SEMI-ANNUAL REPORT
May 31, 1997
Key Stock
Index Fund
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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 Stock Index 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.
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KeyFunds
KEY STOCK INDEX FUND
Investment
Review and
Economic
Outlook
The stock market has enjoyed a spectacular rise since early April
of this year, thanks to near-perfect conditions for financial assets.
Economic growth has been satisfactory, fueling healthy job creation
and driving unemployment to its lowest level since the early 1970s.
Household incomes have risen and consumer confidence has soared. Most
encouraging to investors, inflation has remained well-behaved, exhibiting
none of the signs of acceleration typical of such robust economic
conditions.
This idealized version of capitalism just didn't happen overnight.
It represents the confluence of hundreds (if not thousands) of minor
variables that have been tweaked by various shifts in policy, management
techniques and consumer attitudes over the years. This fine tuning
has been helped enormously by the great strides made in technology
and computing, which has allowed the various key players to gather
and analyze mountains of data about their respective fiefdoms, whether
they be executives of small companies struggling to break into the
big leagues, or the Chairman of the Federal Reserve steering the monetary
policy of the entire country.
Technology has also had a big role in keeping inflation at bay, even
as the economy has expanded beyond the point where historically pricing
pressures have become noticeable. Most obviously, it has helped improve
productivity, but the impact of technology goes beyond machines that
can make three widgets in the time it used to take to make one. Combined
with profit-driven managements who are willing to do anything and
lay off anyone to enhance their companies' bottom lines, technology
has influenced the attitude of workers, many of whom fear that their
job could be sacrificed at the altar of technology-driven margin-enhancing
change. Fed Chairman Alan Greenspan has referred to this as one of
the primary factors explaining the history-defying low level of inflation
in the face of declining unemployment.
Though unemployment is now just 5%, and some companies are having
to pay up for talent to fill specific positions, there seems to be
little in the way of systematic wage pressure, and most companies
are not experiencing much trouble filling positions as they open up.
Capacity utilization is stuck at around 83%-84%, a little below the
85% level at which point things have historically gotten sticky. Part
of the reason is that companies have been using some of their excess
cash flow to build new plants, as well as to modernize old ones by
installing new technology.
With so many people working, income growth has been OK and confidence
has been improving, which has helped keep consumption rising, even
though it would be hard to argue that there is any "pent-up" demand
left anywhere for anything. Production has also been up in order to
meet consumer demand, and while there was an abundance of inventory-building
in the first quarter (which added considerably to the almost unbelievable
5.9% real growth posted in that period), inventories are far from
out of hand (thank technology again for giving managers the tools
to perfect just-in-time techniques that have squeezed inventory-to-sales
ratios down to record low levels). Stir in a strong dollar and favorably
priced oil, and the low inflation story is just about complete. In
econo-speak, this has been a virtuous cycle, one that has managed
to avoid the problems and excesses of past periods of prosperity.
Examining corporate performance, one finds margins having risen to
mid-1960s levels, thanks once again to the cost-cutting efforts of
management across nearly the entire business spectrum. This has helped
fuel spectacular growth in earnings over the past five years, the
likes of which we've never seen before. Moreover, thanks to low inflation,
the "quality" of those earnings is better than it was a few years
ago. The shifting emphasis in our economy away from heavy industry
towards service and high technology may have permanently raised the
overall profitability of corporate America, since the latter have
traditionally enjoyed higher margins than the former.
This is especially true in the S&P 500; reviewing the substitutions
that have been made over the past several years reveals that the newcomers
have tended to be higher margin, higher growth companies than the
firms they've replaced, which introduces an upward bias in the composite's
valuation statistics. All of the merger activity that has taken place
over the years has also helped on the margin front, since such deals
tend to lead to reductions in redundant overhead and thus greater
profits to the combined entity when compared with the sum of the two
independent parts. History tells us that investors are willing to
pay a higher multiple for companies whose earnings are of higher quality
and derive from higher margins, so the expansion of margins is seen
as a doubly good thing.
The market's condition has been enhanced by a number of additional
macro/political/economic factors. Perhaps the most important of these
is the noteworthy reduction in the Federal budget deficit, which is
now estimated to be in the range of $60 to $75 billion and sinking
fast. Smaller deficits mean the government is issuing fewer bonds
to finance those deficits, and a smaller supply is a good thing in
the eyes of the bond market. One more thing worth noting: excluding
interest payments on debt already outstanding, the Federal government
is operating at a record surplus already. Many bond investors simply
reinvest their interest payments in the purchase of more bonds, so
that source of demand for bonds is unlikely to go away anytime soon.
Speaking of demand, foreign demand for US Treasury securities is also
on the rise. The apparent disarray in the European Community as per
its attempts to create a unified currency has likely led some offshore
investors to seek the relative safety and stability of the US, where
the political scene is calm and the economy is doing well. Once again,
greater demand, even if it proves temporary, meeting headlong with
decelerating growth in supply is the ideal setting for lower long-term
rates, and the bond market has indeed been very strong over the past
couple of months.
The bond market has not been the sole arena to host a surge in demand.
Following a brief lull, cash flows heading into equity mutual funds
have jumped once again in recent weeks, as investors have feared that
they may be missing one of the last great bull markets of their lives.
Corporations have also been active buyers of their own shares, utilizing
some of their abundant free cash (courtesy of those wide margins referred
to above). The recent pick-up in merger and acquisition activity completes
the demand trifecta, as both strategic and financial buyers have apparently
had money burning holes in their pockets.
Another plus for the stock market in recent weeks was the news of
a proposed cut in the capital gains tax rate, first announced in early
May. Although it raised the specter of a wave of selling by investors
eager to cash in some of their massive unrealized capital gains, such
selling has yet to materialize. Perhaps investors have read their
history books and have realized that stocks have tended to do well
in the couple of years after such tax cuts in the past, or perhaps
investors are reluctant to pay any taxes, even at the lower rate.
