch as it does not comment as to market price or
suitability for a particular investor. The ratings are based upon current
information furnished to S&P by the issuer or obtained by S&P form other sources
it considers reliable. S&P does not perform an audit in connection with any
rating and may, on occasion, rely on unaudited financial information. The
ratings may be changed, suspended or withdrawn as a result of changes in or
unavailability of such information or based on other circumstances. Ratings are
graded into several categories, ranging from "A-1" for the highest quality
obligations to "D" for the lowest. The categories are as follows:
Issues assigned A ratings are regarded as having the greatest capacity for
timely payment. Issues in this category are further refined with the designation
1, 2 or 3 to indicate the relative degree of safety.
A-1 This highest category indicates that the degree of safety regarding timely
payment is strong. Those issues determined to possess extremely strong
safety characteristics are denoted with a plus sign (+) designation.
A-2 Capacity for timely payment on issues with this designation is satisfactory.
However, the relative degree of safety is not as high as for issues
designated A-1.
A-3 Issues carrying this designation have adequate capacity for timely payment.
They are, however, more vulnerable to the adverse effect of changes in
circumstances than obligations carrying the higher designations.
24
<PAGE> 72
PART C
OTHER INFORMATION
ITEM 24. FINANCIAL STATEMENTS AND EXHIBITS.
(a) Financial Statements:
Included in Part A:
Financial Highlights
Incorporated by Reference in Part B:
Audited Financial Statements, including:
Statements of Investments, November 30, 1995
Statements of Assets and Liabilities, November 30, 1995
Statements of Operations, November 30, 1995
Statements of Changes in Net Assets for the years ended November 30,
1995 and 1994
Financial Highlights
Notes to Financial Statements
Report of Independent Accountants dated January 17, 1996
(b) Exhibits:
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- --------- ----
<C> <C> <S>
1(a) -- Articles of Incorporation, as amended and supplemented*
(b) -- Articles supplementary*
(c) -- Articles of Amendment, filed herewith.
2(a) -- By-Laws.*
(b) -- By-Laws, as amended.*
3 -- None.
4 -- None.
5(a) -- Investment Advisory Agreement.*
(b) -- Investment Advisory Agreement as amended.*
(c) -- Proposed Advisory Agreement (for SBSF Fund, SBSF Money Market Fund, SBSF Convertible Securities
Fund and SBSF Capital Growth Fund).*
(d) -- Form of Investment Advisory Agreement (for Key Stock Index Fund and Key International Index
Fund).*
6 -- Form of Distribution Agreement, filed herewith.
7 -- None.
8(a)(i) -- Form of Custody Agreement.*
(a)(ii) -- Custody Agreement*
(b) -- Form of Transfer Agency Agreement.*
9(a) -- Administration Agreement.*
(b) -- Administration Agreement, as amended.*
(c) -- Proposed Administration Agreement.*
(d) -- Form of Administration Agreement (for Key Stock Index Fund and Key distribution Index Fund).*
(e) -- Form of Fund Accounting Agreement (for Key Stock Index Fund and Key distribution Index Fund).*
(f) -- Form of Administration Agreement (for Key Money Market Mutual Fund, SBSF Fund, SBSF Convertible
Securities Fund and SBSF Capital Growth Fund).
(g) -- Form of Sub-Administration Agreement (for Key Money Market Mutual Fund, SBSF Fund, SBSF
Convertible Securities Fund and SBSF Capital Growth Fund).
10 -- Opinion of Counsel, filed herewith.
11 -- Consent of Independent Accountants, filed herewith.
12 -- None.
13 -- Investment Representation Letter.*
14 -- None.
15(a) -- Distribution Plan pursuant to Rule 12b-1.*
(b) -- Distribution Plan pursuant to Rule 12b-1, as amended.*
</TABLE>
C-1
<PAGE> 73
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- --------- ----
<C> <C> <S>
(c) -- Distribution Plan pursuant to Rule 12b-1, as amended, (for Key International Index Fund, Key
Money Market Mutual Fund, SBSF Fund, SBSF Convertible Securities Fund and SBSF Capital Growth
Fund).*
(d) -- Shareholder Servicing Plan and related form of Shareholder Servicing Agreement for (Key
International Index Fund, Key Money Market Mutual Fund, SBSF Fund, SBSF Convertible Securities
Fund and SBSF Capital Growth Fund).*
16 -- Not Applicable.
17 -- Financial Data Schedules, filed herewith.
</TABLE>
- ---------------
* Previously filed and incorporated herein by reference.
C-2
<PAGE> 74
ITEM 25. PERSONS CONTROLLED BY OR UNDER COMMON CONTROL WITH REGISTRANT.
No person is controlled by or under common control with Registrant.
ITEM 26. NUMBER OF HOLDERS OF SECURITIES.
Number of Record Holders as of April 30, 1996: SBSF Fund 1,121 record holders;
SBSF Convertible Securities Fund 492 record holders; SBSF Capital Growth Fund
294 recordholders: and Key Money Market Mutual Fund 259 record holders.
ITEM 27. INDEMNIFICATION.
The Corporation shall indemnify directors, officers, employees and agents of
the Corporation against judgments, fines, settlements and expenses (including
attorney's fees) to the fullest extent authorized, and in the manner permitted,
by applicable federal and state law, except that such indemnification will not
be permitted if, in the opinion of the Board of Directors, such indemnification
would be inconsistent with the position of the staff of the Securities and
Exchange Commission (the "Commission") in its interpretive releases relating to
matters of indemnification, including Investment Company Act Release No. 11330
(September 4, 1980) for so long as such releases remain the position of the
staff of the Commission. Insofar as indemnification for liabilities arising
under the Securities Act of 1933 may be permitted to directors, officers or
persons controlling the Registrant pursuant to the foregoing provisions, the
Registrant has been informed that in the opinion of the Securities and Exchange
Commission such indemnification is against public policy as expressed in the Act
and is therefore unenforceable.
ITEM 28. BUSINESS AND OTHER CONNECTIONS OF INVESTMENT ADVISER.
Spears performs investment advisory services for the Funds as well as for
individuals, pension and profit-sharing trusts, partnerships, endowments and
foundations. Spears is a wholly owned subsidiary of KeyCorp Asset Management
Holdings, Inc. and is an indirect wholly owned subsidiary of KeyBank National
Association. and KeyCorp. Information with respect to directors and officers of
Spears is incorporated by reference to the Form ADV filed by Spears with the
Securities and Exchange Commission pursuant to the Investment Advisers Act of
1940 (File No. 801-46878).
ITEM 29. PRINCIPAL UNDERWRITERS.
(a) BISYS Fund Services Limited Partnership ("BISYS Fund Services") acts as
distributor and administrator for the Registrant. BISYS Fund Services also
distributes the securities of the American Performance Funds, the AmSouth
Mutual Funds, The ARCH Fund, Inc., The BB&T Mutual Funds Group, The
Coventry Group, the MarketWatch Funds, the MMA Praxis Mutual Funds,
M.S.D.&T. Funds, the Pacific Capital Funds, The Parkstone Group of Funds,
the Qualivest Funds, The Riverfront Funds, Inc., The Sessions Group and
the Summit Investment Trust, each of which is an open-end management
investment company.
(b) Partners of BISYS Fund Services, as of May 31, 1996, were as follows:
<TABLE>
<CAPTION>
POSITIONS AND
POSITIONS AND OFFICES OFFICES WITH
NAME AND PRINCIPAL BUSINESS ADDRESS WITH BISYS FUND SERVICES REGISTRANT
- ----------------------------------- ------------------------- -------------
<S> <C> <C>
BISYS Fund Services Inc. Sole General Partner None
3435 Stelzer Road
Columbus, OH 43219
WC Subsidiary Corporation Sole Limited Partner None
150 Clove Road
Little Falls, N.J. 07424
The BISYS Group, Inc. Sole Shareholder None
150 Clove Road
Little Falls, N.J. 07424
</TABLE>
ITEM 30. LOCATION OF ACCOUNTS AND RECORDS.
All accounts, books and other documents required to be maintained by Section
31(a) of the 1940 Act and the Rules thereunder will be maintained at the offices
of:
(1) Key Mutual Funds, 45 Rockefeller Plaza, New York, N.Y. 10111;
(2) BFDS, State Street Bank and Trust Co., 225 Franklin Street, Boston, MA
02110 (records relating to their functions as Transfer Agent, Dividend
Disbursing Agent and Shareholder Servicing Agent);
(3) BISYS Fund Services, 3435 Stelzer Road, Columbus, Ohio 43219 (records
relating to its functions as Administrator, Distributor and Fund
Accountant);
C-3
<PAGE> 75
(4) Key Trust Company of Ohio, N.A., 127 Public Square, Cleveland, Ohio 44114
(records relating to its functions as Custodian); and
(5) Spears, Benzak, Salomon & Farrell, Inc., 45 Rockefeller Plaza, New York,
N.Y. 10111 (records relating to its functions as Investment Adviser and
Sub-Administrator).
ITEM 31. MANAGEMENT SERVICES.
Other than as set forth under the captions "Investment Adviser" and
"Administrator" in Parts A and B of the Registration Statement, Registrant is
not a party to any management-related service contract.
ITEM 32. UNDERTAKINGS.
(a) Not applicable.
(b) Not applicable.
(c) Registrant undertakes to furnish each person to whom a prospectus is
delivered with a copy of the Registrant's latest annual report to shareholders,
when such annual report is issued, containing information called for by Item 5A
of Form N-1A, upon request and without charge.
C-4
<PAGE> 76
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933 and the Investment
Company Act of 1940, the Registrant certifies that, other than with respect to
matters regarding which the staff of the Securities and Exchange Commission has
granted a filing exemption under Rule 485(b)(1)(ix), it meets all of the
requirements for effectiveness of this Registration Statement pursuant to Rule
485(b) under the Securities Act of 1933 and has duly caused this Amendment to
its Registration Statement to be signed on its behalf by the undersigned,
thereunto duly authorized, in the City of Columbus, and State of Ohio, on the
11th day of July, 1996.
