ANNUAL REPORT
November 30, 1997
Key Money
Market
Mutual Fund
LOGO(R)
KeyFunds
Key Asset Management Inc. (KAM), a subsidiary of KeyCorp, is the
investment adviser to Key Mutual Funds, which consists of several different
portfolios, one of which, the Key Money Market Mutual Fund (the "Fund")
is included in this 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 Key Mutual Funds.
Shares of the Fund 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.
LOGO(R)
KeyFunds
KEY MONEY MARKET MUTUAL FUND
Letter to Our Shareholders
Dear Shareholders,
Welcome to the Key Money Market Mutual Fund's Annual Report for the
fiscal year ended November 30, 1997. The Fund experienced nearly a
five-fold increase in assets. We are happy to announce that in addition
to the AAAm rating previously awarded by Standard and Poor's, the
Fund was recently assigned a Aaa rating by Moody's Investor Services.
The ratings are based on the Fund's historical credit quality, market
price exposure and management. The Standard and Poor's rating signifies
that the Fund's safety is excellent and that it has a superior capacity
to maintain a $1.00 net asset value per share; in the case of Moody's,
the Fund's rating is their "best quality" judgment.
The fiscal year 1997 was dominated by speculation about when the Federal
Reserve Board would tighten monetary policy by increasing the Federal
Funds Rate. One tightening did occur in the first quarter of 1997
but the subsequent period was one of temporary calm before continued US economic
performance reignited concerns that the Fed would have to tighten
again. However, this has not been the case as each additional piece
of economic news or data which shows that the economy is not overheating
pushes a potential tightening further into the future. Most recently,
the equity sell-off in October 1997 has most likely delayed a Fed
tightening until late in the first quarter of 1998 at the earliest.
The Fund Manager follows the interest rate environment carefully,
in an effort to enhance portfolio yield. The Fund's investment performance
is achieved with a commitment to maintaining the highest credit quality
standards. We encourage you to read the following pages carefully
and welcome your comments on this Annual Report.
/s/ Leigh A. Wilson
Leigh A. Wilson
President, The Key Funds
January 15, 1998
KEY MONEY MARKET MUTUAL FUND
Investment
Review and
Outlook
Dances with Bears
At a time of the year when the air usually gets cool and bears prepare
to hibernate, temperatures have instead been rising from the heat
of furious trading on capital markets around the world. Rather than
trying to find a cozy cave in which to sleep away the winter, bears
of the Wall Street variety have been seen lurking around trading desks
on six continents, sending analysts and investors scurrying for shelter.
If one is looking retrospectively, there is some latitude in what
constitutes a bear market, as compared to a correction in a bull market.
Corrections are generally considered to be short-term in nature (lasting
only a few months at worst), and are usually contained to less than
20% (the retreat of August-October 1987 stands out as a significant
exception). Bear markets, on the other hand, are typically defined as
retreats of 20% or more that stretch out for at least a year. In the
ever-rosy ways of Wall Street, everything that's neither a bear
market nor a correction must therefore be a bull market. But when
returns are positive but below average, or negative but not excessively
so, they typify markets that are neither bull nor bear, but some sort
of investment purgatory.
The primary reason I have been hesitant to proclaim a bear market
is the lack of an obvious domestic policy mistake, either fiscal or
monetary. Nearly every bear market of the past can be traced to policy
blunders of one sort or another, the most famous being the Smoot-Hawley
trade restrictions that helped turn the stock market crash of 1929
into the Great Depression of the 1930s. If one looks at this country's
policy stance today, there is little to be worried about. Monetary
policy under Fed Chairman Alan Greenspan has not been overly restrictive
(though the word "easy" does not come to mind, either), and his most
recent comments suggest that he is not going to tighten soon. And
while the balanced budget amendment could prove to be a modest fiscal
drag at times, the recent tax law changes should be somewhat stimulative,
and I think the net impact will be positive.