In any case, news of the cut has reinforced the increasingly compelling
case for smaller stocks, which have tended to be the best performers
of all following past reductions in the capital gains tax rate.*
With so much in its favor, we probably should not be surprised by
the market's surge. However, we are concerned that in their euphoria,
investors have overlooked valuation as they have poured ever more
money into stocks. By every measure we employ, equities are trading
at or near record high levels. While valuation by itself rarely causes
stocks to decline, and the longer term prospects for stocks remain
bright, such high prices leave little room for negative surprises,
and foster heightened volatility in the short run (witness the nervous
reaction of the stock market to comments by the Japanese prime Minister).
In such times, investors are wise to exercise extra care when constructing
their portfolios, and to remember that though past performance is
no indication of future results, diversification has historically
proven to be one of the best ways to preserve capital and to reduce
risk.
/s/ Charlie Crane
Charlie Crane
Chief Market Strategist
Key Asset Management Inc.
June 25, 1997
*Past performance is no guarantee of future results.
Note: The views expressed in the Investment Review and Economic Outlook
are through June 25, 1997 and are subject to change at any time based
on market, economic and other conditions.
<TABLE>
May 31, 1997 (Unaudited)
KEY STOCK INDEX FUND
Statement of Investments
<CAPTION>
SECURITY SHARES OR VALUE
DESCRIPTION PRINCIPAL AMOUNT
<S> <C> <C>
COMMON STOCKS (63.9%):
Advertising (0.0%):
Interpublic Group of Cos., Inc. 215 $ 12,873
Aerospace--Defense (1.3%):
AlliedSignal, Inc. 749 57,486
B.F. Goodrich, Inc. 142 6,106
Boeing Co. 949 99,882
General Dynamics Corp. 167 12,504
Lockheed Martin Corp. 510 47,749
McDonnell Douglas Corp. 562 36,179
Northrop Grumman Corp. 153 12,967
Raytheon Co. 625 29,844
United Technologies Corp. 628 50,475
353,192
Agriculture (0.1%):
Pioneer Hi-Bred
International, Inc. 218 15,205
Airlines (0.2%):
AMR Corp. Delaware<F2> 241 23,949
Delta Air Lines, Inc. 194 18,188
Southwest Airlines Co. 384 9,888
U.S. Airways Group, Inc.<F2> 170 5,907
57,932
Aluminum (0.2%):
Alcan Aluminum Ltd. 599 21,489
Aluminum Co. of America 459 33,794
Reynolds Metals Co. 169 11,471
66,754
Apparel--Footwear (0.3%):
Fruit of the Loom, Inc. Class A<F2> 204 7,115
Liz Claiborne, Inc. 189 8,623
Nike, Inc. 764 43,548
Reebok International Ltd. 147 6,027
Stride Rite Corp. 131 1,998
VF Corp. 169 13,203
80,514
Automobiles (1.1%):
Chrysler Corp. 1,860 59,055
Ford Motor Co. 3,139 117,713
General Motors Corp. 2,002 114,614
Navistar International Corp.<F2> 194 3,225
PACCAR, Inc. 204 9,231
303,838
Automotive Parts (0.2%):
Autoliv, Inc.<F2> 129 4,789
Cummins Engine Co., Inc. 104 6,630
Dana Corp. 270 9,754
Echlin, Inc. 165 5,507
Genuine Parts Co. 478 16,013
ITT Industries, Inc. 313 7,747
TRW, Inc. 333 17,815
68,255
Banks (3.7%):
Bank of New York Co., Inc. 1,039 44,287
BankAmerica Corp. 950 111,031
Bankers' Trust New York Corp. 216 18,279
Barnett Banks, Inc. 517 27,207
Chase Manhattan Corp. 1,162 109,809
Comerica, Inc. 286 17,875
First Chicago NBD Corp. 844 50,007
First Union Corp. 751 64,492
J.P. Morgan & Co., Inc. 490 52,675
Keycorp 597 32,462
MBNA Corp. 884 29,945
Mellon Bank Corp. 343 30,012
National City Corp. 592 30,488
NationsBank Corp. 1,940 114,218
Norwest Corp. 981 52,483
PNC Bank Corp. 888 37,185
Republic New York Corp. 146 14,564
SunTrust Banks, Inc. 591 31,545
U.S. Bancorp 400 24,550
Wachovia Corp. 437 26,602
Wells Fargo & Co. 245 64,558
984,274
Banks--Money Centers Regional (0.9%):
BankBoston Corp. 405 29,565
Citicorp 1,227 140,338
CoreStates Financial Corp. 379 31,302
Fleet Financial Group, Inc. 695 42,482
243,687
Banks--Outside Money Center (0.4%):
Banc One Corp. 1,132 48,959
Fifth Third Bancorp 280 21,630
First Bank Systems, Inc. 356 29,192
99,781
Beverages (2.6%):
Anheuser-Busch Cos., Inc. 1,322 56,681
Brown Forman Corp., Class B 183 9,356
Coca-Cola Co. 6,589 449,699
Coors Adolph Co., Class B 100 2,438
PepsiCo, Inc. 4,114 151,189
Seagram Co. Ltd. 982 39,525
708,888
Brokerage Services (0.4%):
Merrill Lynch & Co., Inc. 436 46,216
Morgan Stanley Group, Inc. 404 27,270
Salomon, Inc. 289 15,497