SBSF FUNDS, INC.
By *
-------------------------------
Leigh A. Wilson
President
By /s/ Scott A. Englehart
-------------------------------
Scott A. Englehart
*Attorney-in-Fact
Pursuant to the requirements of the Securities Act of 1933, this
Post-Effective Amendment to Registrant's Registration Statement has been signed
below by the following individuals in the capacities and on the date indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- -------------------------------------------- -------------------------------------------- -----------------
<S> <C> <C>
* President and Director July 11, 1996
- ------------------------------------- (Principal Executive Officer)
Leigh A. Wilson
* Director July 11, 1996
- -------------------------------------
Eugene J. McDonald
* Non-Executive Chairman and Director July 11, 1996
- -------------------------------------
Frank A. Weil
* Director July 11, 1996
- -------------------------------------
Edward P. Campbell
* Treasurer (Principal Financial July 11, 1996
- ------------------------------------- Officer and Principal Accounting Officer)
Kevin L. Martin
/s/ Scott A. Englehart
- -------------------------------------
Scott A. Englehart
*Attorney-in-Fact
</TABLE>
C-5
<PAGE> 77
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION OF EXHIBIT
- ------------------------------------- ------------------------------------------------------------
<S> <C>
EX-27.1 SBSF FUND Financial Data Schedule
EX-27.2 SBSF MM FUND Financial Data Schedule
EX-27.3 SBSF CNVS FD Financial Data Schedule
EX-27.4 SBSF CPGT FD Financial Data Schedule
EX-99.B1(a) Articles of Amendment
EX-99.B6 Form of Distribution Agreement
EX-99.B9(f) Form of Administration Agreement
Ex-99.B9(g) Form of Sub-Administration Agreement
EX-99.B10 Opinion of Counsel
EX-99.B11 Consent of Independent Accountants
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<CIK> 0000722832
<NAME> SBSF FUNDS, INC.
<SERIES>
<NUMBER> 1
<NAME> SBSF FUND
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> NOV-30-1995
<PERIOD-END> NOV-30-1995
<INVESTMENTS-AT-COST> 90,580,922
<INVESTMENTS-AT-VALUE> 122,747,566
<RECEIVABLES> 1,267,112
<ASSETS-OTHER> 18,011
<OTHER-ITEMS-ASSETS> 6,432
<TOTAL-ASSETS> 114,039,121
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 188,692
<TOTAL-LIABILITIES> 188,692
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 78,850,462
<SHARES-COMMON-STOCK> 6,476,957
<SHARES-COMMON-PRIOR> 7,548,320
<ACCUMULATED-NII-CURRENT> 187,461
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 12,645,862
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 22,166,644
<NET-ASSETS> 133,850,429
<DIVIDEND-INCOME> 1,710,679
<INTEREST-INCOME> 667,284
<OTHER-INCOME> 0
<EXPENSES-NET> 1,371,688
<NET-INVESTMENT-INCOME> 1,006,275
<REALIZED-GAINS-CURRENT> 13,315,892
<APPREC-INCREASE-CURRENT> 14,528,504
<NET-CHANGE-FROM-OPS> 28,850,672
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 1,381,884
<DISTRIBUTIONS-OF-GAINS> 6,410,386
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 635,920
<NUMBER-OF-SHARES-REDEEMED> 2,203,122
<SHARES-REINVESTED> 495,839
<NET-CHANGE-IN-ASSETS> 4,117,508
<ACCUMULATED-NII-PRIOR> 563,070
<ACCUMULATED-GAINS-PRIOR> 5,740,356
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 815,718
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 1,371,688
<AVERAGE-NET-ASSETS> 108,765,373
<PER-SHARE-NAV-BEGIN> 14.54
<PER-SHARE-NII> 00.15
<PER-SHARE-GAIN-APPREC> 03.98
<PER-SHARE-DIVIDEND> 00.20
<PER-SHARE-DISTRIBUTIONS> 00.89
<RETURNS-OF-CAPITAL> 00.00
<PER-SHARE-NAV-END> 17.58
<EXPENSE-RATIO> 01.26
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<CIK> 0000722832
<NAME> SBSF FUNDS, INC.
<SERIES>
<NUMBER> 2
<NAME> SBSF MONEY MARKET FUND
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> NOV-30-1995
<PERIOD-END> NOV-30-1995
<INVESTMENTS-AT-COST> 21,857,523
<INVESTMENTS-AT-VALUE> 21,857,523
<RECEIVABLES> 447
<ASSETS-OTHER> 17,631
<OTHER-ITEMS-ASSETS> 9,272
<TOTAL-ASSETS> 21,884,873
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 36,534
<TOTAL-LIABILITIES> 36,534
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 21,848,339
<SHARES-COMMON-STOCK> 21,848,339
<SHARES-COMMON-PRIOR> 28,604,696
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 0
<NET-ASSETS> 21,848,339
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 1,508,565
<OTHER-INCOME> 0
<EXPENSES-NET> 164,121
<NET-INVESTMENT-INCOME> 1,344,444
<REALIZED-GAINS-CURRENT> 0
<APPREC-INCREASE-CURRENT> 0
<NET-CHANGE-FROM-OPS> 1,344,444
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 1,344,444
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 43,066,229
<NUMBER-OF-SHARES-REDEEMED> 51,120,858
<SHARES-REINVESTED> 1,297,266
<NET-CHANGE-IN-ASSETS> (6,757,363)
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 1,006
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 65,340
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 229,461
<AVERAGE-NET-ASSETS> 26,118,608
<PER-SHARE-NAV-BEGIN> 1,000
<PER-SHARE-NII> 0.051
<PER-SHARE-GAIN-APPREC> 0.000
<PER-SHARE-DIVIDEND> 0.051
<PER-SHARE-DISTRIBUTIONS> 0.000
<RETURNS-OF-CAPITAL> 0.000
<PER-SHARE-NAV-END> 1.000
<EXPENSE-RATIO> 0.63
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<CIK> 0000722832
<NAME> SBSF FUNDS, INC.
<SERIES>
<NUMBER> 3
<NAME> SBSF CONV. SEC. FUND
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> NOV-30-1995
<PERIOD-END> NOV-30-1995
<INVESTMENTS-AT-COST> 65,787,320
<INVESTMENTS-AT-VALUE> 71,902,458
<RECEIVABLES> 537,105
<ASSETS-OTHER> 23,172
<OTHER-ITEMS-ASSETS> 3,715
<TOTAL-ASSETS> 72,466,450
<PAYABLE-FOR-SECURITIES> 4,138,870
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 115,835
<TOTAL-LIABILITIES> 4,254,705
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 59,849,771
<SHARES-COMMON-STOCK> 5,609,335
<SHARES-COMMON-PRIOR> 5,326,123
<ACCUMULATED-NII-CURRENT> 440,726
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 1,806,110
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 6,115,138
<NET-ASSETS> 68,211,745
<DIVIDEND-INCOME> 2,308,436
<INTEREST-INCOME> 1,748,923
<OTHER-INCOME> 0
<EXPENSES-NET> 798,411
<NET-INVESTMENT-INCOME> 3,258,948
<REALIZED-GAINS-CURRENT> 1,851,621
<APPREC-INCREASE-CURRENT> 6,158,941
<NET-CHANGE-FROM-OPS> 11,269,510
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 3,264,148
<DISTRIBUTIONS-OF-GAINS> 2,024,717
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 932,395
<NUMBER-OF-SHARES-REDEEMED> 1,074,238
<SHARES-REINVESTED> 425,055
<NET-CHANGE-IN-ASSETS> 9,367,053
<ACCUMULATED-NII-PRIOR> 445,926
<ACCUMULATED-GAINS-PRIOR> 1,979,206
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 455,976
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 798,411
<AVERAGE-NET-ASSETS> 60,797,875
<PER-SHARE-NAV-BEGIN> 11.05
<PER-SHARE-NII> 00.60
<PER-SHARE-GAIN-APPREC> 01.50
<PER-SHARE-DIVIDEND> 061
<PER-SHARE-DISTRIBUTIONS> .38
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 12.16
<EXPENSE-RATIO> 1.31
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<CIK> 0000722832
<NAME> SBSF FUNDS, INC.
<SERIES>
<NUMBER> 4
<NAME> SBSF CAP. GROWTH FUND
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> NOV-30-1995
<PERIOD-END> NOV-30-1995
<INVESTMENTS-AT-COST> 6,960,976
<INVESTMENTS-AT-VALUE> 8,298,677
<RECEIVABLES> 207,461
<ASSETS-OTHER> 17,617
<OTHER-ITEMS-ASSETS> 17,811
<TOTAL-ASSETS> 8,541,566
<PAYABLE-FOR-SECURITIES> 90,000
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 25,112
<TOTAL-LIABILITIES> 115,112
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 6,845,269
<SHARES-COMMON-STOCK> 856,895
<SHARES-COMMON-PRIOR> 547,525
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 243,484
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 1,337,701
<NET-ASSETS> 8,426,454
<DIVIDEND-INCOME> 35,992
<INTEREST-INCOME> 27,573
<OTHER-INCOME> 0
<EXPENSES-NET> 77,789
<NET-INVESTMENT-INCOME> (14,224)
<REALIZED-GAINS-CURRENT> 348,226
<APPREC-INCREASE-CURRENT> 1,309,568
<NET-CHANGE-FROM-OPS> 1,723,570
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 0
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 343,971
<NUMBER-OF-SHARES-REDEEMED> 34,601
<SHARES-REINVESTED> 0
<NET-CHANGE-IN-ASSETS> 4,285,103
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> (90,518)
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 48,811
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 132,419
<AVERAGE-NET-ASSETS> 6,500,640
<PER-SHARE-NAV-BEGIN> 7056
<PER-SHARE-NII> (0.02)
<PER-SHARE-GAIN-APPREC> 2.29
<PER-SHARE-DIVIDEND> 0.0
<PER-SHARE-DISTRIBUTIONS> 0.0
<RETURNS-OF-CAPITAL> 0.0
<PER-SHARE-NAV-END> 9.83
<EXPENSE-RATIO> 1.20
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<PAGE> 1
EX-99.B1(a)
SBSF FUNDS, INC.