However, we live in a global market, as we have been reminded time
and again in recent months. For as clean as the policy slate may be
in the U.S., those of many of our nation's most important trading
partners are covered with glaring mistakes, and the impact cannot
escape the domestic markets. But let's say that our nation's various
policy-makers keep steering the boat in the right direction, and make
all of the right decisions. Investors may still have to dance with the
bears as the perfect balance of low unemployment, good earnings growth
and low inflation begins to unravel in 1998. We've already experienced fairly
sharp deceleration in trend-line earnings growth, but I think that we're
about to down-shift another notch.
We've already heard warnings from great companies like Coca-Cola,
Gillette and Procter & Gamble, whose non-U.S.
profits have been damaged by the strength of the dollar and the weakness
of various local economies overseas. More important, I think that
domestic profit margins have peaked, which may reduce bottom line
growth to the mid-single digits (roughly equal to top line growth).
Operating margins are likely to be squeezed a little by higher labor
costs, the product of the nation's lowest rate of unemployment in
24 years.
As evidenced by the latest statistics from the Labor Department, wages
are accelerating as employers are having to pay up to attract and
to retain qualified help. While productivity gains can be expected
to offset some of this wage increase, look for overall unit labor
costs to rise at a rate well in excess of inflation next year (don't
forget, labor accounts for nearly three-quarters of the cost of producing
the nation's goods and services). Speaking of offsets, lower interest
rates will likely have a neutralizing effect on the decline in operating
margins, bringing 1998 net margins in flat with 1997 levels. The costs
associated with retooling (computer hardware and software) for the
year 2000 will also be substantial.
So why am I not 100% sure that we're in a bear market, given the prospects
detailed above? For one thing, U.S. in-vestors continue to pour huge
sums of new cash into the market, despite the scary headlines of the past
few months. Much of this is coming from 401(k) plans, which put money into
the markets regardless of the environment. In addition, corporations stand
ready to buy their stock on dips, putting some of their cash to work in
support of their stock price. I'm not a big fan of supply and demand
arguments for stocks (to me, the supply is ultimately infinite, since
companies can always issue more shares), but I can't ignore them,either.
In addition, I think that the margin pressure described above will catalyze a
significant new wave of merger and acquisition activity in a wide variety of
industries, as competitors seek ways to increase efficiency.
By itself, such deal-making can't stop a bear market, but it can foster
a "Who's next?" mentality among investors, who in turn bid up the
shares of the stock they believe to be the next acquisition target.
Third, I've heard from a few bullishly-inclined friends that things
can't get much worse overseas. Therefore, whenever one of the afflicted
nations in Asia or elsewhere decides to undo some of its policy mistakes,
overseas markets have the potential to explode to the upside, and
carry the U.S. stock market with them. Finally, I'm keenly aware of
the "safe harbor" argument espoused by many
market observers. According to this view, the U.S. markets may not
be cheap and the economy may not be completely wart-free, but they
look a lot better than anything else out there, and will therefore
attract the marginal investment dollar.
Frankly, these are all bull market beliefs. One of the qualitative
traits of a true bear market is the erosion and eventual absence of
such hopeful views. Though there is considerably greater worry on
Wall Street today compared to this past summer, the prevailing attitude
there and on Main Street is still one of optimism. Should investor
confidence deteriorate, I think the market averages will follow suit
(or is it the other way around?).
Regardless of which animal is roaming the streets, market volatility
promises to remain high. Although a savvy investor who takes advantage
of peaks and valleys to sell and buy stocks could benefit from this
scenario, fundamental company- specific research is still critical,
especially since I think it will be harder to post good performance
by merely making sector bets. Above all, be alert. As big as bears
are, they're also pretty sneaky, and you can't always count on seeing
them before they see you (and your portfolio).
/s/ Charlie Crane
Charlie Crane
Chief Market Strategist, Key Asset Management Inc.
November 30, 1997
ANNUAL REPORT PERFORMANCE INFORMATION
As of November 30, 1997
<TABLE>
KEY MONEY MARKET MUTUAL FUND
YIELDS AND PERFORMANCE
<CAPTION>
<S> <C>
Seven-day Yield 5.18%
Seven-day Effective Yield 5.31%
One Year Total Return 4.94%
</TABLE>
During the year ended November 30, 1997, the Fund received waivers
and reimbursements of certain expenses. If such waivers and reimbursements
had not occurred, the Fund's seven-day yield and seven-day effective
yield for the year would have been 4.66% and 4.79%, respectively.
