Key Money Market Mutual Fund
ANNUAL REPORT
November 30, 1996
KeyFunds logo
Key Mutual Funds is a series investment company consisting of several
different portfolios, one of which, the Key Money Market Mutual Fund (the
"Fund"), is included in this annual report. Spears, Benzak, Salomon & Farrell,
Inc. ("SBSF"), an indirect wholly-owned subsidiary of KeyCorp, is the
investment adviser to the Fund. SBSF and Key Trust Company of Ohio, N.A., the
Fund's custodian and also a subsidiary of KeyCorp, receive fees from the Fund
for their services. The Fund is distributed by BISYS Fund Services, which is
not affiliated with SBSF, KeyCorp, any KeyBank or its affiliates.
Shares of the Fund are not deposits or other obligations of, or guaranteed or
endorsed by SBSF, any KeyBank, any of their affiliates or any other bank.
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.
KeyFunds logo
Board of Directors
Edward P. Campbell, Director
President of Nordson Corporation
Westlake, Ohio
Eugene J. McDonald, Director
Executive Vice President for Asset Management of
Duke University and President of Duke Management Co.
Durham, North Carolina
Frank A. Weil, Director and Non-Executive Chairman
Chairman and Chief Executive Officer of
Abacus Associates, Inc.
New York, New York
Leigh A. Wilson, Director and President
Chairman and Chief Executive Officer of
Glenleigh International Limited
New York, New York
Letter to Our Shareholders
Dear Shareholders:
We are pleased to provide you with the annual report for the Key Money Market
Mutual Fund's fiscal year ended November 30, 1996. This period has seen a
remarkably good investment climate, although uncertainty about interest rate
movements introduced some volatility into the markets. In the pages that
follow, your portfolio manager discusses the investment strategy employed and
performance of the Fund. This commentary, along with the related financial
data, provide comprehensive information about your investment in the Fund.
Assets in the Key Money Market Mutual Fund increased approximately 93% over
the past year, a strong indication of your confidence in our investment
capabilities. The Fund's investment performance is achieved with a commitment
to maintaining the highest credit quality standards. The Fund was recently
awarded a AAAm credit rating by Standard & Poor's. This rating is based upon
the Fund's historical credit quality, market price exposure and management. It
signifies that the Fund's safety is excellent and that it has a superior
capacity to maintain a $1.00 net asset value per share.
We would like to share with you some recent product innovations of the
KeyFunds designed to expand the scope of investment products available to
investors with different risk profiles. Called the KeyChoice Funds, these
"funds of funds" pursue their investment objectives by investing in a specific
mix of mutual funds. The underlying portfolios for the KeyChoice Funds include
portfolios of the Key Mutual Funds and an affiliated fund group, the Victory
Funds, which are also advised by a subsidiary of KeyCorp.
The following three KeyChoice Funds became available at the start of the 1997
calendar year:
KeyChoice Growth Fund--seeks to provide growth of capital. The Fund pursues
its objective by investing primarily in stock funds.
KeyChoice Moderate Growth Fund--seeks to provide growth of capital combined
with a moderate level of current income. The Fund pursues its objective by
investing primarily in stock funds and, to a lesser extent, in bond funds.
KeyChoice Income and Growth Fund--seeks to provide current income combined
with moderate growth of capital. This Fund invests primarily in bond funds
and, to a lesser extent, in stock funds.
For more information about the KeyChoice Funds, including charges and
expenses, request a prospectus by calling 1-800-KEY-FUND. Please read the
prospectus carefully before investing or sending money.
We encourage you to read the annual report carefully and to respond to us with
your comments. Thank you for choosing to invest in the KeyFunds.
/S/Leigh A. Wilson
Leigh A. Wilson
President, The KeyFunds
January 15, 1997
Investment Review and Economic Outlook
The past year witnessed a stable economy growing at a moderate pace, although
second quarter 1996 saw the Gross Domestic Product pick up to a hefty
annualized rate of 4.7%. A slowdown in the third quarter more or less evened
out the scenario, and the good news in the midst of all this was the slow pace
of inflation.
The Labor Market
Job growth was one of the brightest stars in the economy this past year,
helping to drive unemployment to a seven-year low of 5.1%. Reflecting the
tight market, average hourly earnings nudged to its highest rate of increase
in the current expansion. This helped boost consumer confidence throughout
1996.
