ANNUAL REPORT
November 30, 1997
Key Mutual
Funds
SBSF Fund
SBSF Convertible Securities Fund
SBSF Capital Growth 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, three of which
are 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 Funds are not deposits or other obligations
of, or guaranteed or endorsed by SBSF, any KeyBank, any of their affiliates
or any other bank. Shares of the Funds 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 Funds. It is not authorized for distribution to
prospective investors in the Funds unless preceded or accompanied
by an effective prospectus, which includes information regarding the
Funds' objectives and policies, experience of its management, marketability
of shares and other information.
LOGO (R)
KeyFunds
KEY MUTUAL FUNDS (THE SBSF FUNDS)
Letter to Our Shareholders
Dear Shareholders:
We are happy to present this Annual Report for the fiscal year ended
November 30, 1997. This fiscal year the assets of the Key Funds Complex
increased by nearly 85%, a testimony not only to the stellar performance
of the US financial markets but also to your confidence in our investment
style and management.
Towards the end of the fiscal year ended November 30, 1997, the US
financial markets experienced turbulence stemming from the Asian currency
crisis. Despite the subsequent recovery, the intraday low of less than 7,000
reached by the Dow Jones Industrial Average towards the
end of October 1997 serves as a reminder that investor confidence
is a crucial factor in the pricing of securities. However, it is
economic fundamentals that are important over the long term and your
Fund managers are firmly focused on this aspect of investment management.
In the following pages, your Fund managers discuss performance and
the strategies employed during the fiscal year 1997. These commentaries,
along with the related financial data, provide comprehensive information
about the Funds. As always, we welcome your comments on this Annual
Report.
/s/ Leigh A. Wilson
Leigh A. Wilson
President, The Key Funds
January 15, 1998
KEY MUTUAL FUNDS (THE SBSF FUNDS)
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.
Synthesizing these forecasts, it looks to me like the S&P 500 will
earn about $48.00 or so from operations in 1998, followed by $50.50-$51.00 in
1999. Short-term interest rates are likely to remain unchanged
for the next several months, and perhaps decline a bit by the end
of 1998. Long rates are likely to trade between 6.0% and 6.5%, though
they could move below 6.0% if it appears that a domestic economic
slowdown will unfold sooner rather than later. At 955, the S&P is
now trading at a little over 19 times next year's estimated earnings,
nearly three times the anticipated three-year earnings growth rate.
Even with interest rates as low as they are, this strikes me as being
at least 10% too rich, especially when one can buy the stocks of smaller
and mid-sized companies, whose earnings are expected to grow at a
substantially faster pace, for roughly the same multiple.
So why am I not 100% sure that we're in a bear market, given the prospects
detailed above? For one thing, U.S. investors 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
KEY MUTUAL FUNDS (THE SBSF FUNDS)
Fund Managers' Comments
Key SBSF Fund
The overall stock market, as represented by the S&P 500, surprised
many observers by continuing to advance for the last eleven consecutive
quarters matching an all-time record set between 1992 and 1995. Many
of the traditional valuation techniques such as price to book value
or dividend yield have had to be discarded one by one as the market's
advance seemingly has made them obsolete.
Nevertheless, the Key SBSF Fund had a difficult year in 1997 because
the Fund's value orientation and defensive characteristics were attributes
that were not in demand by investors in 1997. In addition, the concentrated
nature of the Fund, with only 35-40 holdings, caused higher volatility
than usual.
As a result, the Fund will be undergoing some changes in 1998. Under
its new co-portfolio manager, the Fund will increase its emphasis
on larger companies and diversification.
Long term, the basic fundamentals of the market are quite strong.
Positive forces include the relentless inflow of cash into the equity
market and the stunning focus and improving profitability of the American
corporation. The risks and concerns of investors revolve around the high
valuation levels; this does not necessarily mean that stock prices will
decline, but only that it allows less leeway for mistakes.
Key SBSF Convertible Securities Fund
During the early months of the fiscal year, rising interest rates negatively
impacted the Fund's relative performance. However, the Fund was able to
perform quite well during the retreat of the equitymarket towards the end of
the fiscal year. For the fiscal year ended November 30, 1997, the Fund provided
a total return of 16.26%. Given the portfolio composition of the Fund, it is
understandablethat this would fall short of the S&P 500 Index's one year return
of 28.52%. However, it compares favorably with the Lipper Convertible
Securities Fund Index's return of 16.10% for for the same period.*
During the fiscal year the Fund's security purchases were concentrated
mainly in issues that were less equity sensitive. This enabled the
Fund to maintain a relatively high yield, as well as maintain a lower
level of price volatility than its competitors. During the recent
correction in the market, the Fund's cash flow was used to invest
in technology companies, an industry sector that suffered meaningful
reevaluations in the marketplace. It is expected that these purchases
will provide a good source of current income, and in the long term
capital appreciation. Under all circumstances, our goal is to provide
you with an investment vehicle that will have one of the best risk/reward
ratios in the industry.
The Key SBSF Capital Growth Fund
The long overdue rally in small company stocks, which began towards
the end of April 1997, occurred after such stocks had reached their
lowest valuations relative to large companies in over five years.
The rebound in small stock prices, paced by strong earnings reports,
picked up momentum over the summer. The Fund has no predetermined
industry weightings, but investment themes do emerge as we find prosperous
companies clustered in strong economic sectors. This forces us to look beyond
businesses that are classically defined as growth areas,
and examine undiscovered opportunities in stocks which meet our 25%
earnings hurdle. Our initial investment in the oil drilling group,
just as it was emerging from a difficult period, is a prime example
of this kind of creative research.
Going forward, we believe that this trend towards small cap outperformance can
be sustained and will draw increasing investor attention. It is likely that the
profit growth of larger companies will continue to be hampered by the negative
impact of a strong dollar and a diminished ability to affect further
cost-cutting. We also expect money to be flowing into small-cap companies due
to the lowering of the capital gains tax rate and the devaluation in Asian
currencies which has soured risk- oriented investors in those markets and may
lead them to domestic emerging growth companies instead.
Looking ahead to 1998 better earnings potential should propel small
stock prices higher from current valuations, which are still very
close to their historical lows. Based on 1998 earnings estimates of
+51% and a price/earnings ratio of 25, the stocks in the portfolio
are selling at one-half their expected growth rates. We believe that
modest economic growth and continued moderate inflation should provide
the perfect environment in which small growth companies can flourish.
Keeping in mind the small capitalization nature of the Fund, its benchmark has
been changed from the S&P 400 Mid Cap Index to the Russell 2000. (Index
definitions are on page 6.)
*The Lipper Convertible Securities Fund Index is an equal weighted
index of the largest mutual funds whose portfolios consist primarily
of convertible bonds and convertible preferred stocks.
<TABLE>
SBSF FUND
vs. S&P 500
<CAPTION>
SBSF Fund S&P 500<F1>
<S> <C> <C>
10/83 10,000 9,884
11/83 10,030 10,093
11/84 11,009 10,394
11/85 14,263 13,408
11/86 15,911 17,123
11/87 14,696 16,319
11/88 17,832 20,108
11/89 23,191 26,316
11/90 23,037 25,405
11/91 26,006 30,574
11/92 28,232 36,221
11/93 34,710 39,879
11/94 32,979 40,016
11/95 42,991 54,815
11/96 53,178 70,086
11/97 59,162 90,700
<FN>
<F1> The S&P 500 Index (S&P 500) is an index of widely held common stocks
which is unmanaged and therefore not subject to any fees or expenses.
The performance figures presented for the SBSF Fund and the SBSF
Convertible Securities Fund are net of fees and expenses.