ARTICLES OF AMENDMENT
SBSF Funds, Inc. (d/b/a Key Mutual Funds), a Maryland corporation
having its principal office in the State of Maryland at c/o The Corporation
Trust Incorporated, 32 South Street, Baltimore, Maryland 21202 (hereinafter
called the "Corporation"), hereby certifies to the State Department of
Assessments and Taxation of Maryland that:
FIRST: The Corporation is registered as an open-end investment company
under the Investment Company Act of 1940, as amended.
SECOND: Pursuant to Article V of the Corporation's Articles of
Incorporation, and pursuant to Section 2-605(a)(4) of Subtitle 6 of the
Corporations and Associations Article of the Annotated Code of Maryland and
resolutions adopted by unanimous vote of the Board of Directors of the
Corporation, the Board of Directors hereby renames the following two billion
nine hundred twenty-five million (2,925,000,000) shares of the Corporation's
twenty-five billion (25,000,000,000) shares of authorized common stock, all of
which have a par value of one cent ($.01) per share, having an aggregate par
value of two hundred fifty million dollars($250,000,000):
(a) the name of the two billion nine hundred twenty-five million
shares (2,925,000,000) of the SBSF Money Market Fund is changed
to the Key Money Market Mutual Fund.
THIRD: The amendment described in Article SECOND hereof is limited to a
change expressly permitted by Section 2-605(a)(4) of Subtitle 6 of the
Corporations and Associations Article of the Annotated Code of Maryland.
IN WITNESS WHEREOF, the Corporation has caused these presents to be
signed in its name and on its behalf by its Vice President and witnessed by its
Assistant Secretary on the 11th day of July, 1996.
WITNESS: SBSF FUNDS, INC.
/S/ Robert L. Tuch /S/ Scott A. Englehart
- ---------------------------- ---------------------------------
Robert L. Tuch, Asst. Sec. Scott A. Englehart, Vice President
<PAGE> 2
THE UNDERSIGNED, Vice President of the Corporation, who executed on
behalf of the Corporation the Articles of Amendment of which this Certificate is
made a part, hereby acknowledges in the name and on behalf of said Corporation
the foregoing Articles of Amendment to be the corporate act of said Corporation
and hereby certifies that the matters and facts set forth herein with respect to
the authorization and approval thereof are true in all material respects under
the penalties of perjury.
/S/ Scott A. Englehart
----------------------------------
Scott A. Englehart, Vice President
<PAGE> 1
EX-99.B6
FORM OF
DISTRIBUTION AGREEMENT
This Distribution Agreement is made as of the 1st day of July, 1996
between SBSF Funds, Inc. (d/b/a Key Mutual Funds), a Maryland Corporation
(herein called the "Fund"), and BISYS Fund Services Limited Partnership (d/b/a
BISYS Fund Services), an Ohio limited partnership (herein called the
"Distributor").
WHEREAS, the Fund is an open-end management investment company and is
so registered under the Investment Company Act of 1940; and
WHEREAS, the Fund desires to retain the Distributor as Distributor for
each of the Fund's separate portfolios set forth on Schedule I hereto, as such
Schedule may be revised from time to time (individually known as a "Portfolio"
and collectively as the "Portfolios") to provide for the sale and distribution
of shares of common stock par value $.01 per share of the Fund (herein
collectively called "Shares"), and the Distributor is willing to render such
services;
NOW THEREFORE, in consideration of the premises and mutual covenants
set forth herein the parties hereto agree as follows:
I. DELIVERY OF DOCUMENTS
---------------------
The Fund has delivered to the Distributor copies of each of the
following documents and will deliver to it all future amendments and supplements
thereto, if any:
(a) The Fund's Articles of Incorporation and all amendments thereto
(such Articles of Incorporation, as presently in effect and as it shall from
time to time be amended, herein called the "Fund's Articles");
(b) The By-Laws of the Fund (such By-Laws, as presently in effect and
as they shall from time to time be amended, herein called the "By-Laws");
(c) Resolutions of the Board of Directors of the Fund authorizing the
execution and delivery of this Agreement;
(d) The Fund's most recent Post-Effective Amendment to its Registration
Statement under the Securities Act of 1933, as amended (the "1933 Act"), and
under the Investment Company Act of 1940, as amended (the "1940 Act"), on Form
N-1A as filed with the Securities and Exchange Commission (the "Commission") and
all subsequent amendments thereto (said Registration Statement, as presently in
effect and as amended or supplemented from time to time, is herein called the
"Registration Statement");
<PAGE> 2
(e) Notification of Registration of the Fund under the 1940 Act on Form
N-8A as filed with the Commission; and
(f) Prospectuses and Statements of Additional Information of the Fund
(such prospectuses and statements of additional information, as presently filed
with the Securities and Exchange Commission and as they shall from time to time
be amended and supplemented, herein called individually the "Prospectus" and
collectively the "Prospectuses").
II. DISTRIBUTION
------------
1. APPOINTMENT OF DISTRIBUTOR. The Fund hereby appoints the Distributor
as Principal Distributor of the Portfolios' Shares and the Distributor hereby
accepts such appointment and agrees to render the services and duties set forth
in this Section II.
2. SERVICES AND DUTIES.
--------------------
(a) The Fund agrees to sell through the Distributor, as agent,
from time to time during the term of this Agreement, Shares of the Portfolios
(whether authorized but unissued or treasury shares, in the Portfolios sole
discretion) upon the terms and at the current offering price as described in the
applicable Prospectus. The Distributor will act only in its own behalf as
principal in making agreements with selected dealers or others for the sale and
redemption of Shares, and shall sell Shares only at the offering price thereof
as set forth in the applicable Prospectus. The Distributor shall devote its best
efforts to effect sales of Shares of each of the Portfolios, but shall not be
obligated to sell any certain number of Shares. Each Portfolio reserves the
right to issue Shares in connection with any merger or consolidation of the
Portfolio or any Portfolio with any other investment company or personal holding
company or in connection with offers of exchange exempted from Section 11(a) of
the 1940 Act.
(b) In all matters relating to the sale and redemption of
Shares, the Distributor will act in conformity with the Fund's Articles,
By-Laws, and Prospectuses and with the instructions and directions of the Board
of Directors of the Fund and will conform to and comply with the requirements of
the 1933 Act, the 1940 Act, the regulations of the National Association of
Securities Dealers, Inc. and all other applicable federal or state laws and
regulations. In connection with such sales, the Distributor acknowledges and
agrees that it is not authorized to provide any information or make any
representations other than as contained in the Fund's Registration Statement and
Prospectuses and any sales literature specifically approved by the Fund. The
Fund shall not be responsible in any way for any information, statements or
representations given or made by the Distributor or its representatives or
agents other than such information, statements or representations contained in
the Prospectuses or other financial statements of the Fund or in any sales
literature or advertisements specifically approved by the Fund.
2
<PAGE> 3
(c) The Distributor will bear the cost of (i) printing and
distributing any Prospectus (including any supplement thereto) to persons who
are not either shareholders or counsel, independent accountants or other persons
providing similar services to the Fund, and (ii) preparing, printing and
distributing any literature, advertisement or material which is primarily
intended to result in the sale of the Shares; PROVIDED, HOWEVER, that the
Distributor shall not be obligated to bear the expenses incurred by the Fund in
connection with the preparation and printing of any amendment to any
Registration Statement or Prospectus necessary for the continued effective
registration of the Shares under the 1933 Act; and PROVIDED FURTHER, that each
Portfolio will bear the expenses incurred and other payments made in accordance
with the provisions of this Agreement and any plan now in existence or hereafter
adopted with respect to such Portfolio, or any class or classes of shares of
such Fund, pursuant to Rule 12b-1 under the 1940 Act (collectively, the
"Plans").
(d) The Distributor agrees to be responsible for implementing
and/or operating the Plans in accordance with the terms thereof.
(e) All Shares of the Funds offered for sale by the Distributor
shall be offered for sale to the public at a price per Share (the "Offering
price") equal to (i) their net asset value (determined in the manner set forth
in the Fund's Articles and then current Prospectuses) plus (ii) a sales charge
(if any) which shall be the percentage of the offering price of such Shares as
set forth in the Fund's then current Prospectuses. The offering price, if not an
exact multiple of one cent, shall be adjusted to the nearest cent. If a sales
charge is in effect, the Distributor shall have the right to pay a portion of
the sales charge to broker-dealers and other persons who have sold Shares of the
Portfolios. Concessions by the Distributor to broker-dealers and other persons
shall be set forth in either the selling agreements between the Distributor and
such broker-dealers and persons or, if such concessions are described in the
then current Prospectuses, shall be as so set forth. No broker-dealer or other
person who enters into a selling agreement with the Distributor shall be
authorized to act as agent for the Fund in connection with the offering or sale
of its Shares to the public or otherwise.
(f) If any Shares sold by the Distributor under the terms of
this Agreement are redeemed or repurchased by the Fund or by the Distributor as
agent or are tendered for redemption within seven business days after the date
of confirmation of the original purchase of said Shares, the Distributor shall
forfeit the amount (if any) of the net asset value received by it in respect of
such Shares, provided that the portion, if any, of such amount (if any)
re-allowed by the Distributor to broker-dealers or other persons shall be
repayable to the Fund only to the extent recovered by the Distributor from the
broker-dealer or other person concerned. The Distributor shall include in the
forms of agreement with such broker-dealers and other persons a corresponding
provision for the forfeiture by them of their concession with respect to Shares
sold by them or their principals and redeemed or repurchased by the Fund or by
the Distributor as agent (or tendered for redemption) within seven business days
after the date of confirmation of such initial purchases.
