Key Stock Index Fund
Investment Adviser
KeyCorp Mutual Fund
Advisers, Inc.
127 Public Square
Cleveland, Ohio 44114
Counsel
Morrison & Foerster LLP
2000 Pennsylvania Avenue, N.W.
Washington, DC 20006
Independent Accountants
Price Waterhouse LLP
1177 Avenue of the Americas
New York, New York 10036
Custodian
KeyTrust Company of Ohio, N.A.
127 Public Square
Cleveland, Ohio 44114
Transfer Agent
State Street Bank
and Trust Company
225 Franklin Street
Boston, Massachusetts 02110-2875
Administrator and Distributor
BISYS Fund Services
3435 Stelzer Road
Columbus, Ohio 43219-3035
ANNUAL REPORT
November 30, 1996
Key Stock Index Fund
Key Mutual Funds is a series investment company consisting of several
different portfolios, one of which, the Key Stock Index Fund, (the "Fund")
is included in this annual report. KeyCorp Mutual Fund Advisers, Inc.
("KMFA"), an indirect wholly-owned subsidiary of KeyCorp, is the investment
adviser to the Fund. KMFA 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 KMFA, KeyCorp, any KeyBank or its affiliates.
Shares of the Fund are not deposits or other obligations of, or guaranteed
or endorsed by KMFA, any KeyBank, any of their affiliates or any other bank.
The shares of the Fund are not federally insured by the Federal Deposit
Insurance Corporation, the Federal Reserve Board or any other agency. An
investment in mutual fund shares is subject to investment risks, including
the possible loss of the principal amount invested.
This report is submitted for the general information of the shareholders of
the Fund. It is not authorized for distribution to prospective investors in
the Fund unless preceded or accompanied by an effective prospectus, which
includes information regarding the Fund's objectives and policies,
experience of its management, marketability of shares, and other
information.
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
KEY STOCK INDEX FUND
Letter to Our Shareholders
Dear Shareholder,
We are pleased to provide you with this first annual report for the Key
Stock Index Fund's fiscal year ended November 30, 1996. In the pages that
follow, your portfolio manager discusses the Fund's investment strategy and
the resulting performance. This commentary, along with the related financial
data, provides comprehensive information about your investments.
We are happy to note that the investor profile, mostly 401(k) plan
participants, supports the philosophy of long term investing to participate
in the general stock market's superior performance over time.
We would like to share with you some recent product innovations of the
KeyFunds designed to expand the scope of investment products for investors
with different risk profiles. Called the KeyChoice Funds, these "funds of
funds" pursue their investment objectives by investing in other mutual
funds. The underlying portfolios for the KeyChoice Funds include portfolios
of the Key Mutual Funds and an affiliated fund group, The Victory
Portfolios, which are also advised by KMFA.
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 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
KEY STOCK INDEX FUND
Investment Review and Economic Outlook
The upward surge of the Dow Jones Industrial Average was the top story of
last year, as the market took note of stable growth accompanied by low
inflation. However, this overall picture of solid performance was punctuated
by periods of volatility. For the bears, there was a heart-stopping
correction in July, the sharpest such setback in two and a half years; for
the bulls, a spirited rebound that sent most market averages to record highs
as the year drew to a close.
Aided by a favorable bond market, equities enjoyed good returns over the
twelve months ended November 30, 1996, with the S&P 500 returning 27.86% for
that period. Looking ahead, stock market conditions may not be quite so
hospitable, as a much anticipated economic slowdown appears to be underway.
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 their highest rate of
increase in the current expansion. This has helped boost consumer confidence
throughout 1996.
Corporate Profitability
Competitive forces have prevented most companies from passing on these
higher wage costs through to the final consumer in the form of higher
prices, thereby squeezing profit margins. Margin deterioration has been
aggravated by rising commodity costs, most notably energy. As a result,
profit growth decelerated sharply through 1996, and even blue chip companies
like AT&T and Coca-Cola warned analysts of disappointing earnings.
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 think real GDP growth is likely to
slow to 1%-2%, with a bias toward the lower end of the range. Despite higher
labor costs, inflation should moderate a bit, and we expect that the
Consumer Price Index will be 2.5%, 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-term interest rates have room to move lower as well, and we
think the Federal Reserve may lower interest rates sometime in the first
half of 1997.
Stock Market
Given the pressure on corporate profits, these lower interest rates may not
necessarily lead to sustainably higher stock prices. Moreover, lower rates
do little to mitigate the heightened risk businesses face in a decelerating
economic climate. All in all, we expect continued market volatility in
fiscal 1997, and recommend that investors bear this in mind when
constructing their equity and fixed income portfolios.
Note: The views expressed in the Investment Review and Economic Outlook are
through January 15, 1997 and are subject to change at any time based on
market, economic and other conditions.
Since Inception--7/1/96--11/30/96
Total Returns 12.29%
The performance data quoted represent past performance and are not
indicative of future results. Total returns are historical and include the
change in share price and reinvestment of dividend distributions and is not
annualized. Investment returns and principal values will fluctuate so that an
investor's shares, when redeemed, may be worth more or less than their
original cost. The total return figure set forth above reflects the waiver of
all fees and reimbursement of expenses since the Fund's inception date.
Without such waivers and reimbursements, the total return would have
been lower.
The accompanying presentations are hypothetical illustrations of the result of
a $10,000 investment on the respective inception dates of each Fund and the
subsequent reinvestment of all dividends and capital gain distributions
through November 30, 1996.
Fee waivers are voluntary and may be modified or terminated at any time.
The S&P 500 Composite Index (S&P Index)<F1> posted a very sound total return,
27.86%, for the twelve months ended November 30, 1996. How did the Fund's
performance compare to the Index since July 1, 1996?
First to address strategy, as the Fund's investment objective states, we
attempt to match the investment performance of the S&P Index. The Fund
invests primarily in the stocks of the S&P Index and secondarily in S&P
Index futures. The Fund's stock portfolio is managed to closely resemble or
replicate the company and industry weightings in the S&P Index. Futures are
used to provide liquidity and reduce transaction costs, while allowing the
Fund to fully participate in the movements of the S&P Index. While the Fund
is fully invested in S&P Index stocks and futures contracts, its recent
commencement has been attracting a steady inflow of new cash from investors.