</TABLE>
<TABLE>
SBSF FUND
<CAPTION>
Average
Annual Return
<S> <C>
One Year 11.25%
Three Years 21.51%
Five Years 15.95%
Ten Years 14.94%
SINCE INCEPTION
10/17/83 13.40%
</TABLE>
<TABLE>
SBSF CONVERTIBLE
SECURITIES FUND
<CAPTION>
Average
Annual Return
<S> <C>
One Year 16.26%
Three Years 18.96%
Five Years 14.54%
SINCE INCEPTION
4/14/88 12.59%
</TABLE>
<TABLE>
SBSF CONVERTIBLE SECURITIES FUND vs.
S&P 500 AND LIPPER CONV. SEC FUND INDEX
<CAPTION>
SBSF Conv. Fund S&P 500<F1> Lipper Conv. Sec.<F2>
<S> <C> <C> <C>
4/88 10,000 10,123 10,125
11/88 10,142 10,835 10,419
11/89 11,955 14,179 12,224
11/90 11,336 13,689 11,455
11/91 14,321 16,474 13,897
11/92 15,925 19,517 16,461
11/93 19,496 21,488 18,869
11/94 18,645 21,562 18,334
11/95 22,455 29,535 21,621
11/96 27,009 37,764 25,090
11/97 31,401 48,871 29,216
<FN>
<F1> The S&P 500 Index (S&P 500) is an index of widely held common stocks
which is unmanaged and therefore not subject to any fees or expenses.
The performance figures presented for the SBSF Fund and the SBSF
Convertible Securities Fund are net of fees and expenses.
<F2> The Lipper Convertible Securities Fund Index (Lipper Conv. Sec.)
is an equal weighted index of the largest mutual funds whose portfolios
consist primarily of convertible bonds and convertible preferred stocks.
</TABLE>
The accompanying presentations are hypothetical illustrations of the
results 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, 1997. 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 figures set forthherein may reflect the waiver of a portion of certain
fees for various periods since the Funds' inception date. In such instances and
without such waiver of fees, the total returns would have been lower. Fee
waivers are voluntary and may be modified or terminated at any time. The
performance data quoted represent past performance
and are not predictive of future results.
<TABLE>
SBSF CAPITAL GROWTH FUND vs. RUSSELL 2000
<CAPTION>
SBSF Capital Growth S&P 400 Mid Cap Index<F1> Russell 2000<F2>
<S> <C> <C> <C>
11/93 10,000 10,000 10,000
11/94 9,450 9,776 9,562
11/95 12,288 12,950 12,288
11/96 12,806 15,381 14,318
11/97 14,095 19,604 17,669
<FN>
<F1> The Standard and Poor's 400 Mid Cap Index (S&P 400 Mid Cap) is
a broad-based unmanaged index that represents the general performance of
domestically traded common stocks of mid-sized companies.
<F2> The Russell 2000 Index (Russell 2000) is a broad-based unmanaged
index that represents the general performance of domestically traded
common stocks of small-to mid-sized companies. The performance of the
SBSF Capital Growth Fund is net of fees and expenses.
The above presentation is a hypothetical illustration of the results
of a $10,000 investment on the Fund's inception date and the subsequent
reinvestment of all capital gain distributions through November 30, 1997.
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 figures set forth herein may reflect
the waiver of a portion of certain fees for various periods since the
Fund's inception date. In such instances and without such
waiver of fees, the total returns would have been lower. The performance
data quoted represent past performance and are not indicative of future
results.
Small capital funds typically carry additional risks since smaller
companies generally have a higher risk of failure. Historically, smaller
companies' stocks have experienced a greater degree of market volatility
than average.
</TABLE>
<TABLE>
SBSF CAPITAL
GROWTH FUND
<CAPTION>
Average
Annual Return
<S> <C>
One Year 10.07%
Three Years 14.26%
SINCE INCEPTION
11/1/93 8.77%
</TABLE>
<TABLE>
November 30, 1997
SBSF FUND
Statement of Investments
<CAPTION>
SECURITY SHARES OR VALUE
DESCRIPTION PRINCIPAL AMOUNT
<S> <C> <C>
COMMERCIAL PAPER (1.9%)
Financial Services (1.9%)
General Electric Capital Corp.,
5.80%, 12/1/97 $1,752,045 $ 1,752,045
Total Commercial Paper
(Cost $1,752,045) 1,752,045
COMMON STOCKS (98.2%)
Aluminum (1.6%)
Reynolds Metal Co. 25,000 1,423,438
Computers & Peripherals (6.4%)
Cisco Systems, Inc. <F2> 20,000 1,725,000
International Business
Machines Corp. 38,200 4,185,288
5,910,288
Conglomerates (6.8%)
Canadian Pacific, Ltd. 113,600 3,216,300
Corning, Inc. 30,000 1,273,125
Textron, Inc. 30,000 1,773,750
6,263,175
Construction (2.4%)
Beazer Homes USA, Inc. <F2> 125,000 2,218,750
Consumer Products (0.0%)
Carlyle Industries, Inc. <F2> 24,130 37,704
Electronic & Electrical--General (1.6%)
Vishay Intertechnology, Inc. <F2> 69,300 1,468,294
Financial Services (1.7%)
Travelers Group, Inc. 30,000 1,515,000
Food Processing & Packaging (2.3%)
Sara Lee Corp. 40,000 2,115,000
Health Care (1.0%)
HealthPlan Services Corp. 45,882 886,106
Industrial Goods & Services (4.5%)
Dover Corp. 15,300 1,026,056
Hexcel Corp. <F2> 121,300 3,070,407
4,096,463
Insurance (10.0%)
American International
Group, Inc. 30,000 3,024,375
Partner Re Ltd. 115,500 4,995,374
RenaissanceRe Holdings Ltd. 27,000 1,130,625
9,150,374
Investment Companies (1.6%)
Noel Group, Inc. <F2> 225,000 787,500
Tele-communications TCI
Ventures Group, Class A <F2> 29,104 658,478
1,445,978
Medical Services (3.5%)
Tenet Healthcare Corp. <F2> 100,000 3,168,750
Medical--Biotechnology (3.9%)
Biogen, Inc. <F2> 44,800 1,568,000
Genzyme Corp.--Tissue Repair <F2> 2,280 17,385
Genzyme Corp. <F2> 76,000 2,037,750
3,623,135
Metals & Mining (0.7%)
Cleveland Cliffs, Inc. 14,500 625,313
Oil & Gas Exploration, Production & Services (8.9%)
Anadarko Petroleum Corp. 40,000 2,600,000
Forcenergy, Inc. <F2> 90,000 2,795,624
Noble Affiliates, Inc. 74,200 2,754,675
8,150,299
Pharmaceuticals (5.1%)
American Home Products Corp. 25,000 1,746,875
SmithKline Beecham PLC ADR 60,000 2,977,500
4,724,375
Pollution Control Services & Equipment (2.0%)
Waste Management, Inc. 75,000 1,846,875
Radio & Television (1.3%)
Tele-Communications, Inc.,
Class A <F2> 50,896 1,165,837
Real Estate (3.6%)
Avatar Holdings, Inc. <F2> 119,347 3,341,716
Real Estate Investment Trusts (6.3%)
Cousins Properties, Inc. 100,000 3,025,000
Security Capital Industrial Trust 108,333 2,728,637
5,753,637
Semiconductors (5.9%)
Intel Corp. 46,000 3,570,750
LSI Logic Corp. <F2> 80,000 1,860,000
5,430,750
Steel (2.5%)
J&L Speciality Steel, Inc. 235,000 2,291,250
Utilities--Electric (3.2%)
Northeast Utilities 225,000 2,910,938
Utilities--Telecommunications (11.4%)
AirTouch
Communications, Inc. <F2> 140,000 5,494,999
Bell Atlantic Corp. 28,400 2,534,700
GTE Corp. 48,500 2,452,281
10,481,980
Total Common Stocks
(Cost $68,504,975) 90,045,425
WARRANTS (0.0%)
Real Estate Investment Trusts (0.0%)
Security Capital Group,
Class B Warrants 5,043 27,105
Total Warrants (Cost $0) 27,105
Total Investments
(Cost $70,257,020) <F1> 100.1% 91,824,575
Other assets in excess of liabilities (0.1)% (90,649)
TOTAL NET ASSETS 100.0% $91,733,926
<FN>
<F1> Cost for federal income tax purposes differs from value by net unrealized appreciation of securities as follows:
Unrealized appreciation $24,933,275
Unrealized depreciation (3,365,720)
Net unrealized appreciation $21,567,555
<F2> Non-income producing securities.
