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KeyPremier Funds
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Dear Shareholder:
We are pleased to present this semi-annual report for the KeyPremier Funds,
which covers the six-month period ended December 31, 1998. The period saw
significant volatility in the financial markets, fueled in large part by
concerns about economic problems in Asia, Russia and South America. But a series
of interest rate cuts by the Federal Reserve Board ignited a remarkable rebound.
The period ended with solid gains for the large-company stocks that make up the
Standard & Poor's 500 Index.(1) Small-company domestic stocks trailed the
overall market once again but showed signs of recovering late in the period. The
bond market also posted gains thanks to low inflation. U.S. Treasury bonds were
especially strong, as investors favored stable, high-quality securities.
Our newest Fund, the KeyPremier Emerging Growth Fund, performed well this
period. The Fund's return was 10.36% (without sales load), compared to its
benchmark, the Russell 2000 Index,(2) which had a return of -7.12% for the same
six-month period. The Fund focuses on shares of micro-capitalization firms,
which historically have been outstanding long-term performers. The market's
third quarter decline was an excellent time for the Fund to start investing in
well-managed micro-cap companies.
On the following pages, you will find remarks from the members of Martindale
Andres & Company, Inc., the day-to-day managers of your Funds. Robert Andres,
managing principal of Martindale Andres, provides an overview of the economic
and market factors that influenced the firm's investment decisions during the
past six months, as well as his outlook for future market conditions. You also
will find remarks about each of the individual Funds from their respective
portfolio managers.
The discussions should help you to understand the approach each fund manager
takes to pursue the Fund's objectives. You will also find a schedule of Fund
holdings, with financial highlights and statements. Please read the information,
which is designed to help you understand the role each Fund can play in your
overall portfolio.
Thank you for your investment in the KeyPremier Funds. Please feel free to
contact the Funds at (800) 766-3960 with questions or comments.
Sincerely,
/s/ Robert E. Leech
Robert E. Leech
President and CEO
Keystone Asset Management Division
This material is authorized for distribution only when preceded or accompanied
by a prospectus.
Martindale Andres & Company, Inc. is a wholly owned subsidiary of Keystone
Financial, Inc. and provides investment advisory and other services to the Funds
and receives fees for those services. The Funds are distributed by BISYS Fund
Services Limited Partnership. Mutual funds are NOT FDIC INSURED and are not
insured by any other government agency or by the U.S. Government. There is no
bank guarantee, and shares of the Funds may lose value.
(1) The Standard & Poor's 500 Index is an unmanaged index that is generally
representative of the performance of the large-capitalization equity market.
The index does not reflect the deduction of fees associated with a mutual
fund, such as investment management and fund accounting fees. The Fund's
performance reflects the deduction of fees for these value-added services.
(2) The Russell 2000 Index is an unmanaged index that is generally
representative of 2,000 small-capitalization stocks in the U.S. stock
market. The index does not reflect the deduction of fees associated with a
mutual fund, such as investment management and fund accounting fees. The
Fund's performance reflects the deduction of fees for these value-added
services.
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<PAGE> 2
MESSAGE FROM THE INVESTMENT ADVISER KeyPremier Funds
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Dear KeyPremier Fund Shareholder:
We are pleased to send you this semi-annual report for the six-months ended
December 31, 1998. Strong performances by the stock and bond markets, as well as
significant volatility, marked the period. Economic growth was moderate;
inflation remained low; and interest rates declined.
The Standard & Poor's 500 Index(1) of large-company stocks gained 9% during the
period, but the gain was hard-won. Investors, in our view, early in the period
fretted as the effects of the Asian economic crisis spilled over into other
regions, such as Russia and Latin America. Two events in particular may have
worried investors: Russia defaulted on its short-term debt, while a large U.S.
hedge fund, Long-Term Capital Management, nearly went bankrupt. Investors may
have been concerned that these events could lead to a credit crunch. Uncertainty
about the political fate of President Clinton also may have caused some
uneasiness in the market. The S&P 500 Index fell by nearly 10% in the third
quarter, while the Russell 2000 Index(2) of small-company stocks fell 20% as
investors favored shares of large, well-known firms.
However, stocks came roaring back in the fourth quarter of 1998. The Federal
Reserve Board avoided a credit crunch by cutting the federal funds rate, the
interest banks charge for overnight loans, in September, October and November.
There were signs that the global economic crisis had not affected U.S. economic
growth significantly. Interest rates fell; inflation stayed low; and corporate
earnings remained strong. During the fourth quarter, the S&P 500 Index gained
21.40%, while the Russell 2000 Index posted a total return of 16.30%.
The period also saw the continued dominance of large-company stocks, which have
led the market's gains during the last four years. Investors, in our view,
favored very large, highly liquid stocks due to the severe level of volatility
in the stock market. In particular, shares of technological companies performed
well, as did consumer non-cyclicals such as utilities and pharmaceutical
companies.
Small-company stocks rallied during the fourth quarter. During the third
quarter, the gap between small-cap performance and large-cap performance was at
a 40-year extreme, giving small caps very attractive valuations. Small
companies, in our view, may offer better value given their longer-term growth
prospects.
Fixed-income securities performed well as investors flocked to Treasury
securities in the wake of lowered short-term rates and continued global economic
crises. Inflation also was at its lowest rate since 1986, and once again did not
rise despite reasonable economic growth. This reflected a decline in commodity
prices due to economic problems in underdeveloped countries. The yield on a
30-year Treasury bond began the period at 5.58% and finished it at 5.10%. During
the fourth quarter, long-term rates were at their lowest level in 30 years.
We have seen four consecutive years during which the S&P 500 Index has gained
20% or more. This is unprecedented--and it may not continue. We believe that the
stock market returns going forward will be closer to average annual returns
during the past--around 8% to 10% a year. In that environment, Martindale Andres
will continue to seek superior performance through careful investment research.
We believe there is some uncertainty in the fixed-income markets, because
interest rates and inflation are at historically low levels. There is good news
priced in the bond market. We cannot foresee rates rising dramatically, but the
market is quite vulnerable to surprises such as a rise in commodity prices.
One final thought: Very few investors expected the stock market to bounce back
as strongly as it did in
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MESSAGE FROM THE INVESTMENT ADVISER KeyPremier Funds
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the last few months of 1998. Investors, who sold their stocks during the market
downturn, turned a temporary loss into a permanent one. We believe it is highly
unlikely that they reentered the market in time to capture fourth quarter
returns. The moral is clear: Long-term investing calls for patience and, at
times, a degree of fortitude.
Sincerely,
/s/ Robert P. Andres
Robert P. Andres
Managing Principal
Martindale Andres & Company
(1) The Standard & Poor's 500 Index is an unmanaged index that is generally
representative of the performance of the large-capitalization equity market.
The index does not reflect the deduction of fees associated with a mutual
fund, such as investment management and fund accounting fees. The Funds'
performance reflects the deduction of fees for these value-added services.
(2) The Russell 2000 Index is an unmanaged index that is generally
representative of 2,000 small-capitalization stocks in the U.S. stock
market. The index does not reflect the deduction of fees associated with a
mutual fund, such as investment management and fund accounting fees. The
Funds' performance reflects the deduction of fees for these value-added
services.
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<PAGE> 4
MESSAGE FROM THE INVESTMENT ADVISER KeyPremier Funds
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KEYPREMIER AGGRESSIVE GROWTH FUND(+)
Q. HOW DID THE FUND PERFORM DURING THE SIX-MONTHS ENDED DECEMBER 31, 1998?
A. Relatively well, considering the conditions in the small-cap market. The
Fund's total return was -2.21% (without the sales load).(1) Its benchmark,
the Russell 2000 Index,(2) return was -7.12% during the same period.
Q. HOW DID THE PAST YEAR'S ENVIRONMENT FOR SMALL-COMPANY STOCKS AFFECT THE FUND?
A. During the third quarter, continued financial turmoil in Russia, Asia and
Latin America prompted fears of a global recession. Investors sought the
relative safety of the largest blue-chip stocks. The third-quarter sell-off
in the stock market was extremely pronounced among shares of small and
medium-sized companies. Shares of small technology firms were hit hard.
By the end of the third quarter, however, investors were beginning to look
for bargains in the stock market, especially in the oversold technology
sector. Confidence returned during the fourth quarter, and stock prices rose
sharply. Small-company stocks did especially well during the rally, due to
their low valuations and because, in our view, investors feared that large-
cap earnings would be adversely affected by turmoil in the global markets.
Q. WHERE DID YOU FIND OPPORTUNITIES DURING THE PERIOD?
A. We entered the third quarter with an unusually large cash stake, so we were
able to take advantage of that quarter's indiscriminate sell-off of quality
stocks. In the technology sector, we were able to purchase shares of
semiconductor and telecommunication companies with what we believe to have
superior earnings growth projections and sustainable competitive advantages.
For example, at the end of the period, we purchased shares of Hutchinson
Technology Incorporated (4.2% of the portfolio), that supplies disk drive
suspension assembly components to nearly every U.S. maker of disk drives. We
increased the Fund's position in Computer Networking Technologies (2.5%) and
maintained our position in Compuware Corp. (7.0%). We eliminated the Fund's
position in Fingerhut Companies Inc.*
Q. DID YOU EMPLOY OTHER STRATEGIES TO HELP BOOST RETURNS?
A. The Fund maintained a low turnover rate, and we were sensitive to the tax
implications of transactions.
Q. WHAT IS YOUR OUTLOOK FOR SMALL-COMPANY STOCKS GOING FORWARD, AND HOW WILL YOU
MANAGE THE FUND WITH THAT IN MIND?
A. While we are optimistic about long-term economic growth, we advise investors
not to base their expectations on the stock market's exceptionally strong
performance during the past four years. It seems likely that returns in the
stock market going forward will be closer to historic rates of return.
We believe that small and mid-sized companies are more likely to deliver
strong earnings growth than are large companies, which are more vulnerable
to global economic turmoil. As a result, small-cap shares may do relatively
well.
We also expect the market to continue to be volatile. In that environment,
managers who focus on individual stock selection may fare the best. The Fund
has a relatively small number of positions, so the Fund's manager is able to
investigate in depth each company's management, philosophy and operations.
(+) Small-capitalization funds typically carry additional risks, since smaller
companies generally have a higher risk of failure and, by definition, are
not as well-established as "blue-chip" companies. Historically, smaller
companies' stocks have experienced a greater than average degree of market
volatility.
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<PAGE> 5
MESSAGE FROM THE INVESTMENT ADVISER KeyPremier Funds
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(1) The six-month return, with the maximum sales charge of 4.50%, was -6.63%.
For the same period, the total return set forth may reflect the waiver of a
portion of the Fund's advisory or administrative service fees. In such
instances, and without waiver of fees, total return would have been lower.
(2) The Russell 2000 Index is an unmanaged index that is generally
representative of 2,000 small-capitalization stocks in the U.S. stock
market. The index does not reflect the deduction of fees associated with a
mutual fund, such as investment management and fund accounting fees. The
Fund's performance reflects the deduction of fees for these value-added
services.
* The Fund's portfolio composition is subject to change.
PAST PERFORMANCE IS NO GUARANTEE OF FUTURE RESULTS. Investment return and net
asset value will fluctuate, so that an investor's shares, when redeemed, may be
worth more or less than the original cost.
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MESSAGE FROM THE INVESTMENT ADVISER KeyPremier Funds
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KEYPREMIER ESTABLISHED GROWTH FUND
Q. HOW DID THE FUND PERFORM DURING THE SIX-MONTHS ENDED DECEMBER 31, 1998?
A. The Fund's total return during the six- month period ended December 31,
1998, was 3.32% (without the sales load).(1) For the same six-month period,
the S&P 500 Index(2) was 9.36%.
Q. HOW DID THE STOCK MARKET ENVIRONMENT AFFECT THE FUND?
A. A confluence of global economic events in Asia, South America and to some
extent Europe generated investor uncertainty. During the third quarter,
concerns of a global recession, the Russian long-term loan default and the
near bankruptcy of the Long-Term Capital Management hedge fund culminated in
a significant stock market sell-off and a flight to quality by investors.
Shares of large, established companies significantly outperformed those of
smaller firms.
The market rebounded during the fourth quarter, however, as investors found
opportunities among depressed shares of good companies. During the last
three months of the year, the S&P 500 Index gained 21.40%.
Q. HOW DID YOU MANAGE THE FUND IN THAT ENVIRONMENT?
A. The Fund's strategy is to be fully invested in growth stocks while
maintaining a low turnover rate. In addition, we strive to make transactions
with an eye toward minimizing tax consequences. The Fund's buy-and-hold
strategy paid off for shareholders when confidence returned in the fourth
quarter. We saw the third quarter's stock price "freefall" as an opportunity
to buy stocks at attractive prices. We found outstanding values in the
technology sector.
We added to the Fund's portfolio shares of Centocor Inc. (1.2% of the
portfolio), a biotechnology firm with several drugs in its pipeline, and
Northern Telecom (0.6%), a telecommunications firm. We added to the Fund's
existing investments in the Internet firm Netscape Communications (3.0%);
Monsanto Corp (0.5%), a life sciences company; and disk drive manufacturer,
Seagate Technology (0.6%). We sold the Fund's stake in Ikon Office Solutions
due to problems with their long-term strategy.*
Q. WHAT IS YOUR OUTLOOK FOR THE STOCK MARKET GOING FORWARD, AND HOW WILL YOU
MANAGE THE FUND IN THAT ENVIRONMENT?
A. We are optimistic about stock market growth, yet we caution investors not to
expect the 20% or greater returns we have seen the last four years. Large
companies are vulnerable, in our view, to the effects of foreign financial
crises; and the future of the global economy is uncertain. At best, we
believe, there is more room for earnings growth among small and mid-sized
companies. We also expect continued volatility. In the expected environment,
stock picking becomes necessary. The Fund is invested in a relatively small
number of companies, and we are better able to investigate each firm. Thus,
the Fund is poised to take advantage of expected market conditions.
(1) The six-month return, with the maximum sales charge of 4.50%, was -1.32%.
For the same period, the total return set forth may reflect the waiver of a
portion of the Fund's advisory or administrative service fees. In such
instances, and without waiver of fees, total return would have been lower.
(2) The S&P 500 Index is an unmanaged index that is generally representative of
the performance of the large-capitalization equity market. The index does
not reflect the deduction of fees associated with a mutual fund, such as
investment management and fund accounting fees. The Fund's performance
reflects the deduction of fees for these value-added services.
* The Fund's portfolio composition is subject to change.
PAST PERFORMANCE IS NO GUARANTEE OF FUTURE RESULTS. Investment return and net
asset value will fluctuate, so that an investor's shares, when redeemed, may be
worth more or less than the original cost.
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<PAGE> 7
MESSAGE FROM THE INVESTMENT ADVISER KeyPremier Funds
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KEYPREMIER EMERGING GROWTH FUND(+)
Q. HOW DID THE FUND PERFORM SINCE ITS INCEPTION ON JULY 1, 1998, THROUGH
DECEMBER 31, 1998?
A. The Fund performed well considering that the period was a tough time for
micro-cap stocks. The Fund's return was 10.36% (without sales load)(1) since
inception, versus a -7.12% for the Russell 2000 Index.(2)
Q. HOW DID THE ENVIRONMENT FOR MICRO-CAP STOCKS DURING THE PAST SIX MONTHS
AFFECT THE FUND?
A. The market environment varied widely between the third and fourth quarters.
There were concerns during the third quarter that deteriorating economic
conditions in Russia, Latin America and Asia might hurt the U.S. economy.
Investors, in our view, may have been concerned that a credit crunch could
make it difficult for some U.S. companies to raise capital. The Federal
Reserve reduced interest rates three times during the period. Economic
indicators during the fourth quarter showed that overseas economic troubles
were not severely affecting the U.S. economy.
Q. WHERE DID YOU FIND OPPORTUNITIES DURING THE PERIOD?
A. The Fund opened to investors on July 1, 1998, so we began the period with
100% cash. The Fund's high level of cash holdings after the market decline
provided us with the opportunity to buy inexpensive shares of well-managed
companies with sustainable competitive advantages. For instance, during the
third quarter the micro-cap technology sector was down 22%, which allowed us
to buy stocks of micro-cap companies such as Analytical Survey (2.4% of the
portfolio), a company that digitizes maps, and Advance Communications
Systems (3.3%), an information technology service provider. The sector later
rebounded and posted a 38.5% return for the fourth quarter. We used the
fourth quarter to pare back on companies whose shares we felt were doing
exceptionally well and to capitalize on the market's volatility. We also
invested in several consumer non-cyclical names, including Priority
Healthcare (3.5%), a national distributor of specialty pharmaceuticals,
which was up 186% for the period, and Syncor International (3.8%), a
distributor of radiopharmaceutical products, which was up 58% for the
period.*
Q. WHAT IS YOUR OUTLOOK FOR MICRO-CAP STOCKS GOING FORWARD, AND HOW WILL YOU
MANAGE THE FUND WITH THAT IN MIND?
A. Micro-cap stocks, in our view, offer valuable long-term investment
opportunities. Moreover, our careful company-by-company research approach is
well suited to finding stocks that offer the potential for very attractive
returns -- despite the sector's above-average volatility.
(+) Small-capitalization funds typically carry additional risks, since smaller
companies generally have a higher risk of failure and, by definition, are
not as well established as "blue-chip" companies. Historically, smaller
companies' stocks have experienced a greater than average degree of market
volatility.
(1) The total return since inception, with the maximum sales charge of 4.50%,
was 5.40%. For the same period, the total return set forth may reflect the
waiver of a portion of the Fund's advisory or administrative service fees.
In such instances, and without waiver of fees, total return would have been
lower.
(2) The Russell 2000 Index is an unmanaged index that is generally
representative of 2,000 small-capitalization stocks in the U.S. stock
market. The index does not reflect the deduction of fees associated with a
mutual fund, such as investment management and fund accounting fees. The
Fund's performance reflects the deduction of fees for these value-added
services.
* The Fund's portfolio composition is subject to change.
PAST PERFORMANCE IS NO GUARANTEE OF FUTURE RESULTS. Investment return and net
asset value will fluctuate, so that an investor's shares, when redeemed, may be
worth more or less than the original cost.