The daily investment of this cash inflow from the previous day shareholder
purchases creates the potential for performance "drag." This "drag" could
cause the Fund to lag in performance in an upward trending market and
outperform when the market is going down compared to its index. As the
Fund's asset base increases this potential "drag" is expected to be minimal.
As of November 30, 1996, the Fund's total return was 12.29% from fund
inception<F2> compared to the S&P Index return of 13.03%
<F1>-The S&P 500 Composite Index (S&P Index) is an unmanaged, capitalization
weighted index of 500 publicly held stocks; its value varies with the
aggregate value of the common equity of each of the 500 companies.
<F2>-The total return for both the Fund and the S&P Index were computed from
the Fund's inception date, July 1, 1996 for comparative purposes. Past
performance does not guarantee future results.
<TABLE>
November 30, 1996
KEY STOCK INDEX FUND
Statement of Investments
<CAPTION>
SECURITY SHARES OR
DESCRIPTION PRINCIPAL AMOUNT VALUE
<S> <C> <C>
COMMON STOCKS (61.1%):
Advertising (0.0%):
Interpublic Group Cos., Inc. 137 $ 6,782
Aerospace/Defense (1.4%):
Allied Signal, Inc. 481 35,233
Boeing Co. 593 58,929
General Dynamics Corp. 107 7,891
Lockheed Martin Corp. 341 30,903
McDonnell Douglas 367 19,405
Northrop Grumman Corp. 98 8,146
Rockwell International Corp. 372 23,901
Textron, Inc. 137 13,067
United Technologies Corp. 206 28,892
226,367
Airlines (0.2%):
AMR Corp.<F2> 155 14,144
Delta Air Lines 133 10,008
Southwest Airlines Co. 247 6,113
USAir Group, Inc.<F2> 109 2,534
32,799
Aluminum (0.1%):
Aluminum Co. of America 297 18,897
Apparel (0.0%):
Liz Claiborne, Inc. 124 5,254
Automotive (1.2%):
Chrysler Corp. 1,244 44,162
Ford Motor Co. 2,015 65,991
General Motors Corp. 1,289 74,279
Navistar International Corp.<F2> 127 1,206
PACCAR, Inc. 65 4,323
189,961
Automotive Parts (0.3%):
Cummins Engine, Inc. 67 3,032
Dana Corp. 172 5,354
Eaton Corp. 131 9,072
Echlin, Inc. 104 3,497
Genuine Parts Co. 206 9,270
Pep Boys 104 3,809
Placer Dome, Inc. 408 9,639
TRW, Inc. 108 10,516
54,189
Banks (4.7%):
Banc One Corp. 744 35,433
Bank of Boston Corp. 223 15,582
Bank of New York Co., Inc. 657 23,570
BankAmerica Corp. 614 63,242
Bankers Trust New York Corp. 136 11,832
Barnett Banks, Inc. 327 14,388
Boatmens Bancshares, Inc. 267 17,789
Chase Manhatten Corp. 743 70,214
Citicorp 819 89,476
Comerica, Inc. 196 11,466
Corestates Financial Corp. 379 20,419
Fifth Third Bancorp 179 12,530
First Bank Systems, Inc. 240 17,490
First Chicago NBD Corp. 539 31,666
First Union Corp. 470 35,896
Golden West Financial Corp. 97 6,547
Great Western Financial Corp. 232 7,221
KeyCorp 195 10,213
MBNA Corp. 379 15,302
Mellon Bank Corp. 228 16,473
National City Corp. 378 17,530
Nationsbank Corp. 497 51,502
Norwest Corp. 631 29,499
PNC Bank Corp. 580 22,910
Republic New York Corp. 93 8,207
SunTrust Banks, Inc. 380 19,285
U.S. Bancorp 263 11,243
Wachovia Corp. 284 17,040
Wells Fargo & Co. 161 45,825
749,790
Beverages (2.3%):
Anheuser Busch Company, Inc. 846 35,849
Brown Forman Corp., Class B 116 5,394
Coca Cola Co. 4,253 217,435
Coors Adolph Co., Class B 64 1,272
Pepsico, Inc. 2,672 79,826
Seagram Co. Ltd. 639 26,119
365,895
Broadcasting (0.1%):
U.S. West Media Group<F2> 1,057 20,215
Brokerage Services (0.5%):
Merrill Lynch & Co. Inc. 288 23,112
J.P. Morgan & Co., Inc. 317 29,917
Morgan Stanley Group, Inc. 258 15,512
Salomon Brothers, Inc. 178 8,121
76,662
Building Materials (0.5%):
Armstrong World Industries, Inc. 61 4,590
Centex Corp. 47 1,692
Crane Co. 50 2,337
Fleetwood Enterprises, Inc. 61 1,861
Kaufman & Broad Home Corp. 65 837
Masco Corp. 274 10,001
Monsanto Co. 1,000 39,750
Morton International, Inc. 243 9,811
Owens Corning 86 3,687
Pulte Corp. 41 1,256
75,822
Chemicals (1.6%):
Air Products & Chemicals, Inc. 189 13,136
Avery Dennison Corp. 90 6,356
Dow Chemical Co. 419 35,091
E.I. du Pont de Nemours Co. 956 90,103
Eastman Chemical Co. 133 7,598
Ecolab, Inc. 108 4,199
FMC Corp.<F2> 61 4,712
W.R. Grace & Co. 160 8,460
Great Lakes Chemical Corp. 108 5,792
Hercules Inc. 182 8,827
Mallinckrodt, Inc. 125 5,500
Nalco Chemical Co. 114 4,346
PPG Industries, Inc. 318 19,477
Praxair, Inc. 265 12,886
Rohm & Haas Co. 110 8,759
Sigma-Aldrich Corp. 84 5,250
Union Carbide Corp. 220 10,147
250,639
Commercial Services (0.1%):
ACNielsen Corp.<F2> 96 1,668
CUC International, Inc. 579 15,271
16,939
Computers & Peripherals (3.0%):
3Com Corp.<F2> 287 21,561
Amdahl Corp.<F2> 205 2,434