PLC Public Liability Company
ADR American Depository Receipt
See accompanying Notes to Financial Statements
</TABLE>
<TABLE>
November 30, 1997
SBSF CONVERTIBLE SECURITIES FUND
Statement of Investments
<CAPTION>
SECURITY SHARES OR VALUE
DESCRIPTION PRINCIPAL AMOUNT
<S> <C> <C>
COMMERCIAL PAPER (1.4%)
Financial Services (1.4%)
General Electric Capital Corp.,
5.80%, 12/1/97 $1,432,263 $ 1,432,263
Total Commercial Paper
(Cost $1,432,263) 1,432,263
COMMON STOCKS (4.0%)
Banks (1.9%)
Commerce Bancorp, Inc. 33,000 1,383,937
Mercantile Bancorporation, Inc. 11,320 588,640
1,972,577
Computers & Peripherals (0.1%)
Data General Corp. <F2> 6,200 111,213
Financial Services (0.9%)
First Republic Bank <F2> 36,582 1,010,578
Steel (1.1%)
A.K. Steel Holding Corp. 58,000 1,141,875
Total Common Stocks
(Cost $2,482,110) 4,236,243
CONVERTIBLE BONDS (43.5%)
Aerospace/Defense (0.5%)
Rohr, Inc., Subordinated
Debentures,
7.00%, 10/1/12,
Continuously Callable @ 100 500,000 484,375
Airlines (0.5%)
Alaska Air Group, Inc.,
Debentures,
6.88%, 6/15/14,
Callable 6/15/98 @ 100.69 500,000 562,500
Banks (0.6%)
Midlantic Corp.,
Subordinated Debentures,
8.25%, 7/1/10,
Continuously Callable @ 100 250,000 576,875
Broadcasting & Publishing (1.1%)
Scholastic Corp.,
Subordinated,
5.00%, 8/15/05,
Callable 8/15/98 @ 100 <F3> 1,000,000 877,500
Thomas Nelson, Inc.,
Subordinated Notes,
5.75%, 11/30/99,
Continuously Callable
@ 103.29 <F3> 325,000 311,594
1,189,094
Commercial Services (1.2%)
Complete Management, Inc.,
Subordinated Debentures,
8.00%, 12/15/03,
Callable 12/6/99 @ 100.00 500,000 551,250
CUC International, Inc.,
Subordinated Notes,
3.00%, 2/15/02,
Callable 2/15/00 @ 101.2 <F3> 250,000 281,563
PhyMatrix Corp.,
Subordinated Debentures,
6.75%, 6/15/03,
Callable 6/18/99 @ 103.86 500,000 448,750
1,281,563
Computers & Peripherals (5.5%)
Convex Computer Corp.,
Subordinated Debentures,
6.00%, 3/1/12,
Continuously Callable @ 100 500,000 488,750
Data General Corp.,
Subordinated Notes,
6.00%, 5/15/04,
Callable 5/18/00 @ 103.43 <F3> 500,000 494,375
EMC Corp., Subordinated Notes,
3.25%, 3/15/02,
Callable 3/15/00 @ 101.3 250,000 365,625
HMT Technology Corp.,
Subordinated Notes,
5.75%, 1/15/04,
Callable 1/20/00 @ 103.29 <F3> 250,000 223,438
HMT Technology Corp.,
Subordinated Notes,
5.75%, 1/15/04,
Callable 1/20/00 @ 103.29 1,250,000 1,117,187
Micron Technology, Inc.,
Subordinated Notes,
7.00%, 7/1/04,
Callable 7/3/01 @ 103 725,000 666,094
Read-Rite Corp.,
Subordinated Notes,
6.50%, 9/1/04,
Callable 9/7/00 @ 103.7 750,000 668,437
Recognition International, Inc.,
Debentures,
7.25%, 4/15/11,
Continuously Callable @ 100
(Called 12/5/97 @ 100) 1,760,000 1,777,599
5,801,505
Conglomerates (2.0%)
MascoTech, Inc.,
Subordinated Debentures,
4.50%, 12/15/03,
Callable 12/15/97 @ 102.5 1,500,000 1,295,625
Ogden Corp., Eurodollar
Subordinated Debentures,
6.00%, 6/1/02,
Callable 6/1/98 @ 100.6 875,000 844,375
2,140,000
Electronic & Electrical--General (1.3%)
Lam Research Corp.,
Subordinated Notes,
5.00%, 9/1/02 <F3> 750,000 674,364
VLSI Technology, Inc.,
Subordinated Notes,
8.25%, 10/1/05,
Callable 10/3/99 @ 102.48 750,000 720,000
1,394,364
Entertainment (0.5%)
Family Golf Centers, Inc.,
Subordinated Notes,
5.75%, 10/15/04,
Callable 10/15/00 @ 102.88 500,000 500,000
Financial Services (0.7%)
Fort Bend Holding Corp.,
Subordinated Debentures,
8.00%, 12/1/05,
Callable 12/1/98 @ 105.6 400,000 725,000
Health Care (1.7%)
NovaCare, Inc.,
Subordinated Debentures,
5.50%, 1/15/00,
Callable 1/15/98 @ 101.57 500,000 485,787
Quantum Health Resources, Inc.,
Subordinated Debentures,
4.75%, 10/1/00,
Callable 10/1/98 @101.36 750,000 703,125
Sunrise Assisted Living, Inc.,
Subordinated Notes,
5.50%, 6/15/02,
Callable 6/15/00 @ 102.2 <F3> 500,000 580,000
1,768,912
Hotels & Motels (1.6%)
CapStar Hotel Co.,
Subordinated Notes,
4.75%, 10/15/04,
Callable 10/15/00 @ 100 500,000 500,000
HFS, Inc., Senior Notes,
4.75%, 3/1/03,
Callable 3/3/00 @ 102.04 525,000 638,531
Hilton Hotels Corp.,
Subordinated Notes,
5.00%, 5/15/06,
Callable 5/15/99 @ 102.86 500,000 570,000
1,708,531
Insurance (2.7%)
First Central Financial Corp.,
Subordinated Debentures,
9.00%, 8/1/00,
Callable 8/1/98 @ 100.63 <F4> 76,000 15,200
Pioneer Financial Services, Inc.,
Subordinated Notes,
6.50%, 4/1/03,
Callable 4/6/99 @ 103.30 1,600,000 2,818,000
2,833,200
Medical Equipment & Supplies (0.6%)
ThermoTrex Corp.,
3.25%, 11/1/07,
Callable 11/1/00 @ 100,
Guaranteed by Thermo Electron 620,000 620,000
Medical--Biotechnology (4.9%)
Centocor, Inc., Eurodollar
Subordinated Debentures,
6.75%, 10/16/01,
Callable 10/16/98 @ 100 <F3> 3,000,000 3,015,000
PerSeptive Biosystems, Inc.,
Subordinated Notes,
8.25%, 8/15/01,
Callable 8/25/98 @ 103.54 2,000,000 2,075,000
5,090,000
Office Equipment & Supplies (Non-Computer Related) (0.2%)
U.S. Office Products Co.,
Subordinated Notes,
5.50%, 5/15/03,
Callable 5/15/99 @ 103.14 <F3> 250,000 234,063
Oil & Gas Exploration, Production & Services (1.6%)
Lomak Petroleum, Inc.,
Subordinated Debentures,
6.00%, 2/1/07,
Callable 2/1/00 @ 104 <F3> 750,000 827,813
SFP Pipeline Holdings, Inc.,
Debentures,
11.16%, 8/15/10 500,000 838,750
1,666,563
Oil-Integrated Companies (0.9%)
Pennzoil Co.,
Subordinated Debentures,
6.50%, 1/15/03,
Callable 1/15/98 @ 103.25 500,000 958,125
Oilfield Services & Equipment (1.1%)
Diamond Offshore Drilling, Inc.,
Subordinated Notes,
3.75%, 2/15/07,
Callable 2/22/01 @ 102.08 475,000 640,656
Loews Corp.,
Subordinated Notes,
3.13%, 9/15/07,
Callable 9/15/02 @ 101.56,
Convertible into Shares
of Diamond Offshore
Drilling, Inc. 500,000 500,000
1,140,656
Pharmaceuticals (1.4%)
ALZA Corp.,
Subordinated Debentures,
5.00%, 5/1/06,
Callable 5/1/01 @ 102.14 975,000 955,500
Atrix Labs, Inc.,
Subordinated Notes,
7.00%, 12/1/04,