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<PAGE> 8
MESSAGE FROM THE INVESTMENT ADVISER KeyPremier Funds
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KEYPREMIER INTERMEDIATE TERM INCOME FUND
Q. HOW DID THE FUND PERFORM RELATIVE TO ITS BENCHMARK DURING THE SIX-MONTHS
ENDED DECEMBER 31, 1998?
A. The Fund produced a total return of 3.76% (without the sales load)(1) for
the period. That compared to a 3.94% return for the Lipper Intermediate
Investment Grade Bond Index(2) and a 4.58% return for the Lehman Brothers
Aggregate Bond Index.(3)
Q. WHAT WERE THE CONDITIONS IN THE TAXABLE BOND MARKET DURING THE PERIOD?
A. The continuing economic malaise in Southeast Asia, Russia's default on its
short-term debt and the near-failure of the Long-Term Capital Management
fund raised fears of a global credit crisis during the period. In response,
the Federal Reserve Board lowered short-term interest rates three times to
improve liquidity. The bond market reacted favorably as U.S. Treasury
securities outperformed the other sectors of the bond market. Investors
concerned about overseas economic problems sought safety and liquidity in
high-quality issues.
Q. HOW DID YOU MANAGE THE FUND IN THAT ENVIRONMENT?
A. We kept the Fund's duration significantly longer than that of its benchmark,
the Lehman Brothers Aggregate Bond Index, throughout the period. The Fund
began the period with a duration of 5.25 years, which was 25% longer than
its benchmark, and ended the period with a duration of 4.9 years, 10% longer
than that of its benchmark. We maintained a relatively long duration because
we expected rates to decline and wanted to lock in the additional yield that
longer issues carried. (Duration is a measure of a fund's price sensitivity
to interest rate changes. A longer duration indicates greater sensitivity; a
shorter duration indicates less.) The strategy helped the Fund maintain a
30-day yield of 6%.
Q. HOW DID YOU ALLOCATE THE FUND'S ASSETS AMONG DIFFERENT SECTORS OF THE BOND
MARKET?
A. Throughout most of the period, the Fund was overweighted in corporate
securities. This allocation hurt the Fund's performance during the period,
as corporate bonds underperformed Treasuries, due to, in our view,
investors' desire for high credit quality and liquidity. That trend changed
in mid-December as the Fed's easing policy reintroduced liquidity into the
market and investors started to buy corporate bonds.
Throughout the period, we selectively lightened the Fund's overweighting in
corporate bonds. The Fund benefited from its underweighting in
mortgage-backed securities, as they also underperformed Treasuries. The Fund
ended the period with 33% of its assets in corporate bonds, 23% in
Treasuries, 19% in government agencies, 16% in mortgage-backed securities,
6% in asset-backed securities and 3% in cash.*
Q. WHAT IS YOUR OUTLOOK FOR THE BOND MARKET GOING FORWARD?
A. It is our belief that the Federal Reserve may lower interest rates. Bond
yields could decline somewhat, but we believe that bonds will trade in a
relatively narrow range going forward. We expect mortgage-backed securities
to perform well, since they tend to favor a stable interest rate
environment, and we think corporate bonds will rebound as investors take
advantage of the higher yields that they carry.
Q. HOW WILL YOU MANAGE THE FUND IN THAT ENVIRONMENT?
A. We plan to increase the Fund's weighting in mortgage-backed securities to
take advantage of the stable interest rate environment that we anticipate.
We will continue to hold issues of large, high-quality corporations to
ensure liquidity. We also will attempt to maintain a duration that is 10% to
15% longer than the Fund's benchmark in order to provide additional yield
for shareholders.
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<PAGE> 9
MESSAGE FROM THE INVESTMENT ADVISER KeyPremier Funds
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(1) The six-month return, with the maximum sales charge of 4.50%, was -0.94%.
For the same period, the total return set forth may reflect the waiver of a
portion of the Fund's advisory or administrative service fees for certain
periods since the inception date. In such instances, and without waiver of
fees, total return would have been lower.
(2) The Lipper Intermediate Investment Grade Bond Index is comprised of funds
that seek to invest at least 65% of their assets in investment-grade debt
issues, rated in the top four grades, with dollar-weighted maturities of
five to ten years.
(3) The Lehman Brothers Aggregate Bond Index is an unmanaged index of fixed-rate
debt issues rated investment grade or higher with maturities of one to ten
years. The index does not reflect the deduction of fees associated with a
mutual fund, such as investment management and fund accounting fees. The
Fund's performance does reflect the deduction of fees for these value-added
services.
* The Fund's portfolio composition is subject to change.
PAST PERFORMANCE IS NO GUARANTEE OF FUTURE RESULTS. Investment return and net
asset value will fluctuate, so that an investor's shares, when redeemed, may be
worth more or less than the original cost.
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<PAGE> 10
MESSAGE FROM THE INVESTMENT ADVISER KeyPremier Funds
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KEYPREMIER PENNSYLVANIA MUNICIPAL BOND FUND(+)
Q. HOW DID THE FUND PERFORM DURING THE SIX-MONTHS ENDED DECEMBER 31, 1998?
A. The Fund posted a total return of 3.03% (without sales load)(1) during the
period. That compared to a 2.39% total return for the Lipper Pennsylvania
Intermediate Municipal Debt Fund Index.(2)
Q. WHAT WERE THE CONDITIONS IN THE PENNSYLVANIA MUNICIPAL BOND MARKET DURING THE
RECENT PERIOD?
A. Bonds in general performed well during the period, due to low inflation,
falling interest rates and increased demand for bonds in the wake of
continued global economic concerns. Yields on 10-year AAA-rated Pennsylvania
general obligation bonds declined .25 percentage points during the period.
However, municipal bonds underperformed Treasury bonds during the period.
Municipals typically underperform in the type of declining interest rate
environment investors saw during the period. Investors, especially foreign
investors, in our view, favored Treasury bonds in the wake of increasing
global economic problems in Russia and elsewhere. A large supply of
municipal issues in 1998, coupled with only moderate demand for those
issues, also contributed to municipal bonds' underperformance.
This heavy-supply and moderate-demand environment caused muni yields to
reach historically high levels as a percentage of Treasury yields. At
various times, yields on long-term investment-grade municipal bonds actually
reached 100% of yields on long-term Treasuries.
Q. HOW DID YOU MANAGE THE FUND IN THAT ENVIRONMENT?
A. We maintained the Fund's average maturity between 9 years and 9.5 years
during the period. That approach benefited the Fund as interest rates
declined during the period. The relatively long average maturity also
provided shareholders with attractive levels of current income.
Our main focus during the period was on improving and maintaining the credit
quality and structure of the Fund. We focused on limiting liquidity risk in
response to the liquidity crisis that developed during the period.
Therefore, the Fund maintained a very high average credit rating of AAA.
Likewise, the extra yield on lower-rated bonds was not enough to warrant
taking on those bonds' extra credit risk. We also invested in large,
easily-traded issues with strong name recognition. That strategy allowed us
to move in and out of issues easily and take advantage of opportunities to
pick up extra yield for shareholders.*
Q. WHAT IS YOUR OUTLOOK FOR THE PENNSYLVANIA MUNICIPAL BOND MARKET GOING
FORWARD?
A. We anticipate that there will be less supply in the municipal market in
1999, especially because of all the refunding that has occurred. If supply
tightens up and demand increases, municipal bonds could outperform Treasury
bonds in the coming months. Demand could pick up if the equity markets are
volatile or if interest rates rise.
Q. HOW WILL YOU MANAGE THE FUND IN THAT ENVIRONMENT?
A. We will continue to focus on maintaining the Portfolio's high credit quality
and limiting liquidity risk. We will strive to maintain the Fund's average
maturity between 9 and 9.5 year ranges in an effort to generate attractive
levels of income for shareholders.
+ The Fund's income may be subject to certain state and local taxes and,
depending on your tax status, the federal alternative minimum tax.
(1) The six-month return, with the maximum sales charge of 4.50%, was -1.61%.
For the same period, the total return set forth may reflect the waiver of a
portion of the Fund's advisory or administrative service fees for certain
periods. In such instances, and without waiver of fees, total return would
have been lower.
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<PAGE> 11
MESSAGE FROM THE INVESTMENT ADVISER KeyPremier Funds
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(2) Lipper Pennsylvania Intermediate Municipal Debt Fund Index is comprised of
funds that seek to invest at least 65% of their assets in municipal debt
issues that are exempt from taxation in Pennsylvania, with dollar-weighted
average maturities of five to ten years.
* The Fund's portfolio composition is subject to change.
PAST PERFORMANCE IS NO GUARANTEE OF FUTURE RESULTS. Investment return and net
asset value will fluctuate, so that an investor's shares, when redeemed, may be
worth more or less than the original cost.
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<PAGE> 12
MESSAGE FROM THE INVESTMENT ADVISER KeyPremier Funds
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KEYPREMIER LIMITED DURATION GOVERNMENT SECURITIES FUND
Q. HOW DID THE FUND PERFORM DURING THE SIX-MONTHS ENDED DECEMBER 31, 1998?
A. The Fund's total return for the period was 3.12% (without sales load).(1)
That compared to a 3.42% return for the Fund's benchmark, the Lehman
Brothers 1-3-Year Government Bond Index.(2)
Q. WHAT WERE THE CONDITIONS IN THE FIXED-INCOME MARKETS DURING THE PERIOD?
A. Yields fell during the period amid a great deal of volatility. Those
conditions may have resulted from investors concern that crises in global
financial markets could hurt the U.S. economy. Events such as Russia's
default on its short-term debt, the near-bankruptcy of a large hedge fund
and the spread of Southeast Asia's economic malaise to Latin America may
have affected investors, causing them to fret about the risk of a global
credit crisis.
Yields on government issues fell during most of the period as investors
sought safety and liquidity. Further more, the Federal Reserve Board lowered
the federal funds rate three times during the fall, restoring investor
confidence. Subsequently, yields of short-to-intermediate term government
securities rose as investors shifted money out of those issues to seek
higher current income elsewhere.
Q. HOW DID YOU MANAGE THE FUND IN THAT ENVIRONMENT?
A. At the beginning of the period, we positioned the Fund with a "barbell"
approach, with a large portion of its assets in short-term securities and
most of the remainder in long-term securities. That strategy gave the Fund
an average maturity comparable to its benchmark. During the early months of
the period investors sought short-to-intermediate bonds for the relative
liquidity and safety that such issues offered. The Fund, however, slightly
lagged in performance.
During October and November, the Fund posted a stronger relative performance
as the market stabilized and short- and long-term issues did well.
Throughout the period, we kept the Fund's yield one-half to one percentage
point higher than that of its benchmark, with lower risk. The Fund began the
period with an average duration of 1.6 years and finished the period with an
average duration of 1.5 years. (Duration is a measure of a fund's price
sensitivity to interest rate change. A longer duration indicates greater
sensitivity; a shorter duration indicates less.)
Q. WHAT TYPES OF SECURITIES OFFERED THE BEST OPPORTUNITIES DURING THE PERIOD?
A. The Fund predominantly holds Treasury securities, with some investments in
bonds issued by government agencies. We found opportunities in very old
high-coupon Ginnie Maes and other agency pass-through pools. We felt that
those securities had low prepayment risk, since most of the mortgages
backing them were eight to fifteen years old and those people that had not
already refinanced were unlikely to do so. That allowed us to attain
higher-than-market yields with limited risk.*
Q. WHAT IS YOUR OUTLOOK GOING FORWARD?
A. We expect the economy to stay relatively strong, with bonds trading in a
narrow range. We will be watching the strength of the U.S. economy. If it
continues to show strength, we may see interest rates rise.
(1) The six-month return, with the maximum sales charge of 3.00%, was 0.01%. For
the same period, the total return set forth may reflect the waiver of a
portion of the Fund's advisory or administrative fees for certain periods.
In such instances, and without waiver of fees, total return would have been
lower.
(2) The Lehman Brothers 1-3-Year Government Bond Index is an unmanaged index
comprised of U.S. Treasury issues and publicly issued debt of U.S.
Government agencies with maturities of one to three years. The index does
not reflect the deduction of fees associated with a mutual fund, such as
investment management and fund accounting fees. The Fund's performance
reflects the deduction of fees for these value-added services.
* The Fund's portfolio composition is subject to change.
PAST PERFORMANCE IS NO GUARANTEE OF FUTURE RESULTS. Investment return and net
asset value will fluctuate, so that an investor's shares, when redeemed, may be
worth more or less than the original cost.
- --------------------------------------------------------------------------------
-12-
<PAGE> 13
MESSAGE FROM THE INVESTMENT ADVISER KeyPremier Funds
- --------------------------------------------------------------------------------
KEYPREMIER U.S. TREASURY OBLIGATIONS MONEY MARKET FUND(+)
Q. HOW DID THE FUND PERFORM DURING THE SIX-MONTHS ENDED DECEMBER 31, 1998?
A. The Fund's 7-day and 7-day effective yields were 4.03% and 4.11%,
respectively as of December 31, 1998.(1) The Fund's total return for the
period was 2.26%. That compared to a 2.30% total return for the Lipper U.S.
Treasury Money Market Fund Index.(2)
Q. WHAT WERE THE CONDITIONS IN THE U.S. TREASURY MARKETS DURING THE PERIOD?
A. Yields on Treasury securities declined significantly during the period,
despite some dramatic short-term volatility. Those conditions occurred
largely as a result of uncertainty in global financial markets. Events that
contributed to that uncertainty included Russia's default on its short-term
debt; the near-bankruptcy of a large hedge fund; continued economic malaise
in Southeast Asia; and the spread of economic weakness to Latin America.
Investors may have been concerned that such events could adversely affect
the U.S. economy by making credit difficult to attain and by crimping U.S.
exports.
The uncertainty in world markets caused investors to seek safety and
liquidity in high-quality short-term issues such as Treasury notes, driving
yields on those securities down. However, the Federal Reserve Board lowered
interest rates three times during the fall. That reduced investors' fears of
a credit crisis, and many shifted money out of Treasury notes and into
longer-term or lower-quality issues. As a result, yields on Treasury notes
rose slightly toward the end of the period.
Q. HOW DID YOU POSITION THE FUND IN THAT ENVIRONMENT?
A. We kept the Fund's average maturity short. That shorter maturity allowed us
to quickly reinvest the Fund's assets, and to provide the liquidity
necessary to invest when opportunities arose. We did extend the Fund's
average maturity slightly to lock in the extra yield that some longer issues
carried. The Fund began the period with an average maturity of 58 days and
ended the period with an average maturity of 35 days.
Q. WHAT IS THE OUTLOOK FOR THE ECONOMY AND THE FUND?
A. We anticipate the economy to continue growing at a healthy rate. We believe
short-term Treasury securities could trade in a narrow range going forward.
This upward pressure on yields is the result of a strong economy, and the
downward pressure of uncertainty in global financial markets should counter
the Fed's neutral monetary policy.
In that environment, we look for the best values available in the short-term
Treasury markets. We will strive to maintain our strategy, a relatively
short average maturity, which may provide liquidity and allow us to quickly
reinvest and compound the Fund's assets.
(+) An investment in the Fund is not insured or guaranteed by the FDIC or any
other government agency. Although the Fund seeks to preserve the value of
your investment of $1.00 per share, it is possible to lose money by
investing in the Fund.
(1) The 7-Day yields are as of 12/31/98. The yield quotation more closely
reflects the current earnings of the Fund than does the total return
quotation.
(2) The Lipper U.S. Treasury Money Market Fund Index is a managed index that
seeks to invest principally in U.S. Treasury Obligations, with
dollar-weighted average maturities of less than 90 days.
PAST PERFORMANCE IS NO GUARANTEE OF FUTURE RESULTS.
- --------------------------------------------------------------------------------
-13-
<PAGE> 14
MESSAGE FROM THE INVESTMENT ADVISER KeyPremier Funds
- --------------------------------------------------------------------------------
KEYPREMIER PRIME MONEY MARKET FUND(+)
Q. HOW DID THE FUND PERFORM DURING THE
SIX-MONTHS ENDED DECEMBER 31, 1998?
A. The Fund's 7-day and 7-day effective yields as of December 31, 1998, were
4.68% and 4.79%, respectively.(1) The Fund posted a total return during the
period of 2.52%, compared to a 2.49% total return for the Lipper U.S. Money
Market Fund Index.(2)
Q. WHAT WERE THE CONDITIONS IN THE MONEY MARKETS DURING THE PERIOD?
A. Turbulence in foreign financial markets caused volatility in the U.S. money
markets. Investors may have been concerned that Russia's default on its
short-term debt and the near-bankruptcy of a large hedge fund could lead to
a global liquidity crisis. It is our opinion that investors were also
concerned that weakness in Latin American countries could hurt U.S. exports
to that region. The turbulence in overseas financial markets, in our view,
caused investors to seek quality and safety in Treasury issues, driving
yields on those securities lower during most of the period. The emphasis on
quality increased commercial paper yields relative to Treasury yields.
In the fall, however, the Federal Reserve Board lowered the federal funds
rate three times, restoring confidence in financial markets. Yields on
Treasury notes rose somewhat as reassured investors shifted money to
longer-term issues.
Q. HOW DID YOU MANAGE THE FUND IN THAT ENVIRONMENT?
A. We continued to keep the Fund's average maturity significantly shorter than
that of the typical money market fund. The average maturity of the Fund's
holdings ended the period at 29 days. Since the yield curve was relatively
flat, there was no compelling reason to increase the Fund's average
maturity.
Q. IN WHAT SECTORS OF THE MARKET DID YOU FIND OPPORTUNITIES DURING THE PERIOD?
A. We look for the best values in any market environment. The market
uncertainty and resulting flight to quality that characterized the period
led to good opportunities in commercial paper during the late summer and
early fall. As a result, we increased the Fund's weighting in high-grade
commercial issues. Toward the end of the period, we took advantage of
opportunities in government agency issues, including securities issued by
the Home Loan Bank and Sallie Mae. Commercial paper and bank deposits made
up the largest portion of the Fund's holdings, followed by government
agencies.*
Q. WHAT IS YOUR OUTLOOK FOR THE ECONOMY AND THE MONEY MARKETS GOING FORWARD?
A. It is our view that the economy may be surprisingly strong during the coming
months, with the possible exception of the manufacturing sector. But the
uncertainty in world markets may put some downward pressure on rates.
