SEMI-ANNUAL REPORT
May 31, 1997
Key Money
Market
Mutual Fund
(Logo)
KeyFunds
Key Asset Management Inc. (KAM), a subsidiary of KeyCorp, is the investment
adviser to Key Mutual Funds, which consists of several different portfolios,
one of which, the Key Money Market Mutual Fund (the "Fund"), is included
in this semi-annual report. Key Mutual Funds are sponsored and distributed
by BISYS Fund Services, which is not affiliated with KeyCorp or its
subsidiaries. KAM receives a fee for its services from The Key Mutual
Funds.
Shares of the Funds are not deposits or other obligations of, or guaranteed
or endorsed by Key Asset Management Inc., any KeyCorp bank, or their
affiliates. Shares of the Fund are not federally insured by the Federal
Deposit Insurance Corporation, the Federal Reserve Board or any other
agency. An investment in mutual fund shares is subject to investment
risks, including the possible loss of the principal amount invested.
This report is submitted for the general information of the shareholders
of the Fund. It is not authorized for distribution to prospective
investors in the Fund unless preceded or accompanied by an effective
prospectus, which includes information regarding the Fund's objectives
and policies, experience of its management, marketability of shares
and other information.
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.
(logo)
KeyFunds
KEY MONEY MARKET MUTUAL FUND
Investment
Review and
Economic
Outlook
Nineteen ninety seven began with some trepidation among fund managers,
whose overriding concern was, "How long will this scenario of low
inflation and high employment last?" The Federal Reserve Board, which
sets monetary policy, seemed to share this concern when it raised
the Federal Funds rate by a quarter of a percentage point in March.
This move was deemed "anticipatory" because visible signs of inflation
had not yet kicked in.
The market is concerned about inflation and the resultant impact on
interest rates because this affects the value of the future stream
of cash flows. For now this concern has been lulled by recent economic
reports that indicate inflation has not yet become a major problem.
Of these, perhaps the most important was thxe employment cost index
(released April 29) which revealed no appreciable acceleration in
wages and salaries, despite the tightest labor market in some years.
Thus, despite the strong GDP growth rate of 5.9% in the first quarter
of 1997, the Federal Reserve Board left interest rates unchanged at
its subsequent meeting on May 20. The support for this move came in
the form of retail sales, which slipped in April, and factory production,
which declined for the first time in more than a year. As of April,
producer prices had also fallen for four months in a row. On the flip
side, the unemployment rateis at a 25 year low, well below the "natural"
rate that economists consider sustainable without inflation.
Business cycles--alternate periods of boom and recessions--have been
an inevitable feature of the economy. Given the fact that the current
business expansion has completed its sixth year, and is one of the
longest on record, it is natural for the financial markets to feel
some anxiety. Improved inventory management by companies and more
effective monetary policy by the Fed are possibly stretching out the
current period of expansion. The primary source of current economic
strength is consumer spending, which is being fueled by a strong labor
market and rising income levels. But some of this current strength
in spending is being borrowed from the future, and therefore it is
likely that the second half of 1997 will see activity slowing to a
more sustainable pace.
/s/ Charles G Crane
Charlie Crane
Chief Market Strategist
Key Asset Management Inc.
June 14, 1997
Note: The views expressed in this Investment Review and Economic Outlook
are through June 14, 1997 and are subject to change at any time based
on market and other conditions.
ANNUAL REPORT
PERFORMANCE INFORMATION
As of May 31, 1997
<TABLE>
<CAPTION>
KEY MONEY MARKET MUTUAL FUND
YIELDS AND PERFORMANCE
<S> <C>
Seven-day Yield 4.76%
Seven-day Effective Yield 4.87%
Total Return Current Fiscal Year 4.74%<F1>
During the six-month period ended May 31, 1997, the Fund received
waivers and reimbursements of certain expenses. If such waivers and
reimbursements had not occurred, the Fund's seven-day yield, seven-day
effective yield and total return for the year would have been 4.21%,
4.30% and 4.29%, respectively.