Schwab (Charles) Corp. 462 18,503
107,486
Building Materials (0.1%):
Armstrong World Industries, Inc. 109 7,412
Centex Corp. 76 3,031
Fleetwood Enterprises, Inc. 94 2,538
Kaufman & Broad Home Corp. 103 1,545
Masco Corp. 425 16,522
Owens Corning 138 5,761
Pulte Corp. 61 1,929
38,738
Chemicals--General (1.7%):
Air Products & Chemicals, Inc. 296 23,014
Dow Chemical Co. 643 53,610
E.I. du Pont de Nemours Co. 1,491 162,333
Eastman Chemical Co. 206 12,257
Englehard Corp. 381 8,239
FMC Corp.<F2> 98 7,056
Great Lakes Chemical Corp. 164 8,015
Hercules, Inc. 271 12,703
Mallinckrodt, Inc. 196 7,325
Monsanto Co. 1,557 68,508
Nalco Chemical Co. 178 6,608
PPG Industries, Inc. 486 28,249
Praxair, Inc. 414 21,787
Rohm & Haas Co. 169 14,576
Sigma-Aldrich Corp. 265 8,116
Union Carbide Corp. 337 15,755
W.R. Grace & Co. 189 9,875
468,026
Commercial Services (0.8%):
Automatic Data Processing, Inc. 773 37,974
CUC International, Inc.(b) 1,050 24,150
Ecolab, Inc. 171 7,118
Eli Lilly & Co. 1,461 135,873
Federal Express Corp.(b) 302 15,817
220,932
Computers & Peripherals (3.0%):
3Com Corp.<F2> 466 22,601
Amdahl Corp.<F2> 321 3,210
Apple Computer, Inc.<F2> 330 5,486
Bay Networks, Inc.<F2> 522 12,789
Cabletron Systems, Inc.<F2> 413 18,172
Cisco Systems, Inc.<F2> 1,741 117,953
Compaq Computer Corp.<F2> 717 77,615
Computer Sciences Corp.<F2> 203 15,707
Data General Corp.<F2> 106 2,266
Dell Computer, Inc.<F2> 464 52,200
Digital Equipment Corp.<F2> 416 14,924
EMC Corp.<F2> 616 24,563
Hewlett-Packard Co. 2,685 138,277
Intergraph Corp.<F2> 126 890
International Business
Machines Corp. 2,740 237,010
Seagate Technology, Inc.<F2> 655 26,609
Silicon Graphics, Inc.<F2> 467 8,815
Sun Microsystems, Inc.<F2> 975 31,444
Tandem Computers, Inc.<F2> 315 4,489
Unisys Corp.<F2> 463 3,183
818,203
Conglomerates (2.8%):
Corning, Inc. 605 30,477
Crane Co. 122 5,002
General Electric Co. 8,720 526,470
Minnesota Mining &
Manufacturing Co. 1,107 101,567
Morton International, Inc. 377 12,158
National Service Industries, Inc. 120 5,265
Tenneco, Inc. 452 20,227
Textron, Inc. 219 25,951
Westinghouse Electric Corp. 1,600 32,400
Whitman Corp. 275 6,634
766,151
Construction (0.1%):
Fluor Corp. 221 11,685
Foster Wheeler Corp. 108 4,185
15,870
Consumer Products (1.3%):
American Greetings Corp.
Class A 197 6,748
Clorox Co. 137 17,296
Colgate-Palmolive Co. 778 48,236
Jostens, Inc. 101 2,487
Newell Co. 421 16,103
Procter & Gamble Co. 1,799 248,037
338,907
Containers (0.2%):
Ball Corp. 81 2,359
Bemis, Inc. 139 5,560
Crown Cork & Seal, Inc. 340 19,805
Rubbermaid, Inc. 397 11,067
Stone Container Corp. 263 3,616
Tupperware Corp. 165 5,981
48,388
Cosmetics & Related (0.6%):
Alberto-Culver Co. Class B 148 4,218
Avon Products, Inc. 352 22,440
Gillette Co. 1,469 130,557
International Flavor &
Fragance, Inc. 292 12,958
170,173
Electrical Equipment (0.4%):
Emerson Electric Co. 1,184 63,936
General Instrument Corp.(b) 363 8,803
Johnson Controls, Inc. 220 9,323
Thomas & Betts Corp. 141 7,173
W.W. Grainger, Inc. 141 11,315
100,550
Electronic & Electrical--General (1.1%):
Advanced Micro Devices, Inc.<F2> 362 14,480
AMP, Inc. 581 23,894
EG&G Inc. 125 2,437
General Signal Corp. 132 5,560
Harris Corp. 102 9,040
Honeywell, Inc. 336 24,444
Motorola, Inc. 1,570 104,209
National Semiconductor Corp.<F2> 369 10,378
Rockwell International Corp. 580 37,410
Tandy Corp. 154 8,316
Tektronix, Inc. 87 4,992
Texas Instruments, Inc. 504 45,297
290,457
Entertainment (0.9%):
Brunswick Corp. 261 7,960
Harrah's Entertainment, Inc.<F2> 272 5,066
Hasbro, Inc. 342 9,918
King World Productions, Inc.<F2> 99 3,725
Loews Corp. 305 29,661
Viacom Inc., Class B<F2> 937 27,817
Walt Disney Co. 1,788 146,392
230,539
Financial & Insurance (0.0%):
MBIA, Inc. 114 12,241
Financial Services (2.2%):
American Express Co. 1,255 87,222
American General Corp. 539 23,851
Beneficial Corp. 143 9,188
Dean Witter Discover & Co. 851 35,104
Fannie Mae 2,892 126,163
Federal Home Loan
Mortgage Corp. 1,894 62,502
First Data Corp. 1,185 47,400
Golden West Financial Corp. 152 10,298
Great Western Financial Corp. 365 17,703
Green Tree Financial Corp. 364 12,740
H.F. Ahmanson & Co. 279 11,369
Household International, Inc. 257 25,250
Providian Corp. 248 14,849
TransAmerica Corp. 175 15,903
Travelers, Inc. 1,692 92,848
592,390
Food Distributors (0.4%):
Albertsons, Inc. 665 22,277