Therefore, we expect the money markets to trade in a narrow range going
forward.
Q. HOW WILL YOU MANAGE THE FUND IN THAT ENVIRONMENT?
A. We will strive to keep the Fund's average maturity shorter than that of the
typical money market fund. That shorter maturity will allow us to compound
the Fund's investments more quickly, and also it could provide the
liquidity necessary to capitalize on opportunities as they present
themselves.
+ An investment in the Fund is not insured or guaranteed by the FDIC or any
other government agency. Although the Fund seeks to preserve the value of your
investment of $1.00 per share, it is possible to lose money by investing in
the Fund.
(1) The 7-Day yields are as of 12/31/98. The yield quotation more closely
reflects the current earnings of the Fund than does the total return
quotation.
(2) The Lipper U.S. Money Market Fund Index is a managed index that seeks to
invest principally in high quality financial instruments rated in the top
two grades, with dollar-weighted average maturities of less than 90 days.
* The Fund's portfolio composition is subject to change.
PAST PERFORMANCE IS NO GUARANTEE OF FUTURE RESULTS.
- --------------------------------------------------------------------------------
-14-
<PAGE> 15
TABLE OF CONTENTS
Statements of Assets and Liabilities
PAGE 16
Statements of Operations
PAGE 18
Statements of Changes in Net Assets
PAGE 20
Schedules of Portfolio Investments
PAGE 24
Notes to Financial Statements
PAGE 39
Financial Highlights
PAGE 46
-15-
<PAGE> 16
THE SESSIONS GROUP
KEYPREMIER FUNDS
STATEMENTS OF ASSETS AND LIABILITIES
DECEMBER 31, 1998
(UNAUDITED)
<TABLE>
<CAPTION>
AGGRESSIVE ESTABLISHED EMERGING INTERMEDIATE
GROWTH GROWTH GROWTH TERM INCOME
FUND FUND FUND FUND
------------ ------------ ---------- ------------
<S> <C> <C> <C> <C>
ASSETS:
Investments, at value (cost $93,205,112;
$118,422,925; $8,243,673; $289,026,107,
respectively)........................... $134,169,878 $260,607,150 $9,064,634 $293,144,843
Interest and dividends receivable......... 134,686 203,270 6,168 4,448,618
Receivable for investments sold........... 1,441,564 596,855 14,969 --
Receivable for capital shares issued...... 27,586 13,454 -- --
Unamortized organization costs............ 2,664 19,309 -- 27,889
Prepaid expenses and other assets......... 575 1,235 30,140 1,119
------------ ------------ ---------- ------------
Total Assets............................ 135,776,953 261,441,273 9,115,911 297,622,469
------------ ------------ ---------- ------------
LIABILITIES:
Dividends payable......................... 47,224 288,083 46,465 1,447,730
Payable for investments purchased......... 1,146,475 -- 46,237 --
Payable for capital shares redeemed....... 70,941 35,033 -- --
Accrued expenses and other payables:
Investment advisory fees payable........ 65,805 107,952 -- 75,371
Administration fees payable............. 1,635 3,295 110 3,776
Administrative services fees payable.... 18,283 33,409 -- 11,159
Other Liabilities....................... 36,387 62,436 5,186 78,236
------------ ------------ ---------- ------------
Total Liabilities....................... 1,386,750 530,208 97,998 1,616,272
------------ ------------ ---------- ------------
NET ASSETS:
Capital................................... 93,342,969 117,470,720 8,223,827 292,464,041
Accumulated undistributed (distributions
in excess of) net investment income..... (1,834) 2,513 -- 7,566
Accumulated undistributed net realized
gains (losses) on investments........... 84,302 1,253,607 (4,137) --
Distributions in excess of net realized
gains or losses on investments.......... -- -- (22,738) (584,146)
Net unrealized appreciation of
investments............................. 40,964,766 142,184,225 820,961 4,118,736
------------ ------------ ---------- ------------
Net Assets.............................. $134,390,203 $260,911,065 $9,017,913 $296,006,197
============ ============ ========== ============
Outstanding units of beneficial interest
(shares).............................. 12,495,289 18,451,208 823,617 29,435,586
============ ============ ========== ============
Net asset value -- redemption price per
share................................. $ 10.76 $ 14.14 $ 10.95 $ 10.06
============ ============ ========== ============
Maximum Sales Charge.................... 4.50% 4.50% 4.50% 4.50%
============ ============ ========== ============
Maximum Offering Price (100%/(100%-
Maximum Sales Charge) of net asset
value adjusted to nearest cent) per
share................................. $ 11.27 $ 14.81 $ 11.47 $ 10.53
============ ============ ========== ============
</TABLE>
See notes to financial statements.
-16-
<PAGE> 17
THE SESSIONS GROUP
KEYPREMIER FUNDS
STATEMENTS OF ASSETS AND LIABILITIES, CONTINUED
DECEMBER 31, 1998
(UNAUDITED)
<TABLE>
<CAPTION>
LIMITED DURATION U.S. TREASURY
PENNSYLVANIA GOVERNMENT OBLIGATIONS PRIME
MUNICIPAL SECURITIES MONEY MARKET MONEY MARKET
BOND FUND FUND FUND FUND
------------ ---------------- ------------- ------------
<S> <C> <C> <C> <C>
ASSETS:
Investments, at value (cost
$108,831,196; $37,059,953;
$18,971,108; $221,011,743,
respectively)........................ $110,969,358 $37,072,495 $18,971,108 $221,011,743
Repurchase agreements (cost $--; $--;
$2,926,000; $30,568,000,
respectively)........................ -- -- 2,926,000 30,568,000
------------ ----------- ----------- ------------
Total Investments.................... 110,969,358 37,072,495 21,897,108 251,579,743
Cash................................... -- 749 41 639
Interest and dividends receivable...... 1,583,399 341,876 88,170 750,260
Receivable for capital shares issued... -- -- -- 45,064
Unamortized organization costs......... 13,659 6,144 6,173 13,955
Prepaid expenses and other assets...... -- -- -- 764
------------ ----------- ----------- ------------
Total Assets......................... 112,566,416 37,421,264 21,991,492 252,390,425
------------ ----------- ----------- ------------
LIABILITIES:
Dividends payable...................... 399,648 167,493 83,783 1,040,592
Payable for capital shares redeemed.... -- -- -- 9,538
Accrued expenses and other payables:
Investment advisory fees payable..... 28,670 9,429 4,149 44,069
Administration fees payable.......... 1,414 470 296 3,226
Administrative services fees
payable............................ 5,168 -- 635 --
Other Liabilities.................... 25,813 28,985 23,959 89,214
------------ ----------- ----------- ------------
Total Liabilities.................... 460,713 206,377 112,822 1,186,639
------------ ----------- ----------- ------------
NET ASSETS:
Capital................................ 109,831,971 37,245,859 21,877,374 251,200,744
Accumulated undistributed
(distributions in excess of) net
investment income.................... (118) (68) 1,890 3,531
Accumulated undistributed net realized
gains (losses) on investments........ 135,688 (43,446) (594) (489)
Net unrealized appreciation of
investments.......................... 2,138,162 12,542 -- --
------------ ----------- ----------- ------------
Net Assets........................... $112,105,703 $37,214,887 $21,878,670 $251,203,786
============ =========== =========== ============
Outstanding units of beneficial
interest (shares).................. 10,807,985 3,728,357 21,879,264 251,203,734
============ =========== =========== ============
Net asset value -- redemption price
per share.......................... $ 10.37 $ 9.98 $ 1.00 $ 1.00
============ =========== =========== ============
Maximum Sales Charge................. 4.50% 3.00% -- --
============ =========== =========== ============
Maximum Offering Price (100%/(100%-
Maximum Sales Charge) of net asset
value adjusted to nearest cent) per
share.............................. $ 10.86 $ 10.29 $ 1.00(a) $ 1.00(a)
============ =========== =========== ============
</TABLE>
- ---------------
(a) Maximum offering price and redemption price are the same for the U.S.
Treasury Obligations Money Market Fund and the Prime Money Market Fund.
See notes to financial statements.
-17-
<PAGE> 18
THE SESSIONS GROUP
KEYPREMIER FUNDS
STATEMENTS OF OPERATIONS
FOR THE SIX MONTHS ENDED DECEMBER 31, 1998
(UNAUDITED)
<TABLE>
<CAPTION>
AGGRESSIVE ESTABLISHED EMERGING INTERMEDIATE
GROWTH GROWTH GROWTH TERM INCOME
FUND FUND FUND* FUND
----------- ----------- -------- ------------
<S> <C> <C> <C> <C>
INVESTMENT INCOME:
Interest income.............................. $ 35,627 $ 18 $ 54,675 $ 9,171,177
Dividend income (net of foreign withholding
tax of $0; $338; $0; $0, respectively).... 679,994 1,714,589 34,983 258,374
----------- ---------- -------- -----------
Total Income.............................. 715,621 1,714,607 89,658 9,429,551
----------- ---------- -------- -----------
EXPENSES:
Investment advisory fees..................... 615,379 912,643 48,593 865,855
Administration fees.......................... 70,769 139,940 4,471 165,956
Administrative services fees................. 152,017 302,454 9,847 356,550
Accounting fees.............................. 20,610 38,484 17,585 44,474
Transfer agent fees.......................... 27,097 30,089 5,800 23,361
Custodian fees............................... 9,430 18,826 1,899 30,283
Other expenses............................... 20,467 41,622 13,437 47,468
----------- ---------- -------- -----------
Total Expenses............................... 915,769 1,484,058 101,632 1,533,947
Less: Expenses voluntarily reduced........ (305,599) (425,099) (58,440) (719,846)
Expenses paid by third parties...... (393) -- -- --
----------- ---------- -------- -----------
Net Expenses................................. 609,777 1,058,959 43,192 814,101
----------- ---------- -------- -----------
Net Investment Income........................ 105,844 655,648 46,466 8,615,450
----------- ---------- -------- -----------
REALIZED/UNREALIZED GAINS (LOSSES) ON
INVESTMENTS:
Net realized gains (losses) on investment
transactions.............................. 1,426,699 1,688,653 (4,137) 2,140,443
Net change in unrealized appreciation of
investments............................... (4,267,759) 6,224,884 820,961 (288,708)
----------- ---------- -------- -----------
Net realized/unrealized gains (losses) on
investments............................... (2,841,060) 7,913,537 816,824 1,851,735
----------- ---------- -------- -----------
Change in net assets resulting from
operations................................ $(2,735,216) $8,569,185 $863,290 $10,467,185
=========== ========== ======== ===========
</TABLE>
- ---------------
* Commencement of operations of the Fund was July 1, 1998.
See notes to financial statements.
-18-
<PAGE> 19
THE SESSIONS GROUP
KEYPREMIER FUNDS
STATEMENTS OF OPERATIONS, CONTINUED
FOR THE SIX MONTHS ENDED DECEMBER 31, 1998
(UNAUDITED)
<TABLE>
<CAPTION>
LIMITED DURATION U.S. TREASURY
PENNSYLVANIA GOVERNMENT OBLIGATIONS PRIME
MUNICIPAL SECURITIES MONEY MARKET MONEY MARKET
BOND FUND FUND FUND FUND
------------ ---------------- ------------- ------------
<S> <C> <C> <C> <C>
INVESTMENT INCOME:
Interest income......................... $2,996,369 $1,035,111 $562,117 $6,562,264
Dividend income......................... 57,468 9,796 8,746 9,354
---------- ---------- -------- ----------
Total Income......................... 3,053,837 1,044,907 570,863 6,571,618
---------- ---------- -------- ----------
EXPENSES:
Investment advisory fees................ 342,936 99,869 44,503 485,219
Administration fees..................... 65,730 19,142 12,752 139,501
Administrative services fees............ 142,157 41,588 24,897 276,295
Accounting fees......................... 21,314 16,680 15,180 38,090
Transfer agent fees..................... 13,486 14,792 11,919 19,458
Custodian fees.......................... 8,766 1,521 9,239 36,714
Other expenses.......................... 25,196 -- 5,731 65,778
---------- ---------- -------- ----------
Total Expenses.......................... 619,585 193,592 124,221 1,061,055
Less: Expenses voluntarily reduced... (284,961) (91,523) (44,326) (472,710)
Expenses paid by third
parties............................ -- (1,543) (1,038) (1,886)
---------- ---------- -------- ----------
Net Expenses............................ 334,624 100,526 78,857 586,459
---------- ---------- -------- ----------
Net Investment Income................... 2,719,213 944,381 492,006 5,985,159
---------- ---------- -------- ----------
REALIZED/UNREALIZED GAINS (LOSSES) ON
INVESTMENTS:
Net realized gains (losses) on
investment transactions.............. 519,624 (43,448) -- (489)
Net change in unrealized appreciation of
investments.......................... 172,911 90,068 -- --
---------- ---------- -------- ----------
Net realized/unrealized gains (losses)
on investments....................... 692,535 46,620 -- (489)
---------- ---------- -------- ----------
Change in net assets resulting from
operations........................... $3,411,748 $ 991,001 $492,006 $5,984,670
========== ========== ======== ==========
</TABLE>
See notes to financial statements.
-19-
<PAGE> 20
THE SESSIONS GROUP
KEYPREMIER FUNDS
STATEMENTS OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
AGGRESSIVE ESTABLISHED
GROWTH FUND GROWTH FUND
--------------------------- ---------------------------
FOR THE SIX FOR THE SIX
MONTHS ENDED FOR THE MONTHS ENDED FOR THE
DECEMBER 31, YEAR ENDED DECEMBER 31, YEAR ENDED
1998 JUNE 30, 1998 JUNE 30,
(UNAUDITED) 1998 (UNAUDITED) 1998
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
FROM INVESTMENT ACTIVITIES:
OPERATIONS:
Net investment income (loss)............... $ 105,844 $ (115,475) $ 655,648 $ 1,725,318
Net realized gains on investment
transactions............................. 1,426,699 3,491,283 1,688,653 6,257,171
Net change in unrealized appreciation of
investments.............................. (4,267,759) 10,372,778 6,224,884 47,023,379
------------ ------------ ------------ ------------
Net increase (decrease) in net assets
resulting from operations................ (2,735,216) 13,748,586 8,569,185 55,005,868
DISTRIBUTIONS TO SHAREHOLDERS:
From net investment income................. (105,844) -- (654,367) (1,728,428)
In excess of net investment income......... -- (9,326) -- --
From net realized gains on investments..... (4,572,480) (1,333,135) (6,183,277) (1,060,223)
------------ ------------ ------------ ------------
Change in net assets from shareholder
distributions............................ (4,678,324) (1,342,461) (6,837,644) (2,788,649)
CAPITAL TRANSACTIONS:
Proceeds from shares issued................ 13,606,564 35,793,962 14,338,122 50,547,690
Dividends reinvested....................... 1,500,549 58,474 1,647,409 90,582
Cost of shares redeemed.................... (8,914,965) (17,904,786) (15,618,284) (34,957,454)
------------ ------------ ------------ ------------
Change in net assets from capital
transactions............................. 6,192,148 17,947,650 367,247 15,680,818
------------ ------------ ------------ ------------
Change in net assets....................... (1,221,392) 30,353,775 2,098,788 67,898,037
NET ASSETS:
Beginning of period........................ 135,611,595 105,257,820 258,812,277 190,914,240
------------ ------------ ------------ ------------
End of period.............................. $134,390,203 $135,611,595 $260,911,065 $258,812,277
============ ============ ============ ============
SHARE TRANSACTIONS:
Issued..................................... 1,381,851 3,165,205 1,115,062 4,017,497
Reinvested................................. 146,434 5,580 119,787 7,397
Redeemed................................... (916,398) (1,567,686) (1,192,126) (2,769,238)
------------ ------------ ------------ ------------
Change in shares............................. 611,887 1,603,099 42,723 1,255,656
============ ============ ============ ============
</TABLE>
See notes to financial statements.
-20-
<PAGE> 21
THE SESSIONS GROUP
KEYPREMIER FUNDS
STATEMENTS OF CHANGES IN NET ASSETS, CONTINUED
<TABLE>
<CAPTION>
EMERGING INTERMEDIATE TERM
GROWTH FUND INCOME FUND
------------ ---------------------------
FOR THE SIX FOR THE SIX
MONTHS MONTHS
ENDED ENDED FOR THE
DECEMBER 31, DECEMBER 31, YEAR ENDED
1998* 1998 JUNE 30,
(UNAUDITED) (UNAUDITED) 1998
------------ ------------ ------------
<S> <C> <C> <C>
FROM INVESTMENT ACTIVITIES:
OPERATIONS:
Net investment income..................................... $ 46,466 $ 8,615,450 $ 14,971,224
Net realized gains (losses) on investment transactions.... (4,137) 2,140,443 3,610,376
Net change in unrealized appreciation of investments...... 820,961 (288,708) 3,699,969
------------ ------------ ------------
Net increase in net assets resulting from operations...... 863,290 10,467,185 22,281,569
DISTRIBUTIONS TO SHAREHOLDERS:
From net investment income................................ (46,466) (8,609,618) (14,851,779)
From net realized gains on investments.................... (22,738) (3,274,801) --
------------ ------------ ------------
Change in net assets from shareholder distributions....... (69,204) (11,884,419) (14,851,779)
CAPITAL TRANSACTIONS:
Proceeds from shares issued............................... 8,288,809 37,928,157 90,900,761
Dividends reinvested...................................... 4,799 1,082,058 214,237
Cost of shares redeemed................................... (69,781) (17,151,523) (30,838,931)
------------ ------------ ------------
Change in net assets from capital transactions............ 8,223,827 21,858,692 (60,276,067)
------------ ------------ ------------
Change in net assets...................................... 9,017,913 20,441,458 67,705,857
NET ASSETS:
Beginning of period....................................... -- 275,564,739 207,858,882
------------ ------------ ------------
End of period............................................. $ 9,017,913 $296,006,197 $275,564,739
============ ============ ============
SHARE TRANSACTIONS:
Issued.................................................... 831,201 3,726,243 9,078,840
Reinvested................................................ 463 106,825 21,445
Redeemed.................................................. (8,047) (1,684,971) (3,082,354)
------------ ------------ ------------
Change in shares............................................ 823,617 2,148,097 6,017,931
============ ============ ============
</TABLE>
- ---------------
* Commencement of operations of the Fund was July 1, 1998.