3
<PAGE> 4
3. SALES AND REDEMPTIONS.
----------------------
(a) The Fund shall pay all costs and expenses in connection with
the registration of the Shares under the 1933 Act, and all expenses in
connection with maintaining facilities for the issue and transfer of the Shares
and for supplying information, prices and other data to be furnished by the Fund
hereunder, and all expenses in connection with preparing, printing and
distributing the Prospectus except as set forth in subsection 2(c) of Section II
hereof.
(b) The Fund shall execute all documents, furnish all
information and otherwise take all actions which may be reasonably necessary in
the discretion of the Fund's officers in connection with the qualification of
the Shares for sale in such states as the Distributor may designate to the Fund
and the Fund may approve, and the Fund shall pay all filing fees which may be
incurred in connection with such qualification. The Distributor shall pay all
expenses connected with its qualification as a dealer under state or federal
laws and, except as otherwise specifically provided in this Agreement, all other
expenses incurred by the Distributor in connection with the sale of the Shares
as contemplated in this Agreement. It is understood that certain advertising,
marketing, shareholder servicing, administration and/or distribution expenses to
be incurred in connection with the Shares will be paid by the Portfolios as
provided in this Agreement and in the Plans relating thereto.
(c) The Fund shall have the right to suspend the sale of Shares
of any Portfolio at any time in response to conditions in the securities markets
or otherwise, and to suspend the redemption of Shares of any Portfolio at any
time permitted by the 1940 Act or the rules of the Commission ("Rules").
(d) The Fund reserves the right to reject any order for
Shares.
III. LIMITATION OF LIABILITY
-----------------------
The Distributor shall not be liable for any error of judgment or
mistake of law or for any loss suffered by the Fund or any Portfolio in
connection with the matters to which this Agreement relates, except a loss
resulting from willful misfeasance, bad faith or negligence on its part in the
performance of its duties or from reckless disregard by it of its obligations
and duties under this Agreement.
IV. CONFIDENTIALITY
---------------
The Distributor will treat confidentially and as proprietary
information of the Fund all records and other information relative to the Fund,
to the Fund's prior or present shareholders and to those persons or entities who
respond to the Distributor's inquiries concerning investment in the Fund, and
except as provided below, will not use such records and information for any
purpose other than the performance of its responsibilities and duties hereunder
or the performance of its responsibilities
4
<PAGE> 5
and duties with regard to sales of the shares of any Portfolio which may be
added to the Fund in the future. Any other use by the Distributor of the
information and records referred to above may be made only after prior
notification to and approval in writing by the investment adviser to the Fund.
Such approval may not be withheld where (i) the Distributor may be exposed to
civil or criminal contempt proceedings for failure to divulge such information;
(ii) the Distributor is requested to divulge such information by duly
constituted authorities; or (iii) the Distributor is so requested by the Board
of Directors of the Fund.
V. INDEMNIFICATION
---------------
1. FUND REPRESENTATIONS. The Fund represents and warrants to the
Distributor that at all times the Registration Statement and Prospectuses will
in all material respects conform to the applicable requirements of the 1933 Act
and the Rules and will not include any untrue statement of a material fact or
omit to state any material fact required to be stated therein or necessary to
make the statements therein, in light of the circumstances under which they were
made, not misleading, except that no representation or warranty in this
subsection shall apply to statements or omissions made in reliance upon and in
conformity with written information furnished to the Fund by or on behalf of and
with respect to the Distributor expressly for use in the Registration Statement
or Prospectuses.
2. DISTRIBUTOR REPRESENTATIONS. The Distributor represents and warrants
to the Fund that it is duly organized as a Delaware corporation and is and at
all times will remain duly authorized and licensed to carry out its services as
contemplated herein.
3. FUND INDEMNIFICATION. The Fund will indemnify, defend and hold
harmless the Distributor, its several officers and directors, and any person who
controls the Distributor within the meaning of Section 15 of the 1933 Act, from
and against any losses, claims, damages or liabilities, joint or several, to
which any of them may become subject under the 1933 Act or otherwise, insofar as
such losses, claims, damages or liabilities (or actions or proceedings in
respect thereof) arise out of, or are based upon, any untrue statement or
alleged untrue statement of a material fact contained in the Registration
Statement, the Prospectuses or in any application or other document executed by
or on behalf of the Fund, or arise out of, or are based upon, information
furnished by or on behalf of the Fund filed in any state in order to qualify the
Shares under the securities or blue sky laws thereof ("Blue Sky Applications"),
or arise out of, or are based upon, the omission or alleged omission to state
therein a material fact required to be stated therein or necessary to make the
statements therein not misleading, and will reimburse the Distributor, its
several officers and directors, and any person who controls the Distributor
within the meaning of Section 15 of the 1933 Act, for any legal or other
expenses reasonably incurred by any of them in investigating , defending, or
preparing to defend any such action, proceeding or claim, provided, however,
that the Fund shall not be liable in any case to the extent that such loss,
claim, damage or liability arises out of, or is based upon, any untrue
statement, alleged untrue statement, or omission or alleged
5
<PAGE> 6
omission made in the Registration Statement, the Prospectuses, any Blue Sky
Application or any application or other document executed by or on behalf of the
Fund in reliance upon and in conformity with written information furnished to
the Fund by or on behalf of and with respect to the Distributor specifically for
inclusion therein.
The Fund shall not indemnify any person pursuant to this subsection 3
unless the court or other body before which the proceeding was brought has
rendered a final decision on the merits that such person was not liable by
reason of his willful misfeasance, bad faith or negligence in the performance of
his duties, or his reckless disregard of obligations and duties, under this
Agreement ("disabling conduct") or, in the absence of such a decision, a
reasonable determination (based upon a review of the facts) that such person was
not liable by reason of disabling conduct has been made by the vote of a
majority of a quorum of Directors of the Fund who are neither "interested
persons" of the Fund (as defined in the 1940 Act) nor parties to the proceeding,
or by an independent legal counsel in a written opinion.
Each Portfolio shall advance attorney's fees and other expenses
incurred by any person in defending any claim, demand, action or suit which is
the subject of a claim for indemnification pursuant to this subsection 3, so
long as: (i) such person shall undertake to repay all such advances unless it is
ultimately determined that he is entitled to indemnification hereunder; and (ii)
such person shall provide security for such undertaking, or the Portfolio shall
be insured against losses arising by reason of any lawful advances, or a
majority of a quorum of the disinterested, non-party Directors of the Fund (or
an independent legal counsel in a written opinion) shall determine based on a
review of readily available facts (as opposed to a full trial-type inquiry) that
there is reason to believe that such person ultimately will be found entitled to
indemnification hereunder.
4. DISTRIBUTOR INDEMNIFICATION. The Distributor will indemnify, defend
and hold harmless the Fund, the Fund's several officers and Directors and any
person who controls the Fund within the meaning of Section 15 of the 1933 Act,
from and against any losses, claims, damages or liabilities, joint or several,
to which any of them may become subject under the 1933 Act or otherwise, insofar
as such losses, claims, damages or liabilities (or actions or proceedings in
respect hereof) arise out of, or are based upon, any breach of its
representations and warranties in subsection 2 hereof or its agreements in
subsection 2 of Section II hereof, or which arise out of, or are based upon, any
untrue statement or alleged untrue statement of a material fact contained in the
Registration Statement, the Prospectuses, any Blue Sky Application or any
application or other document executed by or on behalf of the Fund, or the
omission or alleged omission to state therein a material fact required to be
stated therein or necessary to make the statements therein not misleading, which
statement or omission or alleged statement or alleged omission was made in
reliance upon or in conformity with information furnished in writing to the Fund
or any of its several officers and Directors by or on behalf of and with respect
to the Distributor specifically for inclusion therein, and will reimburse the
Fund, the Fund's several officers and Directors, and any person who controls the
Fund
6
<PAGE> 7
within the meaning of Section 15 of the 1933 Act, for any legal or other
expenses reasonably incurred by any of them in investigating, defending or
preparing to defend any such action, proceeding or claim.
5. GENERAL INDEMNITY PROVISIONS. No indemnifying party shall be liable
under its indemnity agreement contained in subsection 3 or 4 hereof with respect
to any claim made against such indemnifying party unless the indemnified party
shall have notified the indemnifying party in writing within a reasonable time
after the summons or other first legal process giving information of the nature
of the claim shall have been served upon the indemnified party (or after the
indemnified party shall have received notice of such service on any designated
agent), but failure to notify the indemnifying party of any such claim shall not
relieve it from any liability which it may otherwise have to the indemnified
party. The indemnifying party will be entitled to participate at its own expense
in the defense or, if it so elects, to assume the defense of any suit brought to
enforce any such liability, and if the indemnifying party elects to assume the
defense, such defense shall be conducted by counsel chosen by it and reasonably
satisfactory to the indemnified party. In the event the indemnifying party
elects to assume the defense of any such suit and retain such counsel, the
indemnified party shall bear the fees and expenses of any additional counsel
retained by the indemnified party.
VI. DURATION AND TERMINATION
------------------------
This Agreement shall become effective as of the date first above
written, and shall continue until terminated by either the Distributor or the
Fund as provided below. If not terminated, this Agreement shall continue
automatically for successive terms of one year, provided that such continuance
is specifically approved at least annually (a) by a majority of those members of
the Board of Directors of the Fund who are not parties to this Agreement or
"interested persons" of any such party (the "Disinterested Directors"), pursuant
to a vote cast in person at a meeting called for the purpose of voting on such
approval, and (b) by the Board of Directors of the Fund or by vote of a
"majority of the outstanding voting securities" of the Fund. Notwithstanding
anything to the contrary contained in this Section VI, this Agreement may be
terminated by the Fund at any time with respect to any Portfolio, without the
payment of any penalty, by vote of a majority of the Disinterested Directors or
by vote of a "majority of the outstanding voting securities" of such Fund on 60
days' written notice to the Distributor, or by the Distributor at any time,
without the payment of any penalty, on 60 days' written notice to the Fund. This
Agreement will automatically terminate in the event of its "assignment". (As
used in this Agreement, the terms "majority of the outstanding voting
securities", "interested person" and "assignment" shall have the same meanings
as such terms have in the 1940 Act.)