Corporate Profitability
Competitive forces have prevented most companies from passing on higher wage
costs to the final consumer in the form of higher prices, thereby squeezing
profit margins and keeping inflation low.
Our Economic Forecast
We believe the sluggish profit growth of 1996 could lead to fewer new jobs and
higher unemployment in 1997, which could in turn depress income growth and
limit consumption. As a result, we believe real GDP growth is likely to slow
to 1%-2%, with a bias towards the lower end of this range. Despite higher
labor costs, inflation should moderate a bit, and we expect that the Consumer
Price Index will be 2.7%, give or take a few basis points, throughout the next
12-18 months.
Interest Rates
Should our economic scenario prove correct, long-term interest rates are
likely to move lower in fiscal 1997, establishing a new range of 6.25% to
7.0%. Short interest rates have room to move lower as well, and we believe the
Federal Reserve may lower interest rates sometime in the first half of the
year. Keeping in mind that 1996 was the sixth year of the current economic
expansion, 1997 is likely to be a period of continued volatility as the market
waits for a slowing economy.
What were the economic conditions affecting the money markets this year?
Economic viewpoints underwent a significant change as the year progressed,
from expectations of slower growth and declining interest rates to robust
growth and increased rates. Economic strength was evidenced by stronger
consumer confidence levels, tight labor market conditions, strong housing
activity and industrial production. Inflationary pressure did not manifest
itself in the form of consumer or producer price increases (as measured by the
CPI and PPI). Acceptable levels of these price indices supported a stable
monetary policy.
How did you structure the Fund to respond to these conditions?
At the beginning of the year the expectation was for slower growth, so our
efforts were directed at extending the weighted average maturity of the Fund
to lock in higher fixed rates. As economic viewpoints changed, we moved to a
more neutral position and finally closed the year with a relatively shorter
average weighted maturity.
Why was this done?
Any change in monetary policy can have an immediate impact on a money market
portfolio. A shorter weighted average maturity enables us to reinvest cash
from maturing securities in order to capture higher interest rates.
How did the Fund perform as a result of these moves?
The Fund lagged more aggressively invested funds for the first half of its
fiscal year ended November 30, 1996 primarily because it was invested
conservatively in U.S. Treasury bills. The Fund has since expanded the type of
investments included in it's portfolio to include U.S. government agency
securities and repurchase agreements backed by U.S. government securities.
This strategy has helped the Fund provide a more competitive return, without
sacrificing credit quality.
What are your expectations going forward?
We expect the Federal Reserve will maintain lower interest rates in early
1997, however, as economic data are released, we will assess market sentiment
and position the Fund accordingly
Annual Report Performance Information
As of November 30, 1996
<TABLE>
Key Money Market Mutual Fund
Yields And Performance
<CAPTION>
<S> <C>
Seven-day Yield 4.67%
Seven-day Effective Yield 4.78%
One Year Total Return 4.65%
</TABLE>
During the year ended November 30, 1996, 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 4.27%, 4.36% and 4.37%, respectively.
<TABLE>
Key Money Market Mutual Fund Maturity Schedule
<CAPTION>
<S> <C>
Less than 30 days 74.3%
31-60 days 12.1%
Greater than 90 days 13.6%
100.0%
Weighted Average Maturity 35 Days
</TABLE>
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.
Note: The views expressed in this Investment Review and Economic Outlook are
through January 15, 1997 and are subject to change at any time based on market
and other conditions.
<TABLE>
Key Money Market Mutual Fund
November 30, 1996
Statement of Investments
<CAPTION>
PRINCIPAL AMOUNT AMORTIZED COST
<S> <C>
U.S. TREASURY BILLS<F2>--47.2%
$ 240,000 5.010%, 12/12/96 $ 239,633
1,000,000 5.015%, 12/12/96 998,468
90,000 5.040%, 12/12/96 89,861
100,000 5.045%, 12/12/96 99,846
750,000 5.085%, 12/12/96 748,835
9,000,000 5.095%, 12/19/96 8,977,072
5,000,000 5.120%, 12/19/96 4,987,200
1,750,000 5.130%, 12/19/96 1,745,511
2,000,000 5.150%, 12/19/96 1,994,850
Total U.S. Treasury Bills
(Cost $19,881,276) 19,881,276
U.S. TREASURY NOTE--11.9%
5,000,000 6.625%, 3/31/97
(Cost $5,021,583) 5,021,583
U.S. GOVERNMENT AGENCIES--28.3%
Federal Home Loan Bank<F2>--8.3%
2,000,000 5.180%, 12/12/96 1,996,834
1,500,000 5.210%, 1/24/97 1,488,278
Total Federal Home Loan Bank
(Cost $3,485,112) 3,485,112
Federal Home Loan Mortgage Corp.<F2>--9.4%
2,000,000 5.210%, 12/11/96 1,997,106
2,000,000 5.210%, 12/11/96 1,997,105
Total Federal Home Loan
Mortgage Corp.