See notes to financial statements.
-21-
<PAGE> 22
THE SESSIONS GROUP
KEYPREMIER FUNDS
STATEMENTS OF CHANGES IN NET ASSETS, CONTINUED
<TABLE>
<CAPTION>
LIMITED DURATION
PENNSYLVANIA MUNICIPAL GOVERNMENT
BOND FUND SECURITIES FUND
--------------------------- ---------------------------
FOR THE SIX FOR THE SIX
MONTHS ENDED FOR THE MONTHS ENDED FOR THE
DECEMBER 31, YEAR ENDED DECEMBER 31, YEAR ENDED
1998 JUNE 30, 1998 JUNE 30,
(UNAUDITED) 1998 (UNAUDITED) 1998*
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
FROM INVESTMENT ACTIVITIES:
OPERATIONS:
Net investment income.......................... $ 2,719,213 $ 5,539,010 $ 944,381 $ 1,847,275
Net realized gains (losses) on investment
transactions................................. 519,624 859,782 (43,448) 30,849
Net change in unrealized appreciation
(depreciation) of investments................ 172,911 465,494 90,068 (113,342)
------------ ------------ ----------- ------------
Net increase in net assets resulting from
operations................................... 3,411,748 6,864,286 991,001 1,764,782
DISTRIBUTIONS TO SHAREHOLDERS:
From net investment income..................... (2,853,322) (5,661,569) (949,190) (1,846,910)
In excess of net investment income............. (118) -- (68) --
From net realized gains on investments......... (735,831) -- (13,860) (14,793)
------------ ------------ ----------- ------------
Change in net assets from shareholder
distributions................................ (3,589,271) (5,661,569) (963,118) (1,861,703)
CAPITAL TRANSACTIONS:
Proceeds from shares issued.................... 10,414,719 15,598,673 12,739,979 46,256,425
Dividends reinvested........................... 69,711 98,698 25,546 8,280
Cost of shares redeemed........................ (16,886,354) (21,409,397) (4,938,510) (16,807,795)
------------ ------------ ----------- ------------
Change in net assets from capital
transactions................................. (6,401,924) (5,712,026) 7,827,015 29,456,910
------------ ------------ ----------- ------------
Change in net assets........................... (6,579,447) (4,509,309) 7,854,898 29,359,989
NET ASSETS:
Beginning of period............................ 118,685,150 123,194,459 29,359,989 --
------------ ------------ ----------- ------------
End of period.................................. $112,105,703 $118,685,150 $37,214,887 $ 29,359,989
============ ============ =========== ============
SHARE TRANSACTIONS:
Issued......................................... 995,515 1,499,902 1,273,429 4,624,486
Reinvested..................................... 6,680 9,497 2,558 829
Redeemed....................................... (1,616,695) (2,061,340) (494,098) (1,678,847)
------------ ------------ ----------- ------------
Change in shares................................. (614,500) (551,941) 781,889 2,946,468
============ ============ =========== ============
</TABLE>
- ---------------
* Commencement of operations of the Fund was July 1, 1997.
-22-
<PAGE> 23
THE SESSIONS GROUP
KEYPREMIER FUNDS
STATEMENTS OF CHANGES IN NET ASSETS, CONTINUED
<TABLE>
<CAPTION>
U.S. TREASURY OBLIGATIONS PRIME OBLIGATION
MONEY MARKET MONEY MARKET FUND
--------------------------- -----------------------------
FOR THE SIX FOR THE SIX
MONTHS ENDED FOR THE MONTHS ENDED FOR THE
DECEMBER 31, YEAR ENDED DECEMBER 31, YEAR ENDED
1998 JUNE 30, 1998 JUNE 30,
(UNAUDITED) 1998* (UNAUDITED) 1998
------------ ------------ ------------- -------------
<S> <C> <C> <C> <C>
FROM INVESTMENT ACTIVITIES:
OPERATIONS:
Net investment income........................ $ 492,006 $ 1,139,900 $ 5,985,159 $ 8,016,985
Net realized gains (losses) on investment
transactions............................... -- (594) (489) 447
----------- ------------ ------------- -------------
Net increase in net assets resulting from
operations................................. 492,006 1,139,306 5,984,670 8,017,432
DISTRIBUTIONS TO SHAREHOLDERS:
From net investment income................... (492,006) (1,139,900) (5,985,159) (8,016,985)
----------- ------------ ------------- -------------
Change in net assets from shareholder
distributions.............................. (492,006) (1,139,900) (5,985,159) (8,016,985)
CAPITAL TRANSACTIONS:
Proceeds from shares issued.................. 20,094,589 67,930,284 278,383,314 394,707,150
Dividends reinvested......................... 126,376 226,366 783,619 919,724
Cost of shares redeemed...................... (21,861,956) (44,636,395) (245,823,482) (273,616,855)
----------- ------------ ------------- -------------
Change in net assets from capital
transactions............................... (1,640,991) 23,520,255 33,343,451 122,010,019
----------- ------------ ------------- -------------
Change in net assets......................... (1,640,991) 23,519,661 33,342,962 122,010,466
NET ASSETS:
Beginning of period.......................... 23,519,661 -- 217,860,824 95,850,358
----------- ------------ ------------- -------------
End of period................................ $21,878,670 $ 23,519,661 $ 251,203,786 $ 217,860,824
=========== ============ ============= =============
SHARE TRANSACTIONS:
Issued....................................... 20,094,589 67,930,284 278,383,314 394,707,185
Reinvested................................... 126,376 226,366 783,619 919,745
Redeemed..................................... (21,861,956) (44,636,395) (245,823,482) (273,616,855)
----------- ------------ ------------- -------------
Change in shares............................... (1,640,991) 23,520,255 33,343,451 122,010,075
=========== ============ ============= =============
</TABLE>
- ---------------
* Commencement of operations of the Fund was July 1, 1997.
See notes to financial statements.
-23-
<PAGE> 24
THE SESSIONS GROUP
KEYPREMIER AGGRESSIVE GROWTH FUND
SCHEDULE OF PORTFOLIO INVESTMENTS
DECEMBER 31, 1998
(UNAUDITED)
<TABLE>
<CAPTION>
SECURITY MARKET
SHARES DESCRIPTION VALUE
- --------- ------------------------------ ------------
<C> <S> <C>
COMMON STOCKS (93.1%):
Aerospace/Defense--Equipment (4.2%):
74,000 Cordant Technologies, Inc..... $ 2,775,000
40,000 Northrop Grumman Corp......... 2,925,000
------------
5,700,000
------------
Automotive Parts (3.5%):
144,000 Gentex Corp.(b)............... 2,880,000
110,000 Mascotech, Inc................ 1,883,750
------------
4,763,750
------------
Banks (2.2%):
66,000 First American
Corp.--Tennessee............ 2,928,750
------------
Biotechnology (0.2%):
80,000 Interneuron Pharmaceuticals,
Inc.(b)..................... 262,500
------------
Chemicals (3.4%):
130,000 Airgas, Inc.(b)............... 1,161,875
90,000 Lesco, Inc.................... 1,158,750
60,000 Valspar Corp.................. 2,238,750
------------
4,559,375
------------
Communication--Equipment (0.1%):
50,000 Transcrypt International,
Inc.(b)..................... 140,500
------------
Computer Networks (4.0%):
265,000 Computer Network Tech
Corp.(b).................... 3,312,500
70,000 Seagate Technology, Inc.(b)... 2,117,500
------------
5,430,000
------------
Computer Software (17.3%):
120,000 Affiliated Computer Services,
Inc.(b)..................... 5,400,000
60,000 Ansys, Inc.(b)................ 660,000
50,000 Applied Graphics
Technologies(b)............. 825,000
120,000 Compuware Corp.(b)............ 9,374,999
60,000 Dialogic Corp.(b)............. 1,179,375
10,000 Engineering Animation,
Inc.(b)..................... 540,000
100,000 Mosaix, Inc.(b)............... 775,000
40,000 Netscape Communications
Corp.(b).................... 2,430,000
70,000 Platinum Software Corp.(b).... 896,875
50,000 Security Dynamics Tech,
Inc.(b)..................... 1,150,000
------------
23,231,249
------------
Computers (4.2%):
160,000 Hutchinson Technology,
Inc.(b)..................... 5,700,000
------------
Construction Materials (1.3%):
50,000 Fleetwood Enterprises, Inc.... 1,737,500
------------
</TABLE>
<TABLE>
<CAPTION>
COMMON STOCKS, CONTINUED:
SECURITY MARKET
SHARES DESCRIPTION VALUE
- --------- ------------------------------ ------------
<C> <S> <C>
Educational Services (4.6%):
200,000 DeVry, Inc.(b)................ $ 6,125,000
------------
Electrical Equipment (2.3%):
90,000 C-Cube Microsystems,
Inc.(b)..................... 2,441,250
70,000 Cirrus Logic, Inc.(b)......... 686,875
------------
3,128,125
------------
Financial Services (1.5%):
18,000 Financial Federal Corp.(b).... 445,500
10,000 Metris Companies, Inc......... 503,125
70,000 Willis Lease Finance
Corp.(b).................... 1,102,500
------------
2,051,125
------------
Financial--Securities Brokers (4.2%):
128,000 Legg Mason, Inc............... 4,040,000
60,000 United Asset Management
Corp........................ 1,560,000
------------
5,600,000
------------
Food & Related (3.6%):
50,000 U.S. Foodservice(b)........... 2,450,000
50,000 Whole Foods Market, Inc.(b)... 2,418,750
------------
4,868,750
------------
Furniture & Furnishings (2.5%):
90,000 Bush Industries, Inc.......... 1,119,375
100,000 Leggett & Platt, Inc.......... 2,200,000
------------
3,319,375
------------
Homebuilders--Mobile Homes (1.0%):
85,000 Winnebago Industries, Inc..... 1,285,625
------------
Household Products (1.5%):
40,000 Premark International, Inc.... 1,385,000
35,000 Tupperware Corp............... 575,313
------------
1,960,313
------------
Insurance (1.1%):
35,000 Arthur J. Gallagher &
Company..................... 1,544,375
------------
Machinery & Equipment (2.3%):
120,000 Flow International Corp.(b)... 1,162,500
200,000 PSC, Inc.(b).................. 1,900,000
------------
3,062,500
------------
Medical--Biotechnology (1.0%):
20,000 Incyte Pharmaceuticals,
Inc.(b)..................... 747,500
180,000 Integra Lifesciences
Corp.(b).................... 607,500
------------
1,355,000
------------
</TABLE>
Continued
-24-
<PAGE> 25
THE SESSIONS GROUP
KEYPREMIER AGGRESSIVE GROWTH FUND
SCHEDULE OF PORTFOLIO INVESTMENTS, CONTINUED
DECEMBER 31, 1998
(UNAUDITED)
<TABLE>
<CAPTION>
SECURITY MARKET
SHARES DESCRIPTION VALUE
- --------- ------------------------------ ------------
<C> <S> <C>
COMMON STOCKS, CONTINUED:
Medical--Hospital Management Services (2.3%):
50,000 Cerner Corp.(b)............... $ 1,337,500
200,000 Genesis Health Ventures,
Inc.(b)..................... 1,750,000
------------
3,087,500
------------
Medical Equipment & Supplies (10.4%):
35,000 Alkermes, Inc.(b)............. 776,563
130,000 Mentor Corp. Minnesota........ 3,046,875
120,000 Respironics, Inc.(b).......... 2,403,750
60,000 St. Jude Medical, Inc.(b)..... 1,661,250
160,000 Syncor International
Corp.(b).................... 4,359,999
20,000 Visx, Inc.(b)................. 1,748,750
------------
13,997,187
------------
Medical--Health Management Organization (1.0%):
30,000 United Health Care Corp....... 1,291,875
------------
Oil & Gas (0.8%):
50,000 Forest Oil Corp.(b)........... 425,000
100,000 Patina Oil & Gas.............. 293,750
120,000 Range Resources Corp.......... 412,500
------------
1,131,250
------------
Real Estate Investment Trust (0.5%):
39,999 Meditrust Corp................ 604,985
------------
Technology Equipment (3.4%):
75,000 CFM Technologies, Inc.(b)..... 637,500
100,000 Credence Systems Corp.(b)..... 1,850,000
115,000 Integrated Circuit Systems,
Inc.(b)..................... 2,026,875
------------
4,514,375
------------
Telecommunication--Equipment (2.8%):
150,000 Digi International, Inc.(b)... 1,668,750
60,000 ECI Telecommunications,
Ltd......................... 2,137,500
------------
3,806,250
------------
Telecommunications (0.1%):
40,000 Glenayre Technologies,
Inc.(b)..................... 177,500
------------
</TABLE>
<TABLE>
<CAPTION>
SECURITY MARKET
SHARES DESCRIPTION VALUE
- --------- ------------------------------ ------------
<C> <S> <C>
COMMON STOCKS, CONTINUED:
Telecommunications--Services and Equipment (1.4%):
100,000 Picturetel Corp.(b)........... $ 662,500
60,000 Transaction Network Services,
Inc.(b)..................... 1,203,750
------------
1,866,250
------------
Textile (2.5%):
70,000 Lydall, Inc. (b).............. 831,250
130,000 Unifi, Inc.................... 2,543,125
------------
3,374,375
------------
Utilities--Electric (1.0%):
115,000 Trigen Energy Corp............ 1,315,313
------------
Wholesale--Food Products (0.9%):
65,000 Worthington Foods, Inc........ 1,235,000
------------
Total Common Stocks................. 125,155,672
------------
INVESTMENT COMPANIES (6.7%):
3,609,251 Federated Government
Obligation Fund............. 3,609,252
2,638,270 Federated Prime Obligation
Fund........................ 2,638,270
2,218,828 KeyPremier Prime Money Market
Fund........................ 2,218,828
547,590 KeyPremier U.S. Treasury
Obligations Money Market
Fund........................ 547,590
------------
Total Investment Companies.......... 9,013,940
------------
DAILY SWEEP VEHICLE (0.0%):
266 Bank of New York Cash Sweep... 266
------------
Total Daily Sweep Vehicle........... 266
------------
Total Investments (Cost
$93,205,112)(a)--99.8%.................. 134,169,878
Other assets in excess of
liabilities--0.2%..................... 220,325
------------
TOTAL NET ASSETS--100.0%............ $134,390,203
============
</TABLE>
- ---------
(a) Represents cost for federal income tax purposes and differs from value by
net unrealized appreciation of securities as follows:
<TABLE>
<S> <C>
Unrealized appreciation......................... $ 56,249,151
Unrealized depreciation......................... (15,284,385)
------------
Net unrealized appreciation..................... $ 40,964,766
============
</TABLE>
(b) Represents non-income producing securities.
See notes to financial statements.