VII. AMENDMENT OF THIS AGREEMENT
---------------------------
7
<PAGE> 8
No provision of this Agreement may be changed, waived, discharged or
terminated except by an instrument in writing signed by the party against which
an enforcement of the change, waiver, discharge or termination is sought.
VIII. NOTICES
-------
Notices of any kind to be given to the Fund hereunder by the
Distributor shall be in writing and shall be duly given if mailed or delivered
to the Fund to the attention of Leigh A. Wilson, President, c/o KeyCorp Mutual
Fund Products, 127 Public Square, Cleveland, Ohio 44114, or at such other
address or to such individual as shall be so specified by the Fund to the
Distributor. Notices of any kind to be given to the Distributor hereunder by the
Fund shall be in writing and shall be duly given if mailed or delivered to the
Distributor at 3435 Stelzer Road, Columbus, Ohio 43219, Attention: George O.
Martinez, Senior Vice President, Director of Legal & Compliance, or at such
other address or to such individual as shall be so specified by the Distributor
to the Fund.
IX. COMPENSATION
------------
The Distributor shall not receive compensation with respect to the
provision of distribution services under this Agreement; PROVIDED, HOWEVER, that
the Distributor shall be entitled to receive payments, if any, under the Plans
in accordance with the terms thereof. The Fund is entering into this Agreement
on behalf of the Portfolios listed on Schedule I severally and not jointly. The
responsibilities and benefits set forth in this Agreement shall refer to each
Portfolio severally and not jointly. No individual Portfolio shall have any
responsibility for any obligation, if any, with respect to any other Portfolio
arising out of this Agreement.
X. MISCELLANEOUS
-------------
1. CONSTRUCTION. The captions in this Agreement are included for
conveniences of reference only and in no way define or delimit any of the
provisions hereof or otherwise affect their construction or effect. If any
provision of this Agreement shall be held or made invalid by a court decision,
statute, rule or otherwise, the remainder of this Agreement shall not be
affected thereby. Subject to the provisions of Section VI hereof, this Agreement
shall be binding upon and shall inure to the benefit of the parties hereto and
their respective successors and shall be governed by New York law; PROVIDED,
HOWEVER, that nothing herein shall be construed in a manner inconsistent with
the Investment Company Act of 1940 or any rule or regulation of the Commission
thereunder.
8
<PAGE> 9
IN WITNESS WHEREOF, the parties hereto have caused this instrument to
be executed by their officers designated below as of the day and year first
above written.
SBSF Funds, Inc.
d/b/a Key Mutual Funds
By:
------------------------------------
Name:
----------------------------------
Title:
---------------------------------
Attest:
---------------------------
Secretary
BISYS FUND SERVICES LIMITED
PARTNERSHIP
d/b/a BISYS FUND SERVICES
By:
------------------------------------
Name:
----------------------------------
Title:
---------------------------------
Attest:
---------------------------
Secretary
9
<PAGE> 10
SCHEDULE I
----------
SBSF FUND
SBSF CONVERTIBLE SECURITIES FUND
SBSF CAPITAL GROWTH FUND
KEY MONEY MARKET MUTUAL FUND
KEY STOCK INDEX FUND
KEY INTERNATIONAL INDEX FUND
<PAGE> 1
EX-99.B9(f)
FORM OF
ADMINISTRATION AGREEMENT
This Administration Agreement is made as of this 12th day of July, 1996
between SBSF Funds, Inc. (d/b/a Key Mutual Funds), a Maryland corporation
(herein called the "Company"), and BISYS Fund Services Limited Partnership
(d/b/a BISYS Fund Services), an Ohio limited partnership (herein called
"BISYS").
WHEREAS, the Company is an open-end, management investment company
registered under the Investment Company Act of 1940, as amended (the "1940
Act"), and consisting of various investment portfolios, certain of which are
listed on Schedule I hereto, as such Schedule may be revised from time to time
(individually, a "Fund" and collectively, the "Funds"); and
WHEREAS, the Company offers for sale shares of common stock par value
$.01 per share of the Funds (herein collectively called "Shares"); and
WHEREAS, pursuant to a Distribution Agreement dated as of July 1, 1996
(the "Distribution Agreement") between the Company and BISYS, the Company has
retained BISYS Financial as its Distributor to provide for the sale and
distribution of the Shares; and
WHEREAS, the Company desires to retain BISYS as its Administrator to
provide it with certain administrative services with respect to each of the
Funds and their respective Shares, and BISYS is willing to render such services;
NOW THEREFORE, in consideration of the premises and mutual covenants
set forth herein, the parties hereto agree as follows:
I. DELIVERY OF DOCUMENTS
The Company has delivered to BISYS copies of each of the following
documents and will deliver to it all future amendments and supplements thereto,
if any:
<PAGE> 2
(a) The Company's Articles of Incorporation and all amendments
thereto (such Articles of Incorporation, as presently in effect and as
it shall from time to time be amended, herein called the "Articles");
(b) The By-Laws of the Company (such By-Laws as presently in
effect and as they shall from time to time be amended, herein called
the "By-Laws");
(c) Resolutions of the Board of Directors of the Company
authorizing the execution and delivery of this Agreement;
(d) The Company's most recent Post-Effective Amendment to its
Registration Statement(s) under the Securities Act of 1933, as amended
(the "1933 Act"), and under the 1940 Act, on Form N-1A as filed with
the Securities and Exchange Commission (the "Commission") relating to
the Shares and any further amendment thereto;
(e) Notification of registration of the Company under the 1940
Act on Form N-8A as filed with the Commission; and
(f) Prospectuses and Statements of Additional Information of the
Company with respect to the Funds (such prospectuses and statements of
additional information, as presently in effect and as they shall from
time to time be amended and supplemented, herein called individually
the "Prospectus" and collectively, the "Prospectuses").
II. ADMINISTRATION
1. APPOINTMENT OF ADMINISTRATOR. The Company hereby appoints BISYS as
its Administrator for each of the Funds on the terms and for the period set
forth in this Agreement and BISYS hereby accepts such appointment and agrees to
perform the services and duties set forth in this Section II for the
compensation provided in this Section II. The Company understands that BISYS now
acts and will continue to act as administrator of various investment companies
and fiduciary of other managed accounts, and the Company has no objection to
2
<PAGE> 3
BISYS so acting. In addition, it is understood that the persons employed by
BISYS to assist in the performance of its duties hereunder, will not devote
their full time to such services and nothing herein contained shall be deemed to
limit or restrict the right of BISYS or any affiliate of BISYS to engage in and
devote time and attention to other businesses or to render services of whatever
kind or nature.
2. REPRESENTATIONS OF BISYS. BISYS represents and warrants that: (1)
the various procedures and systems which BISYS has implemented with regard to
safeguarding from loss or damage attributable to fire, theft, or any other cause
of the records and other data of the Company and BISYS's records, data,
equipment facilities and other property used in the performance of its
obligations hereunder are adequate and that it will make such changes therein
from time to time as are required for the secure performance of its obligations
hereunder, and (2) this Agreement has been duly authorized by BISYS and, when
executed and delivered by BISYS, will constitute a legal, valid and binding
obligation of BISYS, enforceable against BISYS in accordance with its terms,
subject to bankruptcy, insolvency, reorganization, moratorium and other laws of
general application affecting the rights and remedies of creditors and secured
parties.
3. SERVICES AND DUTIES.
(a) As Administrator, and subject to the supervision and control
of the Board of Directors of the Company, BISYS will provide
facilities, equipment, statistical and research data, clerical
services, internal compliance services relating to legal matters, and
personnel to carry out all administrative services required for
operation of the business and affairs of the Funds, other than those
investment advisory functions which are to be performed by the Funds'
investment adviser(s), the services of BISYS Financial as Distributor
pursuant to the Distribution Agreement, those services to be performed
by the Funds' custodian, transfer agent, and those services normally
performed by the Funds' counsel and auditors. BISYS's responsibilities
include without limitation the following services:
(1) Overseeing the performance of the Funds' custodian and
transfer agent;
3
<PAGE> 4
(2) Making available information concerning each Fund to its
shareholders; distributing written communications to each Fund's
shareholders of record such as periodic listings of each Fund's
securities, annual and semi-annual reports, and Prospectuses and
supplements thereto; and handling shareholder problems and calls
relating to administrative matters;
(3) Providing and supervising the services of employees
whose principal responsibility and function shall be to preserve
and strengthen each Fund's relationships with its shareholders;
(4) Keeping and maintaining the following books and records
of each Fund pursuant to Rule 3la-l under the 1940 Act (the
"Rule"):
a. Journals containing an itemized daily record in detail
of all purchases and sales of securities, all receipts
and disbursements of cash and all other debits and
credits, as required by subsection (b) (1) of the Rule;
b. General and auxiliary ledgers reflecting all asset,
liability, reserve, capital, income and expense
accounts, including interest accrued and interest
received, as required by subsection (b) (2) (i) of the
Rule;
c. Separate ledger accounts required by subsection (b) (2)
(ii) and (iii) of the Rule; and
d. A monthly trial balance of all ledger accounts (except
shareholder accounts) as required by subsection (b) (8)
of the Rule; and
(5) Performing the following accounting services daily for
each Fund:
a. Calculating the net asset value per Share;
b. Calculating the dividend and capital gain distribution,
if any;
4
<PAGE> 5
c. Calculating the yield;
d. Providing the following reports:
(i) a current security position
report;
(ii) a summary report of
transactions and pending
maturities (including the
principal cost, and accrued
interest on each portfolio
security in maturity date
order); and
(iii) a current cash position
report (including cash
available from portfolio
sales and maturities and
sales of a Fund's Shares less
cash needed for redemptions
and settlement of portfolio
purchases);
e. Such other similar services with respect to a Fund as
the parties may agree upon from time to time.