Callable 12/5/00 @ 103 <F3> 500,000 500,000
1,455,500
Pollution Control Services & Equipment (0.5%)
USA Waste Services, Inc.,
Subordinated Notes,
4.00%, 2/1/02,
Callable 2/1/00 @ 101.6 500,000 507,500
Primary Metal & Mineral Production (0.4%)
Homestake Mining Co., Eurodollar
Subordinated Debenture,
5.50%, 6/23/00,
Continuously Callable @ 100 <F3> 500,000 467,800
Real Estate Investment Trusts (2.4%)
Health Care Property Investors, Inc.,
Subordinated,
6.00%, 11/8/00,
Callable 11/15/98 @ 100 <F3> 950,000 984,438
Macerich Co.,
Subordinated,
7.25%, 12/15/02,
Callable 6/15/02 @ 100 <F3> 500,000 493,125
Meditrust, Debentures,
7.50%, 3/1/01,
Callable @ Par 840,000 1,071,000
2,548,563
Retail--Department Stores (0.8%)
Saks Holdings, Inc.,
Subordinated Notes,
5.50%, 9/15/06,
Callable 9/15/99 @ 103.85 1,000,000 881,250
Retail--Drug Stores (1.1%)
Rite Aid Corp.,
Subordinated Notes,
5.25%, 9/15/02,
Callable 9/15/00 @ 102.1 <F3> 1,000,000 1,120,000
Retail--Specialty Stores (4.4%)
Corporate Express, Inc.,
4.50%, 7/1/00,
Callable 7/1/99 @ 101.13 750,000 686,250
General Host Corp.,
Subordinated Notes,
8.00%, 2/15/02,
Callable 2/15/98 @ 102 2,000,000 2,010,000
Michaels Stores, Inc.,
Subordinated Notes,
6.75%, 1/15/03,
Callable 1/15/98 @ 103.16 750,000 771,563
The Sports Authority, Inc.,
Subordinated Notes,
5.25%, 9/15/01,
Callable 9/15/99 @ 102.1 250,000 233,750
The Sports Authority, Inc.,
Subordinated Notes,
5.25%, 9/15/01,
Callable 9/15/99 @ 102.1 <F3> 1,000,000 935,000
4,636,563
Steel (1.9%)
USX Corp.,
Subordinated Debentures,
5.75%, 7/1/01,
Continuously Callable @ 100
(Called 12/12/97 @ 100) 2,000,000 1,997,500
Telecommunications (0.7%)
DSC Communications Corp.,
Subordinated Notes,
7.00%, 8/1/04,
Callable 8/1/00 @ 104, <F3> 750,000 708,750
Wholesale Distribution (0.7%)
Richey Electronics, Inc.,
Subordinated Notes,
7.00%, 3/1/06,
Callable 3/4/99 @ 103.5 750,000 727,500
Total Convertible Bonds
(Cost $42,467,970) 45,726,252
CONVERTIBLE PREFERRED STOCK (46.0%)
Banks (5.2%)
Golden State Bancorp,
8.75%, Series A,
Callable 10/1/98 @ $26.094 25,000 2,050,000
Jefferson-Pilot Corp., 7.25% 27,300 2,880,149
Matewan Bancshares, Inc.,
7.50%, Series A,
Callable 3/15/00 @ $26.125 19,000 501,125
5,431,274
Broadcasting & Publishing (1.0%)
Houston Industries, Inc.,
7.00%, 7/1/00, Convertible into
Shares of TimeWarner, Inc. 19,500 1,082,250
Computers & Peripherals (1.1%)
Unisys Corp., $3.75, Series A 25,000 1,146,875
Conglomerates (0.7%)
Corning Delaware L.P., 6.00%,
Callable 8/5/98 @ $51.80,
Guaranteed by Corning, Inc. 11,200 758,800
Construction (0.9%)
Beazer Homes USA, Inc.,
8.00%, Series A,
Callable 9/1/98 @ $26.25 35,000 964,688
Containers--Metal, Glass, Paper, Plastic (1.3%)
Crown Cork & Seal Co. Inc.,
4.50% 29,000 1,315,875
Financial Services (2.3%)
Mandatory Common
Exchange Trust, 7.25% 20,000 820,000
MCN Financing III, 8.00% 13,100 782,725
Merrill Lynch, IMC Global, Inc.
STRYPES, 6.25% 24,000 834,000
2,436,725
Food Processing & Packaging (0.6%)
Ralston Purina Co., 7.00% 10,000 662,500
Health Care (1.2%)
MedPartners, Inc., 6.50%, TAPS 50,000 1,200,000
Hotels & Motels (0.4%)
Signature Inns, Inc.,
$1.70, Series A 26,000 455,000
Insurance (1.2%)
American Bankers Insurance,
$3.125, Series B,
Callable 8/7/00 @ $51.88 9,000 776,250
PLC Capital Trust II, 6.50% 4,500 238,781
SunAmerica, Inc., $3.188 5,000 232,500
1,247,531
Medical Services (0.2%)
Laboratory Corp. of America,
8.50%, Series A,
Callable 7/7/00 @ $50.00 4,500 235,125
Office Equipment & Supplies (Non-Computer Related) (1.5%)
IKON Office Solutions, Inc.,
$5.04, Series BB 21,500 1,553,375
Oil & Gas Exploration, Production & Services (2.9%)
Lomak Financing Trust,
5.75%,
Callable 11/4/00 @ $52.013 <F3> 5,000 245,625
Occidental Petroleum Corp.,
$3.875,
Callable 2/18/98 @ $51.938 <F3> 23,000 1,523,750
Western Gas Resources, Inc.,
$2.625,
Callable 2/16/98 @ $51.575 30,000 1,233,750
3,003,125
Oil Marketing & Refining (0.9%)
Ultramar Diamond Shamrock Corp.,
5.00%, Callable
6/15/00 @ $50.00 15,000 889,688
Oil-Integrated Companies (2.7%)
Unocal Corp.,
6.25%, Callable 9/3/00 @ $50.00 50,000 2,850,000
Oilfield Services & Equipment (0.8%)
ICO, Inc., $1.6875,
Callable 12/31/97 @ $26.00 36,050 811,125
Paper and Forest Products (3.6%)
Fort James Corp.,
$3.50, Series L 30,000 1,691,250
International Paper Co., 5.25%,
Callable 6/30/99 @ $50.00,
Guaranteed by
International Paper Co. 40,000 2,075,000
3,766,250
Primary Metal & Mineral Production (0.9%)
Amax Gold, Inc.,
$3.75, Series B,
Callable 8/15/98 @ $52.25 4,000 149,500
Cyprus Amax Minerals Co.,
$4.00,
Callable 12/18/97 @ $52.00 16,000 810,000
959,500
Radio & Television (2.5%)
Cablevision System Corp.,
8.50%, Series I,
Callable 11/1/99 @ $25.70 75,000 2,634,375
Real Estate Investment Trusts (5.7%)
Equity Residential Properties Trust,
7.00%, Series E,
Callable 11/1/98 @ $25.875 5,500 153,313
Excel Realty Trust, Inc.,
$2.125, Series A,
Callable 2/5/02 @ $25.00 20,000 585,000
FelCor Suite Hotels, Inc.,
$1.95, Series A,
Callable 4/30/01 @ $25.00 33,000 944,625
Merry Land & Investment Co., Inc.,
$2.15, Series C,
Callable 3/31/00 @ $25.00 36,500 1,012,875
Oasis Residential, Inc.,
$2.25, Series A,
Callable 4/30/01 @ $25.00 25,000 625,000
Rouse Co.,
$3.00, Series B 25,500 1,274,999
Vornado Realty Trust,
6.50%, Series A 20,500 1,372,218
5,968,030
Retail (0.9%)
K-Mart Financing, 7.75%,
Callable 6/17/99 @ $52.713 17,000 941,375
Software & Computer Services (1.4%)
Microsoft Corp.,
$2.196, Series A 17,000 1,505,563
Steel (0.4%)
USX Capital Trust I, 6.75%,
Callable 4/1/98 @ $51.625 10,000 469,375
Telecommunications (2.2%)
AirTouch Communications, Inc.,
4.25%, Series C,
Callable 8/16/00 @ $50.00 20,000 1,210,000
Intermedia Communications, Inc.,
7.00%,