<TABLE>
KEY MONEY MARKET MUTUAL FUND
MATURITY SCHEDULE
<CAPTION>
<S> <C>
Less than 30 days 48.3%
31-60 days 51.7%
Greater than 90 days 0%
100.0%
Weighted Average Maturity 24 Days
</TABLE>
The performance data quoted represents past performance and is not
indicative of future results. Yields will fluctuate with market conditions.
There can be no assurance that the Key Money Market Mutual Fund will
be able to maintain a stable net asset value of $1.00 per share. An
investment in the Key Money Market Mutual Fund is neither insured
nor guaranteed by the U.S. government.
The Fund's Maturity Schedule presented may not be representative of
current or future investment strategies. Fund strategies may change
at any time.
<TABLE>
November 30, 1997
KEY MONEY MARKET MUTUAL FUND
Statement of Investments
<CAPTION>
PRINCIPAL AMORTIZED
AMOUNT COST
<S> <C> <C>
U.S. TREASURY BILLS--(22.4%)
1/22/98 $55,000,000 $ 54,589,056
Total U.S. Treasury Bills
(Amortized Cost $54,589,056) 54,589,056
U.S. TREASURY NOTES--(28.8%)
5.25%, 12/31/97 70,000,000 69,988,825
Total U.S. Treasury Notes
(Amortized Cost $69,988,825) 69,988,825
U.S. GOVERNMENT AGENCIES--(29.6%)
Federal Farm Credit Bank--(14.5%)
5.51%, 12/1/97 35,000,000 34,999,999
5.40%, 12/2/97 250,000 249,998
35,249,997
Federal Home Loan Bank--(2.8%)
5.41%, 12/10/97 6,411,000 6,402,329
5.71%, 1/21/98 500,000 500,048
6,902,377
Federal Home Loan Mortgage Corp.--(10.2%)
5.39%, 12/16/97 25,000,000 24,944,063
Federal National Mortgage Assoc.--(2.1%)
5.40%, 12/23/97 5,000,000 4,983,500
Total U.S. Government Agencies
(Amortized Cost $72,079,937) 72,079,937
REPURCHASE AGREEMENTS--(18.8%)
Lehman Brothers, Inc.,
5.65%, 12/1/97
(Collateralized by $44,975,000
various U.S. Government
Agency Securities,
5.49%-8.45%, 1/2/98-11/10/99,
market value--$46,809,236) 45,874,000 45,874,000
Total Repurchase Agreements
(Amortized Cost $45,874,000) 45,874,000
Total Investments
(Amortized Cost $242,531,818) <F1> 99.6% 242,531,818
Other assets in excess of liabilities 0.4% 967,464
TOTAL NET ASSETS 100.0% $243,499,282
<FN>
<F1> Cost and value for federal income tax and financial reporting
purposes are the same.