American Stores Co. 386 17,563
Fleming Cos., Inc. 100 1,900
Giant Food, Inc. 159 5,237
Great Altantic & Pacific Tea, Inc. 101 2,790
Kroger Co.<F2> 668 17,117
SUPERVALU, Inc. 177 5,907
Sysco Corp. 468 16,322
Winn-Dixie Stores, Inc. 398 15,224
104,337
Food Processing & Packaging (1.5%):
Archer-Daniels-Midland Co. 1,439 28,780
Campbell Soup Co. 1,238 56,948
ConAgra, Inc. 636 38,240
CPC International, Inc. 381 32,766
General Mills, Inc. 428 27,071
H.J. Heinz Co. 975 41,925
Hershey Foods Corp. 407 22,843
Kellogg Co. 558 41,152
Quaker Oats Co. 360 14,850
Ralston-Ralston Purina Group 282 24,041
Sara Lee Corp. 1,274 52,075
Wm. Wrigley Jr. Co. 308 18,249
398,940
Forest Products--Lumber & Paper (0.9%):
Boise Cascade Corp. 127 4,826
Champion International Corp. 253 12,492
Georgia Pacific Corp. 242 21,356
International Paper Co. 795 38,160
James River Corp. of Virginia 228 8,008
Kimberly-Clark Corp. 1,496 74,987
Louisiana Pacific Corp. 288 5,616
Mead Corp. 138 8,797
Potlatch Corp. 76 3,259
Temple-Inland, Inc. 147 8,894
Union Camp Corp. 184 9,660
Westvaco Corp. 270 8,438
Weyerhaeuser Co. 525 26,184
Willamette Industries, Inc. 146 10,877
241,554
Funeral Services (0.1%):
Service Corp. International 624 21,996
Health Care (0.3%):
Columbia/HCA Healthcare Corp. 1,778 65,119
Humana, Inc.<F2> 431 9,752
74,871
Heavy Machinery (0.4%):
Case Corp. 194 11,446
Caterpillar Tractor, Inc. 507 49,496
Deere & Co. 678 34,663
Harnischfeger Industries, Inc. 130 5,574
Ingersoll Rand Co. 290 15,805
McDermott International, Inc. 145 4,024
121,008
Hotels & Motels (0.3%):
HFS, Inc.<F2> 341 18,371
Hilton Hotels Corp. 654 18,476
ITT Corp.<F2> 308 18,365
Marriott International, Inc. 339 19,577
74,789
Household Goods--Appliances, Furnishings & Electronics (0.1%):
Maytag Corp. 265 7,089
Whirlpool Corp. 196 9,775
16,864
Industrial Goods & Services (0.1%):
Aeroquip-Vickers, Inc. 74 3,210
Dover Corp. 298 17,061
20,271
Insurance--Life (0.1%):
Jefferson Pilot Corp. 187 11,898
USLIFE Corp. 91 4,436
16,334
Insurance--Multi-Line (1.9%):
Aetna, Inc. 400 40,400
Allstate Corp. 1,177 86,657
American International
Group, Inc. 1,243 168,271
Aon Corp. 431 20,987
CIGNA Corp. 199 34,576
Conseco, Inc. 467 18,680
General Re Corp. 218 38,205
ITT Hartford Group, Inc. 311 24,258
Lincoln National Corp. 276 16,802
Marsh & McLennan Cos., Inc. 190 25,033
MGIC Investment Corp. 156 13,884
Safeco Corp. 334 14,529
Torchmark Corp. 186 12,206
USF&G Corp. 306 6,579
521,067
Insurance--Property, Casualty, Health (0.2%):
Chubb Corp. 461 28,121
St. Paul Cos., Inc. 218 15,614
UNUM Corp. 194 15,350
59,085
Machine Tools (0.0%):
Cincinnati Milacron, Inc. 106 2,451
Giddings & Lewis, Inc. 88 1,668
4,119
Manufacturing--Capital Goods (0.2%):
Cooper Industries, Inc. 320 16,320
Illinois Tool Works, Inc. 656 32,554
Parker-Hannifin Corp. 197 10,367
59,241
Manufacturing--Consumer Goods (0.1%):
Eaton Corp. 204 16,269
Mattel, Inc. 720 21,510
37,779
Miscellaneous Manufacturing (0.6%):
Briggs & Stratton Corp. 77 3,975
Millipore Corp. 115 4,960
NACCO Industries, Inc. 22 1,119
Pall Corp. 333 7,867
Thermo Electron Corp.<F2> 395 13,628
Tyco International Ltd. 442 28,067
Unilever N.V. 424 82,150
Western Atlas, Inc.<F2> 142 9,638
151,404
Medical Services (0.3%):
Beverly Enterprises, Inc.<F2> 263 3,715
HEALTHSOUTH Corp.<F2> 834 19,078
Manor Care, Inc. 166 4,751
Tenet Healthcare Corp.<F2> 798 21,945
United Healthcare Corp. 487 27,515
77,004
Medical Supplies (0.7%):
Alza Corp.<F2> 224 6,608
Bard C.R., Inc. 151 4,832
Bausch & Lomb, Inc. 147 5,917
Baxter International, Inc. 723 38,138
Becton Dickinson & Co. 326 16,056
Biomet, Inc. 303 5,662
Boston Scientific Corp.<F2> 492 26,261
Guidant Corp. 196 15,215
Medtronic, Inc. 636 47,064
St. Jude Medical, Inc. 214 7,249
United States Surgical Corp. 166 5,602
178,604
Metals--Fabrication (0.1%):
Phelps Dodge Corp. 172 14,383
Timken Co. 83 5,696
20,079
Mining (0.1%):
Asarco, Inc. 113 3,517
Cyprus Amax Minerals Co. 247 6,021
Inco Ltd. 446 14,718
24,256
Newspapers (0.4%):
Dow Jones & Co., Inc. 256 9,952
Gannett Co., Inc. 373 34,503
Knight-Ridder, Inc. 247 10,652
New York Times Co., Class A 256 11,792
Times Mirror Co., Class A 258 14,480
Tribune Co. 326 14,099
95,478
Office Equipment & Supplies (Non-Computer Related) (0.4%):
Avery Dennison Corp. 276 10,385
Deluxe Corp. 218 7,085