Callable 7/19/00 @ $26.00 <F3> 15,000 508,125
QUALCOMM Financial Trust,
5.75%,
Callable 3/4/00 @ $51.00 <F3> 10,000 560,000
2,278,125
Tobacco & Tobacco Products (0.4%)
DECS Trust, 8.50%,
Convertible to .8333 Shares
of Dimon, Inc. 15,000 367,500
Transportation Leasing & Trucking (0.6%)
Automatic Common Exchange
Security Trust II, 6.50%
(Convertible to shares of Republic
Industries, Inc.) TRACES 25,000 670,313
Utilities--Electric (1.3%)
AES Trust,
5.38%, Series A,
Callable 3/31/00 @ $51.68,
Guaranteed by AES Corp. 10,000 595,000
Citizens Utilities Trust,
5.00%, Callable 2/1/99
@ $50.00, Guaranteed by
Citizens Utility Co. 16,500 789,938
1,384,938
Utilities--Telecommunications (1.2%)
SBC Communications, Inc.,
7.75%, Convertible into
Shares of Telefonos de Mexico
or Cash 10,000 472,500
Sprint Corp., 8.25% 20,000 820,000
1,292,500
Total Convertible Preferred Stock
(Cost $42,260,845) 48,281,800
CORPORATE BONDS (1.5%)
Financial Services (1.1%)
Bank Plus Corp., Senior Notes,
12.00%, 7/18/07,
Callable 11/15/05 @ 110 1,000,000 1,122,500
Insurance (0.4%)
National Re Corp., Senior Notes,
8.85%, 1/15/05 400,000 447,500
Total Corporate Bonds
(Cost $1,506,842) 1,570,000
PREFERRED STOCKS (2.6%)
Banks (2.6%)
California Federal Preferred Capital,
9.13%, Series A,
Callable 12/31/02 @ $26.14 20,000 531,250
Chevy Chase Savings Bank,
13.00%,
Callable 5/1/03 @ $27.25 25,000 762,500
Riggs National Corp.,
10.75%, Series B,
Callable 10/1/98 @ 27.25 50,000 1,421,875
Total Banks 2,715,625
Total Preferred Stocks
(Cost $2,488,250) 2,715,625
U.S.TREASURY BILLS (0.0%)
12/4/97 $ 5,000 4,997
Total U.S.Treasury Bills
(Cost $4,997) 4,997
Total Investments
(Cost $92,643,277) <F1> 99.0% 103,967,180
Other assets in excess of liabilities 1.0% 1,014,921
TOTAL NET ASSETS 100.0% $104,982,101
<FN>
<F1> Cost for federal income tax purposes differs from value by net unrealized appreciation of securities as follows:
Unrealized appreciation $12,494,380
Unrealized depreciation (1,170,477)
Net unrealized appreciation $11,323,903
<F2> Non-income producing securities.
<F3> 144a security which is restricted as to resale to institutional investors.
<F4> Security has defaulted on interest payments.
STRYPES Structured Yield Product Exchangeable for Stock
TAPS Threshold Appreciation Price Secutities
TRACES Trust Automatic Common Exchange Securities
See accompanying Notes to Financial Statements
</TABLE>
<TABLE>
November 30, 1997
SBSF CAPITAL GROWTH FUND
Statement of Investments
<CAPTION>
SECURITY SHARES OR VALUE
DESCRIPTION PRINCIPAL AMOUNT
<S> <C> <C>
COMMERCIAL PAPER (1.5%)
Financial Services (1.5%)
General Electric Capital Corp.,
5.80%, 12/1/97 $ 559,553 $ 559,553
Total Commercial Paper
(Cost $559,553) 559,553
COMMON STOCKS (98.6%)
Airlines (1.0%)
Trans World Airlines, Inc. <F2> 50,000 378,125
Apparel (1.4%)
Ashworth, Inc. <F2> 50,000 543,750
Apparel--Footwear (1.1%)
Steven Madden Ltd. <F2> 60,000 423,750
Chemicals--General (0.9%)
Brunswick Technologies, Inc. <F2> 20,000 347,500
Commercial Services (5.7%)
Abacus Direct Corp. <F2> 15,000 626,250
Cornell Corrections, Inc. <F2> 25,000 437,500
Hooper Holmes, Inc. 40,000 635,000
Securacom, Inc. <F2> 50,000 518,750
Substance Abuse
Technologies, Inc. <F2> 100,000 3,500
2,221,000
Computers & Peripherals (6.2%)
Eltron International, Inc. <F2> 15,000 468,750
In Focus Systems, Inc. <F2> 15,000 493,125
Sequent Computer
Systems, Inc. <F2> 18,000 418,500
Standard Microsystems Corp. <F2> 33,400 365,313
UniComp, Inc. <F2> 70,000 682,500
2,428,188
Construction (0.6%)
Schuff Steel Co. <F2> 20,000 221,250
Cosmetics & Related (2.6%)
Enamelon, Inc. <F2> 30,000 506,250
French Fragrances, Inc. <F2> 50,000 490,625
996,875
Electronic & Electrical--General (4.0%)
Printrak International, Inc. <F2> 29,000 282,750
Sipex Corp. <F2> 20,000 622,500
Uniphase Corp. <F2> 16,000 642,000
1,547,250
Food Processing & Packaging (1.2%)
American Italian Pasta Co.,
Class A <F2> 20,000 472,500
Household Goods--Appliances,
Furnishings & Electronics (0.5%)
Meadowcraft, Inc. <F2> 14,000 187,250
Industrial Goods & Services (0.5%)
Middleby Corp. <F2> 20,000 207,500
Leisure--Recreation, Gaming (4.2%)
American Skiing Corp. <F2> 30,000 435,000
Anchor Gaming <F2> 7,000 556,500
The North Face, Inc. <F2> 30,000 652,500
1,644,000
Manufacturing--Miscellaneous (0.8%)
Flanders Corp. <F2> 40,000 300,000
Medical Equipment & Supplies (3.4%)
Bionx Implants, Inc. <F2> 15,000 315,000
Cooper Cos., Inc. <F2> 10,000 390,625
Perclose, Inc. <F2> 15,000 307,500
Spine-Tech, Inc. <F2> 10,000 329,375
1,342,500
Medical Services (0.6%)
Renex Corp. <F2> 30,000 217,500
Medical--Biotechnology (2.0%)
Martek Biosciences Corp. <F2> 40,000 450,000
Matritech, Inc. <F2> 60,000 330,000
780,000
Metals--Nonferrous (0.4%)
International Precious
Metals Corp. <F2> 100,000 156,250
Oil & Gas Exploration, Production & Services (4.2%)
Bellwether Exploration Co. <F2> 40,000 420,000
Continental Natural Gas, Inc. <F2> 35,000 393,750
Magnum Hunter
Resources, Inc. <F2> 50,000 287,500
Swift Energy Co. <F2> 25,000 543,750
1,645,000
Oilfield Services & Equipment (11.3%)
Diamond Offshore Drilling, Inc. 10,000 498,750
Global Industries Ltd. <F2> 35,000 560,000
Grey Wolf, Inc. <F2> 80,000 495,000
Marine Drilling Cos., Inc. <F2> 20,000 455,000
Midcoast Energy Resources, Inc. 12,000 262,500
Patterson Energy, Inc. <F2> 12,000 441,000
Pool Energy Services Co. <F2> 15,000 388,125
Pride International, Inc. <F2> 18,000 497,250
Superior Energy Services, Inc. <F2> 40,000 427,500
Venture Seismic Ltd. <F2> 50,000 362,500
4,387,625
Pharmaceuticals (4.5%)
Celegene Corp. <F2> 33,000 299,063
Coulter Pharmaceutical, Inc. <F2> 25,000 490,625
DUSA Pharmaceuticals, Inc. <F2> 40,000 525,000
VIVUS, Inc. <F2> 20,000 447,500
1,762,188
Radio & Television (4.2%)
Echostar Communications,