<FN>
<F1> Annualized
</TABLE>
<TABLE>
<CAPTION>
KEY MONEY MARKET MUTUAL FUND
MATURITY SCHEDULE
<S> <C>
Less than 30 days 54.6%
31-90 days 41.1%
Greater than 90 days 4.3%
100.0%
Weighted Average Maturity 43 Days
The performance data quoted represents past performance and is not
indicative of future results. Yields will fluctuate with market conditions.
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. An
investment in the Key Money Market Mutual Fund is neither insured
nor guaranteed by the U.S. government.
The Fund's Maturity Schedule presented may not be representative of
current or future investment strategies. Fund strategies may change
at any time.
</TABLE>
<TABLE>
May 31, 1997 (Unaudited)
KEY MONEY MARKET MUTUAL FUND
Statement of Investments
<CAPTION>
PRINCIPAL AMOUNT AMORTIZED COST
<S> <C> <C>
U.S. TREASURY BILLS<F2>--8.6%
$ 4,000,000 4.400%, 6/12/97
(Cost $3,994,622) $ 3,994,622
U.S. TREASURY NOTES--51.6%
6,000,000 5.625%, 6/30/97 6,001,787
2,000,000 5.875%, 7/31/97 2,001,418
14,000,000 6.500%, 8/15/97 14,033,518
2,000,000 5.750%, 10/31/97 2,001,696
Total U.S. Treasury Notes
(Cost $24,038,419) 24,038,419
U.S. GOVERNMENT AGENCIES--15.6%
Federal Home Loan Bank<F2>--9.2%
180,000 5.900%, 6/24/97 180,017
4,000,000 5.390%, 6/26/97 3,985,028
150,000 6.220%, 6/27/97 150,050
Total Federal Home Loan Bank
(Cost $4,315,095) 4,315,095
Federal National Mortgage Assoc.<F2>--6.4%
3,000,000 5.420%, 7/23/97
(Cost $2,976,513) 2,976,513
Total U.S. Government Agencies
(Cost $7,291,608) 7,291,608
Repurchase Agreements--23.5%
10,964,000 Lehman Brothers, Inc.
5.52%, 6/2/97,
(Collateralized by $11,090,000
Federal Home Loan Bank,
6.10%, 10/7/98,
market value--$11,188,268)
(Cost $10,964,000) 10,964,000
Total Investments
(Cost $46,288,649)<F1> 99.3% 46,288,649
Other assets, net of other liabilities 0.7% 345,056
100.0% $46,633,705
<FN>
<F1> At May 31, 1997, the cost of investments for Federal income tax purposes
was the same as the cost for financial reporting purposes.
<F2> Rate shown represents annualized yield on date of purchase.