(Cost $3,994,211) 3,994,211
Federal National Mortgage Assoc.<F2>--10.6%
1,490,000 5.390%, 12/04/96 1,490,000
3,000,000 5.220%, 1/17/97 2,979,555
Total Federal National
Mortgage Assoc.
(Cost $4,469,555) 4,469,555
Total U.S. Government Agencies
(Cost $11,948,878) 11,948,878
Total Investments
(Cost $36,851,737)<F1> 87.4% 36,851,737
Other assets, net of other liabilities 12.6% 5,307,300
100.0% $ 42,159,037
<FN>
<F1>At November 30, 1996, 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>
November 30, 1996
Statement of Assets and Liabilities
<CAPTION>
<S> <C>
ASSETS
Investment in securities, at value $36,851,737
Cash 3,472
Receivable for Fund shares sold 293,712
Receivable for securities sold 5,021,917
Interest receivable 99,529
Prepaid expenses 34,268
Total Assets 42,304,635
LIABILITIES
Payable for Fund shares redeemed 24,440
Due to administrator--Note 3(a) 8,872
Accrued expenses and other liabilities 112,286
Total Liabilities 145,598
NET ASSETS--Applicable to 42,159,793 shares of common stock outstanding
(2.925 billion shares authorized) $42,159,037
NET ASSET VALUE AND REDEMPTION VALUE PER SHARE $1.00
IDENTIFIED COST OF INVESTMENT SECURITIES $36,851,737
ANALYSIS OF NET ASSETS
Paid-in capital $42,159,037
NET ASSETS $42,159,037
</TABLE>
See accompanying Notes to Financial Statements.
<TABLE>
For the Year Ended November 30, 1996
Statement of Operations
<CAPTION>
<S> <C> <C>
INVESTMENT INCOME
Interest Income $1,353,722
Expenses:
Investment advisory fees--Note 3(a) 64,632
Administration fees--Note 3(a) 64,632
Transfer agent fees 18,388
Professional fees 24,466
Custodian fees--Note 3(d) 10,662
Directors' fees and expenses--Note 3(b) 3,107
Shareholder reports 12,617
Shareholder servicing fees--Note 3(c) 3,246
Federal and state registration fees 13,941
Miscellaneous 20,865
Total Expenses 236,556
Less fee waivers and reimbursements--Note 3:
Advisory fees (64,632)
Shareholder servicing fees (3,246)
Miscellaneous (3,625) (71,503)
Total Expenses after fees waived 165,053
NET INVESTMENT INCOME AND NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS $1,188,669
</TABLE>
See accompanying Notes to Financial Statements.
<TABLE>
For the Years Ended November 30, 1996 and 1995
Statements of Changes in Net Assets
<CAPTION>
1996 1995
<S> <C> <C>
INCREASE IN NET ASSETS FROM OPERATIONS
Net investment income $ 1,188,669 $ 1,344,444
DIVIDENDS TO SHAREHOLDERS FROM
Net investment income (1,188,669) (1,344,444)
CAPITAL STOCK TRANSACTIONS (at $1.00 per share)
Proceeds from sales of shares 85,243,127 43,066,229
Reinvestment of dividends--Note 2(c) 1,066,504 1,297,266
86,309,631 44,363,495
Cost of shares redeemed (65,998,933) (51,120,858)
Net increase (decrease) in net assets from capital stock transactions 20,310,698 (6,757,363)
Total increase (decrease) in net assets 20,310,698 (6,757,363)
NET ASSETS
Beginning of period 21,848,339 28,605,702
End of period $42,159,037 $21,848,339
</TABLE>
See accompanying Notes to Financial Statements.