Class A <F2> 30,000 536,250
Jacor Communications, Inc. <F2> 12,000 525,000
Westwood One, Inc. <F2> 20,000 587,500
1,648,750
Restaurants (1.6%)
The Cheesecake Factory <F2> 20,000 615,000
Retail--Specialty Stores (1.2%)
Claire's Stores, Inc. 20,000 452,500
Software & Computer Services (19.0%)
Accelr8 Technology Corp. <F2> 35,000 765,624
At Home Corp., Series A <F2> 20,000 412,500
Ciber, Inc. <F2> 15,000 660,000
Hyperion Software Corp. <F2> 18,000 775,687
Intelligent Electronics, Inc. <F2> 100,000 512,500
InterVU, Inc. <F2> 20,000 197,500
Intuit, Inc. <F2> 18,000 543,375
ISG International Software
Group Ltd. <F2> 40,000 500,000
Lycos, Inc. <F2> 15,000 458,438
Mercury Interactive Corp. <F2> 20,000 487,500
Platinum Technology, Inc. <F2> 20,000 520,000
SEEC, Inc. <F2> 30,000 525,000
Summit Design, Inc. <F2> 30,000 412,500
Visio Corp. <F2> 16,000 602,000
7,372,624
Steel (1.0%)
NS Group, Inc. <F2> 20,000 375,000
Telecommunications (5.7%)
American Communications
Services, Inc. <F2> 50,000 656,250
Mobile Telecommunication
Technologies Corp. <F2> 30,000 521,250
Paging Network, Inc. <F2> 40,000 482,500
Star Telecommunications,
Inc. <F2> 20,000 575,000
2,235,000
Tobacco & Tobacco Products (2.8%)
800-JR CIGAR, Inc. <F2> 18,000 495,000
General Cigar Holdings, Inc. <F2> 25,000 587,500
1,082,500
Transportation Leasing & Trucking (1.4%)
Budget Group Inc., Class A <F2> 15,000 532,500
Transportation Services (1.3%)
Kitty Hawk, Inc. <F2> 30,000 525,000
Utilities--Telecommunications (3.3%)
NEXTLINK Communications, Inc.,
Class A <F2> 20,000 405,000
Pacific Gateway
Exchange, Inc. <F2> 15,000 583,125
Teligent Inc., Class A ( b) 12,000 307,500
1,295,625
Total Common Stocks
(Cost $36,470,370) 38,344,500
Total Investments
(Cost $37,029,923) <F1> 100.1% 38,904,053
Liabilities in excess of other assets (0.1)% (25,184)
TOTAL NET ASSETS 100.0% $38,878,869
<FN>
<F1> Represents cost for financial reporting purposes and differs from
cost basis for federal income tax purposes by the amount of losses
recognized for financial reporting purposes in excess of federal income
tax reporting of approximately $53,854. Cost for federal income tax
purposes differs from value by net unrealized appreciation of securities
as follows:
Unrealized appreciation $5,764,495
Unrealized depreciation (3,944,219)
Net unrealized appreciation $1,820,276
<F2> Non-income producing securities.
See accompanying Notes to Financial Statements
</TABLE>
<TABLE>
November 30, 1997
KEY MUTUAL FUNDS
Statements of Assets and Liabilities
<CAPTION>
SBSF SBSF
Convertible Capital
SBSF Securities Growth
Fund Fund Fund
<S> <C> <C> <C>
ASSETS
Investments, at value (Cost $70,257,020; $92,643,277;
and $37,029,923, respectively) $91,824,575 $103,967,180 $38,904,053
Interest and dividends receivable 108,301 888,264 1,931
Receivable for capital shares issued -- 85,328 --
Receivable for investments sold 214,018 1,646,655 581,981
Unamortized organization costs -- -- 5,666
Prepaid expenses and other assets 6,773 4,362 5,788
Total Assets 92,153,667 106,591,789 39,499,419
LIABILITIES
Call options written, at value (premium received $417,236) 271,250 -- --
Payable for investments purchased -- 1,445,847 553,549
Accrued expenses and other payables:
Investment advisory fees 57,123 63,987 25,235
Administration fees 2,566 2,836 1,327
Accounting fees 854 -- --
Custodian fees 6,383 7,421 5,944
Transfer agent fees 17,220 8,934 5,910
Shareholder servicing fees 2,167 21,442 2,670
Audit and legal fees 61,668 58,132 24,186
Other 510 1,089 1,729
Total Liabilities 419,741 1,609,688 620,550
NET ASSETS--Applicable to 4,998,940, 7,324,852 and 3,557,883 shares
of capital stock outstanding, respectively 91,733,926 104,982,101 38,878,869
NET ASSETS
Shares of Capital Stock, $0.01 par value 49,989 73,249 35,579
Paid in Capital 51,814,829 84,673,109 32,502,273
Undistributed (distributions in excess of)
net investment income -- 200,764 --
Net unrealized apppreciation/ depreciation
on investments and options 21,713,541 11,323,903 1,874,130
Accumulated undistributed net realized gains
(losses) on investment transactions 18,155,567 8,711,076 4,466,887
NET ASSETS $91,733,926 $104,982,101 $38,878,869
NET ASSET VALUE AND REDEMPTION VALUE PER SHARE $ 18.35 $ 14.33 $ 10.93
</TABLE>
<TABLE>
For the Year Ended November 30, 1997
KEY MUTUAL FUNDS
Statements of Operations
SBSF SBSF
Convertible Capital
SBSF Securities Growth
Fund Fund Fund
<S> <C> <C> <C>
INVESTMENT INCOME
Interest income $ 1,192,099 $ 2,554,614 $ 69,414
Dividend income 127,906 2,237,034 82,346
Foreign taxes withheld (10,129) -- --
Total Income 1,309,876 4,791,648 151,760
EXPENSES
Investment advisory fees 761,634 595,753 290,560
Administration fees 202,306 169,130 96,853
Accounting fees 13,960 9,899 5,720
Transfer agent fees 54,177 30,765 22,097
Legal and audit fees 149,529 130,119 59,232
Custodian fees 24,291 22,741 23,076
Directors fees and expenses 15,269 10,462 5,457
Shareholder reports 8,412 9,678 3,875
Registration and filing fees 16,617 15,267 16,096
Shareholder servicing fees 8,401 57,866 19,097
Amortization of organization costs -- -- 6,236
Other expenses 19,713 12,839 6,846
Total expenses before expense waivers 1,274,309 1,064,519 555,145
Less: Fee waivers (3,732) -- --
Net Expenses 1,270,577 1,064,519 555,145
NET INVESTMENT INCOME (LOSS) 39,299 3,727,129 (403,385)
REALIZED/UNREALIZED GAINS (LOSSES) FROM INVESTMENTS
Net realized gains from investment transactions 18,135,348 8,742,529 5,443,373
Net change in unrealized appreciation/ depreciation
from investments (8,085,400) (1,161,435) (1,311,083)
Net realized/unrealized gains (losses)
from investments 10,049,948 7,581,094 4,132,290
CHANGE IN NET ASSETS RESULTING FROM OPERATIONS $10,089,247 $11,308,223 $ 3,728,905