</TABLE>
See accompanying Notes to Financial Statements
<TABLE>
May 31, 1997 (Unaudited)
KEY MONEY MARKET MUTUAL FUND
Statement of Assets and Liabilities
<CAPTION>
<S> <C>
ASSETS
Investment in securities, at value $46,288,649
Cash 148
Receivable for Fund shares sold 25,957
Interest receivable 482,271
Prepaid expenses and other assets 17,132
Total Assets 46,814,157
LIABILITIES
Payable for Fund shares redeemed 10,000
Due to administrator--Note 3(a) 10,742
Accrued expenses and other liabilities 159,710
Total Liabilities 180,452
NET ASSETS--Applicable to 46,634,642 shares, respectively, of common stock outstanding
(2.925 billion shares authorized) $46,633,705
NET ASSET VALUE AND REDEMPTION VALUE PER SHARE $1.00
IDENTIFIED COST OF INVESTMENT SECURITIES $46,288,649
ANALYSIS OF NET ASSETS
Paid-in capital $46,633,705
NET ASSETS $46,633,705
</TABLE>
See accompanying Notes to Financial Statements
<TABLE>
For the Six-Month Period Ended May 31, 1997 (Unaudited)
KEY MONEY MARKET MUTUAL FUND
Statement of Operations
<CAPTION>
<S> <C> <C>
INVESTMENT INCOME
Interest Income $1,434,024
Expenses:
Investment advisory fees--Note 3(a) 67,610
Administration fees--Note 3(a) 63,843
Transfer agent fees 11,153
Professional fees 39,704
Custodian fees--Note 3(d) 8,663
Directors fees and expenses--Note 3(b) 6,289
Shareholder reports 3,538
Shareholder servicing fees--Note 3(c) 40,926
Federal and state registration fees 6,296
Miscellaneous 35,226
Total Expenses 283,248
Less fee waivers and reimbursements--Note 3:
Advisory fees (67,610)
Shareholder servicing fees (40,926)
Miscellaneous (13,205) (121,741)
Total Expenses after fees waived 161,507
NET INVESTMENT INCOME AND NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS $1,272,517
</TABLE>
See accompanying Notes to Financial Statements
<TABLE>
For the Six-Month Period Ended May 31, 1997 and the Year Ended November 30, 1996 (Unaudited)
KEY MONEY MARKET MUTUAL FUND
Statements of Changes in Net Assets
<CAPTION>
1997 1996
<S> <C> <C>
INCREASE IN NET ASSETS FROM OPERATIONS
Net investment income $ 1,272,517 $ 1,188,669
DIVIDENDS TO SHAREHOLDERS FROM
Net investment income (1,272,517) (1,188,669)
CAPITAL STOCK TRANSACTIONS
Proceeds from sales of shares 137,505,764 85,243,127
Reinvestment of dividends--Note 2(c) 707,774 1,066,504
138,213,538 86,309,631
Cost of shares redeemed (133,738,870) (65,998,933)
Net increase in net assets from capital stock transactions 4,474,668 20,310,698
Total increase in net assets 4,474,668 20,310,698
NET ASSETS
Beginning of period 42,159,037 21,848,339
End of period $ 46,633,705 $ 42,159,037
</TABLE>
See accompanying Notes to Financial Statements
<TABLE>
(Unaudited)
KEY MONEY MARKET MUTUAL FUND
Financial Highlights
<CAPTION>
Six-Month
Period
Ended Fiscal Year Ended November 30,
May 31,
1997 1996 1995 1994 1993
<S> <C> <C> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE
Net asset value, beginning of period $ 1.000 $ 1.000 $ 1.000 $ 1.000 $ 1.000
Net investment income 0.023 0.047 0.051 0.034 0.026
Total from investment operations 0.023 0.047 0.051 0.034 0.026
Less: dividends from net investment income (0.023) (0.047) (0.051) (0.034) (0.026)
Net asset value, end of period $ 1.000 $ 1.000 $ 1.000 $ 1.000 $ 1.000
Total investment return 2.37%<F1> 4.65% 5.26% 3.37% 2.61%
RATIOS AND SUPPLEMENTAL DATA
Net assets end of period (in thousands) $46,634 $42,159 $21,848 $28,606 $16,222
Ratio of expenses to average net assets 0.60%<F2> 0.64% 0.63% 0.59% 0.55%
Ratio of net investment income to average net assets 4.70%<F2> 4.59% 5.15% 3.35% 3.16%
Decrease reflected in above expense ratios
due to fee waivers and reimbursements 0.45%<F2> 0.28% 0.25% 0.25% 0.25%
<FN>
<F1> Not annualized.
<F2> Annualized.