Apple Computer, Inc. 211 5,090
Bay Networks, Inc.<F2> 320 8,560
Cabletron Systems, Inc. 250 10,094
Ceridian Corp.<F2> 116 5,583
Cisco Systems, Inc. 1,039 70,522
Compaq Computer Corp.<F2> 459 36,376
Computer Sciences Corp.<F2> 111 8,727
Data General Corp.<F2> 66 965
Dell Computer, Inc. 111 11,280
Digital Equipment Corp.<F2> 264 9,702
EMC Corp.<F2> 392 12,642
Hewlett Packard Corp. 1,741 93,796
Integraph Corp.<F2> 79 721
International Business
Machines Corp. 901 143,597
Seagate Technology, Inc.<F2> 300 11,850
Silicon Graphics, Inc.<F2> 292 5,804
Sun Microsystems, Inc.<F2> 312 18,174
Tandem Computers, Inc.<F2> 200 2,725
Unisys Corp.<F2> 294 2,242
482,445
Construction (0.1%):
Case Corp. 122 6,405
Fluor Corp. 142 9,656
Foster Wheeler Corp. 67 2,420
18,481
Consumer Goods (1.1%):
American Greetings Corp. 126 3,560
Clorox Co. 86 8,966
Colgate Palmolive, Inc. 250 23,156
Jostens, Inc. 64 1,360
Procter & Gamble Co. 1,168 127,020
Sherwin Williams Co. 144 8,172
172,234
Containers (0.2%):
Ball Corp. 51 1,249
Bemis, Inc. 89 3,171
Crown Cork & Seal, Inc. 217 11,501
Newell Co. 269 8,339
Rubbermaid, Inc. 255 6,120
Stone Container Corp. 168 2,583
Tupperware Corp. 105 5,565
38,528
Cosmetics & Related (0.5%):
Alberto Culver Co. 46 2,185
Avon Products, Inc. 226 12,599
Gillette Co. 760 56,050
International Flavor
& Fragance, Inc. 188 8,554
79,388
Electronic & Electrical--General (3.4%):
Advanced Micro Devices<F2> 230 5,577
AMP, Inc. 374 14,305
Andrew Corp. 102 5,903
Cooper Industries, Inc. 183 7,595
DSC Communications Corp.<F2> 198 3,564
EG&G Inc. 80 1,460
Emerson Electric Co. 381 37,386
General Public Utilities Corp. 204 6,860
General Electric Co. 2,818 293,072
General Instrument Corp.<F2> 231 5,111
General Signal Corp. 84 3,622
W.W. Grainger, Inc. 86 6,837
Harris Corp. 65 4,453
Honeywell Inc. 216 14,823
Johnson Controls Inc. 70 5,425
Motorola, Inc. 1,010 55,929
National Semiconductor Corp.<F2> 234 5,733
Raytheon Co. 403 20,603
Tandy Corp. 101 4,255
Tektronix, Inc. 55 2,681
Texas Instruments, Inc. 322 20,527
Thomas & Betts Corp. 67 3,032
Westinghouse Electric Corp. 717 13,444
542,197
Entertainment (0.7%):
Bally Entertainment<F2> 86 2,505
Brunswick Corp. 166 4,233
Harrahs Entertainment<F2> 174 3,088
Hasbro, Inc. 146 6,004
ITT Corp.<F2> 199 9,179
King World Productions<F2> 64 2,440
Walt Disney Co. 1,157 85,329
112,778
Environmental Control (0.0%):
Laidlaw, Inc., Class B 525 6,431
Financial Services (1.7%):
H.F. Ahmanson & Co. 184 6,072
American Express Co. 809 42,270
Automatic Data Processing, Inc. 493 21,137
Beneficial Corp. 90 5,591
Dean Witter Discover & Co. 279 19,077
Federal Home Loan
Mortgage Corp. 304 34,732
Federal National Mortgage Assoc. 1,863 76,849
Fleet Financial Group 446 24,697
Green Tree Financial Corp. 233 9,757
Household International, Inc. 165 15,634
Transamerica Corp. 112 8,890
264,706
Food Distributors & Wholesalers (0.3%):
Albertsons, Inc. 429 14,961
Fleming Companies, Inc. 64 1,048
Great Altantic & Pacific Tea, Inc. 64 2,096
Kroger Co. 214 9,871
Supervalu, Inc. 114 3,377
Sysco Corp. 309 10,545
Winn Dixie Stores, Inc. 257 8,642
50,540
Food Processing & Packaging (1.6%):
Archer Daniels Midland Co.<F2> 930 20,460
CPC International, Inc. 247 20,563
Campbell Soup Co. 394 32,554
Conagra, Inc. 415 22,047
General Mills, Inc. 269 17,082
H.J. Heinz Co. 630 23,861
Hershey Foods Corp. 259 12,918
Kellogg Co. 361 24,503
Pioneer Hi-Bred International, Inc. 140 9,765
Quaker Oats Co. 230 9,056
Ralston Purina Group 179 13,693
Sara Lee Corp. 827 32,460
Wm Wrigley Jr. Co. 197 11,500
250,462
Forest Products (1.0%):
Alco Standard Corp. 222 11,489
Boise Cascade Corp. 81 2,511
Champion International Corp. 161 6,923
Georgia Pacific Corp. 154 11,204
International Paper Co. 510 21,675
James River Corp. 144 4,608
Kimberly Clark Corp. 479 46,822
Louisiana Pacific Corp. 185 4,186
Mead Corp. 90 5,332
Moore Corp. Ltd. 169 3,549
Potlatch Corp. 49 2,168
Temple Inland, Inc. 92 4,945
Union Camp Corp. 116 5,698
Westvaco Corp. 172 4,859
Weyerhauser Co. 337 15,502
Willamette Industries, Inc. 92 6,256
157,727
Funeral Services (0.1%):
Service Corp. International 402 12,110
Health Care (0.3%):
Columbia HCA Healthcare Corp. 1,144 45,760
Humana, Inc.<F2> 275 5,191
50,951
Heavy Machinery--Industrial, Farm, Construction (0.5%):
Baker Hughes, Inc. 244 8,937
Caterpillar Tractor, Inc. 328 25,953
Deere & Co. 440 19,635
Harnischfeger Industries, Inc. 79 3,506
Ingersoll Rand Co. 185 8,602
McDermott International, Inc. 92 1,633
Tyco Laboratories, Inc. 258 14,125