(b) BISYS shall assure that persons are available to
transmit wire, telephone or electronic redemption requests to the
Funds' transfer agent as promptly as practicable.
(c) BISYS shall assure that persons are available to
transmit wire, telephone or electronic orders accepted for the
purchase or exchange of Shares to the Funds' transfer agent as
promptly as practicable.
(d) BISYS shall participate in the periodic updating of the
Prospectuses and shall coordinate (i) the filing, printing and
dissemination of reports to each Fund's shareholders and the
Commission, including but not limited to annual reports and
semi-annual reports on Form N-SAR and notices pursuant to Rule
24f-2, (ii) the preparation, filing, printing and dissemination
of proxy materials, and (iii) the preparation and filing of
post-effective amendments to the Funds' Registration Statement on
Form N-1A relating to the updating of financial information and
other routine matters.
5
<PAGE> 6
(e) BISYS shall pay all costs and expenses of maintaining
the offices of the Funds, wherever located, and shall arrange for
payment by the Funds of all expenses payable by the Funds.
(f) BISYS, after consultation with the Funds' investment
adviser(s), shall determine the jurisdictions in which the Shares
shall be registered or qualified for sale and, in connection
therewith, shall be responsible for obtaining and maintaining the
registration or qualification of the Shares for sale under the
securities laws of such jurisdictions. Payment of Share
registration fees and any fees for qualifying or continuing the
qualification of the Funds shall be made by the Funds.
(g) BISYS shall provide the services of certain persons who
may be appointed as officers of the Company by the Company's
Board of Directors.
(h) BISYS shall oversee the maintenance by the Funds'
custodian and transfer agent of the books and records required
under the 1940 Act in connection with the performance of the
Company's agreements with such entities, and shall maintain, or
provide for the maintenance of, such other books and records
(other than those required to be maintained by the Funds'
investment adviser(s)) as may be required by law or may be
required for the proper operation of the business and affairs of
the Funds. In compliance with the requirements of Rule 31a-3
under the 1940 Act, BISYS agrees that all such books and records
which it maintains, or is responsible for maintaining, for the
Funds are the property of the Company and further agrees to
surrender promptly to the Company any of such books and records
upon the Company's request. BISYS further agrees to preserve for
the periods prescribed by Rule 31a-2 under the 1940 Act said
books and records required to be maintained by Rule 31a-1 under
said Act.
(i) BISYS shall coordinate the preparation of the Funds'
federal, state and local income tax returns.
(j) BISYS shall prepare such other reports relating to the
business and affairs of the Company and each Fund (not otherwise
appropriately prepared by the Funds'
6
<PAGE> 7
investment adviser(s), BISYS Financial or the counsel or
auditors) as the officers and Directors of the Company may from
time to time reasonably request in connection with the
performance of their duties.
(k) In performing its duties as Administrator of the
Company, BISYS will act in conformity with the Articles, By-Laws
and Prospectuses and with the instructions and directions of the
Board of Directors of the Company and will conform to and comply
with the requirements of the 1940 Act and all other applicable
federal or state laws and regulations.
4. SUBCONTRACTORS. It is understood that BISYS may from time to time
employ or associate with itself such person or persons as BISYS may believe to
be particularly fitted to assist in the performance of this Agreement; provided,
however, that the compensation of such persons shall be paid by BISYS and that
BISYS shall be as fully responsible to the Company for the acts and omissions of
any subcontractor as it is for its own acts and omissions.
5. EXPENSES ASSUMED AS ADMINISTRATOR. Except as otherwise stated in
this subsection 5, BISYS shall pay all expenses incurred by it in performing its
services and duties as Administrator, including the cost of providing office
facilities, equipment and personnel related to such services and duties. Other
expenses incurred in the operation of the Company (other than those borne by the
Company's investment adviser) including taxes, interest, brokerage fees and
commissions, if any, fees of directors who are not officers, directors,
partners, employees or holders of 5 percent or more of the outstanding voting
securities of the Company's investment advisers or BISYS or any of their
affiliates, Commission fees and state blue sky registration or qualification
fees, advisory fees, charges of custodians, transfer and dividend disbursing
agents' fees, fidelity bond and directors' and officers' errors and omissions
insurance premiums, outside auditing and legal expenses, costs of maintaining
corporate existence, costs attributable to shareholder services, including
without limitation telephone and personnel expenses, costs of preparing and
printing Prospectuses for regulatory purposes and for distribution to existing
shareholders, costs of shareholders' reports and Company meetings and any
extraordinary expenses will be borne by the Company.
7
<PAGE> 8
6. TRANSFER OF RESPONSIBILITIES. The Company will arrange for the
prompt and full cooperation of the administrator that is the predecessor to
BISYS in the transfer of duties and responsibilities to BISYS, including
provision for assistance by such predecessor's personnel in the delivery to
BISYS of books, records and other data by such predecessor.
7. COMPENSATION. For the services provided and the expenses assumed as
Administrator pursuant to this Section II, the Company will pay BISYS a fee,
computed daily and payable monthly, at the annual rate of .25% of each Fund's
average daily net assets up to $50 million, plus .15% of each Fund's average
daily net assets in excess of $50 million. Such fee as is attributable to each
Fund shall be a separate (and not joint or joint and several) obligation of each
such Fund. No individual Fund shall have any responsibility for any obligation,
if any, with respect to any other Fund arising out of this Agreement.
III. CONFIDENTIALITY
BISYS will treat confidentially and as proprietary information of the
Company all records and information relative to the Company and the Funds and
their prior or present shareholders or those persons or entities who respond to
BISYS Financial inquiries concerning investment in the Company, and except as
provided below, will not use such records and information for any purpose other
than performance of its responsibilities and duties with regard to any other
investment portfolio which may be added to the Company in the future. Any other
use by BISYS of the information and records referred to above may be made only
after prior notification to and approval in writing by the Company. Such
approval shall not be unreasonably withheld and may not be withheld where (i)
BISYS may be exposed to civil or criminal contempt proceedings for failure to
divulge such information; (ii) BISYS is requested to divulge such information by
duly constituted authorities; or (iii) BISYS is so requested by the Company.
IV. STANDARD OF CARE; INDEMNIFICATION; LIMITATION OF LIABILITY
BISYS shall use its best efforts to ensure the accuracy of all services
performed under this Agreement, but shall not be liable to the Company for any
action taken or omitted by BISYS
8
<PAGE> 9
in the absence of bad faith, willful misfeasance, negligence or reckless
disregard by it of its obligations and duties. The Company agrees to indemnify
and hold harmless BISYS, its employees, agents, directors, officers and nominees
from and against any and all claims, demands, actions and suits, whether
groundless or otherwise, and from and against any and all judgments,
liabilities, losses, damages, costs, charges, counsel fees and other expenses of
every nature and character arising out of or in any way relating to BISYS's
actions taken or nonactions with respect to the performance of services under
this Agreement or based, if applicable, upon reasonable reliance on information,
records, instructions or requests with respect to the Funds given or made to
BISYS by a duly authorized representative of the Company; provided that this
indemnification shall not apply to actions or omissions of BISYS in cases of its
own bad faith, willful misfeasance, negligence or reckless disregard by it of
its obligations and duties, and further provided that prior to confessing any
claim against it which may be the subject of this indemnification, BISYS shall
give the Company written notice of and reasonable opportunity to defend against
said claim in its own name or in the name of BISYS.
BISYS agrees to indemnify and hold harmless the Company, its employees,
agents, directors, officers and nominees from and against any and all claims,
demands, actions and suits, whether groundless or otherwise, and from and
against any and all judgments, liabilities, losses, damages, costs, charges,
counsel fees and other expenses of every nature and character arising out of or
in any way relating to BISYS's bad faith, willful misfeasance, negligence or
reckless disregard by it of its obligations and duties, with respect to the
performance of services under this Agreement.
Any person, even though also an officer, director, employee or agent of
BISYS, who may be or become an officer, director, employee or agent of the
Company, shall be deemed, when rendering services to the Company, or acting on
any business of the Company (other than services or business in connection with
BISYS's duties hereunder) to be rendering such services to or acting solely for
the Company and not as an officer, director, employee or agent or one under the
control or direction of BISYS even though paid by BISYS.
V. DURATION AND TERMINATION
9
<PAGE> 10
The term of this Agreement shall commence on the date first set forth
above and shall remain in effect through July 11, 1997 ("Initial Term"). This
Agreement shall be renewed automatically for successive periods of one year
after the Initial Term, unless terminated by either party on not less than 90
days prior written notice to the other party. In the event of a material breach
of this Agreement by either party, the non-breaching party shall notify the
breaching party in writing of such breach and upon receipt of such notice, the
breaching party shall have 45 days to remedy the breach or the non-breaching
party may immediately terminate this Agreement.
Notwithstanding the foregoing, after such termination for so long as
BISYS, with the written consent of the Company, in fact continues to perform any
one or more of the services contemplated by this Agreement or any schedule or
exhibit hereto, the provisions of this Agreement, including without limitation
the provisions dealing with indemnification, shall continue in full force and
effect. Compensation due BISYS and unpaid by the Company upon such termination
shall be immediately due and payable upon and notwithstanding such termination.
BISYS shall be entitled to collect from the Company, in addition to the
compensation described in Section II, paragraph 7, the amount of all of BISYS's
cash disbursements for services in connection with BISYS's activities in
effecting such termination, including without limitation, the delivery to the
Company and/or its designees of the Company's property, records, instruments and
documents, or any copies thereof. Subsequent to such termination, for a
reasonable fee, BISYS will provide the Company with reasonable access to any
Company documents or records remaining in its possession.