Ikon Office Solutions, Inc. 357 10,353
Moore Corp. Ltd. 264 5,874
Pitney Bowes, Inc. 393 27,608
Xerox Corp. 859 58,198
119,503
Oil & Gas Exploration, Production & Services (1.1%):
Amerada Hess Corp. 247 13,214
Ashland, Inc. 172 8,234
Burlington Resources, Inc. 331 15,391
Coastal Corp. 279 13,985
Columbia Gas System, Inc. 146 9,399
Enron Corp. 674 27,466
ENSERCH Corp. 184 3,933
Helmerich & Payne, Inc. 66 3,704
Kerr-McGee Corp. 128 8,287
Louisana Land & Exploration Co. 90 4,635
NorAm Energy Corp. 364 5,551
Occidental Petroleum Corp. 871 20,251
ONEOK, Inc. 72 2,178
Oryx Energy Co.<F2> 278 6,429
PanEnergy Corp. 400 18,700
Pennzoil Co. 123 6,811
Rowan Cos., Inc.<F2> 227 5,249
Sante Fe Energy Resources, Inc.<F2> 240 3,630
Sonat, Inc. 228 13,110
Sun Co., Inc. 192 5,736
Union Pacific Resources
Group, Inc. 661 19,086
Unocal Corp. 663 28,260
USX--Marathon Group 761 22,640
Williams Cos., Inc. 417 18,378
284,257
Oil--Integrated Companies (4.5%):
Amoco Corp. 1,317 117,707
Atlantic Richfield Co. 427 62,128
Chevron Corp. 1,728 120,960
Exxon Corp. 6,576 389,628
Mobil Corp. 1,043 145,890
Phillips Petroleum Co. 697 29,623
Royal Dutch Petroleum Co. ADR 1,420 277,255
Texaco, Inc. 700 76,388
1,219,579
Oilfield Services & Equipment (0.5%):
Baker Hughes, Inc. 385 14,437
Dresser Industries, Inc. 466 15,961
Halliburton Co. 332 25,689
Schlumberger Ltd. 652 77,670
133,757
Paints, Varnishes, Enamels (0.0%):
Sherwin-Williams Co. 452 13,560
Pharmaceuticals (5.3%):
Abbott Laboratories 2,057 129,591
Allergan, Inc. 173 5,125
American Home Products Corp. 1,691 128,939
Amgen, Inc. 700 46,812
Bristol-Myers Squibb Co. 2,652 194,590
Cardinal Health, Inc. 296 17,242
Cognizant Corp. 451 16,687
Johnson & Johnson 3,526 211,119
Merck & Co., Inc. 3,192 286,881
Pfizer, Inc. 1,707 175,608
Pharmacia & Upjohn, Inc. 1,345 46,571
Schering-Plough Corp. 978 88,754
Warner-Lambert Co. 718 72,339
1,420,258
Photography (0.3%):
Eastman Kodak Co. 882 73,096
Polaroid Corp. 120 6,120
79,216
Pollution Control Services & Equipment (0.2%):
Browning-Ferris Industries, Inc. 564 18,471
Safety-Kleen Corp. 153 2,391
WMX Technologies, Inc. 1,279 40,608
61,470
Precision Instruments & Related (0.0%):
Perkin Elmer Corp. 116 8,816
Primary Metal & Mineral Production (0.3%):
Barrick Gold Corp. 946 23,887
Battle Mountain Gold Co. 595 3,644
Echo Bay Mines Ltd. 369 2,260
Freeport-McMoran Copper
& Gold, Inc., Class B 512 14,912
Homestake Mining Co. 388 5,383
Inland Steel Industries, Inc. 130 3,201
Newmont Mining Corp. 414 16,184
Placer Dome, Inc. 634 11,571
81,042
Publishing (0.4%):
Dun & Bradstreet Corp. 451 11,783
John H. Harland Co. 82 1,876
McGraw-Hill Cos., Inc. 263 14,366
Meredith Corp. 142 3,674
R.R. Donnelley & Sons Co. 400 14,850
Time Warner, Inc. 1,506 70,029
116,578
Radio & Television (0.3%):
Comcast Corp.,
Class A Special Shares 864 15,012
Tele-Communications, Inc.,
Class A<F2> 1,758 26,590
U.S. West Media Group<F2> 1,654 32,873
74,475
Railroads (0.5%):
Burlington Northern
Santa Fe Corp. 405 33,615
CSX Corp. 574 30,422
Norfolk Southern Corp. 331 32,148
Union Pacific Corp. 648 43,902
140,087
Restaurants (0.4%):
Darden Restaurants, Inc. 423 3,543
McDonald's Corp. 1,848 92,862
Wendy's International, Inc. 342 7,994
104,399
Retail (0.9%):
Costco Cos., Inc.<F2> 556 18,765
Dayton Hudson Corp. 574 27,624
Kmart Corp.<F2> 1,283 17,962
Wal-Mart Stores, Inc. 6,074 180,702
Woolworth Corp.<F2> 355 8,564
253,617
Retail--Department Stores (0.6%):
Dillard Department Stores, Inc.,
Class A 300 10,125
Federated Department
Stores, Inc.<F2> 551 20,387
Harcourt General, Inc. 188 8,906
J. C. Penney Co., Inc. 654 33,681
May Department Stores Co. 649 30,584
Mercantile Stores, Inc. 98 5,267
Nordstrom, Inc. 212 10,176
Sears, Roebuck & Co. 1,037 50,943
170,069
Retail--Drug Stores (0.3%):
CVS Corp. 451 21,592
Longs Drug Stores Corp. 103 2,446
Rite Aid Corp. 325 15,113
Walgreen Co. 652 30,481
69,632
Retail--Specialty Stores (0.7%):
AutoZone, Inc.<F2> 398 9,303
Charming Shoppes, Inc.<F2> 279 1,465
Circuit City Stores, Inc. 260 10,270
Gap, Inc. 739 25,311
Home Depot, Inc. 1,272 80,136
Limited, Inc. 718 14,539
Lowe's Cos., Inc. 458 18,034
Pep Boys--Manny, Moe & Jack 160 5,000
TJX Cos., Inc. 206 9,888
Toys "R" Us, Inc.<F2> 769 23,935
197,881
Rubber & Rubber Products Including Tires (0.1%):
Cooper Tire & Rubber Co. 202 4,520