82,391
Hospital & Nursing Equipment & Supplies (0.0%):
Bard C.R., Inc. 96 2,688
Hotels & Motels (0.2%):
Choice Hotels International, Inc.<F2> 106 1,630
HFS, Inc. 198 12,820
Hilton Hotels Corp. 327 9,565
Marriott International, Inc. 218 12,154
36,169
Household Goods (0.1%):
Maytag Corp. 172 3,290
Whirlpool Corp. 125 6,250
9,540
Industrial Components (0.1%):
Corning Glass Works 390 15,795
Insurance (2.6%):
Aetna, Inc 254 18,320
Alexander & Alexander
Services, Inc. 76 1,102
Allstate Corp. 759 45,730
American General Corp. 348 14,312
American International Group, Inc. 800 92,000
AON Corp. 183 11,140
Cigna Corp. 130 18,379
Chubb Corp. 297 16,112
General Re Corp. 135 22,781
ITT Hartford Group, Inc. 199 13,607
Jefferson Pilot Corp. 120 6,990
Lincoln National Corp. 176 9,482
Loews Corp. 195 18,086
MGIC Investment Corp. 97 7,263
Marsh & McLennan Cos., Inc. 123 13,945
Providian Corp. 159 8,506
Safeco Corp. 213 8,866
St. Paul Cos., Inc. 142 8,360
Torchmark Corp. 121 6,292
Travelers, Inc. 1,091 49,079
Unum Corp. 124 8,819
USF&G Corp. 201 4,020
United Healthcare 312 13,455
U.S. Life Corp. 58 1,791
418,437
Leisure (0.0%):
Nacco Industries, Inc. 15 716
Machine Tools (0.0%):
Cincinnati Milacron, Inc. 67 1,390
Giddings & Lewis, Inc. 58 682
2,072
Manufacturing--Capital Goods (0.6%):
Dover Corp. 194 10,355
Illinois Tool Works, Inc. 207 17,750
Minnesota Mining &
Manufacturing Co. 714 59,798
Pall Corp. 195 5,094
Parker-Hannifin Corp. 125 5,078
Trinova Corp. 47 1,715
99,790
Manufacturing--Consumer Goods (0.5%):
ITT Industries 201 4,698
Mattel, Inc. 466 14,388
Unilever N V 271 46,917
Western Atlas, Inc. 90 6,345
72,348
Mining (0.0%):
Santa Fe Pacific Gold Corp. 223 2,564
Miscellaneous Manufacturing (0.1%):
Briggs & Stratton Corp. 49 2,027
Millipore Corp. 73 2,984
National Service Industries, Inc. 80 2,800
Whitman Corp. 179 4,117
11,928
Medical Services (0.1%):
Beverly Enterprises, Inc.<F2> 168 2,226
Community Psychiatric
Centers, Inc.<F2> 50 450
Manor Care, Inc. 106 2,676
Tenet Healthcare Corp.<F2> 367 8,212
13,564
Medical Supplies (0.6%):
Bausch & Lomb, Inc. 96 3,564
Baxter International, Inc. 464 19,720
Becton Dickinson & Co. 211 8,862
Biomet, Inc. 197 3,250
Boston Scientific Corp.<F2> 301 17,571
Medtronic, Inc. 406 26,847
St. Jude Medical, Inc. 137 5,720
United States Surgical Corp. 105 4,213
89,747
Metals, Mining & Fabrication (0.4%):
Alcan Aluminum Ltd. 385 13,571
Allegheny Teledyne, Inc. 236 5,517
Asarco, Inc. 72 1,962
Cyprus Amax Minerals 157 3,886
Freeport-McMoran Copper
& Gold, Inc., Class B 332 10,458
Homestake Mining Co. 250 3,781
Inland Steel Industries, Inc. 82 1,527
Newmont Mining Corp. 168 8,043
Phelps Dodge Corp. 111 8,061
Reynolds Metals Co. 108 6,426
63,232
Primary Metal & Mineral Production (Other) (0.3%):
Armco, Inc.<F2> 181 815
Barrick Gold Corp. 608 18,240
Battle Mountain Gold Co. 225 1,631
Bethlehem Steel Corp.<F2> 188 1,692
Echo Bay Mines Ltd. 237 1,466
Englehard Corp. 245 4,777
Inco Ltd. 242 8,440
USX--U.S. Steel Group 143 4,308
41,369
Newspapers (0.3%):
Gannett Co., Inc. 238 18,683
Knight-Ridder, Inc. 162 6,804
New York Times Co., Class A 166 6,204
Times Mirror Co., Class A 176 9,218
Tribune Co. 104 8,996
49,905
Office Equipment & Supplies
(Non-Computer Related) (0.3%):
Pitney Bowes, Inc. 254 14,986
Xerox Corp. 553 27,166
42,152
Oil & Gas Exploration, Production & Services (5.9%):
Amerada Hess Corp. 157 9,243
Amoco Corp. 847 65,748
Ashland, Inc. 109 5,232
Atlantic Richfield Co. 273 37,981
Burlington Resource, Inc. 213 11,289
Chevron Corp. 1,113 74,571
Coastal Corp. 179 8,614
Columbia Gas System 92 5,946
Dresser Industries, Inc. 304 9,956
Eastern Enterprises 33 1,238
Enron Corp. 430 19,673
Enserch Corp. 116 2,712
Exxon Corp. 2,118 200,416
Halliburton Co. 200 12,050
Helmerich & Payne, Inc. 41 2,204
Kerr Mcgee Corp. 83 5,810
Louisana Land & Exploration Co. 58 3,466
Mobil Corp. 670 81,070
Noram Energy Corp. 233 3,611
Occidental Petroleum Corp. 550 13,200
Oneok, Inc. 45 1,237
Oryx Energy Co.<F2> 178 3,693
Panenergy Corp. 257 11,308
Pennzoil Co. 79 4,444
Phillips Petroleum Co. 449 20,261
Rowan Cos.<F2> 144 3,402
Royal Dutch Petroleum Co. 913 155,096
Sante Fe Energy Resources, Inc.<F2> 154 2,233
Schlumberger Ltd. 418 43,472
Sonat, Inc. 146 7,556
Sun Co., Inc. 125 3,125
Tenneco, Inc. 291 14,841
Texaco, Inc. 449 44,507
USX--Marathon Group 490 11,209
Union Pacific Resources 386 11,532
Unocal Corp. 423 17,237
Williams Co., Inc. 178 9,990
939,173
Pharmaceuticals (5.4%):
Abbott Laboratories 1,331 74,203