</TABLE>
See accompanying Notes to Financial Statements
<TABLE>
November 30, 1997
KEY MONEY MARKET MUTUAL FUND
Statement of Assets and Liabilities
<CAPTIONS>
<S> <C>
ASSETS
Investments, at amortized cost $242,531,818
Cash 58
Interest and dividends receivable 2,059,489
Receivable from affiliates 68,415
Prepaid expenses and other assets 1,460
Total Assets 244,661,240
LIABILITIES
Dividends payable 1,044,495
Accrued expenses and other payables:
Administration fees 5,707
Accounting fees 1,858
Custodian fees 12,942
Transfer agent fees 8,836
Shareholder servicing fees 31,608
Audit and legal fees 48,315
Other 8,197
Total Liabilities 1,161,958
NET ASSETS--Applicable to 243,496,333 shares of capital stock outstanding 243,499,282
NET ASSETS
Shares of capital stock, $0.01 par value 2,434,963
Paid in capital 241,063,238
Accumulated undistributed net investment income 1,081
NET ASSETS $243,499,282
NET ASSET VALUE--OFFERING AND REDEMPTION PRICE PER SHARE $ 1.00
</TABLE>
See accompanying Notes to Financial Statements
<TABLE>
For the Year Ended November 30, 1997
KEY MONEY MARKET MUTUAL FUND
Statement of Operations
<CAPTION>
<S> <C>
INVESTMENT INCOME
Interest income $6,039,419
EXPENSES
Investment advisory fees 277,326
Administration fees 213,167
Accounting fees 13,819
Transfer agent fees 28,091
Legal and audit fees 109,728
Custodian fees 26,925
Directors fees and expenses 11,910
Shareholder reports 14,649
Registration and filing fees 24,386
Shareholder servicing fees 175,564
Amortization of organization costs --
Other expenses 54,679
Total expenses before expense waivers and reimbursements 950,244
Less: Fee waivers (277,326)
Less: Expense reimbursements (88,763)
Net Expenses 584,155
NET INVESTMENT INCOME 5,455,264
REALIZED/UNREALIZED GAINS (LOSSES) FROM INVESTMENTS
Net realized gains from investment transactions --
Net realized/unrealized gains (losses) from investments --
CHANGE IN NET ASSETS RESULTING FROM OPERATIONS $5,455,264
</TABLE>
See accompanying Notes to Financial Statements
<TABLE>
For the Years Ended November 30, 1997 and 1996
KEY MONEY MARKET MUTUAL FUND
Statements of Changes in Net Assets
<CAPTION>
1997 1996
<S> <C> <C>
FROM INVESTMENT ACTIVITIES
Operations:
Net investment income $ 5,455,264 $ 1,188,669
DISTRIBUTIONS TO SHAREHOLDERS
From net investment income (5,455,264) (1,188,669)
CAPITAL TRANSACTIONS
Proceeds from shares issued 471,868,800 85,243,127
Dividends reinvested 3,317,186 1,066,504
Cost of shares redeemed (273,845,741) (65,998,933)
Change in net assets from capital transactions 201,340,245 20,310,698
Change in net assets 201,340,245 20,310,698
NET ASSETS
Beginning of period 42,159,037 21,848,339
End of period $ 243,499,282 $ 42,159,037
</TABLE>
See accompanying Notes to Financial Statements
<TABLE>
KEY MONEY MARKET MUTUAL FUND
Financial Highlights
<CAPTION>
Fiscal Year Ended November 30,
1997 1996 1995 1994 1993
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $ 1.000 $ 1.000 $ 1.000 $ 1.000 $ 1.000
Investment Activities:
Net investment income 0.048 0.047 0.051 0.034 0.026
Distributions:
Net investment income (0.048) (0.047) (0.051) (0.034) (0.026)
NET ASSET VALUE, END OF PERIOD $ 1.000 $ 1.000 $ 1.000 $ 1.000 $ 1.000
Total Return 4.94% 4.65% 5.26% 3.37% 2.61%
RATIOS/SUPPLEMENTARY DATA
Net Assets at end of period (000) $243,499 $42,159 $21,848 $28,606 $16,222
Ratio of expenses to average net assets 0.53% 0.64% 0.63% 0.59% 0.55%
Ratio of net investment income to average net assets 4.91% 4.59% 5.15% 3.35% 3.16%
Ratio of expenses to average net assets<F1> 0.90% 0.92% 0.91% 0.87% 0.83%
Ratio of net investment income to average
net assets<F1> 4.54% 4.31% 4.90% 3.10% 2.91%
<FN>
<F1> During the period, certain fees were voluntarily reduced and/or reimbursed. If such voluntary fee reductions and/or
expense reimbursements had not occurred, the ratios would have been as indicated.