VI. AMENDMENT OF THIS AGREEMENT
No provision of this Agreement may be changed, waived, discharged or
terminated, except by an instrument in writing signed by the party against whom
an enforcement of the change, waiver, discharge or termination is sought.
VII. NOTICES
Notices of any kind to be given to the Company hereunder by BISYS shall
be in writing
10
<PAGE> 11
and shall be duly given if mailed or delivered to the Company c/o
Scott A. Englehart, Assistant Secretary, SBSF Funds, Inc., c/o BISYS Investment
Services Group, 3435 Stelzer Road, Columbus, Ohio 43219, with copies to Kathleen
A. Dennis, Senior Vice President, KeyCorp Mutual Funds Group, 127 Public Square,
13th Floor, Cleveland, Ohio 44114-1306 and Michael R. Parker, Vice President and
General Counsel, Spears, Benzak, Salomon & Farrell, Inc., 45 Rockefeller Plaza,
New York, NY 10011, or at such other address or to such individual as shall be
so specified by the Company to BISYS. Notices of any kind to be given to BISYS
hereunder by the Company shall be in writing and shall be duly given if mailed
or delivered to BISYS at 3435 Stelzer Road, Columbus, Ohio 43219, Attention:
Stephen P. Mintos, Executive Vice President, or at such other address or to such
other individual as BISYS shall specify to the Company.
VIII. MISCELLANEOUS
The captions in this Agreement are included for convenience of
reference only and in no way define or delimit any of the provisions hereof or
otherwise affect their construction or effect. If any provision of this
Agreement shall be held or made invalid by a court decision, statute, rule or
otherwise, the remainder of this Agreement shall not be affected thereby.
Subject to the provisions of Section V hereof, this Agreement shall be binding
upon and shall inure to the benefit of the parties hereto and their respective
successors and shall be governed by New York law; provided, however, that
nothing herein shall be construed in a manner inconsistent with the 1940 Act or
any rule or regulation of the Commission thereunder.
11
<PAGE> 12
IN WITNESS WHEREOF, the parties hereto have caused this instrument to
be executed by their officers designated below as of the day and year first
above written.
SBSF FUNDS, INC.
d/b/a KEY MUTUAL FUNDS
By: _________________________________
Name: _______________________________
Title: ______________________________
Attest: ____________________________
BISYS FUND SERVICES LIMITED
PARTNERSHIP
d/b/a BISYS FUND SERVICES
By: _________________________________
Name: _______________________________
Title: ______________________________
Attest: ____________________________
12
<PAGE> 13
SCHEDULE I
FUNDS
- -----
1. SBSF Fund
2. SBSF Convertible Securities Fund
3. Key Money Market Mutual Fund
4. SBSF Capital Growth Fund
13
<PAGE> 1
EX-99.B9(g)
FORM OF
SUB-ADMINISTRATION AGREEMENT
AGREEMENT made as of this 12th day of July, 1996, between BISYS Fund
Services Limited Partnership (d/b/a BISYS Fund Services) ("BISYS"), an Ohio
limited partnership and having its principal place of business at 3435 Stelzer
Road, Columbus, Ohio 43219 and Spears, Benzak, Salomon & Farrell, Inc. (the
"Sub-Administrator"), a corporation organized under the laws of the State of New
York and having its principal place of business at 45 Rockefeller Plaza, New
York, New York 10111.
WHEREAS, BISYS has entered into an Administration Agreement, dated as
of July 12, 1996, (the "Administration Agreement"), with SBSF Funds, Inc. (d/b/a
Key Mutual Funds) (the "Company"), a Maryland corporation having its principal
place of business at 45 Rockefeller Plaza, New York, New York 10111, concerning
the provision of administrative services for the investment portfolios of the
Company identified on Schedule A hereto, as such Schedule shall be amended from
time to time (individually referred to herein as the "Fund" and collectively as
the "Funds"); and
WHEREAS, BISYS desires to retain the Sub-Administrator to assist it in
performing administrative services with respect to each Fund and the
Sub-Administrator is willing to perform such services on the terms and
conditions set forth in this Agreement;
NOW, THEREFORE, in consideration of the mutual premises and covenants
herein set forth, the parties agree as follows:
1. SERVICES AS SUB-ADMINISTRATOR. The Sub-Administrator will
assist BISYS in providing administrative services with respect to each Fund as
may be reasonably requested by BISYS from time to time. Such services may
include, but are in no way limited to, such clerical, recordkeeping, accounting,
and administrative services as will enable BISYS to more efficiently perform its
obligations under the Administration Agreement. Specific assignments may
include:
(a) At the direction of BISYS:
(1) assisting in the preparation of Directors' compliance
reports;
(2) serving as on-site liaison;
(b) Gathering information deemed necessary by BISYS to support (i)
required state regulatory filings (including filings required to be
made with tax and blue sky agencies) and (ii) required federal
regulatory filings;
(c) Preparing certain statistical and research data;
<PAGE> 2
(d) Assisting in the preparation of the Company's Annual and
Semi-Annual Reports to Shareholders;
(e) Assisting in the gathering of data from the investment adviser to
the Company for inclusion in BISYS's periodic reports to the
Directors;
(f) Keeping and maintaining the following books and records of each
Fund pursuant to Rule 31a-l (the "Rule") under the Investment Company
Act of 1940, as amended (the "1940 Act"):
(1) Journals containing an itemized daily record in detail of
all purchases and sales of securities, all receipts and
disbursements of cash and all other debits and credits, as
required by subsection (b) (1) of the Rule;
(2) General and auxiliary ledgers reflecting all asset,
liability, reserve, capital, income and expense accounts,
including interest accrued and interest received, as
required by subsection (b) (2) (i) of the Rule;
(3) Separate ledger accounts required by subsection (b) (2) (ii)
and (iii) of the Rule; and
(4) A monthly trial balance of all ledger accounts (except
shareholder accounts) as required by subsection (b) (8) of
the Rule.
(g) Performing the following accounting services daily for each Fund:
(1) Calculating the net asset value per Share;
(2) Calculating the dividend and capital gain distribution, if
any;
(3) Calculating the yield, if appropriate;
(4) Providing the following reports:
a. a current security position report;
b. a summary report of transactions and pending maturities
(including the principal cost, and accrued interest on
each portfolio security in maturity date order); and
c. a current cash position report (including cash
available from portfolio sales and maturities and sales
of a Fund's Shares less cash needed for redemptions and
settlement of portfolio purchases);
<PAGE> 3
(5) Such other similar services with respect to a Fund as the
parties may agree to from time to time.
The Sub-Administrator will keep and maintain all books and
records relating to its services in accordance with Rule 31a-1 under the 1940
Act.
2. COMPENSATION; REIMBURSEMENT OF EXPENSES. BISYS shall pay the
Sub-Administrator for the services to be provided by the Sub-Administrator under
this Agreement in accordance with, and in the manner set forth in, Schedule B
hereto. In addition, BISYS agrees to reimburse the Sub-Administrator for the
Sub-Administrator's reasonable out-of-pocket expenses in providing services
hereunder.
3. EFFECTIVE DATE. This Agreement shall become effective with
respect to a Fund as of the date first written above (or, if a particular Fund
is not in existence on that date, on the date specified in the amendment to
Schedule A to this Agreement relating to such Fund or, if no date is specified,
the date on which such amendment is executed) (the "Effective Date").
4. TERM. The term of this Agreement shall commence on the date
first set forth above and shall remain in effect through July 11, 1997. This
Agreement shall continue in effect for a period of more than one year only if
approved at least annually by a majority of the Board of Directors of the
Company. In the event of a material breach of this Agreement by either party,
the non-breaching party shall notify the breaching party in writing of such
breach and upon receipt of such notice, the breaching party shall have 45 days
to remedy the breach or the non-breaching party may immediately terminate this
Agreement. Notwithstanding the foregoing, after such termination for so long as
the Sub-Administrator, with the written consent of BISYS, in fact continues to
perform any one or more of the services contemplated by this Agreement or any
schedule or exhibit hereto, the provisions of this Agreement, including without
limitation the provisions dealing with indemnification, shall continue in full
force and effect. Compensation due the Sub-Administrator and unpaid by BISYS
upon such termination shall be immediately due and payable upon and
notwithstanding such termination. The Sub-Administrator shall be entitled to
collect from BISYS, in addition to the compensation described in Section 2, the
amount of all of the Sub-Administrator's cash disbursements for services in
connection with the Sub-Administrator's activities in effecting such
termination, including without limitation, the delivery to BISYS and/or its
designees of the Company's property, records, instruments and documents, or any
copies thereof. Subsequent to such termination, for a reasonable fee, the
Sub-Administrator will provide BISYS and the Company with reasonable access to
any Company documents or records remaining in its possession.
5. STANDARD OF CARE; RELIANCE ON RECORDS AND INSTRUCTIONS;
INDEMNIFICATION. The Sub-Administrator shall use its best efforts to insure the
accuracy of all services performed under this Agreement, but shall not be liable
to BISYS or the Company for any action taken or omitted by the Sub-Administrator
in the absence of bad faith, willful
3
<PAGE> 4
misfeasance, negligence or from reckless disregard by it of its obligations
and duties. BISYS agrees to indemnify and hold harmless the Sub-Administrator,
its employees, agents, directors, officers and nominees from and against any and
all claims, demands, actions and suits, whether groundless or otherwise, and
from and against any and all judgments, liabilities, losses, damages, costs,
charges, counsel fees and other expenses of every nature and character arising
out of or in any way relating to the Sub-Administrator's actions taken or
nonactions with respect to the performance of services under this Agreement with
respect to a Fund or based, if applicable, upon reasonable reliance on
information, records, instructions or requests with respect to such Fund given
or made to the Sub-Administrator by a duly authorized representative of BISYS,
provided that this indemnification shall not apply to actions or omissions of
the Sub-Administrator in cases of its own bad faith, willful misfeasance,
negligence or from reckless disregard by it of its obligations and duties, and
further provided that prior to confessing any claim against it which may be the
subject of this indemnification, the Sub-Administrator shall give BISYS written
notice of and reasonable opportunity to defend against said claim in its own
name or in the name of the Sub-Administrator.