Allergan, Inc. 111 3,566
Alza Corp., Class A<F2> 142 4,012
American Home Products Corp. 1,084 69,647
Amgen, Inc.<F2> 451 27,455
Bristol-Myers Squibb Co. 856 97,370
Johnson & Johnson, Inc. 2,271 120,647
Eli Lilly & Co. 932 71,298
Merck & Co., Inc. 2,076 172,308
Meredith Corp. 46 2,369
Pfizer, Inc. 1,095 98,139
Pharmacia & Upjohn 866 33,449
Schering-Plough Corp. 628 44,745
Warner-Lambert Co. 461 32,961
852,169
Photography (0.3%):
Eastman Kodak Co. 575 46,575
Polaroid Corp. 77 3,282
49,857
Pollution Control Services
& Equipment (0.3%):
Browning-Ferris Industries, Inc. 362 9,729
Safety Kleen 98 1,556
WMX Technologies, Inc. 838 30,168
41,453
Precision Instruments & Related (0.0%):
Perkin Elmer Corp. 74 4,560
Publishing (0.5%):
Cognizant Corp. 289 9,971
Deluxe Corp. 139 4,309
R.R. Donnelley & Sons Co. 261 8,744
Dow Jones & Co., Inc. 165 5,734
Dun & Bradstreet Corp. 289 6,539
John H. Harland Co. 52 1,605
McGraw-Hill Cos., Inc. 169 7,689
Time Warner, Inc. 927 37,775
82,366
Radio & Television (0.3%):
Comcast, Class A Special Shares 558 9,346
Tele-Communications, Inc.,
Class A<F2> 1,116 15,066
Viacom, Class B<F2> 609 22,990
47,402
Railroad & Railroad Holding Companies (0.6%):
Burlington Northern/Santa Fe, Inc. 259 23,278
CSX Corp. 360 16,830
Conrail, Inc. 138 13,420
Norfolk Southern Corp. 215 19,350
Union Pacific Corp. 392 22,834
95,712
Restaurants (0.4%):
Darden Restaurants, Inc. 268 2,311
Luby's Cafeterias, Inc. 40 880
McDonald's Corp. 1,193 55,773
Ryans Family Steak Houses, Inc.<F2> 87 609
Shoney's, Inc.<F2> 84 693
Wendy's International, Inc. 219 4,681
64,947
Retail (1.8%):
American Stores Co. 248 9,889
Charming Shoppes, Inc.<F2> 176 902
Dayton Hudson Corp. 367 14,267
Dillard Department Stores, Inc.,
Class A 192 5,880
Federated Department
Stores, Inc.<F2> 354 12,080
Harcourt General, Inc. 123 6,719
K-Mart Corp. 828 9,212
Longs Drug Stores Corp. 33 1,654
Lowes Cos., Inc. 283 11,497
May Department Stores Co. 426 20,768
Mercantile Stores, Inc. 61 3,065
Nordstrom, Inc. 137 5,959
J. C. Penney 384 20,640
Price/Costco, Inc.<F2> 334 7,765
Rite Aid Corp. 142 5,627
Sears & Roebuck Co. 667 33,183
WalMart Stores, Inc. 3,912 99,756
Walgreen Co. 419 17,493
Woolworth Corp.<F2> 225 5,400
291,756
Retail--Specialty Stores (0.9%):
CVS Corp. 179 7,361
Circuit City Stores, Inc. 167 5,574
Footstar, Inc.<F2> 34 697
The Gap, Inc. 488 15,677
Giant Food, Inc. 102 3,443
Home Depot, Inc. 816 42,534
The Limited, Inc. 461 8,298
Nike, Inc. 488 27,755
Reebok International Ltd. 98 3,724
Stride Rite Corp. 84 840
TJX Companies, Inc. 123 5,550
Toys R Us, Inc.<F2> 466 16,077
137,530
Rubber & Rubber Products Including Tires (0.1%):
Cooper Tire & Rubber Co. 142 2,911
B.F. Goodrich, Inc. 91 4,084
Goodyear Tire & Rubber Co. 264 12,804
19,799
Semiconductors (1.3%):
Applied Materials, Inc.<F2> 305 11,628
Intel Corp. 1,401 177,752
LSI Logic Corp.<F2> 219 6,598
Micron Technology, Inc. 355 11,759
207,737
Software & Computer Services (1.9%):
Autodesk Inc. 78 2,184
Computer Associates
International, Inc. 619 40,699
First Data Corp. 760 30,305
Microsoft Corp.<F2> 1,019 159,856
Novell, Inc.<F2> 603 6,633
Oracle Systems Corp.<F2> 1,116 54,684
Shared Medical Systems 39 1,940
296,301
Steel (0.1%):
Nucor Corp. 148 8,047
Worthington Industries, Inc. 154 3,061
11,108
Tax Return Preparation (0.0%):
H & R Block, Inc. 175 5,119
Textile Manufacturing (0.1%):
Fruit of the Loom, Inc.<F2> 129 4,596
Russell Corp. 65 1,869
Springs Industries Inc., Class A 33 1,534
VF Corp. 108 7,330
15,329
Tobacco & Tobacco Products (1.1%):
American Brands, Inc. 291 13,895
Philip Morris Cos., Inc. 1,397 144,066
UST, Inc. 321 10,473
168,434
Tools & Hardware Manufacturing (0.1%):
Black & Decker Corp. 149 5,643
Snap On Tools, Inc. 101 3,661
Stanley Works 151 4,455
Timken Co. 52 2,373
16,132
Transportation Leasing & Trucking (0.1%):
Caliber System, Inc. 67 1,298
Consolidated Freightways, Inc. 73 1,761
Federal Express Corp.<F2> 192 8,496
Ryder Systems, Inc. 138 4,192
15,747
Utilities--Electric (1.8%):
American Electric Power Co. 318 13,197
Baltimore Gas & Electric Co. 250 6,969
Carolina Power & Light Co. 258 9,449
Central & South West Corp. 357 9,550
Cinergy Corp. 268 8,978
Consolidated Edison Co. NY, Inc. 401 11,629
Detroit Edison--DTE Energy Co. 246 7,872
Dominion Resources 303 11,552
Duke Power Co. 345 15,999
Edison International 748 14,866
Entergy Corp. 389 10,552
FPL Group, Inc. 312 14,391
Houston Industries 440 9,680
Niagara Mohawk Power Corp.<F2> 245 2,144
Northern States Power Co.