Goodyear Tire & Rubber Co. 411 24,043
28,563
Semiconductors (1.5%):
Applied Materials, Inc.<F2> 479 31,255
Intel Corp. 2,173 329,210
LSI Logic Corp.<F2> 341 14,237
Micron Technology, Inc. 555 23,587
398,289
Software & Computer Services (2.1%):
Autodesk, Inc. 119 4,626
Ceridian Corp.<F2> 215 7,901
Computer Associates
International, Inc. 962 52,670
Microsoft Corp.<F2> 3,186 395,064
Novell, Inc.<F2> 916 7,213
Oracle Corp.<F2> 1,790 83,459
Parametric Technology Corp.<F2> 296 13,283
Shared Medical Systems Corp. 62 3,286
567,502
Steel (0.2%):
Allegheny Teledyne, Inc. 462 11,897
Armco, Inc.<F2> 282 1,058
Bethlehem Steel Corp.<F2> 296 2,960
Nucor Corp. 232 13,688
USX-U.S. Steel Group, Inc. 224 7,224
Worthington Industries, Inc. 256 4,736
41,563
Tax Return Preparation (0.0%):
H&R Block, Inc. 275 9,075
Telecommunications (1.7%):
AirTouch Communications, Inc.<F2> 1,328 37,018
Alltel Corp. 496 16,306
Andrew Corp.<F2> 241 6,567
Bell Atlantic Corp. 1,159 81,130
DSC Communications Corp.<F2> 310 7,924
Lucent Technologies, Inc. 1,690 107,526
Northern Telecom Ltd. 684 57,456
Scientific-Atlanta, Inc. 205 3,716
Tellabs, Inc.<F2> 475 23,869
U.S. West, Inc. 1,269 46,477
WorldCom, Inc.<F2> 2,292 67,901
455,890
Textile Manufacturing (0.0%):
Russell Corp. 101 3,093
Springs Industries, Inc., Class A 53 2,683
5,776
Tobacco & Tobacco Products (1.2%):
American Brands, Inc. 451 22,099
Philip Morris Cos., Inc. 6,471 284,724
UST, Inc. 493 14,051
320,874
Tools & Hardware Manufacturing (0.1%):
Black & Decker Corp. 250 8,687
Snap-On Tools, Inc. 161 6,420
Stanley Works 235 9,635
24,742
Transportation Leasing & Trucking (0.1%):
Caliber System, Inc. 104 3,328
Ryder Systems, Inc. 213 7,056
Laidlaw, Inc., Class B 832 11,232
21,616
Utilities--Electric (1.5%):
American Electric Power Co. 496 20,212
Carolina Power & Light Co. 401 13,935
Central & South West Corp. 558 11,858
CINergy Corp. 418 14,630
Consolidated Edison Co.
of New York, Inc. 622 18,116
DTE Energy Co. 384 10,224
Dominion Resources, Inc. 477 16,513
Duke Power Co. 534 24,030
Edison International 1,147 26,811
Entergy Corp. 611 16,115
FPL Group, Inc. 485 22,553
Houston Industries, Inc. 621 12,886
Niagara Mohawk Power Corp.<F2> 382 3,343
Northern States Power Co.
Minnesota 183 8,967
Ohio Edison Co. 404 8,585
PacifiCorp 780 15,503
Peco Energy Co. 589 11,191
PP&L Resources, Inc. 430 8,654
PG&E Corp. 1,092 25,252
Public Service Enterprise Group 631 15,617
Raychem Corp. 117 8,673
Southern Co. 1,784 37,910
Texas Utilities Co. 595 20,453
Unicom Corp. 571 12,990
Union Electric Co. 270 9,889
394,910
Utilities--Electric & Gas (0.1%):
Baltimore Gas & Electric Co. 391 10,264
General Public Utilities Corp. 319 11,165
21,429
Utilities--Natural Gas (0.1%):
Consolidated Natural Gas Co. 251 13,334
Eastern Enterprises 54 1,863
NICOR, Inc. 132 4,538
Pacific Enterprises 225 7,369
Peoples Energy Corp. 93 3,302
30,406
Utilities--Telecommunications (3.1%):
Ameritech Corp. 1,455 95,303
AT&T Corp. 4,291 158,231
BellSouth Corp. 2,625 119,109
Frontier Corp. 433 7,956
GTE Corp. 2,547 112,386
MCI Telecommunications Corp. 1,814 69,612
NYNEX Corp. 1,165 62,619
SBC Communications, Inc. 2,427 141,979
Sprint Corp. 1,140 55,718
822,913
Total Common Stocks
(cost $14,381,027) 17,225,068
COMMERCIAL PAPER (34.8%):
Automotive (4.5%):
General Motors Acceptance Corp.,
5.54%, 6/3/97<F3> $1,200,000 1,200,000
Electrical & Electronic (25.8%):
General Electric Capital Corp.,
5.60%, 6/2/97<F3> 6,573,672 6,573,672
General Electric Capital Corp.,
5.51%, 6/3/97<F3> 400,000 400,000
6,973,672
Retail Stores (4.5%):
Sears Acceptance Corp.,
5.54%, 6/3/97<F3> 1,200,000 1,200,000
Total Commercial Paper
(cost $9,373,672)<F3> 9,373,672
GOVERNMENT SECURITIES (1.1%):
United States Treasury Bill,
5.13%, 6/19/97<F3> $ 230,000 $ 229,385
United States Treasury Bill,
4.72%, 6/26/97<F3> 70,000 69,741
Total Government Securities
(cost $299,162) 299,126
Total (cost $24,053,861) $26,897,866
Percentages are based on net assets of $26,940,388.
<FN>
<F1> Represents cost for federal income tax purposes and
differs from value by net unrealized appreciation of securities as follows:
Unrealized appreciation $3,021,523
Unrealized depreciation (177,518)
Net unrealized appreciation $2,844,005
<F2> Non-income producing security.
<F3> Serves as collateral for futures contracts.