-25-
<PAGE> 26
THE SESSIONS GROUP
KEYPREMIER ESTABLISHED GROWTH FUND
SCHEDULE OF PORTFOLIO INVESTMENTS
DECEMBER 31, 1998
(UNAUDITED)
<TABLE>
<CAPTION>
SECURITY MARKET
SHARES DESCRIPTION VALUE
- ---------- ------------------------------ ------------
<C> <S> <C>
COMMON STOCKS (99.3%):
Aerospace/Defense--Equipment (1.9%):
60,000 Textron, Inc.................. $ 4,556,250
4,600 United Technologies Corp...... 500,250
------------
5,056,500
------------
Agriculture (0.5%):
30,000 Monsanto Corp................. 1,425,000
------------
Automotive (2.3%):
62,350 Daimlerchrysler, AG(b)........ 5,989,497
------------
Automotive Parts (1.9%):
34,000 Autoliv, Inc.................. 1,264,375
46,465 Dana Corp..................... 1,899,257
24,000 Eaton Corp.................... 1,696,500
------------
4,860,132
------------
Banks (5.1%):
7,000 Allied Irish Banks PLC, ADR... 772,625
74,480 First Union Corp.............. 4,529,315
144,000 Fleet Financial Group, Inc.... 6,435,000
40,000 Wells Fargo Co................ 1,597,500
------------
13,334,440
------------
Beverages (2.6%):
101,000 Coca-Cola Co.................. 6,754,375
------------
Biotechnology (1.2%):
70,000 Centocor, Inc.(b)............. 3,158,750
------------
Chemicals (1.6%):
65,000 Hercules, Inc................. 1,779,375
100,000 Morton International, Inc..... 2,450,000
------------
4,229,375
------------
Computer Networks (2.7%):
50,000 Seagate Technology, Inc.(b)... 1,512,500
90,000 Silicon Graphics, Inc.(b)..... 1,158,750
50,000 Sun Microsystems, Inc.(b)..... 4,281,250
------------
6,952,500
------------
Computer Software (8.2%):
80,000 Automatic Data Processing,
Inc......................... 6,415,000
165,000 Computer Associates
International, Inc.......... 7,033,125
130,000 Netscape Communications
Corp.(b).................... 7,897,499
------------
21,345,624
------------
Computers--Main & Mini (1.6%):
100,000 Compaq Computer Corp.......... 4,193,750
------------
Cosmetics/Personal Care (3.1%):
90,000 Procter & Gamble Co........... 8,218,125
------------
</TABLE>
<TABLE>
<CAPTION>
SECURITY MARKET
SHARES DESCRIPTION VALUE
- ---------- ------------------------------ ------------
<C> <S> <C>
COMMON STOCKS, CONTINUED:
Diversified/Conglomerate (4.7%):
7,000 Du Pont E.I. de Nemours &
Co.......................... $ 371,438
107,000 General Electric Co........... 10,920,687
70,000 Republic Industries,
Inc.(b)..................... 1,032,500
------------
12,324,625
------------
Electronic Components (1.6%):
80,000 Micron Technology, Inc.(b).... 4,045,000
------------
Financial Services (9.7%):
62,000 Capital One Financial Corp.... 7,130,000
120,000 Fannie Mae.................... 8,880,000
130,000 Morgan Stanley Dean Witter
Discover & Co............... 9,229,999
------------
25,239,999
------------
Food Processing & Packaging (2.0%):
6,000 Bestfoods..................... 319,500
152,000 ConAgra, Inc.................. 4,788,000
------------
5,107,500
------------
Furniture & Furnishings (2.5%):
50,000 Armstrong World Industries,
Inc......................... 3,015,625
112,500 Lancaster Colony Corp......... 3,614,063
------------
6,629,688
------------
Insurance (0.5%):
4,419 Aetna Services, Inc........... 336,120
13,000 Aetna, Inc.(b)................ 1,022,125
------------
1,358,245
------------
Manufacturing (0.9%):
4,000 Minnesota Mining and
Manufacturing Co............ 284,500
46,000 Tecumseh Products Co., Class
B........................... 2,081,500
------------
2,366,000
------------
Medical--Hospital Management Services (0.7%):
220,000 Genesis Health Ventures,
Inc.(b)..................... 1,925,000
------------
Medical Instruments (4.6%):
160,000 Medtronic, Inc................ 11,880,000
------------
Medical--Health Management Organization (1.3%):
80,000 United Health Care Corp....... 3,445,000
------------
Mining (1.8%):
75,000 Potash Corp. of Saskatchewan,
Inc......................... 4,790,625
------------
</TABLE>
Continued
-26-
<PAGE> 27
THE SESSIONS GROUP
KEYPREMIER ESTABLISHED GROWTH FUND
SCHEDULE OF PORTFOLIO INVESTMENTS, CONTINUED
DECEMBER 31, 1998
(UNAUDITED)
<TABLE>
<CAPTION>
SECURITY MARKET
SHARES DESCRIPTION VALUE
- ---------- ------------------------------ ------------
<C> <S> <C>
COMMON STOCKS, CONTINUED:
Oil & Gas (4.3%):
148,000 Coastal Corp.................. $ 5,170,750
5,000 Exxon Corp.................... 365,625
65,000 Mobil Corp.................... 5,663,125
------------
11,199,500
------------
Pharmaceuticals (10.2%):
56,000 American Home Products Corp... 3,153,500
60,000 Astra AB, Class A............. 1,241,250
36,000 Johnson & Johnson............. 3,019,500
8,000 Merck & Co., Inc.............. 1,181,500
300,000 Schering-Plough Corp.......... 16,574,999
21,000 Warner Lambert Co............. 1,578,938
------------
26,749,687
------------
Restaurants (1.3%):
155,000 Wendy's International, Inc.... 3,380,938
------------
Retail--Apparel (2.4%):
110,000 Gap, Inc...................... 6,187,500
------------
Telecommunications (5.5%):
10,000 Alltel Corporation............ 598,125
6,500 General Telephone Electric
Corp........................ 422,500
110,000 Loral Space & Communications
Ltd.(b)..................... 1,959,375
50,000 Motorola, Inc................. 3,053,125
30,000 Northern Telecom Ltd.......... 1,503,750
71,000 Sprint Corp. FON Group........ 5,972,874
35,500 Sprint Corp. PCS Group(b)..... 820,938
------------
14,330,687
------------
Textile (1.7%):
225,000 Unifi, Inc.................... 4,401,563
------------
Tools (4.4%):
210,000 Danaher Corp.................. 11,405,625
------------
</TABLE>
<TABLE>
<CAPTION>
SECURITY MARKET
SHARES DESCRIPTION VALUE
- ---------- ------------------------------ ------------
<C> <S> <C>
COMMON STOCKS, CONTINUED:
Transportation (0.2%):
15,000 Burlington Northern Santa Fe
Corp........................ $ 506,250
------------
Utilities--Electric (3.1%):
109,000 Baltimore Gas & Electric
Co.......................... 3,365,375
88,000 Consolidated Edison Co. of New
York........................ 4,653,000
------------
8,018,375
------------
Utilities--Gas & Pipeline (3.2%):
75,000 Sonat, Inc. (Energy).......... 2,029,688
200,000 Williams Cos., Inc.
(Energy).................... 6,237,500
------------
8,267,188
------------
Total Common Stocks.................. 259,077,063
------------
INVESTMENT COMPANIES (0.6%):
429,796 Federated Government
Obligation Fund............. 429,796
369,727 Federated Prime Obligation
Fund........................ 369,727
164,267 KeyPremier Prime Money Market
Fund........................ 164,267
565,981 KeyPremier U.S. Treasury
Obligations Money Market
Fund........................ 565,982
------------
Total Investment Companies........... 1,529,772
------------
DAILY SWEEP VEHICLE (0.0%):
315 Bank of New York Cash Sweep... 315
------------
Total Daily Sweep Vehicle............ 315
Total Investments (Cost
$118,422,925)(a)--99.9%.................. 260,607,150
Other assets in excess of
liabilities--0.1%...................... 303,915
------------
TOTAL NET ASSETS--100.0%............. $260,911,065
============
</TABLE>
- ---------
(a) Represents cost for federal income tax purposes and differs from value by
net unrealized appreciation of securities as follows:
<TABLE>
<S> <C>
Unrealized appreciation......................... $151,270,250
Unrealized depreciation......................... (9,086,025)
------------
Net unrealized appreciation..................... $142,184,225
============
</TABLE>
(b) Represents non-income producing securities.
<TABLE>
<S> <C>
ADR -- American Depository Receipt
AG -- Company (Austria, Germany, Switzerland)
</TABLE>
See notes to financial statements.
-27-
<PAGE> 28
THE SESSIONS GROUP
KEYPREMIER EMERGING GROWTH FUND
SCHEDULE OF PORTFOLIO INVESTMENTS
DECEMBER 31, 1998
(UNAUDITED)
<TABLE>
<CAPTION>
SHARES OR
PRINCIPAL SECURITY MARKET
AMOUNT DESCRIPTION VALUE
- ---------- ------------------------------ ----------
<C> <S> <C>
COMMON STOCKS (90.7%):
Automotive (2.5%):
12,500 A.S.V., Inc.(b)............... $ 223,438
----------
Automotive Parts (7.2%):
14,000 Impco Technologies, Inc.(b)... 183,750
9,000 Strattec Security Corp.(b).... 269,999
19,950 Supreme Industries, Inc.(b)... 192,019
----------
645,768
----------
Banks (1.3%):
5,000 Colorado Business
Bankshares(b)............... 54,375
5,000 Vail Banks, Inc.(b)........... 60,938
----------
115,313
----------
Computer Software (7.6%):
23,500 Advanced Communications
Systems(b).................. 293,749
7,000 Analytical Surveys, Inc.(b)... 215,687
4,000 Mosaix, Inc.(b)............... 31,000
7,500 SPSS, Inc.(b)................. 141,563
----------
681,999
----------
Construction Materials (3.9%):
10,500 Dayton Superior Corp.(b)...... 202,125
6,500 LSI Industries, Inc........... 145,844
----------
347,969
----------
Educational Services (3.2%):
29,000 Quest Education Corp.(b)...... 290,000
----------
Electronic Components (4.9%):
18,000 Control Devices, Inc.......... 288,000
5,000 ITI Technologies, Inc.(b)..... 155,000
----------
443,000
----------
Financial Services (4.9%):
8,500 Financial Federal Corp.(b).... 210,375
9,000 Linc Capital, Inc.(b)......... 74,250
10,000 Willis Lease Finance
Corp.(b).................... 157,500
----------
442,125
----------
Furniture & Furnishings (5.2%):
6,000 American Woodmark Corp........ 205,500
10,000 Compx International,
Inc.(b)..................... 263,749
----------
469,249
----------
Homebuilders--Mobile Homes (2.9%):
10,000 National RV Holdings,
Inc.(b)..................... 257,500
----------
Insurance (2.0%):
30,000 Gainsco, Inc.................. 183,750
----------
</TABLE>
<TABLE>
<CAPTION>
SHARES OR
PRINCIPAL SECURITY MARKET
AMOUNT DESCRIPTION VALUE
- ---------- ------------------------------ ----------
<C> <S> <C>
COMMON STOCKS, CONTINUED:
Leisure (1.7%):
10,000 Brass Eagle, Inc.(b).......... $ 153,750
----------
Machinery & Equipment (2.8%):
16,500 Lancer Corp.(b)............... 181,500
5,000 SI Handling Systems, Inc...... 70,000
----------
251,500
----------
Manufacturing (2.4%):
12,700 Koala Corp.(b)................ 220,663
----------
Medical--Biotechnology (3.6%):
2,000 Aphton Corp.(b)............... 25,500
21,000 Neose Technologies, Inc.(b)... 295,313
----------
320,813
----------
Medical Equipment & Supplies (17.7%):
15,000 Colorado Medtech, Inc.(b)..... 198,750
14,500 ICU Medical, Inc.(b).......... 319,000
5,000 Merdian Diagnostics, Inc...... 33,750
6,000 Priority Health Care(b)....... 311,250
16,000 Sterile Recoveries, Inc.(b)... 188,000
14,000 Surmodics, Inc.(b)............ 217,000
12,500 Syncor International
Corp.(b).................... 340,624
----------
1,608,374
----------
Medical Services (2.7%):
8,500 Hooper Holmes, Inc............ 246,500
----------
Medical--Health Management Organization (3.3%):
22,000 America Service Group,
Inc.(b)..................... 286,000
1,000 Gentle Dental Service
Corp.(b).................... 7,750
----------
293,750
----------
Metal Fabricate/Hardware (1.8%):
20,000 Sun Hydraulics Corp........... 166,250
----------
Oil & Gas (1.0%):
14,000 Patina Oil & Gas.............. 41,125
15,000 Range Resources Corp.......... 51,563
----------
92,688
----------
Printing & Publishing (1.1%):
5,500 American Bank Note
Holograph(b)................ 96,250
----------
Real Estate Investment Trust (1.4%):
11,000 Eldertrust.................... 126,500
----------
Retail--Special Line (2.2%):
15,000 Racing Champions Corp.(b)..... 200,625
----------
</TABLE>
Continued
-28-
<PAGE> 29
THE SESSIONS GROUP
KEYPREMIER EMERGING GROWTH FUND
SCHEDULE OF PORTFOLIO INVESTMENTS, CONTINUED
DECEMBER 31, 1998
(UNAUDITED)
<TABLE>
<CAPTION>
SHARES OR
PRINCIPAL SECURITY MARKET
AMOUNT DESCRIPTION VALUE
- ---------- ------------------------------ ----------
<C> <S> <C>
COMMON STOCKS, CONTINUED:
Telecommunications--Services and Equipment (2.3%):
5,000 Tollgrade Communications,
Inc.(b)..................... $ 96,250
5,500 Transaction Network Services,
Inc.(b)..................... 110,344
----------
206,594
----------
Wholesale--Food Products (1.1%):
5,000 Worthington Foods, Inc........ 95,000
----------
Total Common Stocks.................. 8,179,368
----------
</TABLE>
<TABLE>
<CAPTION>
SHARES OR
PRINCIPAL SECURITY MARKET
AMOUNT DESCRIPTION VALUE
- ---------- ------------------------------ ----------
<C> <S> <C>
INVESTMENT COMPANIES (8.5%):
177,540 Federated Government
Obligation Fund............. $ 177,540
234,781 Federated Prime Obligation
Fund........................ 234,781
177,398 KeyPremier Prime Money Market
Fund........................ 177,398
177,125 KeyPremier U.S. Treasury
Obligations Money Market
Fund........................ 177,125
----------
Total Investment Companies........... 766,844
----------
DAILY SWEEP VEHICLE (1.3%):
118,422 Bank of New York Cash Sweep... 118,422
----------
Total Daily Sweep Vehicle............ 118,422
----------
Total Investments (Cost
$8,243,673)(a)--100.5%................... 9,064,634
Liabilities in excess of other
assets -- (0.5)%......................... (46,721)
----------
TOTAL NET ASSETS--100.0%............. $9,017,913
==========
</TABLE>
- ---------
(a) Represents cost for federal income tax purposes and differs from value by
net unrealized appreciation of securities as follows:
<TABLE>
<S> <C>
Unrealized appreciation......................... $1,364,056
Unrealized depreciation......................... (543,095)
----------
Net unrealized appreciation..................... $ 820,961
==========
</TABLE>
(b) Represents non-income producing securities.
See notes to financial statements.
-29-
<PAGE> 30
THE SESSIONS GROUP
KEYPREMIER INTERMEDIATE TERM INCOME FUND
SCHEDULE OF PORTFOLIO INVESTMENTS
DECEMBER 31, 1998
(UNAUDITED)
<TABLE>
<CAPTION>
SHARES OR
PRINCIPAL SECURITY MARKET
AMOUNT DESCRIPTION VALUE
- ---------- ------------------------------ ------------
<C> <S> <C>
ASSET BACKED SECURITIES (6.2%):
Banks (2.4%):
6,935,000 Case Equipment Loan Trust,
Series 1998-A, Class A-3,
5.74%, 8/15/02.............. $ 7,042,146
------------
Financial Services (3.8%):
10,050,000 American Express Master Trust,
Series 1994-3, Class A,
7.85%, 8/15/05.............. 11,178,313
------------
Total Asset Backed Securities........ 18,220,459
------------
CORPORATE BONDS (32.5%):
Banks (6.6%):
6,000,000 First of America Bank, 7.75%,
7/15/04..................... 6,757,500
6,000,000 Key Bank N.A., 6.50%,
4/15/08..................... 6,412,500
6,000,000 Wachovia Corp., 6.61%,
10/1/25..................... 6,427,500
------------
19,597,500
------------
Financial Services (13.3%):
5,000,000 Associates Corp N.A., 6.50%,
7/15/02..................... 5,150,000
2,000,000 Cincinnati Financial Corp.,
6.90%, 5/15/28.............. 2,025,000
6,000,000 Dow Capital BV, 9.20%,
6/1/10...................... 7,612,500
5,000,000 Household Financial Corp.,
6.125%, 7/15/02............. 5,062,500
6,000,000 International Lease Financial
Corp., 5.90%, 4/15/02....... 6,060,000
8,000,000 Lehman Brothers Holdings,
6.50%, 7/18/00.............. 8,020,000
6,000,000 Spieker Properties LP, 7.35%,
12/01/17.................... 5,647,500
------------
39,577,500
------------
Industrials (7.3%):
2,000,000 Beckman Instruments, Inc.,
7.05%, 6/1/26............... 2,097,500
6,000,000 Coca-Cola Put Asset Trust,
6.00%, 3/15/01(b)........... 6,097,500
7,000,000 Lowe's Companies, Inc.,
6.875%, 2/15/28............. 7,297,500
6,000,000 Phillips Petroleum Co., 6.65%,
7/15/18..................... 6,165,000
------------
21,657,500
------------
</TABLE>
<TABLE>
<CAPTION>
SHARES OR
PRINCIPAL SECURITY MARKET
AMOUNT DESCRIPTION VALUE
- ---------- ------------------------------ ------------
<C> <S> <C>
CORPORATE BONDS, CONTINUED:
Utilities--Electric (5.3%):
6,000,000 Public Service--Electric &
Gas, 6.50%, 5/1/04.......... $ 6,352,500
1,900,000 Toledo Edison, 9.50%,
4/1/01...................... 2,030,625
7,000,000 Western Resources, Inc.,
6.25%, 8/15/03.............. 7,183,750
------------
15,566,875
------------
Total Corporate Bonds................ 96,399,375
------------
U.S. GOVERNMENT AGENCIES (8.3%):
Federal Home Loan Bank (4.8%):
6,000,000 5.80%, 9/2/08................. 6,201,120
8,000,000 5.88%, 11/25/08............... 8,002,720
------------
14,203,840
------------
Tennessee Valley Authority (3.5%):
10,000,000 8.375%, 10/1/99............... 10,237,500
------------
Total U.S. Government Agencies....... 24,441,340
------------
U.S. GOVERNMENT AGENCIES/ MORTGAGE BACKED SECURITIES
(15.5%):
Fannie Mae (8.2%):
7,000,000 6.00%, 1/14/05, MTN........... 7,164,710
10,000,000 6.23%, 7/21/08, MTN........... 10,209,300
6,960,943 6.50%, 7/1/28................. 7,006,537
------------
24,380,547
------------
Freddie Mac (7.3%):
7,348,206 6.00%, 12/1/12, Pool
#E00526..................... 7,375,468
4,002,133 6.50%, 3/1/18, Pool #C90209... 4,031,949
10,000,000 Series 2104, Class PD, 6.00%,
5/15/21..................... 10,125,000
------------
21,532,417
------------
Total U.S. Government Agencies/
Mortgage Backed Securities....... 45,912,964
------------
U.S. GOVERNMENT OBLIGATIONS (11.3%):
Government National Mortgage Association (11.3%):
7,464,872 Series 1998-7, Class B, 6.25%,
3/20/22..................... 7,497,942
4,221,962 6.75%, 5/15/28, Pool
#474256..................... 4,293,144
6,757,604 7.00%, 7/20/28, Pool #2616.... 6,885,796
7,844,758 6.50%, 8/20/28, Pool #2630.... 7,891,277
6,998,969 6.25%, 10/15/28, Pool
#484545..................... 7,005,478
------------
Total U.S. Government Obligations.... 33,573,637
------------
</TABLE>
Continued
-30-
<PAGE> 31
THE SESSIONS GROUP
KEYPREMIER INTERMEDIATE TERM INCOME FUND
SCHEDULE OF PORTFOLIO INVESTMENTS, CONTINUED
DECEMBER 31, 1998
(UNAUDITED)
<TABLE>
<CAPTION>
SHARES OR
PRINCIPAL SECURITY MARKET
AMOUNT DESCRIPTION VALUE
- ---------- ------------------------------ ------------
<C> <S> <C>
U.S. TREASURY OBLIGATIONS (22.9%):
U.S. Treasury Bonds (11.5%):
6,000,000 11.625%, 11/15/02............. $ 7,434,300
5,000,000 10.75%, 8/15/05............... 6,668,600
5,000,000 8.125%, 5/15/21............... 6,729,000
5,000,000 7.125%, 2/15/23............... 6,151,700
6,000,000 6.375%, 8/15/27............... 6,881,820
------------
33,865,420
------------
U.S. Treasury Notes (11.4%):
9,000,000 7.75%, 2/15/01................ 9,556,740
10,000,000 7.50%, 11/15/01............... 10,760,200
12,000,000 6.625%, 5/15/07............... 13,520,520
------------
33,837,460
------------
Total U.S. Treasury Obligations...... 67,702,880
------------
</TABLE>
<TABLE>
<CAPTION>
SHARES OR
PRINCIPAL SECURITY MARKET
AMOUNT DESCRIPTION VALUE
- ---------- ------------------------------ ------------
<C> <S> <C>
INVESTMENT COMPANIES (2.3%):
2,192,770 Federated Government
Obligation Fund............. $ 2,192,770
1,215,312 Federated Prime Obligation
Fund........................ 1,215,312
2,527,275 Federated Treasury Fund....... 2,527,274
478,043 KeyPremier Prime Money Market
Fund........................ 478,043
480,789 KeyPremier U.S. Treasury
Obligations Money Market
Fund........................ 480,789
------------
Total Investment Companies........... 6,894,188
------------
Total Investments (Cost
$289,026,107)(a)--99.0%.................. 293,144,843
Other assets in excess of
liabilities--1.0%...................... 2,861,354
------------
TOTAL NET ASSETS--100.0%............. $296,006,197
============
</TABLE>
- ---------
(a) Represents cost for federal income tax purposes and differs from value by
net unrealized appreciation of securities as follows:
<TABLE>
<S> <C>
Unrealized appreciation......................... $ 5,480,786
Unrealized depreciation......................... (1,362,050)
-----------
Net unrealized appreciation..................... $ 4,118,736
===========
</TABLE>
(b) Represents a restricted security, purchased under Rule 144A, which is exempt
from registration under the Securities Act of 1933, as amended.