Minnesota 117 5,513
Ohio Edison Co. 258 5,934
Peco Energy Co. 378 9,639
PP&L Resources, Inc. 274 6,268
Pacific Gas & Electric Co. 709 17,105
Pacificorp 500 10,500
Peoples Energy Corp. 58 2,102
Public Service Enterprise GP 416 11,908
Raychem Corp. 75 6,394
Southern Co. 1,149 25,565
Texas Utilities Co. 382 15,089
Unicom Corp. 366 9,745
Union Electric Co. 173 6,877
279,467
Utilities--Natural Gas (0.1%):
Consolidated Natural Gas 161 9,197
Nicor, Inc. 85 3,135
Pacific Enterprises 144 4,410
16,742
Utilities--Telecommunications (4.4%):
AT&T Corp. 2,749 107,898
Airtouch Communications<F2> 850 21,781
Alltel Corp. 322 10,264
Ameritech Corp. 938 55,225
Bell Atlantic Corp. 746 46,905
Bellsouth Corp. 1,694 68,395
GTE Corp. 1,651 74,089
Lucent Technologies, Inc. 1,081 55,401
MCI Telecommunications Corp. 795 24,248
Northern Telecom Ltd. 440 28,930
Nynex Corp. 747 34,642
Pacific Telesis Group 730 27,010
SBC Communications 1,039 54,677
Scientific-Atlanta, Inc. 131 2,030
Sprint Corp. 735 30,778
Tellabs<F2> 300 11,925
U.S. West, Inc. 815 25,469
Worldcom, Inc.<F2> 661 15,286
694,953
Total Common Stocks
(cost $8,780,455) $ 9,737,389
COMMERCIAL PAPER (37.6%):
Automotive (3.1%):
Ford Motor Credit Corp.,
5.28%, 12/3/96 $ 500,000 $ 500,000
Electrical & Electronic (20.3%):
General Electric Capital Corp.,
5.72%, 12/2/96 3,233,195 3,233,195
Financial Services (5.7%):
American Express Credit Corp.,
5.27%, 12/3/96 500,000 500,000
Heller Financial Corp.,
5.28%, 12/9/96 400,000 400,000
900,000
Oil & Gas Exploration
Production & Services (3.1%):
Chevron, 5.28%, 12/3/96 500,000 500,000
Retail Stores (2.5%):
Sears Acceptance Corp.,
5.29%, 12/9/96 $ 400,000 $ 400,000
Transportation & Shipping (2.8%):
Transamerica, 5.50%, 12/3/96 450,000 449,863
Total Commercial Paper
(cost $5,983,058) 5,983,058
GOVERNMENT SECURITIES (1.0%):
United States Treasury Bill,
12/19/96<F3> 155,000 154,596
Total Government Securities
(cost $154,608) 154,596
Total Investments
(cost $14,918,121) (99.7%) 15,875,043
Other assets less liabilities (0.3%) 48,952
TOTAL (100.0%) $15,923,995
<FN>
Percentages are based on net assets of $15,923,995
<F1> Represents cost for federal income tax purposes and differs from value by net unrealized appreciation of securities as
follows:
Unrealized appreciation $1,047,373
Unrealized depreciation (90,451)
Net unrealized appreciation $ 956,922
<F2> Non-income producing security
<F3> Serves as collateral for futures contracts
</TABLE>
At November 30, 1996, the Portfolio's open futures contracts were as follows:
<TABLE>
<CAPTION>
Open Unrealized
# of Positions Appreciation
Contracts Contract Type (000) (000)
<S> <C> <C> <C>
12 Long, Standard & Poor's 500 Index
Futures Contract, expiring December 19, 1996 $4,166 $383
</TABLE>
See accompanying Notes to Financial Statements
<TABLE>
November 30, 1996
KEY STOCK INDEX FUND
Statement of Assets and Liabilities
<CAPTION>
<S> <C>
ASSETS
Investments, at value (cost $14,918,121) $15,875,043
Dividend and interest receivable 25,156
Receivable for variation margin on future contracts 12,860
Receivable from Adviser 14,390
Deferred organization costs 21,400
Prepaid expenses and other assets 9,344
Total Assets 15,958,193
LIABILITIES
Accrued expenses and other liabilities:
Custodian fees 9,972
Accounting and transfer agent fees 10,115
Legal and Audit fees 12,908
Printing fees 1,009
Other liabilities 194
Total liabilities 34,198
NET ASSETS--Applicable for 1,427,076 shares of capital stock
outstanding (1 billion shares authorized) $15,923,995
NET ASSETS
Paid in Capital 14,497,941
Undistributed net investment income 69,780
Net unrealized appreciation/(depreciation) on investments 956,922
Net unrealized appreciation/(depreciation) on futures 383,495
Accumulated undistributed net realized gains (losses)
from investment transactions 15,857
NET ASSETS $15,923,995
NET ASSET VALUE--OFFERING AND REDEMPTION PRICE PER SHARE $ 11.16
</TABLE>
<TABLE>
For the Period Ended November 30, 1996<F1>
KEY STOCK INDEX FUND
Statement of Operations
<CAPTION>
<S> <C>
INVESTMENT INCOME
Dividend income (net of foreign withholding tax of $418) $ 54,591
Interest income 68,168
Total Income 122,759
EXPENSES
Investment advisory fees--Note 4 3,684
Administration fees--Note 4 5,526
Accounting fees--Note 4 30,526
Custodian fees--Note 4 38,081
Legal and audit fees 23,112
Organization costs 2,409
Trustees' fees and expenses 1,160
Transfer agent fees 2,976
Registration and filing fees 11,671
Printing fees 1,030
Other expenses 195
Total expenses before expense reimbursements 120,370
Less: Expense waivers and reimbursements--Note 4 (120,370)
Net Expenses 0
NET INVESTMENT INCOME 122,759
REALIZED GAINS/(LOSSES) FROM INVESTMENTS
Net realized gains/(losses) from investment transactions 15,857
Net change in unrealized appreciation/(depreciation)
on investments 956,922
Net change in unrealized appreciation/(depreciation)
on futures 383,495
Net realized/unrealized gains on investments 1,356,274
CHANGE IN NET ASSETS RESULTING FROM OPERATIONS $1,479,033
<FN>
<F1>For the period July 1, 1996 (commencement of operations) through November
30, 1996
</TABLE>
See Accompanying Notes to Financial Statements
<TABLE>
For the Period Ended November 30, 1996<F1>
KEY STOCK INDEX FUND
Statement of Changes in Net Assets