</TABLE>
See accompanying Notes to Financial Statements
KEY MONEY MARKET MUTUAL FUND
Notes to Financial Statements
Note 1
Organization
Key Mutual Funds (collectively, the "Funds" and individually, a "Fund")
were organized on May 26, 1983 under the name SBSF Funds, Inc., and
are currently doing business under the name "Key Mutual Funds" (the
"Company"). The Funds 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 Funds are authorized
to issue 25 billion shares of $.01 par value capital stock. The Funds
presently offer shares of 8 active funds. Included in this report
are the financial statements and financial highlights of the Key Money
Market Fund. Prior to July 12, 1996, the Fund was known as SBSF Money
Market Fund.
The investment objective of the Fund is to provide high current income
to the extent consistent with the preservation of capital. The Fund
invests in securities issued or guaranteed by the U.S. Government
or its agencies and instrumentalities, as well as repurchase agreements
with respect to such securities.
Reorganization
On December 2, 1997, the Board of Directors approved an agreement
and plan of reorganization and liquidation ("the Plan") for the Key
Mutual Funds. Under the Plan, the assets and liabilities of the Key
Funds will be transferred to a newly established or currently operating
Victory Portfolio as follows:
<TABLE>
<CAPTION>
<S> <S>
Key Mutual Funds The Victory Portfolios
KeyChoice Growth Fund LifeChoice Growth Investor
Fund (new)
KeyChoice Moderate LifeChoice Moderate Investor
Growth Fund Fund (new)
KeyChoice Income and LifeChoice Conservative
Growth Fund Investor Fund (new)
SBSF Fund Victory Diversified Stock
Fund--Class A Shares
SBSF Capital Growth Fund Victory Special Growth Fund
SBSF Convertible Victory Convertible Securities
Securities Fund Fund (new)
Key Money Market Victory Federal Money Market
Mutual Fund Fund--Investor Class (new)
Key Stock Index Fund Victory Stock Index Fund
</TABLE>
Shares of the Victory Portfolios will be distributed to the Key Funds'
shareholders in complete liquidation of each Key Fund. It is expected
that the reorganization will be treated as a tax-free transaction
to the shareholders of the Funds. A special Shareholder Meeting to
approve the plan is currently expected to be held in March 1998. If
the shareholders approve the merger and necessary regulatory approval
is obtained, it is expected that the merger will take place in March
1998.
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
Investments of the fund are valued at either amortized cost which
approximates market value, or at original coat which, combined with
accrued interest, approximates market value. Under the amoritized
cost valuation method, discount or premium is amortized on a constant
basis to the maturity of the security. In addition, the Fund may not
(a) purchase any instrument with a remaining maturity greater than
397 days unless such instrument is subject to a demand feature, or
(b) maintain a dollar-weighted average portfolio maturity which exceeds
90 days.
(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. Gains or losses realized on sales of securities
are determined by comparing the identified cost of the security lot
sold with the net sales proceeds.
(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 the Fund under the 1940 Act.
(d) Dividends to Shareholders
Dividends payable to shareholders are recorded by the Fund on the
ex-dividend date. The Fund declares dividends daily from net investment
income; such dividends are distributed monthly. Net realized capital
gains, if any, are declared and distributed at least annually.
The amounts of dividends from net investment income and of distributions
from net realized gains are determined in accordance with Federal
income tax regulations which may differ from generally accepted accounting
principles. These "book/tax" differences are either considered temporary
or permanent in nature. To the extent these differences are permanent
in nature, such amounts are reclassified within the components of
net assets based on their federal tax-basis treatment; temporary differences
do not require reclassification. Dividends and distributions to shareholders
which exceed net investment income and realized capital gains for
financial reporting purposes but not for tax purposes are reported
as dividends in excess of net investment income or distributions in
excess of net realized gains. To the extent they exceed net investment
income and net realized gains for tax purposes, they are reported
as distributions of capital.
(e) 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 of 1986, as amended, 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.
(f) Other
Expenses that are directly related to the Fund are charged directly
to the Fund. Other operating expenses of the Funds are prorated to
the Funds on the basis of relative net assets or other appropriate
basis.