<TABLE>
Financial Highlights
<CAPTION>
FISCAL YEAR ENDED NOVEMBER 30,
1996 1995 1994 1993 1992
<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 0.047 0.051 0.034 0.026 0.034
Total from investment operations 0.047 0.051 0.034 0.026 0.034
Less dividends from net investment income (0.047) (0.051) (0.034) (0.026) (0.034)
Net asset value, end of period $ 1.000 $ 1.000 $ 1.000 $ 1.000 $ 1.000
Total investment return +4.65% +5.26% +3.37% +2.61% +3.48%
Ratios and Supplemental Data
Net assets at end of period (in thousands) $42,159 $21,848 $28,606 $16,222 $12,531
Ratio of expenses to average net assets 0.64% 0.63% 0.59% 0.55% 0.72%
Ratio of net investment income to
average net assets 4.59% 5.15% 3.35% 3.16% 4.20%
Decrease reflected in above expense
ratios due to fee waivers and reimbursements 0.28% 0.25% 0.25% 0.25% 0.25%
</TABLE>
See accompanying Notes to Financial Statements
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 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 November 30, 1996
the Fund had three shareholders which owned approximately 50% 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 Administrator to make
estimates and assumptions that affect the reported amounts and disclosures.
Actual results could differ from those estimates.
(a) Investment Valuation
The Fund values its portfolio securities at 2:00 p.m. (Eastern Time) on each
business day of the Fund at amortized cost, which approximates market value.
(b) Securities Transactions and Investment Income
Securities transactions are recorded on a trade date basis. Realized gains and
losses from securities transactions are recorded on the identified cost
method. Interest income is recognized on the accrual basis. Discounts on debt
securities are accreted to interest income over the life of the security with
a corresponding increase in the security's cost basis. 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
Spears, Benzak, Salomon & Farrell, Inc., the Fund's investment adviser (the
"Adviser" or "SBSF"), is a wholly owned subsidiary of KeyCorp Asset Management
Holdings, Inc. (KAMHI) and an indirect wholly owned subsidiary of KeyBank
National Association (formerly Society National Bank, N.A.) and KeyCorp, a
financial services holding company.
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. The
Investment Advisory Agreement further provides that if in any fiscal year the
aggregate expenses of the Fund, excluding interest, taxes, brokerage
commissions and extraordinary expenses, exceed the expense limitation of any
state having jurisdiction over the Fund, the Adviser will reimburse the Fund
for the excess expense to the extent required by such state laws. During the
year ended November 30, 1996, advisory fees incurred by the Fund amounted to
$64,632, the entire amount of which was voluntarily waived by the Adviser.
This voluntary waiver may be terminated at any time.
Prior to April 1, 1996, SBSF, in addition to serving the Fund as Adviser,
served as Administrator to the Fund pursuant to an Administration Agreement.
For services rendered by SBSF and related expenses borne by SBSF as
Administrator, the Fund was obligated to pay SBSF a fee, computed daily and
payable monthly, based on the average daily net assets of the Fund at an
annual rate of 0.25 of 1% of the first $50 million; 0.15 of 1% of the next $50
million; and 0.05 of 1% of such net assets in excess of $100 million. Such
fees paid to SBSF during the period from December 1, 1995 through March 31,
1996 amounted to $22,722.
Concord Holding Corporation ("Concord''), a wholly-owned subsidiary of the
BISYS Group, Inc., served as Administrator to the Fund (the "Administrator")
during the period from April 1, 1996 through July 11, 1996 pursuant to an
Administration Agreement. In this capacity, Concord provided facilities,
equipment, statistical and research data, clerical services, fund accounting
and internal compliance services and personnel necessary to carry out all
administrative services required for the operation of the business affairs of
the Fund. For services rendered by Concord and related expenses borne by
Concord as Administrator, the Fund was obligated to pay Concord a fee,
computed daily and payable monthly, based on the average daily net assets of
the Fund at an annual rate of 0.25 of 1% of the first $50 million and 0.15 of
1% of such net assets in excess of $50 million. Such fees paid to Concord
during the period from April 1, 1996 through July 11, 1996 amounted to
$15,349. Pursuant to its authority to delegate its responsibilities under the
Administration Agreement, Concord entered into a Sub-Administration Agreement
with SBSF whereby SBSF performed certain sub-administrative and fund
accounting services for the Fund at the expense of Concord.
On July 12, 1996, BISYS Fund Services Limited Partnership, operating under the
name BISYS Fund Services ("BISYS") assumed responsibilities as Administrator
to the Fund. The service and fee arrangements under the new Administration
Agreement with BISYS are substantially similar to the previous agreement with
Concord. During the period from July 12, 1996 through November 30, 1996, such
fees amounted to $26,561. SBSF continues to serve as Sub-Administrator
pursuant to a new Sub-Administration Agreement with BISYS dated July 12, 1996.