<CAPTION>
<S> <C>
FROM INVESTMENT ACTIVITIES
Operations:
Net investment income $ 122,759
Net realized gains/(losses) from investment transactions 15,857
Net change in unrealized appreciation/(depreciation)
from investments 956,922
Net change in unrealized appreciation/(depreciation)
on futures 383,495
Change in net assets resulting from operations 1,479,033
DIVIDENDS TO SHAREHOLDERS
From net investment income (52,979)
CAPITAL STOCK TRANSACTIONS
Proceeds from shares issued 18,614,362
Dividends reinvested 52,979
Cost of shares redeemed (4,169,400)
Change in net assets from capital stock transactions 14,497,941
Change in net assets 15,923,995
NET ASSETS
Beginning of period 0
End of period (including $69,780 undistributed net
investment income) $15,923,995
SHARE TRANSACTIONS
Issued 1,822,175
Reinvested 5,225
Redeemed (400,324)
Change in shares 1,427,076
<FN>
<F1>For the period July 1, 1996 (commencement of operations) through November
30, 1996
</TABLE>
See Accompanying Notes to Financial Statements
<TABLE>
November 30, 1996<F2>
KEY STOCK INDEX FUND
Financial Highlights
<CAPTION>
<S> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $ 10.00
Investment Activities:
Net investment income 0.11
Net realized and unrealized gain/(losses)
on investments and futures 1.11
Total from Investment Activities 1.22
Distributions:
Net investment income (0.06)
NET ASSET VALUE, END OF PERIOD $ 11.16
Total Return 12.29%<F3>
RATIOS/SUPPLEMENTAL DATA
Net Assets, End of Period (000) $15,924
Ratio of expenses to average net assets 0.00%<F4>
Ratio of net investment income to average net assets 3.33%<F4>
Ratio of expenses to average net assets<F1> 3.27%<F4>
Ratio of net investment income to average net assets<F1> 0.06%<F4>
Portfolio Turnover 0.60%<F3>
Average Commission Rate per share $0.0166
<FN>
<F1>-During the period, all fees were voluntarily waived and all expenses
were reimbursed. If such voluntary fee reductions and expense reimbursements
had not occurred, the ratios would have been as indicated.
<F2> For the period July 1, 1996 (commencement of operations) through
November 30, 1996.
<F3>Not annualized.
<F4>Annualized.
</TABLE>
November 30, 1996
KEY STOCK INDEX FUND
Notes to Financial Statements
NOTE 1
Organization
Key Mutual Funds (the "Company") is registered under the Investment Company
Act of 1940, as amended, (the "1940 Act") is 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 investment company currently
issuing capital stock of several different investment portfolios of which
only the Key Stock Index Fund (the "Fund") is included in this annual
report. The Company has authorized one billion shares of $0.01 par value
capital stock for this Fund. The Fund commenced operations on July 1, 1996.
The investment objective of the Key Stock Index Fund is to seek to provide
long-term capital appreciation by attempting to match the investment
performance of the Standard & Poor's Composite Stock Index (the "S&P 500" or
the "Index").
NOTE 2
Significant Accounting Policies
The following is a summary of significant accounting policies 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 management to make estimates and assumptions
that affect the reported amounts of assets and liabilities at the date of
the financial statements and the reported amounts of income and expenses for
the period. Actual results could differ from those estimates.
(a) Investment Valuation
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 price. Listed debt securities are valued at the mean between
the most recent bid and asked price. Securities for which quotations are not
readily available and any other assets are valued at fair value as
determined in good faith under the supervision of the Board of Directors.
Short-term investments with maturities of sixty days or less are valued at
amortized cost, which approximates market value.
(b) Securities Transactions and Investment Income
Securities transactions are accounted for on the date the security is
purchased or sold (trade date). Interest income is recognized on the accrual
basis and includes, where applicable, the pro rata amortization of premium
or accretion of discount. Dividend income is recorded on the ex-dividend
date. Gains or losses realized on sales of securities are determined by
using the specific identification method.
(c) Repurchase Agreements
The Fund may acquire repurchase agreements from financial institutions such
as banks and broker-dealers which the Fund's investment adviser deems
creditworthy under guidelines approved by the Board of Directors, subject to
the seller's agreement to repurchase such securities at a mutually agreed-
upon date and price. The repurchase price generally equals the price paid by
the Fund plus interest negotiated on the basis of current short-term rates,
which may be more or less than the rate on the underlying Fund securities.
The seller, under a repurchase agreement, is required to maintain the value
of collateral held pursuant to the agreement at not less than the repurchase
price (including accrued interest). Securities subject to repurchase
agreements are held by the Fund's custodian or another qualified custodian
or in the Federal Reserve/Treasury book-entry system.