</TABLE>
See accompanying Notes to Financial Statements
(Unaudited)
KEY MONEY MARKET MUTUAL FUND
Notes to Financial Statements
Note 1
General
Key Mutual Funds (the "Company") is registered under the Investment
Company Act of 1940, as amended (the "Act"), as an open-end management
investment company. The Company, incorporated in Maryland on May 26,
1983 under the name SBSF Funds, Inc., is currently doing business
under the name "Key Mutual Funds." The Company is a series company
currently issuing capital stock of several different investment portfolios
one of which, the Key Money Market Mutual Fund (the "Fund"), is included
in this semi-annual report. The Company has 25 billion shares of $.01
par value capital stock authorized. Prior to July 12, 1996, the Fund
was known as SBSF Money Market Fund. On May 31, 1997 the Fund had
three shareholders which owned approximately 58% of the outstanding
shares of the Fund. The investment objective of the Fund is to provide
high current income to the extent consistent with the preservation
of capital. The 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.
Note 2
Significant Accounting Policies
The following is a summary of the significant accounting policies
consistently followed by the Fund in the preparation of its financial
statements. The policies are in conformity with generally accepted
accounting principles. The preparation of financial statements requires
the Management to make estimates and assumptions that affect the reported
amounts and disclosures. Actual results could differ from those estimates.
(a) Investment Valuation
The Fund values its portfolio securities at 2:00 p.m. (Eastern Time)
on each business day of the Fund using the amortized cost method,
which approximates market value.
(b) Securities Transactions and Investment Income
Securities transactions are recorded on a trade date basis. Realized
gains and losses from securities transactions are recorded on the
identified cost method. Interest income is recognized on the accrual
basis. Discounts on debt securities are accreted to interest income
over the life of the security with a corresponding increase in the
security's cost basis. Premiums on debt securities are amortized over
the life of the security with a corresponding decrease to the security's
cost basis.
(c) Dividends to Shareholders
Dividends payable to shareholders are recorded by the Fund on the
ex-dividend date. The Fund declares dividends daily from net investment
income; such dividends are paid monthly. Distributions from net realized
capital gains, offset by loss carryovers, if any, are declared and
paid annually. The amount of dividends and distributions from net
investment income and net realized capital gains are determined in
accordance with federal income tax regulations which may differ from
generally accepted accounting principles. These "book/tax" differences
may be considered either temporary or permanent in nature. To the
extent these differences are permanent in nature, such amounts are
reclassified within the capital accounts based on their federal tax-basis
treatment; temporary differences do not require reclassification.
Dividends and distributions which exceed net investment income and
net realized capital gains for financial reporting purposes but not
for tax purposes are reported as dividends in excess of net investment
income or distributions in excess of net realized capital gains. To
the extent they exceed net investment income and net realized capital
gains for tax purposes, they are reported as distributions of paid-in
capital.
(d) Expenses
Assets, liabilities and operations are accounted for separately by
each investment portfolio of the Company. Expenses directly attributable
to the Fund are charged to the Fund's operations; expenses which are
applicable to the several investment portfolios of the Company are
allocated among them in relation to the net assets of each investment
portfolio or on another reasonable basis.
(e) Repurchase Agreements
The Fund purchases, and its custodian takes possession of, U.S. government
securities from banks and securities dealers subject to agreements
to resell the securities to the sellers at a future date, generally
the next business day, at an agreed upon higher repurchase price.
The Fund requires the maintenance of collateral with a market value
at least equal to the repurchase price. In the event of the seller's
default of the obligation to repurchase, the Fund has the right to
liquidate the collateral and apply the proceeds in satisfaction of
the obligation. Under certain circumstances, in the event of default
or bankruptcy by the other party to the agreement, realization and/or
retention of the collateral may be subject to legal proceedings.
Note 3
Investment Advisory and Administration Fees
and Transactions with Affiliates
(a) Investment Advisory and Administration Fees
Key Asset Management Inc. ("KAM"), the Fund's investment adviser,
is a wholly owned subsidiary of KeyBank National Association (formerly
Society National Bank, N.A.) which is a wholly owned subsidiary of
KeyCorp, a financial services holding company.