On July 1, 1996, BISYS succeeded Concord Financial Group, Inc. as distributor
(the "Distributor") of the Fund's capital stock, for which it receives no
compensation.
(b) Directors' Fees
Fees of $7,500 per annum, and $750 per meeting, are paid to each director of
the Company.
(c) Distribution Plan and Shareholder Servicing Plan
Prior to July 12, 1996, pursuant to a plan of distribution adopted under Rule
12b-1 under the Act, the Fund was permitted to make payments for certain
distribution related expenses and to compensate or reimburse brokers, dealers
and others in connection with sales of Fund shares and service to shareholder
accounts in an amount up to 0.25% of the average daily net asset value of
shares of the Fund on an annualized basis. No payments were made by the Fund
under this plan during the period ended July 11, 1996. On July 12, 1996, the
Company implemented a revised distribution plan for the Fund (the
"Distribution Plan"). Separate payments are not currently authorized under the
Distribution Plan except to the extent that any portion of fees paid under a
Shareholder Servicing Plan (described below) are subsequently deemed to be for
services primarily intended to result in the sale of Fund shares.
Also on July 12, 1996, the Company implemented a Shareholder Servicing Plan
under which the Fund may pay fees of up to an annual rate of 0.25% of its
average daily net assets in connection with the personal service and the
maintenance of accounts holding the 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 period ended November 30, 1996, the Fund
incurred shareholder servicing fees of $3,246 and miscellaneous expenses of
$3,625 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 thepurpose of determining such compliance.
Report of Independent Accountants
To the Board of Directors and Shareholders
of Key Mutual Funds (SBSF Funds, Inc.):
In our opinion, the accompanying statement of assets and liabilities,
including the statement of investments, and the related statements of
operations and of changes in net assets and the financial highlights present
fairly, in all material respects, the financial position of Key Money Market
Mutual Fund, one of the portfolios of Key Mutual Funds ((SBSF Funds, Inc.),
hereafter referred to as the "Fund") at November 30, 1996, the results of its
operations for the year then ended, the changes in its net assets for each of
the two years in the period then ended and the financial highlights for each
of the five years in the period then ended, in conformity with generally
accepted accounting principles. These financial statements and financial
highlights (hereafter referred to as "financial statements") are the
responsibility of the Fund's management; our responsibility is to express an
opinion on these financial statements based on our audits. We conducted our
audits of these financial statements in accordance with generally accepted
auditing standards which require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements, assessing
the accounting principles used and significant estimates made by management,
and evaluating the overall financial statement presentation. We believe that
our audits, which included confirmation of securities owned at November 30,
1996 by correspondence with the custodian, provide a reasonable basis for the
opinion expressed above.
/S/Price Waterhouse LLP
PRICE WATERHOUSE LLP
New York, New York
January 15, 1997
Notice to Shareholders (Unaudited)
The Fund has designated 90.6% of its income for the fiscal year ended November
30, 1996 as having been derived from direct obligations of the U.S.
government. In addition, investments in direct obligations of the U.S.
government constituted more than 75% of the Fund's assets at the end of each
of its fiscal quarters during 1996.
For the calendar year ended December 31, 1996, 83.4% of dividends paid to
shareholders of the Fund, as reported on Form 1099, were derived from direct
obligations of the U.S. government. Such dividends may be exempt from state
personal income taxes and shareholders should consult their personal tax
advisers in order to determine if such exemption applies in their state of
residence.
Key Money Market Mutual Fund
Investment Adviser and Sub-Administrator
Spears, Benzak, Salomon & Farrell, Inc.
45 Rockefeller Plaza
New York, New York 10111
Counsel
Morrison & Foerster LLP
2000 Pennsylvania Avenue, N.W.
Washington, DC 20006
Independent Accountants
Price Waterhouse LLP
1177 Avenue of the Americas
New York, New York 10036
Custodian
Key Trust Company of Ohio, N.A.
127 Public Square
Cleveland, Ohio 44114
Transfer Agent
State Street Bank and Trust Company
225 Franklin Street
Boston, Massachusetts 02110-2875
Administrator and Distributor
BISYS Fund Services
3435 Stelzer Road
Columbus, Ohio 43219-3035
KeyFunds logo
Money Market 2KF/MMMF-AR (1/97)