(d) Futures Contracts
The Key Stock Index Fund may enter into futures contracts based on an index,
purchase or sell options on any such futures contracts and engage in related
closing transactions. A futures contract on a securities index is an
agreement obligating either party to pay, and entitling the other party to
receive, while the contract is outstanding, cash payments based on the level
of a specified securities index. The Fund may enter into futures contracts
to fully participate in the price movement of the S&P 500 Composite Index
while the fund maintains cash equivalent securities awaiting investment in
S&P stocks or for liquidity to meet redemption requests. Futures
transactions involve brokerage costs and require the Fund to segregate
assets to cover contracts that would require it to purchase securities. The
Fund may lose the expected benefit of futures transactions if securities
prices change in an unanticipated manner. Such unanticipated changes may
also result in lower overall performance than if the Fund had not entered
into any futures transactions. In addition, the value of the Fund's futures
positions may not prove to be perfectly or even highly correlated with the
value of its portfolio securities, limiting the Fund's ability to hedge
effectively against market risk and giving rise to additional risks. There
is no assurance of liquidity in the secondary market for purposes of closing
out futures positions.
(e) Securities Purchased on a When-Issued Basis
The Fund may purchase securities on a "when-issued" basis. When-issued
securities are securities purchased for delivery beyond the normal
settlement date at a stated price and/or yield, thereby, involving the risk
that the price and/or yield obtained may be more or less than those
available in the market when delivery takes place. At the time the Fund
makes the commitment to purchase a security on a when-issued basis, the Fund
records the transaction and reflects the value of the security in
determining net asset value. Normally, the settlement date occurs within one
month of the purchase. A segregated account is established and the Fund
maintains cash and/or marketable securities at least equal in value to
commitments for when-issued securities. Securities purchased on a when-
issued basis do not earn income until settlement date.
(f) Dividends to Shareholders
Dividends from net investment income are declared and paid quarterly.
Distributable net realized capital gains, if any, are declared and
distributed at least annually.
Dividends from net investment income and from net realized capital gains are
determined in accordance with federal income tax regulations which may
differ from generally accepted accounting principles.
(g) Federal Income Taxes
It is the policy of the Fund to qualify as a regulated investment company by
complying with the provisions available to certain investment companies, as
defined in applicable sections of the Internal Revenue Code, and to make
distributions of net investment income and net realized capital gains
sufficient to relieve it from all, or substantially all, federal income
taxes.
(h) Organizational Expense
Costs incurred in connection with the organization of the Fund amounted to
approximately $23,800 which were paid by the distributor on behalf of the
Fund. The Fund will reimburse the distributor for such expenses. The
organization costs are being amortized on a straight-line basis over a
period five years from the date the Fund commenced operations.
(i) Other
Expenses that are directly related to the Fund are charged directly to the
Fund. Other operating expenses of the Funds are prorated to each Fund on the
basis of relative net assets or other appropriate basis.
NOTE 3
Purchases and Sales of Securities
Purchases and sales of securities (excluding short-term securities) for the
period ended November 30, 1996 were as follows:
<TABLE>
<CAPTION>
Purchases Sales
<S> <C> <C>
Key Stock Index Fund $8,817,695 $37,639
</TABLE>
NOTE 4
Investment Advisory and Administration Fees
and Other Transactions with Affiliates
Investment advisory services are provided to the Fund by KeyCorp Mutual Fund
Advisers, Inc. ("KMFA"), a wholly-owned subsidiary of KeyCorp Asset
Management Holdings, Inc., which is a wholly owned subsidiary of KeyBank
National Association ("Key"), formerly Society National Bank, N. A., a
wholly owned subsidiary of KeyCorp. Under the terms of the investment
advisory agreements, the Adviser is entitled to receive fees equal to 0.10%
of the average daily net assets of the Fund. Key Trust Company of Ohio, N.
A. ("Key Trust") a subsidiary of KeyCorp and an affiliate of KMFA, is the
custodian for the Fund's cash and securities. Custodian fees, as reflected
in the accompanying statements of operations, represent fees paid by the
Fund to Key Trust for services it performs as custodian, in addition to
reimbursement of actual out-of-pocket expenses incurred as disclosed in the
statement of operations.
BISYS Fund Services Limited Partnership, operating under the name BISYS Fund
Services (the "Administrator"), an indirect, wholly-owned subsidiary of The
BISYS Group, Inc. ("BISYS") serves as the administrator to the Fund and as
the distributor of the Fund. Certain officers of the Fund are affiliated
with BISYS. Such officers receive no direct payments or fees from the Fund
for serving as officers of the Fund.
Under the terms of the administration agreement, the Administrator's fee is
computed at the annual rate of 0.15% of the average daily net assets of the
Fund. BISYS Fund Services, Ohio, Inc. (the Company), an affiliate of BISYS,
serves the Fund as Mutual Fund Accountant. Under the terms of the Fund
Accounting Agreement, the Company's fee is based on a percentage of average
daily net assets.
Fees may be voluntarily reduced to assist the Fund in maintaining
competitive expense ratios.
Additional information regarding related party transactions is as follows
for the year ended November 30, 1996:
<TABLE>
<CAPTION>
Investment Administration Fees and
Advisory Fees Fees Expenses
Voluntarily Voluntarily Reimbursed by
Reduced Reduced the distributor
<S> <C> <C>
$3,684 $5,526 $111,160
</TABLE>
See accompanying Notes to Financial Statements
KEY STOCK INDEX FUND
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 Stock Index
Fund, one of the portfolios of Key Mutual Funds (SBSF Funds, Inc.)
(hereafter referred to as the "Fund") at November 30, 1996, and the results
of its operations, the changes in its net assets and the financial
highlights for the period July 1, 1996 (commencement of operations) through
November 30, 1996, 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 audit. We conducted our audit 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 audit,
which included confirmation of securities owned at November 30, 1996 by
correspondence with the custodian and brokers, provides a reasonable basis
for the opinion expressed above.
/s/ Price Waterhouse LLP
PRICE WATERHOUSE LLP
New York, New York
January 15, 1997
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