See accompanying Notes to Financial Statements
</TABLE>
<TABLE>
For the Years Ended November 30, 1997 and 1996
KEY MUTUAL FUNDS
Statements of Changes in Net Assets
<CAPTION>
SBSF SBSF
SBSF Fund Convertible Securities Fund Capital GrowthFund
1997 1996 1997 1996 1997 1996
<S> <C> <C> <C> <C> <C> <C>
FROM INVESTMENT ACTIVITIES
Operations:
Net investment income (loss) $ 39,299 $ 531,873 $ 3,727,129 $ 3,897,097 $ (403,385) $ (252,695)
Net realized gains (losses) from
investment transactions 18,135,348 16,763,795 8,742,529 3,737,544 5,443,373 (573,100)
Net change in unrealized
appreciation/depreciation
from investments (8,085,400) 7,632,424 (1,161,435) 6,370,235 (1,311,083) 1,847,585
Change in net assets resulting
from operations 10,089,247 24,928,092 11,308,223 14,004,876 3,728,905 1,021,790
DISTRIBUTIONS TO SHAREHOLDERS
From net investment income (139,840) (628,415) (3,805,849) (3,694,435) -- --
From net realized gains
from investments (16,733,981) (12,645,835) (3,736,875) (1,805,432) -- (257,871)
Change in net assets from
distributions to shareholders (16,873,821) (13,274,250) (7,542,724) (5,499,867) -- (257,871)
CAPITAL TRANSACTIONS
Proceeds from shares issued 6,198,706 6,595,476 46,956,723 15,872,775 6,038,768 30,439,903
Dividends reinvested 15,824,142 12,474,301 6,277,398 4,688,385 -- 248,774
Cost of shares redeemed (41,587,880) (26,490,516) (33,495,534) (15,799,899) (7,877,916) (2,889,938)
Change in net assets from
capital transactions (19,565,032) (7,420,739) 19,738,587 4,761,261 (1,839,148) 27,798,739
Change in net assets (26,349,606) 4,233,103 23,504,086 13,266,270 1,889,757 28,562,658
NET ASSETS
Beginning of period 118,083,532 113,850,429 81,478,015 68,211,745 36,989,112 8,426,454
End of period $ 91,733,926 $118,083,532 $104,982,101 $ 81,478,015 $38,878,869 $36,989,112
SHARE TRANSACTIONS
Issued 352,506 384,622 3,386,376 1,270,711 595,146 3,136,929
Reinvested 955,564 789,960 477,615 385,311 -- 26,437
Redeemed (2,439,897) (1,520,772) (2,551,438) (1,253,058) (762,380) (295,144)
Change in shares (1,131,827) (346,190) 1,312,553 402,964 (167,234) 2,868,222
See accompanying Notes to Financial Statements
</TABLE>
<TABLE>
SBSF 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 $ 19.26 $ 17.58 $ 14.54 $ 17.59 $ 15.64
Investment Activities:
Net investment income 0.01 0.08 0.15 0.21 0.34
Net realized and unrealized gains (losses) from investments 1.86 3.63 3.98 (0.94) 3.01
Total from Investment Activities 1.87 3.71 4.13 (0.73) 3.35
Distributions:
Net investment income (0.02) (0.09) (0.20) (0.20) (0.39)
Net realized gains (2.76) (1.94) (0.89) (2.12) (1.01)
Total Distributions (2.78) (2.03) (1.09) (2.32) (1.40)
NET ASSET VALUE, END OF PERIOD $ 18.35 $ 19.26 $ 17.58 $ 14.54 $ 17.59
Total Return 11.25% 23.69% 30.37% (4.99)% 22.95%
RATIOS AND SUPPLEMENTAL DATA
Net assets end of period (000) $91,734 $118,084 $113,850 $109,733 $122,555
Ratio of expenses to average net assets 1.25% 1.27% 1.26% 1.23% 1.15%
Ratio of net investment income
to average net assets 0.07% 0.44% 0.93% 1.31% 2.05%
Ratio of expenses to average net assets <F1> 1.26% 1.28% 1.26% 1.23% 1.15%
Ratio of net investment income
to average net assets <F1> 0.06% 0.43% 0.93% 1.31% 2.05%
Portfolio turnover rate 72% 53% 59% 83% 70%
Average commission rate per share $0.0548 $ 0.0341 -- -- --
<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.
See accompanying Notes to Financial Statements
</TABLE>
<TABLE>
SBSF CONVERTIBLE SECURITIES 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 $ 13.55 $ 12.16 $ 11.05 $ 12.48 $ 10.98
Investment Activities:
Net investment income 0.62 0.65 0.60 0.61 0.57
Net realized and unrealized gains (losses) from investments 1.43 1.68 1.50 (1.12) 1.79
Total from investment operations 2.05 2.33 2.10 (0.51) 2.36
Distributions:
Net investment income (0.65) (0.62) (0.61) (0.61) (0.57)
Net realized gains (0.62) (0.32) (0.38) (0.31) (0.29)
Total Distributions (1.27) (0.94) (0.99) (0.92) (0.86)
Net asset value, end of period $ 14.33 $ 13.55 $ 12.16 $ 11.05 $ 12.48
Total Return 16.26% 20.28% 20.43% (4.36)% 22.42%
RATIOS AND SUPPLEMENTAL DATA
Net assets end of period (000) $104,982 $81,478 $68,212 $58,845 $64,537
Ratio of expenses to average net assets 1.34% 1.31% 1.31% 1.30% 1.24%
Ratio of net investment income
to average net assets 4.75% 5.17% 5.36% 5.20% 4.75%
Portfolio turnover rate 77% 40% 52% 49% 30%
Average commission rate per share $ 0.0584 $0.0413 -- -- --
See accompanying Notes to Financial Statements
</TABLE>
<TABLE>
SBSF CAPITAL GROWTH FUND
Financial Highlights
<CAPTION>
Fiscal Year Ended November 30,
1997 1996 1995 1994 1993 <F2>
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $ 9.93 $ 9.83 $ 7.56 $ 7.88 $ 8.00
Investment Activities:
Net investment income (loss) (0.11) (0.04) (0.02) (0.01) (0.05)
Net realized and unrealized gains (losses) from investments 1.11 0.44 2.29 (0.31) (0.07)
Total from Investment Activities 1.00 0.40 2.27 (0.32) (0.12)
Distributions:
Net realized gains -- (0.30) -- -- --
Total Distributions -- (0.30) -- -- --
NET ASSET VALUE, END OF PERIOD $ 10.93 $ 9.93 $ 9.83 $ 7.56 $ 7.88
Total Return 10.07% 4.22% 30.03% (4.06)% (1.50)% <F3>
RATIOS AND SUPPLEMENTAL DATA
Net Assets at end of period (000) $38,879 $36,989 $8,426 $4,141 $1,656
Ratio of expenses to average net assets 1.43% 1.42% 1.20% 1.22% 2.50% <F4>
Ratio of net investment income
to average net assets (1.04)% (0.76)% (0.22)% (0.17)% (12.65)% <F4>
Ratio of expenses to average net assets <F1> <F5> 1.43% 2.04% 2.22% 3.43% <F4>
Ratio of net investment income
to average net assets <F1> <F5> (0.77)% (1.06)% (1.17)% (13.58)% <F4>
Portfolio Turnover 221% 221% 97% 80% --
Average commission rate $0.0561 $0.0198 -- -- --
<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.