6. RECORDS RETENTION AND CONFIDENTIALITY. The Sub-Administrator
shall keep and maintain on behalf of the Company all books and records which the
Company and the Sub-Administrator are, or may be, required to keep and maintain
in connection with the services to be provided hereunder pursuant to any
applicable statutes, rules and regulations including, without limitation, Rules
31a-1 and 31a-2 under the 1940 Act. The Sub-Administrator further agrees that
all such books and records shall be the property of the Company and to make such
books and records available for inspection by the Company, BISYS, or the
Securities and Exchange Commission at reasonable times and otherwise to keep
confidential all books and records and other information relative to the Company
and its shareholders; except when requested to divulge such information by
duly-constituted authorities or court process.
7. UNCONTROLLABLE EVENTS. The Sub-Administrator assumes no
responsibility hereunder, and shall not be liable, for any damage, loss of data,
delay or any other loss whatsoever caused by events beyond its reasonable
control.
8. RIGHTS OF OWNERSHIP. All computer programs and procedures
developed to perform the services to be provided by the Sub-Administrator under
this Agreement are the property of the Sub-Administrator. All books and records
which the Company and the Sub-Administrator are, or may be, required to keep and
maintain in connection with the services to be provided hereunder pursuant to
any applicable statutes, rules and regulations including, without limitation,
Rules 31a-1 and 31a-2 under the 1940 Act, and other data, except such computer
programs and procedures are the exclusive property of the Company and all such
other records and data will be furnished to BISYS and/or the Company in
appropriate form as soon as practicable after termination of this Agreement for
any reason, except to the extent that the Sub-Administrator is required to
maintain a copy of such records under applicable law.
4
<PAGE> 5
9. RETURN OF RECORDS. The Sub-Administrator may at its option at
any time, and shall promptly upon the demand of BISYS and/or the Company, turn
over to BISYS and/or the Company and cease to retain the Sub-Administrator's
files, records and documents created and maintained by the Sub-Administrator
pursuant to this Agreement which are no longer needed by the Sub-Administrator
in the performance of its services or for its legal protection. If not so turned
over to BISYS and/or the Company, such documents and records will be retained by
the Sub-Administrator for six years from the year of creation. At the end of
such six-year period, such records and documents will be turned over to BISYS
and/or the Company unless the Company authorizes in writing the destruction of
such records and documents.
10. REPRESENTATIONS OF BISYS. BISYS certifies to the
Sub-Administrator that this Agreement has been duly authorized by BISYS and,
when executed and delivered by BISYS, will constitute a legal, valid and binding
obligation of BISYS, enforceable against BISYS in accordance with its terms,
subject to bankruptcy, insolvency, reorganization, moratorium and other laws of
general application affecting the rights and remedies of creditors and secured
parties.
11. REPRESENTATIONS OF THE SUB-ADMINISTRATOR. The
Sub-Administrator represents and warrants that: (1) the various procedures and
systems which the Sub-Administrator has implemented with regard to safeguarding
from loss or damage attributable to fire, theft, or any other cause of the
records and other data of the Company and the Sub-Administrator's records, data,
equipment facilities and other property used in the performance of its
obligations hereunder are adequate and that it will make such changes therein
from time to time as are required for the secure performance of its obligations
hereunder, and (2) this Agreement has been duly authorized by the
Sub-Administrator and, when executed and delivered by the Sub-Administrator,
will constitute a legal, valid and binding obligation of the Sub-Administrator,
enforceable against the Sub-Administrator in accordance with its terms, subject
to bankruptcy, insolvency, reorganization, moratorium and other laws of general
application affecting the rights and remedies of creditors and secured parties.
12. NOTICES. Any notice provided hereunder shall be sufficiently
given when sent by registered or certified mail to BISYS at the following
address: 3435 Stelzer Road, Columbus, Ohio 43219, and to the Sub-Administrator
at the following address: 45 Rockefeller Plaza, New York, New York 10111 or at
such other address as either party may from time to time specify in writing to
the other party pursuant to this Section.
13. HEADINGS. Paragraph headings in this Agreement are included
for convenience only and are not to be used to construe or interpret this
Agreement.
14. ASSIGNMENT. This Agreement and the rights and duties
hereunder shall not be assignable with respect to a Fund by either of the
parties hereto except by the specific written consent of the other party and
with the specific written consent of the Company.
5
<PAGE> 6
15. GOVERNING LAW. This Agreement shall be governed by and
provisions shall be construed in accordance with the laws of the State of New
York.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed all as of the day and year first above written.
[SEAL] BISYS FUND SERVICES LIMITED
PARTNERSHIP
d/b/a BISYS FUND SERVICES
By: _____________________________
Name:_____________________________
Title: ___________________________
SPEARS, BENZAK, SALOMON
& FARRELL, INC.
By: _____________________________
Name:_____________________________
Title: ___________________________
6
<PAGE> 7
Dated: July 12, 1996
SCHEDULE A
TO THE SUB-ADMINISTRATION AGREEMENT
BETWEEN
BISYS FUND SERVICES LIMITED PARTNERSHIP
AND
SPEARS, BENZAK, SALOMON & FARRELL, INC.
NAME OF FUND
- ------------
SBSF Fund
SBSF Convertible Securities Fund
Key Money Market Mutual Fund
SBSF Capital Growth Fund
BISYS FUND SERVICES LIMITED
PARTNERSHIP,
d/b/a BISYS FUND SERVICES
By: ______________________________
Title: ____________________________
SPEARS, BENZAK, SALOMON
& FARRELL, INC.
By: ______________________________
Title: ____________________________
A-1
<PAGE> 8
Dated: July 12, 1996
SCHEDULE B
TO THE SUB-ADMINISTRATION AGREEMENT
BETWEEN
BISYS FUND SERVICES LIMITED PARTNERSHIP
AND
SPEARS, BENZAK, SALOMON & FARRELL, INC.
NAME OF FUND COMPENSATION
- ------------ ------------
SBSF Fund An annual fee of $500,000,
SBSF Convertible Securities Fund payable in equal installments
Key Money Market Mutual Fund on the ____day of each
SBSF Capital Growth Fund calendar month, for acting
as Sub-Administrator for
the Funds
BISYS FUND SERVICES LIMITED
PARTNERSHIP,
d/b/a BISYS FUND SERVICES
By: ____________________________
Name: ___________________________
Title: __________________________
SPEARS, BENZAK, SALOMON
& FARRELL, INC.
By: ____________________________
Name: ___________________________
Title: __________________________
B-1
<PAGE> 1
EX-99.B10
[MORRISON & FOERSTER LLP LETTERHEAD]
July 11, 1996
SBSF Funds, Inc.
45 Rockefeller Plaza
New York, NY 10111
Re: Post-Effective Amendment No. 24 to SBSF Funds, Inc. Registration
Statement on Form N-1A
Ladies and Gentlemen:
We refer to Post-Effective Amendment No. 24 and Amendment No. 25 to the
Registration Statement on Form N-1A (SEC File No. 2-84920) (the "Registration
Statement") of SBSF Funds, Inc., a Maryland corporation (d/b/a Key Mutual Funds)
(the "Company"), relating to the registration of an indefinite number of shares
of common stock of four portfolios offered by the Company, namely, the Key Money
Market Mutual Fund, the SBSF Fund, the SBSF Convertible Securities Fund and the
SBSF Capital Growth Fund (collectively, the "Shares").
We have been requested by the Company to furnish this opinion as
Exhibit 10 to the Registration Statement.
We have examined documents relating to the organization of the Company
and the authorization and issuance of the Shares. We have also made such
inquiries of the Company and examined such questions of law as we have deemed
necessary for the purpose of rendering the opinion set forth herein. We have
assumed the genuineness of all signatures and the authenticity of all items
submitted to us as originals and the conformity of all items submitted to us as
copies.
Based upon and subject to the foregoing, we are of the opinion that:
The issuance and sale of the Shares have been duly and validly
authorized by all appropriate corporate action, and assuming delivery of the
Shares by sale or in accord with the Company's dividend reinvestment plan in
accordance with the Company's
<PAGE> 2
then-current Registration Statement under the Securities Act of 1933, the Shares
will be validly issued, fully paid and nonassessable.
We consent to the inclusion of this opinion as an exhibit to the
Registration Statement.
In addition, we consent to the use of our name and to the reference to
our firm under the heading "Counsel" in the Prospectus, which is included as
part of the Registration Statement.
Very truly yours,
/S/ Morrison & Foerster LLP
MORRISON & FOERSTER LLP
<PAGE> 1
EX-99.B11
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the incorporation by reference in the Statement of
Additional Information constituting part of this Post-Effective Amendment No. 24
to the registration statement on Form N-1A (the "Registration Statement") of our
report dated January 17, 1996, relating to the financial statements and
financial highlights appearing in the November 30, 1995 Annual Report to
Shareholders of SBSF Fund, SBSF Convertible Securities Fund, SBSF Capital Growth
Fund, and SBSF Money Market Fund (four of the portfolios constituting the Key
Mutual Funds (SBSF Funds, Inc.), hereafter referred to as the "Funds"), which is
also incorporated by reference into the Registration Statement. We also consent
to the references to us under the heading "Financial Highlights" in the
Prospectus and under the heading "Independent Accountants" in the Statement of
Additional Information.
/s/ Price Waterhouse LLP
Price Waterhouse LLP
New York, New York
July 10, 1996