MTN -- Medium Term Note
See notes to financial statements.
-31-
<PAGE> 32
THE SESSIONS GROUP
KEYPREMIER PENNSYLVANIA MUNICIPAL BOND FUND
SCHEDULE OF PORTFOLIO INVESTMENTS
DECEMBER 31, 1998
(UNAUDITED)
<TABLE>
<CAPTION>
SHARES OR
PRINCIPAL SECURITY MARKET
AMOUNT DESCRIPTION VALUE
- ---------- ------------------------------------------------------------ ------------
<C> <S> <C>
MUNICIPAL BONDS (92.4%):
Pennsylvania (92.4%):
$1,330,000 Berks County, Pennsylvania Municipal Authority, 7.10%,
5/15/22, Prerefunded 5/15/04 @ 100, FGIC.................. $ 1,534,488
1,000,000 Bethlehem, Pennsylvania Area School District, Series A,
6.50%, 9/1/00, AMBAC...................................... 1,048,750
2,065,000 Bethlehem, Pennsylvania Water Authority, Series A, 6.30%,
11/15/15, Prerefunded 11/15/02 @ 100, MBIA................ 2,253,431
2,080,000 Blair County, Pennsylvania Hospital Health Care Bond, 5.30%,
8/15/17, Callable 8/15/07 @ 102, MBIA..................... 2,129,400
1,900,000 Central Dauphin, Pennsylvania School District, 6.00%,
6/1/01.................................................... 1,992,625
250,000 Dauphin County, Pennsylvania General Authority Health
Center, Tressler Lutheran Services, Series A, 5.90%,
1/1/00.................................................... 254,230
1,000,000 Hempfield, Pennsylvania School District, Lancaster County,
6.40%, 8/15/05, Prerefunded 8/15/02 @ 100, FGIC........... 1,086,250
4,085,000 Lower Merion Township, Pennsylvania Area School District,
5.125%, 5/15/13, Callable 5/15/08 @ 100................... 4,243,294
6,000,000 Lycoming County, Pennsylvania College Revenue Authority,
Pennsylvania College of Technology, 5.40%, 11/1/08,
Callable 5/1/03 @ 100, AMBAC.............................. 6,269,999
500,000 Lycoming County, Pennsylvania Hospital Authority, Series B,
7.40%, 7/1/99............................................. 510,290
1,000,000 Northampton County, Pennsylvania Higher Education Authority,
Lehigh University, 6.00%, 9/1/01.......................... 1,048,750
2,155,000 Northampton County, Pennsylvania Higher Education Authority,
Lehigh University, 6.90%, 10/15/06, Callable 10/15/01 @
102, MBIA................................................. 2,375,888
2,000,000 Pennsylvania Delaware River Port Authority, Series B, 5.25%,
1/1/04, AMBAC............................................. 2,112,500
2,000,000 Pennsylvania Housing Finance Agency, Rental Housing, 5.40%,
1/1/00, FNMA.............................................. 2,029,700
2,000,000 Pennsylvania Intergovernmental Cooperation Authority, 7.00%,
6/15/14, Prerefunded 6/15/05 @ 100, FGIC.................. 2,337,500
1,375,000 Pennsylvania State Higher Education Assistance Agency,
Student Loan Revenue, Series A, 6.80%, 12/1/00, FGIC...... 1,445,469
575,000 Pennsylvania State Higher Education Facilities Authority,
5.90%, 8/15/00, MBIA...................................... 595,844
1,000,000 Pennsylvania State Higher Education Facilities Authority,
Drexel University, 7.00%, 5/1/02, Prerefunded 5/1/00 @
100, MBIA................................................. 1,046,250
3,925,000 Pennsylvania State Higher Education Facilities Authority,
Series A, 5.35%, 1/1/08, Callable 1/1/06 @ 101............ 4,131,063
145,000 Pennsylvania State Higher Education Facilities Authority,
Thomas Jefferson University, Series A, 6.875%, 7/1/99,
MBIA...................................................... 147,049
1,425,000 Pennsylvania State Higher Education Facilities Authority,
Thomas Jefferson University, Series A, 5.90%, 8/15/00..... 1,478,438
3,560,000 Pennsylvania State Higher Education Facilities Authority,
University of Pennsylvania, 4.50%, 7/15/15, Callable
7/15/08 @ 100............................................. 3,390,900
3,740,000 Pennsylvania State Higher Education Facilities Authority,
University of Pennsylvania, 4.50%, 7/15/16, Callable
7/15/08 @ 100............................................. 3,534,300
2,000,000 Pennsylvania State Higher Education, Duquesne University,
Series A, 7.00%, 4/1/10, Callable 4/1/01 @ 100, MBIA...... 2,122,500
1,500,000 Pennsylvania State Industrial Development Authority Revenue,
Economic Development, 5.00%, 7/1/00, AMBAC................ 1,530,000
</TABLE>
Continued
-32-
<PAGE> 33
THE SESSIONS GROUP
KEYPREMIER PENNSYLVANIA MUNICIPAL BOND FUND
SCHEDULE OF PORTFOLIO INVESTMENTS, CONTINUED
DECEMBER 31, 1998
(UNAUDITED)
<TABLE>
<CAPTION>
SHARES OR
PRINCIPAL SECURITY MARKET
AMOUNT DESCRIPTION VALUE
- ---------- ------------------------------------------------------------ ------------
<C> <S> <C>
MUNICIPAL BONDS, CONTINUED:
Pennsylvania, Continued:
$1,250,000 Pennsylvania State Industrial Development Authority Revenue,
Economic Development, Series A, 7.00%, 1/1/11, Prerefunded
7/1/01 @ 102.............................................. $ 1,371,875
1,655,000 Pennsylvania State Public School Building Authority Revenue,
School District of York, Series A, 4.75%, 2/15/14,
Callable 2/15/08 @ 100, FGIC.............................. 1,632,244
1,735,000 Pennsylvania State Public School Building Authority Revenue,
School District of York, Series A, 4.80%, 2/15/15,
Callable 2/15/08 @ 100, FGIC.............................. 1,713,313
1,820,000 Pennsylvania State Public School Building Authority Revenue,
School District of York, Series A, 4.85%, 2/15/16,
Callable 2/15/08 @ 100, FGIC.............................. 1,797,250
5,000,000 Pennsylvania State Turnpike Common Oil Franchise Tax
Revenue, Series A, 5.50%, 12/1/12, Prerefunded 12/1/04 @
102, AMBAC................................................ 5,481,249
5,000,000 Pennsylvania State Turnpike Common Oil Franchise Tax
Revenue, Series B, 5.25%, 12/1/14, Callable 12/1/08 @ 101,
AMBAC..................................................... 5,168,750
1,000,000 Pennsylvania State Turnpike, Series J, 6.40%, 12/1/00,
FGIC...................................................... 1,055,000
1,000,000 Pennsylvania State, Second Series, 5.00%, 11/15/02, AMBAC... 1,045,000
3,000,000 Pennsylvania State, Third Series, 4.50%, 12/1/07............ 3,078,750
1,000,000 Philadelphia, Pennsylvania Gas Works, 14th Series, 5.50%,
7/1/04, FSA............................................... 1,073,750
7,160,000 Philadelphia, Pennsylvania Hospitals & Higher Education
Facilities Authority Revenue, Series A, 5.00%, 5/15/11,
Callable 5/15/08 @ 101.................................... 7,321,099
1,000,000 Philadelphia, Pennsylvania Hospitals & Higher Education
Facilities Authority, Children's Hospital, Series A,
6.50%, 2/15/21, Prerefunded 2/15/02 @ 102................. 1,097,500
7,000,000 Philadelphia, Pennsylvania School District, Series B, 5.50%,
9/1/15, Callable 9/01/05 @ 102, AMBAC..................... 7,367,499
2,895,000 Philadelphia, Pennsylvania Water & Wastewater Revenue,
5.00%, 6/15/02, FSA....................................... 2,999,944
1,000,000 Philadelphia, Pennsylvania Water & Wastewater Revenue,
6.25%, 8/1/02, MBIA....................................... 1,080,000
3,500,000 Philadelphia, Pennsylvania Water & Wastewater Revenue,
Series A, 5.00%, 8/1/13, Callable 8/01/07 @ 102........... 3,548,125
1,000,000 Philadelphia, Pennsylvania, 5.00%, 5/15/02, FGIC............ 1,035,000
1,265,000 Pottsville Hospital & Warne Clinic, 5.25%, 7/1/10........... 1,277,650
1,700,000 Sayre, Pennsylvania Health Care Facilities Authority, Series
A, 6.60%, 3/1/01, AMBAC................................... 1,797,750
1,850,000 York County, Pennsylvania Industrial Development Authority,
6.25%, 7/1/02............................................. 1,974,875
------------
103,565,531
------------
Total Municipal Bonds................................................ 103,565,531
------------
U.S. GOVERNMENT AGENCIES (4.7%):
Fannie Mae (4.7%):
5,000,000 6.80%, 1/10/03.............................................. 5,308,850
------------
Total U.S. Government Agencies....................................... 5,308,850
------------
</TABLE>
Continued
-33-
<PAGE> 34
THE SESSIONS GROUP
KEYPREMIER PENNSYLVANIA MUNICIPAL BOND FUND
SCHEDULE OF PORTFOLIO INVESTMENTS, CONTINUED
DECEMBER 31, 1998
(UNAUDITED)
<TABLE>
<CAPTION>
SHARES OR
PRINCIPAL SECURITY MARKET
AMOUNT DESCRIPTION VALUE
- ---------- ------------------------------------------------------------ ------------
<C> <S> <C>
INVESTMENT COMPANIES (1.9%):
$1,000,645 Federated Pennsylvania Municipal Cash Fund.................. $ 1,000,645
1,094,331 Federated Pennsylvania Municipal Cash Trust Service
Shares.................................................... 1,094,332
------------
Total Investment Companies........................................... 2,094,977
------------
Total Investments (Cost $108,831,196)(a)--99.0%...................... 110,969,358
Other assets in excess of liabilities--1.0%.......................... 1,136,345
------------
TOTAL NET ASSETS--100.0%.................................... $112,105,703
============
</TABLE>
- ---------
(a) Represents cost for federal income tax purposes and differs from value by
net unrealized appreciation of securities as follows:
<TABLE>
<S> <C>
Unrealized appreciation......................... $2,436,732
Unrealized depreciation......................... (298,570)
----------
Net unrealized appreciation..................... $2,138,162
==========
</TABLE>
<TABLE>
<S> <C>
AMBAC -- AMBAC Indemnity Corp.
FGIC -- Insured by the Financial Guaranty Insurance Corp.
MBIA -- Insured by the Municipal Bond Insurance Assoc.
FSA -- Financial Security Assurance Corp.
FNMA -- Fannie Mae
</TABLE>
See notes to financial statements.
-34-
<PAGE> 35
THE SESSIONS GROUP
KEYPREMIER LIMITED DURATION GOVERNMENT SECURITIES FUND
SCHEDULE OF PORTFOLIO INVESTMENTS
DECEMBER 31, 1998
(UNAUDITED)
<TABLE>
<CAPTION>
SHARES OR
PRINCIPAL SECURITY MARKET
AMOUNT DESCRIPTION VALUE
- ---------- ------------------------------ -----------
<C> <S> <C>
U.S. GOVERNMENT AGENCIES (48.9%):
Federal Farm Credit Bank--Discount (13.4%):
$5,000,000 5.16%, 1/13/99................ $ 4,994,250
-----------
Federal Home Loan Bank (30.1%):
5,000,000 4.56%, 1/4/99................. 5,000,000
6,200,000 5.65%, 5/19/99................ 6,216,058
-----------
11,216,058
-----------
Student Loan Marketing Association (5.4%):
2,000,000 4.71%, 1/4/99................. 2,000,000
-----------
Total U.S. Government Agencies....... 18,210,308
-----------
U.S. GOVERNMENT AGENCIES/MORTGAGE BACKED SECURITIES
(7.4%):
Fannie Mae (0.0%):
18 10.00%, 10/1/00............... 19
-----------
Freddie Mac (7.4%):
155,308 4.50%, 4/1/99, Gold Pool
#L90114..................... 154,725
2,450,787 9.00%, 4/1/16................. 2,605,481
-----------
2,760,206
-----------
Total U.S. Government Agencies/
Mortgage Backed Securities....... 2,760,225
-----------
U.S. GOVERNMENT OBLIGATIONS (3.9%):
Government National Mortgage Association (3.9%):
114,138 8.50%, 2/15/17, Pool
#203632..................... 122,128
49,095 8.50%, 4/15/17, Pool
#189291..................... 52,531
506,895 8.50%, 7/15/21, Pool
#307983..................... 542,377
295,410 8.50%, 7/15/21, Pool
#306066..................... 316,088
378,181 8.50%, 1/15/23, Pool
#341948..................... 403,708
-----------
Total U.S. Government Obligations.... 1,436,832
-----------
</TABLE>
<TABLE>
<CAPTION>
SHARES OR
PRINCIPAL SECURITY MARKET
AMOUNT DESCRIPTION VALUE
- ---------- ------------------------------ -----------
<C> <S> <C>
U.S. TREASURY OBLIGATIONS (29.8%):
U.S. Treasury Bonds (2.8%):
$1,000,000 5.25%, 11/15/28............... $ 1,023,730
-----------
U.S. Treasury Notes (27.0%):
1,000,000 5.88%, 3/31/99................ 1,003,380
9,000,000 5.38%, 1/31/00................ 9,070,020
-----------
10,073,400
-----------
Total U.S. Treasury Obligations...... 11,097,130
-----------
U.S. GOVERNMENT GUARANTEED SECURITIES (5.4%):
Private Export Funding Company (5.4%):
2,000,000 9.50%, 3/31/99................ 2,020,000
-----------
Total U.S. Government Guaranteed
Securities....................... 2,020,000
-----------
REPURCHASE AGREEMENTS (4.2%):
1,548,000 Lehman Brothers, dated
12/31/98, 4.95%, matures
1/4/99, Proceeds at maturity
$1,548,851 (Collateralized
by $2,815,000 Freddie Mac,
4.81%, 4/15/28, Market Value
= $1,580,234)............... 1,548,000
-----------
Total Repurchase Agreements.......... 1,548,000
-----------
Total Investments (Cost
$37,059,953)(a)--99.6%................... 37,072,495
Other assets in excess of
liabilities--0.4%........................ 142,392
-----------
TOTAL NET ASSETS--100.0%............. $37,214,887
===========
</TABLE>
- ---------
(a) Represents cost for federal income tax purposes and differs from value by
net unrealized appreciation of securities as follows:
<TABLE>
<S> <C>
Unrealized appreciation......................... $ 77,676
Unrealized depreciation......................... (65,134)
--------
Net unrealized appreciation..................... $ 12,542
========
</TABLE>
See notes to financial statements.
-35-
<PAGE> 36
THE SESSIONS GROUP
KEYPREMIER U.S. TREASURY OBLIGATIONS MONEY MARKET FUND
SCHEDULE OF PORTFOLIO INVESTMENTS
DECEMBER 31, 1998
(UNAUDITED)
<TABLE>
<CAPTION>
SHARES OR
PRINCIPAL SECURITY AMORTIZED
AMOUNT DESCRIPTION COST
- ---------- ------------------------------ -----------
<C> <S> <C>
U.S. TREASURY SECURITIES (72.9%):
U.S. Treasury Bills (72.9%):
$8,000,000 4.67%, 1/21/99................ $ 7,979,583
2,000,000 4.53%, 2/4/99................. 1,991,604
6,000,000 4.48%, 2/11/99................ 5,969,968
-----------
Total U.S. Treasury Securities....... 15,941,155
-----------
U.S. GOVERNMENT GUARANTEED SECURITIES (13.8%):
Private Export Funding Company (13.8%):
3,000,000 9.50%, 3/31/99................ 3,029,953
-----------
Total U.S. Government Guaranteed
Securities....................... 3,029,953
-----------
</TABLE>
<TABLE>
<CAPTION>
SHARES OR
PRINCIPAL SECURITY AMORTIZED
AMOUNT DESCRIPTION COST
- ---------- ------------------------------ -----------
<C> <S> <C>
U.S. TREASURY COLLATERALIZED REPURCHASE AGREEMENTS
(13.4%):
$ 926,000 Lehman Brothers, dated
12/31/98, 4.90%, matures
1/4/99, Proceeds at maturity
$926,504 (Collateralized by
$845,000
U.S. Treasury Notes, 6.50%,
8/15/05, Market Value =
$949,303)................... $ 926,000
2,000,000 Merrill Lynch Securities Inc.,
dated 11/05/98, 4.65%,
matures 1/4/99, Proceeds at
maturity $2,001,033
(Collateralized by
$1,925,000 U.S. Treasury
Notes, 8/15/03, 5.75%,
Market Value =
$2,051,930)................. 2,000,000
-----------
Total U.S. Treasury Collateralized
Repurchase Agreements.............. 2,926,000
-----------
Total Investments (Amortized Cost
$21,897,108)(a)--100.1%............ 21,897,108
Liabilities in excess of other
assets--(0.1)%......................... (18,438)
-----------
TOTAL NET ASSETS--100.0%............. $21,878,670
===========
</TABLE>
- ---------
(a) Cost for federal income tax and financial reporting purposes are the same.