At May 31, 1997, the Portfolio's open futures contracts were as follows:
Open Unrealized
# of Positions Appreciation
Contracts Contract Type (000) (000)
19 Long, Standard & Poor's 500 Index
Futures Contract,expiring June 19, 1997 $8,081 $445
</TABLE>
See accompanying Notes to Financial Statements
<TABLE>
May 31, 1997 (Unaudited)
KEY STOCK INDEX FUND
Statement of Assets and Liabilities
<CAPTION>
<S> <C>
ASSETS
Investments, at value (cost $24,053,861) $26,897,866
Dividend and interest receivable 91,671
Deferred organization costs 26,210
Prepaid expenses and other assets 41,395
Total Assets 27,057,142
LIABILITIES
Payable to brokers for investments purchased 43,991
Payable for organization costs 30,000
Accrued expenses and other liabilities:
Custodian, accounting and transfer agent fees 27,506
Legal and audit fees 14,030
Printing fees 724
Other 503
Total Liabilities 116,754
NET ASSETS--Applicable for 2,178,760 shares of capital stock outstanding
(1 billion shares authorized) $26,940,388
NET ASSETS
Paid in Capital 23,065,999
Undistributed net investment income 168,788
Net unrealized appreciation/(depreciation) on investments 2,844,005
Net unrealized appreciation/(depreciation) on futures 445,265
Accumulated undistributed net realized gains from investment transactions 416,331
NET ASSETS $26,940,388
NET ASSET VALUE--OFFERING AND REDEMPTION PRICE PER SHARE $ 12.37
</TABLE>
See accompanying Notes to Financial Statements
<TABLE>
For the Period Ended May 31, 1997 (Unaudited)
KEY STOCK INDEX FUND
Statement of Operations
<CAPTION>
<S> <C>
INVESTMENT INCOME
Dividend income (includes foreign withholding tax of $164) $ 148,731
Interest income 147,743
Total Income 296,474
EXPENSES
Investment advisory fees 10,348
Administration fees 15,522
Accounting fees 35,810
Custodian fees 49,077
Legal and audit fees 24,404
Organization costs 3,676
Trustees' fees and expenses 2,078
Transfer agent fees 4,911
Registration and filing fees 9,594
Printing fees 1,639
Other expenses 3,852
Total expenses before expense waivers and reimbursements 160,911
Less: Expense waivers (27,722)
Less: Expense reimbursements (133,189)
Net Expenses (0)
NET INVESTMENT INCOME 296,474
REALIZED GAINS/(LOSSES) FROM INVESTMENTS
Net realized gains from investment transactions 553,088
Net change in unrealized appreciation/(depreciation) on investments 1,887,083
Net change in unrealized appreciation/(depreciation) on futures 61,770
Net realized/unrealized gains on investments 2,501,941
CHANGE IN NET ASSETS RESULTING FROM OPERATIONS $2,798,415
</TABLE>
See accompanying Notes to Financial Statements
<TABLE>
(Unaudited)
KEY STOCK INDEX FUND
Statement of Changes in Net Assets
<CAPTION>
Six Months Period
Ended Ended
May 31, November 30,
1997 1996<F1>
<S> <C> <C>
FROM INVESTMENT ACTIVITIES
Operations:
Net investment income $ 296,474 $ 122,759
Net realized gains from investment transactions 553,088 15,857
Net change in unrealized appreciation/(depreciation) from investments 1,887,083 956,922
Net change in unrealized appreciation/(depreciation) on futures 61,770 383,495
Change in net assets resulting from operations 2,798,415 1,479,033
DIVIDENDS TO SHAREHOLDERS
From net investment income (197,466) (52,979)
From net realized gains (152,614) --
Change in net assets from distributions to shareholders (350,080) (52,979)
CAPITAL STOCK TRANSACTIONS
Proceeds from shares issued 12,134,771 18,614,362
Dividends reinvested 58,894 52,979
Cost of shares redeemed (3,625,607) (4,169,400)
Change in net assets from capital stock transactions 8,568,058 14,497,941
Change in net assets 11,016,393 15,923,995
NET ASSETS
Beginning of period 15,923,995 --
End of period $26,940,388 $15,923,995
SHARE TRANSACTIONS
Issued 1,068,182 1,822,175
Reinvested 5,188 5,225
Redeemed (321,686) (400,324)
Change in shares 751,684 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>
(Unaudited)
KEY STOCK INDEX FUND
Financial Highlights
<CAPTION>
Six Months Period
Ended Ended
May 31, November 30,
1997 1996<F2>
<S> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $ 11.16 $ 10.00
Investment Activities:
Net investment income 0.15 0.11
Net realized and unrealized gains on investments and futures 1.28 1.11
Total from Investment Activities 1.43 1.22
Distributions:
Net investment income (0.12) (0.06)
Net realized gains (0.10) --
Total Distributions (0.22) --
NET ASSET VALUE, END OF PERIOD $ 12.37 $ 11.16
Total Return 12.99%<F3> 12.29%<F3>
RATIOS/SUPPLEMENTAL DATA
Net Assets, End of Period (000) $26,940 $15,924
Ratio of expenses to average net assets 0.00%<F4> 0.00%<F4>
Ratio of net investment income to average net assets 2.86%<F4> 3.33%<F4>
Ratio of expenses to average net assets<F1> 1.54%<F4> 3.27%<F4>
Ratio of net investment income to average net assets<F1> 1.33%<F4> 0.06%<F4>
Portfolio Turnover 1.63% 0.60%
Average Commisson Rate $0.0023 $0.0166
<FN>
<F1> During the period, certain fees were voluntarily reduced. If such voluntary fee reductions 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>
See accompanying Notes to Financial Statements
May 31, 1997 (Unaudited)
KEY STOCK INDEX FUND
Notes to Financial Statements
NOTE 1
Organization
The KeyFunds (collectively, the "Company") were organized on May 26,
1983, and are registered under the Investment Company Act of 1940,
as amended, (the "1940 Act") as an open-end investment company established
as a Maryland Corporation. The Company, incorporated under the name
SBSF Funds, Inc., is currently doing business under the name "Key
Mutual Funds." The Company has 25 billion authorized shares of $.01
par value capital stock. The Company presently offers shares of the
Key Stock Index Fund, SBSF Fund, SBSF Convertible Securities Fund,
SBSF Capital Growth Fund, Key Money Market Mutual Fund, KeyChoice
Growth Fund, KeyChoice Moderate Growth Fund, and KeyChoice Income
& Growth Fund. The accompanying financial statements refer only to
the Key Stock Index Fund (the "Fund").