On February 28, 1997, the Adviser became the surviving corporation
after the reorganization of four indirect investment adviser subsidiaries
of KeyCorp--Spears, Benzak, Salomon & Farrell, Inc. ("SBSF"), KeyCorp
Mutual Fund Advisers, Inc., Society Asset Management, Inc. and Applied
Technology Investment, Inc. Pursuant to the the terms of the reorganization,
the subsidiaries identified above were merged into SBSF and SBSF then
changed its name to Key Asset Management Inc.
Pursuant to an Investment Advisory Agreement between the Adviser and
the Company, on behalf of the Fund, the Fund pays fees to the Adviser
monthly, at the annual rate of 0.25% of the average daily net assets
of the Fund. During the six-month period ended May 31, 1997, advisory
fees incurred by the Fund amounted to $67,610, the entire amount of
which was voluntarily waived by the Adviser, effectively reducing
operating expenses and increasing total return for shareholders. This
voluntary waiver may be terminated at any time.
BISYS Fund Services ("BISYS") serves as the Administrator to the Fund
pursuant to an Administration Agreement. For services rendered by
BISYS and related expenses borne by BISYS as Administrator, the Fund
is obligated to pay BISYS a fee, computed daily and payable monthly,
based on the average daily net assets of the Fund at an annual rate
of 0.25 of 1% of the first $50 million and 0.15 of 1% of such net
assets in excess of $50 million. Pursuant to its authority to delegate
its responsibilities under the Administration Agreement, BISYS entered
into a Sub-Administration Agreement with SBSF (now known as KAM) whereby
KAM performs certain sub-administrative and fund accounting services
for the Fund at the expense of BISYS. During the six-month period
ended May 31, 1997, BISYS received administration fees of $63,843
from the Fund. BISYS also serves as independent distributor (the "Distributor")
of the Fund's capital stock, for which it receives no compensation.
Certain officers of the Company are affiliated with BISYS. Such officers
receive no direct payments or fees from the Company for serving the
Company in such capacities. During the six-month period ended May
31, 1997, miscellaneous expenses incurred by the Fund amounting to
$13,205 were reimbursed by the Administrator.
(b) Directors' Fees
Fees of $7,500 per annum, and $750 per meeting, are paid to each director
of the Company.
(c) Distribution Plan and Shareholder Servicing Plan
Pursuant to a plan adopted under 12b-1 under the Act, the Fund is
permitted to make distribution payments to the extent that any portion
of fees paid under a Shareholder Servicing Plan (described below)
are subsequently deemed to be for services primarily intended to result
in the sale of Fund shares.
The Company currently has a Shareholder Servicing Plan under which
the Fund may pay fees of up to an annual rate of 0.25% of their average
daily net assets for fees incurred in connection with personal service
and the maintenance of accounts holding shares of the Fund. Such agreements
may be entered into between the Company, on behalf of the Fund, and
various shareholder servicing agents including the Distributor and
affiliates of KeyCorp and the Adviser. During the six-month period
ended May 31, 1997, the Fund incurred shareholder servicing fees of
$40,926 which were reimbursed by the Distributor.
(d) Custodian Fees
Key Trust Company of Ohio, N.A. ("Key Trust"), a subsidiary of KeyCorp
and an affiliate of the Adviser, is the custodian for the Fund's cash
and securities. Custodian fees, as reflected in the accompanying statement
of operations, represent fees paid by the Fund to Key Trust for services
it performs as custodian.
Note 4
Federal Income Tax Status
It is the policy of the Fund to comply with the requirements of the
Internal Revenue Code applicable to regulated investment companies
and to distribute all of its taxable income to shareholders. Therefore,
no federal income tax provision is required. Each investment portfolio
of the Company is treated as a separate entity for the purpose of
determining such compliance.
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KeyFunds
1-800-KEYFUND
2 KF/MMM-SEM (5/97)