See notes to financial statements.
-36-
<PAGE> 37
THE SESSIONS GROUP
KEYPREMIER PRIME MONEY MARKET FUND
SCHEDULE OF PORTFOLIO INVESTMENTS
DECEMBER 31, 1998
(UNAUDITED)
<TABLE>
<CAPTION>
SHARES OR
PRINCIPAL SECURITY AMORTIZED
AMOUNT DESCRIPTION COST
- ----------- ------------------------------ ------------
<C> <S> <C>
CERTIFICATE OF DEPOSIT (1.2%):
Financial Services (1.2%):
$ 3,000,000 Bankers Trust Co.*, 5.08%,
2/19/99..................... $ 2,999,728
------------
Total Certificate of Deposit.......... 2,999,728
------------
COMMERCIAL PAPER (32.0%):
Aerospace/Defense--Equipment (4.0%):
10,000,000 United Airlines, 5.12%,
2/16/99..................... 9,934,578
------------
Aluminum (4.0%):
10,000,000 Aluminum Co., 5.10%, 2/24/99.. 9,923,500
------------
Banks (3.9%):
10,000,000 Zions Bancorp, 5.29%,
2/25/99..................... 9,919,181
------------
Electrical Equipment (4.0%):
10,000,000 Emerson Electric, 5.27%,
1/13/99..................... 9,982,433
------------
Financial Services (11.8%):
10,000,000 GMAC, 5.05%, 1/28/99.......... 9,962,125
10,000,000 IBM Credit Corp., 5.03%,
1/22/99..................... 9,970,658
10,000,000 Metlife Funding, 5.23%,
1/25/99..................... 9,965,133
------------
29,897,916
------------
Telecommunications (4.3%):
5,775,000 Lucent Technologies, 5.25%,
1/21/99..................... 5,758,156
5,000,000 Lucent Technologies, 5.25%,
1/28/99..................... 4,980,313
------------
10,738,469
------------
Total Commercial Paper................ 80,396,077
------------
</TABLE>
<TABLE>
<CAPTION>
SHARES OR
PRINCIPAL SECURITY AMORTIZED
AMOUNT DESCRIPTION COST
- ----------- ------------------------------ ------------
<C> <S> <C>
CORPORATE BONDS (17.4%):
Financial Services (13.4%):
$11,000,000 Associates Corp. N.A., 6.00%,
3/15/99..................... $ 11,016,853
2,500,000 Chrysler Financial Corp.*,
5.52%, 1/20/99.............. 2,500,094
10,150,000 Merrill Lynch & Co.*, 4.37%,
1/19/99..................... 10,145,513
10,000,000 PNC Bank N.A.*, 4.79%,
3/11/99..................... 9,996,912
------------
33,659,372
------------
Utilities (4.0%):
10,000,000 Philadelphia Electric, 7.50%,
1/15/99..................... 10,006,858
------------
Total Corporate Bonds................. 43,666,230
------------
U.S. GOVERNMENT AGENCIES (37.3%):
Federal Agricultural Mortgage Corporation--Discount
(4.0%):
10,000,000 5.03%, 2/22/99................ 9,927,344
------------
Federal Farm Credit Bank--Discount (4.3%):
10,950,000 5.16%, 1/13/99................ 10,931,458
------------
Federal Home Loan Bank--Discount (25.0%):
10,000,000 5.01%, 2/3/99................. 9,954,075
20,000,000 5.01%, 2/5/99................. 19,902,583
24,132,000 5.01%, 2/10/99................ 23,997,666
9,300,000 5.01%, 2/19/99................ 9,236,582
------------
63,090,906
------------
Student Loan Marketing Association (4.0%):
10,000,000 Sallie Mae*, 5.25%, 5/20/99... 10,000,000
------------
Total U.S. Government Agencies........ 93,949,708
------------
</TABLE>
Continued
-37-
<PAGE> 38
THE SESSIONS GROUP
KEYPREMIER PRIME MONEY MARKET FUND
SCHEDULE OF PORTFOLIO INVESTMENTS, CONTINUED
DECEMBER 31, 1998
(UNAUDITED)
<TABLE>
<CAPTION>
SHARES OR
PRINCIPAL SECURITY AMORTIZED
AMOUNT DESCRIPTION COST
- ----------- ------------------------------ ------------
<C> <S> <C>
REPURCHASE AGREEMENTS (12.2%):
$28,094,000 Lehman Brothers, dated
12/31/98, 5.00%, matures
1/4/99, Proceeds at maturity
$28,109,608 (Collateralized
by $46,680,000 Fannie Mae,
4.36%, 3/25/28, Market Value
= $28,658,942).............. $ 28,094,000
2,474,000 Merrill Lynch Securities Inc.,
dated 12/31/98, 4.75%,
matures 1/4/99, Proceeds at
maturity $2,475,306
(Collateralized by
$2,135,000 Tennessee Valley
Authority, 5.375%-8.375%,
10/1/99- 11/13/08, Market
Value = $2,528,808)......... 2,474,000
------------
Total Repurchase Agreements........... 30,568,000
------------
Total Investments (Amortized Cost
$251,579,743)(a)--100.1%............ 251,579,743
Liabilities in excess of other
assets--(0.1)%............................ (375,957)
------------
TOTAL NET ASSETS--100.0%.............. $251,203,786
============
</TABLE>
- ---------
(a) Cost for federal income tax and financial reporting purposes are the same.
* Denotes variable rate security. Rate presented represents rate in effect on
December 31, 1998. Maturity date reflects next rate change date.
See notes to financial statements.
-38-
<PAGE> 39
THE SESSIONS GROUP
KEYPREMIER FUNDS
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1998
(UNAUDITED)
1. ORGANIZATION:
The Sessions Group (the "Group") was organized on April 25, 1988 as an Ohio
business trust, and is registered under the Investment Company Act of 1940,
as amended (the "1940 Act"), as an open-end management investment company.
The Group is authorized to issue an unlimited number of shares that are
units of beneficial interest, without par value. The Group offers shares of
the following series for which Martindale Andres & Company, Inc., a wholly
owned subsidiary of Keystone Financial, Inc., serves as investment adviser:
the KeyPremier Aggressive Growth Fund, the KeyPremier Established Growth
Fund, the KeyPremier Emerging Growth Fund, the KeyPremier Intermediate Term
Income Fund, the KeyPremier Pennsylvania Municipal Bond Fund, the
KeyPremier Limited Duration Government Securities Fund, the KeyPremier U.S.
Treasury Obligations Money Market Fund, and the KeyPremier Prime Money
Market Fund (collectively, the "Funds" and individually, a "Fund").
The Funds' investment objectives are as follows:
<TABLE>
<CAPTION>
FUND OBJECTIVE
---- ---------
<S> <C>
Aggressive Growth Fund Growth of capital
Established Growth Fund Growth of capital with some current
income as a secondary objective
Emerging Growth Fund Long-term growth of capital
Intermediate Term Income Fund Current income with long-term growth of
capital as a secondary objective
Pennsylvania Municipal Bond Fund Income which is exempt from federal
income tax and Pennsylvania state income
tax and preservation of capital
Limited Duration Government Securities Fund Current income with preservation of
capital as a secondary objective
U.S. Treasury Obligations Money Market Fund Current income with liquidity and
stability of principal
Prime Money Market Fund Current income with liquidity and
stability of principal
</TABLE>
Shares of the Funds may be sold to customers of Martindale Andres & Company
Inc. and its affiliates by the Group's distributor, BISYS Fund Services
Limited Partnership d/b/a BISYS Fund Services (the "Distributor") and to
accounts of correspondent banks of Keystone Financial, Inc. and to the
general public.
Continued
-39-
<PAGE> 40
THE SESSIONS GROUP
KEYPREMIER FUNDS
NOTES TO FINANCIAL STATEMENTS, CONTINUED
DECEMBER 31, 1998
(UNAUDITED)
2. SIGNIFICANT ACCOUNTING POLICIES:
The following is a summary of significant accounting policies followed by
the Group 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.
SECURITIES VALUATION:
Investments of the U.S. Treasury Obligations Money Market Fund and Prime
Money Market Fund (collectively, "the money market funds"), are valued
at amortized cost, which approximates market value. Under the amortized
cost method, discount or premium is amortized on a constant basis to the
maturity of the security. In addition, each of the money market funds
may not a) purchase any instrument with a remaining maturity greater
than 397 calendar days unless such investment is subject to a demand
feature, or b) maintain a dollar-weighted average portfolio maturity
which exceeds 90 days.
Investments in common and preferred stocks, corporate bonds, commercial
paper, municipal securities and U.S. Government securities of the
Aggressive Growth Fund, Established Growth Fund, Emerging Growth Fund,
Intermediate Term Income Fund, Pennsylvania Municipal Bond Fund, and
Limited Duration Government Securities Fund (collectively, "the variable
net asset value funds"), are valued based upon the current available
prices in the principal market in which such securities are normally
traded. Investments in investment companies are valued at their net
asset values as reported by such companies. Other securities for which
quotations are not readily available are valued at their fair value
under procedures established by the Group's Board of Trustees, including
the use of approved independent pricing services. The differences
between the cost and market values of investments held by the variable
net asset value funds are reflected as either unrealized appreciation or
depreciation.
SECURITY TRANSACTIONS AND RELATED INCOME:
Security 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 amortization of
premium or 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.
REPURCHASE AGREEMENTS:
The Funds may acquire repurchase agreements from financial institutions
such as banks and broker-dealers which Martindale Andres & Company, Inc.
deems creditworthy under guidelines approved
Continued
-40-
<PAGE> 41
THE SESSIONS GROUP
KEYPREMIER FUNDS
NOTES TO FINANCIAL STATEMENTS, CONTINUED
DECEMBER 31, 1998
(UNAUDITED)
by the Board of Trustees, 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 each Fund plus
interest negotiated on the basis of current short-term rates, which may
be more or less than the rate on the underlying portfolio 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.
DIVIDENDS TO SHAREHOLDERS:
Dividends from net investment income are declared daily and paid monthly
and distributable net realized capital gains, if any, are declared and
distributed at least annually for the money market funds. Dividends from
net investment income are declared and paid monthly and distributable
net realized capital gains, if any, are declared and distributed
annually for the Intermediate Term Income, Pennsylvania Municipal Bond,
and Limited Duration Government Securities Funds. Dividends from net
investment income are declared and paid quarterly and distributable net
realized capital gains, if any, are declared and distributed annually
for the Aggressive Growth and Established Growth Funds. Dividends from
net investment income are declared and paid semi-annually and
distributable net realized capital gains, if any, are declared and
distributed annually for the Emerging Growth Fund.
FEDERAL INCOME TAXES:
It is the policy of each Fund to qualify or continue to qualify as a
regulated investment company by complying with the provisions available
to certain investments companies, as defined in applicable sections of
the Internal Revenue Code, and to make distributions of net investment
income and net realized capital gains sufficient to relieve it from all,
or substantially all, federal income taxes.
Under current tax law, capital losses realized after October 31 may be
deferred and treated as occurring on the first day of the following
fiscal year. The following Fund had deferred losses, which will be
treated as arising on the first day of the fiscal year ending June 30,
1999:
<TABLE>
<CAPTION>
CAPITAL LOSS
FUND DEFERRED
- ---- ------------
<S> <C>
U.S. Treasury Obligations Money Market $594
</TABLE>
ORGANIZATION COSTS:
All expenses incurred in connection with each Fund's organization and
registration under the 1940 Act and the Securities Act of 1933 were paid
by that Fund, except for the Emerging Growth Fund.
Continued
-41-
<PAGE> 42
THE SESSIONS GROUP
KEYPREMIER FUNDS
NOTES TO FINANCIAL STATEMENTS, CONTINUED
DECEMBER 31, 1998
(UNAUDITED)
Such expenses, except those of the Emerging Growth Fund, are amortized
over a period of five years commencing with the date of the initial
public offering.
On June 30, 1998 the Group adopted Statement of Position (SOP) 98-5,
"Reporting on the Costs of Start-Up Activities." Under the provisions of
SOP 98-5, costs associated with organizing a fund which commences
operating subsequent to June 30, 1998, must be expensed as incurred and
may not be amortized over future periods.
Accordingly, cost incurred in connection with the organization of the
Emerging Growth Fund were expensed as incurred and are included in
"Other Expenses" in the accompanying Statement of Operations.
OTHER:
The Funds may maintain a cash balance with their custodian and receive a
reduction of their custody fees and expenses equivalent to the amount of
interest which could otherwise be earned on such uninvested cash
balances. For the six months ended December 31, 1998, custodian fees and
expenses were reduced by the following amount for the following Funds:
<TABLE>
<S> <C>
Aggressive Growth Fund................................. 393
Limited Duration Government Fund....................... 1,543
U.S. Treasury Obligations Money Market Fund............ 1,038
Prime Money Market Fund................................ $1,886
</TABLE>
3. PURCHASES AND SALES OF SECURITIES:
Purchases and sales of portfolio securities (excluding short-term
securities) for the variable net asset value funds for the six months ended
December 31, 1998, are as follows:
<TABLE>
<CAPTION>
PURCHASES SALES
------------ ------------
<S> <C> <C>
Aggressive Growth Fund..................... $ 13,113,975 $ 11,373,355
Established Growth Fund.................... 3,885,539 3,308,012
Emerging Growth Fund....................... 7,876,263 513,718
Intermediate Term Income Fund.............. 113,100,854 122,798,537
Pennsylvania Municipal Bond Fund........... 63,594,372 63,225,259
Limited Duration Government Securities
Fund..................................... 12,479,044 14,254,217
</TABLE>
4. RELATED PARTY TRANSACTIONS:
Investment advisory services are provided to the Funds by Martindale Andres
& Company, Inc. Under the terms of the investment advisory agreement,
Martindale Andres & Company, Inc. is entitled to receive fees based on a
percentage of the average net assets of each Fund.
Continued
-42-
<PAGE> 43
THE SESSIONS GROUP
KEYPREMIER FUNDS
NOTES TO FINANCIAL STATEMENTS, CONTINUED
DECEMBER 31, 1998
(UNAUDITED)
BISYS Fund Services Limited Partnership d/b/a BISYS Fund Services
("BISYS"), an Ohio limited partnership, and BISYS Fund Services, Inc.
("BISYS Services") are subsidiaries of The BISYS Group, Inc.
BISYS, with whom certain officers and trustees of the Group are affiliated,
serves the Funds as administrator and distributor. Such affiliated officers
and trustees are paid no fees directly by the Funds for serving as officers
and trustees of the Group. Pursuant to the administration agreement, the
Funds pay BISYS a monthly fee for its services at an annual rate of .115%
of the aggregate average daily net assets of the Funds. BISYS Services
serves the Funds as transfer agent and mutual fund accountant.
The Group has adopted an Administrative Services Plan, pursuant to which
each Fund is authorized to pay compensation to banks and other financial
institutions (each a "Service Organization"), which may include Martindale
Andres & Company, Inc., and its correspondent and affiliated banks and
BISYS, for providing ministerial, recordkeeping and/or administrative
support services to their customers who are the beneficial or record owners
of a Fund. The compensation, which is paid monthly, under the
Administrative Services Plan is a fee computed daily at an annual rate of
up to 0.25% of the average daily net asset value of a Fund.
BISYS is also entitled to receive commissions on sales of shares of the
variable net asset value funds. For the six months ended December 31, 1998,
BISYS received $25,443 from commissions earned on sales of shares of the
variable net asset value funds, of which $7,537 was reallowed to
broker-dealers affiliated with Keystone Financial, Inc.
Fees may be voluntarily reduced to assist the Funds in maintaining
competitive expense ratios.
The variable net asset value funds can and do invest a portion of their
assets in the money market funds. To avoid duplicate fees, the money market
funds remit to any variable net asset value funds invested therein, an
amount equal to all fees assessed on the assets invested in such funds.