Note 3
Related Party Transactions
Investment advisory services are provided to the Fund by Key Asset
Management Inc. ("the Adviser"), a wholly owned subsidiary of KeyBank
National Association ("Key"), formerly Society National Bank, a wholly
owned subsidiary of KeyCorp. On February 28, 1997, Key Asset Management
Inc. became the surviving corporation after the reorganization of
four indirect investment adviser subsidiaries of KeyCorp, including
KeyCorp Mutual Fund Advisers Inc., Spears, Benzak, Salomon & Farrell,
Inc. ("SBSF"), Society Asset Management, Inc. and Applied Technology
Investment, 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 agreements, the Adviser is entitled to receive
fees of 0.25% of the average daily net assets of the Fund. KeyTrust
Company of Ohio, N.A., a subsidiary of KeyCorp and 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.
Key and its affiliated brokerage and banking companies also serve
as a Shareholder Servicing Agent for the Fund. As such, Key and its
affiliates provide support services to their clients who are shareholders,
which may include establishing and maintaining accounts and records,
processing dividend and distribution payments, providing account information,
assisting in processing of purchase, exchange and redemption requests,
and assisting shareholders in changing dividend options, account designations
and addresses. For providing such services, Key and its affiliates
may receive a fee of up to 0.25% of the average daily net assets of
the Funds serviced.
BISYS Fund Services (the "Administrator"), an indirect, wholly-owned
subsidiary of The BISYS Group, Inc. ("BISYS") serves as the administrator
and distributor to 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.
Under the terms of the administration agreement, the Administrator's
fee is computed at the annual rate of 0.25% of the first $50 million
of average daily net assets and 0.15% of such average daily net assets
in excess of $50 million. Pursuant to its authority to delegate its
responsibilities under the Administration Agreement, BISYS entered
into a Sub-Administration Agreement with KAM whereby KAM performs
certain sub-administrative services for the Fund at the expense of
BISYS.
As of October 13, 1997, 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 fee is based on a percentage
of average daily net assets in addition to reimbursement of actual
out-of-pocket expenses incurred. Prior to October 13, 1997, Spears
Benzak Salomon & Farrell, provided these services.
Fees may be voluntarily reduced to assist the Fund in maintaining
a competitive expense ratio.
Additional information regarding related party transactions is as
follows for the year ended November 30, 1997:
<TABLE>
<CAPTION>
Investment
Advisory Fees Reimbursements
Voluntarily by the
Reduced Distributor
<S> <C> <C>
Key Money Market Fund $277,326 $88,763
</TABLE>
KEY MONEY MARKET MUTUAL FUND
Report of Independent Accountants
To the Board of Directors and Shareholders
of Key Mutual Funds (SBSF Funds, Inc.):
We have audited the accompanying statement of assets and liabilities
of the Key Money Market Mutual Fund, including the schedule of portfolio
investments, as of November 30, 1997, and the related statement of
operations, statement of changes in net assets, and the financial
highlights for the year then ended. These financial statements and
financial highlights are the responsibility of the Key Money Market
Mutual Fund's management. Our responsibility is to express an opinion
on these financial statements and financial highlights based on our
audit. The financial statements and financial highlights of the Key
Money Market Mutual Fund for the periods ended November 30, 1996 were
audited by other auditors, whose report dated January 15, 1997 expressed
an unqualified opinion on those statements.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit
to obtain reasonable assurance about whether the financial statements
and financial highlights are free of material misstatement.
An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. Our procedures
included confirmation and verification by examination of securities
owned as of November 30, 1997 by correspondence with the custodian
and brokers or other auditing procedures where confirmations from
brokers were not received. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well
as evaluating the overall financial statement presentation. We believe
that our audit provides a reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights
referred to above present fairly, in all material respects, the financial
position of the Key Money Market Mutual Fund as of November 30, 1997,
and the results of its operations, the changes in its net assets and
the financial highlights for the year then ended in conformity with
generally accepted accounting principles.
COOPERS & LYBRAND, L.L.P.
Columbus, Ohio
January 16, 1998
LOGO(R)
KeyFunds
2 KF/MMMF-AR (1/98)