<F2> From November 1, 1993 (commencement of operations) to November 30, 1993.
<F3> Not annualized.
<F4> Annualized.
<F5> There were no waivers or expense reimbursements during the period.
See accompanying Notes to Financial Statements
</TABLE>
KEY MUTUAL FUNDS
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 are the financial
statements and financial highlights of the SBSF Fund, SBSF Convertible
Securities Fund and the SBSF Capital Growth Fund.
The SBSF Fund's investment objective is to seek a high total return
over the long term consistent with reasonable risk. The Fund pursues
its objective by investing primarily in common stocks which in the
opinion of Key Asset Management, Inc. ("KAM" or the "Adviser") have
the potential for appreciation in excess of market averages during
periods of market strength while attempting to preserve capital during
periods of market weakness.
The SBSF Convertible Securities Fund's investment objective is to
seek a high level of current income together with long-term capital
appreciation. The Fund pursues its objective by investing primarily
in convertible bonds, corporate notes, convertible preferred stocks
and other securities convertible into common stock.
The SBSF Capital Growth Fund's investment objective is to seek capital
appreciation. The Fund pursues its objective by investing in equity
securities of companies which the Adviser believes are likely to have
rapid growth in earnings or cash flow.
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>
Key Mutual Funds The Victory Portfolios
<S> <C>
KeyChoice Growth Fund LifeChoice Growth Investor
Fund (new)
KeyChoice Moderate LifeChoice Moderate
Growth Fund Investor Fund (new)
KeyChoice Income and LifeChoice Conservative
Growth Fund Investor Fund (new)
SBSF Fund Victory Diversified Stock
Fund--ClassA 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 Funds in the preparation of their 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 securities exchanges or the Nasdaq National Market
are valued as of the close of regular trading of the New York Stock
Exchange which is generally 4:00 p.m. (Eastern Time) on each business
day of the Funds. 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 offer
price. Listed debt securities and over-the-counter securities are
valued at the mean between the most recent bid and offer 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 general
supervision of the Board of Directors. Money market instruments with
maturities over sixty days are valued at market value, and those with
maturities of sixty days or less are valued at amortized cost, which
approximates market value. Investments in investment companies are
valued at their respective net asset values as reported by such companies.
(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
Each Fund may acquire repurchase agreements from financial institutions
such as banks and broker-dealers which the Funds' 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 a 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 Funds' 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) Securities Lending
The Funds may, from time to time, lend securities from their portfolio
to broker-dealers, banks, financial institutions and institutional
borrowers of securities approved by the Board. The Company will limit
its securities lending to 33 1/3% of the total assets of each Fund.
Key Trust Company of Ohio, N.A. ("Key Trust"), an affiliate of the
Adviser, serves as the lending agent for the Company pursuant to a
Securities Lending Agency Agreement (the "Lending Agreement"). Under
guidelines established by the Board of Trustees, Key Trust must maintain
the loan collateral at all times in an amount equal to at least 102%
of the current market value of the loaned securities in the form of
cash or U.S. Government obligations, to secure the return of the loaned
securities. Key Trust, at the direction of the Adviser, may invest
the collateral in short-term debt instruments that the Adviser has
determined present minimal credit risks. There is a risk of delay
in receiving collateral or in receiving the securities loaned or even
a loss of rights in the collateral should the borrower of the securities
fail financially. By lending its securities, a Fund can increase its
income by continuing to receive interest or dividends on the loaned
securities as well as either investing the cash collateral in short-term
instruments or obtaining yield in the form of interest paid by the
borrower when U.S. Government securities are used as collateral. Loans
are subject to termination by the Funds or the borrower at any time.
During the year ended November 30, 1997, the Funds did not loan any
securities.
(e) Dividends to Shareholders
Dividends from net investment income are declared and paid quarterly
for the SBSF Convertible Securities Fund. Dividends from net investment
income, if any, are declared and paid semi-annually for the SBSF Fund
and the SBSF Capital Growth Fund. Distributable 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.
(f) Federal Income Taxes
It is the policy of each 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.
(g) Other
Expenses that are directly related to one of the Funds are charged
directly to that Fund. Other operating expenses of the Funds are prorated
to each Fund on the basis of relative net assets or other appropriate
basis.
Costs incurred in connection with the organization of the SBSF Capital
Growth Fund are being amortized on a straight-line basis over a period
not to exceed sixty months from the date the Fund commenced operations.
Note 3
Purchases and Sales of Securities
Purchases and sales of securities (excluding short-term securities)
for the year ended November 30, 1997 were as follows:
<TABLE>
<CAPTION>
Purchases Sales
<S> <C> <C>
SBSF Fund $70,667,142 $103,316,190
SBSF Convertible Securities Fund $72,625,188 $59,134,404
SBSF Capital Growth Fund $80,319,036 $82,998,182
</TABLE>
The SBSF Fund's activity in written options for the year ended November
30, 1997 was as follows:
<TABLE>
<CAPTION>
Principal
Amount of Contract
Contracts Premium
<S> <C> <C>
Balance at beginning of period $ 0 $ 0
Options written 271,250 417,236
Options closed 0 0
Options exercised 0 0
Options outstanding
at end of period $271,250 $417,236
</TABLE>
Note 4
Related Party Transactions
Investment advisory services are provided to the Funds 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 0.75% of the average daily net assets of the Funds. KeyTrust
Company of Ohio, N.A., a subsidiary of KeyCorp and an affiliate of
the Adviser, serving as custodian for all of the Funds, received 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 Funds. 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 Funds. Certain officers of the Funds 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
and 0.15% of such net assets in excess of $50 million. Pursuant to
its authority to delegate its responsibilities under the Administration
Agreement, BISYS entered into a Sub-Administration Agreement with
KAM whereby KAM performs certain sub-administrative services for the
Funds at the expense of BISYS.
As of October 13, 1997, BISYS Fund Services, Ohio, Inc., an affiliate
of BISYS, serves the Funds 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 Funds in maintaining
competitive expense ratios.
Additional information regarding related party transactions is as
follows for the year ended November 30, 1997:
<TABLE>
<CAPTION>
Administration
Fees
Voluntarily
Reduced
<S> <C>
SBSF Fund $3,732
</TABLE>
Note 5
Federal Income Tax Information (Unaudited)
For the taxable year ended November 30, 1997, the following percentages
of income dividends paid by the following Funds qualify for the dividends
received deduction available to corporations:
<TABLE>
<CAPTION>
Qualified
Dividend
Income
<S> <C>
SBSF Fund 0.75%
SBSF Convertible Securities Fund 39.52%
</TABLE>
KEY MUTUAL FUNDS
Report of Independent Accountants
To the Board of Directors and Shareholders
of Key Mutual Funds (SBSF Funds, Inc.):
We have audited the accompanying statements of assets and liabilities
of the SBSF Fund, the SBSF Convertible Securities Fund and
the SBSF Capital Growth Fund, three portfolios of the Key Mutual Funds
(SBSF Funds, Inc.), including the schedules of portfolio investments,
as of November 30, 1997, and the related statements of operations,
statements 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 Mutual Funds' (SBSF Funds,
Inc.'s) management. Our responsibility is to express an opinion on
these financial statements and financial highlights based on our audits.
The financial statements and financial highlights of the SBSF Fund,
the SBSF Convertible Securities Fund and the SBSF Capital Growth 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 audits 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 audits
provide 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 SBSF Fund, the SBSF Convertible Securities Fund and
the SBSF Capital Growth Fund as of November 30, 1997, and the results
of their operations, the changes in their net assets and their financial
highlights for the year then ended in conformity with generally accepted
accounting principles.
COOPERS & LYBRAND, L.L.P.
Columbus, Ohio
January 16, 1998
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