Continued
-43-
<PAGE> 44
THE SESSIONS GROUP
KEYPREMIER FUNDS
NOTES TO FINANCIAL STATEMENTS, CONTINUED
DECEMBER 31, 1998
(UNAUDITED)
Information regarding these transactions is as follows for the six months
ended December 31, 1998:
<TABLE>
<CAPTION>
AGGRESSIVE ESTABLISHED EMERGING INTERMEDIATE
GROWTH GROWTH GROWTH TERM INCOME
FUND FUND FUND FUND
---------- ----------- -------- ------------
<S> <C> <C> <C> <C>
INVESTMENT ADVISORY FEES:
Annual fee before voluntary fee
reductions (percentage of
average net assets).......... 1.00% 75% 1.25% .60%
Voluntary fee reductions....... $246,151 $304,214 $48,593 $432,927
ADMINISTRATIVE SERVICES FEES:
Annual fee before voluntary fee
reductions (percentage of
average net assets).......... .25% .25% .25% .25%
Voluntary fee reductions....... $ 59,448 $120,885 $ 9,847 $286,919
</TABLE>
<TABLE>
<CAPTION>
LIMITED DURATION U.S. TREASURY
PENNSYLVANIA GOVERNMENT OBLIGATIONS PRIME
MUNICIPAL SECURITIES MONEY MARKET MONEY MARKET
BOND FUND FUND FUND FUND
------------ ---------------- ------------- ------------
<S> <C> <C> <C> <C>
INVESTMENT ADVISORY FEES:
Annual fee before voluntary fee
reductions (percentage of
average net assets).......... .60% .60% .40% .40%
Voluntary fee reductions....... $171,468 $ 49,935 $22,177 $242,612
ADMINISTRATIVE SERVICES FEES:
Annual fee before voluntary fee
reductions (percentage of
average net assets).......... .25% .25% .25% .25%
Voluntary fee reductions....... $113,493 $ 41,588 $22,149 $230,098
</TABLE>
Continued
-44-
<PAGE> 45
THE SESSIONS GROUP
KEYPREMIER FUNDS
NOTES TO FINANCIAL STATEMENTS, CONTINUED
DECEMBER 31, 1998
(UNAUDITED)
5. SPECIAL MEETING OF SHAREHOLDERS
A Special Meeting of Shareholders of the KeyPremier Funds (the "Meeting")
was held on January 15, 1999 to approve an Agreement and Plan of
Reorganization where by each KeyPremier Fund (each a series of the Sessions
Group) would be reorganized as a separate series of Governor Funds, a
Delaware business trust registered as an investment company under the 1940
Act ("Governor"). The proposal was approved by the following votes:
<TABLE>
<CAPTION>
FUND NAME VOTES IN FAVOR VOTES AGAINST VOTES ABSTAINED
--------- -------------- ------------- ---------------
<S> <C> <C> <C>
Aggressive Growth Fund......................... 10,740,106 49,955 181,040
Established Growth Fund........................ 16,035,088 218,433 211,058
Emerging Growth Fund........................... 750,220 0 50
Intermediate Term Income Fund.................. 25,006,728 172,350 606,529
Pennsylvania Municipal Bond Fund............... 9,788,163 235,535 28,342
Limited Duration Government Securities Fund.... 2,946,938 14,608 207,577
U.S. Treasury Obligations Money Market Fund.... 16,060,901 270,580 0
Prime Money Market Fund........................ 200,985,032 1,479,020 4,699,301
</TABLE>
As of January 30, 1999, the assets and liabilities of the KeyPremier Funds
were acquired by Governor in exchange for Investor shares of the acquiring
series of Governor, which shares were constructively distributed to
KeyPremier Funds shareholders.
-45-
<PAGE> 46
THE SESSIONS GROUP
KEYPREMIER FUNDS
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
AGGRESSIVE GROWTH FUND
--------------------------------------------
FOR THE SIX
MONTHS ENDED FOR THE FOR THE
DECEMBER 31, YEAR ENDED PERIOD ENDED
1998 JUNE 30, JUNE 30,
(UNAUDITED) 1998 1997(A)
------------ ---------- ------------
<S> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD.............. $ 11.41 $ 10.24 $ 10.00
-------- -------- --------
INVESTMENT ACTIVITIES:
Net investment income........................... 0.01 (0.01) 0.01
Net realized and unrealized gain (loss) on
investments.................................. (0.28) 1.30 0.24
-------- -------- --------
Total from Investment Activities............. (0.27) 1.29 0.25
-------- -------- --------
DISTRIBUTIONS FROM:
Net investment income........................... (0.01) -- (0.01)
Net realized gains.............................. (0.37) (0.12) --
-------- -------- --------
Total Distributions.......................... (0.38) (0.12) (0.01)
-------- -------- --------
Net change in net asset value per share......... (0.65) 1.17 0.24
-------- -------- --------
NET ASSET VALUE, END OF PERIOD.................... $ 10.76 $ 11.41 $ 10.24
======== ======== ========
Total Return (excluding sales charge)............. (2.21%)(b) 12.72% 2.52%(b)
RATIOS/SUPPLEMENTAL DATA:
Net Assets, at end of period (in thousands)....... $134,390 $135,612 $105,258
Ratio of expenses to average net assets........... 0.99%(c) 0.83% 0.66%(c)
Ratio of net investment income (loss) to average
net assets...................................... 0.17%(c) (0.09%) 0.28%(c)
Ratio of expenses to average net assets*.......... 1.49%(c) 1.33% 1.35%(c)
Portfolio Turnover................................ 10% 8% 2%
</TABLE>
- ---------------
* During the period, certain fees were voluntarily reduced and/or reimbursed.
If such voluntary fee reductions and/or reimbursements had not occurred, the
ratio would have been as indicated.
(a) Commencement of operations of the Fund was February 3, 1997.
(b) Not annualized.
(c) Annualized.
-46-
<PAGE> 47
THE SESSIONS GROUP
KEYPREMIER FUNDS
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
ESTABLISHED GROWTH FUND
------------------------------------------
FOR THE SIX
MONTHS ENDED FOR THE FOR THE
DECEMBER 31, YEAR ENDED PERIOD ENDED
1998 JUNE 30, JUNE 30,
(UNAUDITED) 1998 1997(A)
------------ ---------- ------------
<S> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD................ $ 14.06 $ 11.13 $ 10.00
-------- -------- --------
INVESTMENT ACTIVITIES:
Net investment income............................. 0.04 0.10 0.08
Net realized and unrealized gain on investments... 0.41 2.99 1.13
-------- -------- --------
Total from Investment Activities............... 0.45 3.09 1.21
-------- -------- --------
DISTRIBUTIONS FROM:
Net investment income............................. (0.04) (0.10) (0.08)
Net realized gains................................ (0.33) (0.06) --
-------- -------- --------
Total Distributions............................ (0.37) (0.16) (0.08)
-------- -------- --------
Net change in net asset value per share........... 0.08 2.93 1.13
-------- -------- --------
NET ASSET VALUE, END OF PERIOD...................... $ 14.14 $ 14.06 $ 11.13
======== ======== ========
Total Return (excluding sales charge)............... 3.32%(b) 27.92% 12.20%(b)
RATIOS/SUPPLEMENTAL DATA:
Net Assets, at end of period (in thousands)......... $260,911 $258,812 $190,914
Ratio of expenses to average net assets............. 0.87%(c) 0.71% 0.44%(c)
Ratio of net investment income to average net
assets............................................ 0.54%(c) 0.77% 1.39%(c)
Ratio of expenses to average net assets*............ 1.22%(c) 1.06% 1.01%(c)
Portfolio Turnover.................................. 1% 6% 1%
</TABLE>
- ---------------
* During the period, certain fees were voluntarily reduced and/or reimbursed.
If such voluntary fee reductions and/or reimbursements had not occurred, the
ratio would have been as indicated.
(a) Commencement of operations of the Fund was December 2, 1996.
(b) Not annualized.
(c) Annualized.
-47-
<PAGE> 48
THE SESSIONS GROUP
KEYPREMIER FUNDS
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
EMERGING GROWTH FUND
--------------------
FOR THE SIX
MONTHS ENDED
DECEMBER 31,
1998(A)
(UNAUDITED)
--------------------
<S> <C>
NET ASSET VALUE, BEGINNING OF PERIOD........................ $10.00
------
INVESTMENT ACTIVITIES:
Net investment income..................................... 0.05
Net realized and unrealized gain on investments........... 0.98
------
Total from Investment Activities....................... 1.03
------
DISTRIBUTIONS FROM:
Net investment income..................................... (0.05)
In excess of net realized losses.......................... (0.03)
------
Total Distributions.................................... (0.08)
------
Net change in net asset value per share................... 0.95
------
NET ASSET VALUE, END OF PERIOD.............................. $10.95
======
Total Return (excluding sales charge)....................... 10.36%(b)
RATIOS/SUPPLEMENTAL DATA:
Net Assets, at end of period (in thousands)................. $9,018
Ratio of expenses to average net assets..................... 1.10%(c)
Ratio of net investment income to average net assets........ 1.19%(c)
Ratio of expenses to average net assets*.................... 2.60%(c)
Portfolio Turnover.......................................... 12%
</TABLE>
- ---------------
* During the period, certain fees were voluntarily reduced and/or reimbursed.
If such voluntary fee reductions and/or reimbursements had not occurred, the
ratio would have been as indicated.
(a) Commencement of operations of the Fund was July 1, 1998.
(b) Not annualized.
(c) Annualized.
-48-
<PAGE> 49
THE SESSIONS GROUP
KEYPREMIER FUNDS
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
INTERMEDIATE TERM INCOME FUND
------------------------------------------
FOR THE SIX
MONTHS ENDED FOR THE FOR THE
DECEMBER 31, YEAR ENDED PERIOD ENDED
1998 JUNE 30, JUNE 30,
(UNAUDITED) 1998 1997(A)
------------ ---------- ------------
<S> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD................ $ 10.10 $ 9.77 $ 10.00
-------- -------- --------
INVESTMENT ACTIVITIES:
Net investment income............................. 0.30 0.62 0.36
Net realized and unrealized gain (loss) on
investments.................................... 0.07 0.33 (0.23)
-------- -------- --------
Total from Investment Activities............... 0.37 0.95 0.13
-------- -------- --------
DISTRIBUTIONS FROM:
Net investment income............................. (0.30) (0.62) (0.36)
In excess of net realized gains................... (0.11) -- --
-------- -------- --------
Total Distributions............................ (0.41) (0.62) (0.36)
-------- -------- --------
Net change in net asset value per share........... (0.04) 0.33 (0.23)
-------- -------- --------
NET ASSET VALUE, END OF PERIOD...................... $ 10.06 $ 10.10 $ 9.77
======== ======== ========
Total Return (excluding sales charge)............... 3.76%(b) 9.95% 1.40%(b)
RATIOS/SUPPLEMENTAL DATA:
Net Assets, at end of period (in thousands)......... $296,006 $275,565 $207,859
Ratio of expenses to average net assets............. 0.56%(c) 0.57% 0.37%(c)
Ratio of net investment income to average net
assets............................................ 5.97%(c) 6.27% 6.45%(c)
Ratio of expenses to average net assets*............ 1.06%(c) 0.92% 0.84%(c)
Portfolio Turnover.................................. 42% 218% 329%
</TABLE>
- ---------------
* During the period, certain fees were voluntarily reduced and/or reimbursed.
If such voluntary fee reductions and/or reimbursements had not occurred, the
ratio would have been as indicated.
(a) Commencement of operations of the Fund was December 2, 1996.
(b) Not annualized.
(c) Annualized.
-49-
<PAGE> 50
THE SESSIONS GROUP
KEYPREMIER FUNDS
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
PENNSYLVANIA MUNICIPAL BOND FUND
------------------------------------------
FOR THE SIX
MONTHS ENDED FOR THE FOR THE
DECEMBER 31, YEAR ENDED PERIOD ENDED
1998 JUNE 30, JUNE 30,
(UNAUDITED) 1998 1997(A)
------------ ---------- ------------
<S> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD................ $ 10.39 $ 10.29 $ 10.21
-------- -------- --------
INVESTMENT ACTIVITIES:
Net investment income............................. 0.25 0.49 0.34
Net realized and unrealized gain on investments... 0.06 0.11 0.06
-------- -------- --------
Total from Investment Activities............... 0.31 0.60 0.40
-------- -------- --------
DISTRIBUTIONS FROM:
Net investment income............................. (0.26) (0.50) (0.32)
Net realized gains................................ (0.07) -- --
-------- -------- --------
Total Distributions............................ (0.33) (0.50) (0.32)
-------- -------- --------
Net change in net asset value per share........... (0.02) 0.10 0.08
-------- -------- --------
NET ASSET VALUE, END OF PERIOD...................... $ 10.37 $ 10.39 $ 10.29
======== ======== ========
Total Return (excluding sales charge)............... 3.03%(b) 5.89% 3.98%(b)
RATIOS/SUPPLEMENTAL DATA:
Net Assets, at end of period (in thousands)......... $112,106 $118,685 $123,194
Ratio of expenses to average net assets............. 0.59%(c) 0.58% 0.37%(c)
Ratio of net investment income to average net
assets............................................ 4.76%(c) 4.65% 4.46%(c)
Ratio of expenses to average net assets*............ 1.08%(c) 0.92% 0.86%(c)
Portfolio Turnover.................................. 58% 62% 98%
</TABLE>
- ---------------
* During the period, certain fees were voluntarily reduced and/or reimbursed.
If such voluntary fee reductions and/or reimbursements had not occurred, the
ratio would have been as indicated.
(a) Commencement of operations of the Fund was October 1, 1996.
(b) Not annualized.
(c) Annualized.
-50-
<PAGE> 51
THE SESSIONS GROUP
KEYPREMIER FUNDS
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
LIMITED DURATION
GOVERNMENT SECURITIES FUND
--------------------------
FOR THE SIX
MONTHS ENDED FOR THE
DECEMBER 31, YEAR ENDED
1998 JUNE 30,
(UNAUDITED) 1998 (A)
------------ ----------
<S> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD........................ $ 9.96 $ 10.00
------- -------
INVESTMENT ACTIVITIES:
Net investment income..................................... 0.28 0.56
Net realized and unrealized gain (loss) on investments.... 0.02 (0.04)
------- -------
Total from Investment Activities....................... 0.30 0.52
------- -------
DISTRIBUTIONS FROM:
Net investment income..................................... (0.28) (0.56)
Net realized gains........................................ (d) (d)
------- -------
Total Distributions.................................... (0.28) (0.56)
------- -------
Net change in net asset value per share................... 0.02 (0.04)
------- -------
NET ASSET VALUE, END OF PERIOD.............................. $ 9.98 $ 9.96
======= =======
Total Return (excluding sales charge)....................... 3.12%(b) 5.39%(b)
RATIOS/SUPPLEMENTAL DATA:
Net Assets, at end of period (in thousands)................. $37,215 $29,360
Ratio of expenses to average net assets..................... 0.64%(c) 0.65%(c)
Ratio of net investment income to average net assets........ 5.63%(c) 5.58%(c)
Ratio of expenses to average net assets*.................... 1.20%(c) 1.18%(c)
Portfolio Turnover.......................................... 67% 482%
</TABLE>
- ---------------
* During the period, certain fees were voluntarily reduced and/or reimbursed.
If such voluntary fee reductions and/or reimbursements had not occurred, the
ratio would have been as indicated.
(a) Commencement of operations of the Fund was July 1, 1997.
(b) Not annualized.
(c) Annualized.
(d) Distribution from net realized gains was less than $.01 per share.
-51-
<PAGE> 52
THE SESSIONS GROUP
KEYPREMIER FUNDS
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
U.S. TREASURY OBLIGATIONS
MONEY MARKET FUND
--------------------------
FOR THE SIX
MONTHS ENDED FOR THE
DECEMBER 31, YEAR ENDED
1998 JUNE 30,
(UNAUDITED) 1998 (A)
------------ ----------
<S> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD........................ $ 1.000 $ 1.000
------- -------
INVESTMENT ACTIVITIES:
Net investment income..................................... 0.022 0.047
Net realized and unrealized gain on investments........... -- --
------- -------
Total from Investment Activities....................... 0.022 0.047
------- -------
DISTRIBUTIONS FROM:
Net investment income..................................... (0.022) (0.047)
Net realized gains........................................ -- --
------- -------
Total Distributions.................................... (0.022) (0.047)
------- -------
Net change in net asset value per share................... -- --
------- -------
NET ASSET VALUE, END OF PERIOD.............................. $ 1.000 $ 1.000
======= =======
Total Return................................................ 2.26%(b) 4.78%
RATIOS/SUPPLEMENTAL DATA:
Net Assets, at end of period (in thousands)................. $21,879 $23,520
Ratio of expenses to average net assets..................... 0.71%(c) 0.71%
Ratio of net investment income to average net assets........ 4.44%(c) 4.64%
Ratio of expenses to average net assets*.................... 1.12%(c) 1.07%
</TABLE>
- ---------------
* During the period, certain fees were voluntarily reduced and/or reimbursed.
If such voluntary fee reductions and/or reimbursements had not occurred, the
ratio would have been as indicated.
(a) Commencement of operations of the Fund was July 1, 1997.
(b) Not annualized.
(c) Annualized.
-52-
<PAGE> 53
THE SESSIONS GROUP
KEYPREMIER FUNDS
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
PRIME MONEY MARKET FUND
------------------------------------------
FOR THE SIX
MONTHS ENDED FOR THE FOR THE
DECEMBER 31, YEAR ENDED PERIOD ENDED
1998 JUNE 30, JUNE 30,
(UNAUDITED) 1998 1997(A)
------------ ---------- ------------
<S> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD................ $ 1.000 $ 1.000 $ 1.000
-------- -------- --------
INVESTMENT ACTIVITIES:
Net investment income............................. 0.025 0.051 0.037
Net realized and unrealized gain on investments... -- -- --
-------- -------- --------
Total from Investment Activities............... 0.025 0.051 0.037
-------- -------- --------
DISTRIBUTIONS FROM:
Net investment income............................. (0.025) (0.051) (0.037)
Net realized gains................................ -- -- --
-------- -------- --------
Total Distributions............................ (0.025) (0.051) (0.037)
-------- -------- --------
Net change in net asset value per share........... -- -- --
-------- -------- --------
NET ASSET VALUE, END OF PERIOD...................... $ 1.000 $ 1.000 $ 1.000
======== ======== ========
Total Return........................................ 2.52%(b) 5.19% 3.73%(b)
RATIOS/SUPPLEMENTAL DATA:
Net Assets, at end of period (in thousands)......... $251,204 $217,861 $ 95,850
Ratio of expenses to average net assets............. 0.48%(c) 0.48% 0.36%(c)
Ratio of net investment income to average net
assets............................................ 4.93%(c) 5.14% 5.02%(c)
Ratio of expenses to average net assets*............ 0.87%(c) 0.76% 0.70%(c)
</TABLE>
- ---------------
* During the period, certain fees were voluntarily reduced and/or reimbursed.
If such voluntary fee reductions and/or reimbursements had not occurred, the
ratio would have been as indicated.
(a) Commencement of operations of the Fund was October 7, 1996.
(b) Not annualized.
(c) Annualized.
-53-
<PAGE> 54
[THIS PAGE INTENTIONALLY LEFT BLANK]
<PAGE> 55
NEW KeyPremier Funds
SOLUTIONS
Semi-Annual Report
December 31, 1997
KeyPremier Funds(SM)
KeyPremier Funds(SM)
Investment Adviser
Martindale Andres & Company, Inc.
Four Falls Corporate Center, Suite 200
West Conshohocken, PA 19428
Distributor
BISYS Fund Services
3435 Stelzer Road
Columbus, OH 43219
For Additional Information Call:
1-800-766-3960
2/98