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 500 Composite Stock
Index (the "S&P 500" or the "Index")1. Under normal market conditions
the Stock Index Fund will attempt to duplicate the capital performance
and dividend income of the S&P 500 Index by investing primarily in
the stocks which compose the S&P 500 Index and secondarily in stock
index futures, while minimizing transaction costs.
1"Standard & Poor's 500" is a registered service mark of Standard
& Poor's Corporation, which does not sponsor and is in no way affiliated
with the Stock Index Fund.
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) Securities Valuation
Securities traded on a national securities exchange or the NASDAQ
National Market are valued as of the close of the New York Exchange,
which is normally 4:00 p.m. (Eastern Time) on each business day of
the Fund. Listed and unlisted securities for which such information
is regularly reported are valued at the last sales price, or in the
absence of sales, at the mean between the most recent bid and asked
price. Listed debt securities and over-the-counter securities are
valued at the mean between the most recent bid and asked price. Securities
for which quotations are not readily available and any other assets
are valued at fair value as determined in good faith under the supervision
of the Board of Directors. Short-term investments with maturities
of sixty days or less are valued at amortized cost, which approximates
market value.
(b) Securities Transactions and Related 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, net of foreign taxes withheld. 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. Repurchase agreements
are considered to be loans by a Fund under the 1940 Act.
(d) Futures Contracts
The Key Stock Index Fund may enter into stock index futures contracts
and purchase or sell options on any such futures contracts and may
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
will use stock index futures contracts as a temporary substitute for
taking positions in the securities that comprise the S&P 500 Index.
The acquisition of put and call options on futures contracts will
give the Funds the right (but not the obligation), for a specified
price, to sell or to purchase the underlying futures contract, upon
exercise of the option, at any time during the option period. 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
interest rates, exchange rates or securities prices move 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
exchange rates 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 Funds maintain cash and 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. These
differences are primarily due to differing treatments for mortgage-backed
securities, foreign currency transactions, expiring capital loss carryforwards
and deferrals of certain losses. Permanent book and tax basis differences
are reflected in the components of net assets.
(g) Federal Income Taxes
It is the policy of the Fund to continue 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 Key Stock
Index Fund are being amortized on a straight-line basis over a period
not to exceed sixty months 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 Key Funds are prorated
to each Fund on the basis of relative net assets or other appropriate
basis. Fees paid under a Fund's shareholder servicing or distribution
plans are borne by that Fund's shares.
NOTE 3
Purchases and Sales of Securities
Purchases and sales of securities (excluding short-term securities)
for the period ended May 31, 1997 were as follows:
Purchases Sales
Key Stock Index Fund $5,810,359 $242,201
NOTE 4
Investment Advisory and Administration Fees and Transactions with
Affiliates
(a) Investment Advisory, Custodian and Administration Fees
The investment adviser to the Fund is Key Asset Management Inc. ("KAM"
or the "Adviser"), a New York corporation that is registered as an
investment adviser with the SEC. The Adviser is a wholly owned subsidiary
of KeyBank National Association, which is a wholly owned subsidiary
of KeyCorp.
On February 28, 1997, KAM became the surviving corporation after the
reorganization of the following 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 Investments, Inc. Pursuant to the terms of the reorganization,
the subsidiaries identified above were merged into SBSF and SBSF then
changed its name to Key Asset Management Inc. Under the terms of the
investment advisory agreement, the Adviser is entitled to receive
fees equal to 0.10% of the Fund's average daily net assets. KeyTrust
Company of Ohio, N.A., an affiliate of the adviser, serving as custodian
for all of the Funds, is entitled to receive custodian fees in addition
to reimbursement of actual out-of-pocket expenses incurred.
BISYS Fund Services (the "Administrator"), an indirect, wholly-owned
subsidiary of The BISYS Group, Inc. ("BISYS") serves as the administrator
and 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., 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 with a minimum monthly fee
of of $2,500. The Fund Accounting fees are currently being reimbursed.
Fees may be voluntarily reduced to assist the Fund in maintaining
competitive expense ratios.
Additional information regarding related party transactions for the
Fund is as follows for the six months ended May 31, 1997:
<TABLE>
<CAPTION>
Investment Administration
Advisory Fees Fees Custody Fees Expenses
Voluntarily Voluntarily Voluntarily Reimbursed
Reduced Reduced Reduced by Distributor
<S> <C> <C> <C> <C>
$10,348 $15,522 $1,852 $133,189
</TABLE>
(b) Directors' Fees
Fees of $7,500 per annum, and $750 per meeting, are paid to each director
of the Company.
NOTE 5
Concentration of Credit Risk
The Key Stock Index Fund invests primarily in equity obligations.
Under normal market conditions, the Fund may invest up to 20% of its
respective total assets, subject to certain exceptions, in preferred
stocks, investment-grade corporate bonds and notes, warrants, and
high quality short-term debt obligations (including variable amount
master demand notes), bankers' acceptances, certificates of deposit,
commercial paper, repurchase agreements, reverse repurchase agreements,
obligations issued or guaranteed by the U. S. Government, its agencies
and instrumentalities, and demand and time deposits of domestic and
foreign banks and savings and loan associations. To the extent that
a significant portion of the assets of the Fund are invested in such
securities, the Fund's tracking error relative to its benchmark index
may increase.
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(Logo)
KeyFunds
1-800-KEYFUND
2 KF/KSIF-SEM (5/97)
